<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
-----------------------------------------------
Date: September 30, 1996
NORTH AMERICAN INTEGRATED MARKETING, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
33-27603 22-2942013
(Commission File No.) (IRS Employer Identification No.)
999 McBride Avenue
Suite 200A
West Paterson, New Jersey 07424
(Address of principal executive offices)
(Zip Code)
(201) 890-7330
(Registrant's telephone number, including area code)
<PAGE>
Item 2. Acquisition or Disposition of Assets.
- ------
(a) Pursuant to a Stock Purchase Agreement dated September 30, 1996
Registrant acquired through the payment of $1,000,000 to General
Business Forms, Inc. its 82% common stock interest in Color Graphics,
Inc. Registrant obtained the $1,000,000 through a loan from an
affiliated company. Registrant's promissory note to the affiliated
company requires repayment of $5,000 per month, 8% interest and a
balloon payment at the end of five years. Registrant's Board based
the consideration upon its good faith valuation of Color Graphics.
There are no material relationships between General Business Forms,
Inc. and Registrant or any of its affiliates, a director or officer of
Registrant or any associate of such director or officer of Registrant.
(b) Color Graphics is engaged in printing promotional material for
direct mail distribution. Color Graphics will become a subsidiary of
Registrant and continue to engage in printing promotional material for
direct mail distribution through its existing facilities and
equipment.
Item 5. Other Events.
- ------
By letter dated September 25, 1996 First Commercial and Financial
Corp., Establishment, a Lichtenstein corporation ("First Commercial"),
exercised its option under a Convertible Debenture Purchase Agreement
dated May 17, 1996 with Registrant. Registrant will issue restricted
stock to allow First Commercial to own 60% of Registrant. First
Commercial also executed a five year irrevocable proxy (effective
until September 24, 2001) in favor of Registrant's Chief Executive
Officer, Nicholas Robinson, to vote all Registrant's common stock held
by First Commercial.
Item 7. Financial Statements and Exhibits.
- ------
(a) Financial statements of businesses acquired.
Filed as part of this report are audited financial statements of Color
Graphics for the three most recent fiscal years, June 30, 1993, June
30, 1994 and September 30, 1995. A manually signed accountant's report
is included.
-2-
<PAGE>
(b) Pro forma financial information.
It is impracticable for Registrant to provide the required pro forma
financial information at this time. Registrant shall file such pro
forma financial information relative to Color Graphics no later than
sixty (60) days from October 15, 1996, the latest date that this
report is due to be filed with the SEC.
(c) Exhibits.
2.1 Stock Purchase Agreement
2.2 Assignment from CG Partners, LP
-3-
<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 thereunto duly authorized.
NORTH AMERICAN INTEGRATED
MARKETING, INC.
(REGISTRANT)
--------------------------------------------------
(signature)
Name: Robert W. Paltrow
Title: Secretary/Treasurer
-4-
<PAGE>
[LETTERHEAD OF KATCH, TYSON & COMPANY APPEARS HERE]
9/30/95
Color Graphics, Inc.
101 Commerce Drive
Moorestown, New Jersey 08057
INDEPENDENT AUDITOR'S REPORT
----------------------------
We have audited the accompanying statement of financial position of Color
Graphics, Inc., as of September 30, 1995 and the related statement of income and
cash flows for the year then ended. 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 audit.
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.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Color Graphics, Inc. at
September 30, 1995, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
Respectfully submitted,
/s/ Katch, Tyson & Company
KATCH, TYSON & COMPANY
October 28, 1995
-1-
<PAGE>
EXHIBIT A
---------
COLOR GRAPHICS, INC.
--------------------
STATEMENT OF FINANCIAL POSITION
-------------------------------
SEPTEMBER 30, 1995
------------------
ASSETS
------
<TABLE>
<CAPTION>
CURRENT ASSETS:
<S> <C> <C>
Cash and Cash Equivalents (8) $ 26,064
Accounts Receivable--Net of Allowance
for Doubtful Accounts of $143,183 (2,7) 6,365,555
Inventories (3) 770,069
Prepaid Expenses 76,612
Prepaid Income Taxes 47,357
Deferred Income Taxes (11) 129,243
-----------
Total Current Assets $ 7,414,900
PROPERTIES (4,8,9):
<CAPTION>
Accumulated Undepreciated
Cost Depreciation Cost
----------- ------------ -------------
<S> <C> <C> <C>
Machinery and Equipment $ 6,135,765 $ 3,407,805 $ 2,727,960
Leased Property under
Capital Lease 1,931,216 1,563,395 369,821
Office Furniture and
Equipment 421,160 377,150 44,010
Vehicles 61,088 57,212 3,876
Construction in
Progress (12) 169,468 - 169,468
----------- ----------- -----------
Totals 8,710,697 5,403,567 3,315,135
Unamortised Leasehold
Improvements 100,533 3,415,668
OTHER ASSETS:
Unamortised Computer Software Costs (5) 1,333
Cash Surrender Value of Life Insurance (6) 204,414
Deposits 59,592
Lease Refinancing Charges (5) 19,645
Life Insurance Surrender Charges (5) 100,372
Loan Acquisition Costs (5) 86,972
-----------
Total Other Assets 472,328
------------
Total Assets (7,8) $ 11,302,896
============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<CAPTION>
CURRENT LIABILITIES:
<S> <C> <C>
Note Payable--Bank (7) $ 3,286,070
Current Maturities of Long-Term Indebtedness (1,8,9) 1,104,384
Customer Deposits 86,622
Accounts Payable (1) 816,097
Accrued Payroll and Expenses 473,864
Accrued Profit-Sharing Plan Contribution (10) 70,619
------------
Total Current Liabilities $ 5,837,656
LONG-TERM INDEBTEDNESS:
Notes Payable and Obligation under
Capital Lease (1,8,9) 1,958,333
Deferred Rent (9) 91,337
Deferred Income Taxes (11) 571,254
------------
Total Long-Term Indebtedness 2,620,928
------------
Total Liabilities 8,458,584
<CAPTION>
STOCKHOLDERS' EQUITY:
<S> <C> <C> <C>
Common Stock--2,500 Shares Authorized;
333 1/3 Shares Issued and Outstanding;
No Par Value 35,000
Retained Earnings:
Balance--Beginning of Year $ 1,288,643
Add--Net Income for the Year
Ended September 30, 1995 (Exhibit 8) 1,795,669
-----------
Balance End of Year 3,084,312
Less--Treasury Stock (50 Shares at Cost) (275,000)
------------
Total Stockholders' Equity 2,844,312
------------
Total Liabilities and Stockholders' Equity $ 11,302,896
============
</TABLE>
The accompanying notes are an integral part of this statement.
-2-
KATCH, TYSON & COMPANY Certified Public Accountants
<PAGE>
COLOR GRAPHICS, INC.
--------------------
STATEMENT OF INCOME
-------------------
YEAR ENDED SEPTEMBER 30, 1995
-----------------------------
Percent
Amount to Sales
------------ --------
Sales $ 21,989,914 102.71
Less: Sales Allowances 580,282 2.71
------------ -------
Net Sales (2) 21,409,632 100.00
Cost of Sales (1) 15,202,726 71.01
------------ -------
Gross Profit on Sales 6,206,906 28.99
------------ ------
Operating Expenses:
Selling Expenses 1,517,573 7.09
Administrative Expenses 1,214,835 5.67
------------ ------
Total Operating Expenses 2,732,408 12.76
------------ ------
Income from Operations 3,474,498 16.23
------------ ------
Other (Income) and Expenses:
Scrap Income (302,888) (1.41)
Miscellaneous Income (22,492) (.11)
Gain on Sale of Properties (12,950) (.06)
Interest Expense (1,7,8,9) 481,179 2.25
Profit-Sharing Plan Contribution (10) 248,048 1.16
------------ ------
Total Other (Income) and Expenses 390,897 1.83
------------ ------
Income before Provision for Income Taxes 3,083,601 14.40
Provision for Income Taxes (11) 1,287,932 6.02
------------ ------
Net Income (Exhibit A) $ 1,795,669 8.38
============ ======
The accompanying notes are an integral part of this statement.
-3-
<PAGE>
EXHIBIT C
---------
COLOR GRAPHICS, INC.
--------------------
STATEMENT OF CASH FLOWS
-----------------------
YEAR ENDED SEPTEMBER 30, 1995
-----------------------------
Cash Flows from Operating Activities:
Net Income $ 1,795,669
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization $ 717,835
(Gain) on Sale of Properties (12,950)
Provision for Bad Debts 48,000
Increase in Deferred Taxes 220,418
(Increase) Decrease in Assets:
Accounts Receivable (3,626,412)
Inventories (55,865)
Prepaid Expenses (67,978)
Increase (Decrease) in Liabilities:
Customer Deposits (600,250)
Accounts Payable (368,016)
Accrued Payroll and Expenses 225,317
Accrued Profit-Sharing Plan Contribution (12,271)
Accrued Income Taxes (114,543)
Deferred Rent (35,220)
-----------
Total Adjustments (3,681,935)
------------
Net Cash (Used In) Operating Activities (1,886,266)
Cash Flows from Investing Activities:
Proceeds from Sale of Properties 14,500
Purchase of Properties (434,752)
Decrease in Cash Surrender Value of Life Insurance 1,445
-----------
Net Cash (Used In) Investing Activities (418,807)
Cash Flows from Financing Activities:
Increase in Note Payable--Bank 3,252,379
Principal Payments of Long-Term Indebtedness (934,927)
-----------
Net Cash Provided by Financing Activities 2,317,452
-----------
Net (Increase) in Cash and Cash Equivalents 12,379
Cash and Cash Equivalents, Beginning of Period 13,685
-----------
Cash and Cash Equivalents, End of Period $ 26,064
-----------
The accompanying notes are an integral part of this statement.
-4-
<PAGE>
EXHIBIT C
---------
(Continued)
COLOR GRAPHICS, INC.
--------------------
STATEMENT OF CASH FLOWS
-----------------------
YEAR ENDED SEPTEMBER 30, 1995
-----------------------------
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Period for:
Interest $ 479,137
Income Taxes $ 1,229,414
Disclosure of Accounting Policy:
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to
be cash equivalents.
The accompanying notes are an integral part of this statement.
-5-
<PAGE>
COLOR GRAPHICS, INC.
--------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
SEPTEMBER 30, 1995
------------------
NOTE 1 - RELATED PARTY
- ----------------------
The Company is an 82% owned subsidiary of General Business Forms, Inc. (parent
company). Transactions with the parent company during the year ended September
30, 1995 include purchases of printing (cost of sales) of $3,339,006 and
interest expense of $113,456. Trade accounts payable to the parent company
amounted to $274,087 at September 30, 1995.
The Company has a note payable (Note 8) and a capital lease obligation (Note 9)
to the parent company. The parent company also guarantees various bank loans
and an operating lease (Notes 7, 8 and 9).
NOTE 2 - CONCENTRATIONS OF CREDIT RISK
- --------------------------------------
The Company is engaged in printing promotion material for direct mail
distribution throughout the United States by customers located in the eastern
part of the country. The Company performs ongoing credit evaluations of its
customers and generally does not require collateral. Sales to two major
customers accounted for 56% of total sales for the year ended September 30, 1995
and 68% of total accounts receivable at September 30, 1995. The Company
maintains reserves for potential credit losses and such losses have been within
management's expectations.
NOTE 3 - INVENTORIES
- --------------------
Inventories are stated at the lower of cost (determined by last-in, first-out
method for paper, and by the first-in, first-out method for the remainder of the
inventories) or market. If the first-in, first-out method of inventory
accounting had been used for all inventories, inventory costs at September 30,
1995 would have been $233,050 higher than reported.
As of September 30, 1995, components of the inventories consist of the
following:
Paper $ 571,241
Other Raw Materials 73,869
Work-in-Process 124,959
---------
Total $ 770,069
=========
NOTE 4 - PROPERTIES
- -------------------
Properties, which are stated at cost, are being depreciated or amortized over
the estimated useful lives of the assets on the straight-line and accelerated
methods. Depreciation and amortization of properties amounts to $659,642 for
the year ended September 30, 1995.
-6-
<PAGE>
COLOR GRAPHICS, INC.
--------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
SEPTEMBER 30, 1995
------------------
NOTE 5 - DEFERRED AND PREPAID COSTS
- -----------------------------------
Deferred and Prepaid Costs are amortized on a straight line basis. The
amortization period and expense were as follows for the year ended Sep-
tember 30, 1995:
<TABLE>
<CAPTION>
Period Expense
------ --------
<S> <C> <C>
Computer Software Costs 5 Yrs. $ 3,068
Lease Refinancing Charges (Note 9) 3 Yrs. 26,193
Life Insurance Surrender Charges 10 Yrs. 16,500
Loan Acquisition Costs
(Term of Related Debt) 12 Yrs. 12,432
--------
Total $ 58,193
========
</TABLE>
NOTE 6 - STOCK REDEMPTION AGREEMENT
- -----------------------------------
The Company and its stockholders have an agreement which requires the Company to
purchase all shares of common stock owned by a stockholder in the event of the
stockholder's death, disability or termination of employment. The purchase
price shall be the amount stated in the most recent Certificate of Agreed Value
signed by all stockholders. The stockholders have agreed to a value of $20,000
per share. The Company carries $1,000,000 of life insurance on its minority
stockholder/officer and $5,000,000 on the president of the parent company (Note
1) to fund the agreement. Any excess of the purchase price over life insurance
proceeds is to be paid in cash or by negotiable promissory note to be satisfied
in equal, consecutive monthly installments not to exceed sixty months, including
interest as stated in the agreement.
