SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
+
Date of Report (date of earliest event reported) MAY 18, 1996
-------------
DISC GRAPHICS, INC.
-------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 0-22696 13-3678012
- ------------------------------- ---------------- --------------
(State or other jurisdiction of (Commission (IRS Employer
incorporation) File Number) ID Number)
10 GILPIN AVENUE, HAUPPAUGE, NEW YORK 11788
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number,
including area code: (516) 234-1400
---------------
_____________________________________________________________
(Former name or former address, if changed since last report)
<PAGE>
Item 2. Acquisition or Disposition of Assets.
On May 18, 1996, Disc Graphics, Inc., a Delaware corporation (the
"Registrant"), acquired (the "Acquisition") substantially all of the assets and
certain liabilities of Pointille, Inc., a California corporation ("Pointille"),
pursuant to an Asset Purchase Agreement dated as of May 17, 1996, by and among
the Registrant, Pointille, and the sole shareholder of Pointille (the "Asset
Purchase Agreement"). The purchase price consisted of $775,000 in cash, 74,074
shares of the Registrant's Common Stock, $.01 par value per share, and a
promissory note in the amount of $330,000, payable in 36 equal monthly
installments of principal and interest beginning on June 17, 1996.
The foregoing is a summary of the Asset Purchase Agreement. For additional
information concerning the Asset Purchase Agreement, reference is made to the
Asset Purchase Agreement which is included as an exhibit to this Current Report
on Form 8-K. In connection with the Asset Purchase Agreement, the Registrant
entered into a lease of real property, employment agreements with two employees
of Pointille and a sales representative agreement with Pointille.
The cash portion of the purchase price was paid from borrowings under the
Registrant's Financing Agreement with Fleet Bank.
Pointille was a manufacturer of packaging for the video, music, and CD ROM
software markets.
The Registrant presently intends to continue to devote the plant leased,
and the equipment and physical property acquired in the Acquisition to the same
purposes they were used by Pointille prior to the Acquisition.
Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits.
(a) Financial Statements of Businesses Acquired. The following audited
financial statements and supplemental information of Pointille required under
part (a) are included in this Current Report on Form 8-K:
Independent Auditors' Report
Financial Statements:
Balance Sheet dated February 29, 1996
Statement of Operations and Retained Earnings for the year
ended February 29, 1996
Statement of Cash Flows for the year ended February 29, 1996
Notes to Financial Statements for the year ended February 29,
1996
Independent Auditors' Report on Supplemental Information
Supplemental Information:
Schedule of Net Sales and Cost of Sales for the year ended
February 29, 1996
Schedule of Manufacturing Overhead for the year ended February
29, 1996
Schedule of Operating Expenses for the year ended February 29,
1996
<PAGE>
POINTILLE, INC.
DBA MODERN OF CALIFORNIA
FINANCIAL STATEMENTS
YEAR ENDED FEBRUARY 29, 1996
CONTENTS
PAGE
Independent Auditors' Report 1
Financial Statements:
Balance Sheet 2
Statement of Operations and Retained Earnings 3
Statement of Cash Flows 4
Notes to Financial Statements 5-10
Independent Auditors' Report on Supplemental Information 11
Supplemental Information:
Schedule of Net Sales and Cost of Sales 12
Schedule of Manufacturing Overhead 13
Schedule of Operating Expenses 14-15
<PAGE>
Board of Directors
Pointille, Inc.
dba Modern of California
Burbank, California
We have audited the accompanying balance sheet of Pointille, Inc. dba Modern of
California as of February 29, 1996 and the related statements of operations and
retained earnings, 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 Pointille, Inc. dba Modern of
California as of February 29, 1996, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Stonefield Josephson
- ------------------------
ACCOUNTANCY CORPORATION
Santa Monica, California
April 8, 1996
<PAGE>
<TABLE>
<CAPTION>
POINTILLE, INC.
DBA MODERN OF CALIFORNIA
BALANCE SHEET - FEBRUARY 29, 1996
ASSETS
<S> <C> <C>
Current assets:
Cash $ 39,151
Accounts receivable, net of
allowance for doubtful
accounts of $143,683 1,464,918
Loan receivable, officer
267,064
Inventory
196,853
Other receivables 26,131
Prepaid expenses 19,224
Other current assets 21,675
Deferred tax assets 18,700
---------
Total current assets $ 2,053,716
Property and equipment, net of
accumulated depreciation and
amortization 505,738
Long-term trade receivable
58,587
Investments 5,000
----------
$ 2,623,041
===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Bank lines of credit $ 1,035,488
Accounts payable and accrued
expenses 682,849
Current maturities of capital
leases 14,668
----------
Total current liabilities $ 1,733,005
Note payable, bank, less current
maturities 116,673
Capital lease obligations, less
current maturities
32,535
Note payable, officer-stockholder
306,868
Stockholder's equity:
Common stock; 10,000 shares
authorized, 1,000 shares issued
and outstanding
200,000
Retained earnings 233,960
---------
Total stockholder's equity
433,960
$2,623,041
==========
</TABLE>
See accompanying independent auditors' report and notes to financial statements.
<TABLE>
<CAPTION>
POINTILLE, INC.
DBA MODERN OF CALIFORNIA
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
YEAR ENDED FEBRUARY 29, 1996
AMOUNT PERCENT
----------- -----------
<S> <C> <C>
Net sales $ 7,734,344 100.0%
Cost of sales 5,971,468 77.2
---------- -----
Gross profit 1,762,876 22.8
Operating expenses 1,648,515 21.2
---------- -----
Income from operations
before professional fees
related to a transaction
in-process for the sale of
assets and interest expense 114,361 1.6
--------- -----
Professional fees related
to a transaction in-process
for the sale of assets
(Note 11) 74,778 1.0
Interest expense 144,584 1.9
--------- -----
219,362 2.9
--------- -----
Loss from operations before
income taxes (105,001) (1.3)
--------- ------
Income taxes:
Current year 800
Prior year's overaccrual (1,184)
Deferred tax adjustment 57,000 .7
-------- -----
56,616 .7
-------- -----
Net loss (161,617) (2.0)%
======
Retained earnings,
beginning of year 395,577
---------
Retained earnings, end of
year $ 233,960
=========
See accompanying independent auditors' report and notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
POINTILLE, INC.
DBA MODERN OF CALIFORNIA
STATEMENT OF CASH FLOWS
YEAR ENDED FEBRUARY 29, 1996
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<S> <C> <C>
Cash flows provided by (used for)
operating activities:
Net loss $(161,617)
Adjustments to reconcile net loss to
net cash provided by (used for)
operating activities:
Depreciation and amortization $ 180,127
Provision for doubtful
accounts 114,908
Gain on disposal of assets (800)
Unrealized loss on investment 6,000
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable 139,425
Inventory 72,924
Other receivables 27,298
Prepaid expenses (6,402)
Other current assets (8,906)
Deferred tax assets 57,000
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (315,651)
Income taxes payable (4,742)
--------
Total adjustments 261,181
--------
Net cash provided by operating
activities 99,564
Cash flows used for investing
activities:
Payments to acquire property and
equipment (135,106)
Loans receivable - officer (175,919)
Proceeds from sale of assets 800
---------
Net cash used for investing
activities (310,225)
Cash flows provided by (used for)
financing activities:
Payments on bank lines of credit (1,106,228)
Payments on capital lease obligations (11,963)
Proceeds from bank lines of credit 1,168,828
----------
Net cash provided by financing
activities 50,637
---------
Net decrease in cash (160,024)
Cash, beginning of year 199,175
---------
Cash, end of year $ 39,151
----------
Income taxes paid $ 5,558
----------
Interest paid $ 144,584
----------
See accompanying independent auditors' report and notes to financial statements.
</TABLE>
<PAGE>
POINTILLE, INC.
DBA MODERN OF CALIFORNIA
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED FEBRUARY 29, 1996
(1) Summary of Significant Accounting Policies:
Business Activity:
Pointille, Inc. dba Modern of California (the "Company")
performs custom printing services for compact disc producers,
video cassette producers, audio cassette tape producers, book
publishers, phonograph record producers and others.
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 and disclosure of contingent
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.
Cash Equivalents:
For purposes of the statement of cash flows, cash equivalents
include all highly liquid debt instruments with original
maturities of three months or less which are not securing any
corporate obligations.
Inventory:
Inventory is valued at the lower of cost (first-in, first-out)
or market.
Property and Equipment:
Property and equipment are valued at cost. Depreciation and
amortization are being provided by use of straight-line and
accelerated methods over the estimated useful lives of the
assets.
Income Taxes:
PAYMENTS
Income taxes paid amounted to $5,558 during the year ended
February 29, 1996, of which $3,558 related to the prior year's
liability.
DEFERRED INCOME TAXES
Deferred income taxes are provided for temporary differences
between financial and taxable income. These temporary
differences result from state franchise taxes provided for
financial reporting but not currently deductible for federal
income tax purposes and differences between inventory
valuation methods used for financial and tax reporting
purposes.
Deferred income taxes, as shown in the accompanying balance
sheet, are comprised of the following:
<TABLE>
<CAPTION>
<S> <C>
Deferred tax assets $ 77,177
Deferred tax valuation allowance (58,477)
---------
$ 18,700
</TABLE>
NET OPERATING LOSS CARRYFORWARDS
The Company has available approximately $180,000 of federal
and $50,000 of state net operating loss carryforwards which
can be used to offset future taxable income until their
expiration as follows:
<TABLE>
<CAPTION>
Federal Net State Net
OPERATING LOSS OPERATING LOSS
<S> <C> <C>
Year ending February 28,
2001 $ - $ 50,000
2008 77,257 -
2011 102,743 -
--------- ----------
$ 108,000 $ 50,000
========= ==========
</TABLE>
The potential tax benefit related to these carryforwards will not be
recognized in income by the Company until realized, and therefore an
allowance of approximately $59,000, equal to the estimated amount of the
deferred tax asset booked by the Company, has been established at February
29, 1996. This is a change in estimate from prior years' whereby deferred
assets were established for net operating loss carryforwards.
(2) CASH:
The Company has concentrated its credit risks for cash by maintaining
deposits at a single bank. The maximum loss that would have resulted
from this risk amounted to approximately $15,000 at February 29, 1996,
which represents the excess of the deposit liabilities reported by the
bank over the amounts that would have been covered by federal deposit
insurance (FDIC).
<TABLE>
<CAPTION>
(3) INVENTORY:
A summary is as follows:
<S> <C>
Raw materials $ 104,195
Finished goods 50,123
Work in process 42,535
----------
$ 196,853
==========
(4) PROPERTY AND EQUIPMENT:
A summary is as follows:
Machinery and equipment $ 1,343,146
Leasehold improvements 1,176,128
Furniture and fixtures 173,273
Dies 111,072
Automobile and trucks 30,125
-----------
2,833,744
Less accumulated depreciation
and amortization 2,328,006
-----------
$ 505,738
============
(5) ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
A summary is as follows:
Trade accounts payable $ 488,201
Month end bills 128,218
Accrued salaries and payroll taxes 47,430
Unearned purchased discount 19,000
-----------
$ 682,849
===========
</TABLE>
Approximately $166,000 of the accounts payable and accrued expenses
balance is owed to two suppliers. Purchases from these suppliers
amounted to approximately $1,934,000 for the year ended February 29,
1996.
(6) BANK LINES OF CREDIT:
The Company has a revolving line of credit which expires on October 31,
1996 with a bank that allows for borrowings up to $1,200,000. The
Company also has a term loan with the bank. Interest is payable monthly
on the outstanding balance at .75% above the prime rate as published by
the Wall Street Journal.
The bank has a security interest in substantially all assets of the
Company and holds the personal guarantee of the officer-stockholder.
The Company must maintain certain financial ratios and covenants with
respect to the lines of credit, most of which it was not in compliance
with at February 29, 1996.
A summary of bank lines of credit is as follows:
<TABLE>
<CAPTION>
Short Long
TERM TERM TOTAL
<S> <C> <C> <C>
Borrowings under the
revolving line of credit $ 968,828 $ - $ 968,828
Term loan, payable in monthly
installments of $5,556,
plus interest at .75%
above the prime rate,
through November 30, 1998 66,660 116,673 183,333
---------- -------- ---------
$1,035,488 $116,673 $1,152,161
========== ========= =========
</TABLE>
The following table summarizes the aggregate maturities of the term
loan payable, bank:
<TABLE>
<CAPTION>
<S> <C>
Year ending February 28,
1997 $ 66,660
1998 66,660
1999 50,013
---------
$ 183,333
=========
</TABLE>
Total interest paid on all corporate obligations amounted to $144,584,
which includes related party interest of $26,851.
(7) OBLIGATIONS UNDER CAPITAL LEASES:
The Company leases equipment from unrelated parties under capital
leases. These leases are secured by related equipment costing $73,108.
The following is a schedule by years of future minimum lease payments
required under capital leases together with the present value of the
net minimum lease payments as of:
<TABLE>
<CAPTION>
Year ending February 28,
<S> <C>
1997 $ 22,196
1998 18,982
1999 15,100
2000 4,566
--------
Total minimum lease payments 60,844
Less amount representing interest 13,641
-------
Present value of net minimum
lease payments 47,203
Less current portion 14,668
--------
$ 32,535
========
</TABLE>
Depreciation expense for the year ended February 29, 1996 related to
these assets amounted to $12,851 and accumulated depreciation for these
assets was $20,720 at year end.
(8) PENSION PLAN:
The Company has pension plan covering only union employees. Total
contributions to the union welfare fund for the year ended February 29,
1996 amounted to $32,431.
(9) NOTE PAYABLE, OFFICER-STOCKHOLDER:
The note payable, officer-stockholder is due March 1, 1997 and is
unsecured, bears interest at 8.75% and is subordinated to the bank.
Interest paid to the officer- stockholder for the year ended February
29, 1996 amounted to $26,851.
(10) COMMITMENTS:
The Company leases its corporate office and manufacturing facilities
from the officer-stockholder of the Company on a month to month basis.
Rent expense amounted to $179,184 for the year ended February 29, 1996.
(11) SALE OF OPERATING ASSETS AND ASSUMPTION OF LIABILITIES -
TRANSACTION IN-PROCESS:
The Company is in the process of negotiating the sale of certain
operating assets to, and the assumption of certain corporate debts by,
an unrelated third party in exchange for cash, notes, a covenant not to
compete and an employment contract. The transaction has not been
completed as of February 29, 1996 and is subject to confidentiality
restrictions as well as the acceptance by both parties of the formal
agreements related to the transaction.
A summary of assets expected to be purchased and liabilities expected
to be assumed, based on balances as of February 29, 1996, is a follows
(the actual balances will be determined based on an agreed upon closing
date subsequent to February 29, 1996):
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
Accounts receivable-trade, short- $ 1,608,601
term
Accounts receivable-trade, long- 58,587
term* -----------
1,667,188
Less allowance for doubtful (143,683)
accounts -----------
$ 1,523,505
Property and equipment, net 505,738
Inventory 196,853
Prepaid insurance 9,619
Prepaid taxes - property 6,447
-----------
Assets to be purchased 2,242,162
-----------
LIABILITIES
Bank lines of credit $ 1,152,161
Accounts payable and accrued 515,492
expenses
Capital leases payable 47,203
-----------
Liabilities to be assumed 1,714,856
-----------
NET BOOK VALUE $ 527,306
===========
</TABLE>
* Personally guaranteed by the officer-stockholder of the
Company.
See accompanying independent auditors' report.
<PAGE>
POINTILLE, INC.
DBA MODERN OF CALIFORNIA
Board of Directors
Pointille, Inc.
dba Modern of California
Burbank, California
Our report on our audit of the basic financial statements of Pointille, Inc. dba
Modern of California for the year ended February 29, 1996 appears on page 1. The
audit was conducted for the purpose of forming an opinion on the basic financial
statements taken as a whole. The supplemental information on pages 12 through 15
is presented for purposes of additional analysis and is not a required part of
the basic financial statements. Such information has been subjected to the
auditing procedures applied in the audit of the basic financial statements, and,
in our opinion, is fairly stated in all material respects in relation to the
basic financial statements taken as a whole.
/s/ Stonefield Josephson
- ------------------------
ACCOUNTANCY CORPORATION
Santa Monica, California
April 8, 1996
<PAGE>
<TABLE>
<CAPTION>
POINTILLE, INC.
DBA MODERN OF CALIFORNIA
SCHEDULE OF NET SALES AND COST OF SALES
YEAR ENDED FEBRUARY 29, 1996
<S> <C>
SALES $ 7,767,056
Returns, allowances and 32,712
discounts -----------
$ 7,734,344
===========
COST OF SALES:
Beginning inventory $ 269,777
Purchases 3,335,996
Purchase discounts (16,210)
Labor 1,848,271
Manufacturing overhead 902,390
Sale of waste (171,903)
-----------
Ending inventory 6,168,321
196,853
-----------
$ 5,971,468
===========
</TABLE>
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTAL
INFORMATION.
<PAGE>
<TABLE>
<CAPTION>
POINTILLE, INC.
DBA MODERN OF CALIFORNIA
SCHEDULE OF MANUFACTURING OVERHEAD
YEAR ENDED FEBRUARY 29, 1996
AMOUNT PERCENT
<S> <C> <C>
Building maintenance and $ 17,313 .2%
supplies
Automobile and truck 25,795 .3
Depreciation 145,003 1.8
Employee welfare 12,495 .2
Hospitalization 172,874 2.2
Insurance - workers' 71,325 .9
compensation
Repairs and maintenance 91,198 1.2
Rent 179,184 2.3
Shop supplies and tools 57,134 .8
Union welfare fund 32,431 .4
Utilities 91,421 1.2
Waste disposal 6,217 .1
--------- -------
$ 902,390 11.6%
========= ========
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTAL
INFORMATION.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
POINTILLE, INC.
DBA MODERN OF CALIFORNIA
SCHEDULE OF OPERATING EXPENSES
YEAR ENDED FEBRUARY 29, 1996
AMOUNT PERCENT
Selling:
<S> <C> <C>
Salaries $385,373 5.0%
Payroll taxes 19,689 .3
Commissions 11,294 .1
Advertising 737
Automobile 43,504 .6
Dues and subscriptions 3,456
Entertainment 36,242 .5
Hotel charges 27,313 .3
Promotion 39,217 .5
Travel 51,610 .7
Trade shows 16,860 .2
--------- -------
635,295 8.2
========= =======
General and administrative:
Salaries - office $ 233,634 3.0%
Payroll taxes 20,163 .3
Bank charges 974
Christmas expense 18,079 .2
Collection expense 1,350
Computer expense 3,662
Consulting fees 1,690
Contributions 2,505
Delivery 231,346 3.0
Depreciation and amortization 35,124 .5
DMV fees 3,130
Equipment rental 6,160 .1
Insurance - general 57,425 .7
Messenger service 18,135 .2
Miscellaneous income (27,723) (.4)
Office supplies 24,243 .3
Penalty 234
Postage 5,100 .1
Professional fees 124,764 1.6
Provision for doubtful
accounts, net of recovery of 113,546 1.5
$1,362
Shipping supplies 29,425 .4
Taxes and licenses 38,136 .5
Telephone 57,384 .8
Temporary employment 9,534 .1
Gain on disposal of assets (800)
Unrealized loss of investment 6,000 .1
--------- -------
1,013,220 13.0
--------- -------
$1,648,515 21.2%
========== =======
</TABLE>
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTAL
INFORMATION.
