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) JULY 1, 1999
Disc Graphics, Inc.
(Exact name of registrant as specified in its charter)
Commission File Number: 0-22696
Delaware 13-3678012
(State or other jurisdiction of (I.R.S. Employer
incorporation) Identification No.)
10 Gilpin Avenue, Hauppauge, New York 11788-8831
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 234 -1400
Item 2. Acquisition or Disposition of Assets.
On July 1, 1999, the Registrant acquired substantially all of the
assets and certain liabilities of Contemporary Color Graphics, Inc., a
high-quality commercial printer, pursuant to an Asset Purchase Agreement dated
as of July 1, 1999, by and among the Registrant, CCG, and the shareholders of
CCG.
The purchase price consisted of $3,500,000.00 in cash, a promissory
note in the amount of $1,000,000.00, a supplemental promissory note in the
amount of $1,000,000.00, convertible debentures in the amount of $600,000.00 and
assumed debt of approximately $1,400,000.00. Principal on the promissory note
must be paid in three annual installments commencing on August 1, 2000. Interest
at a rate of 8.33% per annum on the principal balance of the note must be paid
quarterly in arrears commencing on November 1, 1999. Principal on the
supplemental note must be paid in two annual installments commencing on August
1, 2003. Interest at a rate of 8.33% per annum on the unpaid principal balance
of the supplemental note must be paid on each principal payment date. Principal
on the convertible debentures must be paid in three annual installments
commencing on August 1, 2000. Interest at a rate of 8.33% per annum on the
unpaid principal balance of the debentures must be paid quarterly in arrears
commencing on November 1, 1999. CCG has the right to convert the debentures into
shares of the Registrant's common stock, par value $0.01 per share, not less
than 30 days before any principal or interest payment date at a rate of one
share for every $5.50 of principal or interest, as applicable. Payment on the
promissory note, supplemental note and convertible debenture is secured by a
subordinated lien in favor of CCG on all of the assets acquired from CCG. The
promissory note, the supplemental promissory note, the convertible debentures,
the cash and the assumed debt are subject to adjustments as set forth in the
Asset Purchase Agreement.
In connection with the Asset Purchase Agreement, the Registrant
assumed CCG's rights and obligations under a lease of real property, and entered
into employment agreements with four shareholders who were key employees of CCG.
The Registrant believes that the addition of these and other former employees of
CCG will enhance the Registrant's sales force. The Registrant is not aware of
any other material relationship between CCG, its stockholders and the
Registrant, any of its affiliates, any director or officer of the Registrant or
any of their associates.
The Registrant paid the cash portion of the purchase price from
borrowings under its Financing Agreement with KeyBank National Association.
The Registrant presently intends to continue to use the property,
plant and equipment acquired in the acquisition for the same purposes used by
CCG prior to the acquisition. CCG had approximately $8.0 million of revenues in
its 1998 fiscal year. There can be no assurance that the Registrant will
successfully integrate CCG's business or sustain its prior revenue levels.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired. The financial
statements required to be included in this Current Report on Form 8-K with
respect to CCG will be filed by the Registrant within 60 days after the date of
the filing of this Current Report.
(b) Pro forma Financial Information. Any required pro forma financial
information also will be filed by the Registrant within 60 days after the filing
date of this report.
(c) Exhibits. The Exhibits to this Current Report on Form 8-K are
listed in the Exhibit Index which appears elsewhere herein and is incorporated
herein by reference. Schedules to Exhibit 2.1 hereto have been omitted, and the
Registrant agrees to furnish supplementally to the Commission upon request a
copy of any omitted schedules.
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DISC GRAPHICS, INC.
(Registrant)
July 16, 1999 /s/ Donald Sinkin
-----------------
Donald Sinkin - President & CEO
DISC GRAPHICS, INC.
Current Report
Form 8-K
EXHIBIT INDEX
Exhibit
Number Description
2.1 Asset Purchase Agreement dated as of July 1, 1999, by and among the
Registrant, Contemporary Color Graphics, Inc. ("CCG") and the
shareholders of CCG named therein.
2.2 Promissory Note dated July 1, 1999, made by the Registrant to CCG in
the principal sum of $1.0 million.
2.3 Supplemental Note dated July 1, 1999, made by the Registrant to CCG in
the principal sum of $1.0 million.
2.4 Security Agreement dated July 1, 1999 between the Registrant and CCG.
2.5 Agreement of Amendment dated July 1, 1999, between KeyBank National
Association and the Registrant.
4.1 Convertible Debenture due July 1, 2002, issued by the Registrant to
CCG on July 1, 1999, in the principal amount of $600,000.
20.1 Press Release dated July 8, 1999, issued by the Registrant
EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
by and among
DISC GRAPHICS, INC.,
as Purchaser,
CONTEMPORARY COLOR GRAPHICS, INC.,
as Seller,
and
LAURENCE LOCKS, RONALD LOCKS,
ANTHONY CUTRONE and MICHAEL CUTRONE
as Shareholders
Dated as of July 1, 1999
<PAGE>
TABLE OF CONTENTS
RECITALS..................................................................... 1
ARTICLE I
PURCHASE OF THE ASSETS; ASSUMPTION OF THE
ASSUMED LIABILITIES.......................................................... 1
Section 1.1 Purchase of the Assets................................... 1
Section 1.2 Excluded Assets.......................................... 4
Section 1.3 Assumed Liabilities...................................... 4
Section 1.4 Liabilities Not Assumed.................................. 5
Section 1.5 Proration of Lease Payments, Utility Charges and Other
Payments................................................. 6
Section 1.6 Proration of Taxes....................................... 7
Section 1.7 Purchase Price........................................... 7
Section 1.8 Minimum Working Capital.................................. 9
Section 1.9 Closing Date Balance Sheet............................... 9
Section 1.10 Dispute Resolution....................................... 9
Section 1.11 Closing Date............................................. 10
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE SELLER AND THE SHAREHOLDERS........................................... 10
Section 2.1 Organization and Qualification........................... 10
Section 2.2 Capitalization; Title to the Securities.................. 10
Section 2.3 No Equity Interests...................................... 10
Section 2.4 Options or Other Rights.................................. 10
Section 2.5 Validity and Execution of Agreement...................... 10
Section 2.6 No Conflict.............................................. 11
Section 2.7 Genuiness and Authenticity of Books and
Records Furnished to the Purchaser....................... 11
Section 2.8 Certificate of Incorporation and By-laws................. 11
Section 2.9 Financial Statements..................................... 11
Section 2.10 Undisclosed Liabilities.................................. 11
Section 2.11 No Material Adverse Change............................... 12
Section 2.12 Tax Matters.............................................. 12
Section 2.13 Litigation............................................... 14
Section 2.14 Contracts and Other Agreements........................... 14
Section 2.15 Real Property............................................ 15
Section 2.16 Transactions with Affiliates............................. 15
Section 2.17 Accounts Receivable and Inventory........................ 15
Section 2.18 Compensation Arrangements: Officers and Directors....... 16
Section 2.19 Tangible Property........................................ 16
Section 2.20 Intangible Property...................................... 17
Section 2.21 ERISA.................................................... 17
Section 2.22 Employee Relations....................................... 18
Section 2.23 Insurance................................................ 18
Section 2.24 Licenses and Permits..................................... 18
Section 2.25 Title; Liens............................................. 19
Section 2.26 Compliance with Laws..................................... 19
Section 2.27 Entire Business.......................................... 19
Section 2.28 Environmental Matters.................................... 19
Section 2.29 Web Site................................................. 21
Section 2.30 Conduct of Business...................................... 21
Section 2.31 Brokers.................................................. 21
Section 2.32 Disclosure............................................... 21
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.............................. 21
Section 3.1 Organization and Capitalization.......................... 21
Section 3.2 Validity and Execution of Agreement...................... 22
Section 3.3 No Conflict.............................................. 22
Section 3.4 Brokers.................................................. 22
Section 3.5 Disclosure............................................... 22
Section 3.6. Litigation............................................... 22
ARTICLE IV
PRE-CLOSING COVENANTS OF THE SELLER AND THE SHAREHOLDERS..................... 22
Section 4.1 Corporate Examinations and Investigations................ 23
Section 4.2 Other Agreements......................................... 23
Section 4.3 Name Changes............................................. 23
Section 4.4 Employees................................................ 23
Section 4.5 Returns and Taxes........................................ 24
ARTICLE V
CONDITIONS PRECEDENT TO THE CLOSING.......................................... 24
Section 5.1 Conditions Precedent to the Obligations of Each Party.... 24
Section 5.2 Conditions Precedent to the Obligations of the Purchaser to
Complete the Closing..................................... 25
Section 5.3 Conditions Precedent to the Obligations of the Seller
and the Shareholders to Complete the Closing............. 26
ARTICLE VI
POST CLOSING COVENANTS....................................................... 27
Section 6.1 Further Information...................................... 28
Section 6.2 Record Retention......................................... 28
Section 6.3 Tax Matters.............................................. 28
Section 6.4 Non-Compete.............................................. 28
Section 6.5 Tax Cooperation. ....................................... 32
ARTICLE VII
SURVIVAL; INDEMNIFICATION.................................................... 32
Section 7.1 Survival of Representations, Warranties, Covenants and
Agreements............................................... 33
Section 7.2 Indemnification of the Purchaser......................... 33
Section 7.3 Indemnification of the Seller and the Shareholders....... 33
Section 7.4 Method of Asserting Claims............................... 33
Section 7.5 Insurance................................................ 35
Section 7.6 Basket................................................... 35
Section 7.7 Cap on Indemnity Obligation of Seller.................... 35
ARTICLE VIII
TERMINATION OF AGREEMENT..................................................... 35
Section 8.1 Termination. ........................................... 35
Section 8.2 Survival................................................. 36
ARTICLE IX
MISCELLANEOUS................................................................ 36
Section 9.1 Certain Definitions...................................... 36
Section 9.2 Expenses................................................. 42
Section 9.3 Purchaser's Right to Off-Set............................. 42
Section 9.4 Further Assurances....................................... 42
Section 9.5 Notices.................................................. 42
Section 9.6 Publicity................................................ 43
Section 9.7 Entire Agreement......................................... 43
Section 9.8 Waivers and Amendments................................... 43
Section 9.9 Reserved................................................. 43
Section 9.10 GOVERNING LAW............................................ 44
Section 9.11 Binding Effect; Assignment............................... 44
Section 9.12 Variations in Pronouns................................... 44
Section 9.13 Counterparts............................................. 44
Section 9.14 Exhibits, Schedules and Annexes.......................... 44
Section 9.15 Bulk Sales Laws...........................................44
Section 9.16 Headings................................................. 44
Section 9.17 Severability of Provisions................................44
EXHIBITS
Exhibit A Promissory Note
Exhibit B Opinion of Counsel to the Seller and the Shareholders
Exhibit C Assignment and Assumption Agreement
Exhibit D Bill of Sale
Exhibit E Opinion of Counsel to the Purchaser
Exhibit F Form of Debentures
Exhibit G Employment Agreement
Exhibit H 12/31/98 Balance Sheet
SCHEDULE
Schedule 1.1(d) - Personal Property
Schedule 1.1(h) - Logos, Symbols, Tradestyles
Schedule 1.2(f) - Excluded Assets
Schedule 1.7(a)(v) - Assumed Debt
Schedule 1.7(b) - Allocation of Purchase Price
Schedule 2.1 - Jurisdictions of Qualification
Schedule 2.6 - Conflict with Laws, Agreements, etc.
Schedule 2.10 - Undisclosed Liabilities
Schedule 2.12 - Tax Matters
Schedule 2.13 - Litigation
Schedule 2.14 - Contracts & Other Agreements
Schedule 2.15 - Real Property Lease
Schedule 2.16 - Transactions with Affiliates
Schedule 2.17 - Accounts Receivable
Schedule 2.18 - Compensation
Schedule 2.19 - Personal Property Leases
Schedule 2.20 - List Tangible Property
Schedule 2.21 - ERISA
Schedule 2.22 - Employee Matters
Schedule 2.23 - Insurance
Schedule 2.24 - Licensing and Permits
Schedule 2.25 - Liens
Schedule 2.28 - Environmental Matters
<PAGE>
ASSET PURCHASE AGREEMENT (this "Agreement") dated as of July 1, 1999,
by and among DISC GRAPHICS, INC. (the "Purchaser"), CONTEMPORARY COLOR GRAPHICS,
INC. (the "Seller"), and LAURENCE LOCKS, RONALD LOCKS, ANTHONY CUTRONE and
MICHAEL CUTRONE (each a "Shareholder"; collectively, the "Shareholders").
RECITALS
A. The Seller is the owner of certain assets which relate to or are
used in the business of commercial sheet fed printing and all activities related
thereto (hereinafter referred to as the "Business").
B. The Shareholders own all of the outstanding shares of capital stock
of the Seller.
C. The Seller wishes to sell, and the Purchaser wishes to purchase, the
Assets (as hereinafter defined), and in connection therewith, the Purchaser will
assume certain liabilities of the Seller comprising the Assumed Liabilities (as
hereinafter defined) upon the terms and conditions hereinafter set forth.
D. Capitalized terms used herein shall have the meanings given to them
in Section 9.1 hereof.