NOTE 7 - NOTE PAYABLE - BANK
- ----------------------------
The note payable to bank consists of a short-term revolving line of credit with
American National Bank of Chicago which expires March 31, 1996. Interest is
payable monthly at the prime rate plus 1/4%. Under the terms of the agreement,
the Company has a maximum credit line of $3,500,000 which permits borrowing on a
percentage of qualified accounts receivable as defined in the agreement.
According to the terms of the agreement, the bank has a security interest in all
business assets. Repayment is quaranteed by the stockholders.
-7-
<PAGE>
COLOR GRAPHICS, INC.
--------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
SEPTEMBER 30, 1995
------------------
NOTE 8 - LONG-TERM INDEBTEDNESS
- --------------------------------
Long-term indebtedness consists of the following
at September 30, 1995:
The note payable to General Business Forms, Inc., (Note 1)
is unsecured with interest payable monthly at the prime rate
plus 3/4% and principal of $100,000 payable quarterly. The
indebtedness is subordinated to notes payable to American
National Bank of Chicago (Note 7) and the National City
Bank of Minneapolis (See below). $ 1,000,000
The note payable to American National Bank of Chicago,
secured by equipment and guaranteed by the stockholders, is
payable in monthly installments of $13,889 plus interest at
the prime rate plus 1/4%. The note matures in March, 1997. 250,000
The note payable to American National Bank of Chicago, not
to exceed $1,000,000, is secured by equipment and guaran-
teed by the stockholders is payable in monthly installments
of interest only at the prime rate plus 1/4% through June 30,
1996. Beginning July, 1996 the note is payable in monthly
installments of $27,778 plus interest at the prime rate plus
1/4%. The balance due is payable in a balloon payment on
June 30, 1999. (Note 12) 81,478
The note payable to National City Bank of Minneapolis, in
connection with the issuance of Industrial Revenue Bonds by
the New Jersey Economic Development Authority, is secured by
equipment. The note is also secured by an irrevocable letter
of credit provided by American National Bank. The letter of
credit is secured by all assets of the Company and is guaran-
teed by General Business Forms, Inc. The agreement provides
for the Company to maintain a certain working capital ratio,
minimum net worth and cash flows, as well as other covenants.
At September 30, 1995, the Company is in compliance with all
provisions of the loan agreement. The note is payable in
annual installments ranging from $165,000 to $255,000 plus
interest at rates ranging from 7.4% to 7.8%. The note matures
in September, 2002. 1,440,000
Obligation under Capital Lease (Note 9) 291,239
-----------
Totals 3,062,717
Less--Current Maturities of Long-Term Indebtedness 1,104,384
-----------
Long-Term Indebtedness $ 1,958,333
===========
-8-
<PAGE>
COLOR GRAPHICS, INC.
--------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
SEPTEMBER 30, 1995
------------------
NOTE 8 - LONG-TERM INDEBTEDNESS (Continued)
- -------------------------------------------
As of September 30, 1995, long-term indebtedness is to be liquidated as follows:
<TABLE>
<CAPTION>
Year Ending
September 30,
-------------
<S> <C>
1997 $ 658,333
1998 390,000
1999 200,000
2000 220,000
2001 235,000
Thereafter 255,000
------------
Total $ 1,958,333
============
</TABLE>
NOTE 9 - LEASE COMMITMENTS
- --------------------------
Capitalized Lease Obligation:
The Company has financed the purchase of certain equipment through a leasing
arrangement with General Business Forms, Inc. (Note 1). For financial reporting
purposes, the assets and liability under this lease are capitalized at the lower
of the present value of the minimum lease payments or the fair value of the
assets. The interest rate on this capital lease is 8% and is imputed based on
the lower of the Company's incremental borrowing rate at the inception of the
lease or the lessor's implicit rate of return. The lease, which is
noncancelable, expires in June, 1996.
During 1993, the Company renegotiated two of its capital leases with P.C.
Leasing, A Division of Phoenixcor, Inc., in order to extend the repayment term
and to reduce the monthly payment. As a result General Business Forms, Inc.,
became the primary obligor on a promissory note and in turn leased the equipment
to the Company under the same terms as the note payable to P.C. Leasing. Costs
incurred for the renegotiation are being amortized over the remaining term of
the lease (Note 5).
The following is a schedule by years of future minimum lease payments under the
capital lease together with the present value of the total minimum lease
payments as of September 30, 1995:
<TABLE>
<CAPTION>
Year Ending
September 30,
------------
<S> <C>
1996 $ 302,090
Less--Amount Representing Interest 10,851
Present Value of Total Minimum Lease $ 291,239
Payments (Note 8)
==========
Current Portion $ 291,239
==========
</TABLE>
-9-
<PAGE>
COLOR GRAPHICS, INC.
--------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
SEPTEMBER 30, 1995
------------------
NOTE 9 - LEASE COMMITMENTS (Continued)
- --------------------------------------
Operating Lease Obligations:
The Company leases plant and office facilities under noncancelable operating
leases expiring at various dates through 1998. The future minimum rental
payments required under these leases, which have initial or remaining
noncancelable lease terms in excess of one year as of September 30, 1995 are as
follows:
Year Ending
September 30,
-------------
1996 $ 526,381
1997 526,381
1998 317,816
-----------
Total $ 1,370,578
===========
Rent expense amounted to $526,342 for the year ended September 30, 1995. Rent
expense is recorded on a straight-line basis over the life of the lease. The
difference between the expense and the amount paid is a deferred liability.
The leases require the Company to pay for insurance, operating expenses and a
portion of real estate taxes.
The Moorestown plant lease is guaranteed by General Business Forms, Inc. (Note
1). The unexpired portion of this lease at September 30, 1995, amounts to
$988,191.
NOTE 10 - PROFIT-SHARING PLAN
- -----------------------------
The Company maintains a profit-sharing plan for the benefit of substantially all
employees who have been employed by the Company for one year. The plan provides
for a fixed contribution determined by formula, and allows for employee
contributions under a deferred compensation arrangement. The contribution to the
plan was $248,048.
NOTE 11 - INCOME TAXES
- ----------------------
The Company is a member of an affiliated group that files a consolidated federal
income tax return. The group uses the individual taxable income method to
allocate the consolidated tax liability among its members. Under the individual
taxable income method, the tax liability of the group is allocated among the
members in the ratio that the portion of the consolidated taxable income
attributable to that member bears to the consolidated taxable income.
-10-
<PAGE>
COLOR GRAPHICS, INC.
--------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
SEPTEMBER 30, 1995
------------------
NOTE 11 - INCOME TAXES (Continued)
- ----------------------------------
The Company files separate state income tax returns.
The provision for income taxes consists of the following at September 30, 1995:
Income Taxes Currently Payable $ 1,065,603
Prior Period Under Accrual of Income Taxes 1,911
Deferred Income Taxes 220,418
-----------
Total $ 1,287,932
===========
Deferred income taxes have resulted from temporary differences which arose from:
1) the Companies depreciating its properties on the straight-line and
accelerated methods for financial reporting purposes, and using tax accelerated
methods for income tax purposes; 2) the computation of bad debt expense on the
reserve method for financial reporting purposes, and on the direct write-off
method for income tax purposes; 3) the computation of inventory costs under the
full absorption method for financial reporting purposes, and under the uniform
capitalization rules for income tax purposes; 4) the computation of the
liability for accrued vacation pay under generally accepted accounting
principles for financial reporting purposes and under the Tax Reform Act of 1986
for income tax purposes; and 5) rent expense being recorded on a straight line
basis for financial reporting purposes, and expensed as paid for income tax
purposes.
NOTE 12 - PURCHASE COMMITMENTS
- ------------------------------
Outstanding purchase commitments for new machinery and equipment amount to
$919,000 at September 30, 1995. Advance payments of $67,000 were made against
these commitments. The purchase commitments include a $750,000 commitment to
the Parent Company for the purchase of a press. This acquisition will be
financed by borrowing against the $1,000,000 line of credit discussed in Note 8.
NOTE 13 - USE OF ESTIMATES
- --------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
NOTE 14 - SUBSEQUENT EVENT
- --------------------------
Effective October 1, 1995, sales personnel, previously on the Company's payroll,
was transferred to a related company. It is anticipated that the profits of the
Company will not be adversely affected by the transfer of personnel.
-11-
<PAGE>
[LETTERHEAD OF GOLDENBERG, ROSENTHAL & FRIEDLANDER APPEARS HERE]
Independent Auditor's Report
July 29, 1994
Stockholders
Color Graphics, Inc.
Moorestown, New Jersey
We have audited the accompanying balance sheets of COLOR GRAPHICS, INC.
as of June 30, 1994 and 1993 and the related statements of operations and
retained earnings and of cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of COLOR GRAPHICS, INC.
as of June 30, 1994 and 1993, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the financial statements, the Company changed
its method of accounting for income taxes in 1994 as required by the provisions
of Statement of Financial Accounting Standards No. 109.
/s/ Goldenberg Rosenthal Friedlander
----------------------------------------
Goldenberg Rosenthal Friedlander
formerly known as Goldenberg/Rosenthal
MEMBERS: AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS . PENNSYLVANIA
INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
ASSOCIATED REGIONAL ACCOUNTING FIRMS . TGI INTERNATIONAL
<PAGE>
COLOR GRAPHICS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30
-------------------------
ASSETS (Notes 5 and 6) 1994 1993/*/
---------- ----------
<S> <C> <C>
Current assets
Cash and cash equivalents (Note 1) $ 14,189 $ 232,844
Accounts receivable, net of allowance for
doubtful accounts of $83,000 in 1994 and
$86,000 in 1993 (Note 14) 3,480,494 3,633,087
Inventories (Notes 1 and 2) 423,481 573,885
Prepaid expenses 66,549 89,553
Prepaid income taxes - 44,058
Deferred income taxes (Note 9) 82,000 -
---------- ----------
Total current assets 4,066,693 4,573,427
---------- ----------
Property, plant and equipment (Notes 1, 3, and 7) 8,604,133 7,694,142
Less accumulated depreciation and amortization 4,873,103 4,275,468
---------- ----------
3,731,030 3,418,674
---------- ----------
Other assets (Notes 1, 4 and 12) 579,808 719,530
---------- ----------
$8,377,531 $8,711,631
========== ==========
<CAPTION>
June 30
--------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY) 1994 1993/*/
---------- ----------
<S> <C> <C>
Current liabilities
Note payable, bank (Note 5) $ 669,461 $1,663,475
Current portion of long-term debt (Note 6) 624,958 606,037
Customer deposit - 260,662
Accounts payable (Note 11) 1,056,249 1,198,161
Accrued expenses 485,941 578,860
Accrued profit sharing contribution (Note 8) 295,000 -
Income taxes payable 282,455 -
---------- ----------
Total current liabilities 3,414,064 4,727,195
---------- ----------
Long-term debt
Notes payable and obligations under capitalized
leases, net of current portion (Notes 6 and 7) 3,706,548 3,873,174
Deferred rent (Note 1) 101,508 135,360
Deferred income taxes (Note 9) 244,000 -
---------- ----------
4,052,056 4,008,534
---------- ----------
Commitments (Note 10)
Stockholders' equity (deficiency)(Note 4)
Common stock, no par value
Authorized 2,500 shares
Issued 333-1/3 shares 35,000 35,000
Retained earnings 1,151,411 215,902
---------- ----------
1,186,411 250,902
Less treasury stock, 50 shares at cost ( 275,000) ( 275,000)
---------- ----------
911,411 ( 24,098)
---------- ----------
$8,377,531 $8,711,631
========== ==========
</TABLE>
* Reclassified to conform with the presentation for 1994
See notes to financial statements
2
<PAGE>
COLOR GRAPHICS, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
Year Ended June 30
------------------------------------------------------------------------
1 9 9 4 1 9 9 3 *
---------------------------------- ----------------------------------
% to % to
Sales Sales
------- --------
<S> <C> <C> <C> <C>
Net sales (Note 14) $14,699,427 100.O% $13,864,900 100.0%
Cost of sales (Note 11) 10,333,592 70.3 10,638,638 76.7
----------- ------ ----------- --------
Gross profit 4,365,835 29.7 3,226,262 23.3
----------- ------ ----------- --------
Operating expenses
Selling expenses 1,287,182 8.7 1,876,822 13.6
Administrative expenses 1,110,972 7.6 886,746 6.4
----------- ------ ----------- --------
Total operating expenses 2,398,154 16.3 2,763,568 20.0
----------- ------ ----------- --------
Income from operations 1,967,681 13.4 462,694 3.3
Other expense
(Notes 8 and 13) ( 571,172) ( 3.9 ) ( 389,380) ( 2.8 )
----------- ------ ----------- --------
Income before non-recurring
items and provision for
income taxes 1,396,509 9.5 73,314 .5
Non-recurring items (Note 15) - - ( 157,044) ( 1.1 )
----------- ------ ----------- --------
Income (loss) before provision
for income taxes 1,369,509 9.5 ( 83,730) ( .6 )
Provision for income taxes
(Note 9) 623,000 4.2 14,000 .1
----------- ------ ----------- --------
Income (loss) before cumulative
effect of a change in
accounting principle 773,509 5.3 ( 97,730) ( .7 )
Cumulative effect of a
change in accounting
principle (Notes 1 and 9) 162,000 1.1 - -
----------- ------ ----------- --------
Net income (loss) 935,509 6.4% ( 97,730) ( .7% )
====== ========
Retained earnings
Beginning of year 215,902 313,632
----------- -----------
End of year $ 1,151,411 $ 215,902
=========== ===========
</TABLE>
*Reclassified to conform with
the presentation for 1994
See notes to financial statements
3
<PAGE>
COLOR GRAPHICS, INC.