<PAGE>
(b) Pro forma financial information. It is presently impracticable to
provide the pro forma financial information required to be included in this
Current Report on Form 8-K with respect to Pointille pending completion of such
pro forma financial information. Such pro forma financial information will be
filed under cover of an amendment to this Current Report on Form 8-K as soon as
practicable but in no event later than 60 days after the date on which this
Current Report on Form 8-K must be filed.
(c) The following documents are filed herewith as exhibits:
2 Asset Purchase Agreement dated as of May 17,
1996, by and among Disc Graphics, Inc.,
Pointille, Inc. and the Shareholder of Pointille
99 Press release dated May 23, 1996
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
DISC GRAPHICS, INC.
By:/S/ Donald Sinkin
---------------------
Name: Donald Sinkin
Title: President
Dated: May 31, 1996
<PAGE>
Exhibit No. Description Page No.
2 Asset Purchase Agreement dated as of May
17, 1996, by and among Disc Graphics, Inc.,
Pointille, Inc. and the Shareholder of
Pointille
99 Press release dated May 23, 1996
<PAGE>
EXECUTION COPY
ASSET PURCHASE AGREEMENT
Dated as of MAY 17, 1996
by and among
DISC GRAPHICS, INC.,
POINTILLE, INC. d/b/a
MODERN OF CALIFORNIA
and
THE SHAREHOLDER OF
POINTILLE, INC. d/b/a
MODERN OF CALIFORNIA
<PAGE>
TABLE OF CONTENTS
PAGE
SECTION 1. Certain Definitions.................................
SECTION 2. Transfer of Assets
2.1. Assets To Be Transferred ........................
2.2. Consents ........................................
SECTION 3. Consideration for Acquired Assets ..................
3.1. Amount of Purchase Price ........................
3.2. Payment of Purchase Price........................
3.3. Assumption of Liabilities........................
3.4. Bulk Sales Law Compliance........................
3.5. Allocation of Purchase Price ....................
3.6. Net Worth Adjustment ............................
SECTION 4. Representations and Warranties of Seller
and Shareholder ............................
4.1. Good Standing....................................
4.2. Authorization....................................
4.3. Subsidiary and Investments ......................
4.4. Financial Statements ............................
4.5. Liabilities......................................
4.6. Tax Returns......................................
4.7. Provision for Taxes..............................
4.8. Title to Assets; Liens and Encumbrances..........
4.9. Fixed Assets; Real Property; Leased
Premises ......................................
4.10. Trademarks, Service Marks, Trade Names,
Patents and Copyrights ........................
4.11. Insurance Policies ..............................
4.12. Contracts........................................
4.13. Purchase and Sales Commitments and Orders........
4.14. Labor Relations..................................
4.15. Legal Proceedings................................
4.16. Orders, Decrees, Etc.............................
4.17. Compliance With Law; Permits and Licenses........
4.18. Actions Not in Ordinary Course ..................
4.19. No Change........................................
4.20. Accounts Receivable..............................
4.21. Inventory........................................
4.22. Capital Projects and Expenditures................
4.23. Backlog..........................................
4.24. Compensation ....................................
4.25. Environmental Protection ........................
4.26. Employee Benefits................................
4.27. Governmental Approvals ..........................
4.28. Secrecy and Noncompetition Agreements............
SECTION 5. Representations and Warranties of Buyer ............
5.1. Good Standing....................................
5.2. Authorization....................................
SECTION 6. Conduct Prior to the Closing........................
6.1. Investigation by Buyer ..........................
6.2. Ongoing Operations ..............................
6.3. Conduct of Business..............................
6.4. Other Transactions ..............................
6.5. Consents ........................................
6.6. Plans, Leases and Contracts......................
6.7. Public Announcements ............................
6.8. Employee Benefit Plans ..........................
6.9. Notification ....................................
6.10 Supplemental Disclosure .........................
SECTION 7. Conditions of Buyer's Obligations to Close..........
7.1. Agreement and Conditions ........................
7.2. Representations and Warranties ..................
7.3. Loss, Damage or Destruction .....................
7.4. Opinion of Counsel ..............................
7.5. No Legal Proceeding .............................
7.6. Governmental Approval . ........................
7.7. Absence of Legal Impediment......................
7.8. Approval . . . . . . ...........................
7.9. Consents and Waivers ............................
7.10. Certificates . . . ..............................
7.11. Due Diligence . . ..............................
7.12. Deliveries . . . . . . ..........................
SECTION 8. Conditions of the Seller's Obligations to Close.....
8.1. Agreement and Conditions ........................
8.2. Representations and Warranties ..................
8.3. Opinion of Counsel ..............................
8.4. No Legal Proceeding .............................
8.5. Governmental Approval . ........................
8.6. Absence of Legal Impediment......................
8.7. Approval . . . . . . ...........................
8.8. Deliveries . . . . . ...........................
8.9. Certificates . . . . . .........................
SECTION 9. Deliveries of Seller................................
9.1. Title to Acquired Assets ........................
9.2. Opinion of Counsel ..............................
9.3. Changes of Name Certificate......................
9.4. Certificates ....................................
9.5. Consents ........................................
9.6. Good Standing Certificates ......................
9.7. Secretary's Certificate..........................
9.8. Authorization....................................
9.9. Possession of Acquired Assets....................
9.10. Employment Agreements ...........................
9.11. Lease ...........................................
9.12. Security Agreement ..............................
9.13. Registration Rights Agreement ...................
9.14. Other Deliveries ................................
SECTION 10. Deliveries of Buyer ...............................
10.1. Purchase Price ..................................
10.2. Opinion of Counsel ..............................
10.3. Secretary's Certificate..........................
SECTION 11. Additional Covenants ..............................
11.1. Name ............................................
11.2. Cooperation; Insurance ..........................
11.3. Authorization; Mail..............................
11.4. Further Assurances ..............................
11.5. Repairs, Returns and Allowances .................
SECTION 12. Confidentiality....................................
SECTION 13. Non-Competition....................................
13.1. Non-Competition..................................
13.2. Public Company Exception ........................
13.3. Non-Solicitation ................................
13.4. Specific Performance ............................
13.5. Severability ....................................
13.6. Territory........................................
13.7. Breach by Buyer..................................
13.8. Breach by Seller.................................
SECTION 14. Indemnification....................................
14.1. Indemnification of Buyer ........................
14.2. Indemnification of Seller and
Shareholder .....................................
14.3. Procedures for Indemnification ..................
14.4. Representations and Warranties of
Shareholder; Guarantee of Shareholder............
SECTION 15. Survival of Representations; Effect of
Certificates ...................................
15.1. Survival ........................................
15.2. Effect of Certificates ..........................
15.3. Notices .........................................
SECTION 16. Termination .......................................
SECTION 17. Fees and Disbursements ............................
SECTION 18. Brokers and Advisers ..............................
SECTION 19. Miscellaneous .....................................
19.1. Entire Agreement ................................
19.2. Public Announcements ............................
19.3. Taxes............................................
19.4. Governing Law....................................
19.5. Benefit of Parties; Assignment ..................
19.6. Pronouns ........................................
19.7. Headings ........................................
19.8. Consent to Jurisdiction and Service of
Process...................................
<PAGE>
EXHIBITS
PAGE
A Form of Opinion of Seller's Counsel..................... A-1
B Form of Opinion of Buyer's Counsel...................... B-1
C Form of Employment Agreement with William S. Pine. . . C-1
D Form of Employment Agreement with Josh Pine. . . . . . D-1
E Form of Sales Representative Agreement with
Pointille, Inc.. . . . . . . . . . . . . . . . . . . . E-1
F Form of Lease. . . . . . . . . . . . . . . . . . . . . F-1
G Form of Cancelable Promissory Note. . . . . . . . . . G-1
SCHEDULES
1.0 Excluded Assets
2.1 Acquired Assets
3.3 Assumed Liabilities
3.3A Assumed Contracts
3.3B Liabilities Not Assumed by Buyer
4.2A Consents of Seller
4.3 Subsidiaries/Investments
4.4 Annual Financial Statements
4.5 Liabilities
4.6 Tax Returns
4.8A Liens/Leases
4.9A Real Property/Fixed Assets
4.9B Leases
4.10 Proprietary Rights
4.11 Insurance
4.12 Contracts
4.13A Purchase/Sale Commitments and Orders
4.13B Customer Notices
4.15A Actions
4.15B Product Liability Actions
4.18 Certain Actions
4.20 Vacation Time
4.21 Accounts Receivable
4.22 Inventory
4.23 Capital Projects and Expenditures
4.24 Backlog
4.25 Compensation
4.26A Environmental Matters
4.26B Environmental Permits, Etc.
4.26C Certain Assets
4.27A Benefit Plans
4.27B Plan Assets
4.29 Secrecy and Non-competition Agreements
11.4A Consents of Parent
<PAGE>
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT dated as of May 17, 1996 (this "AGREEMENT")
by and among DISC GRAPHICS, INC., a Delaware corporation ("BUYER"), POINTILLE,
INC. d/b/a MODERN OF CALIFORNIA, a California corporation ("SELLER"), and the
shareholder of Seller whose name appears on the signature page hereof (the
"SHAREHOLDER").
W I T N E S E T H:
WHEREAS, Buyer desires to purchase from Seller and Seller desires to
sell to Buyer, all of the assets, properties, rights and business of Seller,
other than the Excluded Assets (as defined below), upon the terms and conditions
and for the purchase price hereinafter set forth; and
WHEREAS, Seller and Shareholder desire to induce Buyer to enter into
this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and for other good and valuable consideration set forth herein, the
parties hereto agree as follows:
SECTION 1. CERTAIN DEFINITIONS. For purposes of this Agreement, the
following terms shall have the respective meanings set forth below:
"ACCOUNTANTS" means Stonefield Josephson Accountancy Corporation,
independent public accountants of Seller.
"ACQUIRED ASSETS" mean all the assets, properties, rights and business
of Seller of every kind and description, wherever located, including, without
limitation, all property, tangible or intangible, real, personal or mixed, notes
and accounts receivable and other rights to receive payment owned by Seller,
claims, causes of action and rights of recovery or set-off, reserves,
prepayments, deferred and other charges, inventories (including, without
limitation, raw materials, finished goods, work-in-process and goods in transit)
(collectively, "INVENTORY"), packaging and other stores and supplies, machinery,
fixtures, equipment, tools, dies, jigs and molds, inventions, samples, models,
securities, claims and rights under Contracts of Seller, all rights to use the
name Modern of California, and all other names, trade names, trademarks, service
marks and applications therefor, if any, and slogans used by Seller in
connection with its business or products (other than the name "Pointille,
Inc."), all computer software owned or used by Seller, and all patents and
copyrights and applications therefor, if any, all trade secrets, know how,
concepts, applications, procedures, marketing and technical data, and all books,
records and documents of Seller (including, without limitation, files, customer
lists, marketing literature, blueprints, plans, specifications and drawings);
PROVIDED, HOWEVER, that the foregoing shall not include the Excluded Assets.
Without limiting the foregoing the "ACQUIRED ASSETS" shall include (i) all
assets, property, rights and business of Seller shown or reflected on the 1996
Balance Sheet, (ii) all assets, property, rights and business acquired by Seller
on or after the Balance Sheet Date and prior to the Closing Date, (iii) all
assets, properties, rights and business of Seller set forth on any Schedule or
Exhibit to this Agreement, except in each case for (a) inventory disposed of and
notes and accounts receivable collected prior to the Closing Date in the
ordinary course of business or otherwise in accordance with this Agreement and
(b) the Excluded Assets. To the extent that any assets, property, rights or
business of Seller is intended to be transferred to Buyer pursuant to the
general language of this Agreement but do not appear on the applicable Schedules
or Exhibits to this Agreement, the general language shall govern and such
assets, property, rights and business shall nonetheless be deemed transferred to
Buyer.
"ACTIONS" means any claims, actions, complaints, grievances, suits,
proceedings and investigations, whether at law, in equity or in admiralty or
before any court, arbitrator, arbitration panel or Governmental Authority.
"ACTUAL KNOWLEDGE" of Seller shall mean the actual knowledge of
William Pine, Lisa Pine or Joshua Pine, and such knowledge as a reasonably
prudent person would have in the ordinary exercise of his affairs in the
capacity in which his knowledge is at issue.
"AFFILIATE" of a party means any Person which, directly or indirectly,
controls, is controlled by or is under common control with such party.
"BALANCE SHEET" means the February 29, 1996 Balance Sheet.
"BALANCE SHEET DATE" means February 29, 1996.
"BASKET AMOUNT" has the meaning set forth in Section 14.3.
"CLOSING" means the closing of the transactions contemplated hereby,
which shall take place at the offices of Jeffer, Mangels, Butler & Marmaro LLP,
2121 Avenue of the Stars, 10th Floor, Los Angeles, California 90067, at 10:00
A.M. on the Closing Date, or at such other time or place as the parties may
agree upon in writing and shall be effective as of the opening of business on
such day.
"CLOSING DATE" means May 17, 1996 or on such other day as the parties
may agree in writing, effective 12:01 a.m. May 18, 1996.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMON STOCK" means Buyer's common stock, $.01 par value per share.
"CONTRACTS" mean all contracts, agreements, indentures, licenses,
leases, commitments, plans, arrangements, sales orders and purchase orders of
every kind, whether written or oral.
"DAMAGES" mean losses, liabilities, costs, damages, claims, taxes, and
expenses (including reasonable attorneys fees and disbursements).
"ENVIRONMENTAL LAWS" mean all federal, state, local and foreign
environmental, health and safety laws, codes and ordinances and all rules and
regulations promulgated thereunder, including, without limitation, laws relating
to emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous substances or wastes
into the environment (including, without limitation, air, surface water, ground
water, land surface or subsurface strata) or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, chemicals, or industrial,
solid, toxic or Hazardous Substances or Wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended and the rules and regulations promulgated thereunder.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCLUDED ASSETS" mean (i) the corporate seal, articles of
incorporation, minute books and stock books of Seller, (ii) the rights of Seller
under this Agreement, (iii) the lease related to the Leased Premises, (iv) cash
and (v) the Contracts and assets listed on Schedule 1.0 hereto.
"GAAP" means generally accepted United States accounting principles.
"GOVERNMENTAL AUTHORITY" means any agency, instrumentality,
department, commission, court, tribunal or board of any government, whether
foreign or domestic and whether national, federal, state, provincial or local.
"HAZARDOUS SUBSTANCES OR WASTES" means any hazardous or toxic
substance, material or waste which is or becomes regulated by any local
governmental authority, the State of California or the United States Government.
The term "Hazardous Substances or Wastes" includes, without limitation, (i) any
material or substance which is defined as a "hazardous waste," "extremely
hazardous waste" or "restricted hazardous waste" under Section 25115, 25117 or
25122.7, or listed pursuant to Section 25140, of the California Health and
Safety Code, Division 20, Chapter 6.5 (Hazardous Waste Control Law), (ii) any
material or substance which is defined as a "hazardous substance" under Section
25316 of the California Health and Safety Code, Division 20, Chapter 6.8
(Carpenter-Presley-Tanner Hazardous Substance Account Act), (iii) any material
or substance which is defined as a "hazardous material," "hazardous substance,"
or "hazardous waste" under Section 25501 of the California Health and Safety
Code, Division 20, Chapter 6.95 (Hazardous Materials Release Plans and
Inventory), (iv) any material or substance which is defined as a "hazardous
substance" under Section 25281 of the California Health and Safety Code,
Division 20, Chapter 6.7 (Underground Storage of Hazardous Substances), (v)
petroleum, (vi) asbestos, (vii) any material or substance which is listed under
Article 10 or defined as hazardous or extremely hazardous pursuant to Article 12
of Title 22 of the California Administrative Code, Division 4, Chapter 20,
(viii) all substances which are designated pursuant to Section 311(b)(2)(A) of
the Federal Water Pollution Control Act ("FWPCA"), 33 U.S.C 1251 ET SEQ.; (ix)
any element, compound, mixture, solution, or substance which is designated
pursuant to Section 102 of the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), 42 U.S.C. 9601 ET SEQ.; (x) any
hazardous waste having the characteristics which are identified under or listed
pursuant to Section 3001 of the Resource Conservation and Recovery Act ("RCRA"),
42 U.S.C. 6901 ET SEQ.; (xi) any toxic pollutant listed under Section 307(a) of
the FWPCA; (xii) any hazardous air pollutant which is listed under Section 112
of the Clean Air Act, 42 U.S.C. 7401 ET SEQ.; (xiii) any imminently hazardous
chemical substance or mixture with respect to which action has been taken
pursuant to Section 7 of the Toxic Substances Control Act, 15 U.S.C. 2601 ET
SEQ.; and (xiv) waste oil.
"LAWS" mean laws, rules, regulations, codes, orders, ordinances,
judgments, injunctions, decrees and policies.
"LEASED PREMISES" means the premises located at 3116 Vanowen Street,
Burbank, California 91505 leased by The William S. Pine and Lisa Pine 1982
Trust, dated January 21, 1982 to Seller pursuant to the lease agreement dated
September 1, 1984, as amended.
"LIABILITIES" mean debts, liabilities, obligations, duties and
responsibilities of any kind and description, whether absolute or contingent,
monetary or non-monetary, direct or indirect, known or unknown, matured or
unmatured, or of any other nature.
"LIEN" means any security interest, lien, mortgage, claim, charge,
pledge, restriction, equitable interest or encumbrance of any nature.
"MATERIAL ADVERSE CHANGE" means a change or development involving a
prospective change which would have a Material Adverse Effect.
"MATERIAL ADVERSE EFFECT" means, with respect to any Person, any
event, fact, condition, occurrence or effect which is materially adverse to the
business, properties, assets, liabilities, capitalization, shareholders equity,
financial condition, operations, or results of operations of such Person.
"NET WORTH" shall mean the Acquired Assets minus the Assumed
Liabilities, as shown on the applicable statement of net worth, which shall be
based upon the Balance Sheet at the date of such balance sheet.
"PERSON" means any natural person, corporation, business trust, joint
venture, association, company, firm, partnership, or other entity or government
or Governmental Authority.
"PROPRIETARY RIGHT" means any trade name, trademark, service mark,
patent or copyright and any application for any of the foregoing.
"REAL PROPERTY" means all real property, land, buildings, improvements
and structures owned or used by Seller.
"RETURNS" mean all returns, declarations, reports, estimates,
information returns and statements required to be filed with or supplied to any
taxing authority in connection with any Taxes.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARE PRICE" means the average closing price for the Common Stock on
the ten trading days ending six business days prior to the Closing, as reported
on the primary exchange or reporting system on which the Common Stock is listed
or quoted.
"TAXES" mean all taxes, charges, fees, levies or other assessments,
including, without limitation, income, gross receipts, excise, real and personal
property, sales, transfer, license, payroll and franchise taxes, imposed by any
Governmental Authority and shall include any interest, penalties or additions to
tax attributable to any of the foregoing.
"TERRITORY" means the United States of America and the Republic of
Mexico.
SECTION 2. TRANSFER OF ASSETS.