NOW, THEREFORE, in consideration of the mutual terms, conditions and
other agreements set forth herein, the Purchaser, the Seller and the
Shareholders hereby agree as follows:
ARTICLE I
PURCHASE OF THE ASSETS; ASSUMPTION OF THE
ASSUMED LIABILITIES
Section 1.1 Purchase of the Assets. On the terms and subject to the
conditions set forth in this Agreement, on the Closing Date, the Seller shall
sell, transfer, assign, convey and deliver to the Purchaser, and the Purchaser
shall acquire and purchase from the Seller, all of the right, title and interest
of the Seller as of the Closing Date in and to all of the assets, properties and
rights owned by the Seller, or used or usable by the Seller in the operation of
the Business, of every type and description, real, personal and mixed, tangible
and intangible, wherever located and whether or not reflected on the Books and
Records of the Seller, other than those excluded pursuant to Section 1.2 (the
foregoing are hereinafter collectively referred to as the "Assets"). Except as
specifically excluded pursuant to Section 1.2, the Assets shall include, without
limitation, all of the right, title and interest of the Seller in or to the
following:
(a) Real Property Lease. (i) The Seller's rights as a tenant
under the lease of the real property located at 200
Executive Drive, Units D, E, F and G, Edgewood, New York
11717 (together with the buildings and permanent structures
thereon, the "Real Property"), as more fully described on
Schedule 2.15 hereto (the "Real Property Lease");
(b) Inventory. All inventories, including, without limitation,
all work-in-process, finished goods, demonstration
equipment, office and other supplies, parts, packaging
materials and other accessories related thereto which are
held at, or are in transit from or to, the locations at
which the Business is conducted, or, to the extent relevant,
located at suppliers' premises or customers' premises on
consignment, in each case, which are used or held for use by
the Seller in the conduct of the Business, including any of
the foregoing purchased subject to any conditional sales or
title retention agreement in favor of any other Person,
together with all rights of the Seller against suppliers of
such inventories (the "Inventory");
(c) Accounts Receivable. All trade accounts receivable and all
notes, bonds and other evidences of indebtedness of and
rights of the Business to receive payments arising out of
sales occurring in the conduct of the Business prior to the
Closing Date and which relate to services provided or goods
sold and delivered prior to the Closing Date (the "Accounts
Receivable");
(d) Tangible Personal Property. All furniture, fixtures,
equipment, machinery and other tangible personal property
other than Inventory, used or held for use in the conduct of
the Business at the location at which the Business is
conducted or, to the extent relevant, at suppliers' premises
or customers' premises on consignment, or otherwise used or
held for use by the Seller in the conduct of the Business,
including any of the foregoing purchased subject to any
conditional sales or title retention agreement in favor of
any other Person which shall include but not be limited to
the tangible personal property set forth on Schedule 1.1(d)
annexed hereto;
(e) Personal Property Leases. The Seller's rights as a tenant or
a subtenant under the leases or subleases of tangible
personal property, if any, set forth on Schedule 2.19 hereto
(the "Personal Property Leases");
(f) Business Contracts. All contracts and other agreements
(other than the Real Property Leases and Personal Property
Leases and the Accounts Receivable) to which the Seller is a
party and which are utilized in the conduct of the Business,
including without limitation contracts and other agreements
relating to suppliers, sales representatives, distributors,
2
consultants, customers, purchase orders, marketing and
purchasing arrangements (the "Business Contracts");
(g) Prepaid Expenses. All prepaid expenses relating to the
Assets or the Assumed Liabilities, including, without
limitation, unbilled charges and deposits relating to the
operation of the Business;
(h) Intangible Property. All intellectual property rights used
or held for use in the conduct of the Business (including
the Seller's goodwill therein) all rights, privileges,
claims, causes of action and options relating or pertaining
to the Business or its assets or properties, including, but
not limited to, Seller's business and marketing plans,
copyrights and applications therefor, inventions, patents
and applications therefor, trademarks, trade names, service
marks and all names and slogans used by the Seller in
connection with the Business, including, without limitation,
the names Contemporary Color Graphics, CCG, PC Color,
NuColor, Contemporary Imaging, Living Color and Progressive
Label and Litho, together with the logos, symbols and
tradestyles included in Schedule 1.1(h) hereto and, to the
extent the Seller has transferable rights therein, all
computer software (including source codes) and related
documentation and licenses (the "Intangible Property");
(i) Licenses. All licenses, permits, franchises, approvals and
authorizations (including applications therefor) utilized in
the conduct of the Business (the "Business Licenses");
(j) Balance Sheet Assets. Those assets, properties and rights of
the Seller reflected on the Financial Statements (as
hereinafter defined) or otherwise referred to in this
Agreement or any Schedule hereto, subject to changes in the
ordinary course of business through the Closing Date;
(k) Books and Records. All Books and Records used or held for
use in the conduct of the Business or otherwise relating to
Assets and Liabilities (including copies of all Tax records
related thereto); and
(l) Telephone Numbers. The right, if any, which the Seller has
to use the following telephone numbers: (516) 242-7915 and
(516) 242-7310 to the extent transferrable;
(m) Web Site. To the extent not otherwise included within this
Section 1.1, all tangible and intangible property (whether
owned by or licensed to the Seller) utilized in connection
with the World Wide Web site with the domain name
WWW.CCGPRINT.COM (the "Site"), including but not limited to
all pending and issued domain names associated with the
Site;
3
all computer hardware and other equipment owned or leased by
the Seller and utilized for the creation and maintenance of
the Site; all intellectual property (including, without
limitation, copyrights, trademarks, trade names, trade
secrets and patents) owned by the Seller and contained
within or utilized for the creation of the Site; all of the
Seller's rights under any software or other license or
service agreement (including, without limitation, Web site
development and/or hosting agreement) or other agreements
(including, without limitation, joint ventures, advertising
agreements, or other business relationships) arising out of
the Site.
(n) Goodwill. All goodwill relating to the Assets and the
Business.
Section 1.2 Excluded Assets. Any provision of this Agreement to the
contrary notwithstanding, the Purchaser shall not acquire and there shall be
excluded from the Assets, the following (the "Excluded Assets");
(a) The entire right and interest of the Seller in and to any
policy of insurance or any proceeds of insurance paid or
payable to the Seller, whether prior to or following the
Closing Date, to the extent paid or payable solely in
respect of any Excluded Liability;
(b) Books and Records required by law to be retained by the
Seller;
(c) All of the rights, properties and assets of the Seller which
may have been transferred or disposed of prior to the
Closing Date as provided or permitted under this Agreement;
(d) all prepaid insurance premiums pertaining to the Business;
(e) any claims for refunds or rebates of any Taxes paid prior to
Closing; and
(f) the personal property described on Schedule 1.2(f).
Section 1.3 Assumed Liabilities. Subject to the terms and conditions
set forth herein, the Purchaser agrees that, on the Closing Date, the Purchaser
shall assume and thereafter pay, perform or discharge when due or required to be
performed, as the case may be, the following obligations and liabilities of the
Seller to the extent existing on the Closing Date, except as may be specifically
excluded pursuant to the provisions of this Agreement (the "Assumed
Liabilities"):
(a) Lease Obligations. All obligations of the Seller under the
Personal Property Leases and the Real Property Lease arising
and to be performed on or after the Closing Date;
4
(b) Obligations Under Contracts and Licenses. All obligations of
the Seller under the Business Contracts and Business
Licenses arising and to be performed on or after the Closing
Date;
(c) Trade Payables and Balance Sheet Liabilities. All trade
accounts payable arising in the ordinary course of the
Seller's Business prior to the Closing Date and liabilities
of the Seller reflected on the Financial Statements (as
hereinafter defined) and any similar payables, obligations
and liabilities not reflected on the Financial Statements
but arising in the ordinary course of business through the
Closing Date; and
(d) Warranty Obligations. Seller's normal customer returns,
adjustments or repairs relating to products or services sold
in accordance with the Seller's returns practice, performed
or provided by the Seller in the Business, but only with
respect to products or services sold performed or provided
prior to Closing, and only to the extent the same does not
exceed $10,000.
Section 1.4 Liabilities Not Assumed. Any provision of this Agreement
to the contrary notwithstanding (and without implication that the Purchaser is
assuming any liability not expressly excluded and, where applicable, without
implication that any of the following have been included in the Assumed
Liabilities), the following liabilities (the "Excluded Liabilities") of the
Seller and of the Shareholders are excluded and shall not be assumed or
discharged by the Purchaser:
(a) any liabilities for any Taxes of the Seller or the
Shareholders attributable to or arising from or in
connection with the income, business, assets, properties or
operations of the Seller for any period (or portion thereof)
ending on or before the Closing Date, or payable in
connection with the transactions contemplated by this
Agreement and any liabilities for any Taxes of any Affiliate
(or any former Affiliate) of the Seller or the Shareholder;
(b) any liability of the Seller or of the Shareholders for the
unpaid Taxes of any Person under Treasury Regulation
1.1502-6 (or any similar provision of state, local or
foreign law), as a transferee or successor, by contract or
otherwise);
(c) any liabilities (whether asserted before or after Closing
Date) for any breach of a representation, warranty, or
covenant, or for any claim for indemnification, contained in
any Real Property Lease, Personal Property Leases, Business
Contract or Business License agreed to be performed pursuant
hereto by the Purchaser, but only to the extent that such
breach or claim arises out of or by virtue of the Seller's
performance or non-performance thereunder prior to the
Closing Date, it being understood
5
that, as between the parties hereto, this subsection shall
apply notwithstanding any provision which may be contained
in any form of consent to the assignment of any such Real
Property Lease, Personal Property Lease, Business Contract
or Business License which by its terms, imposes such
liabilities upon the Purchaser and which assignment is
accepted by the Purchaser notwithstanding the presence of
such a provision, and that the Seller's failure to discharge
any such liability shall entitle the Purchaser to
indemnification in accordance with the provisions of Section
7.2;
(d) any liabilities of the Seller for injury to or death of
persons or damage to or destruction of property (including,
without limitation, any products liability claim or worker's
compensation claim) regardless of when said claim or
liability is asserted, including, without limitation, any
claim for consequential damages in connection with the
foregoing;
(e) any liabilities of the Seller arising out of infringement of
the rights of any Persons;
(f) liabilities of the Seller arising out of violations of any
Laws or Orders;
(g) any liability of the Seller not arising out of an act or
omission solely attributable to the Purchaser in respect of
any Action or Proceeding (whether asserted or commenced
before or after the Closing Date);
(h) any liabilities relating to the Excluded Assets;
(i) any liabilities of the Seller to pay fees or expenses of
attorneys, advisors, accountants, engineers and other
consultants incurred in connection with the transactions
contemplated hereby;
(j) any liabilities of the Seller to any Shareholder or to any
Affiliate of the Seller; and
(k) without limitation by the specific enumeration of the
foregoing, any liabilities not expressly assumed by the
Purchaser pursuant to the provisions of Section 1.3.
The Seller shall pay and discharge when due all of those liabilities of the
Seller which the Purchaser has not specifically agreed to assume pursuant to the
provisions of Section 1.3.
Section 1.5 Proration of Lease Payments, Utility Charges and Other
Payments. If the Closing Date shall fall on a date other than the date on which
payments are due with respect to (i) the Real Property Lease and any Personal
Property Lease, (ii) insurance
6
if requested by Purchaser, (iii) utility or similar regular periodic charges
with respect to the Assets for which a final billing has not been received by
the Seller, (iv) any installment of rental payments, and (v) any similar charge
payable with respect to the Assets or the Assumed Liabilities during current
period in which the Closing Date occurs shall be prorated between the Seller and
the Purchaser, on the basis of the actual number of days elapsed from the first
day of such period to the Closing Date.
Section 1.6 Proration of Taxes. All property taxes, ad valorem taxes
and assessments payable by the Seller but not due as of the Closing Date with
respect to any of the Assets or the operation of the Business shall be prorated
between the Seller and the Purchaser, on the basis of actual days elapsed
between the commencement of the current fiscal tax year and the Closing Date
based on a 365-day year.
Section 1.7 Purchase Price.
(a) The purchase price ("Purchase Price") for the Assets to be
purchased by the Purchaser from the Seller hereunder shall be $7,500,000,
subject to the adjustment set forth in Subsection (d) of this Section 1.7, and
shall be payable as follows:
(i) $3,500,000 in cash (the "Cash Payment"), which sum shall be
paid by bank wire transfer in immediately available funds to
a bank account designated in writing by the Seller; plus
(ii) $1,000,000, payable pursuant to the terms of the Note
(subject to adjustment as provided below); plus
(iii) $1,000,000 payable pursuant to the terms of the Supplemental
Note (subject to adjustment as provided below); plus
(iv) $600,000, in principal amount of Debentures; plus
(v) $1,400,000 (subject to adjustment as provided in Section
1.7(e) below) by the assumption of the debt described in
Schedule 1.7(a)(v) ("Assumed Debt") which is included among
the Assumed Liabilities.
(b) The Purchase Price (including Assumed Liabilities) shall be
allocated among the Assets in the manner set forth on Schedule 1.7(b) and agreed
to by the parties hereto on or prior to Closing Date. Such allocations shall be
made consistent with Section 1060 of the Code and the Treasury Regulations
promulgated thereunder. Each of the parties hereby covenants and agrees that it
or he will not take a position on any Tax Return, before any governmental agency
charged with the collection of any Tax, or in any judicial proceeding, that is
in any way inconsistent with the allocation determined in accordance with this
clause (b) and will cooperate with each other in timely filing consistent with
such allocation on Forms 8594,
7
Asset Acquisition Statement, with the IRS, and will use their reasonable best
efforts to sustain such allocation in any subsequent Tax audit or Tax dispute.