STATEMENTS OF CASH FLOWS
Year Ended June 30
---------------------------
1994 1993
---------- ----------
Cash flows from operating activities
Net income (loss) $ 935,509 ($ 97,730)
---------- ----------
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities
Depreciation and amortization 681,615 659,210
Deferred income taxes 162,000 -
Gain on sale of property,
plant and equipment ( 17,250) -
Provision for doubtful accounts ( 3,010) ( 10,485)
(Increase) decrease in assets
Accounts receivable 257,021 ( 389,853)
Miscellaneous receivables - 4,383
Inventories 150,424 ( 177,358)
Prepaid expenses 23,004 4,163
Other assets ( 10,581) -
Prepaid income taxes 44,058 ( 44,058)
Increase (decrease) in liabilities
Accounts payable and accrued
expenses ( 234,831) 209,105
Deferred rent ( 33,852) ( 35,218)
Income taxes payable 282,455 3,195
Customer deposit ( 260,662) 260,662
Accrued profit sharing 295,000 -
---------- ----------
Total adjustments 1,335,391 477,356
---------- ----------
Net cash provided by operating activies 2,270,900 379,626
---------- ----------
Cash flows from investing activities
Proceeds from sale of property,
plant and equipment 17,250 -
Purchase of property, plant and
equipment ( 948,607) ( 265,266)
Purchase of computer software - ( 2,867)
(Increase) decrease in cash surrender
value of life insurance, net of
payment and amortization of
policy surrender changes 3,521 6,822
---------- ----------
Net cash used in investing activities ( 927,836) ( 261,311)
---------- ----------
(continued)
See notes to financial statements
4
<PAGE>
COLOR GRAPHICS, INC.
STATEMENTS OF CASH FLOWS
(continued)
<TABLE>
<CAPTION>
Year Ended June 30
------------------------
1994 1993
---------- --------
<S> <C> <C>
Cash flows from financing activities
Net increase (decrease) in note payable,
bank ( 1,214,014) 505,604
Net proceeds from long-term debt 500,000 161,635
Principal payments on long-term debt ( 847,705) ( 564,798)
---------- --------
Net cash provided by (used in) financing
activities ( 1,561,719) 102,441
---------- --------
Net Increase (decrease) in cash and cash
equivalents ( 218,655) 220,756
Cash and cash equivalents, beginning of year 232,844 12,088
---------- --------
Cash and cash equivalents, end of year $ 14,189 $232,844
========== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid (received) during the year for
Interest $ 452,000 $519,000
Income taxes ( 31,000) 65,000
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Long-term debt and other assets as of June 30,
1993 includes $23,839 of loan proceeds held in
trust which were drawn down during 1994.
(see Notes 6 and 12)
During 1993, the Company renegotiated two
capital leases resulting in an increase of
$78,579 to the capital lease obligation
(see Note 7).
During 1993, the Company converted $765,000
of accounts payable due to its parent
company (General Business Forms) to
long-term debt (see Note 6).
See notes to financial statements
5
<PAGE>
COLOR GRAPHICS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market.
Property, Plant and Equipment and Depreciation
Property, plant and equipment are stated at cost. Depreciation is
provided by use of the straight-line and accelerated methods over the
estimated useful lives of the related assets.
Intangibles and Other Assets
Computer software and trademark costs are being amortized on the
straight-line method over a period of five years.
Loan acquisition costs are being amortized on the straight-line method
over the term of the related debt which is twelve years.
Life insurance surrender charges are being amortized over a ten year
period.
Charges related to the renegotiation of capital leases are being
amortized over the remaining term of the leases which is three years.
Amortization of Deferred Rent
Rent expense for operating plant and office facilities is recorded on
the straight-line basis over the term of the lease. The difference between
the expense and amount paid is treated as an adjustment to the deferred
liability.
6
<PAGE>
COLOR GRAPHICS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income Taxes
In February, 1992, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes ("SFAS No. 109"). SFAS No. 109 requires a change from the
deferred method of accounting for income taxes of APB Opinion No. 11 to the
asset and liability method of accounting for income taxes. Under the asset
and liability method of SFAS No. 109, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under SFAS No. 109, the effect on
deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
2. INVENTORIES
As of June 30, 1994 and 1993, inventories consisted of the
following:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Paper $322,437 $420,657
Other raw materials 99,906 118,249
Work-in-process 1,118 34,979
---------- ----------
$423,461 $573,885
========== ==========
</TABLE>
7
<PAGE>
COLOR GRAPHICS, INC.
NOTES TO FINANCIAL STATEMENTS
3. PROPERTY, PLANT AND EQUIPMENT
The following is a summary of property, plant and equipment and
related accumulated depreciation and amortization as of June 30, 1994 and 1993:
<TABLE>
<CAPTION>
June 30
------------------------------------------------------
1994 1993
------------------------- -------------------------
Accumulated Accumulated
Depreciation Depreciation
and and
Cost Amortization Cost Amortization
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Machinery and equipment $5,836,286 $2,836,688 $4,891,796 $2,405,123
Leased property under
capitalized leases 1,956,024 1,411,497 1,956,024 1,269,512
Office furniture and
equipment 407,392 358,311 403,274 336,611
Vehicles 61,088 57,212 99,705 89,712
Leasehold improvements 343,343 209,395 343,343 174,510
---------- ---------- ---------- ----------
$8,604,133 $4,873,103 $7,694,142 $4,275,468
========== ========== ========== ==========
</TABLE>
4. STOCK RESTRICTIONS
The Company and its stockholders have an agreement which
requires the Company to purchase all shares of common stock owned by a
stockholder in the event of the stockholder's death, disability or termination
of employment. The purchase price shall be the amount stated in the most recent
Certificate of Agreed Value signed by all stockholders which is $7,500 per share
as of June 30, 1994. Life insurance is carried on the lives of the stockholders
to fund the agreement. Any excess of the purchase price of the common stock
over the life insurance proceeds is to be paid in cash or by negotiable
promissory note to be satisfied in equal, consecutive monthly installments not
to exceed sixty months, including interest as stated in the agreement. The cash
surrender value of life insurance was $203,032 and $190,053 as of June 30, 1994
and 1993, respectively.
8
<PAGE>
COLOR GRAPHICS, INC.
NOTES TO FINANCIAL STATEMENTS
5. NOTE PAYABLE, BANK
Note, payable to bank, consists of a short-term revolving line
of credit with American National Bank of Chicago which expires January 31, 1995.
Interest is payable monthly at prime plus 1% (prime was 7-1/4% as of June 30,
1994). Under the terms of the agreement, the Company has a maximum credit line
of $2,500,000 which permits borrowing on a percentage of qualified accounts
receivable as defined in the agreement. According to the terms of the agreement,
the bank has a security interest in all business assets. Repayment is guaranteed
by the stockholders. As of June 30, 1994 and 1993, amounts outstanding were
$669,461 and $1,883,475, respectively.
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
June 30
-------------------------
1994 1993
---------- ----------
<S> <C> <C>
Notes payable to General Business Forms,
Inc. (Parent Company); unsecured with no
set repayment schedule; interest payable
monthly at rates ranging from prime plus
1% to prime plus 1-1/2%. Subordinated to
notes payable to American National Bank
of Chicago (see Note 5) and National City
Bank of Minneapolis (see below), except
for $100,000 per quarter, which is
permitted to be repaid to the Parent
Company beginning July 1, 1994 $1,450,000 $1,450,000
Note, payable to American National Bank, in
36 monthly installments of $13,889, plus
interest at prime plus 1%, (prime was
7-1/4% as of June 30, 1994);
collateralized by equipment and
guaranteed by the Company's
stockholders 458,333 -
Obligations under capitalized leases (see
Note 7) 693,173 968,440
Note, payable to bank in connection with
issuance of Industrial Revenue Bonds (a) 1,730,000 1,860,000
Term note; repaid during the current year - 400,771
---------- ----------
4,331,506 4,679,211
Less current portion 624,958 806,037
---------- ----------
$3,706,548 $3,873,174
========== ==========
</TABLE>
9
<PAGE>
COLOR GRAPHICS, INC.
NOTES TO FINANCIAL STATEMENTS
6. LONG-TERM DEBT (continued)
(a) Note, payable to National City Bank of Minneapolis in annual principal
installments ranging from $140,000 to $255,000 through September, 2002,
at rates ranging from 7.2% to 7.8%. The note, which was issued in
connection with the issuance of Industrial Revenue Bonds by the New
Jersey Economic Development Authority, is collateralized by printing
equipment. Under the terms of the agreement, the Company must meet
certain compliance requirements in order to draw down the remaining
available proceeds. As of June 30, 1994, all such loan proceeds have been
drawn down (see Note 12).
The note payable to National City Bank of Minneapolis is collateralized
by an irrevocable letter of credit with American National Bank, of which
$1,806,841 is available as of June 30, 1994. The letter of credit is
collateralized by all assets of the Company and is guaranteed by the
stockholders. The agreement provides for the Company to maintain a specified
working capital ratio, minimum net worth and cash flows, as well as certain
other covenants.
As of June 30, 1994, scheduled maturities of all of the above
obligations are as follows:
Years Ending June 30
--------------------
1995 $ 624,958
1996 661,541
1997 320,007
1998 175,000
1999 190,000
Thereafter 2,360,000
----------
$4,331,506
==========
Interest expense on all borrowings amounted to $449,000 and $516,000
for 1994 and 1993, respectively.
7. CAPITALIZED LEASE OBLIGATIONS
The Company has financed the purchase of certain equipment through
leasing arrangements. For financial reporting purposes, lease rentals
relating to this equipment have been capitalized using the Company's
borrowing rate at the inception of the leases.
During 1993, the Company renegotiated two of its capital leases in
order to extend the repayment term and to reduce the monthly payment. As a
result, the lease obligation was increased by $78,579. The corresponding
charge has been capitalized, included in other assets and is being amortized
over the remaining term of the lease, three years (see Note 12).
10
<PAGE>
COLOR GRAPHICS, INC.
NOTES TO FINANCIAL STATEMENTS
7. CAPITALIZED LEASE OBLIGATIONS (continued)
The Company's minority stockholder has guaranteed repayment of the
above lease.
The following is a schedule, by years, of future minimum lease
payments under capital leases together with the present value of the total
minimum lease payments as of June 30, 1994:
Years Ending June 30,
---------------------
1995 $362,508
1996 362,508
1997 30,209
--------
Total minimum lease payments 755,225
Less amount representing interest 62,052
--------
Present value of total minimum
lease payments (Note 6) $693,173
========
Current portion $318,291
Noncurrent portion 374,882
--------
$693,173
========
8. PROFIT-SHARING PLAN
The Company maintains a profit-sharing plan which covers
substantially all employees. The Company's contribution to the Plan is
determined by formula as provided in the Plan. Effective October 1, 1987,
the Plan allows employee contributions to be made under a deferred
compensation arrangement. Company contributions to the Plan for the years
ended June 30, 1994 and 1993 was $295,000 and $-0-, respectively.
9. INCOME TAXES
As discussed in Note 1 to the financial statements, the Company
adopted SFAS No. 109 effective July 1, 1993. The adoption of SFAS No. 109
changed the Company's method of accounting for income taxes from the
deferred method to the asset and liability method. As a result of adoption,
the Company recognized income of $162,000 during 1994, representing the
cumulative effect of the change on results of operations for years prior to
July 1, 1993. The 1993 financial statements have not been restated to apply
the provisions of SFAS No. 109.
11
<PAGE>
COLOR GRAPHICS, INC.
NOTES TO FINANCIAL STATEMENTS
9. INCOME TAXES (continued)
The provision for income taxes consists of the following:
Year Ended June 30
----------------------
1994 1993
---------- ---------
Current
Federal $218,000 $14,000
State 81,000 -
Deferred
Federal 275,000 -
State 49,000 -
-------- -------
$623,000 $14,000
======== =======
During 1994, the Company utilized approximately $700,000 in federal
and state net operating loss carryforwards to offset current income taxes.
As June 30, 1994, the net deferred tax liability recorded in the
accompanying balance sheet is comprised of the following:
Deferred tax liability for temporary
taxable differences ($594,000)
Deferred tax assets for:
Tax credit carryforwards* 295,000
Deductible temporary differences** 137,000
---------
Net deferred tax liability ($162,000)
========
Deferred income tax asset $ 82,000
Deferred income tax liability ( 244,000)
--------
Net deferred tax liability ($162,000)
========
* As of June 30, 1994, the Company has available approximately
$212,000 of alternative minimum tax credit carryforward and $83,000 of
general business tax credit carryforward which can be utilized to offset
regular tax liability in future years. These amounts have been recorded
as deferred tax assets as of June 30, 1994.
** Deductible temporary differences are the result of differences
between the book and tax bases of deferred rent, inventory, accrued vacation
and provision for bad debt.