2.1 ASSETS TO BE TRANSFERRED. Based upon and subject to the terms,
agreements, warranties, representations and conditions of this Agreement, Seller
hereby sells, conveys, transfers, assigns and delivers to Buyer and Buyer hereby
buys and accepts, the Acquired Assets. Set forth on Schedule 2.1 is a list of
the Acquired Assets as of the date hereof.
2.2. CONSENTS. To the extent that the assignment of or the agreement to
assign any Contract to Buyer hereunder would constitute a breach of that
Contract unless the consent or waiver of another party thereto has been
obtained, this Agreement shall not constitute any such assignment or agreement
to assign unless and until such consent or waiver is obtained. If any such
consent or waiver will not have been obtained before Closing Date and the
Closing is nevertheless consummated, Seller and Shareholder agree to continue to
use their best efforts to obtain all such consents as have not been obtained
prior to such date and further agrees to cooperate with Buyer after such date in
any reasonable arrangement (such as subcontracting, sublicensing or subleasing)
designed to provide for Buyer, on terms no less favorable than Seller is
entitled to, the benefits under the applicable Contracts, including, without
limitation, enforcement, at the cost and for the benefit of Buyer, of any and
all rights of Seller against any other party thereto arising out of the breach
or cancellation thereof by such party or otherwise.
SECTION 3. CONSIDERATION FOR ACQUIRED ASSETS.
3.1. AMOUNT OF PURCHASE PRICE. The total consideration (the "PURCHASE
PRICE") to be paid by Buyer for the Acquired Assets shall be One Million Three
Hundred Fifty-Five Thousand Dollars ($1,355,000), subject to adjustment pursuant
to paragraph 3.7.
3.2 PAYMENT OF PURCHASE PRICE. At the Closing, Buyer shall pay to Seller
the Purchase Price as follows:
(a) Seven Hundred Seventy-Five Dollars ($775,000) of the Purchase
Price (the "INITIAL Payment"), by the delivery by Buyer to Seller of a certified
or bank cashier's check in such amount payable to the order of Seller or, on
Seller's written request, by means of a wire transfer in such amount to an
account number and depository designated by Seller; and
(b) Buyer shall issue to Seller such number of shares of Purchaser's
Common Stock (the "Shares") as are equal to $250,000 divided by the Share Price.
Buyer shall file and use commercially reasonable efforts to cause to become
effective, on or before the one year anniversary of the Closing Date, a
registration statement on an appropriate form with respect to one-third (1/3) of
the Shares for resale of such shares. In satisfaction of Buyer's obligation
pursuant to the immediately preceding sentence, Buyer may elect not to file such
a registration statement in which case, upon written request to Buyer from
Seller, Buyer shall purchase from Seller, and Seller may sell to Buyer, up to
one-third (1/3) of the Shares at the closing price of the Common Stock on the
day of receipt by Buyer of written notice from Seller (accompanied by the
certificate or certificates representing one-third of the Share Issuance and a
stock power or stock powers duly endorsed in blank) at any time and from time to
time from the first anniversary until the second anniversary of the date of the
Closing; provided, however, that Seller shall sell no less than 5,000 shares at
a time; provided, further, that from the date of the second anniversary of the
Closing, Buyer shall have no obligation to file the registration statement
provided for in this subsection 3.2(b).
(c) Buyer shall execute and deliver a cancelable promissory note
("Cancelable Promissory Note") on the form of Exhibit G hereto in the amount of
$330,000 to Seller, which shall provide that the Cancelable Promissory Note
shall be canceled and all obligations thereunder shall cease, in the event the
William S. Pine ceases for any reason other than discharge without cause, to be
employed by Buyer.
3.3. ASSUMPTION OF LIABILITIES. Set forth on Schedule 3.3 are the
Liabilities of Seller (i) under the Contracts set forth on Schedule 3.3A, but
solely to the extent that obligations thereunder would not be a Liability of
Seller not assumed by Buyer pursuant to the second sentence hereafter (the
"ASSUMED CONTRACTS"), (ii) under sales commitments and orders and purchase
commitments and orders outstanding on the Closing Date and (iii) any guaranties
of Shareholder of any liability in clauses (i) and (ii) (the Liabilities
referred to in clauses (i) through (iii) of this sentence being hereinafter
collectively called the "ASSUMED LIABILITIES"). As additional consideration
hereunder, from and after the Closing Date Buyer shall assume and discharge the
Assumed Liabilities. Except as provided in the preceding sentence, and
notwithstanding anything else to the contrary contained herein, Buyer is not
assuming and shall not be liable for any Liabilities of Seller, including,
without limitation, any Liabilities (i) under Contracts which shall not have
been assigned to Buyer pursuant to this Agreement (including the lease relating
to the Leased Premises and any employment or consulting contracts); (ii) for
indebtedness for borrowed money not set forth on Schedule 3.3; (iii) by reason
of or arising out of any default or breach by Seller of any Contract, for any
penalty against Seller under any Contract, or relating to or arising out of any
event which with the passage of time or after giving of notice, or both, would
constitute or give rise to such a breach, default or penalty, whether or not
such Contract is being assigned to and assumed by Buyer pursuant to this
Agreement; (iv) the existence of which would conflict with or constitute a
breach of any representation, warranty or agreement of Seller contained herein;
(v) relating to or in any way arising out of the Excluded Assets; (vi) for fees
and disbursements of the type referred to in Sections 17 and 18 hereof which are
incurred by Seller; (vii) to any shareholder or Affiliate of Seller or to any
present or former employee, officer or director of Seller including, without
limitation, any bonuses, any termination or severance pay related to the
transfer of employees to Buyer in connection with the transactions contemplated
hereby, and any post-retirement medical benefits or other compensation or
benefits; (viii) relating to the execution, delivery and consummation of this
Agreement and the transactions contemplated hereby, including, without
limitation, any and all Taxes incurred as a result of the sale contemplated by
this Agreement; (ix) for any Taxes accrued or incurred prior to the Closing Date
or relating to any period (or portion of a period) prior thereto; (x) relating
to or arising out of any environmental matter relating to the conduct or
operation of the business of Seller prior to the Closing Date, including,
without limitation, any violation of any Environmental Law or any other Law
relating to health and safety of the public or the employees of Seller, and any
environmental compliance, remedial and clean-up Liabilities; (xi) relating to,
or arising out of, products manufactured or services rendered by Seller, or the
conduct or operation of the business of Seller, prior to the Closing Date; (xii)
relating to, or arising out of, any employee benefit plan which the Seller
maintains or to which Seller contributes; (xiii) the Liabilities listed or
described on Schedule 3.3B; and (xiv) arising under or pursuant to this
Agreement; PROVIDED, FURTHER, that Buyer shall have the right not to assume any
Contract if any party to such Contract is in breach thereof or default
thereunder as of the Closing Date or there has occurred any event which with the
passage of time or after giving of notice, or both, would become such a breach
or default. Buyer shall not assume or be bound by any Liabilities of Seller,
except as expressly assumed by it pursuant to this Agreement. Seller and
Shareholder, jointly and severally, hereby agree to indemnify and hold Buyer
harmless from and against any and all Liabilities of Seller not agreed to be
assumed by Buyer pursuant to this Agreement. Nothing contained in this paragraph
3.3 shall relieve or release Seller or Shareholder from any obligations under
covenants, warranties or agreements contained in this Agreement.
3.4. BULK SALES LAW COMPLIANCE. Except for Assumed Liabilities, Seller
agrees to pay and discharge all claims of creditors which may be asserted
against Buyer by reason of Seller's noncompliance with the provisions of the
Bulk Sales Law of any State which may require Bulk Sales Law compliance on
account of the provisions herein and the transactions contemplated hereby, and
Seller and Shareholder, jointly and severally, agree to indemnify and hold Buyer
harmless from and against Damages suffered or incurred by Buyer by reason of or
arising out of (a) the failure of Seller to pay or discharge the same when due
or (b) such noncompliance with any applicable Bulk Sales Law.
3.5. ALLOCATION OF PURCHASE PRICE. Buyer and Seller have prepared an
allocation of the Purchase Price and other consideration to be paid pursuant to
this Agreement on Internal Revenue Service Form 8594, in accordance with Section
1060 of the Internal Revenue Code of 1986, as amended, and the regulations
thereunder, as set forth on Schedule 3.5. Any adjustments to the Purchase Price
or other consideration paid pursuant to this Agreement shall result in an
appropriate adjustment to such allocation. Seller and Buyer shall timely file
with the appropriate governmental authorities copies of said Form 8594 as
prepared by Buyer and Seller and shall utilize the allocation of the Purchase
Price and other consideration paid pursuant to this Agreement contained on said
Form 8594 in the preparation of any tax returns and forms (including attachments
thereto) which relate to the transactions contemplated hereby. Neither Seller
nor Buyer shall file any tax return containing an allocation of the Purchase
Price that differs from an allocation established pursuant to this paragraph
3.5.
3.6. 1995 AND 1996 FINANCIAL STATEMENTS. Promptly following the date hereof
and prior to the Closing Date, Seller shall have delivered to Buyer the audited
balance sheets of Seller as at February 29, 1996 and February 28, 1995 (the
"1996 AND 1995 BALANCE SHEETS"), and the related audited statements of income,
retained earnings and cash flows of Seller for the one- year periods ended on
such dates, together with the related notes thereto (collectively, the "ANNUAL
FINANCIAL STATEMENTS"), accompanied by the audit work papers for the 1996 audit
of the Accountants and an unqualified opinion and special report as specified in
Section 3.7(b) hereof. The Annual Financial Statements shall be certified by the
Accountants.
3.7. NET WORTH ADJUSTMENT.
(a) Promptly after the Closing Date, Seller shall prepare, and the
Accountants shall audit, a statement of assets and liabilities actually assumed
by Buyer as at the Closing Date (the "CLOSING DATE NET WORTH STATEMENT"). The
Closing Date Net Worth Statement shall set forth on its face the Net Worth as at
the Closing Date (the "CLOSING DATE NET WORTH"). The Closing Date Net Worth
Statement shall be (i) prepared in accordance with GAAP, applied on a consistent
basis throughout the period indicated and on a basis consistent with the
preparation of the corresponding Seller Financial Statements as at, or for the
years ended, February 29, 1996 and February 28, 1995 and (ii) audited by the
Accountants in accordance with generally accepted auditing standards and this
Agreement.
(b) Within 14 days following the Closing Date, Seller shall deliver to
Buyer the Closing Date Net Worth Statement, together with the audit working
papers of the Accountants and an opinion and special purpose report of the
Accountants certifying without qualification that (i) their examination of the
Closing Date Net Worth Statement was made in accordance with generally accepted
auditing standards and accordingly included such tests of the accounting records
and such other audit procedures as they considered necessary in the
circumstances, and (ii) the Closing Date Net Worth Statement has been prepared
in accordance with GAAP, applied on a consistent basis throughout the periods
indicated and on a basis consistent with the preparation of the corresponding
Annual Financial Statements as at or for the years ended February 29, 1996 and
February 28, 1995 and fairly present the net worth of Seller, as at the Closing
Date.
(c) Within 30 days of the Closing Date, Seller or Buyer shall pay the
other party by wire transfer to a bank account designated in writing by the
other party the following applicable amount:
(i) If the net worth as set forth on the Closing Date Net Worth
Statement (the "Closing Date Net Worth") is less than Six Hundred Fifty
Thousand Dollars ($650,000), then the Seller shall pay Buyer such shortfall
(the "Shortfall").
(ii) If the Closing Date Net Worth is greater than Six Hundred Fifty
Thousand Dollars ($650,000) but less than Six Hundred Seventy Thousand
Dollars ($670,000), then neither party shall pay any amount hereunder.
(iii) If the Closing Date Net Worth is Six Hundred Seventy Thousand
Dollars ($670,000) or greater, then Seller shall provide copies of all
filings of Seller with respect to the payment of tax required pursuant to
Section 19.2 hereof and promptly following receipt thereof, Buyer shall pay
an amount equal to one-half (1/2) of the tax to be paid by Seller pursuant
to Section 19.2 hereof.
(d) Within 45 days following receipt by Buyer of the Closing Date Net
Worth Statement, the accompanying working papers and the opinion and special
purpose report, Buyer shall deliver to Seller a letter (i) stating that Buyer
concurs with the Closing Date Net Worth Statement or (ii) setting forth Buyer's
objections to the Closing Date Net Worth Statement. If Buyer shall not have sent
to Seller any communication within such 45 day period, Buyer shall be deemed to
have accepted the Closing Date Net Worth Statement. Buyer agrees not to dispute
the reserves for accounts receivable set forth in the Closing Date Net Worth
Statement. If Buyer and Seller are unable to resolve Buyer's objections to the
Closing Date Net Worth Statement within 15 days after receipt by Seller of such
letter, any such objections as remain unresolved shall be resolved by final
binding arbitration of the Los Angeles office of Coopers & Lybrand L.L.P. (the
"Referee"). If the Referee determines that the resolution of a given disputed
item requires an interpretation of law, then the Referee may request a legal
opinion of a law firm selected by the Referee, so long as such firm has no
client relationship with any party hereto, as to such matter. The unresolved
disputed items, if any, will be solely as determined by the Referee. The cost of
such Referee's review (including reasonable attorneys' fees, if any) shall be
borne by the party or parties as determined by the Referee. If the Net Worth as
determined by the Referee is greater or less than the amount set forth on the
Closing Date Net Worth Statement, then promptly following receipt of such
determination, and in any event no later than 3 business days following receipt
thereof, the Buyer or Seller, as the case may be, shall pay the other such party
by wire transfer an amount so that the amount that would have been required
under Section 3.7(c) had such payment been made based on the Net Worth as
determined by the Referee shall have been paid.
(e) During the period of Seller's preparation of the Closing Date Net
Worth Statement, Buyer and KPMG Peat Marwick LLP, Buyer's independent auditors
("KPMG"), shall be permitted to observe the audit and review the audit working
papers of the Accountants and shall have such access to Seller's personnel,
books, records and files, and shall receive such cooperation from Seller and the
Accountants, as may reasonably be requested by Buyer or KPMG in connection with
such observation and review. During the preparation of the Closing Date Net
Worth Statement and the period of any dispute within the contemplation of this
Section 3, Buyer shall (i) provide Seller and its authorized representatives,
upon reasonable notice, copies of all such books, records and documents
reasonably necessary to prepare the Closing Date Net Worth Statement and resolve
any dispute related thereto, to the extent required for the preparation of the
Closing Date Net Worth Statement and any dispute related thereto.
(f) Within 150 days of the Closing Date, or if later, within 30 days
following resolution of the last objection pursuant to Section 3.6(e) hereof,
Buyer shall prepare and deliver to Seller a final net worth statement (the
"Final Net Worth Statement") which shall be without reserves and shall otherwise
reflect the line items and, other than accounts receivable and trade receivable
- - long-term, the amounts set forth on the Closing Net Worth Statement except
that in place of the accounts receivable shall be the total amount actually
received by Buyer through the 120th day following the Closing Date (the
"Reckoning Date") with respect to accounts receivable set forth on the Closing
Date Net Worth Statement (the "Actual Receivables"). The Final Net Worth
Statement shall set forth on its face the difference between the assets and
liabilities set forth therein (the "Final Net Worth"). Within 15 days following
receipt by Seller of the Final Net Worth Statement, Seller shall deliver to
Buyer a letter (i) stating that Seller concurs with the Final Net Worth
Statement or (ii) setting forth Seller's objection to the Final Net Worth
Statement. Any objection shall be resolved in accordance with the procedures set
forth in the fourth, fifth and sixth sentences of 3.7(d).
(g) To the extent that the Final Net Worth Statement plus any Shortfall
is less than $725,000 (the "A/R Shortfall"), Buyer shall first seek
indemnification under 14.1(g) and (h), if any, and then shall recoup one-half of
such amount (after taking into account amounts recovered pursuant to Section
14.1(g) and (h)) by deducting first from payments due to Seller under the
Cancelable Promissory Note and then, to the extent not recovered from such
payments, from the amounts withheld from the compensation to be paid to William
S. Pine ("Pine") under the Employment Agreement (the "Pine Employment
Agreement") to be entered into between Buyer and Pine pursuant to Section 9.11
hereof in accordance with the terms thereof. In the event Buyer receives a
payment with respect to accounts receivable for which amounts were deducted
under this Section 3.7(g) (the "Stale Payments") after Buyer has obtained
indemnification and/or recoupment set forth above, then Buyer shall retain
one-half of such Stale Payment as recoupment and shall pay to Seller one- half
of such Stale Payment. In the event Buyer receives a Stale Payment before Buyer
has obtained indemnification and/or recoupment as set forth above, then Buyer
shall retain one-half of such Stale Payment as recoupment and the Seller's
one-half of such Stale Payment to the extent necessary to fully recoup one- half
of the A/R Shortfall. If Buyer fully recoups its half of the A/R Shortfall and
the Final Net Worth Statement plus the total of all Stale Payments exceeds
$725,000, then Buyer shall retain all further Stale Payments.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDER. Seller
and Shareholder hereby, jointly and severally, warrant and represent to and
agree with Buyer as follows:
4.1. GOOD STANDING. Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of California, has
requisite corporate power and authority to own, lease and operate its properties
and assets and to conduct its business as now being conducted. Seller is not
qualified to conduct business in any other jurisdictions and there are no other
jurisdictions in which the failure to be qualified or licensed as a foreign
corporation would have a Material Adverse Effect on Seller.
4.2. AUTHORIZATION. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by the Board of Directors of Seller, and the shareholders of Seller, and all
other corporate action of Seller, including all shareholder approvals,
authorizations and ratifications, necessary to authorize the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby and thereby have been taken. This Agreement constitutes the valid and
binding obligation of Seller enforceable against it in accordance with the terms
hereof. Except as set forth on Schedule 4.2 hereto. No consent of any lender,
trustee, security holder of Seller or any shareholder of Seller, or other Person
is required for Seller to enter into and deliver this Agreement or to consummate
the transactions contemplated hereby. Neither the Articles of Incorporation nor
By-Laws of Seller conflict with or restrict the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby. No
Contract, mortgage or other instrument to which Seller is a party or by which
Seller is bound or affecting any of its respective properties conflicts with or
restricts the execution and delivery of this Agreement or the consummation of
the transactions contemplated hereby, except for any such conflict, violation,
breach, default, termination, cancellation or acceleration that, individually or
in the aggregate, does not have, and would not reasonably be expected to have, a
Material Adverse Effect or materially impair the ability of Seller to perform
its obligations hereunder.
4.3. SUBSIDIARY AND INVESTMENTS. Except as set forth on Schedule 4.3
hereto, Seller has no direct or indirect subsidiaries and has not made any
advances to or investments in, and does not own any securities of or other
interests in, any firm, corporation, association, business organization,
enterprise or entity.
4.4. FINANCIAL STATEMENTS. Upon delivery thereof by Seller to Buyer, the
Annual Financial Statements in each case shall be true and complete in all
material respects and shall have been prepared in conformity with GAAP applied
consistently and shall fairly present in all material respects the financial
position, results of operations and changes in financial position of Seller as
at, or for the periods ended on, such dates. Since the Balance Sheet Date,
Seller has conducted its business in a consistent manner without material change
of policy or procedure except as set forth on Schedule 4.4, including, without
limitation, its practices in connection with the treatment of expenses, burdens,
valuations of inventory and selling and purchasing policies. Since February 28,
1993, the records and books of account of Seller have been regularly kept and
maintained in conformity with GAAP consistently applied.