If there is any adjustment to the Purchase Price, the Purchaser and the Seller
shall reflect such adjustment to increase or decrease the particular allocations
set forth on Schedule 1.7(b) to reflect the nature of such adjustment, provided
that adjustments under Section 1.7(d) and Section 1.8 shall be to the good will
allocation.
(c) The Cash Payment shall be adjusted as follows: (i) if Assumed Debt
exceeds $1,400,000, the Cash Payment shall be reduced by an amount equal to the
difference between Assumed Debt and $1,400,000 and (ii) if Assumed Debt is less
than $1,400,000, the Cash Payment shall be increased by an amount equal to the
lesser of (A) the difference between $1,400,000 and the Assumed Debt and (B)
$250,000.
(d) If the actual amount of sales generated by the Business ("Actual
Sales") at the end of the three 12-month periods from July 1 through June 30
beginning July 1, 1999 through June 30, 2002 is less than the Required Sales
Amount applicable to such period, amounts payable under the Note and the
Debenture shall be reduced effective on June 30 of the applicable period by an
amount equal to the product of (i) 0.169 times (ii) the difference between
Actual Sales and Required Sales. If the actual amount of sales generated by the
Business that is not subject to commission ("Actual Non-Commission Sales") is
less than the Required Non- Commission Sales Amount in any such period, amounts
payable under the Note and the Debenture shall be reduced effective on June 30
of the applicable period by an amount equal to the aggregate commissions paid
during such period with respect to such shortfall. Any reduction pursuant to
this subsection (d) shall first be applied to the outstanding principal balance
of the Note and, then to the outstanding principal amount of the Debentures.
Notwithstanding the foregoing, if (a) Purchaser substantially and materially
changes the scope of responsibilities of any Shareholder, (b) such Shareholder
shall have notified the Purchaser of such change within thirty (30) days of such
occurrence and (c) there is a decrease in Actual Sales, then the Required Sales
Amount and the Required Non-Commission Sales Amount shall be reduced to such
amounts as the Seller and the Purchaser reasonable shall determine by mutual
agreement.
(e) Purchaser shall prepare and deliver to Seller an annual sales
report ("Annual Sales Report") detailing Actual Sales for each of the first
three years following the Closing. Such Annual Sales Reports shall be delivered
within 30 days of the end of the relevant period.
(f) Amounts payable under the Supplemental Note shall be adjusted as
follows: (i) if any Key Shareholder fails to perform his obligations under
Section 6.4 of this Agreement amounts payable pursuant to the Supplemental Note
shall be reduced by thirty three and one-third percent (33.33%), (ii) if a
second Key Shareholder finds to perform his obligations under such section,
amounts then payable under the Supplemental Note shall be reduced by fifty
percent (50%); and (iii) if the third Key Shareholder fails to perform his
obligations under such Section, amounts payable under the Supplemental Note
shall be reduced to $0.
8
Section 1.8 Minimum Working Capital. Within 30 business days after
final determination of the Closing Date Balance Sheet as provided in Section 1.9
below, the Purchase Price shall be reduced by an amount equal to the amount by
which the adjusted working capital (adjusted current assets minus adjusted
current liabilities) as shown on such Closing Date Balance Sheet is more than
$200,000 less than adjusted working capital as reflected on the balance sheet
annexed hereto as Exhibit H. For purposes hereof "adjusted current assets" and
"adjusted current liabilities" mean current assets and current liabilities,
respectively, in each case subject to the adjustments for assets not purchased
and liabilities not assumed by the Purchaser and for the current portion of the
Assumed Debt. Any adjustment to the Purchase Price pursuant to this Section 1.8
shall be applied to reduce the outstanding principal balance of the Note. If
such adjustment exceeds the amount of the Note, such excess shall promptly be
paid in cash by the Seller to the Purchaser. The parties hereto agree that any
such reduction of the Purchase Price shall be applied to reduce the outstanding
principal balance of the Note.
Section 1.9 Closing Date Balance Sheet. As promptly as practicable,
but in any event not later than ninety (90) days after the Closing Date, the
Seller shall cause to be prepared and delivered to the Purchaser an unaudited
balance sheet for the Seller as of the Closing Date, which shall be prepared in
accordance with GAAP consistently applied and in substantially the manner used
to prepare the Financial Statements, which balance sheet shall include all
Liabilities of the Seller incurred in the ordinary course since December 31,
1998, except the assets shall be the Assets only (the "Closing Date Balance
Sheet").
Section 1.10 Dispute Resolution. If in good faith (i) the Purchaser
disagrees with the Closing Date Balance Sheet, (ii) the Seller disagrees with
the computation of Annual Sales Report of the Business or (iii) the Seller and
the Purchaser cannot agree upon a reduction in Required Sales Amount or Required
Non-Commission Sales Amount in accordance with the last sentence of Section
1.7(d), then the Purchaser or the Seller, as the case may be (the "Disputing
Party") shall notify the other in writing (the "Notice of Disagreement") of such
disagreement within thirty (30) days after delivery of the Closing Date Balance
Sheet or the Annual Sales Report, as applicable. The Notice of Disagreement
shall set forth in detail the basis for the disagreement and the Disputing
Party's computation of the Closing Date Balance Sheet or the Annual Sales Report
or the reduction in Required Sales Amount or Required Non- Commission Sales
Amount, as applicable. Thereafter, the Purchaser and the Seller shall attempt in
good faith to resolve and finally determine the disputed matter. If the
Purchaser and the Seller are unable to resolve the disagreement within twenty
(20) days after delivery of the Notice of Disagreement, then the Seller and the
Purchaser shall appoint Holtz Rubenstein & Co., LLP (the "Independent
Accountant") to resolve the disputed items and make a determination. Such
determination will be made, and written notice thereof given to the Seller and
the Purchaser, within sixty (60) days after such selection. The Independent
Accountant's recalculation of the Closing Date Balance Sheet or the Actual Sales
Statement or the reduction in Required Sales amount or Required Non-Commission
Sales Amount, as applicable, shall be final, binding and conclusive upon the
parties hereto and no party shall have any right to contest such resolution. The
scope of such firm's engagement (which shall not be an audit) shall be limited
to the resolution of the items contained in the Notice of Disagreement, and the
recalculation, if any,
9
of the Closing Date Balance Sheet or the Actual Sales Statement or the reduction
in Required Sales Amount or Required Non-Commission Sales Amount, as applicable,
in light of such resolution. The fees, costs and expenses of the Independent
Accountant, if any, selected in accordance with this Section 1.10 will be shared
equally by the Seller and the Purchaser.
Section 1.11 Closing Date. The consummation of the sale of the Assets
(the "Closing") shall be held at 10:00 a.m. on (i) the later to occur of July 1,
1999 and the fifth Business Day after all conditions to respective obligations
of the parties have been satisfied or waived or (ii) at such other time and date
as shall be mutually agreed to by the parties (such date and time of the Closing
being herein referred to as, the "Closing Date") at the offices of Farrell
Fritz, P.C., EAB Plaza, Uniondale, New York 11556 or such other location as
shall be mutually agreed to by the parties.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE SELLER AND THE SHAREHOLDERS
The Seller and the Shareholders, jointly and severally, represent and
warrant to the Purchaser as follows:
Section 2.1 Organization and Qualification. The Seller is a
corporation duly organized, validly existing and in good standing under the laws
of its state of incorporation and has all requisite corporate power and
authority to own, lease and operate its properties and assets as they are now
owned, leased and operated. The Seller is duly qualified to do business in each
jurisdiction in which the nature of its business or properties makes such
qualification necessary, except where the failure to do so would not have a
Material Adverse Effect. The jurisdictions in which the Seller is so qualified
are set forth on Schedule 2.1.
Section 2.2 Capitalization; Title to the Securities. All of the issued
and outstanding shares of capital stock of the Seller are owned, directly or
indirectly, beneficially and of record by the Shareholders free and clear of all
Liens.
Section 2.3 No Equity Interests. The Seller does not own, directly or
indirectly, any capital stock of, or any other interest in, any other Person.
Section 2.4 Options or Other Rights. No options, warrants, calls,
commitments or other rights to acquire, sell or issue shares of capital stock or
other equity interests of the Seller, whether upon conversion of other
securities or otherwise, are outstanding and there is no agreement or
understanding with respect to the voting of such capital stock or other equity
interests.
Section 2.5 Validity and Execution of Agreement. The Seller and each
Shareholder each has the full legal right, capacity, power, ability and approval
required to enter into, execute and deliver this Agreement and to perform fully
his or its obligations hereunder.
10
The board of directors of the Seller has approved the transactions contemplated
pursuant to this Agreement and each of the other agreements required to be
entered into pursuant hereto by such parties, and the Seller has all requisite
corporate authority to do so. This Agreement has been duly executed and
delivered by the Shareholders and the Seller and constitutes the valid and
binding obligation of the Shareholders and the Seller enforceable against it in
accordance with its terms.
Section 2.6 No Conflict. Except as disclosed on Schedule 2.6 hereto,
neither the execution, nor delivery of this Agreement by the Seller and the
Shareholders nor the performance by the Shareholders and the Seller of the
transactions contemplated hereby will: (i) violate or conflict with any of the
provisions of the Certificate of Incorporation or By-Laws of the Seller; (ii)
violate, conflict with, result in the acceleration of, or entitle any party to
accelerate the maturity, or the cancellation of the performance of any
obligation under, or result in the creation or imposition of any Lien in or upon
any of the properties or assets of the Seller or constitute a default (or an
event which might, with the passage of time or the giving of notice, or both,
constitute a default) under any mortgage, indenture, deed of trust, lease,
contract, loan or credit agreement, license or other instrument to which the
Seller is a party or by which they or any of their properties or assets may be
bound or affected; (iii) violate or conflict with any provision of any Law or
Order applicable to the Business, the Assets, any Shareholder or the Seller; or
(iv) require any consent or approval of or filing or notice with any Person.
Section 2.7 Genuiness and Authenticity of Books and Records Furnished
to the Purchaser. Each of the Books and Records (or copies thereof) and
instruments furnished by the Seller to the Purchaser prior to the Closing Date
or concurrently therewith (whether under separate delivery or by way of
attachment to any Schedule hereto), are or will be genuine and authentic
originals or true, correct and complete duplicate copies of such items.
Section 2.8 Certificate of Incorporation and By-laws. The Seller has
heretofore delivered to the Purchaser true, correct and complete copies of the
Certificate of Incorporation (certified by the Secretary of State of New York
and By-laws (certified by the secretary of the Seller) of the Seller as in
effect on the date hereof.
Section 2.9 Financial Statements. The balance sheet of the Seller (i)
as of December 31, 1998 and the related statements of retained earnings, income
and cash flows for the year then ended and (ii) as of May 31, 1999 and the
related statements of retained earnings, income and cash flows then current year
to date (the "Financial Statements"), true and complete copies of which have
heretofore been delivered to the Purchaser, fairly present, in all material
respects, the financial position of the Seller as at such dates and the results
of operations of the Seller for the fiscal periods then ended, in each case, in
accordance with GAAP (including, without limitation, with all appropriate
accruals and reserves except that depreciation is deducted on a tax basis)
consistently applied for the periods covered thereby.
Section 2.10 Undisclosed Liabilities. Except as disclosed on Schedule
2.10, the Seller does not have any direct or indirect indebtedness, liability,
claim, loss, damage,
11
deficiency, liability for Taxes, obligation or responsibility, fixed or unfixed,
choate or inchoate, liquidated or unliquidated, secured or unsecured, accrued,
absolute, contingent or otherwise (collectively, "Liabilities"), whether or not
of a kind required by GAAP to be set forth on a financial statement, other than
(i) Liabilities incurred since May 31, 1999 in the ordinary course of business
(none of which is a liability for breach of contract, breach of warranty, tort,
infringement, claim or lawsuit) without violation of Section 4.2, and fully
reflected as Liabilities on the Seller's books of account, none of which
individually or in the aggregate, is material to the business, operations or
condition (financial or otherwise), assets or properties of the Seller or (ii)
Liabilities disclosed and reflected as liabilities on the Financial Statements
for the Seller delivered to the Purchaser.
Section 2.11 No Material Adverse Change. Since May 31, 1999, there has
been no material adverse change in the business, operations or condition
(financial or otherwise) of the Seller, or in the assets, liabilities, net worth
or properties of the Seller, nor to the knowledge of the Seller and each
Shareholder is any such change threatened, nor has there been any damage,
destruction or loss which could have a Material Adverse Effect on the Seller,
whether or not covered by insurance.
Section 2.12 Tax Matters. Except as disclosed on Schedule 2.12:
(a) All Tax Returns required to be filed by or on behalf of the Seller
have been duly filed on a timely basis and, to the Seller's knowledge, such Tax
Returns are true, complete and correct. All Taxes shown to be payable on the Tax
Returns or on subsequent assessments with respect thereto have been paid in full
on a timely basis, and, to the Seller's knowledge, no other Taxes are payable by
the Seller with respect to items or periods covered by such Tax Returns (whether
or not shown on or reportable on such Tax Returns) or with respect to any period
prior to the date of this Agreement. The Seller has withheld and paid over all
Taxes required to have been withheld and paid over, and complied with all
information reporting and backup withholding requirements, including maintenance
of required records with respect thereto, in connection with amounts paid or
owing to an employee, creditor, shareholder, independent contractor, or any
other third party. There are no liens on any of the assets of the Seller with
respect to Taxes.