Effective July 1, 1994, the Company will be included in the
consolidated tax return of its parent company, General Business Forms, Inc.
12
<PAGE>
COLOR GRAPHICS, INC.
NOTES TO FINANCIAL STATEMENTS
10. OPERATING LEASES
The Company leases its plant and office facilities through two
noncancellable operating leases expiring during 1998 and 1999. The future
minimum rental payments required under these leases as of June 30, 1994,
are as follows:
Years Ending June 30,
---------------------
1995 $ 526,000
1996 526,000
1997 526,000
1998 428,000
1999 22,000
----------
$2,028,000
==========
Rent expense under these leases, which is recorded using the
straight-line method, amounted to $589,000 and $586,000 for the years ended
June 30, 1994 and 1993, respectively.
The leases require the Company to pay for insurance, operating
expenses and a portion of the real estate taxes.
The Moorestown plan lease is guaranteed by General Business Forms,
Inc. (Parent Company).
11. RELATED PARTY TRANSACTIONS
Cost of sales includes purchases from the parent company totalling
$2,131,000 and $3,176,000 for the years ended June 30, 1994 and 1993,
respectively.
Trade accounts payable to the parent company amounted to $326,000
and $462,000 as of June 30, 1994 and 1993, respectively.
13
<PAGE>
COLOR GRAPHICS, INC.
NOTES TO FINANCIAL STATEMENTS
12. OTHER ASSETS
Other assets consist of the following as of June 30, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Customer accounts receivable, non-current $ - $101,419
Software and trademark, net of accumulated
amortization of $77,431 in 1994 and
$70,693 in 1993 5,425 12,163
Cash surrender value of life insurance 203,032 190,053
Deposits 95,456 61,036
Loan proceeds held in trust (Note 6) - 23,839
Loan acquisition costs, net of accumulated
amortization of $46,610 in 1994 and
$34,178 in 1993 102,512 114,944
Life insurance surrender charges, net of
accumulated amortization of $44,000 in
1994 and $27,500 in 1993 102,997 137,497
Lease refinancing charges (Note 7) 52,386 78,579
-------- --------
$579,808 $719,530
======== ========
</TABLE>
13. OTHER INCOME (EXPENSE)
Other income (expense) consists of the following for the years
ended June 30, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Gain on sale of property, plant and
equipment $ 17,250 $ -
Miscellaneous income 153,612 124,018
Interest income 1,842 2,363
Interest expense ( 448,876) ( 515,761)
Profit sharing contribution ( 295,000) -
-------- --------
($571,172) ($389,380)
======== ========
</TABLE>
14
<PAGE>
COLOR GRAPHICS, INC.
NOTES TO FINANCIAL STATEMENTS
14. OPERATIONS AND CREDIT RISK
The Company is engaged in printing materials for direct mail
distribution for companies throughout the United States. The Company
performs credit checks of its customers and requires no collateral. Sales
to one major customer accounted for 35% of total net sales for the fiscal
year ended June 30, 1994 and 42% of total accounts receivable as of June
30, 1994.
15. NON-RECURRING ITEMS
The following non-recurring expenses were incurred during the
fiscal year ended June 30, 1993:
Medical expenses $ 85,704*
Consulting fees 71,340**
--------
$157,044
========
* Represents assessment after the Company's withdrawal from the parent
company's self-insured health insurance plan.
** Represents payments made to consultants for preparation of a business
plan.
16. FISCAL YEAR
Effective July 1, 1994, the Company changed its fiscal year-end
to September 30 and its financial position and results of operations will
be included in the consolidated financial statements of its parent company,
General Business Forms, Inc.
15
<PAGE>
================================================================================
STOCK PURCHASE AGREEMENT
Dated as of September 30, 1996
by and between
CG PARTNERS, LP
(OR ITS NOMINEE)
and
GENERAL BUSINESS FORMS, INC.
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<C> <S> <C>
1. Sale of Shares and Payment of Purchase Price..................... 1
2. Purchase Price; Consulting and Non-Competition Agreements........ 1
3. Closing.......................................................... 2
4. Representations and Warranties of the Seller..................... 2
5. Representations and Warranties of the Purchaser.................. 20
6. Conditions of Closing............................................ 21
7. Further Covenants and Agreements of the Seller................... 25
8. Survival of Representations, Warranties, Etc..................... 25
9. Indemnification.................................................. 25
10. Brokers.......................................................... 26
11. Miscellaneous.................................................... 27
</TABLE>
<PAGE>
STOCK PURCHASE AGREEMENT
------------------------
This Stock Purchase Agreement dated as of September 30, 1996 (the
"Agreement"), by and among CG Partners, L.P., a Delaware limited partnership, or
its nominee (the "Purchaser"), Color Graphics, Inc., a New Jersey corporation
the "Company"), and General Business Forms, Inc., an Illinois corporation (the
"Seller").
WITNESSETH:
----------
WHEREAS, the Seller owns of record and beneficially eighty-two percent
(82%) of the issued and outstanding shares of the capital stock of the Company
consisting of the aggregate of two hundred thirty-two and one-third (232 1/3)
shares of Common Stock, no par value (the "Shares"); and
WHEREAS, the Purchaser desires to purchase from the Seller, and the Seller
desires to sell to the Purchaser, all of the Shares for the purchase price set
forth herein and upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto hereby agree as follows:
1. Sale of Shares and Payment of Purchase Price
--------------------------------------------
On the Closing Date and subject to and upon the terms and conditions of
this Agreement, the Purchaser will purchase from Seller, and Seller will sell to
the Purchaser, all of the Shares (i.e., 232 1/3) owned by the Seller. Such
shares will constitute eighty-two percent (82%) of the issued and outstanding
capital stock of the Company and have been heretofore defined as the Shares.
On the Closing Date, the Seller will assign, transfer and deliver to the
Purchaser certificates evidencing the Shares in proper form for transfer, duly
endorsed in blank. The Seller will convey the Shares to the Purchaser free and
clear of all claims, liens, rights, options and encumbrances of any other kind.
2. Purchase Price; Consulting and Non-Competition Agreements
---------------------------------------------------------
(a) In consideration of the transfer, conveyance and assignment of
the Shares, the Purchaser shall pay to the Seller, the consideration set forth
below (the "Purchase Price") as follows:
(i) On the Closing Date, One Million Dollars ($1,000,000) by
certified or bank cashier's check or wire transfer;
<PAGE>
(ii) On the Closing Date, the assignment of the account
receivable in the approximate principal amount of $464,000 owed to the Company
by Guildwood (the "Guildwood Receivable");
(iii) If and when collected, the first Thirty-Six Thousand
Dollars ($36,000) collected from any other account receivable which is more than
ninety (90) days old under the Accounts Receivable Aging Reports of the Company
as of the Closing Date ("90 day accounts") and to the extent that there are less
than $36,000 in 90 day accounts at Closing, the difference between $36,000 and
the aggregate amount of 90 day accounts shall be paid in cash by Purchaser to
Seller at Closing;
(iv) On the Closing Date, conveyance of a life insurance
policy currently held by the Company on the life of Richard S. Kuntz directly to
Seller; and
(v) The execution and delivery of the Consulting and
Non-Competition Agreement attached hereto as Exhibit "A" and further described
in Section 6(b) (viii) hereof, and payment on the Closing Date of the amounts
required therein.
3. Closing
-------
(a) The closing of the transactions contemplated by this Agreement
(the "Closing") shall take place at 11:00 a.m. on September 30, 1996, or at such
other time as may be agreed to by the Purchaser and the Seller (the "Closing
Date"). The Closing shall be held on the Closing Date at the offices of
Dilworth, Paxson, Kalish & Kauffman, 3200 Mellon Bank Center, 1735 Market
Street, Philadelphia, Pennsylvania 19103-7595, or at such other place as may be
agreed to by the Purchaser and the Seller.
4. Representations and Warranties of the Seller
--------------------------------------------
As used herein the term "to the actual knowledge of the Seller" shall
mean, with respect to any statement herein, to the best of the knowledge,
information and belief of the principal shareholders and officers of the Seller
and the Company after having made all due inquiry. The Seller hereby represents
and warrants to the Purchaser as follows:
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of New Jersey and has all
requisite power and authority, corporate or otherwise, to own, lease and operate
its properties and to carry on its business as and in the places where such
properties are now owned, leased or operated or such business is now being
conducted. Complete and correct copies of the
2
<PAGE>
Certificate of Incorporation of the Company and all amendments thereto,
certified in each case by the Secretary of State of the state of incorporation,
and of the By-laws of the Company and all amendments thereto, certified by the
Secretary of the Company, have been heretofore delivered to the Purchaser, To
the actual knowledge of Seller, the Company is duly qualified to do business and
is in good standing in all jurisdictions (each such jurisdiction is set forth in
Schedule 4(a) hereto) in which such qualification is necessary because of the
character of the properties owned, leased or operated by it or the nature of its
activities. To the actual knowledge of Seller, the Seller or the Company have
taken no action and have not failed to take any action, which action or failure
would preclude or prevent the Purchaser from conducting the business of the
Company in the manner heretofore conducted. Except as set forth in Schedule
4(a) hereto, the Company does not own any capital stock, warrants, notes,
debentures, bonds, script, rights, options, calls or any guarantees thereof or
any obligations or instruments evidencing the rights to purchase or effect a
conversion into any contract, commitment, instrument, understanding or
obligation, whether written, oral, express or implied, relating to the issuance
or transfer of any thereof whether or not such may be authorized, issued or
outstanding ("Securities") or any interest in any corporation, business, trust,
firm, association, partnership, joint venture, entity or organization
("Entity"). Except as set forth in Schedule 4(a), the Company does not have any
subsidiaries.
(b) Except as set forth in Schedule 4(b) hereto, the Company has no
authorized or outstanding Securities other than its Common Stock, no par value
per share (the "Common Stock"), which consists of 2,500 authorized shares, of
which 283 1/3 shares are outstanding. No shares of the Common Stock are
reserved for issuance and except for 50 shares of Common Stock there are no
shares in the treasury of the Company. All of the Shares are duly authorized,
validly issued, fully paid and nonassessable. Except as set forth in Schedule
4(b), there are no authorized, issued or outstanding Securities of the Company
convertible options, warrants, agreements, rights or commitments of any kind
relating to the authorized but unissued shares of the Common Stock. All transfer
taxes, if any, with respect to transfers of Securities of the Company made prior
to the date hereof have been fully paid. Except as set forth in Schedule 4(b),
the Shares are owned, both beneficially and of record, by the Seller free and
clear of any and all security interests, liens, pledges, claims, charges,
escrows, encumbrances, options, subscriptions, warrants, calls, demands,
commitments, convertible securities, rights of first refusal, mortgages,
indentures, security agreements or other contracts (whether or not relating in
any way to credit or the borrowing of money) and the Seller has the unrestricted
right to vote such shares of the Common Stock.
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(c) Each of the Seller and the Company has all requisite power and
authority, corporate or otherwise, to enter into this Agreement and to assume
and perform its obligations hereunder. The execution and delivery of this
Agreement and the performance by the Seller and the Company of their respective
obligations hereunder have been duly and validly authorized by all necessary
corporate action of the Seller and the Company, respectively, and no further
action or approval, corporate or otherwise is required in order to constitute
this Agreement as a valid, binding and enforceable obligation of either the
Seller or the Company. The execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby, the fulfillment of the
terms, conditions or provisions hereof and the compliance with the terms,
conditions or provisions hereof (i) do not and will not conflict with, or
violate any provision of the Articles of Incorporation or By-laws of the Company
or the Seller, or (ii) do not and will not conflict with, or result in any
breach of, any term, condition or provision of, or constitute a default under,
or give rise to any right of termination, modification, cancellation or
acceleration under (whether after the giving of notice or lapse of time or
both), any contract, mortgage, lien, lease, agreement, indenture, license,
franchise, instrument, order, judgment or decree to which the Company or Seller
are a party, or which is or purports to be binding upon the Company or Seller,
or (iii) will not be in violation of any statute, law, rule or regulation
applicable to the Company or the Seller, or (iv) will not result in the creation
or imposition of any lien, charge, pledge security interest or any encumbrance
upon any of the assets of the Company or the Shares.
(d) No action, approval, consent or authorization, including, but
not limited to, any action, approval, consent or authorization by, or filing
with, any governmental or quasi-governmental agency, commission, board, bureau
or instrumentality is necessary or required in connection with the execution and
delivery of this Agreement by the Seller or the Company, the consummation of the
transactions contemplated hereby or in order to constitute this Agreement as a
valid, binding and enforceable obligation of the Seller and the Company in
accordance with its terms.
(e) Attached hereto as Schedule 4(e)(i) is the balance sheet (the
"1995 Balance Sheet") of the Company as of September 30, 1995 and related
statements of operations and retained earnings and cash flows for the year
ending September 30, 1995 (the 1995 Balance Sheet and such related statements
are hereinafter referred to collectively as the "1995 Financial Statements"),
which have been audited by Katch, Tyson & Company, independent certified public
accountants, and have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods indicated.