4.5. LIABILITIES. On the Balance Sheet Date, there were no Assumed
Liabilities of Seller (including, but not limited to, Liabilities for Taxes
relating to any prior period) that would be required under GAAP to be reflected
in a balance sheet of Seller, other than those Liabilities disclosed or provided
for on the Balance Sheet. On the date hereof and on the Closing Date, there are
no and will be no other Assumed Liabilities of Seller except (i) those incurred
since the Balance Sheet Date, in the ordinary course of the business of Seller,
and not in violation of or in conflict with any of the terms, agreements,
warranties, representations and conditions of Seller contained in this
Agreement, and (ii) those set forth in Schedule 4.5 hereto.
4.6. TAX RETURNS. Seller, including any predecessor of Seller
(collectively, the "TAXPAYERS"), has timely filed, or caused to be timely filed,
or through the Closing Date will timely file, or will cause to be timely filed,
all Returns required to be filed by them, and all such Returns are or will be
complete and accurate and comply in all respects with all applicable legal
requirements. Seller has delivered to Buyer true and complete copies of all
Returns filed by the Taxpayers for each of their past five fiscal years ended
February 28, 1995. Except as set forth on Schedule 4.6, Taxpayers' Returns have
not been audited by the U.S. Internal Revenue Service or any other Governmental
Authority, nor is any such audit scheduled or pending. The Taxpayers have not
requested any, and there are no outstanding, waivers or extensions of time
relating to the filing of any Return. Any deficiency assessments with respect to
Taxpayers' Returns have been paid by Taxpayers. Taxpayers have not given any
waivers or comparable consents to the application of the statute of limitations
to any Taxes or Returns, nor is any such waiver or consent outstanding. There
are no tax sharing or similar agreements with respect to any Taxes paid or
payable by Taxpayers. Taxpayers have not made a disclosure on a Tax Return
pursuant to Code Section 6662(d)(2)(B)(ii) and the Regulations thereunder.
Except as provided in Treasury Regulation Section 1.1502-6, Seller has no
liability for the Taxes of any other party (i) as a transferee or successor,
(ii) by contract, or (iii) otherwise.
4.7 PROVISION FOR TAXES. Taxpayers have timely paid and through the Closing
Date will have timely paid, all Taxes due and payable on or before such date
(whether or not shown on a Return). Taxpayers have, and through the Closing Date
will have, established on its books and records reserves that are adequate for
the payment of all Taxes attributable to any period (or portion of a period) or
event occurring on or before the Closing Date, but which are not due and payable
on or before the Closing Date. The provisions for Taxes of Seller shown on the
Balance Sheet are sufficient for the payment of all such Taxes not theretofore
paid, whether or not disputed, for the period then ended and for all periods
prior thereto. The provision for employment withholding and payroll taxes made
by Seller through the Closing Date will be adequate to pay all unpaid
liabilities for such taxes through the Closing Date and Seller has within the
time and in the manner prescribed, withheld from employees' wages and paid over
to the proper Governmental Authority all amounts required to be so withheld and
paid over under all applicable Laws. Each of the representations in this Section
4.7 is made only to the extent Buyer suffers Damages or suffers a diminution in
a tax or other benefit to Buyer as the result of a breach of a representation
contained in this Section 4.7.
4.8. TITLE TO ASSETS; LIENS AND ENCUMBRANCES. Except as set forth on
Schedule 4.8, Seller is the owner of, and has good and marketable title to, all
of the assets reflected on the Balance Sheet in the categories set forth therein
and to all of the assets acquired by Seller since the Balance Sheet Date, free
and clear of all Liens except for (a) inventories and other assets sold and
receivables collected in the ordinary course of business of Seller since the
Balance Sheet Date or (b) the Liens, if any, set forth on the Balance Sheet or
on Schedule 4.8A hereto. Seller owns, or has the valid and enforceable right to
use, all of the tangible personal property assets used by it in the operation
and conduct of its business, or required by Seller for the normal conduct of its
business. The Acquired Assets constitute all of the material assets used in,
related to or required by Seller for, the normal conduct of its business as
currently conducted.
4.9. FIXED ASSETS; REAL PROPERTY; LEASED PREMISES.
(a) Schedule 4.9A hereto sets forth a true and complete list and
description as at the Balance Sheet Date of all tools, equipment, machinery,
motor vehicles, fixtures and other fixed assets owned or used by Seller having
an original cost of more than $1,000, indicating the owner and location thereof,
the cost (and tax basis if other than cost) applicable thereto, the accumulated
depreciation thereof, and the method of depreciation employed. Each of the fixed
assets owned or used by Seller (including, without limitation, all buildings,
land and equipment leased by Seller) is in good repair and operating condition,
subject to ordinary wear and tear. The dollar amount of the fixed assets owned
by Seller as shown on the Balance Sheet does not in any case exceed the cost of
the same, less any previous write-downs and less depreciation determined in
accordance with GAAP consistently applied, and Seller has not written up the
value of any such fixed assets. Seller owns no Real Property. Seller has in its
possession and has maintained in good and usable condition, ordinary wear and
tear excepted, all property of third parties used by and held by Seller in its
business. All Real Property used by Seller constitutes Leased Premises (as
defined below).
(b) Schedule 4.9B sets forth a true and complete list of each lease of
premises executed by or binding upon Seller as lessee, sub-lessee, tenant or
assignee (the "LEASED PREMISES") setting forth in each case a brief description
of the premises covered thereby, the rental payable thereunder and the term
(including any extensions available) thereunder. Except as set forth on Schedule
4.9B, each such lease will be in full force and effect on the Closing Date
without any default or breach thereof by Seller or any other party thereto.
Except as set forth on Schedule 4.9B, no consent of any landlord or any other
party is required under any such lease in order to keep such lease in full force
and effect after the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby (including, without
limitation, the full performance of the Transition Agreement). True and complete
copies of all leases required to be listed on Schedule 4.9B, including all
amendments, addenda, waivers and all other binding documents affecting the
tenant's rights thereunder, have heretofore been delivered to Buyer. Except as
set forth on Schedule 4.9B, there are no violations of any Law that affect or
purport to affect any of the Real Property or any of the operations thereon,
except for any such violation that would not reasonably be expected to have a
Material Adverse Effect. All water, utility and other charges, sewer rent and
assessments affecting the Leased Premises or any part thereof, and all Taxes
imposed against or affecting the Leased Premises or any part thereof, have been
paid in full, accrued or reflected on the Balance Sheet or, since the Balance
Sheet Date, incurred in the ordinary course of business. Seller has not received
written notice of any assessments, and has no Actual Knowledge of any pending
assessments, affecting the Leased Premises. Except as set forth on Schedule 4.9B
hereto, the Leased Premises and the use thereof conform in all material respects
with all covenants and restrictions and all applicable building, zoning,
environmental, land use and other Laws and no failure of the Leased Premises or
their use to so conform will have a Material Adverse Effect on the business,
assets, liabilities, obligations, financial condition or results of operations
of Seller. The Leased Premises are in good and usable condition and no material
maintenance or repairs are required to be made thereto other than normal routine
maintenance (which normal maintenance will not affect Seller's ability to use
the Leased Premises).
4.10. TRADEMARKS, SERVICE MARKS, TRADE NAMES, PATENTS AND COPYRIGHTS.
Schedule 4.10 hereto sets forth a true and complete list of all Proprietary
Rights used by Seller in the conduct of its business. Except as indicated on
Schedule 4.10, each such Proprietary Right is owned by Seller and is not subject
to any license, royalty arrangement or dispute. No other Proprietary Rights are
used in or are necessary for the conduct of Seller's business as now conducted.
To the Seller's Actual Knowledge, none of such Proprietary Rights nor any
product manufactured or sold, or manufacturing process, trade secret, customer
list or know-how used, by Seller infringes any Proprietary Right or other such
right of any other Person. To the Seller's Actual Knowledge, no Proprietary
Right of, product manufactured or sold by, or manufacturing process, trade
secret, customer list or know-how used by, any other Person infringes or
conflicts with any Proprietary Right heretofore or presently used by Seller. No
claim has been asserted or, to Seller's Actual Knowledge, overtly threatened, by
any Person with respect to the ownership, validity, license or use of, or any
infringement resulting from, any of the Proprietary Rights used by Seller or the
production, provision or sale of any services or products by Seller and, to
Seller's Actual Knowledge, there is no basis for any such claim. Seller has the
right to produce, provide and sell the services and products produced, provided
and sold by it and to conduct its business as heretofore conducted, and the
consummation of the transactions contemplated hereby will not alter or impair
any such rights. No trademark, service mark or trade name used by Seller,
including, without limitation, the names Pointille, Inc. and Modern of
California infringes any trademark, service mark or trade name of others in the
United States of America or any other country in which such trademark, service
mark or trade name is used by Seller. No shareholder, officer, director or
employee of Seller or their respective Affiliates respective owns or has any
interest in any Proprietary Rights or any trade secret, invention or process, if
any, used by Seller in connection with its business.
4.11. INSURANCE POLICIES. Schedule 4.11 hereto sets forth a true and
complete list of all insurance policies held by Seller. True and complete copies
of all such policies have heretofore been provided by Seller to Buyer. All
premiums due to the Closing Date on such policies will have been paid in full.
All pending claims, if any, made against Seller which are covered by insurance
are being defended by the appropriate insurance companies and are described on
Schedule 4.11 hereto. Seller has not failed to give any notice or present any
claim under any such policy in a timely fashion. Such insurance to the date
hereof has, and to the Closing Date will have, (a) been maintained in full force
and effect and (b) not been canceled or changed except to extend the maturity
dates thereof. No policy of Seller has been canceled by the issuer thereof, nor
have the premiums on any such policy (except for workers' compensation) been
increased by more than 3.0% over the prior period.
4.12. CONTRACTS. Except for the leases described in Schedule 4.9B hereto,
the purchase and sales commitments and orders listed on Schedule 4.13A hereto
and the insurance policies listed on Schedule 4.11 hereto and except as set
forth on Schedule 4.12 hereto, Seller is not a party to, or subject to or bound
by, any Contract, including, without limitation, any (i) lease; (ii) royalty,
distribution, agency, territorial or license agreement; (iii) Contract (for
employment or otherwise) with any officer, employee, director or shareholder or
Affiliate of the foregoing or any professional person or firm, consultant,
independent contractor or advertising firm or agency; (iv) Contract or
collective bargaining agreement with any labor union or representative of
employees other than the Collective Bargaining Agreement by and among Seller,
United Paperworkers International Union AFL-CIO and its Unity Local No. 307; (v)
Contract guaranteeing the payment or performance of the obligations of others;
(vi) Contract pursuant to which indebtedness may be incurred; (vii) group health
or life insurance, pension, profit sharing, retirement, medical, bonus,
incentive, severance, stock option or purchase plan or other similar benefit
plan in effect with respect to its employees or others; (viii) Contract limiting
the freedom of Seller to engage in any line of business or to compete with any
Person; or (ix) Contract not entered into in the ordinary course of business
which involves $1000 or more and is not cancelable without penalty within 30
days. True and complete copies of all Assumed Contracts listed on Schedule 4.12
have heretofore been delivered by Seller to Buyer. Except as set forth on
Schedule 4.12, no Assumed Contract to which Seller is a party or to which it is
subject or by which it is bound (i) requires the consent of any other Person by
reason of the execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby or (ii) was entered into other than in the
ordinary course of business, consistent with past practice. Each of the Assumed
Contracts to which Seller is a party or to which it is subject or by which it is
bound (including, without limitation, those set forth on Schedules 4.12 and
4.13A hereto and the insurance policies listed on Schedule 4.11 hereto) is a
valid and subsisting Contract of Seller and, to the Actual Knowledge of Seller,
of all of the parties thereto in full force and effect without modification. No
Assumed Contract with any Governmental Authority requires a novation in order to
be assigned or transferred to Buyer. Except as set forth on Schedule 4.12 or
4.13A hereto, all Assumed Liabilities, including, without limitation, all
amounts owed for borrowed money, may be prepaid in whole or in part at any time
by Seller or Buyer without premium or penalty. Seller has performed all material
obligations required to be performed by it and is not in default under any
Assumed Contract, instrument or other document to which it is a party or to
which it is subject or by which it is bound, and no event has occurred
thereunder which, with or without the lapse of time or the giving of notice, or
both, would constitute a default by it thereunder. To Seller's Actual Knowledge,
no other party is in default under any such Contract, instrument or other
document. No Assumed Contract to which Seller is a party or to which it is
subject or by which it is bound is subject to unilateral changes in terms by any
other party or parties thereto. Except as set forth on Schedule 4.12, none of
the shareholders of Seller is a party to or subject to or bound by any Assumed
Contract or has any right which in any way relates to the business of Seller.
4.13 PURCHASE AND SALES COMMITMENTS AND ORDERS. Schedule 4.13A hereto sets
forth a list of all purchase commitments and orders of Seller as of the date
immediately preceding the date hereof and as of the Closing Date, and which are
Assumed Contracts, involving more than $2,500 or requiring more than one month
for completion and all sales commitments and orders (whether for the sale of
products or the rendering of services) of Seller as at the date immediately
preceding the date hereof and as of the Closing Date, which are Assumed
Contracts, involving more than $2,500 or requiring more than one month for
completion. Seller has not from the Balance Sheet Date to the Closing Date
entered into any purchase or sales commitment or order except in the ordinary
course of business. With respect to the purchase and sales orders or commitments
of Seller outstanding on the Closing Date involving more than $2,500, except as
set forth on Schedule 4.13A hereto, no purchase order was entered into other
than in the ordinary course of business, consistent with past practice. Except
as set forth on Schedule 4.13B hereto, no customer of Seller has requested that
deliveries under any sales order or services to be performed by it under any
Assumed Contract be delayed more than 30 days.
4.14. LABOR RELATIONS. Seller has a place of business and conducts business
only at 3116 Vanowen Street, Burbank, California. Except for the collective
bargaining agreement by and among Seller, United Paperworkers International
Union AFL-CIO and Unity Local No. 307, neither Seller nor any Affiliate of
Seller is a party to, nor is its place of business affected by, any Contract
with any union or labor organization, nor has Seller or any Affiliate of Seller
agreed to recognize any union or other collective bargaining unit, nor has any
union or other collective bargaining unit been certified as representing any
employees. To the Actual Knowledge of Seller, there is no representation or
organizing effort pending or threatened against Seller or any Affiliate thereof
or affecting any Site. There are no labor strikes, disputes, slow downs, work
stoppages or other labor troubles or grievances pending or, to the Actual
Knowledge of Seller, threatened against or involving Seller or any Affiliate
thereof. No unfair labor practice, charge or complaint before the National Labor
Relations Board, no charge or complaint before the Equal Employment Opportunity
Commission and no complaint, charge or grievance of any nature before any
similar or comparable state, local or foreign agency, in any case relating to
Seller, any Affiliate thereof, any of the Sites or the conduct of the business
of Seller is pending or, to the Actual Knowledge of Seller, threatened. No
Seller has received notice or has knowledge of the intent of any agency,
instrumentality, department, commission, court, tribunal or board of any
government, whether national, federal, state or local (each, a "Governmental
Authority"), responsible for the enforcement of labor or employment laws to
conduct any investigation of or relating to Seller or the conduct of its
business. To the Actual Knowledge of Seller, no officer or key employee of
Seller has any plans to terminate his or her employment with Seller.
4.15. LEGAL PROCEEDINGS. Except as set forth on Schedule 4.15A hereto,
there are no Actions (whether or not purportedly on behalf of Seller) pending
or, to the Actual Knowledge of Seller, overtly threatened against or affecting
Seller or any of its properties, rights or business. Except as set forth on
Schedule 4.15B hereto, no Action involving product liability has ever been
instituted or, to the Actual Knowledge of Seller, overtly threatened against it.
Seller is not in default with respect to any order, writ, injunction or decree
of any Governmental Authority. To Seller's Actual Knowledge, none of the Actions
referred to on Schedule 4.15A or 4.15B hereto will have a Material Adverse
Effect on Seller.
4.16. ORDERS, DECREES, ETC. There are no orders, decrees, injunctions,
rulings, decisions, directives, consents or regulations of any court or any
Governmental Authority issued against, or binding on, Seller which do or may
adversely affect, limit or control the Acquired Assets or Seller's method or
manner of doing business.
4.17. COMPLIANCE WITH LAW; PERMITS AND LICENSES.
(a) Seller is in compliance with all Laws of any Governmental
Authority applicable to Seller, its assets or property or its operations,
including, without limitation, Laws relating to zoning, building codes,
antitrust, occupational safety and health, environmental protection and
conservation, water or air pollution, toxic and hazardous waste and substances
control, consumer product safety, product liability, hiring, wages, hours,
employee benefit plans and programs, collective bargaining and withholding and
social security taxes, except for any non-compliance or violation that,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect or materially impair the ability of Seller to perform
its obligation hereunder.
(b) Seller holds all permits, licenses and franchises which are
necessary for or material to its current use, occupancy or operation of the
Acquired Assets or the conduct of its business; and, except as set forth on
Schedule 4.17, no written notice of violation of any applicable zoning
regulation, ordinance or other similar Law binding on Seller with respect to the
Acquired Assets or its business has been received since January 1, 1991.
4.18. ACTIONS NOT IN ORDINARY COURSE. Except as set forth on Schedule 4.18
hereto, since the Balance Sheet Date Seller has not (i) incurred any Liability,
except current liabilities in the ordinary course of business and Liabilities
incurred under Contracts entered into in the ordinary course of business; (ii)
discharged or satisfied any Lien or paid any Liability, other than current
liabilities shown on the Balance Sheet and current liabilities incurred since
the Balance Sheet Date in the ordinary course of business; (iii) sold or
transferred any assets or written off any receivables, except for the sale of
inventory and the collection of receivables in the ordinary course of business;
(iv) mortgaged, pledged or subjected to any other Lien any of its assets or
properties, other than Liens reflected on the Balance Sheet; (v) suffered any
losses or waived any rights of substantial value; (vi) granted any bonuses or
commissions or increased the compensation payable to any of its employees,
directors or officers or increased the aggregate payment of any fees except for
customary bonuses and regular salary increases made in accordance with Seller's
past practices as summarized on Schedule 4.18; (vii) made any loans to any
individuals, firms, corporations or other entities; (viii) declared, made, set
aside or paid any dividend, distribution, or payment on, or any purchase or
redemption of, any shares of any class of its capital stock, or any commitment
therefor; (ix) made any change in any method of accounting or auditing practice;
or (x) entered into any transaction not in the ordinary course of business or
agreed (whether or not in writing) to do any of the foregoing. From the Balance
Sheet Date to the Closing Date, the business of Seller will have been operated
only in the regular and ordinary course.
4.19. NO CHANGE. Since the Balance Sheet Date, there has not been (i) any
adverse change (whether or not in the ordinary course of business) in excess of
$10,000 in the business, financial condition, assets or Liabilities of Seller as
reflected on the Balance Sheet or (ii) any damage, destruction or loss, whether
or not covered by insurance, affecting the business, assets, properties or
rights of Seller in excess of $10,000.