(b) To the Seller's knowledge, the unpaid Taxes of the Seller for all
periods ending on or before the Closing Date do not exceed the reserve for Tax
liability (excluding any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) set forth or included in the
Seller's Financial Statements as adjusted for operations and transactions
through the Closing Date in accordance with past custom and practice of the
Seller.
(c) Purchaser has been furnished by the Seller true, correct, and
complete copies of the (i) relevant portions of Tax audit reports, statements of
deficiencies, closing or other agreements received by the Seller relating to
Taxes, and (ii) all federal and state Tax Returns for the Seller for all periods
ending on or after December 31, 1996. Seller has never been a member of an
affiliated group (within the meaning of Section 1502 of the Code) filing
12
consolidated returns. The Seller does not do business in any state, local,
territorial or foreign taxing jurisdictions other than those for which all Tax
Returns have been furnished to Purchaser. No claim has ever been made by an
authority in a taxing jurisdiction where the Seller does not file Tax Returns
that it is or may be subject to taxation by that jurisdiction.
(d) The Tax Returns of the Seller have never been audited by a
government or taxing authority, nor is any such audit (or other proceeding) in
process, pending or threatened (either in writing or verbally, formally or
informally). No deficiencies exist or have been asserted (either in writing or
verbally, formally or informally) or are expected to be asserted with respect to
Taxes of the Seller, and the Seller has not received notice (either in writing
or verbally, formally or informally) or expects to receive notice that it has
not filed a Tax Return or paid Taxes required to be filed or paid by it. The
Seller is neither a party to any Action or Proceeding for assessment or
collection of Taxes, nor has such event been asserted or threatened (either in
writing or verbally, formally or informally) against the Seller or any of its
assets. No waiver or extension of any statute of limitations is in effect with
respect to Taxes of the Seller. The Seller is not currently the beneficiary of
any extension of time within which to file any Tax Return or to pay any Tax, nor
is any request for any such extension outstanding. The Seller has disclosed on
its income tax returns all positions taken therein that could give rise to a
substantial understatement penalty within the meaning of Code Section 6662. The
Seller has not entered into any agreement with any Tax authority that would have
a continuing Material Adverse Effect on the Assets or the Business after the
Closing Date. There are no requests for rulings pending with respect to any Tax
authority and the Seller has not received any such rulings.
(e) The Seller has not disposed of any property which has been
accounted for Tax purposes under the installment method. The Seller has not
disposed of any asset or supplied any service or business facility of any kind
in circumstances where the consideration to be received for such disposition or
supply will be less than the consideration deemed received for Tax purposes. No
new elections with respect to Taxes, or any changes in current elections with
respect to Taxes, affecting the Seller or the Assets shall be made after the
date of this Agreement without the prior written consent of the Purchaser. The
Seller does not have, and has not had, a permanent establishment in any foreign
country, as defined in any applicable treaty or convention between the United
States and such foreign country.
(f) The Seller is not (nor has it ever been) a party to any Tax
allocation, Tax indemnity, or Tax sharing agreement, does not owe any amount
under any such agreements, and has no liability for the Taxes of any Person
under Treasury Regulation Section 1.1502-6 (or any similar provision of state,
local or foreign law), as a transferee or successor, by contract, or otherwise.
(g) The Seller is not a party to any joint venture, partnership, or
other arrangement or contract which could be treated as a partnership for
federal income tax purposes.
(h) The Seller has been a validly electing S corporation within the
meaning of Sections 1361 and 1362 of the Code at all times during its existence
and Seller will be an S
13
corporation up to and including the Closing Date. Seller is not a party to any
safe harbor lease within the meaning of Section 168(f)(8) of the Code, as in
effect prior to amendment by the Tax Equity and Fiscal Responsibility Act of
1982. None of Seller's assets directly or indirectly secures any debt the
interest on which is tax exempt under Section 103 of the Code. None of Seller's
assets is tax-exempt use property within the meaning of Section 168(h) of the
Code. Each asset with respect to which the Seller claims depreciation,
amortization or similar expense for Tax purposes is owned for Tax purposes by
the Seller. Seller is not, and has never been, a United States Real Property
Holding Corporation within the meaning of Section 897(c)(2) of the Code during
the applicable period specified in Section 897(c)(1)(A)(ii) of the Code and
Purchaser is not required to withhold tax on the purchase of the assets of
Seller by reason of Section 1445 of the Code. Seller is not a "foreign person"
within the meaning of the Code. The transactions contemplated herein are not
subject to the tax withholding provisions of Section 3406 of the Code, or of
Subchapter A of Chapter 3 of the Code, or of any other provision of law. Seller
has not entered into any compensatory agreements with respect to the performance
of services which payment thereunder would result in a nondeductible expense to
Seller pursuant to Sections 162 or 280G of the Code. The Seller has not made nor
is bound by any election under Section 197 of the Code.
Section 2.13 Litigation. Except as set forth on Schedule 2.13, there
are no outstanding Orders by which the Seller or any of its securities, assets,
properties or businesses are bound. To the Seller's and each Shareholder's
knowledge, there is no Action or Proceeding pending or threatened (whether or
not the defense thereof or liabilities in respect thereof are covered by
insurance) against or affecting the Seller, or any of its assets, properties or
businesses, nor, to the knowledge of the Seller or any Shareholder, are there
any facts which would be reasonably likely to give rise to any such Action or
Proceeding.
Section 2.14 Contracts and Other Agreements. Schedule 2.14 contains a
complete list of all contracts and other agreements which are among the Business
Contracts or constitute Assumed Liabilities, whether written or oral to which
the Seller is a party or by or to which the Seller, or its assets, properties or
businesses is bound or subject which obligate the Seller to pay or receive
payments in excess of $1,000 during the respective terms thereof (collectively,
the "Material Contracts"). True and complete copies (or written descriptions of
oral contracts) of all of the Material Contracts have been delivered to the
Purchaser. Except as disclosed on schedule 2.14, all of the Material Contracts
are valid, subsisting, in full force and effect and the Seller has satisfied in
full or provided for all of its liabilities and obligations thereunder requiring
performance prior to the date hereof in all material respects, is not in default
under any of them, nor does any condition exist that with notice or lapse of
time or both would constitute such a default. To the knowledge of the Seller and
each Shareholder, no other party to any such Material Contract in default
thereunder, nor does any condition exist that with notice or lapse of time or
both would constitute such a default. Except as separately identified on
Schedule 2.14, no approval or consent of any Person is needed for all of the
Material Contracts to continue to be in full force and effect, and the Seller
knows of no reason such Material Contracts will not be enforceable by the
Purchaser, following the consummation of the transactions contemplated by this
Agreement.
14
Section 2.15 Real Property.
(a) The Seller is sole tenant of the Real Property pursuant to the
Real Property Lease.
(b) The Seller has no knowledge of any pending zoning change of the
Real Property and has no knowledge of any unlawful or pending removal of any
utilities serving the Real Property.
(c) The Seller has no knowledge of current assessments for public
improvements against the Real Property of any local improvement district or
other taxing authority having jurisdiction over the Real Property in the process
of formation.
(d) The Seller has no knowledge of any person claiming any right to
possession of the Real Property or any portion thereof adverse to the Seller.
(e) The Seller has no knowledge of any condemnation, environmental,
zoning or other land-use regulation proceedings, either instituted or planned to
be instituted, that would materially and detrimentally affect the use and
operation of the Real Property by the Seller.
(f) To the Seller's knowledge all water, sewer, gas, electric,
telephone and drainage facilities and all other utilities required for Seller's
use of the Real Property are available at the Real Property.
(g) The Real Property Lease remains in full force and effect and no
default exists thereunder.
Section 2.16 Transactions with Affiliates. Except as disclosed in the
footnotes to the most recent Financial Statements for the Seller delivered to
the Purchaser and as set forth on Schedule 2.16, no director, officer or
Affiliate of the Seller has: (i) borrowed money from or loaned money to the
Seller which remains outstanding; (ii) any contractual or other claim, express
or implied, of any kind whatsoever against the Seller; (iii) any interest in any
property or assets used by the Seller in its respective business; (iv) engaged
in any other transaction with the Seller (v) owns, directly or indirectly, any
interest in (except not more than two percent (2%) stockholdings for investment
purposes in securities of publicly held and traded companies), or is an officer,
director, employee or consultant of or otherwise receives remuneration from, any
Person which is, or is engaged in business as, a competitor, lessor, lessee,
customer or supplier of the Seller.
Section 2.17 Accounts Receivable and Inventory. All Accounts
Receivable reflected on the May 31, 1999 balance sheet of the Seller included in
the Financial Statements, and all Accounts Receivable arising subsequent to May
31, 1999 (i) have arisen from bona fide sales transactions in the ordinary
course of business of the Seller on customary terms, (ii) represent valid and
binding obligations due to the Seller, as the case may be, enforceable in
15
accordance with their terms except as may be limited by (A) applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting the rights and remedies of creditors and (B) general
principles of equity (regardless of whether such enforcement is considered in a
proceeding in equity or at law), and (iii) subject only to a reserve for bad
debts computed in accordance with GAAP, have been collected or are collectible
in the ordinary course of business of the Seller, as the case may be, in the
aggregate recorded amounts thereof in accordance with their terms. The Seller
has not received written notice of any asserted or threatened setoff,
counterclaim or other defense in respect of any Account Receivable individually
amounting to $1,000 or more, or when aggregated with all such other Accounts
Receivables, amounting to $5,000, or more, or knows of any facts which would
serve as a basis for any of the foregoing. Schedule 2.17 lists any obligor which
together with all of its Affiliates owes uncollected amounts to the Seller in an
aggregate amount of $5,000 or more. All the Inventory consists of a quality and
quantity usable and salable in the ordinary course of business consistent with
past practice, subject to normal and customary allowances in the industry for
obsolescence or damaged items. All items included in the Inventory to be
delivered to the Purchaser at closing are the property of the Seller, and will
be as of the Closing, be free and clear of any Lien, have not been pledged as
collateral, are not held by the Seller on consignment from others and conform in
all material respects to all standards applicable to such Inventory or its use
or sale imposed by any Law or Order. To the knowledge of the Seller and the
Shareholders, there is no design defect with respect to any Inventory, and each
of such items contains adequate warnings, presented in a reasonably prominent
manner, in accordance with applicable laws, rules and regulations and current
industry practice with respect to its contents and use.
Section 2.18 Compensation Arrangements: Officers and Directors.
Schedule 2.18 sets forth the name and current annual salary, including any
bonus, if applicable, of all present officers and employees of the Seller
together with a statement of the full amount of all remuneration paid by the
Seller to such Persons. The Seller has not made a commitment or agreement
(verbally or in writing) to increase the compensation or to modify the
conditions or terms of employment of any Person listed on Schedule 2.18. None of
such Persons has made a threat or otherwise indicated any intent to the Seller
or to any Shareholder to cancel or otherwise terminate such Person's
relationship with the Seller.
Section 2.19 Tangible Property. Schedule 2.19 sets forth a true,
complete and correct list of all categories of tangible personal property (other
than Inventory), including, without limitation, equipment, furniture, leasehold
improvements, fixtures, vehicles, structures, any related capitalized items and
other similar tangible property, in each case owned or leased by the Seller and
material to its business (collectively, the "Tangible Property") together with a
description of all leases or subleases of Tangible Property to which the Seller
is the lessor, sublessor, lessee or sublessee and all options to purchase or
sell the underlying property. The Tangible Property is in reasonable operating
condition, subject to continued repair and replacement in accordance with past
practice. Except as separately identified on Schedule 2.19, no approval or
consent of any Person is needed so that the interest of the Seller in the
Tangible
16
Property shall continue to be in full force and effect and enforceable by the
Purchaser immediately following the Closing.
Section 2.20 Intangible Property. Schedule 2.20 sets forth a list of
all Intangible Property of the Seller material to the conduct of the Business.
None of such Intangible Property infringes upon the rights of any other Person
or, to the knowledge of the Seller and each Shareholder, is infringed upon by
any other Person or its property and neither the Seller nor any Shareholder has
received any notice of any claim of any other Person relating to any of the
Intangible Property or any process or confidential information of the Seller and
neither the Seller nor any Shareholder knows of any basis for any such charge or
claim. Except for the Intangible Property, no other intellectual property or
intangible property rights are required for the Seller to conduct its business
in the ordinary course consistent with past practice. Except as separately
identified on Schedule 2.20, no approval or consent of any Person is needed so
that the interest of the Purchaser in the Intangible Property shall be in full
force and effect and enforceable by the Purchasers immediately following the
Closing.