Attached hereto as Schedule 4(e)(ii) are unaudited interim financial
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statements prepared by Management at the end of each month since September 30,
1995 and through August 31, 1996 (the "Interim Financial Statements"). Attached
hereto as Schedule 4(e)(iii) are the balance sheets (the "Prior Balance Sheets")
of the Company as of September 30, 1994 and September 30, 1993 and related
statements of operations and cash flows for the years ending June 30, 1994 and
June 30, 1993, which have been audited by Goldenberg, Rosenthal, Friedlander,
CPA's, and have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods indicated (the Interim
Financial Statements, Prior Balance Sheets and such related statements, together
with the 1995 Financial Statements, are hereinafter referred to collectively as
the "Financial Statements"). To the actual knowledge of Seller, the Financial
Statements (i) are true, correct and complete, (ii) are in accordance with the
books and records of the Company, and (iii) fairly, completely and accurately
present the financial condition of the Company at the dates specified or the
results of its operations for the periods covered, subject, in the case of the
Interim Financial Statements, to normal recurring year-end audit adjustments and
except that the Interim Financial Statements do not contain all of the notes
required by generally accepted accounting principles and do not contain a
description of applicable liens and encumbrances. At September 30, 1995 and
August 31, 1996, respectively, the Company had no liability, absolute or
contingent, which is not shown on or reserved against on the 1995 Balance Sheet,
or the Interim Financial Statements for the period ended August 31, 1996, as
applicable. Except as shown or reserved against the 1995 Balance Sheet, or the
Interim Financial Statements for the period ended August 31, 1996, as
applicable, the Company owns outright, and has good and marketable title to, all
of its assets (the "Assets"), free and clear of any mortgage, lien, pledge,
charge, claim, conditional sale or other agreement, lease, right or encumbrance
of other kind. The Assets include all assets and properties (real, personal and
mixed, tangible and intangible) and all rights necessary or desirable to permit
the Purchaser to carry on the business of the Company as presently conducted by
the Company, except for any asset leased by the Company as set forth in Schedule
4(e) hereto.
(f) Except as set forth in Schedule 4(f) hereto, since September 30, 1995
there have been no materially adverse changes in the condition (financial or
otherwise), assets, liabilities, earnings, properties, business or prospects of
the Company other than in the ordinary course of business and as set forth in
interim financial statements subsequent to September 30, 1995, and the Company
has not:
(i) authorized, issued, sold or converted any Securities, or entered
into any agreement with respect thereto;
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(ii) declared, set aside, paid or made any dividend or other
distribution to stockholders or purchased, redeemed or reclassified any of its
capital stock or effected any stock split, stock dividend, exchange or
recapitalization or entered into any agreement in respect of the foregoing;
(iii) incurred any damage, destruction or similar loss, whether or
not covered by insurance, adversely affecting the business, assets or properties
of the Company;
(iv) other than in the ordinary course of business, sold, assigned,
transferred or otherwise disposed of any of their tangible or intangible assets
or intellectual properties, including, without limitation, any patent,
trademark, trade name, copyright, license, franchise, design or other intangible
asset or intellectual property right;
(v) other than in the ordinary course of business, mortgaged,
pledged, granted or suffered to exist any lien or other encumbrance or charge on
any of their assets or properties, tangible or intangible;
(vi) other than in the ordinary course of business, waived any
rights of material value or cancelled, discharged, satisfied or paid any debt,
claim, lien, encumbrance, liability or obligation, whether absolute, accrued,
contingent or otherwise and whether due or to become due;
(vii) incurred any obligation or liability (absolute or contingent,
liquidated or unliquidated, choate or inchoate), except current obligations and
liabilities incurred in the ordinary course of its business;
(viii) other than in the ordinary course of business, leased or
effected any transfer of any of the assets, properties or rights of the Company;
(ix) other than in the ordinary course of business and consistent
with past practices, entered into, made any amendment of, or terminated any
lease, contract, license or other agreement to which the Company is a party;
(x) amended the Certificate of Incorporation or the By-laws of the
Company;
(xi) effected any change in the accounting practices or procedures
of the Company;
(xii) paid, loaned or advanced any amount to, or sold, transferred or
leased any properties or assets (real,
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personal or mixed, tangible or intangible) to, or entered into any agreement,
arrangement or transaction of any nature with, any stockholder, any officer or
any director of the Company or any business or Entity in which any stockholder,
officer or director of the Company or any "affiliate" or "associate" (as such
terms are defined in the Rules and Regulations of the Securities and Exchange
Commission promulgated under the Securities Act of 1933, as amended) of any such
person has any direct or indirect interest, except for regular compensation paid
to the stockholders or any affiliates of the stockholders who are also employees
of the Company, except for lease payments to M&S Leasing for equipment leased
pursuant to lease agreements, a bonus paid to the President of the Company, fees
paid to the directors of the Company pursuant to authorization, and for
repayment to Seller of $725,000 owed to it by the Company;
(xiii) increased the compensation payable to any of the Company's
directors, officers or employees or became obligated to increase any such
compensation; or
(xiv) entered into any other transaction other than in the ordinary
course of business and consistent with past practices, or changed in any way
the business policies or practices of the Company.
(g) The Company has duly filed all foreign, Federal, state, county and
local income, excise, sales, property, withholding, social security, franchise,
license, information returns and other tax returns and reports required to have
been filed by the Company to the date hereof. Each such return is true, correct
and complete and the Company has paid all taxing authorities with respect to all
periods prior to the date of the 1995 Balance Sheet required to have been paid
by the Company and created sufficient reserves or made provision for all thereof
accrued but not yet due and payable by it. The Company does not have any
liability for any taxes, assessments, amounts, interest or penalties of any
nature whatsoever except as reserved against the 1995 Balance Sheet and there is
no basis for any additional claim or assessment other than with respect to
liabilities for taxes which may have accrued in the ordinary course of business
since the date of the 1995 Balance Sheet, which additional accrued taxes are
accurately reflected on the Interim Financial Statements for August 31, 1996.
The Internal Revenue Service has not examined and reported on the Federal income
tax returns of the Company, no waiver of the statute of limitations has been
given with respect thereto and all deficiencies, assessments, interest,
penalties and fines proposed, claimed, made or levied as a result of such
examinations or otherwise have been paid or settled by the Company, as the case
may be. The Company has paid to the proper authorities all customs duties and
similar or related charges required to be paid by it with respect to the
importation of goods into the United States through the Closing
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Date. No government or governmental authority is now asserting or threatening to
assert any deficiency or assessment for additional taxes or any interest,
penalties or fines with respect to the Company. Complete and correct pro forma
copies of the Federal income tax returns of the Company for the year ended
September 30, 1995, extracted from the consolidated return which includes such
figures, as well as any other tax returns reasonably requested by the
Purchaser, have been heretofore delivered to the Purchaser.
(h) Except only those contracts, agreements and commitments listed and
described in Schedule 4(h) hereto (complete and correct copies of each of which
have been heretofore delivered to the Purchaser), to the actual knowledge of
Seller, the Company is not a party to, and has no, contract, agreement or
commitment of any kind or nature whatsoever, written or oral, formal or
informal, including, without limitation, any (i) sales, advertising, license,
franchise, distribution, dealer, agency, manufacturer's representative, or
similar agreement, or any other contract relating to the payment of a
commission, (ii) pension, profit-sharing, bonus, stock purchase, stock option,
retirement, severance, hospitalization, accident, insurance or other similar
plan, arrangement or agreement involving benefits to current or former
employees, (iii) contract or commitment for the employment of any employee or
consultant, (iv) collective bargaining agreement or other contract with any
labor union, (v) contract or commitment for services, materials, supplies,
merchandise, inventory or equipment, (vi) contract or commitment for the sale or
purchase of any of its services, products or assets, (vii) mortgage, indenture,
promissory note, loan agreement, guaranty or other contract or commitment for
the borrowing of money or for a line or letter of credit, (viii) contract or
commitment with any stock-holder or any current or former director, officer or
employee of the Company which will be in effect on the Closing Date, (ix)
contract or commitment with any government or governmental department, agency,
bureau or instrumentality thereof, (x) contract pursuant to which its right to
compete with any Entity or person in the conduct of its business anywhere in the
world is restrained or restricted for any reason or in any way, (xi) contract or
commitment guaranteeing the performance, liabilities or obligations of any
Entity or person, (xii) contract or commitment for capital improvements or
expenditures or with any contractor or subcontractor (xiii) contract or
commitment for charitable contributions, (xiv) lease or other agreement or
commitment pursuant to which it is a lessee of, or holds or operates, any real
property, machinery, equipment, motor vehicles, office furniture, fixtures or
similar personal property owned by any third party, or (xv) any other contract
or commitment (including any periods covered by any options to renew by any
party), whether or not in the ordinary course of business. Except as set forth
in Schedule 4(h), each of the contracts and commitments
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referred to therein is valid and existing, in full force and effect, and
enforceable in accordance with its terms, and no party thereto is in default and
no claim of default by any party has been made or is now pending, and no event
exists which, with or without the lapse of time or the giving of notice, or
both, would constitute a breach or default, cause acceleration of any
obligation, would permit the termination or excuse the performance by any party
thereto, or would otherwise adversely affect the business and/or assets of the
Company.
(i) Except as set forth in Schedule 4(i) hereto, Inventory reflected on
the 1995 Balance Sheet and the Interim Financial Statements was determined in
accordance with generally accepted accounting principles consistently applied,
stated at the lower of cost or market value.
(j) Except as set forth in Schedule 4(j) hereto, each account receivable
reflected on the 1995 Balance Sheet and the Interim Financial Statements results
from a bona fide sale in the ordinary course of business at agreed-upon prices,
that are properly reflected on such Financial Statements, and Seller has no
actual knowledge of any defense to payment therefor.
(k) The Company does not own any real property. Schedule 4(k) hereto is a
complete and correct list of all premises leased in whole or in part by the
Company. Schedule 4(k) also lists all guarantees of any leases given by the
Company for any other person or Entity. Complete and correct copies of all such
leases, guarantees of leases and other documents concerning such agreements and
the interests of the Company therein have been heretofore delivered to the
Purchaser. Schedule 4(k) also contains a brief description of all alterations
being made or which are planned in any premises of the Company, together with
the amounts budgeted for such alterations and the names of the architects and
general contractors retained in connection therewith. Complete and correct
copies of all contracts or other documents relating to such alterations have
been heretofore delivered to the Purchaser, as have copies of any plans and
specifications relating thereto requested by the Purchaser. All permits and
approvals of any government or quasi-governmental authority and all consents of
landlords required in connection with the alterations being made have been
obtained or will be obtained by the Closing Date. The Company has legal and
valid occupancy permits and other required licenses or government approvals for
each of the properties and premises, leased, used or occupied by the Company
(copies of which have been heretofore delivered to the Purchaser). Each lease or
other agreement of the Company for real property is in full force and effect and
is a legal, valid and binding obligation as between the Company and the other
party or parties thereto and the Company is a tenant or possessor in good
standing thereunder, free of any default or breach whatsoever, and the
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Company has the legal right (without the consent or other approval of any other
party) to possess and quietly enjoy each of such premises and properties under
each of such leases or other agreements. Each rental and other payment due
thereunder has been duly made; each act required to be performed which, if not
performed, would constitute a material breach thereof has been duly performed;
no act forbidden to be performed has been performed thereunder which, if
protested, would constitute a material breach thereof; and there is not under
any such lease or other agreement any default or claim of default or event
which, with or without notice or the lapse of time, or both, would constitute a
breach or default thereunder. No improvement, fixture or equipment in or on any
such premises and properties, nor the occupation or leasehold with respect
thereto, is in violation of any law, including, without limitation, any zoning,
building, safety, health or environmental law, and each of such premises or
properties is currently being used.
(l) Schedule 4(l) hereto is a true and complete list of (i) all
tangible personal property owned by the Company having a book value at the date
hereof in excess or $10,000.00 per item and (ii) all personal property owned by
a third party which is leased to, or otherwise used by, the Company, together
with a description of the lease or other agreement relating to the lease, use or
operation thereof, including, without limitation, leases or other agreements
relating to the use or operation of any machinery, equipment, motor vehicles,
office furniture or fixtures (the "Leased Equipment") owned by any third party
(complete and correct copies of which leases or other agreements have been
heretofore delivered to the Purchaser). Each such lease and agreement is in full
force and effect and to the actual knowledge of Seller, constitutes a legal,
valid and binding obligation of the respective parties thereto and the Company
has received no notice under any such lease or other agreement of any default or
claim of default and Seller has no actual knowledge of any event which with or
without notice or the lapse of time, or both, would constitute a breach or
default thereunder. Each item of Leased Equipment is in good operating condition
and repair, is adequate and suitable for the purposes for which it is intended
in the ordinary course of usage, and has been maintained and repaired on a
regular basis so as to preserve its utility and value, and no expenditure is
required to put it in such condition and repair.
(m) Schedule 4(m) hereto is a complete and correct list, together with
a brief description (including, if applicable, date of application, filing or
registration, as the case may be, and the registration or application number),
of each patent, invention, trade secret, copyright, trade name, trademark, brand
name, service mark or design, or representation or expression of any thereof or
registration or application therefor ("Trade Rights"), whether or not registered
in the name
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of, or applied for by, the Company, in which the Company has any rights or
interest, whether through any contract or otherwise, and in each case a brief
description of the nature of such rights and interests. Except as otherwise
listed in Schedule 4(m), the Company is not a licensor or a licensee in respect
of any Trade Right nor does the Company either pay or receive royalty payments
to or from any third party in respect of any Trade Rights. To the actual
knowledge of Seller, the Company owns, or has the exclusive right to use, each
Trade Right necessary to conduct, or be used in, its business as now operated
and there are no conflicts with, or infringements of, the rights of others in
respect thereof or any unauthorized use or misappropriation of any thereof.