4.20. ACCOUNTS RECEIVABLE. All of the accounts receivable of Seller are
actual and bona fide receivables representing obligations for the total dollar
amount thereof shown on the books of Seller which resulted from sales actually
made in the ordinary course of the business of Seller. The ages of the accounts
receivable of Seller as at the Balance Sheet Date are set forth on Schedule 4.20
hereto. No accounts receivable have been written off since the Balance Sheet
Date that were not reserved for at the Balance Sheet Date in the allowance for
doubtful accounts other than in the ordinary course of business.
4.21. INVENTORY. The Inventory of Seller as at the Balance Sheet Date was,
and the Inventory of Seller on the Closing Date will have been, manufactured or
acquired in the ordinary course of business, in customary quantities and at
prevailing prices. Such Inventory has been valued on the 1996 Balance Sheet and
will be valued on the Closing Date Balance Sheet, on an item-by-item basis, at
the lower of cost or market on a first-in, first-out basis in accordance with
GAAP consistently applied, and all slow-moving (i.e., any item of Inventory in
excess of a one year's supply, based on sales of Inventory during the prior 12
month period), unmarketable, returned, rejected, damaged or obsolete Inventory
has been fully written off or fully reserved. The Inventory of Seller has been
written down by the amount of all losses estimated or expected upon the
completion of any unfilled or partially filled sales orders in Seller's backlog.
Inventory manufactured or acquired by Seller since the Balance Sheet Date has
been manufactured or acquired in the ordinary course of business, in customary
quantities and at prevailing prices and valued as set forth in this Section
4.21. Except as indicated on Schedule 4.21, (i) the finished goods contained in
the Inventory of Seller have been made in accordance with and in conformity to
the specifications of the corresponding customer orders or, in cases where there
are no customer specifications, are merchantable in the ordinary course of
business; (ii) the work in process contained in such Inventory has been made in
accordance with and in conformity to the specifications of corresponding
customer orders to the extent consistent with its state of completion, or is
suitable to permit Seller to produce therefrom in the ordinary course finished
goods that will be merchantable in the ordinary course of business; and (iii)
the raw materials contained in such Inventory are suitable for the purpose of
filling specific customer orders, or are otherwise suitable to permit Seller to
produce therefrom in the ordinary and usual course finished goods that will be
merchantable in the ordinary course of business.
4.22. CAPITAL PROJECTS AND EXPENDITURES. There are no material capital
projects or capital expenditures (including any lease obligation to be
capitalized in accordance with GAAP, consistently applied) relating to the
Acquired Assets that have been committed for or undertaken by Seller and not
paid for on the Closing Date. Except as set forth on such Schedule 4.22, from
the Balance Sheet Date to the Closing Date, Seller has not made any additional
expenditures or additional commitments for capital expenditures.
4.23. BACKLOG. Schedule 4.23 sets forth the total backlog of orders of
Seller as at the Balance Sheet Date. The total backlog of orders of Seller at
the Closing Date will not be less than $50,000. Such backlog consists of orders
for products or services which are typical of the types of products and services
heretofore manufactured, sold or rendered by Seller and which do not require the
development or application of any new or more advanced technology than that
utilized by Seller in the past.
4.24. COMPENSATION. Schedule 4.24 hereto lists the names, title or job
description, and total annual compensation (including, as separately set forth
figures, any bonuses paid, accrued, or granted through the Balance Sheet Date,
any bonuses paid, accrued or granted, or to be paid, accrued, granted or earned,
from the Balance Sheet Date to the Closing Date, and any bonuses attributable to
the period of time prior to the Closing Date but to be paid, accrued or granted
thereafter) of all employees, officers and directors of Seller who, as of the
Closing Date, are or will be entitled to receive compensation from Seller at an
annualized rate in excess of $35,000 per year.
4.25. ENVIRONMENTAL PROTECTION.
(a) Except as set forth in Schedule 4.25A hereto, Seller is in compliance
with and has complied in all material respects with all Environmental Laws.
Seller has obtained and will maintain through the Closing Date all permits,
licenses, certificates and other authorizations which are required with respect
to its operation under any Environmental Laws and all such permits, licenses,
certificates and other authorizations are listed on Schedule 4.25B hereto.
(b) Except as set forth in Schedule 4.25A hereto, Seller is in compliance
in all respects with all permits, licenses and authorizations required by any
Environmental Laws, and is also in compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in any Environmental Laws or contained in any
regulation, code, plan, order, decree, judgment, injunction, notice or demand
letter issued, entered, promulgated or approved thereunder. All products
manufactured and services provided by Seller prior to the Closing Date will have
been in material compliance with all Environmental Laws applicable thereto.
Seller has heretofore delivered to Buyer true and complete copies of all
environmental studies made in the last ten years relating to the business or
assets of Seller and the Leased Premises.
(c) Except as set forth in Schedule 4.25A hereto, there is no pending or,
to Seller's Actual Knowledge, overtly threatened civil, criminal or
administrative Action, demand, claim, hearing, notice of violation,
investigation, proceeding, notice or demand letter that affects or applies to
Seller, its business or assets, the products it has manufactured or the services
it has provided relating in any way to any Environmental Laws or any regulation,
code, plan, order, decree, judgment, injunction, notice or demand letter issued,
entered, promulgated or approved thereunder.
(d) Except as set forth in Schedule 4.25A hereto, to the Seller's
knowledge, there are no specific facts or circumstances which may interfere with
or prevent compliance or continued compliance by Seller with any Environmental
Laws or with any regulation, code, plan, order, decree, judgment, injunction,
notice or demand letter issued, entered, promulgated or approved thereunder, or
which may give rise to any common law or legal liability, or otherwise form the
basis of any claim, action, demand, suit, proceeding, hearing, notice of
violation, study or investigation, based on or related to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling, or the emission, discharge, release or threatened release into the
environment, by Seller of any pollutant, contaminant, chemical, or industrial,
toxic or Hazardous Substance or Waste.
(e) Except in accordance with a valid governmental permit, license,
certificate or approval listed in Schedule 4.25A, there has been no emission,
spill, release or discharge by Seller, from any of its assets, from any site at
which any of such assets are or were located or at any other location or
disposal site, into or upon (i) the air, (ii) soils or improvements, (iii)
surface water or ground water, or (iv) the sewer, septic system or waste
treatment, storage or disposal system servicing such assets of any Hazardous
Substances or wastes used, stored, generated, treated or disposed at or from any
of such assets (any of which events is hereinafter referred to as "HAZARDOUS
DISCHARGE"). Except for inventory of raw materials, supplies, work in process
and finished goods all as listed in Schedule 4.25C that is to be used or sold in
the ordinary course of its business, all of the assets of Seller are free of all
Hazardous Substances or Wastes.
(f) Except as set forth in Schedule 4.25A hereto, there has been no written
complaint, order, directive, claim, citation or notice by any Governmental
Authority or, to the Seller's Actual Knowledge any other person or entity with
respect to (i) air emissions, (ii) spills, releases or discharges to soils or
any improvements located thereon, surface water, ground water or the sewer,
septic system or waste treatment, storage or disposal systems servicing the
assets of Seller, (iii) noise emissions, (iv) solid or liquid waste disposal,
(v) the use, generation, storage, transportation or disposal of Hazardous
Substances or wastes or (vi) other environmental, health or safety matters
affecting Seller, any of its assets, any real property on which any of such
assets are located, any improvements located thereon or the business therein
conducted (any of which is hereafter referred to as an "ENVIRONMENTAL
COMPLAINT").
(g) Prior to the Closing Date, there shall not occur any Hazardous
Discharge (except in accordance with a valid governmental permit, license,
certificate or approval listed in Schedule 4.25B) or Environmental Complaint.
4.26. EMPLOYEE BENEFITS.
(a) Except for those plans set forth on Schedule 4.26A hereto (the
"Plans"), Seller does not maintain or contribute to any "employee benefit plan,"
as that term is defined in Section 3(3) of ERISA, whether or not such plan has
been terminated and whether or not such plan is of a legally binding nature or
in the form of an informal understanding.
(b) True and complete copies of all the documents embodying each Plan which
is not a multi-employer plan as such term is defined in Section 3(37) of ERISA
("Single Employer Plan"), including, without limitation, the plan and trust
instruments and insurance, group annuity and other Contracts pertaining thereto
and any actuarial reports obtained with respect to any Single Employer Plan, as
well as the books and records of the Single Employer Plans, have been furnished
to Buyer. Each Single Employer Plan which is intended to comply with Section
401(a) of the Code and each trust related thereto is qualified and exempt within
the meaning of Sections 401 and 501 of the Code, respectively, and a
determination letter has been received from the Internal Revenue Service with
respect to each such Single Employer Plan stating that such Single Employer Plan
and its related trust are qualified and exempt within the meaning of Sections
401 and 501 of the Code, respectively, and a copy of each such determination
letter has been furnished to Buyer. There has been (i) no change in any of the
documents delivered to Buyer under which each Single Employer Plan is maintained
and (ii) no change, since each Single Employer Plan's most recent valuation
date, in the operation of the Single Employer Plan which could be expected to
adversely affect or alter the tax status of, or materially increase the cost of
maintaining, any such Single Employer Plan.
(c) With respect to the Single Employer Plans, the reporting and disclosure
requirements of ERISA and the Code, as applicable, and the group health plan
continuation coverage requirements of Section 4980B of the Code and Part 6 of
Title I of ERISA, have been fulfilled in all material respects and Seller has
furnished to Buyer copies of all filings with the Internal Revenue Service and
the Department of Labor or other applicable Governmental Authority for each
Single Employer Plan's most recent plan year. Except as set forth on Schedule
4.26B, with respect to each Single Employer Plan which is subject to Section 412
of the Code or Part 3 of Title I of ERISA, the fair market value of the assets
of each such Plan is at least equal to the present value of all liabilities of
such Plan. There has been no "accumulated funding deficiency" with respect to
any Single Employer Plan, whether or not waived, within the meaning of Section
412 of the Code or Section 302 of ERISA, nor has there been, with respect to any
Single Employer Plan, (i) any "excess contribution" or any "excess aggregate
contribution" within the meaning of Section 4979 of the Code or (ii) any
"nondeductible contribution" within the meaning of Section 4972 of the Code.
There has been accrued on the Balance Sheet or paid to such Single Employer Plan
an amount equal to the greater of: (A) the contribution required to be made to
each Single Employer Plan for the current plan year under Section 412 of the
Code or (B) the expense required to be recognized under FASB No. 87 for such
period, in each case multiplied by a fraction the numerator of which is the
number of days since the first day of the plan year and the denominator of which
is 365.
(d) Neither Seller, the Single Employer Plans, any of the trusts created
thereunder, nor any trustee, administrator or other fiduciary thereof, has
engaged in a "prohibited transaction" as such term is defined in Section 4975 of
the Code or Section 406 of ERISA or otherwise taken or omitted any action which
could subject the Single Employer Plans, Seller, any of the trusts created
thereunder or any trustee or administrator thereof, or any party dealing with
such Plans or trusts, to a material Tax, penalty or other Liability resulting
from any prohibited transactions under Section 409 or 502 of ERISA or Section
4975 of the Code or otherwise, and neither Seller, any Single Employer Plan, any
trust created thereunder nor any other fiduciary (within the meaning of Section
3(21) of ERISA) of any Single Employer Plan or its attendant trust has breached
its fiduciary duties under Title I of ERISA in a manner which could result in a
direct or indirect liability to Seller or the trustee or administrator of any
Single Employer Plan.
(e) Except as set forth on Schedule 4.26E, neither Seller nor any other
"trade or business (whether or not incorporated) which is under common control"
(as such term is defined in Section 4001 of ERISA and the regulations
promulgated thereunder) with Seller has ever (i) terminated a Plan subject to
Title IV of ERISA or (ii) contributed to any "multiemployer plan," as such term
is defined in Section 3(37) of ERISA, and neither Seller nor any such "trade or
business" has effected either a "complete withdrawal" or a "partial withdrawal,"
as those terms are defined in Sections 4203 and 4205, respectively, of ERISA,
from any such multiemployer plan.
(f) Seller does not maintain or contribute to any "employee welfare benefit
plan" (as such term is defined in Section 3(1) of ERISA; a "Welfare Plan"), or
other employee benefit plan or arrangement, relating to post-employment or
retirement benefits (other than an "employee pension benefit plan," as such term
is defined in Section 3(2) of ERISA) or, if any such plan exists, it is listed
on Schedule 4.26A, satisfies the representations and warranties set forth above
and has assets with a fair market value that is not less than the actuarial cost
of the vested or non-forfeitable benefits of the participants in such plan.
4.27. GOVERNMENTAL APPROVALS. Except as set forth on Schedule 4.27 hereto,
no governmental authorization, approval, order, license, permit, franchise, or
consent and no registration, declaration or filing by Seller or any shareholder
or Affiliate of Seller with any Governmental Authority is required in connection
with the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, other than any such authorization or approval
which if not obtained would not have a Material Adverse Effect.
4.28. NO OMISSIONS. To William S. Pine's, Josh Pine's and Lisa Pine's
actual conscious knowledge (expressly excluding any knowledge that a reasonably
prudent person would have in the ordinary exercise of his affairs but which none
of William S. Pine, Josh Pine or Lisa Pine does actually and consciously have),
there is no material fact not disclosed to Buyer, or otherwise known by Buyer,
that may have a Material Adverse Effect on the Acquired Assets or the
operations, profits or business of Seller or which otherwise should be disclosed
to Buyer in order to make any of the representations or warranties made herein
on the part of the Seller not materially misleading, except for facts relating
to general economic conditions or to the printing industry in general, that may
similarly affect companies that are in a similar industry. No representation or
warranty by Seller contained in this Agreement, and no statement contained in
any Schedule, Exhibit, certificate or other instrument furnished to Buyer under
or in connection with this Agreement, contains any untrue statement of any
material fact, or omits to state any material fact necessary in order to make
the statements contained herein or therein not misleading.
4.29. STATE BOARD OF EQUALIZATION. (a) Seller, including any
predecessor of Seller (collectively, the "FILERS"), has timely filed, or caused
to be timely filed, or through the Closing Date will timely file, or will cause
to be timely filed, all filings required to be filed by them with the State
("Filings"), and all such Filings are complete and accurate and comply in all
respects with all applicable legal requirements. Seller has delivered to Buyer
true and complete copies of all Filings filed by the Taxpayers for each of their
past five fiscal years ended February 28, 1995. Except as set forth on Schedule
4.29, Filers' Filings have not been audited by the State Board of Equalization
of the State of California, nor is any such audit scheduled or pending. The
Filers have not requested any, and there are no outstanding, waivers or
extensions of time relating to the filing of any Filing. Any deficiency
assessments with respect to Filers' Filings have been paid by Filers. Filers
have not given any waivers or comparable consents to the application of the
statute of limitations to any Filings or amounts due in payment with respect
thereto ("SBE Amounts"), nor is any such waiver or consent outstanding. Seller
has no liability for the Filings of any other party (i) as a transferee or
successor, (ii) by contract, or (iii) otherwise.
(b) Filers have timely paid and through the Closing Date will have
timely paid, all SBE Amounts due and payable on or before such date (whether or
not shown on a Filing). Filers have, and through the Closing Date will have,
paid all SBE Amounts attributable to any period (or portion of a period) or
event occurring on or before the Closing Date.
4.30 INVESTMENT INTENT. The Seller is acquiring the Shares for its own
account, for investment purposes only, and not with a view to, or in connection
with, any resale or other distribution of such Shares.
4.31 NO REGISTRATION UNDER FEDERAL OR STATE SECURITIES LAWS. The
Seller acknowledges that the Shares have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or the securities
laws of any state by reason of a specific exemption or exemptions from
registration under the Securities Act and applicable state securities laws, and
that the Buyer's reliance on such exemptions is predicated on the accuracy and
completeness of the Seller's representations, warranties, acknowledgements and
agreements herein. Accordingly, the Shares may not be offered, sold,
transferred, pledged or otherwise disposed of by the Seller without an effective
registration statement under the Securities Act and any applicable state
securities laws or an opinion of counsel acceptable to the Seller that the
proposed transaction will be exempt from registration. The Seller acknowledges
that to the extent the exemption from registration provided by Rule 144 under
the Securities Act becomes available for the resale of the Shares, any such
resales may be made only in accordance with the terms and conditions of that
rule, including, among other things, the existence of a public market for the
Shares, the availability of current public information about the Buyer, the
resale occurring not less than two years after the Shares were purchased and
paid for, the sale being effected in a specified manner and the number of Shares
being sold not exceeding specified limitations.
4.32 RESTRICTIVE LEGEND AND STOP TRANSFER ORDER. The Seller
acknowledges that the certificates representing the Shares will bear the
following legend:
"The shares of the Buyer represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the "Act"),
and may not be distributed except (A) pursuant to an effective
registration statement under the Act with respect to the shares
offered thereby, which registration statement is current, or (B)
pursuant to an opinion of counsel for or reasonably acceptable to the
Buyer, or other evidence satisfactory to the Buyer, to the effect that
such registration is not required with respect to the proposed
distribution or transfer."
and that the Buyer reserves the right to place a stop order against the
certificate representing the Shares and to refuse to effect any transfers
thereof in the absence of an effective registration statement with respect to
the Shares or in the absence of an opinion of counsel to the Buyer that such
transfer is exempt from registration under the Securities Act and under
applicable state securities laws.
4.33 INVESTMENT EXPERIENCE. The Seller has such knowledge and
experience in financial and business matters that the Seller is capable of
evaluating the merits and risks of its investment in the Buyer and of protecting
its own interests in connection therewith.
4.34 ACCESS TO INFORMATION. The Seller has had the opportunity to
review all documents and information which the Seller has requested concerning
its investment and the Buyer. The Seller has had the opportunity to ask
questions of the Buyer's management, which questions were answered to its
satisfaction. The Seller has relied only on the foregoing information in
determining to make its investment in the Buyer.
4.35 INVESTMENT RISKS. The Seller acknowledges that an investment in
the Buyer involves substantial risks. The Seller is able to bear the economic
risk of its investment for an indefinite period of time.
4.36 ACCREDITED INVESTOR. The Seller is an accredited investor as such
term is defined under Regulation D promulgated under the Act.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer warrants and
represents to and agrees with Seller and Shareholder as follows:
5.1. GOOD STANDING. Buyer is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware.
5.2. AUTHORIZATION. The execution and delivery of this Agreement and the
consummation of the transactions contem- plated hereby have been duly authorized
by the Board of Directors of Buyer, and all other corporate action of Buyer,
including all shareholder approvals, authorizations and ratifications, necessary
to authorize the execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been taken. This Agreement and the
Promissory Note constitute binding obligations of Buyer, enforceable against
Buyer in accordance with their terms. No consents of any lender, trustee or
security holder of Buyer or other Person is required for Buyer to enter into and
deliver this Agreement and to consummate the transactions contemplated hereby,
nor does the Certificate of Incorporation or By-Laws of Buyer or any Contract,
mortgage or other instrument to which Buyer is a party or by which Buyer is
bound or affecting any of its properties conflict with or restrict the execution
and delivery of this Agreement or the consummation of the transactions
contemplated hereby, except for any such conflict, violation, breach, default,
termination, cancellation or acceleration that, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect or
materially impair the ability of Buyer to perform its obligations hereunder
5.3. SEC FILINGS. Buyer has since January 1, 1994 filed all proxy
statements, schedules and reports required to be filed by it with the SEC
pursuant to the Exchange Act. As of its filing date, no such report or statement
filed pursuant to the Exchange Act contained any untrue statement of a material
fact or omitted to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading. No registration statement filed pursuant to the Securities
Act, as of the date such statement or amendment became effective, contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading.