Section 2.21 ERISA. (a) Schedule 2.21 sets forth each Plan maintained
or to which contributions are made by the Seller. The Seller has furnished to
the Purchaser true, correct, and complete copies of each Plan including any
amendments thereto, all related trust agreements, insurance contracts, and other
funding agreements, the most recent determination letter received from the IRS,
and the most recent Form 5500 annual report relating to each Plan. To the extent
a Plan is not in writing, a short summary of such plan has been set forth in
Schedule 2.21. The Seller does not contribute or has ever contributed to any
"defined benefit plan" (as such term is defined in Section 3(35) of ERISA)
including any "multiemployer plan" within the meaning of Section 4001(a)(3) of
ERISA. Each Plan and each related trust, insurance contract, or fund complies in
form and in operation in all material respects with its terms and with the
applicable provisions of ERISA, the Code and other applicable laws. With respect
to each Plan: (a) no such Plan has been completely or partially terminated or
been the subject of a Reportable Event and no proceeding by the PBGC to
terminate any such Plan has been instituted or threatened; (b) all required
reports and descriptions (including Form 5500 Annual Reports, summary annual
reports, and summary plan descriptions) have been timely filed and distributed
appropriately with respect to each Plan; (c) all contributions or payments to,
or under, each Plan required by law to be made or paid on or prior to the
Closing Date or by the terms of any Plan, contract or agreement have been made;
(d) no event or condition exists with respect to any Plan which could subject
the Seller to a tax under Section 4980B of the Code; (e) each Plan which is
intended to meet the requirements for tax favored treatment under the Code meets
such requirements, has received a favorable determination letter from the IRS
that it is a "qualified plan", and none of the Sellers is not aware of any facts
and circumstances that could result in the revocation of such determination
letter; (f) each such Plan may be amended or terminated by the Seller without
liability to employees, former employees or others on or after the date hereof;
and (g) no medical or death benefits are provided to retirees or other
terminated employees except for those benefits required under federal and state
health coverage continuation laws. The Seller has no liability with respect to
the Plans that has not been accrued on the December 31, 1998 Financial
Statements. With respect to each Plan that any of the Seller or
17
any ERISA Affiliate maintains or ever has maintained or to which any of them
contributes, or ever has contributed there have been no prohibited transactions
(within the meaning of Code ss.4975). Neither Seller, nor to the knowledge of
Seller or any Shareholder, any fiduciary, has any Liability for breach of
fiduciary duty or any other failure to act or comply in connection with the
administration or investment of the assets of any such Plan. No Action,
Proceeding or suit, with respect to the administration or the investment of the
assets of any such Plan (other than routine claims for benefits) is pending or
to the Sellers' knowledge threatened. The Seller has no knowledge of any basis
for any such action, suit, proceeding, hearing, or investigation.
The Seller and each Shareholder acknowledge that the Purchaser shall not assume
any Plan.
Section 2.22 Employee Relations. The Seller is not a party to, and
there do not otherwise exist, any agreements with any labor organization,
collective bargaining or similar agreement with respect to employees of the
Seller. Except as disclosed on Schedule 2.22, the Seller has complied in all
material respects with its obligations related to, and is not in breach of or in
default under, any of the foregoing agreements and there are no complaints,
grievances or arbitrations, employment-related litigation, administrative
proceedings or controversies either pending or, to the knowledge of the Seller
and each Shareholder, threatened, involving any employee, applicant for
employment, or former employee of the Seller against the Seller. The Seller is
not a party to any litigation, arbitration administrative or other proceeding
relating to employment practices and is not aware of any facts or circumstances
which could give rise to any such action or proceeding. During the last two (2)
years, the Seller has not permanently laid off employees other than terminations
of individual employees. During the past five (5) years, the Seller has not
suffered or sustained any labor dispute resulting in any work stoppage and no
such work stoppage is, to the knowledge of the Seller and each Shareholder,
threatened. During the last five (5) years, no labor organization has engaged in
any organizing activities at any facility owned or operated by the Seller.
Section 2.23 Insurance. Schedule 2.23 sets forth a list of all
policies or binders of fire, liability, errors and omissions, workers'
compensation, vehicular, unemployment and other insurance held by or on behalf
of the Seller. Such policies and binders are valid and enforceable in accordance
with their terms in all material respects, are in full force and effect, and
insure against risks and liabilities to the extent and in respect of amounts,
types and risks insured, as are customary in the industries in which the Seller
operates. The Seller is not in default in any material respect with respect to
any provision contained in any such policy or binder and has not failed to give
any notice or present any claim under any such policy or binder in due and
timely fashion. Except for claims disclosed on Schedule 2.23, there are no
outstanding unpaid claims under any such policy or binder which have gone unpaid
for more than forty-five (45) days or as to which the carrier has disclaimed
liability. The Seller has not received any notice of cancellation or non-renewal
of any such policy or binder. The Seller has not received any notice from any of
its insurance carriers that any insurance premiums will be materially increased
in the future or that any insurance coverage listed on Schedule 2.23 will not be
available in the future on substantially the same terms as now in effect. None
of the policies disclosed on Schedule 2.23 provides that premiums paid in
respect of periods may be adjusted or recomputed based on claims paying
experience of such policies or otherwise.
18
Section 2.24 Licenses and Permits. Schedule 2.24 sets forth a list of
the government permits, licenses, registrations and other governmental consents
and authorizations (federal, state, local and foreign) which the Seller has
obtained in connection with its assets, properties and business, and to the
Seller's knowledge no others are required in order to conduct the Business as
presently conducted. All such permits, licenses, registrations, authorizations
and consents are in full force and effect, and except as separately identified
on Schedule 2.24, shall continue to be in full force and effect and in good
standing immediately following the consummation of the transactions contemplated
by this Agreement. Neither the Seller nor any Shareholder has received any
notice of any claim of revocation or has knowledge of any event which might give
rise to such a claim.
Section 2.25 Title; Liens. The Seller owns and has good and marketable
title (except for such Tangible Personal Property specifically described on
Schedule 2.19), to all of its assets and properties (tangible and intangible),
including, without limitation, all of the assets and properties (except
capitalized leases) reflected on the May 31, 1999 balance sheet of the Seller
included in the Financial Statements, and, at the Closing Date, the Seller will
have good and marketable title to all such assets and properties, in each case
free and clear of any Lien, except for (i) Liens set forth on Schedule 2.25;
(ii) assets and properties disposed of in the ordinary course of business since
May 31, 1999; or (iii) Liens permitted by Section 2.13 hereof and Liens securing
the claims of materialmen, carriers, landlords and like Persons, all of which
are not yet due and payable.
Section 2.26 Compliance with Laws. The Seller (i) is in compliance
with all, and not in violation of any, and has not received any claim or notice
that it is not in compliance in any material respect with, or that it is in
violation in any material respect of, any Law or Order to which the Seller, the
Business or the Assets (including the use and occupancy thereof) are subject,
including without limitation, any notices of violation of law or municipal
ordinances, orders or requirements of the Departments of Housing and Buildings,
Fire, Labor, Health or other state or municipal departments having jurisdiction
against or affecting the Real Property and (ii) has not failed to obtain or to
adhere to the requirements in all material respects of any governmental permit,
license, registration and other governmental consent or authorization necessary
in connection with the Assets, or the Business.
Section 2.27 Entire Business. The Assets to be sold by the Seller to
the Purchaser pursuant to this Agreement constitute the entire Business of, and
all of the tangible and intangible property used by, the Seller in connection
with the conduct of the Business as heretofore conducted by the Seller (except
for the Excluded Assets). There are no facilities, services, assets or
properties shared with any other Person which are used by the Seller. Upon
consummation of the transactions contemplated hereby, the Seller shall deliver
to the Purchaser good and marketable title in and to, or a valid leasehold
interest in, each of the Assets, free and clear of all Liens, except as
disclosed in Schedule 2.25.
Section 2.28 Environmental Matters. Except as set forth in Schedule
2.28 (with paragraph references corresponding to those set forth below):
19
(a) No Order has been received by the Seller or any Shareholder, no
Environmental Claim has been filed, no penalty has been assessed and no
investigation or review is pending or, to the knowledge of the Seller,
threatened by any Governmental Authority with respect to any alleged failure by
the Seller to have any license required under applicable Environmental Laws in
connection with the conduct of the Business or with respect to any generation,
treatment, storage, recycling, transportation, discharge, disposal or Release of
any Hazardous Material in connection with the Business, and to the knowledge of
the Seller there are no facts or circumstances in existence which would
reasonably be expected to form the basis for any of the foregoing.
(b) The Seller does not own, operate or lease a treatment, storage or
disposal facility on any of its real property requiring a permit under the
Resource Conservation and Recovery Act, as amended, or under any other
comparable state or local law;
(c) The Seller has not transported or arranged for the transportation
of any Hazardous Material in connection with the operation of the Business to
any location, to the Seller's knowledge that is (i) listed on the National
Priorities List under CERCLA, (ii) listed for possible inclusion on the National
Priorities List by the Environmental Protection Agency in CERCLIS or on any
similar state or local list or (iii) the subject of enforcement actions by any
Governmental Authority that may lead to Environmental Claims against the Seller
or the Business.
(d) No Hazardous Material generated in connection with the operation
of the Business has been recycled, treated, stored, disposed of or Released by
the Seller at any location except in accordance with all applicable
Environmental Laws.
(e) No oral or written notification of a Release of a Hazardous
Material in connection with the operation of the Business has been filed by or
on behalf of the Seller, and no site or facility now or previously owned,
operated or leased by the Seller on any of its respective real property is
listed or proposed for listing on the National Priorities List, CERCLIS or any
similar state or local list of sites requiring investigation or clean-up.
(f) No Liens have arisen under or pursuant to any Environmental Law on
any site or facility owned by the Seller or, to the Seller's knowledge, on any
site or facility, operated or leased by the Seller. No action has been taken by
any Governmental Authority against the Seller or, to the knowledge of the Seller
and each Shareholder, is in process that could subject any such site or facility
to such Liens, and the Seller would not be required to place any notice or
restriction relating to the presence of Hazardous Materials at any such site or
facility owned by the Seller or at the Real Property.
(g) There have been no environmental investigations, studies, audits,
tests, reviews or other analyses conducted by, or that are in the possession of,
the Seller in relation to any site or facility now or previously owned, operated
or leased by the Seller on any of its
20
real property which have not been delivered to the Purchaser prior to the
execution of this Agreement.
Section 2.29 Web Site. The Seller has all right, title and/or license
and interest in and to all property required to operate and transfer the Site as
contemplated by this Agreement (whether or not contained within Schedules 2.19
and/or 2.20), including, without limitation, title and/or licenses for all
content in the form and manner used on the Site and all software and other
technology utilized by the Seller in the design and operation of the Site. The
use of such property within or in connection with the Site does not constitute
an infringement or violation of any copyright, patent, trademark, trade secret
or other proprietary or personal rights of any third party. In connection
therewith, the Seller has all rights necessary to assign and transfer all
licenses and agreements related to the Site to the Purchaser on the Closing
Date.
Section 2.30 Conduct of Business. (a) Since January 1, 1999, the
Seller has operated only in the usual, regular and ordinary manner and has
employed continuing best efforts to preserve its relationships with customers,
suppliers, employees and others having business dealings with it. The Seller has
taken no action to disrupt its business relationships.
Section 2.31 Brokers. All negotiations relative to this Agreement and
the transactions contemplated hereby have been carried out by the Seller and the
Shareholders directly with the Purchaser without the intervention of any Person
on behalf of the Seller and the Shareholders in such manner as to give rise to
any claim by any Person against the Purchaser for a finder's fee, brokerage
commission or similar payment.
Section 2.32 Disclosure. Neither this Agreement, nor any Schedule or
Exhibit to this Agreement, contains an untrue statement of a material fact or
omits a material fact necessary to make the statements contained herein or
therein not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Seller and the
Shareholders as follows:
Section 3.1 Organization and Capitalization. (a) The Purchaser is a
corporation duly organized and validly existing corporation under the laws of
the State of Delaware and has all requisite power and lawful authority to (i)
enter into this Agreement and to perform its obligations hereunder, and (ii)
own, lease and operate its properties and assets as they are now owned, leased
and operated.
Section 3.2 Validity and Execution of Agreement. The Purchaser has the
full legal right and power and all authority and approval required to enter
into, execute and deliver this Agreement and to perform fully its obligations
hereunder. The person or persons executing
21
this Agreement and all related agreements, documents and certificates on behalf
of the Purchaser have been authorized to do so by appropriate proceedings. This
Agreement has been duly executed and delivered by the Purchaser and constitutes
the valid and binding obligation of the Purchaser enforceable against the
Purchaser in accordance with its terms.
Section 3.3 No Conflict. Neither the execution nor delivery of this
Agreement by the Purchaser nor the performance by the Purchaser of the
transactions contemplated hereby will: (i) violate or conflict with any of the
provisions of the Certificate of Incorporation or by-laws of the Purchaser; (ii)
violate, conflict with, result in the acceleration of, or entitle any party to
accelerate the maturity, or the cancellation of the performance of any
obligation under, or constitute a default (or an event which might, with the
passage of time or the giving of notice, or both constitute a default) under any
mortgage, indenture, deed of trust, lease, contract, loan or credit agreement,
license or other instrument to which the Purchaser is a party or by which the
Purchaser or is assets may be bound or affected; (iii) violate or conflict with
any Law or Order applicable to the Purchaser; or (iv) require any consent or
approval by or filing or notice with any Person.