(n) Schedule 4(n) hereto is a complete and correct list, together with a
brief description (including name of insurer, agent, type of coverage, policy
number, annual premium, amount of coverage, expiration date and any pending
claims thereunder), of all insurance policies, including, without limitation,
liability, burglary, theft, fidelity, life, fire, product liability, workmen's
compensation, health and other forms of insurance of any kind held by the
Company; each such policy is valid and enforceable, outstanding and in full
force and effect; the Company is the sole beneficiary of each such policy; no
such policy, or the future proceeds thereof, has been assigned to any other
person or Entity; all premiums and other payments due from the Company under, or
on account of, any such policy have been paid; there is no act or fact or
failure to act which has or might cause any such policy to be cancelled or
terminated; the Company has given each notice and presented each claim under
each such policy and taken any other required or appropriate action with respect
thereto in due and timely fashion. Complete and correct copies of each policy
have been heretofore delivered to the Purchaser.
(o) Schedule 4(o) hereto is a complete and correct list setting forth
the names and locations of all (i) banks at which the Company has an account or
safe deposit box and (ii) Company credit cards, the number of the accounts and
the names of all persons authorized to draw thereon or to have access thereof.
(p) Except as set forth in Schedule 4(p) hereto, to the actual knowledge
of Seller, no action, suit, claim, arbitration, governmental investigation or
proceeding, whether legal or administrative or in mediation or arbitration, is
pending or to the actual knowledge of the Sellers threatened, at law or in
equity or admiralty, before or by any court or Federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, (i) against or affecting the Seller, the Shares, the Company or
any of the Assets or business, operations, financial condition or prospects of
the Company or (ii) in which an unfavorable judgement, decree
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or order would restrain, prohibit, invalidate, set aside, rescind, prevent or
make unlawful this Agreement or the carrying out of this Agreement or the
transactions contemplated hereby. There is no pending action, suit or proceeding
which has been brought by or on behalf of the Company in any court, before any
governmental agency or arbitration tribunal. The Company is not in default with
respect to any order, writ, information or decree of any court or any federal,
state, municipal or other governmental department, bureau, agency or
instrumentality.
(q) The Company has all permits, licenses, orders and approvals of
all Federal, state or local governmental regulatory bodies required for it to
conduct its business as presently conducted; all such permits, licenses, orders
and approvals are in full force and effect and no suspension or cancellation of
any of them is pending or threatened; and none of such permits, licenses, orders
or approvals will be adversely affected by the Consummation of the transactions
contemplated by this Agreement. To the actual knowledge of Seller, the Company
is in compliance with each law, rule and regulation applicable to its businesses
including, without limitation, laws, rules and regulations respecting
occupational safety, environmental protection and employment practices. To the
actual knowledge of Seller, the conduct of the business of the Company and all
assets and properties utilized by the Company therein is in conformance with the
requirements and regulations of the Occupational Safety and Health
Administration. Schedule 4(q) hereto is a complete and correct list of all such
permits, licenses, orders and approvals.
(r) Except as set forth in Schedule 4(r) hereto, the Company has
not been found by any court or governmental department, commission, board,
agency or instrumentality to have committed any act of sexual, religious, age or
racial discrimination, any act of sexual harassment, or any other similar act
which violates any Federal, state or local law or regulation and there is not
pending in any court or before any governmental department, commission, board,
agency or instrumentality, or threatened, any claim with respect to any of the
foregoing.
(s) Except as set forth in Schedule 4(s) hereto, the Company is
not a party to any representation or labor contract. The Company is not in
breach of, or has not failed to comply with, any provision of any such contract,
the Company has not received any notice from any labor union or group of
employees that such union or group represents or believes or claims it
represents or intends to represent any of the employees of the Company; no
strike or work interruption by any of its employees is planned, under
consideration, threatened or imminent; and neither the Company nor any officer
or director of the Company has made any loan or given anything of value,
directly or indirectly, to any officer, official, agent or representative of
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any labor union or group of employees. Complete and correct copies of any labor
or representation contract to which the Company is a party have been heretofore
delivered to the Purchaser. At no time during the past five (5) years has the
Company experienced any threats of strikes, work stoppages or demands for
collective bargaining by any union or labor organization or any other group or
other organization of employees, and grievances, disputes or controversies with
any union or any other group or any other organization of employees or any
pending or threatened court or arbitration proceedings involving an employment
grievance, dispute or controversy. Except as set forth in Schedule 4(s), (i)
the Company is not delinquent in payments to any of its employees for any wages,
salaries, commissions, bonuses or other direct compensation for any services
performed by them to the date hereof or amounts required to be reimbursed to
such employees; (ii) in the event of termination of the employment of any said
employees, the Company will not, by reason of anything done prior to the Closing
Date, be liable to any of said employees for so-called "severance pay" or any
other payments; (iii) the Company is in compliance with all Federal, state and
local laws and regulations respecting labor, employment and wages and hours; and
(iv) there is no unfair labor practice complaint against the Company pending
before the National Labor Relations Board or any comparable state or local
agency.
(t) Schedule 4(t) hereto is a complete and correct list of the
names and current annual salary, bonus, commission and perquisite arrangements,
written or unwritten, for each director, officer and employee of the Company.
Except as set forth in Schedule 4(t), no current or former director, officer or
employee of the Company or any relative, associate or agent of such director,
officer or employee has any interest in any property of the Company except as a
stockholder, or is a party, directly or indirectly, to any contract for
employment or otherwise or any lease or has entered into any transaction with
the Company, including, without limitation, any contract for the furnishing of
services by, or rental of real or personal property from or to, or requiring
payments to, any such director, officer, employee, relative, associate or agent,
except for the lease between M&S Leasing and the Company requiring payments of
$1,000 per month. Complete and correct copies of any such contracts have been
heretofore delivered to the Purchaser. Also set forth in Schedule 4(t) is a
complete and correct list of all vehicles, and any facilities owned or operated
by the Company and not listed in any other Schedule hereto, and of all country
club and other memberships owned or paid for, or the dues for which are borne,
by the Company. Except as set forth in Schedule 4(t), the Sellers have no
reason to believe that any employee listed therein intends to terminate his or
her employment relationship with the Company and the Company has no contract for
the future employment of any officer or employee not listed in Schedule
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4 (t).
(u) Schedule 4(u) hereto is a complete and correct list of the
names and addresses of the twenty-five (25) largest customers of the Company
during the last fiscal year and the ten (10) largest suppliers of the Company
during the last fiscal year, and the total sales to, or purchases from, such
customers or suppliers made by the Company during the last fiscal year and the
salesperson assigned to such customers. No supplier or customer of the Company
representing in excess of two percent (2%) of the Company's purchases or sales
during the last fiscal year has advised the Company or any of the Sellers,
formally or informally, that it intends to terminate, discontinue or
substantially modify or reduce its business with the Company (i) by reason of
the transactions contemplated by this Agreement or (ii) otherwise.
(v) As used in this Agreement, the following definitions shall
apply:
"Benefit Plan" means with respect to any person, any ERISA Plan
or any other plan, agreement, trust or program for any bonus, severance,
hospitalization, vacation, deferred compensation, severance, pension or
profit-sharing, retirement, payroll savings, stock option, group insurance,
death benefit, fringe benefit, welfare or any other employee benefit plan or
fringe benefit arrangement of any nature whatsoever, including those benefitting
former employees, maintained by such person and/or any of its Subsidiaries
(currently or at any time within the last three (3) years) or any of their
affiliates or to which such person and/or any of its Subsidiaries (or any of
their affiliates) has contributed or has been obligated to contribute within the
last three (3) years.
"ERISA" means the Employee Retirement Income Security Act of
1974 and the regulations issued thereunder.
"ERISA Plan" means with respect to any person, any employee
benefit plan within the meaning of Section 3(3) of ERISA maintained by such
person and/or any of its Subsidiaries (currently or at any time within the last
three (3) years) or any of their affiliates or to which such person and/or any
of its Subsidiaries (or any of their affiliates) has contributed or has been
obligated to contribute within the last three (3) years.
"Qualified Plan" means with respect to any person, any employee
pension benefit plan as defined in Section 3(2) of ERISA which is intended to
meet the qualification requirements under Section 401 of the Internal Revenue
Code ("Code") or for which the tax benefits or treatment applicable to qualified
plans under the Code has ever been claimed and which is or has been maintained
by such person and/or any of its Subsidiaries
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(currently or at any time within the last three (3) years) or any of their
affiliates or to which such person and/or any of its Subsidiaries (or any of
their affiliates) has contributed or has been obligated to contribute within
the last three (3) years.
(i) Set forth beneath its name in Schedule 4 (v) is a complete and
accurate list of each of the Company's Benefit Plans. A complete and correct
copy of the Benefit Plans and of any related trust agreements, insurance or
annuity contracts, valuations, and other funding agreements for each Benefit
Plan has been delivered to Purchaser.
(ii) All of Company's ERISA Plans are listed in Part I of Schedule 4
(v). All of Company's Benefit Plans that are not ERISA Plans, if any, are
listed in Part II of Schedule 4 (v). Schedule 4 (v) includes a listing of all
expected annual contributions to the Qualified Plans and ERISA Plans. The
Company has not maintained in the past any defined benefit pension plan, and is
not and has not been a party to any agreement requiring it to contribute to a
multi--employer plan within the meaning of Section 3 (37) of ERISA except as
disclosed in Schedule 4 (v). There are no unfunded vested benefits under any
Qualified Plan which is subject to the vesting and funding standards of ERISA
and no unfunded liabilities for all benefits accrued through the date of the
last actuarial valuation of such Plan (calculated on the basis of the Plan's
normal funding assumptions on such valuation). The Company has operated in
compliance with the continuation coverage requirements of the Consolidated
Omnibus Budget Reconciliation Act of 1985 ("COBRA"). Other than claims for
benefits in the ordinary course, there are no pending claims involving the ERISA
Plans or Qualified Plans by any participant covered under the ERISA Plans or
Qualified Plans or otherwise involving the ERISA Plans or Qualified Plans which
allege a breach of fiduciary duties or violation of the applicable state or
federal law which may result in material liability on the part of Purchaser or
any Qualified Plan or ERISA Plan under ERISA or any other law, nor is there any
reasonable basis for such a claim.
(iii) To the actual knowledge of Seller, none of the ERISA Plans or
Qualified Plans or any of their related trusts, or the Company or any trustee,
administrator or other "party in interest" or "disqualified person" (within the
meaning of Section 3(14) of ERISA or Section 4975(e)(2) of the Code,
respectively) with respect to the ERISA Plans or Qualified Plans, has engaged in
any "prohibited transaction" (within the meaning of Section 406 of ERISA or
Section 4975(c) of the Code), which could subject any of the ERISA Plans or
Qualified Plans or related trusts, or any trustee, administrator or other
fiduciary of any ERISA Plan or Qualified Plan, or Surviving Corporation or any
other party dealing with the ERISA Plans or Qualified Plans, to the penalties or
excise tax imposed on prohibited transactions
15
<PAGE>
by Section 502(i) of ERISA or Section 4975 of the Code.
(iv) All of the Company's Qualified Plans are listed in Part III of
Schedule 4(v). Each of the Qualified Plans meets the requirements of Section
401(a) of the Code, and the trust, if any, forming a part of each Qualified Plan
is exempt from federal income tax under Section 501(a) of the Code. A favorable
determination letter has been issued by the Internal Revenue Service within the
past ten (10) years as to the qualification under Section 401(a) of the Code
(including, but not limited to, amendments made by ERISA), with respect to each
Qualified Plan, and Seller has delivered to Purchaser true and correct copies of
all such determination letters. None of the determination letters has been
revoked or modified by the Internal Revenue Service.
(v) All contributions required by law or required in accordance with
the terms of the Qualified Plans to have been made or accrued prior to the
Closing will have been made or accrued.
(vi) Except pursuant to the Benefit Plans listed on Schedule 4(v) and
under COBRA, the Company has no present or future liability to former employees
or to their dependents, survivors or beneficiaries in connection with or arising
out of any plan, compensation arrangement or practice to which the Company
contributed prior to the date hereof, and the Company has not maintained,
adopted or contributed to any plan that provides benefits or payments to former
employees or their dependents, survivors or beneficiaries, except pursuant to
the Benefit Plans listed on Schedule 4(v) and under COBRA.
(vii) The Company has satisfied in all material respects all reporting
and disclosure requirements applicable under ERISA, and the Department of Labor
and Internal Revenue Service and Pension Benefit Guaranty Corporation
regulations promulgated thereunder, with respect to all ERISA Plans and
Qualified Plans, and Seller has delivered to Purchaser a true and complete copy
of the most recently filed and disclosed Forms 5500, Forms 5500-C/R (with
exhibits), and summary plan descriptions and summaries of material modification
for the ERISA Plans and Qualified Plans. In the event that a Form 5500 for any
of the Company's Qualified Plans and ERISA Plans for the 1994 plan year
has not been filed prior to the Effective Time, a proper extension will be filed
if necessary.