5.4. GOVERNMENTAL APPROVALS. Except as set forth on Schedule 5.4 hereto, no
governmental authorization, approval, order, license, permit, franchise, or
consent and no registration, declaration or filing by Buyer or any shareholder
or Affiliate of Buyer with any Governmental Authority is required in connection
with the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, other than any such authorization or approval
which if not obtained would not have a Material Adverse Effect.
5.5. NO OMISSIONS. No representation or warranty by Buyer contained in this
Agreement, and no statement contained in any certificate furnished to Seller
under or in connection with this Agreement, contains any untrue statement of any
material fact, or omits to state any material fact necessary in order to make
the statements contained herein or therein not misleading.
SECTION 6. CONDUCT PRIOR TO THE CLOSING.
6.1. INVESTIGATION BY BUYER. Buyer may, prior to the Closing Date, through
its own representatives (including its counsel, accountants and consultants)
make such investigations of the properties, plants and operations of Seller and
such audit of the financial condition of Seller as it deems necessary or
advisable in connection with the transactions contemplated hereby, including,
without limitation, any investigation enabling it to familiarize itself with
such properties, plants, operations and financial condition; such investigation
shall not, however, affect Seller's representations, warranties and agreements
hereunder. Seller shall permit Buyer and its authorized representatives to have,
after the date hereof, full access to the premises and to all books and records
of Seller, such access to be granted at reasonable times after reasonable
notice; and Buyer shall have the right to make copies thereof and excerpts
therefrom. Seller shall furnish Buyer with such financial and operating data and
other information with respect to the Acquired Assets as Buyer may from time to
time reasonably request. Seller acknowledges that the rights set forth in this
paragraph 6.1 are essential to Buyer as a means of evaluating the Acquired
Assets and Seller agrees that in no event will it seek to recover costs or
damages of any kind incurred as a result of the exercise by Buyer of such rights
and hereby waives any and all rights it might have to recover any such costs or
damages.
6.2. ONGOING OPERATIONS. From the date hereof to the Closing, Seller shall
use commercially reasonable efforts to preserve its business organization intact
(which shall mean, with respect to personnel, that Pine, Lisa Pine and Joshua
Pine shall remain employed by Seller on substantially the same terms as on the
date hereof), and shall use commercially reasonable efforts to preserve for
Buyer the present relationship between Seller on the one hand and its suppliers,
customers and others having business relations with it on the other.
6.3. CONDUCT OF BUSINESS. Seller agrees that from the date hereof until the
Closing:
(a) Seller shall conduct its business in the ordinary and usual course,
shall not, without the prior written consent of Buyer, purchase, sell, lease,
encumber or otherwise dispose of any assets except inventories in the ordinary
course of business and consistent with past practice or make any change in its
business, operations or the manner of conducting its business; and
(b) Seller will not, without the prior written consent of Buyer,
(i) directly or indirectly terminate or reduce or commit to
terminate or reduce any bank line of credit or the availability of any
funds under any other loan or financing agreement, except in the
ordinary and usual course of its business;
(ii) change its charter, by-laws or other governing instruments;
(iii) borrow or agree to borrow any funds or guarantee or agree to
guarantee the obligations of others, except in the ordinary and usual
course of its business;
(iv) make any capital expenditure or commit itself to make any
capital expenditure;
(v) increase the rate of salary of any officer, director or
employee;
(vi) enter into any agreement, Contract or commitment or incur any
Liability other than in the ordinary course of business and consistent
with its existing policies;
(vii) waive any rights of substantial value;
(viii) dispose of, permit to lapse, or otherwise fail to preserve
any of its Proprietary Rights or other similar rights, dispose of or
permit to lapse any license, permit or other form of authorization,
or dispose of or disclose to any person, other than an authorized
representative of Buyer, any customer list, trade secret, formula
process or know-how;
(ix) make any change in any method of accounting or accounting
practice or in the application of such method of accounting or account
practice or make any change in accounting estimate;
(x) pay, loan or advance any amount to or in respect of, or sell,
transfer or lease any assets (whether real, personal or mixed,
tangible or intangible) to, or enter into any agreement, arrangement
or transaction with, any of its officers or directors, any of its
Affiliates or associates or any Person in which it or any of its
officers, directors, Affiliates or associates, has any direct or
indirect interest, except for (A) compensation to its officers and
employees at rates not exceeding the rates of compensation in effect
on the Balance Sheet Date and (B) advances made to employees for
travel and other business expenses in reasonable amounts consistent
with past practice;
(xi) agree, whether in writing or otherwise, to take any action
prohibited in this paragraph 6.3; or
(xii) without limiting any of the foregoing, take or refrain from
taking any action the result of which would render any representation
or warranty made to Buyer in or in connection with this Agreement
inaccurate when deemed made on and as of the Closing Date.
6.4 OTHER TRANSACTIONS. Seller will not, and will cause its directors,
officers, employees, agents and Affiliates not to, directly or indirectly,
solicit or initiate the submission of proposals from, or solicit, encourage,
entertain or enter into any arrangement, agreement or understanding with, or
engage in any discussions with, or furnish any information to, any Person, other
than Buyer or a representative thereof, with respect to the acquisition of all
or any part of the Acquired Assets. Should Seller or any of its Affiliates or
representatives, during such period, receive any offer or inquiry relating to
such acquisition, or obtain information that such an offer is likely to be made,
Seller will provide Buyer with immediate notice thereof, which notice will
include the identity of the prospective offeror and the price and terms of any
offer.
6.5. CONSENTS. Seller shall use its best efforts to obtain in writing,
prior to the Closing, all consents, approvals, waivers, authorizations and
orders (collectively, "Consents") necessary or reasonably required in order to
permit it to effectuate this Agreement and to consummate the transactions
contemplated hereby. All such Consents will be in writing and copies thereof
will be delivered to Buyer promptly after Seller's receipt thereof but no later
than immediately prior to Closing.
6.6. PLANS, LEASES AND CONTRACTS. Except in the ordinary course of
business, without the prior written consent of Buyer, Seller shall not amend or
terminate any Plans or Welfare Plans nor amend or terminate any lease, Contract
or other agreement listed in Schedules 4.27A, 4.27B, 4.12, 4.13A or 4.13B and
will comply with and not be in default with respect to any Plans, Welfare Plans
or any lease, Contract or other agreement listed in said Schedules.
6.7. PUBLIC ANNOUNCEMENTS. Seller and Buyer agree that no party hereto
shall make any public announcement in respect of this Agreement or the
transactions contemplated hereby prior to the Closing without the prior written
consent of the other parties hereto, except as required by applicable law or the
rules of the American Stock Exchange.
6.8. EMPLOYEE BENEFIT PLANS.
(a) Buyer will not adopt or assume any employee benefit plan or other
similar arrangement maintained or contributed to by Seller.
(b) Buyer will not assume and does not agree to pay any obligation to
or to contribute to any "multiemployer plan", as such term is defined in Section
3(37) of ERISA, pursuant to any provision of this Agreement. Buyer and Seller
agree that the exception to the complete or partial withdrawal of Seller from
any such "multiemployer plan" pursuant to the sale of assets exception under
Section 4204 of ERISA shall not apply to this transaction and is not part of
this Agreement.
(c) Effective immediately prior to the Closing Date, the employment by
Seller and the active participation under each Plan maintained and administered
by Seller of each employee that is a member of the bargaining unit covered by
the terms of the collective bargaining agreement between Seller, United Paper
Workers International Union-AFL-CIO and Unity Local No. 307 shall terminate.
Effective from and after the Closing Date, Buyer may rehire any Seller employee
whose employment terminated immediately prior to the Closing Date (the
"Transferred Employees") and shall provide each Transferred Employee with
coverage under employee benefit plans of Buyer according to the terms of the
collective bargaining agreement negotiated between Buyer, United Paper Workers
International Union-AFL-CIO and Unity Local No. 307; provided, however, Buyer
specifically agrees that, pursuant to the terms of such collective bargaining
agreement or otherwise, Buyer shall provide group health benefits to the
Transferred Employees and shall cause each welfare benefit plan of Buyer to
waive any waiting periods and exclusions for pre-existing conditions and to
recognize the deductibles and copayments of each Transferred Employee under
Seller plans for purposes of determining the deductible limits and copayment
requirements of each such Transferred Employee under each plan of Buyer for the
calendar year including the Closing Date.
6.9. NOTIFICATION. Seller shall give Buyer prompt written notice of (i) the
existence of any fact or the occurrence of any event which constitutes, or with
the giving of notice or the passage of time or both would constitute, a breach
of any representation or warranty of Seller made herein or pursuant hereto and
(ii) the taking of any action by Seller that would breach or violate, or
constitute a default under, any agreement or covenant of Seller made herein or
pursuant hereto. The giving of any such notice shall not affect, modify or limit
in any way any representation, warranty, agreement or covenant of Seller made
herein or pursuant hereto or Buyer's right to rely thereon.
6.10. SUPPLEMENTAL DISCLOSURE. Seller agrees that, with respect to its
representations and warranties made in this Agreement, it will have a continuing
obligation to supplement or amend the Schedules hereto with respect to any
matter hereafter arising or discovered which, if existing or known at the date
of this Agreement, would have been required to be set forth or described in the
Schedules hereto; provided, however, that neither the supplementing or amending
of any Schedules by Seller, nor the discovery of any matters by Buyer in the
course of its investigations, shall be deemed to cure any breach of any
representation or warranty made in this Agreement or to have been disclosed as
of the date of this Agreement.
6.11. RELEASE OF BANK GUARANTEE. Seller shall use its best efforts to
obtain the release of the personal guarantee of William S. Pine with respect to
the Seller's bank loans.
SECTION 7. CONDITIONS OF BUYER'S OBLIGATIONS TO CLOSE. The obligations of
Buyer under this Agreement are, at the option of Buyer, subject to the
conditions set forth below, which conditions may be waived by Buyer without
releasing or waiving any of its rights hereunder.
7.1. AGREEMENT AND CONDITIONS. On or before the Closing Date, Seller shall
in all material respects have complied with and duly performed all agreements
and conditions on its part to be complied with and performed pursuant to or in
connection with this Agreement on or before the Closing Date.
7.2. REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Seller contained in this Agreement, or otherwise made in writing in connection
with the transactions contemplated hereby, shall be true and correct in all
material respects on and as of the Closing Date with the same force and effect
as though such representations and warranties had been made on and as of the
Closing Date.
7.3. LOSS, DAMAGE OR DESTRUCTION. Between the date hereof and the Closing
Date there shall not have been any loss, damage or destruction to or of any of
the assets, property or business of Seller in excess of $2,500 in the aggregate,
whether or not covered by insurance, nor shall the assets, properties and
business of Seller have been adversely affected in any way as a result of any
fire, accident, or other casualty, war, civil strife, riot or act of God or the
public enemy, and there shall have been no development in the business of Seller
since the Balance Sheet Date which would have a Material Adverse Effect on the
value of such business.
7.4. OPINION OF COUNSEL. Buyer shall have received an opinion of Jeffer,
Mangels, Butler & Marmaro LLP, counsel for Seller, dated as of the Closing Date,
substantially in the form of Exhibit A hereto.
7.5. SIDE LETTER. Seller, Shareholder and Buyer shall have executed and
delivered that certain side letter dated the Closing Date.
7.6. TERMINATION OF LEASE. The Lease dated September 1, 1984, as amended,
by and between The William S. Pine and Lisa Pine 1982 Trust, dated January 21,
1982 and Seller shall have been terminated.
7.7. NO LEGAL PROCEEDING. No court Action shall have been instituted or
threatened to restrain or prohibit the acquisition by Buyer, or the conveyance
by Seller, of the Acquired Assets, and on the Closing Date there will be no
Actions pending or threatened against or affecting Seller which involve a demand
for any judgment or liability, whether or not covered by insurance, and which
may result in any adverse change in the business, operations, properties or
assets or in the condition, financial or otherwise, of Seller.
7.8. GOVERNMENTAL APPROVAL. No governmental agency or body or other Person
(other than Buyer) shall have taken any action or made any request of Seller to
impede or restrain consummation of the transaction contemplated hereby, and
Seller shall have obtained, in form satisfactory to Buyer, and delivered to
Buyer, any and all approvals necessary for the consummation of the proposed
transaction from all applicable governmental and regulatory agencies or bodies.
7.9. ABSENCE OF LEGAL IMPEDIMENT. There shall be no legal impediment to the
consummation of the transaction contemplated hereby.
7.10. APPROVAL. The execution and delivery by Seller of this Agreement and
any other agreements referred to herein, and the performance of the covenants
and obligations of Seller hereunder and thereunder, shall have been duly
authorized by all necessary corporate and other action on the part of Seller.
7.11. CONSENTS AND WAIVERS. Seller shall have obtained, in form reasonably
satisfactory to Buyer, any and all approvals, consents or waivers required under
any continuing material contract, lease, or other agreement to which Seller is a
party or to which Seller or any of the Acquired Assets is bound and consents of
all creditors of Seller for liabilities of Seller other than Assumed Liabilities
who have not been paid prior to the Closing Date stating (i) that payment to be
made to them from the proceeds of the sale of the Acquired Assets shall be in
full satisfaction of all claims which they may have against Seller and releasing
all claims which they may have in the Acquired Assets (and such payments shall
have been made, and releases obtained, at the Closing or escrow arrangements
satisfactory to Buyer shall have been established for payment thereafter). For
purposes of this Section 7.11, a "material contract" shall be a contract under
which payments aggregating $10,000 per year may be required, or more than one
contract between Seller and the same party or parties under which payments
aggregating $30,000 per year or more may be required.
7.12. CERTIFICATE. Buyer shall have received a certificate dated the
Closing Date and executed by Seller to the effect that the conditions expressed
in paragraphs 7.1, 7.2, 7.3, 7.7, 7.8, and 7.9 have been fulfilled.
7.13. DELIVERIES. Buyer shall have received the deliveries to be made by
Seller pursuant to Section 9.
SECTION 8. CONDITIONS OF SELLER'S OBLIGATIONS TO CLOSE. The obligations of
Seller under this Agreement are, at the option of Seller, subject to the
following express conditions, which conditions may be waived by Seller without
releasing or waiving any of their rights hereunder.
8.1. AGREEMENTS AND CONDITIONS. On or before the Closing Date, Buyer shall
have complied with and duly performed all of the agreements and conditions on
its part required to be complied with or performed pursuant to this Agreement on
or before the Closing Date.
8.2. REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Buyer contained in this Agreement shall be true and correct on and as of the
Closing Date with the same force and effect as though such representations and
warranties had been made on and as of the Closing Date.
8.3. OPINION OF COUNSEL. Seller shall have received opinion of Stroock &
Stroock & Lavan, counsel for Buyer, dated the Closing Date, substantially in the
form of Exhibit B hereto.
8.4. NO LEGAL PROCEEDING. No court Action shall have been instituted or
threatened to restrain or prohibit the acquisition by Buyer, or the conveyance
by Seller, of the Acquired Assets.
8.5. GOVERNMENTAL APPROVAL. No governmental agency or body or other Person
(other than Seller) shall have taken any action or made any request of Buyer to
impede or restrain consummation of the transactions contemplated hereby.
8.6. ABSENCE OF LEGAL IMPEDIMENT. There shall be no legal impediment to the
consummation of the transactions contemplated hereby.
8.7. APPROVAL. The execution and delivery by Buyer of this Agreement and
any other agreements referred to herein, and the performance of the covenants
and obligations of Buyer hereunder and thereunder, shall have been duly
authorized by all necessary corporate and other action on the part of Buyer.
8.8. DELIVERIES. Seller shall have received the deliveries to be made by
Buyer pursuant to Section 10.
8.9. CERTIFICATE. Seller shall have received a certificate dated the
Closing Date and executed by Buyer to the effect that the conditions expressed
in paragraphs 8.1, 8.2, 8.4, 8.5 and 8.6 have been fulfilled.
8.10 RELEASE OF PERSONAL GUARANTEE. Seller shall have obtained the release
of the personal guarantee of William S. Pine with respect to the Seller's bank
loans.
8.11. SIDE LETTER. Seller, Shareholder and Buyer shall have executed and
delivered that certain side letter dated the Closing Date.
SECTION 9. DELIVERIES OF SELLER. Seller agrees to deliver to Buyer the
following on the Closing Date:
9.1. TITLE TO ACQUIRED ASSETS. All conveyances, covenants, warranties,
deeds, assignments, bills of sale, confirmations, powers of attorney, approvals,
consents and any and all further instruments as may be necessary, expedient or
proper in order to complete any and all conveyances, transfers and assignments
provided for herein and to convey to Buyer such title to the Acquired Assets as
Seller is obligated hereunder to convey.
9.2. OPINION OF COUNSEL. An opinion of Jeffer, Mangels, Butler & Marmaro
LLP, counsel for Seller, dated the Closing Date, substantially in the form of
Exhibit A hereto.
9.3. Intentionally Omitted.
9.4. CERTIFICATES. A certificate dated the Closing Date and executed by
Seller to the effect that: (i) on or before the Closing Date, Seller shall in
all material respects have complied with and duly performed all agreements and
conditions on its part to be complied with and performed pursuant to or in
connection with this Agreement; (ii) the representations and warranties of
Seller contained in this Agreement, or otherwise made in writing in connection
with the transactions contemplated hereby, are true and correct in all material
respects on and as of the Closing Date; (iii) since the Balance Sheet Date,
there shall not have been any loss, damage or destruction to or of any of the
assets, property or business of Seller in excess of $2,500 in the aggregate,
whether or not covered by insurance, nor shall the assets, properties and
business of Seller have been adversely affected in any way as a result of any
fire, accident, or other casualty, war, civil strife, riot or act of God or the
public enemy, and there shall have been no development in the business of Seller
since the Balance Sheet Date which would have a Material Adverse Effect on the
value of such business; and (iv) no court Action shall have been instituted or
threatened to restrain or prohibit the acquisition by Buyer, or the conveyance
by Seller, of the Acquired Assets, and on the Closing Date there is not Actions
pending or threatened against or affecting Seller which involve a demand for any
judgment or liability, whether or not covered by insurance, and which may result
in any Material Adverse Change in the business, operations, properties or assets
or in the condition, financial or otherwise, of Seller.
9.5. CONSENTS. All consents required pursuant to 7.11 hereof. All such
consents will be in writing.
9.6. GOOD STANDING CERTIFICATES. Good standing and tax certificates (or
analogous documents), dated no more than ten (10) days prior to the Closing
Date, from the appropriate authorities in Seller's jurisdiction of incorporation
and in each jurisdiction in which Seller is qualified to do business, showing
Seller to be in good standing and to have paid all Taxes due in the applicable
jurisdiction.