Section 3.4 Brokers. All negotiations relative to this Agreement and
the transactions contemplated hereby have been carried out by the Purchaser
directly with the Seller and the Shareholders without the intervention of any
Person on behalf of the Purchaser in such manner as to give rise to any claim by
any Person against any of the Seller or the Shareholders for a finder's fee,
brokerage commission or similar payment.
Section 3.5 Disclosure. None of the representations, warranties or
covenants contained in this Agreement, nor in any Schedule or Exhibit hereto
made by the Purchaser, contains any untrue statement of material fact or omits a
material fact necessary to make the statements contained herein or therein not
misleading.
Section 3.6. Litigation. There is no pending Action or Proceeding, and
no Person has delivered to the Purchaser any written notice threatening to
commence any Action or Proceeding that, to the knowledge of the Purchaser,
challenges, or that may have the effect of preventing, delaying, making illegal
or otherwise interfering with, any of the transactions contemplated hereby. To
the knowledge of the Purchaser, no event has occurred, and no claim, dispute or
other condition or circumstance exists, that could reasonably be expected to
give rise to or serve as a basis for the commencement of any such Action or
Proceeding contemplated by this Section 3.6.
ARTICLE IV
PRE-CLOSING COVENANTS OF THE SELLER AND THE SHAREHOLDERS
The Seller and the Purchaser covenant and agree as follows:
Section 4.1 Corporate Examinations and Investigations. At or prior to
the Closing Date, the Purchaser shall be entitled, through its employees,
representatives and advisers
22
to make such investigation of the assets, properties, business and operations of
the Seller, the Books and Records, Tax Returns, financial condition and
operations of the Seller, as the Purchaser may wish. Any such investigation and
examination shall be conducted at reasonable times and under reasonable
circumstances and the Seller, shall cooperate fully therein. No investigation by
the Purchaser shall diminish or obviate any of the representations, warranties,
covenants or agreements of the Seller and Shareholders under this Agreement. In
order that the Purchaser may have full opportunity to make such a business,
accounting and legal review, examination or investigation as they may wish of
the business and affairs of the Seller, the Seller shall furnish the
representatives of the Purchaser during such period with all such information
and copies of such documents concerning the affairs of the Seller, as such
representatives may reasonably request and cause its officers, employees,
consultants, agents, accountants and attorneys to cooperate fully with such
representatives in connection with such review and examination and to make full
disclosure to the Purchaser of all material facts affecting the financial
condition and business operations of the Seller.
Section 4.2 Other Agreements. The Seller, the Shareholders and the
Purchaser each agree to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary, proper or advisable to consummate and
make effective as promptly as practicable the transactions contemplated by this
Agreement, including, without limitation, the obtaining of all necessary
waivers, consents and approvals and the effecting of all necessary registrations
and filings, and submissions of information requested by governmental or
regulatory bodies and any other Persons required to be obtained by them for the
consummation of the Closing and the continuance in full force and effect of the
permits, contracts and other agreements set forth on the Schedules to this
Agreement.
Section 4.3 Name Changes. Simultaneously with the Closing, the Seller
shall, and the Shareholders shall cause the Seller to, amend its certificate of
incorporation to change its name to a name which does not contain the words
"Contemporary Color Graphics" or substantially similar words.
Section 4.4 Employees.
(a) The Seller shall on or prior to the Closing Date terminate all
employees of the Seller and the Purchaser shall offer employment to such former
employees of the Seller as the Purchaser determines. Any such employee who
accepts an offer of employment from the Purchaser shall be referred to as a
"Purchaser Employee". Seller shall provide to the Purchaser a statement of all
accrued vacation and sick time for Employees as of the Closing. The Purchaser
shall be solely responsible for all accrued vacation or sick time to be paid on
or after the Closing with respect to Purchaser employees, or the same will be
included as part of the working capital adjustment described in Section 1.8. The
Seller and the Shareholders covenant and agree that Purchaser will have no
liability for accrued benefits owing to employees of the Seller other than
accrued vacation reflected on the Seller's Financial Statements.
23
(b) The Seller shall retain, and be solely responsible for, all
benefits, compensation and other obligations payable to Purchaser Employees, and
other employees of the Seller with respect to services performed, and claims
incurred, in each case, prior to the Closing (including any severance payable to
Purchaser Employees or other employees formerly employed by the Seller) under
any Plans or any other plans, contracts, agreements, policies or arrangements
related to compensation, severance or other employee benefits that are adopted,
sponsored, maintained or contributed to by the Seller. The Purchaser shall be
liable for all claims incurred from or after the Closing by any Purchaser
Employee under any Plan or any other plans, contracts, agreements, policies or
arrangements related to compensation, severance or other employee benefits that
are adopted, sponsored, maintained or contributed to by the Purchaser. The
Purchaser also shall be liable for all payments that may be required to be made
on or after the Closing to any Purchaser Employee as a result of any event
involving such Purchaser Employees occurring on or after the Closing. For
purposes of this Section 4.4, disability claims are incurred on the date on
which the disability was incurred or, in the case of a disability which is not
incurred on a single, identifiable date, the date on which the disability was
diagnosed; medical and dental services are incurred when an individual is
provided with medical and dental care; death benefit claims are incurred at the
time of death of the insured notwithstanding any other provision of any welfare
benefit plan to the contrary. The Seller shall be responsible for all qualifying
events under COBRA and COBRA claims incurred under the Seller's welfare plans on
or before the Closing Date and, other than with respect to Purchaser Employees,
following the Closing Date.
Section 4.5 Returns and Taxes. The Seller shall prepare and timely
file all Tax Returns required to be filed on or before the Closing Date, which
returns shall be true, complete and correct. The Seller shall pay and discharge
all Taxes, assessments and governmental charges upon or against it or any of its
properties or assets, and all Tax liabilities at any time existing, before the
same shall be become delinquent and before penalties accrue thereon. In addition
to the extent permitted by applicable law, the Seller shall provide to the
Purchaser copies of all 1999 W-2 reports delivered to the Seller's employees
reflecting compensation paid by the Seller to such Employees during 1999.
ARTICLE V
CONDITIONS PRECEDENT TO THE CLOSING
Section 5.1 Conditions Precedent to the Obligations of Each Party. The
obligations of the Purchaser, the Seller and the Shareholders to consummate the
Closing are subject to the satisfaction of the following conditions:
(a) No provision of any Laws or Orders shall (i) prohibit the
consummation of the Closing or (ii) restrain, prohibit or otherwise
interfere with the effective operation or enjoyment by the Purchaser of
all or any material portion of the Assets.
(b) No proceeding challenging this Agreement or the
transactions contemplated hereby or seeking to prohibit, alter, prevent
or materially delay the Closing shall have
24
been instituted by any Person before any court, arbitrator or
governmental body, agency or official and be pending.
(c) All actions by or in respect of or filings with any
governmental body, agency, official or authority required to permit the
consummation of the Closing shall have been taken, made or obtained.
Section 5.2 Conditions Precedent to the Obligations of the Purchaser
to Complete the Closing. The obligations of the Purchaser to enter into and
complete the Closing are subject to the fulfillment on or prior to the Closing
Date of the following conditions:
(a) Representations, Warranties and Covenants. The representations and
warranties of the Seller and the Shareholders contained in this Agreement shall
be true, complete and correct on and as of the Closing Date with the same force
and effect as though made on and as of the Closing Date. The Seller and the
Shareholders shall have performed and complied with all covenants and agreements
required by this Agreement to be performed or complied with by it or him on or
prior to the Closing Date.
(b) Third Party Consents. Except as otherwise waived by the Purchaser,
all consents, permits and approvals from parties to contracts or other
agreements with the Seller set forth on any Schedule to this Agreement, and any
other material consent, permit or approval that may be required in connection
with the performance by the Seller and each Shareholder of its or his
obligations under this Agreement or the consummation of the transactions
contemplated by this Agreement or the continuance of the Seller's contracts or
other agreements with the Purchaser after the Closing shall have been obtained.
(c) Injunction, etc. At the Closing, there shall not be any Order
outstanding against any party hereto or Law promulgated that prevents
consummation of the transactions contemplated by this Agreement or any of the
conditions to the consummation of the transactions contemplated by this
Agreement or would be likely to have any Material Adverse Effect on the Business
or the Assets to be purchased by the Purchaser hereunder.
(d) Opinion of Counsel to the Seller and the Shareholders. The
Purchaser shall have received the opinion of McMillan, Rather, Bennett & Rigano,
P.C., counsel to the Seller and the Shareholders, substantially in the form of
Exhibit B hereto.
(e) Closing Certificates of the Seller and the Shareholders. The
Seller and the Shareholders shall have delivered to the Purchaser certificates
signed by an authorized executive officer of the Seller and by the Shareholders,
dated the Closing Date, as to the matters set forth in Section 5.2(a) and in
form and substance satisfactory to the Purchaser.
(f) Bulk Sales Filings. The Seller and Purchaser shall have timely
made all required filings under all applicable state sales tax bulk sales
notification statutes and regulations, and any other applicable state tax
statutes in connection with the sale of the Assets to the
25
Purchaser and the Purchaser shall have received any bulk sales tax or clearance
certificate or similar documents which may be required by any state taxing
authority in order to relieve the purchaser of any obligation to withhold any
portion of the Purchase Price or to eliminate any Tax Liability or Lien which
may be imposed on the Business, including any of the Assets.
(g) Conveyancing Documents. The Seller shall have executed and
delivered to the Purchaser an (i) Assignment and Assumption Agreement (the
"Assignment and Assumption Agreement") in substantially the form of Exhibit C
hereto, (ii) a Bill of Sale (the "Bill of Sale") in substantially the form of
Exhibit D hereto, and (iii) such further instruments and documents as may be
reasonably requested by the Purchaser in order to complete the transfer of the
Assets to the Purchaser.
(h) Lien Searches. The Purchaser shall have received lien search
results satisfactory to the Purchaser demonstrating that the Assets are free and
clear of all liens, claims and encumbrances of any description.
(i) Employment Agreement. The Shareholders shall have each executed
and delivered to the Purchaser an Employment Agreement.
(j) Corporate Action. All corporate action by the Seller required to
be taken in connection with the transactions contemplated by this Agreement
shall have been validly taken and the Seller shall have furnished the Purchaser
with a secretary's certificate, dated the Closing Date, to such effect and
certifying copies of resolutions, minutes and such other instruments and
documents as the Purchaser shall have reasonably required.
(k) Environmental Audit. The Purchaser shall have received a phase I
environmental report with respect to the Real Property, which report shall be in
form and substance satisfactory to the Purchaser.
(l) Non-Foreign Status. The Seller shall furnish to the Purchaser on
or before the Closing Date a certification of the Seller's non-foreign status as
set forth in Treasury Regulation Section 1.1445-2(b).
Section 5.3 Conditions Precedent to the Obligations of the Seller and
the Shareholders to Complete the Closing. The obligations of the Seller and the
Shareholders to enter into and complete the Closing are subject to the
fulfillment on or prior to the Closing Date, of the following conditions, any
one or more of which may be waived by the Seller and the Shareholders:
(a) Representations, Warranties and Covenants. The representations,
warranties and covenants of the Purchaser shall be true, complete and correct as
of the Closing Date with the same force and effect as though made on and as of
the Closing Date. The Purchaser shall have performed and complied with all
covenants and agreements required by this Agreement to be performed or complied
with by the Purchaser on or prior to the Closing Date.
26
(b) Injunction, etc. At the Closing, there shall not be any Order
outstanding against any party hereto or Law promulgated that prevents
consummation of the transactions contemplated by this Agreement or any of the
conditions to the consummation of the transaction contemplated by this Agreement
or would be likely to have any Material Adverse Effect on the Business or the
Assets to be purchased by the Purchaser hereunder.
(c) Note and Supplemental Note. The Purchaser shall have executed and
delivered to the Seller, the Note and the Supplemental Note.
(d) Debentures. The Purchaser shall have executed and delivered to the
Seller, the Debentures.
(e) Employment Agreement. The Purchaser shall have executed and
delivered to each Shareholder an Employment Agreement.
(f) Purchaser's Organizational Documents. The Seller shall have
received a copy of the articles of incorporation and by-laws of the Purchaser.
(g) Opinion of Counsel to the Purchaser. The Seller and the
Shareholders shall have received the opinion of Farrell Fritz, P.C., counsel to
the Purchaser, dated the Closing Date, substantially in the form of Exhibit E.
(h) Closing Certificates of the Purchaser. The Purchaser shall have
delivered to the Seller and the Shareholders certificates signed by a duly
authorized officer of the Purchaser, dated the Closing Date, as to the matters
set forth in Section 5.3(a) and in form and substance satisfactory to the Seller
and the Shareholders.
(i) Third Party Consents. Any material consent, permit or approval
that may be required in connection with the performance by the Purchaser of its
obligations under this Agreement or the consummation of the transactions
contemplated hereby shall have been obtained.
(j) Corporate Action. All corporate action by the Purchaser required
to be taken in connection with the transactions contemplated by this Agreement
shall have been validly taken and the Purchaser shall have furnished the Seller
with a secretary's certificate, dated the Closing Date, to such effect and
certifying copies of resolutions, minutes and such other instruments and
documents as the Seller shall have reasonably required.