(viii) No Qualified Plan has had any "unrelated business taxable income"
as defined in Sections 512 through 514 of the Code. There have been no claims,
or notice of claims, filed under any fiduciary liability insurance policy
covering any Benefit plan. With respect to any Qualified Plan that has been
terminated, it was terminated in compliance with the requirements
16
<PAGE>
of the code and ERISA and the liabilities to such Qualified Plan were fully
satisfied.
(ix) The Trustees of each of the Qualified Plans have completed
their required annual accountings for the plan years ended on or before
September 30, 1995, such accountings accurately reflect the financial positions
of the Qualified Plans as of their respective date, and true and complete copies
of the Trustees' reports and schedules of such accountings have been delivered
to Purchaser.
(w) (i) As defined herein:
"Release" shall mean any exposure to or past or current spilling,
leaking, pumping, pouring, emitting, emptying, discharging, infecting, escaping,
leaching, dumping, disposing, abandonment, or any other release, however
defined, whether intentional or unintentional, of any Hazardous Substances into
the environment in violation of applicable Environmental Laws, or which
otherwise gives rise to any liability under any Environmental Laws, and includes
any suspected or threatened Release;
"Environmental Laws" shall mean all foreign, federal, state and
local laws, statutes, codes, ordinances, regulations, rules, policies, consent
decrees, judicial or administrative orders, permits, approvals, or other
requirements relating to the protection of human health or the environment, all
as amended or modified from time to time, including without limitation, the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended (42 U.S.C. Section 9601, et seq.), the Solid Waste Disposal Act, as
-- ---
amended (42 U.S.C. Section 6901 et seq.), the Hazardous Waste Materials
-- ---
Transportation Act, as amended (49 U.S.C. Section 1801 et seq.), the Clean Air
-- ---
Act, as amended (42 U.S.C. Section 7401 et seq.), the Federal Water Pollution
-- ---
Control Act, as amended 33 U.S.C. Section 1251, et seq.),the Toxic Substances
-- ---
Control Act, as amended (15 U.S.C. Section 2601 et seq.), the Safe Drinking
-- ---
Water Act, as amended (42 U.S.C. Section 300f et seq.), the Atomic Energy Act,
-- ---
as amended (42 U.S.C. Section 2014 et seq.), the Federal Insecticide Fungicide
-- ---
and Rodenticide Act, as amended (7 U.S.C. Section 136, et seq.), the Oil
-- ---
Pollution Act of 1990, as amended (33 U.S.C. Section 2701, et seq.), the
-- ---
Emergency Planning and Community Right-to-Know Act of 1986, as amended (42
U.S.C. Section 11001, et seq.), the Occupational Safety and Health Act, as
-- ---
amended (29 U.S.C. Section 651 et seq.), and the regulations adopted and
-- ---
publications promulgated pursuant thereto, and shall also include any common law
theory based on nuisance, trespass, negligence or other tortious conduct;
"Hazardous Substances" shall mean any and all hazardous and toxic
substances, wastes or materials, any
17
<PAGE>
pollutants, contaminants, or dangerous materials (including, but not limited to,
polychlorinated biphenyls, friable asbestos, volatile and semi-volatile organic
compounds, oils, petroleum products and fractions, and any materials which
include hazardous constituents or become hazardous, toxic, or dangerous when
their composition or state is changed), or any other similar substances or
materials which are included under or regulated by any Environmental Laws;
"Contamination" shall mean the presence of, or Release on, under,
from, or to any real property, of any Hazardous Substance in the environment.
Contamination does not include a Release which occurred during the routine
storage, use or sale of Hazardous Substances from time to time in the ordinary
course of business, in compliance with Environmental Laws, in compliance with
good commercial practice and which does not otherwise give rise to any liability
under any Environmental Laws;
"Regulatory Action" shall mean any formal and adverse claim, demand,
action or proceeding brought, prosecuted or instigated by any governmental
authority in connection with any Environmental Laws (including without
limitation civil, criminal and/or administrative proceedings), whether or not
seeking costs, damages, penalties or expenses; and
"Third Party Claim" shall mean third party claims, actions, demands or
proceedings based on any violation of or liability under any Environmental Laws,
or based on negligence, trespass, strict liability, nuisance, toxic tort or
detriment to human health, safety or welfare due to any Release of Hazardous
Substances or Contamination, and whether or not seeking costs, damages,
penalties or expenses.
(ii) To the actual knowledge of Seller, no third party claims and/or
regulatory actions have been asserted or assessed against the Company or any of
its real property leased or owned ("Real Property") and, to the actual knowledge
of Seller, no third party claims and/or regulatory actions are pending or
threatened against or any of such Real Property, arising out of or due to, or
allegedly arising out of or due to, (i) the Release on, under or from such Real
Property of any Hazardous Substances; (ii) any contamination of such Real
Property, including without limitation, the presence of any Hazardous Substance
which has come to be located on or under such Real Property from another
location; (iii) any material violation or alleged violation of any Environmental
Laws with respect to such Real Property or of the Company's business operations;
(iv) any injury to human health or safety or to the environment by reason of the
past or present condition of, or past or present activities on or under, such
Real Property; or (v) the generation, manufacture, storage, treatment, handling,
18
<PAGE>
transportation or other use, however defined, of any Hazardous Substance on such
Real Property; and, as a result of any such conditions, whether individually or
in the aggregate, there has been a material adverse change in the business,
operations or financial condition of the Company, taken as a whole; (any acts,
omissions, circumstances, status or condition described in or contemplated by
clauses (ii) through (vi) of this Schedule 4(w) are hereinafter referred to
collectively as an "Environmental Condition").
(iii) To the actual knowledge of Seller, the Company's storage,
transportation, handling, use or disposal, if any, of Hazardous Substances on or
under such Real Property or Hazardous Substances generated on or from such Real
Property is currently, and at all times has been, in compliance in all material
respects with all applicable Environmental Laws.
(iv) The Company has delivered to or has caused to be
delivered to Purchaser, prior to the execution and delivery of this Agreement,
complete copies of any and all documents relating to compliance by the Company
with Environmental Laws or to Environmental Conditions.
(x) To the actual knowledge of Seller, neither the Company nor, any
officer of the Company, nor the Seller nor any employee or agent of the Seller
(nor any person acting on behalf of any of the foregoing) has since January 1,
1986, directly or indirectly, given or agreed to give any gift or similar
benefit to any customer, supplier, governmental employee or other person who is
or may be in a position to help or hinder the Company or assist the Company in
connection with any actual or proposed transaction, which, if not given in the
past, might have had an adverse effect on the business or prospects of the
Company, or which, if not continued in the future, might adversely affect the
business or prospects, of the Company, or which might subject the Company to
suit or penalty in any private or governmental litigation or proceeding.
(y) Neither this Agreement nor the representations and warranties by
the Seller contained herein or in any documents, instruments, certificates or
Schedules furnished pursuant hereto or in connection with the transactions
contemplated hereby intentionally contains any untrue statement of a material
fact or intentionally omits to state a material fact necessary to make the
statements or facts contained herein and therein not misleading. There is no
fact which adversely affects, or in the future may adversely affect, the
business, operations, affairs, condition or prospects of the Company which has
not been set forth in this Agreement or in the documents, instruments,
certificates or Schedules furnished pursuant hereto.
19
<PAGE>
(z) With respect to those representations and warranties contained
in subparagraphs (e), (f), (g), (i), (k), (l), (v), (w) and (x) above, and
paragraph 9(b) below, Seller shall not be liable to Purchaser for any
inaccuracy, misstatement, non-disclosure or other breach thereof (collectively
referred to as "breach") if:
(i) on the date of the execution of this Agreement, Seller had
no actual knowledge of the breach, and
(ii) the amount of the individual breach did not exceed $10,000
and the aggregate of all such breaches did not exceed
50,000. In the event that any individual breach exceeds
$10,000 or the aggregate exceeds $50,000, Seller shall be
liable to Purchaser only for such excess.
(iii) Such breach has been asserted by written notice from
Purchaser to Seller within 120 days of the date of
Closing.
5. Representations and Warranties of the Purchaser
-----------------------------------------------
(a) The Purchaser hereby represents and warrants to the Seller as
follows:
(i) The Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
(ii) The Purchaser has all requisite power and authority,
corporate or otherwise, to enter into this Agreement and to assume and perform
its obligations hereunder. The execution and delivery of this Agreement and the
performance by the Purchaser of its obligations hereunder have been duly
authorized by all necessary corporate action of the Purchaser and no further
actio or approval, corporate or otherwise, is required in order to constitute
this Agreement as a valid, binding and enforceable obligation of the Purchaser.
(iii) No action, approval, consent or authorization, including,
but not limited to, any action, approval, consent or authorization by, or filing
with, any governmental or quasi-governmental agency, commission, board, bureau
or instrumentality is necessary or required as to the Purchaser in order to
constitute this Agreement as a valid, binding and enforceable obligation of the
Purchaser in accordance with its terms.
(iv) The execution and delivery of this Agreement, the
consummation of the transactions contemplated
20
<PAGE>
hereby, the fulfillment of the terms, conditions or provisions hereof (a) do
not and will not conflict with, or violate any provision of the Certificate of
Incorporation or By-laws of the Purchaser or (B) do not and will not conflict
with, or result in any breach of, any condition or provision of, or constitute a
default under, or give rise to any right of termination, cancellation or
acceleration under (whether after the giving of notice or lapse of time or both)
any contract, mortgage, lien, lease, agreement, indenture, license, franchise,
instrument, order, judgment or decree to which the Purchaser is a party or which
is or purports to be binding upon the Purchaser, or (C) will not be in violation
of any statute, rule or regulation applicable to the Purchaser.
(v) No representation or warranty by the Purchaser in this
Agreement or under any documents, instruments, certificates or schedules
furnished pursuant hereto or in connection with the transactions contemplated
hereby contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements of fact contained herein and
therein not misleading.
6. Conditions of Closing
---------------------
(a) The obligation of the Purchaser to close hereunder shall be
subject to the fulfillment and satisfaction, prior to or at the Closing, of the
following conditions or the written waiver thereof by the Purchaser:
(i) The representations and warranties of the Seller in this
Agreement shall be true and correct in all respects on and as of the Closing
Date and the Purchaser shall have received a certificate to that effect dated
the Closing Date and executed by the President of the Seller and the President
of the Company.
(ii) Each of the agreements and covenants of the Seller and the
Company, to be performed under this Agreement at or prior to the Closing Date
shall have been duly performed in all material respects and the Purchaser shall
have received a certificate to that effect dated the Closing Date and executed
by the President of the Seller and the President of the Company.
(iii) No injunction or restraining order shall be in effect to
forbid or enjoin the consummation of the transactions contemplated by this
Agreement and no Federal, state, local or foreign statute, rule or regulation
shall have been enacted which prohibits, restricts or delays the consummation
hereof.
(iv) All consents, authorizations, orders or approvals of, and
filings or negotiations with, any Federal,
21
<PAGE>
state, local or foreign governmental agency, commission, board or other
regulatory body which are required for, or in connection with, the execution,
delivery and performance of this Agreement by the Seller and the consummation of
the transactions contemplated hereby, and in order to permit or enable the
Purchaser to conduct after the Closing Date a business substantially similar to
the business as conducted by the Company as of the date hereof, shall have been
duly obtained or made, including OSHA, EPA and NJ ISRA, if applicable.
(v) All actions necessary to authorize the execution, delivery and
performance of this Agreement by the Seller and the Company and the consummation
of the transactions contemplated hereby, shall have been duly and validly taken
and the Seller shall have full power and right to sell the Shares as
contemplated herein.
(vi) The Purchaser shall have received the stock certificates
evidencing the Shares in proper form for transfer, duly endorsed in blank and
other documents of transfer, conveyance and assignment valid to transfer all
right, title and interest in and to the Shares to the Purchaser, in form and
substance reasonably satisfactory to Dilworth, Paxson, Kalish & Kauffman, as
counsel to the Purchaser.
(vii) All corporate and other proceedings of the Company in connection
with the transactions contemplated by this Agreement, and all documents and
instruments incident thereto, shall be reasonably satisfactory in substance and
form to the Purchaser and its counsel, and the Purchaser and its counsel shall
have received all such documents and instruments, or copies thereof, certified
if requested, as they shall have reasonably requested.
(viii) There shall have been no damage, destruction or loss, whether or
not covered by insurance, materially and adversely affecting any of the Assets.
(ix) The Purchaser shall have received an opinion of the Seller's
counsel in the form of Exhibit B attached hereto.
(x) Anthony Nardiello shall have entered into an Employment Agreement
with the Company, in the form attached hereto as Exhibit C.
(xi) The Company shall have received from the Seller a general
release, in form and substance reasonably satisfactory to the Purchaser and its
counsel, releasing all claims, obligations and causes of action which the Seller
has or might have as of the Closing Date against the Company.
22
<PAGE>
(xii) All necessary consents of any persons or entities to the
assignment to the Purchaser of the leases and agreements referred to in Sections
4(h), 4(k) and 4(l) hereof shall have been obtained and delivered to the
Purchaser and certificates of such persons and entities as the Purchaser shall
designate in writing not less than ten (10) days prior to the Closing Date shall
have been obtained and delivered to the Purchaser confirming that each document
or agreement referred to in such certificates is in full force and effect and no
party thereto is in default and no claim of default by any party has been made
or is pending and there does not exist any event which with notice or the
passing of time, or both, would constitute default or would excuse performance
by any party thereto.