9.7. SECRETARY'S CERTIFICATE. A certificate of the Secretary or an
Assistant Secretary of Seller setting forth a copy of the resolutions adopted by
the Board of Directors of Seller authorizing and approving the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby.
9.8. ANNUAL FINANCIAL STATEMENTS. The Annual Financial Statements as
required pursuant to Section 3.6 hereof.
9.9. AUTHORIZATION. Appropriate instruments authorizing Buyer to indorse in
the name of Seller all checks, drafts, notes and other instruments for the
payment of money and to receive for the account of Buyer all proceeds thereof to
which Buyer is entitled under this Agreement.
9.10. POSSESSION OF ACQUIRED ASSETS. Possession of the Acquired Assets,
including all books, records, Contracts and other documents relating to the
Acquired Assets.
9.11. EMPLOYMENT AND SALES REPRESENTATIVE AGREEMENTS. An Employment
Agreement in the form of Exhibit C hereto executed by Pine, an Employment
Agreement in the form of Exhibit D hereto executed by Joshua Pine and a Sales
Representative Agreement in the form of Exhibit E hereto executed by Seller.
9.12. LEASE. A Lease Agreement in the form of Exhibit F hereto, executed by
The William S. Pine and Lisa Pine 1982 Trust, dated January 21, 1982.
9.13. OTHER DELIVERIES. Such other documents or instruments as Buyer or its
counsel may reasonably request.
SECTION 10. DELIVERIES OF BUYER. Buyer agrees to deliver to Seller the
following on the Closing Date:
10.1. PURCHASE PRICE.
(a) The Initial Payment to be delivered pursuant to paragraph 3.2(a)
hereof.
(b) The stock certificate required pursuant to paragraph 3.2(b)
hereof.
(c) The Cancelable Promissory Note to be delivered pursuant to
paragraph 3.2(c) hereof.
10.2. OPINION OF COUNSEL. A favorable opinion of Stroock & Stroock & Lavan,
counsel for Buyer, dated the Closing Date, substantially in the form of Exhibit
B hereto.
10.3. SECRETARY'S CERTIFICATE. A certificate of the Secretary or an
Assistant Secretary of Buyer setting forth a copy of the resolutions adopted by
the Board of Directors of Buyer authorizing and approving the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby.
10.4. EMPLOYMENT AND SALES REPRESENTATIVE AGREEMENTS. An Employment
Agreement in the form of Exhibit C hereto, an Employment Agreement in the form
of Exhibit D hereto and a Sales Representative Agreement in the form of Exhibit
E hereto, each executed by Seller.
10.5. LEASE. A Lease Agreement for the Leased Premises in the form of
Exhibit F hereto, executed by Buyer.
10.6. OTHER DELIVERIES. Such other documents or instruments as Seller or
its counsel may reasonably request.
SECTION 11. ADDITIONAL COVENANTS.
11.1. COOPERATION; INSURANCE.
(a) Seller will cooperate with Buyer, and Seller will use its
commercially reasonable efforts to have the officers, directors and other
employees of Seller cooperate with Buyer, at Buyer's request and expense, on and
after the Closing Date, in endeavoring to effect the collection of accounts and
notes receivable owing to Seller at the Closing Date and in furnishing
information, evidence, testimony and other assistance in con- nection with any
actions, proceedings, arrangements or disputes involving Seller and/or Buyer and
based upon contracts, arrangements, commitments or acts of Seller which were in
effect or occurred on or prior to the Closing Date.
(b) Seller agrees to keep each of the Acquired Assets insured from the
date hereof through the Closing Date at Seller's expense, under the same
policies and on the same terms as such assets have been insured by Seller prior
to the date hereof. Seller shall cause all of its applicable insurance policies
to be amended to the extent necessary to show Buyer as a named insured
thereunder or as a loss payee, as its interests may appear.
11.2. AUTHORIZATION; MAIL. On and after the Closing Date: Seller agrees
that Buyer shall have the right and authority to collect for the account of
Buyer all receivables and other items which shall be transferred to Buyer as
provided herein, and to endorse with the name of Seller any checks received on
account of any such receivables or other items. Seller agrees that it will
promptly transfer and deliver to Buyer any cash or other property that Seller
may receive in respect of any such receivables or other items. Seller authorizes
and empowers Buyer (i) to receive and open mail addressed to Seller and (ii) to
deal with the contents thereof in any manner Buyer sees fit, provided such mail
and the contents thereof relate to the Acquired Assets or otherwise to the
business of Seller, as conducted by Buyer or to any of the Assumed Liabilities.
Seller agrees to deliver to Buyer promptly upon receipt any mail, checks or
other documents received by it pertaining to the Acquired Assets or otherwise to
the business of Seller, as conducted by Buyer, or any of the Assumed
Liabilities. Buyer agrees to deliver to Seller any mail which it receives to
which it is not entitled by reason of this Agreement or otherwise and to which
Seller is entitled. Buyer agrees to notify Seller in writing promptly following
the end of each month for six months following the Closing Date of the amount
collected under receivables transferred to Buyer hereunder. For a period of six
months after Closing, the Buyer shall use its best efforts to collect the
Accounts Receivable. Promptly after the expiration of such six month period,
Buyer shall advise Seller in writing of those Accounts Receivable which have not
been collected as of the end of such period.
11.3. FURTHER ASSURANCES. The parties agree at any time and from time to
time after the Closing Date, upon the request of any other party hereto, to do,
execute, acknowledge and deliver, or to cause to be done, executed, acknowledged
and delivered, all such further acts, assignments, transfers, notations, powers
of attorney and assurances as may be required for the better assigning,
transferring, conveying, and confirming to Buyer, or to its successors and
assigns, of any or all of the Acquired Assets and to carry out the terms and
conditions of this Agreement.
11.4. REPAIRS, RETURNS AND ALLOWANCES. If, after the Closing Date, Buyer
makes any repairs, accepts any returns or grants any allowances in accordance
with any warranty or guarantee given prior to the Closing Date by Seller to its
customers, or relating to any product manufactured by Seller, Seller shall, upon
Buyer's written request, pay to Buyer the cost of making such repairs, accepting
such returns and/or granting such allowances (other than Buyer's overhead).
Seller agrees that in making any such repair, accepting any such return or
granting any such allowance Buyer is and shall be acting as agent for Seller,
that Buyer makes no representations or warranties with respect to any such
repair, return or allowance and that the making of any such repair, the
acceptance of any such return or the granting of any such allowance shall not in
any way affect or limit the representations, warranties, covenants or agreements
of the Parent and/or Seller contained in this Agreement, or Buyer's right to
rely thereon, and Seller agrees to indemnify Buyer and hold Buyer harmless from
and against any and all loss, cost, damage, claim and expense, including,
without limitation, attorney's fees and disbursements, which Buyer may sustain
at any time by reason of any such repair, return or allowance.
11.5. HIRING OF EMPLOYEES. Buyer intends and will endeavor to hire a
substantial number of the current employees of the Seller.
SECTION 12. CONFIDENTIALITY. Seller, Shareholder, William S. Pine, Joshua
Pine and Lisa Pine agree not to, directly or indirectly, without the prior
written consent of Buyer, use or disclose to any person, firm or corporation,
any information, (including, but not limited to, the identity of any customers),
technical data or know-how relating to the products, processes, methods,
equipment or business practices of Seller.
SECTION 13. NON-COMPETITION.
13.1. NON-COMPETITION. For a period of six years from the date hereof,
Seller, Shareholder, William S. Pine, Joshua Pine, Lisa Pine and their
Affiliates will not, directly or indirectly, in the Territory, (i) engage in the
lithographic printing and folding carton manufacturing to the audio and video
and computer software industries or in any business currently conducted, or
hereafter conducted by the Buyer for a period of five years from the date
hereof, the same as or similar to, or engage in competition with, the Buyer or
the businesses heretofore or presently engaged in by Seller, (ii) render
services to or have any interest, as a shareholder and Buyer, owner, agent,
consultant, lender or guarantor or any other interest, in any other Person
engaged in the manufacture or sale of products, or the rendering of services,
which are currently being manufactured or sold or rendered by Seller, or similar
products or services, or (iii) engage in competition with, or manufacture or
sell, such products or services as are referred to in clause (ii) of this
paragraph 13.1.
13.2. PUBLIC COMPANY EXCEPTION. For purposes of this Section 13, ownership
of 1% or less of any class of outstanding securities of a company the securities
of which are listed on a national securities exchange or which has 1,000 or more
shareholders, shall not be deemed to constitute ownership or participation in
the ownership of the business of such company. NON-SOLICITATION. Neither Seller,
Shareholder, William S. Pine, Joshua Pine or Lisa Pine nor any Affiliate
thereof, for a period of six years from and after the Closing Date, shall,
directly or indirectly, hire, offer to hire, entice away, retain, employ or
solicit or attempt to solicit (either for itself or as agent for another) for
employment or induce, persuade or encourage any person to leave Buyer's employ
who, prior to the Closing Date was, or will be, employed or retained by Buyer as
a consultant, agent, employee or otherwise.
13.3. NON-SOLICITATION.
13.4. SPECIFIC PERFORMANCE. Seller, Shareholder, William S. Pine, Joshua
Pine and Lisa Pine acknowledge and agree that any breach of Section 12 above or
this Section 13 is likely to result in irreparable injury to Buyer, that
monetary damages will be an inadequate remedy of such breach and that,
accordingly, in addition to any other remedy that Buyer may have, Buyer shall be
entitled to enforce the specific performance of such Section 12 and this Section
13 and to seek a temporary restraining order, a preliminary injunction or other
extraordinary relief from a court of law or of equity notwithstanding Section
19.12 hereof in the event of any breach hereof.
13.5. SEVERABILITY. The parties acknowledge that the time, scope,
geographic area and other provisions of this Section 13 have been specifically
negotiated by sophisticated commercial parties and agree that all such
provisions are reasonable under the circumstances of the transactions
contemplated by this Agreement. If any portion of this Section 13 shall be
determined to be invalid and unenforceable as written, each such portion shall
be enforced to the extent reasonable under the circumstances and such
determination shall not affect the validity or enforceability of the balance
hereof, and such balance shall remain in full force and effect. It is understood
that Seller is entering into this non-competition agreement in order to induce
Buyer to enter into this Agreement.
13.6. TERRITORY. The parties acknowledge that the business of Seller is
currently conducted throughout the Territory. In view of the statements made in
the preceding sentence, the parties agree that the Territory is reasonable in
scope.
13.7. BREACH BY BUYER. In the event Buyer breaches its obligations to make
payments to Seller, Shareholder, William S. Pine or Joshua Pine pursuant to this
Agreement or any Employment Agreement or the Sales Representative Agreement,
Seller, Shareholder, William S. Pine or Joshua Pine may give written notice of
such breach to Buyer. Following receipt of such notice, Buyer shall have a
period of 5 business days to either (i) make the payment requested, or (ii) give
written notice to such party of the reason or reasons for such nonpayment. If
such party disputes such reason or reasons, he and Buyer shall work diligently
in good faith for a period of 10 business days to resolve such dispute. If
following the end of such 10 business day period, the payment dispute shall not
have been resolved, either party shall have the right to request arbitration in
accordance with Section 19.12. If Buyer breaches its obligations to make
payments to Seller, Shareholder, William S. Pine or Joshua Pine for 75 days or
more without cause, such party shall be relieved of its obligations under
Sections 12 and 13 hereof.
13.8. BREACH BY SELLER, WILLIAM S. PINE, LISA PINE, OR JOSHUA PINE. In
the event Seller, William S. Pine, Lisa Pine or Joshua Pine breaches his, her or
its obligations under Sections 12 or 13 hereof Buyer may give written notice of
such breach to such party. Following receipt of such notice, such party shall
have a period of 5 business days to either (i) cease such activity, or (ii) give
written notice to Buyer of the reason or reasons for such noncompliance. If
Buyer disputes such reason or reasons, Buyer and such party shall work
diligently in good faith for a period of 10 business days to resolve such
dispute. If following the end of such 10 business day period, the dispute shall
not have been resolved, either party shall have the right to request arbitration
in accordance with Section 19.12. In any event Buyer shall continue all payments
required under this Agreement unless and until an arbitrator reaches a final
award or a court issues a preliminary or permanent injunction.
SECTION 14. INDEMNIFICATION.
14.1. INDEMNIFICATION BY SELLER AND SHAREHOLDER. Seller and Shareholder,
jointly and severally, shall protect, defend, hold harmless and indemnify Buyer
and its officers, directors, stockholders, employees, affiliates, agents, Plans
and Plan beneficiaries and trustees, and its successors and assigns from,
against and in respect of any and all Damages that may be suffered or incurred
by reason of any of the following:
(a) noncompliance with any applicable bulk sales or transfer law;
(b) any Liability or Contract of, or claim against, Seller, whether
contingent or absolute, direct or indirect, known or unknown, matured or
unmatured (including but not limited to Liabilities for Taxes), which Buyer
has not assumed hereunder;
(c) any Liability or claim arising in any way from any product
manufactured or sold, or service rendered, or action taken by, or relating
to the operations of, Seller prior to the Closing Date;
(d) any Liability or claim under any Environmental Laws relating to
any event, action or failure to act which occurred prior to the Closing
Date;
(e) the breach or inaccuracy of or failure to comply with, or the
existence of any facts resulting in the inaccuracy of, any of the
warranties, representations, conditions, covenants or agreements of Seller
and/or Shareholder contained in this Agreement or in any agreement or
document delivered pursuant hereto or thereto or in connection herewith or
therewith, or arising out of the consummation of the transactions
contemplated hereby; provided, however, that neither Seller nor Shareholder
shall be liable to the Purchaser for consequential or punitive damages
based upon the inaccuracy or incompleteness of the Annual Financial
Statements;
(f) any Liability, claim or obligation arising in respect of, or
otherwise attributable to any employee benefit plan maintained or
contributed to by Seller, regardless of whether such Liability, claim or
obligation arises or relates to events which occurred prior to or after the
Closing Date, including but not limited to Liabilities, claims or
obligations which arise in respect of or relate to any "multiemployer
plan";
g) the assets (other than accounts receivable) set forth on Schedule
2.1 are not delivered to Buyer or the value thereof as of the Closing Date
(calculated in accordance with GAAP) is less than that set forth on the
Closing Date Net Worth Statement; and
(h) the amounts of the Assumed Liabilities as of the Closing Date
(other than accounts payable) (calculated in accordance with GAAP) set
forth on Schedule 3.3 are greater than the amounts set forth on such
Schedule 3.3.
14.2. INDEMNIFICATION BY BUYER. Buyer shall protect, defend, hold harmless
and indemnify Seller and Shareholder, and their respective affiliates, agents,
successors and assigns from, against and in respect of any and all Damages that
may be suffered or incurred by any of them arising from or by reason of any of
the following:
(a) any Assumed Liabilities, including, without limitation, any
personal guaranties by Shareholder of any Assumed Liabilities;
(b) the breach or inaccuracy of or failure to comply with any
warranties, representations, conditions, covenants or agreements of Buyer
contained in this Agreement or in any agreement, certificate or document
delivered pursuant to or in connection with this Agreement or arising out
of the closing of the transactions contemplated hereby; and
(c) The operations of Buyer (including the operations of the business
formerly carried on by Seller) subsequent to the Closing Date.
14.3. LIMITATIONS ON INDEMNIFICATION.
(a) Subsequent to the Closing, Seller and Shareholder shall have no
liability to indemnify any Person for Damages under this Agreement until
the aggregate of all Damages exceeds Five Thousand Dollars ($5,000) (the
"Basket Amount"), in which event Buyer shall be entitled to indemnification
for the full dollar amount of all such Damages beyond the initial Five
Thousand Dollars ($5,000); provided, however, that the foregoing sentence
shall not apply to the indemnification for the items set forth in 14.1(e)
with respect to the representation contained in Section 4.29, and 14.1(g)
and (h). The maximum aggregate liability of Seller and Shareholder under
this Section 14 shall not exceed One Million Three Hundred Fifty-Five
Thousand Dollars ($1,355,000). Notwithstanding the foregoing, Seller and
the Shareholders shall not be required to indemnify Buyer or any other
Person with respect to any Damages, if and to the extent that such Damages
have been included in the determination of the Closing Date Net Worth
Statement or an accrual or reserve for such Losses is included on the
Closing Date Balance Sheet which has not been fully utilized.
(b) The rights of Buyer, Seller and the Shareholder (and any affiliate
of any of them) to indemnification under this Section 14 shall be limited
as follows:
(1) In calculating the amount of any Damages incurred by Buyer,
such amount shall be reduced by the net amount Buyer or any of the
Affiliates of Buyer actually recovers (after deducting all attorneys'
fees, expenses and other costs of recovery) from any insurer or other
party liable for such Damages, and Buyer shall use reasonable efforts
to effect any such recovery.
(2) In calculating the amount of any Damages incurred by Seller
or the Shareholders, such amount shall be reduced by the net amount
Seller or any of its Affiliates actually recover (after deducting all
attorneys' fees, expenses and other costs of recovery) from any
insurer or other party liable for such Damages, and Seller shall use
reasonable efforts to effect any such recovery.
(3) Except with respect to claims for actual fraud only, the
parties agree that their exclusive remedy after the Closing for any
breach of any representation, warranty or covenant contained in this
Agreement shall be the indemnity contained in this Section 14;
provided, that nothing contained herein shall limit the rights of any
party to seek and obtain injunctive relief to specifically enforce
another party's obligations hereunder. Nothing herein shall limit the
rights of the parties to Employment Agreements and the Management
Agreement to enforce their respective rights thereunder.
(4) Notwithstanding any other provision of this Agreement, Buyer shall
not be entitled to any indemnification with respect to any alleged
breach of Seller's representations and warranties, and Buyer shall not
be entitled to set off any amounts owed or alleged to be owed to Buyer
as a result of such breach, until a final determination of such
liability has been made pursuant to Section 19.12.