ARTICLE VI
POST CLOSING COVENANTS
The parties covenant to take the following actions after the Closing
Date:
27
Section 6.1 Further Information. Following the Closing, each party
will afford to the other party, its counsel and its accountants, during normal
business hours, reasonable access to the books, records and other data of the
Seller or relating to the Business, the Assets, the Excluded Assets, the Assumed
Liabilities or the Seller in its possession with respect to periods prior to the
Closing and the right to make copies and extracts therefrom, to the extent that
such access may be reasonably required by the requesting party (i) to facilitate
the investigation, litigation and final disposition of any claims which may have
been or may be made against any party or its Affiliates, and (ii) for any other
reasonable business purpose.
Section 6.2 Record Retention. Each party agrees that for a period of
not less than six years following the Closing Date, it shall not destroy or
otherwise dispose of any of the Books and Records relating to the Business, the
Assets, the Assumed Liabilities, the Excluded Assets or the Seller in its
possession with respect to the periods prior to the Closing. Each party shall
have the right to destroy all or part of such Books and Records after the fifth
anniversary of the Closing Date or, at an earlier time by giving each other
party hereto thirty (30) days prior written notice of such intended disposition
and by offering to deliver to the other parties, at the other parties' expense,
custody of such Books and Records as such party may intend to destroy.
Section 6.3 Tax Matters. (a) The Purchaser shall pay all real property
transfer, sales, use, transfer, and other similar Taxes and fees ("Transfer
Taxes"), if any, applicable to, imposed upon or arising out of or in connection
with the transactions effected pursuant to this Agreement, and shall indemnify,
defend and hold harmless the Seller against any and all taxes, claims, losses,
damages, liabilities, costs and expenses incurred by Seller with respect to any
such Transfer Taxes. The Purchaser shall prepare and timely file at its own
expense all necessary documentation and Tax Returns with respect to such
Transfer Taxes.
(b) The Seller and the shareholders shall pay all income and other
gains related Taxes applicable to, imposed upon or arising out, of or in
connection with the transactions contemplated hereby.
(c) The Seller shall pay all Taxes that may be due after the Closing
Date that are allocable to the period prior to and including the Closing Date.
Section 6.4 Non-Compete. (a) Covenants Against Competition. The Key
Shareholders and the Seller acknowledge that the (i) Key Shareholders' ownership
of the Seller and employment with the Seller has brought the Key Shareholders in
close contact with certain confidential affairs of the Seller not readily
available to the public; and (ii) the Purchaser would not purchase the Assets
but for the agreements and covenants of the Seller and the Key Shareholders
contained in this Section 6.4. Accordingly, the Seller and each Key Shareholder
each covenants and agrees that during the Restricted Period, as that term is
defined below (the "Restricted Period"), none of such Persons shall engage in
any Prohibited Activity.
28
(i) The Restricted Period will be five (5) years from
the Closing Date.
(ii) Prohibited Activity means:
(A) Engaging in any business in direct competition
with the Business or in any business that a Key
Shareholder was engaged in or learned about during
and in the course of his employment with the
Purchaser. For this purpose, a business is deemed to
be in direct competition with the Business if it
sells the same or similar products or services as the
Business does to the same customers or customers in
the same industries as does the Business.
(B) Engaging in the sale of printing products and
services for or to any business in the states of New
York, New Jersey and Connecticut.
(C) Soliciting or attempt to solicit from any
customer (except on behalf of the Purchaser) any
business of the type then performed by the Purchaser.
(D) Suggesting, requesting, soliciting, persuading or
importuning or attempting to suggest, request,
solicit, persuade or importune any customer of the
Business to cease doing business with the Purchaser
or to reduce the nature and volume of business which
such customer has customarily done or contemplates
doing with the Purchaser.
(E) Employing or engaging or attempting to employ or
engage, or offering or promising future employment to
any person who is then currently employed by the
Business.
(F) During and after the Restricted Period, failing
to keep secret and retain in strictest confidence,
and using for the benefit of itself or himself or
others except in connection with the business and
affairs of the Purchaser, any confidential
information with respect to the Seller and the
Business and the Assets, or learned by the
29
Seller and each such Key Shareholder heretofore or
hereafter directly or indirectly from the Seller or
the Purchaser, including, without limitation,
information with respect to (a) sales figures, (b) or
loss figures, (c) customers, clients, suppliers,
sources of supply and customer lists (collectively,
the "Confidential Seller Information"), and the
disclosing such Confidential Seller Information to
anyone outside of the Purchaser except with the
Purchaser's express written consent and except for
Confidential Seller Information which is at the time
of receipt or thereafter becomes publicly known
through no wrongful act of either the Seller, or any
Key Shareholder.
(iii) The provisions of this Section 6.4 do not apply
to investments by the Seller or any Key Shareholder in shares
of stock traded on a national securities exchange or on the
national over-the-counter market which constitutes less than
5% of the outstanding shares of such stock, or in shares of
stock in any amount in the Purchaser.
(b) Survival. The provisions of this Section 6.4 will survive the
termination of the employment of any Key Shareholder and remain in full force
and effect during the Restricted Period except as provided in Section 6.2.1(a)
of the Employment Agreements and except that the Restricted Period shall be
accelerated (without affecting the Purchaser's payment obligations under Section
6.4(b)) to the date 30 days after the Purchaser receives written notice of a
default in any payment obligation to the Seller or any Key Shareholder under
this Agreement, the Note, the Supplemental Note or the Debenture if such default
continues uncured for such period. The Restricted Period shall in no
circumstances be accelerated if the Purchaser properly has failed to make a
payment to the Seller or any Key Shareholder under this Agreement, the Note, the
Supplemental Note or the Debentures pursuant to Section 9.3 hereof.
(c) Subsequent Obligations. If any Key Shareholder continues in the
employment of the Purchaser after the end of the Restricted Period as provided
in Section 6.5 of the Employment Agreements (the "Continuing Employment") such
Person will be bound by the provisions contained in this Section 6.4 during the
first two (2) years of such Continuing Employment, and thereafter by a
non-competition agreement then generally required by the Purchaser of employees
with similar titles and responsibilities.
(d) Rights and Remedies Upon Breach. If the Seller or any Key
Shareholder breaches, or threatens to commit a breach of, any of the provisions
of Section 6.4 (the "Restrictive Covenants"), the Purchaser shall have the
following rights and remedies (upon compliance with any necessary prerequisites
imposed by law upon the availability of such remedies), each of which rights and
remedies shall be independent of the other and severally
30
enforceable and shall not be affected by the provisions of Article 7, and all of
which rights and remedies shall be in addition to, and not in lieu of, any other
rights and remedies available to the Purchaser under law or in equity:
(i) The right and remedy to have the Restrictive
Covenants specifically enforced by any court having equity
jurisdiction, including, without limitation, the right to an
entry against the Seller or any Key Shareholder of restraining
orders and injunctions (preliminary, mandatory, temporary and
permanent) against violations, threatened or actual, and
whether or not then continuing, of such covenants, it being
acknowledged and agreed that any such breach or threatened
breach will cause irreparable injury to the Purchaser and that
money damages will not provide adequate remedy to the
Purchaser.
(ii) The right and remedy to require the Seller or
any Key Shareholder to account for and pay over to the
Purchaser all compensation, profits, monies, accruals,
increments or other benefits (collectively, "Benefits")
derived or received by such person as the result of any
transactions constituting a breach of any of the Restrictive
Covenants, and such person shall account for and pay over such
Benefits to the Purchaser.
(e) Severability of Covenants. If any court determines that any of the
Restrictive Covenants, or any part thereof, is invalid or unenforceable, the
remainder of the Restrictive Covenants shall not thereby be affected and shall
be given full effect, without regard to the invalid portions.
(f) Blue-Pencilling. If any court determines that any of the
Restrictive Covenants, or any part thereof, is unenforceable because of the
duration of such provision or the area covered thereby, such court shall have
the power to reduce the duration or area of such provisions and, in its reduced
form, such provision shall then be enforceable and shall be enforced.
(g) Enforceability in Jurisdiction. The Purchaser, the Seller and the
Key Shareholders intend to and hereby confer jurisdiction to enforce the
Restrictive Covenants upon the courts of any jurisdiction within the
geographical scope of the Restrictive Covenants. If the courts of any one or
more of such jurisdictions hold the Restrictive Covenants wholly unenforceable
by reason of the breadth of such scope or otherwise, it is the intention of the
Purchaser and each of the Seller and the Key Shareholders that such
determination not bar or in any way affect the Purchaser's right to the relief
provided above in the courts of any other jurisdiction within the geographical
scope of such Restrictive Covenants, as to breaches of such Restrictive
Covenants in such other respective jurisdictions, such Restrictive Covenants as
they relate to each jurisdiction being, for this purpose, severable into diverse
and independent covenants.
31
(h) Acknowledgements. The Seller acknowledges that: (a) the
compensation to the Seller in consideration of the agreements contained herein
is fair and reasonable and adequately compensates such entity for its agreement
not to compete; (b) the nature of the Prohibited Activities and the duration of
the restricted period are fair and reasonable in light of the Business of the
Seller, the Purchaser's business and such Key Shareholder's intimate knowledge
of such business; and (c) with respect to each individual, based upon the length
and breadth of such Key Shareholder's experience in the printing industry, the
provisions of this Section 6.4 will not prevent such Key Shareholder from being
gainfully employed in areas of the printing industry that do not constitute
Prohibited Activities. The Key Shareholders acknowledge that they have directly
benefited from and will continue to benefit from payments made to the Seller
pursuant to the terms of this Agreement and that the direct benefit received by
each of them is fair and reasonable and adequately compensates each such Key
Shareholder for his agreement not to compete. Each Key Shareholder hereby waives
its rights to defend any action to enforce the provisions of this Section 6.4 on
the grounds that enforcement would prevent such Key Shareholder from being
gainfully employed. The parties hereto further acknowledge that the agreements
of the Seller and of each Key Shareholder set forth in this Section 6.4 are
essential to the Purchaser in the context of the transactions contemplated
hereby and that Purchaser would not enter into this Agreement in the absence of
such provisions.
(j) Inapplicability After Payment Default. This provision of this
Section 6.4 shall become inapplicable if the Purchaser shall fail to make any
payments due to the Seller under the Note, the Supplemental Note or the
Debentures and such failure shall continue in any case for more than 30 days
after written notice to the Purchaser from the Seller unless such failure
results from a proper exercise of the Purchaser's set off rights pursuant to
Section 9.3 hereof.
Section 6.5 Tax Cooperation. The Seller and the Purchaser shall (i)
each provide the other, upon request, as promptly as practicable, with such
information and assistance as may reasonably be necessary by any of them in
connection with the preparation of any Tax Return, election, audit or other
examination by any tax authority or judicial or administrative proceedings
relating to a liability for Taxes, (ii) each retain and provide the other with
any records or other information which may be relevant to any such return, audit
or examination, proceeding or determination, and (iii) each provide the other
with any final determination of any such audit or examination, proceeding or
determination that affects any amount required to be shown on any return of the
other for any period. Without limiting the generality of the foregoing, the
Purchaser shall retain and the Seller shall retain, until the applicable
statutes of limitations (including any extensions) have expired, copies of all
Tax Returns, supporting work schedules and other records or information which
may be relevant to such Tax Returns for all Tax periods or portions thereof
ending before or including the Closing Date and shall not destroy or otherwise
dispose of any such records without first providing the other party with a
reasonable opportunity to review and copy the same. The Seller and the Purchaser
shall cooperate with each other in the conduct of any audit or other proceeding
related to Taxes involving the Business or the Assets.
32
ARTICLE VII
SURVIVAL; INDEMNIFICATION
Section 7.1 Survival of Representations, Warranties, Covenants and
Agreements. The representations, warranties, covenants and agreements of each of
the Seller, the Shareholders and the Purchaser contained in this Agreement shall
survive the Closing for a period of three years other than those representations
contained in Sections 2.12, 2.13, 2.25 and 2.28 which shall survive for a period
corresponding to the longest applicable statute of limitations that could apply
to any claim that could give rise to a claim for indemnification hereunder.
Section 7.2 Indemnification of the Purchaser. The Seller and each
Shareholder, jointly and severally, agree to indemnify, defend and hold harmless
the Purchaser and any of its Affiliates, members, officers, partners, employees,
successors and assigns from and against any and all losses, liabilities
(including punitive or exemplary damages and fines or penalties and any interest
thereon), expenses (including fees and disbursements of outside counsel or the
costs reasonably allocated or attributable to the time of the Purchaser's
in-house counsel and expenses of investigation and defense) or costs actually
incurred, or other payment or performance obligations of any nature whatsoever
required to be performed (hereinafter individually, a "Loss" and collectively,
"Losses") which, directly or indirectly, arise out of, result from or relate to
(i) any inaccuracy in or any breach of any representation and warranty, or any
breach of any covenant or agreement, of the Seller or the Shareholders contained
in this Agreement or in any other document contemplated by this Agreement, (ii)
any Excluded Liability, (iii) Taxes described in Section 2.12, whether or not
the Purchaser's Loss in respect of such Taxes is due to a breach of any
warranty, covenant or representation of the Seller or the Shareholders contained
in Section 2.12 or (iv) any Action or Proceeding, whether or not the Purchaser's
Loss in respect of such Action or Proceeding is due to a breach of any warranty,
covenant or representation of the Seller or the Shareholders contained in
Section 2.13.