(xiii) No material adverse change shall have occurred in the
condition (financial or otherwise) of the business and Assets of the Company
between September 30, 1995 and the Closing Date, except for disclosures made on
Interim Financial Statements provided pursuant to paragraph 4(e) above, as well
as disclosures made on the Schedules that are a part hereof.
(xiv) All environmental Conditions found to exist as a result
of any Phase I or Phase II audits, or otherwise existing, shall have been
corrected or remedied, or provisions for payment made for such correction or
remedy, to the reasonable satisfaction of Purchaser.
(xv) No materially adverse matter or fact shall exist as of
the Closing Date which relates to the Assets or the business of the Company or
the Shares that has not been previously disclosed to Purchaser prior to the
Closing Date in writing and resolved to the reasonable satisfaction of
Purchaser.
(xvi) The long-term debt of the Company shall not exceed the
amounts set forth in Exhibit D attached hereto, and shall not include any debt
to any affiliated person or entity, including the Seller.
(xvii) The tax audit of the Company shall have been resolved,
or provision made for the payment of any potential tax due to the sole
satisfaction of the Purchaser. Further, provision shall have been made for the
payment of the Company's share of any tax liability of the consolidated group of
which it is a member for all periods prior to October 1, 1996, computed on the
basis of the Company's internally prepared August 31, 1996 financial statements,
adjusted and annualized to September 30, 1996, without write-off or deduction of
the Guildwood Receivable.
(b) The obligation of the Seller to close hereunder shall be subject
to the fulfillment and satisfaction, prior to or at the Closing, of the
following conditions or the written waiver
23
<PAGE>
thereof by the Seller:
(i) The representations and warranties of the Purchaser in this
Agreement shall be true and correct in all material respects on and as of the
Closing Date.
(ii) Each of the agreements and covenants of the Purchaser to be
performed under this Agreement at or prior to the Closing Date shall have been
duly performed in all material respects.
(iii) No injunction or restraining order shall be in effect to forbid
or enjoin the consummation of the transactions contemplated by this Agreement
and no Federal, state, local or foreign statute, rule or regulation shall have
been enacted which prohibits, restricts or delays the consummation hereof.
(iv) The Seller shall have received a certified copy of resolutions
duly adopted by the board of directors of the Purchaser authorizing and
approving the execution of this agreement by the Purchaser and the performance
by the Purchaser of its obligations hereunder.
(v) Anthony Nardiello shall have entered into an Employment
Agreement with the Company, in the form attached hereto as Exhibit C.
(iv) The Company shall have accepted the resignations of Richard S.
Kuntz, Geraldine C. Kuntz and Lisa Hopson as officers and directors and released
both of them from any and all claims arising out of such prior service and
provided them with an indemnity from any claims arising out of events subsequent
to the Closing, except for any violation of their non-compete obligations.
(vii) Seller shall have been released from all liabilities relative
to obligations of the Company including, without being limited to, liabilities
or guarantees of debts and leases.
(viii) The Company shall have entered into a Consulting and
Non-Competition Agreement in the form of Exhibit A attached hereto with the
Seller providing for the payment of $500,000, payable $250,000 in cash,
certified check, bank check or wire transfer at Closing, and the balance payable
quarterly in arrears over the 12 month period following the Closing Date. The
entire balance due will accelerate in the event of a change in control in the
ownership of the Company as defined in such Exhibit A hereto. Richard S. Kuntz
and Lisa Hopson shall be accommodation parties to such agreement and acknowledge
their obligations to not complete with the Company.
24
<PAGE>
7. Further Covenants and Agreements of the Seller
----------------------------------------------
The Seller and its principal shareholders hereby covenant and
agree that:
(a) At all times after the Closing Date, the Seller and its
principal shareholders shall hold in a fiduciary capacity for the benefit of the
Purchaser all information, knowledge and data relating to, or concerned with,
the Company, and he or she shall not at any time after the Closing Date use,
disclose or divulge any such information, knowledge or data to any other person
or entity, other than to the Purchaser or its designees.
(b) The Seller and its principal shareholders agree that the
remedy at law for any breach of the provisions of Section 7(a) hereof will be
inadequate and that the Purchaser shall be entitled to injunctive relief to
compel the Seller or its principal shareholders to perform or refrain from
action required or prohibited hereunder.
8. Survival of Representations, Warranties, Etc.
---------------------------------------------
(a) All of the representations, warranties, covenants and
agreements made by the parties to this Agreement shall survive the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereunder.
9. Indemnification
---------------
(a) The Purchaser shall defend and promptly indemnify the
Seller and save the Seller harmless from, against, for and in respect of, and
shall pay all damages, losses, obligations, liabilities, claims, encumbrances,
deficiencies, costs and expenses, including, without limitation, reasonable
attorneys' fees and other costs and expenses incident to, any action,
investigation, claim or proceeding (all hereinafter collectively referred to as
"Losses") suffered, sustained, incurred or required to be paid by the Sellers by
reason of any breach or failure of observance or performance of any
representation, warranty, covenant, agreement or commitment made by the
Purchaser hereunder or relating hereto or as a result of any such
representation, warranty, covenant, agreement or commitment being untrue or
incorrect in any respect.
(b) Subject to the provisions of Paragraph 4(z) above, the
Seller shall defend and promptly indemnify the Purchaser and save and hold it
harmless from, against, for and in respect of, and pay any and all damages,
loses, obligations, liabilities, claims, encumbrances, deficiencies, costs and
expenses, including without limitation, reasonable attorneys' fees and other
costs and expenses incident to, any suit, action, investigation, claim or
proceeding (all hereinafter collectively referred to as
25
<PAGE>
"Losses") suffered, sustained, incurred or required to be paid by the Purchaser
by reason of any breach or failure of observance or performance of any
representation, warranty, covenant, agreement or commitment being untrue or
incorrect in any respect, including, but not limited to, any tax liability for
the Company or the consolidated group of which it was a member, for all periods
prior to October 1, 1996, whether by reason of any audit by any taxing authority
or by reason of operations through September 30, 1996. The provisions of
Paragraph 4(z) shall not apply to any tax liability of the consolidated group of
which the Company is a member in excess of the Company's own share of such
liability, subject to IRS audit and review.
(c) For purposes of this Article 11, the party entitled to
indemnification shall be known as the "Injured Party" and the party required to
indemnify shall be known as the "Other Party." In the event that the Other
Party shall be obligated to the Injured Party pursuant to this Article 11, or in
the event that a suit, action, investigation, claim or proceeding is begun, made
or instituted as a result of which the Other Party may become obligated to the
Injured Party hereunder, the Injured Party shall give prompt written notice to
the Other Party of the occurrence of such event. The Other Party agrees to
defend, contest or otherwise protect against any such suit, action,
investigation, claim or proceeding at the Other Party's own cost and expense.
The Injured Party shall have the right, but not the obligation, to participate
at its own expense in the defense thereof by counsel of its own choice. In the
event that the Other Party fails to timely defend, contest or otherwise protect
against any such suit, action, investigation, claim or proceeding, the Injured
Party shall have the right to defend, contest or otherwise protect against the
same and may make any compromise or settlement thereof and recover the entire
cost thereof from the Other Party, including, without limitation, reasonable
attorneys' fees, disbursements and all amounts paid as a result of such suit,
action, investigation, claim or proceeding or compromise or settlement thereof.
10. Brokers
-------
The Seller and the Purchaser convenant and represent to each other that
it had no dealings with any broker or finder in connection with this Agreement
or the transactions contemplated hereby and no broker, finder or other person is
entitled to receive any broker's commission or finder's fee or similar
compensation in connection with any such transaction. Each of the parties
agrees to defend, indemnify and hold harmless the other from, against, for and
in respect of any and all losses sustained by the other as a result of any
liability or obligation to any broker or finder on the basis of any arrangement,
agreement or acts made by or on behalf of such other party with any person or
persons whatsoever.
26
<PAGE>
11. Miscellaneous
-------------
(a) This Agreement (including the Schedules which are made a part
hereof) constitutes the entire agreement of the parties with respect to the
subject matter hereof. The representations, warranties, covenants and agreements
set forth in this Agreement and in any financial statements, schedules or
exhibits delivered pursuant hereto constitute all the representations,
warranties, covenants and agreements of the parties hereto and upon which the
parties have relied and, except as may be specifically provided herein, no
change, modification, amendment, addition or termination of this Agreement or
any part thereof shall be valid unless in writing and signed by or on behalf of
the party to be charged therewith.
(b) Any and all notices or other communications or deliveries
required or permitted to be given or made shall be in writing and delivered
personally, or sent by certified or registered mail, return receipt requested
and postage prepaid or sent by overnight courier service as follows:
If to the Purchaser:
CG Partners, L.P.
c/o J & E Partners, L.P.
Suite 214
100 Tournament Drive
Horsham, PA 19044
with a copy to:
Dilworth, Paxson, Kalish & Kauffman
2600 The Fidelity Building
Philadelphia, PA 19109
Attn: Paul W. Baskowsky, Esq.
If to the Seller:
General Business Forms, Inc.
7300 Niles Center Road
Skokie, IL 60077
Attn: Richard S. Kuntz
with copies to:
Shayle P. Fox, Esquire and Ronald S. Katch, CPA
Fox and Grove Suite 103
Suite 6200 191 Waukegan Road
311 S. Wacker Drive Northfield, IL 60093
Chicago, IL 60606
27
<PAGE>
or at such other address as any party may specify by notice given to such other
party in accordance with this Section 13(b). The date of giving of any such
notice shall be the date of hand delivery, two days after the date of the
posting of the mail or the date when deposited with the overnight courier.
(c) No waiver of the provisions hereof shall be effective unless in
writing and signed by the party to be charged with such waiver. No waiver shall
be deemed a continuing waiver or waiver in respect of any subsequent breach or
default, either of similar or different nature, unless expressly so stated in
writing.
(d) This Agreement shall be construed (both as to validity and
performance) and enforced in accordance with, and governed by, the laws of the
State of New Jersey applicable to contracts to be performed entirely within that
state, without giving effect to the principles of conflicts of law. The parties
hereto agree that any suit or proceeding arising out of this Agreement or the
consummation of the transactions contemplated hereby shall be brought only in a
Federal or state court located in the City and County of Philadelphia,
Pennsylvania; provided, however, that neither party waives its right to request
the removal of such action or proceeding from the State court to a Federal court
in such jurisdiction. The parties hereto each waive any claim that such
jurisdiction is not a convenient forum for any such suit or proceeding and the
defense of lack of personal jurisdiction. Should any clause, section or part of
this Agreement be held or declared to be void or illegal for any reason, all
other clauses, sections or parts of this Agreement which can be effected without
such illegal clause, section or part shall nevertheless continue in full force
and effect.
(e) Except as otherwise provided herein, the Purchaser and the Seller
shall each bear their own expenses in connection with this transaction. If this
transaction is consummated, the Company shall pay such expenses of the
Purchaser.
(f) This Agreement shall be binding upon, and inure to the benefit of,
the parties hereto and their respective successors and assigns or heirs and
personal representatives; provided, however, that no party may assign any of its
rights or delegate any of its duties under this Agreement without the prior
written consent of the other parties hereto.
(g) The headings or captions under sections of this Agreement are for
convenience and reference only and do not in any way modify, interpret or
construe the intent of the parties or effect any of the provisions of this
Agreement.
(h) Subsequent to the Closing, the Purchaser, the Seller and the Company
shall each, at the request of any of the
28
<PAGE>
others, furnish, execute and deliver such documents, instruments, certificates,
notices and other and further assurances as counsel for the requesting party
shall reasonably require as necessary or desirable to effect complete
consummation of this Agreement and to carry out the transactions contemplated
hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed as of the date and year first above written.
Witness: GENERAL BUSINESS FORMS, INC.
By:
- ---------------------------- ----------------------------
Title
COLOR GRAPHICS, INC.
By:
- ---------------------------- ----------------------------
Title
CG PARTNERS, L.P.
By:
- ---------------------------- ----------------------------
Title
FOR PURPOSES OF SECTION 7
ONLY:
-------------------------------
Richard S. Kuntz
-------------------------------
Lisa Hopson
29
<PAGE>
Exhibit 2.2
ASSIGNMENT
For One Dollar ($1.00) and other good and valuable consideration, CG
Partners, L.P. ("CG"), a Delaware limited partnership, hereby assigns, sells,
conveys, transfers and delivers to North American Integrated Marketing, Inc.
("NAIM"), a Delaware corporation, its successors and assigns, all of its right,
title and interest in and to that certain Stock Purchase Agreement ("Agreement")
dated September 30, 1996, between CG and General Business Forms, Inc., an
Illinois corporation.
TO HAVE AND TO HOLD such Agreement hereby assigned, transferred and
conveyed unto NAIM its successors and assigns, to itself and their own use and
behalf forever.
CG, for itself and its successors and assigns, by this Assignment, does
covenant with NAIM, its successors and assigns, to do, execute and deliver or
cause to be done, executed and delivered, all such further acts, transfers,
assignments and conveyances, powers of attorney and assurances, for the better
assuring, conveying and confirming unto NAIM, its successors and assigns, all
and singular NAIM, its successors and assigns shall reasonably require.
IN WITNESS WHEREOF, CG has caused this Assignment to be executed this
30th day of September, 1996.
CG PARTNERS, L.P.
By:/s/ Eric L. Blum
-----------------------------
Eric L. Blum, General Partner