14.4. INDEMNIFICATION PROCEDURES. In the event that any claim is asserted
against any party hereto, or any party hereto is made a party defendant in any
action or proceeding, and such claim, action or proceeding involves a matter
which is the subject of indemnification provided for in Section 14.1 or 14.2,
then such party (an "Indemnified Party") shall notify the other party or parties
hereto (the "Indemnifying Party") of the claim in writing, describing the claim,
the amount or estimated amount thereof, and the basis therefor, and including a
copy of any legal papers served, if any. The Indemnifying Party shall respond to
each such claim within thirty (30) days of receipt of such notice, unless the
claim (a) relates to a lawsuit filed by a third party, in which case the
Indemnifying Party shall respond at least ten (10) days prior to the date a
responsive pleading is first due, or (b) requires an immediate response, as in
the case of a cease and desist demand by a third party or a notice to show
cause, in which case the Indemnifying Party shall respond in a prompt, timely
manner. In the event a response to a notice of claim involving a third party
claim is not timely made, or if the Indemnifying Party elects to defend the
Indemnified Party but fails to diligently and promptly prosecute or settle the
third party claim, then the Indemnified Party shall have the right to defend the
third party claim as it reasonably sees fit and seek indemnification thereafter
pursuant to the terms hereof. The omission of any Indemnified Party to notify
the Indemnifying Party of any such claim shall not relieve the Indemnifying
Party from any liability in respect of such claim which it may have to the
Indemnified Party pursuant to this Section 14.4. If such claim is based on a
claim by a third party, the Indemnifying Party will be entitled to participate
in the negotiation or administration thereof and to the extent that such claim
relates to the liability of the Indemnifying Party and to assume the defense
thereof with counsel reasonably satisfactory to the Indemnified Party. If the
Indemnifying Party responds within the time period set forth above by notifying
the Indemnified Party that the Indemnifying Party will assume the defense of the
claim, no indemnification payment shall be due until the matter giving rise to
the indemnity claim is resolved. If the Indemnifying Party does not assume the
defense of the claim, the Indemnified Party may assume the defense and seek
indemnification from time to time as fees and expenses of counsel are incurred
and as the amount of the claim for which it is entitled to be indemnified
becomes liquidated or otherwise determinable. Notwithstanding the foregoing,
neither the Indemnifying Party nor the Indemnified Party shall pay, settle or
compromise any such claim or proceeding without the prior written approval of
the other party, which approval shall not be unreasonably withheld or delayed;
provided, that the Indemnifying Party may pay, settle or compromise any such
claim or proceeding without the consent of the Indemnified Party if such
payment, settlement or compromise requires solely the payment of money and is
solely the liability of the Indemnifying Party. In connection with any claims
based on claims by third parties, the Indemnified Party shall cooperate fully to
make available to the Indemnifying Party all pertinent information under its
control.
14.5 REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER.
(a) Shareholder represents and warrants to, and agrees with, Buyer as
follows: Shareholder has the power and authority to execute and deliver this
Agreement, and Shareholder has executed and delivered this Agreement. This
Agreement constitutes the valid and binding obligation of Shareholder
enforceable against it in accordance with its terms. No consent of any lender,
trustee, security holder of Shareholder, or other Person is required for
Shareholder to enter into and deliver this Agreement or to consummate the
transactions contemplated hereby, nor does any Contract, mortgage or other
instrument to which Shareholder is a party or by which Shareholder is bound or
affecting any of its respective properties conflict with or restrict the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby.
(b) Shareholder unconditionally guarantees as a primary obligation (i) the
prompt performance by Seller of all of the terms, covenants, agreements and
conditions contained in this Agreement or in any agreement or document delivered
by Seller pursuant hereto or in connection herewith or with the Closing
hereunder and (ii) the prompt and timely payment of any and all Damages which,
by virtue of this Agreement and such other agreements and documents, might
become recoverable by Buyer from Seller. Shareholder agrees that this guaranty
shall apply with the same force and effect to all amendments and modifications
of this Agreement and of any such other agreement or document. Shareholder
expressly waives: notice of acceptance, nonperformance or nonpayment by Seller;
presentment; demand; protest; and notice of dishonor in connection with the
foregoing guaranty.
SECTION 15. SURVIVAL OF REPRESENTATIONS; EFFECT OF CERTIFICATES.
15.1. SURVIVAL. The parties hereto agree that all representations,
warranties, covenants, conditions and agreements contained herein or in any
instrument or other document delivered pursuant to this Agreement or in
connection with the transactions contemplated hereby shall survive the execution
and delivery of this Agreement, notwithstanding any provision to the contrary
contained in any such instrument or document, the consummation of the
transactions contemplated hereby and any investigation or audit made by any
party hereto for a period of three years following the Closing Date. No party
shall make any claim for indemnification pursuant to this Agreement after the
expiration of the applicable survival period for the representation or warranty
claimed to have been breached.
15.2. EFFECT OF CERTIFICATES. Each statement contained in any certificate
delivered in connection with this Agreement or the consummation of the
transactions contemplated hereby shall constitute the representation, warranty
and agreement of the party delivering such certificate and shall have the same
force and effect as if it had been incorporated into this Agreement as a
representation, warranty and agreement by such party.
15.3. NOTICES. All notices, requests, demands and other communications
provided for by this Agreement shall be in writing and shall be deemed to have
been given when hand delivered, when received if sent by telecopier or by same
day or overnight recognized commercial courier service or three business days
after being mailed in any general or branch office of the United States Postal
Service, enclosed in a registered or certified postpaid envelope, addressed to
the address of the parties stated below or to such changed address as such party
may have fixed by notice:
To Seller: Pointille, Inc.
c/o William S. Pine
3540 Green Vista Drive
Encino, California 91436
Telecopier: (818) 788-0388
- copy to -
Jeffer, Mangels, Butler & Marmaro LLP
2121 Avenue of the Stars, 10th Floor
Los Angeles, California 90067
Attention: Timothy Lappen, Esq.
Telecopier: (310) 203-0567
To Shareholder: William S. Pine
3540 Green Vista Drive
Encino, California 91436
Telecopier: (818) 788-0388
- copy to -
Jeffer, Mangels, Butler & Marmaro LLP
2121 Avenue of the Stars, 10th Floor
Los Angeles, California 90067
Attention: Timothy Lappen, Esq.
Telecopier: (310) 203-0567
To Buyer: Disc Graphics, Inc.
10 Gilpin Avenue
Hauppauge, New York 11788
Attention: Donald Sinkin
Telecopier: (516) 582-9428
- copy to -
Stroock & Stroock & Lavan
Seven Hanover Square
New York, New York 10004-2696
Attention: Mark A. Rosenbaum, Esq.
Telecopier: 212-806-6006
provided, that any notice of change of address shall be effective only upon
receipt.
SECTION 16. TERMINATION.
16.1. This Agreement may be terminated at any time prior to the Closing by
any of the following:
(a) By mutual written agreement of Buyer and Seller;
(b) By either Buyer or Seller, if the Closing has not occurred by June
1, 1996 upon written notice by such terminating party, provided that at the time
such notice is given a material breach of this Agreement by such terminating
party shall not be the reason for the Closing's failure to occur;
(c) Subject to the provisions of paragraph 16.2, by Buyer, by written
notice to Seller, if there has been a material violation or breach of any of
Seller's covenants or agreements made herein or in connection herewith or if any
representation or warranty of Seller made herein or in connection herewith
proves to be materially inaccurate or misleading; or
(d) Subject to the provisions of paragraph 16.2, by Seller, by written
notice to Buyer, if there has been a material violation or breach of any of
Buyer's covenants or agreements made herein or in connection herewith or if any
representation or warranty of Buyer made herein or in connection herewith proves
to be materially inaccurate or misleading.
16.2. If this Agreement is terminated as provided in paragraph 16.1, then
this Agreement shall forthwith become void and there shall be no liability or
obligation on the part of any party hereto (or any of their respective officers,
directors or employees), except based upon the obligations set forth in Section
17 and 18 and the Non-Disclosure and Confidentiality Agreement dated as of
November 7, 1994, as amended by the First Amendment thereto dated January 26,
1996 between Buyer and Seller; provided, however, that if Buyer terminates this
Agreement pursuant to paragraph 16.1(c) or Seller terminates this Agreement
pursuant to paragraph 16.1(d), the non- terminating party shall remain liable
for any breach hereof.
SECTION 17. FEES AND EXPENSES. Except as otherwise provided herein in
connection with any dispute among the parties, each party shall bear its own
administrative, due diligence, legal, accounting and other fees and expenses
incurred in connection herewith. No party shall be responsible for any fees and
expenses incurred by any other party.
SECTION 18. BROKERS AND ADVISORS. Seller and Shareholder agree to pay, and
shall hold Buyer harmless from, the fees and expenses of any finder, business
broker or investment banker retained by Seller or Shareholder (or any affiliate)
in connection with this proposed transaction. Buyer agrees to pay, and shall
hold Seller and Shareholder harmless from, the fees and expenses of any finder,
business broker or investment banker retained by Buyer in connection with this
proposed transaction.
SECTION 19. MISCELLANEOUS.
19.1. ENTIRE AGREEMENT. This Agreement, including the Exhibits and
Schedules hereto, sets forth the entire agreement and understanding between the
parties and merges and supersedes all prior discussions, agreements and
understandings of every kind and nature among them as to the subject matter
hereof, and no party shall be bound by any condition, definition, warranty or
representation other than as expressly provided for in this Agreement or as may
be on a date on or subsequent to the date hereof duly set forth in writing
signed by each party which is to be bound thereby. Unless otherwise expressly
defined, terms defined in the Agreement shall have the same meanings when used
in any Exhibit or Schedule and terms defined in any Exhibit or Schedule shall
have the same meanings when used in the Agreement or in any other Exhibit or
Schedule. This Agreement (including the Exhibits and Schedules hereto) shall not
be changed, modified or amended except by a writing signed by each party to be
charged and this Agreement may not be discharged except by performance in
accordance with its terms or by a writing signed by each party to be charged.
19.2. TAXES. Any Taxes in the nature of a sales or transfer tax (including
any realty transfer tax or realty gains transfer tax), and any stock transfer
tax, payable on the sale or transfer of all or any portion of the Acquired
Assets or the consummation of any other transaction contemplated hereby shall be
paid by Seller.
19.3. GOVERNING LAW. THIS AGREEMENT AND ITS VALIDITY, CONSTRUCTION AND
PERFORMANCE SHALL BE GOVERNED IN ALL RESPECTS BY THE LAWS OF CALIFORNIA, WITHOUT
GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
19.4. BENEFIT OF PARTIES; ASSIGNMENT. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns. The Agreement may not be assigned by any party
hereto except with the prior written consent of the other parties hereto.
Nothing herein contained shall confer or is intended to confer on any third
party or entity which is not a party to this Agreement any rights under this
Agreement.
19.5. PRONOUNS. Whenever the context requires, the use in this Agreement of
a pronoun of any gender shall be deemed to refer also to any other gender, and
the use of the singular shall be deemed to refer also to the plural.
19.6. HEADINGS. The headings in the sections, para- graphs, Schedules and
Exhibits of this Agreement are inserted for convenience of reference only and
shall not constitute a part hereof. The words "herein," "hereof," "hereto" and
"hereunder," and other words of similar import refer to this Agreement as a
whole and not to any particular provision of this Agreement.
19.7. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. Seller and
Shareholder each (i) hereby irrevocably submits to the jurisdiction of, and
agrees that any suit shall be brought only in, the state and federal courts
located in Los Angeles, California for the purpose of any suit, action or other
proceeding arising out of or based upon this Agreement or the transactions
contemplated hereby and (ii) hereby waives to the extent not prohibited by
applicable law, and agrees not to assert, by way of motion, as a defense or
otherwise, in any such proceeding, any claim that it is not subject personally
to the jurisdiction of the above-named courts, that its property is exempt or
immune from attachment or execution, that any such proceeding brought in one of
the above-named courts is brought in an inconvenient forum, that the venue of
any such proceeding brought in one of the above-named courts is improper, or
that this Agreement, or the transactions contemplated hereby may not be enforced
in or by such court. Seller and Shareholder each hereby irrevocably designates
and appoints CT Corporation System, Los Angeles, California, as its authorized
agent to receive service of process on its behalf in connection with any legal
matters or proceedings pertaining to this Agreement or the transactions
contemplated hereby and hereby consents to service of process in any such
proceeding by registered or certified mail, return receipt requested, at such
address. As an alternative method of service, Seller and Shareholder each also
irrevocably consents to the service of process in any such matter or proceeding
by the mailing or delivering of copies of such process to Seller and/or
Shareholder, as the case may be, as provided in Section 15.3 except by facsimile
transmission.
19.8. PREVAILING PARTY IN LITIGATION. The prevailing party as determined by
the court or arbitrator in any litigation or arbitration, whether by judgment,
settlement or award, with respect to this Agreement or the transaction
contemplated hereby shall be entitled to receive payment of its reasonable
attorneys' fees and expenses, by the losing party.
19.9. DISCLAIMER OF IMPLIED WARRANTIES. It is the explicit intent and
understanding of each of the parties hereto that no party hereto nor any of its
Affiliates, representatives or agents is making any representation or warranty
whatsoever, oral or written, express or implied, other than those set forth in
this Agreement, and neither party hereto is relying on any statement,
representation or warranty, oral or written, express or implied, made by the
other party hereto or such other party's affiliates, representatives or agents,
except for the representations and warranties set forth in this Agreement.
EXCEPT AS OTHERWISE SPECIFICALLY SET FORTH IN THIS AGREEMENT, THE PARTIES
EXPRESSLY DISCLAIM ANY IMPLIED WARRANTY OR REPRESENTATION AS TO CONDITION,
MERCHANTABILITY OR SUITABILITY AS TO ANY OF THE ASSETS OR THE BUSINESS OF THE
SELLER AND, EXCEPT AS OTHERWISE SPECIFICALLY SET FORTH IN THIS AGREEMENT, IT IS
UNDERSTOOD THAT BUYER TAKES THE ASSETS OF SUCH BUSINESS "AS IS" AND "WHERE IS".
The parties hereto agree that this is an arm's length transaction in which the
parties' undertakings and obligations are limited to the performance of their
obligations under this Agreement. Buyer acknowledges that it is a sophisticated
investor, that it has undertaken a full investigation of the Seller, and that it
has only a contractual relationship with Seller, based solely on the terms of
this Agreement, and that there is no special relationship of trust or reliance
between Buyer and Seller, provided, however, nothing in this Section shall have
the effect of limiting the express representations, warranties and covenants
contained in this Agreement.
19.10. EXECUTION IN COUNTERPART. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original but all of which
shall constitute one and the same instrument, and shall become effective when
one or more counterparts have been signed by all parties and delivered,
including delivery by facsimile transmission, to the other parties.
19.11. WAIVER OF PUNITIVE DAMAGES. THE PARTIES TO THIS AGREEMENT EXPRESSLY
WAIVE AND FORGO ANY RIGHT TO RECOVER PUNITIVE, EXEMPLARY, CONSEQUENTIAL OR
SIMILAR DAMAGES, INCLUDING, BUT NOT LIMITED TO, LOST PROFITS IN (i) ANY CLAIM
FOR INDEMNIFICATION UNDER THIS AGREEMENT OR (ii) ANY ARBITRATION, LAWSUIT,
LITIGATION OR PROCEEDING ARISING OUT OF OR RESULTING FROM ANY CONTROVERSY OR
CLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY RELATED DOCUMENT, OR
THE BREACH, TERMINATION OR INVALIDITY OF ANY PROVISION OF THIS AGREEMENT OR ANY
RELATED DOCUMENT, OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY
RELATED DOCUMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO
REPRESENTATIVE, AGENT OR ATTORNEY OR ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER, (ii) IT UNDERSTANDS AND HAS CONSIDERED THE
IMPLICATIONS OF THE WAIVER, (iii) IT MAKES THIS WAIVER VOLUNTARILY, AND (iv) IT
HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS IN THIS SECTION 19.11.
19.12. ARBITRATION. Except as provided in Section 13.8, any controversy
arising under, out of, in connection with, or relating to, this Agreement or the
transactions contemplated hereby, shall be submitted to binding arbitration in
accordance with the following provisions:
(a) Within five (5) days after notice of submitting the applicable
issue to arbitration (the "Arbitration Notice") is given by a party, each party
shall designate up to three arbitrators in priority from one to three, who are
currently available for arbitration of disputes in Los Angeles, California, as
potential arbitrators. The arbitration shall take place in Los Angeles,
California. Any arbitrator designated by both parties shall be selected as the
arbitrator pursuant to this subsection. If both parties designate more than one
arbitrator, then the arbitrator with the highest common priority shall be
selected. In the event the parties are unable to agree upon an arbitrator within
ten (10) days after delivery of the Arbitration Notice, the parties agree to
accept an arbitrator selected by the American Arbitration Association ("AAA").
(b) The parties agree to request that the arbitrator appointed
pursuant to the procedure agreed upon above shall, as soon as reasonably
practicable after his or her appointment, and after consultation with the
parties, set an arbitration date no later than thirty (30) days after his or her
appointment.
(c) The arbitration shall be conducted pursuant to the commercial
arbitration rules of the AAA, as then in effect and shall be considered a large
and complex case under said rules; provided, however, that no discovery shall be
allowed after the 30th day following the Arbitration Notice, except to the
extent ordered by the arbitrator. The parties agree that the final order from
the arbitrator relating to any arbitration shall be rendered on or before the
tenth day after submission of each side's arguments, unless circumstances not
within the control of either party make rendering of such an order by that date
impossible.
(d) Should the arbitrator at any time prior to the commencement of the
arbitration hearing become incapacitated or otherwise unable to fulfill his or
her duties, the parties agree to seek a mutually agreeable replacement.
(e) Any such award shall be final and binding on each and all of the
parties thereto, and judgment may be entered thereon in any court having
jurisdiction thereof. The procedure for implementing or challenging the
arbitrator's decision shall be that set forth in CCP Section 1285 et seq.,
relating to confirmation, correction, or vacation of arbitration awards. Except
as set forth by that procedure, the arbitrator's award shall be considered
final, and not subject to appeal or collateral attack.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on the day and year first above written.
DISC GRAPHICS, INC.
By:/s/ Donald Sinkin
--------------------
Name: Donald Sinkin
Title: President
POINTILLE, INC. d/b/a
MODERN OF CALIFORNIA
By:/s/ William S. Pine
----------------------
Name: William S. Pine
Title: President
SHAREHOLDER
/s/ William S. Pine
-----------------------
WILLIAM S. PINE AS CO-TRUSTEE
OF THE WILLIAM S. PINE AND LISA PINE
1982 TRUST, DATED JANUARY 21, 1982
/s/ Lisa Pine
----------------------------------
LISA PINE AS CO-TRUSTEE OF THE
WILLIAM S. PINE AND LISA PINE
1982 TRUST, DATED JANUARY 21, 1982
Agreed to and accepted with respect to Sections 12 and 13 hereof:
/s/ William S. Pine
- ---------------------------
William S. Pine
/s/ Lisa Pine
- ---------------------------
Lisa Pine
/s/ Joshua Pine
- ---------------------------
Joshua Pine
FOR IMMEDIATE RELEASE
PRESS RELEASE
DISC GRAPHICS COMPLETES ACQUISITION
OF MODERN OF CALIFORNIA
HAUPPAUGE, NY, MAY 23 - Disc Graphics, Inc. (ASE:DGI), a nationally
recognized printer of specialty packaging for the entertainment software, home
video, pharmaceutical, music and cosmetic markets, reported today it has
completed the previously announced acquisition of substantially all of the
assets and has assumed certain liabilities of Modern of California, a
manufacturer of packaging for the video, music, and CD ROM software markets.
Although specific terms of the acquisition were not disclosed, it included a
combination of stock, cash and notes.
Modern of California is a privately-held company headquartered in Burbank,
CA which had reveues of $7.7 million for the year ended Feb. 29, 1996. Founded
more than 30 years ago, the company has been solidly entrenched in the
entertainment industry. "We are excited about the synergies created by this
acquisition as well as the immediate expansion of production capacity.
"As a first step in its growth strategy, the acquisition of Modern
provides Disc with an all-impotant West Coast presence. Our planned investment
in new equipment for Modern California will hasten our continued expansion in
the CD-ROM, video and other home entertainment markets. We expect to see this
expansion provide increased revenues and improved margins through the reduction
of redundant services, volume efficiencies and meeting the existing needs of our
current West Coast customers," noted Donald Sinkin, chairan, president and chief
executive officer of Disc Graphics.