In furtherance of the foregoing and without limiting the foregoing,
the Seller agrees to indemnify and hold the Purchaser harmless against any and
all claims, losses, damages, liabilities, costs and expenses incurred by
Purchaser as a result of any failure to comply with any such bulk sales or
similar statutes.
Section 7.3 Indemnification of the Seller and the Shareholders. The
Purchaser agrees to indemnify, defend and hold harmless the Seller, the
Shareholders and any of their Affiliates, directors, officers, partners,
employees, successors and assigns from and against any and all Losses which,
directly or indirectly, arise out of, result from or relate to (i) any
inaccuracy in or any breach of any representation and warranty, or any breach of
any covenant or agreement, of the Purchaser contained in this Agreement or any
other document contemplated hereby (ii) any Assumed Liability assumed by the
Purchaser pursuant to Section 1.3 or (iii) the conduct of the Business and the
ownership of the Assets by the Purchaser following the Closing.
33
Section 7.4 Method of Asserting Claims. The party making a claim under
this Article VII is referred to as the "Indemnified Party" and the party against
whom such claims are asserted under this Article VII is referred to as the
"Indemnifying Party". All claims by any Indemnified Party under this Article VII
shall be asserted and resolved as follows:
(a) In the event that any claim or demand for which an Indemnifying
Party would be liable to an Indemnified Party hereunder is asserted against or
sought to be collected from such Indemnified Party by a third party, said
Indemnified Party shall with reasonable promptness notify in writing the
Indemnifying Party of such claim or demand, specifying the nature of the
specific basis for such claim or demand, and the amount or the estimated amount
thereof to the extent then feasible (which estimate shall not be conclusive of
the final amount of such claim and demand; the "Claim Notice"); provided,
however, that any failure to give such Claim Notice will not be deemed waiver of
any rights of the Indemnified Party except to the extent the rights of the
Indemnifying Party are actually prejudiced by such failure. The Indemnifying
Party, upon request of the Indemnified Party, shall retain counsel (who shall be
reasonably acceptable to the Indemnified Party) to represent the Indemnified
Party and shall pay the fees and disbursements of such counsel with regard
thereto; provided, however, that any Indemnified Party is hereby authorized to
retain counsel, whose fees and expenses shall be at the expense of the
Indemnifying Party fails to promptly retain defense counsel. After the
Indemnifying Party shall retain such counsel, the Indemnified Party shall have
the right to retain its own counsel, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Party unless (x) the Indemnifying
Party and the Indemnified Party shall have mutually agreed to the retention of
such counsel (y) the named parties of any such proceeding (including any
impleaded parties) include both the Indemnifying Party and the Indemnified Party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them or (z) the counsel
retained by the Indemnifying Party fails to promptly undertake the defense and
to vigorously defend the Indemnified Party. The Indemnifying Party shall not, in
connection with any proceedings or related proceedings in the same jurisdiction,
be liable for the fees and expenses of more than one such firm for the
Indemnified Party (except to the extent the Indemnified Party retained counsel
to protect its (or the Indemnifying Party's) right prior to the selection of
counsel by the Indemnifying Party). If requested by the Indemnifying Party, the
Indemnified Party agrees to cooperate with the Indemnifying Party and its
counsel in contesting any claim or demand which the Indemnifying Party defends.
A claim or demand may not be settled by the Indemnifying Party without the prior
written consent of the Indemnified Party unless, the settlement is for cash and
as part of such settlement, the Indemnified Party shall receive a full and
unconditional release reasonably satisfactory to the Indemnified Party.
(b) In the event any Indemnified Party shall have a claim against any
Indemnifying Party hereunder which does not involve a claim or demand being
asserted against or sought to be collected from it by a third party, the
Indemnified Party shall send a Claim Notice with respect to such claim to the
Indemnifying Party. If the Indemnifying Party does not notify the Indemnified
Party within forty-five (45) days of receipt of the Claim Notice that it
34
disputes such claim, the amount of such claims shall be conclusively deemed a
liability of the Indemnifying Party hereunder.
(c) So long as any right to indemnification exists pursuant to this
Article VII, the affected parties each agree to retain all Books and Records
related to the Claim Notice. In each instance, the Indemnified Party shall have
the right to be kept fully informed by the Indemnifying Party and its legal
counsel with respect to any legal proceedings. Any information or documents made
available to any party hereunder and designated as confidential by the party
providing such information or documents and which is not otherwise generally
available to the public and not already within the knowledge of the party to
whom the information is provided (unless otherwise covered by the
confidentiality provisions of any other agreement among the parties hereto, or
any of them), and except as may be required by applicable law, shall not be
disclosed to any third Person (except for the representatives of the party being
provided with the information, in which event the party being provided with the
information shall request its representatives not to disclose any such
information which is otherwise required hereunder to be kept confidential.)
(d) In addition to any other right available to the Purchaser
hereunder or otherwise, the Purchaser may pursue collection of any
indemnification claims against the Seller under the Escrow Agreement. The
foregoing notwithstanding, the right of the Purchaser to indemnification
hereunder shall not be limited by or to any amounts held pursuant to the Escrow
Agreement.
(e) Notwithstanding any provision of this Section 7.4, in the event
that the Purchaser suffers (i) a Loss as described in subsections 7.2(iii) or
7.2(iv), or (ii) Loss pursuant to Section 5.2(f) hereof, the Purchaser shall
have a direct right of set-off against the Note and the Debentures which may be
exercised immediately without having to comply with the provisions of this
Section 7.4.
Section 7.5 Insurance. The amount of Losses recoverable pursuant to
this Article 7 shall be offset by any insurance proceeds recovered by the
Indemnified Party.
Section 7.6 Basket. Neither the Seller nor the Shareholders shall be
required to make any indemnification payment pursuant to Section 7.2 until such
time as the total amount of all Losses that have been suffered or incurred by
Purchaser exceeds $20,000 in the aggregate. At such time as the total amount of
such Losses exceeds $20,000 in the aggregate, Purchaser shall be entitled to be
indemnified with respect to all Losses including the initial $20,000 of Losses.
Section 7.7 Cap on Indemnity Obligation of Seller. In no event shall
the Seller's obligations under this Article 7 exceed the Purchase Price plus the
sum of amounts payable to the Shareholders under Section 6.4 unless such loss
relates directly to the Seller's breach of the representations contained in
Sections 2.12, 2.13, 2.25 and 2.28 hereof.
35
ARTICLE VIII
TERMINATION OF AGREEMENT
Section 8.1 Termination. This Agreement may be terminated at any time
prior to the Closing as follows:
(a) by the Purchaser, or by the Seller and the Shareholders, by
written notice to the other parties hereto, in the event that the Closing shall
not have occurred on or prior to the close of business on July 15, 1999 (unless
such event has been caused by a breach of this Agreement by the party seeking
such termination or, in the case of termination by the Shareholders, a breach by
the Seller or any Shareholder); or
(b) at any time on or prior to the Closing Date, by written consent of
the Purchaser, the Seller and the Shareholders.
Section 8.2 Survival. In the event this Agreement is terminated
pursuant to Section 8.1, (i) this Agreement shall become null and void and of no
further force and effect, except for the provisions of Section 6.4(a)(ii)(F) and
Section 9.2 and (ii) there shall be no liability on the part of the Seller, the
Shareholders or the Purchaser or their respective members, officers, directors
or Affiliates, provided, however, that if such termination shall result from the
breach by a party of the provisions contained in this Agreement, such party
shall be fully liable for any and all damages, costs and expenses sustained or
incurred as a result of such breach by the other parties hereto.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Certain Definitions. As used in this Agreement, the
following terms have the following meanings unless the context otherwise
requires:
"Accounts Receivable" has the meaning specified in Section 1.1(c).
"Action or Proceeding" means any action, suit, proceeding, arbitration
or investigation or audit by any Governmental Authority.
"Affiliate" with respect to any Person, means any other Person
controlling, controlled by or under common control with such Person. For the
purpose of this definition, "control" of a Person shall mean the power, direct
or indirect, to direct or cause the direction of the management or policies of a
Person whether through the ownership of voting securities by contract or
otherwise; provided that, in any event, any Person who owns directly or
indirectly 10% or more of the securities having ordinary voting power for the
election of directors or other governing body of a corporation or 10% or more of
the partnership or other ownership interest of any Person (other than as limited
partner of such other Person) will be deemed to control such other Person.
36
"Assets" has the meaning specified in Section 1.1.
"Assignment and Assumption Agreement" has the meaning specified in
Section 5.2(g).
"Assumed Debt" has the meaning specified in Section 1.7(a)(iv).
"Assumed Liabilities" has the meaning specified in Section 1.3.
"Benefits" has the meaning specified in Section 6.4(d)(ii).
"Bill of Sale" has the meaning specified in Section 5.2(g).
"Books and Records" means all files, documents, instruments, papers,
books and records relating to the Business, operations, conditions of (financial
or other), results of operations and Assets and Liabilities, including without
limitation financial statements, budgets, pricing guidelines, contracts and
other agreements, licenses, customer lists, computer files and programs,
retrieval programs, operating data and plans and environmental studies and
plans, and copies of all Tax records including, without limitation, Tax Returns
and related work papers, ledgers, journals and letters from accountants.
"Business" has the meaning specified in the recitals of this
Agreement.
"Business Contracts" has the meaning specified in Section 1.1(f).
"Business Day" means any day on which commercial banks are not
authorized or required by law to close in New York, New York.
"Business Licenses" has the meaning specified in Section 1.1(i).
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, and the rules and regulations promulgated
thereunder.
"CERCLIS" means the Comprehensive Environmental Response and Liability
Information System, as provided for by 40 C.F.R. ss. 300.5.
"Claim Notice" has the meaning specified in Section 7.4(a).
"Closing" has the meaning specified in Section 1.11.
"Closing Date" has the meaning specified in Section 1.11.
"Closing Date Balance Sheet" has the meaning specified in Section 1.9.
37
"Code" means the Internal Revenue Code of 1986, as amended, and the
Treasury Regulations promulgated thereunder (including any amendment or any
successor provisions thereto).
"Confidential Seller Information" has the meaning specified in Section
6.4(a)(ii).
"contracts and other agreements" means all executory contracts,
agreements, understandings, indentures, notes, bonds, loans, instruments,
leases, mortgages, franchises, licenses, commitments or other legally binding
arrangements.
"Debentures" means the $600,000 Disc Graphics, Inc. Convertible
Debenture due July 1, 2002, substantially in the form attached hereto as Exhibit
F.
"document or other papers" means any document, agreement, instrument,
certificate, notice, consent, affidavit, letter, telegram, telex, statement
schedule (including any Schedule to this Agreement) or exhibit (including any
Exhibit to this Agreement).
"Employment Agreements" shall mean the Employment Agreements between
the Purchaser and each Shareholder, substantially in the form of Exhibit G
hereto.
"Environmental Claim" means, with respect to any Person, any written
or oral notice, claim, demand or other communication (collectively a "claim") by
any other Person alleging or asserting such Person's liability for investigatory
costs, cleanup costs, Governmental Authority response costs, damages to natural
resources or other property, injuries, fines or penalties arising out of, based
on or resulting from (a) the presence, or Release into the environment, of any
Hazardous Material at any location owned or occupied by such Person, or (b) any
other violation or alleged violation of any Environmental Law. The term
"Environmental Claim" shall include, without limitation, any claim by any
Governmental Authority for enforcement, clean up, removal, response, remedial or
other actions or damages pursuant to any applicable Environmental Law, and any
claim by an third party seeking damages, contribution, indemnification, cost
recovery, compensation or injunctive relief resulting from the presence of
Hazardous Materials or arising from alleged injury or threat of injury to
health, safety or the environment.
"Environmental Law" means any Law or Order relating to the regulation
or protection of human health, safety or the environment or to emissions,
discharges, releases or threatened releases or pollutants, contaminants,
chemicals or industrial, toxic or hazardous substances or wastes into the
environment (including, without limitation, ambient air, soil, surface water,
ground water, wetlands, land or subsurface strata), or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, chemicals or industrial,
toxic or hazardous substances or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
38
"Excluded Assets" has the meaning specified in Section 1.2.
"Excluded Liabilities" has the meaning specified in Section 1.4.
"Financial Statements" has the meaning specified in Section 2.9.
"GAAP" means generally accepted accounting principles.
"Governmental Authority" means court, tribunal, arbitrator or any
government or political subdivision thereof, whether federal, state, county,
local or foreign, or any agency, authority, official or instrumentality of any
such government or political subdivision.
"Hazardous Material" means (a) any petroleum or petroleum products,
flammable explosives, radioactive materials, asbestos in any form that is or
could become friable, urea formaldehyde foam insulation and transformers or
other equipment that contain dielectric fluid containing levels of
polychlorinated biphenyls (PCBs); (b) any chemicals or other materials or
substances which are not or hereafter become defined as or included in the
definition of "hazardous substances," "hazardous wastes", "hazardous materials",
"extremely hazardous wastes", "restricted hazardous wastes", "toxic substances",
"toxic pollutants", or words of similar import under any Environmental Law; and
(c) any other chemical or other material or substance, exposure to which is not
or hereafter prohibited, limited or regulated by any Governmental Authority
under any Environmental Law.
"Indemnified Party" has the meaning specified in Section 7.4.
"Indemnifying Party" has the meaning specified in Section 7.4.
"Intangible Property" has the meaning specified in Section 1.1(h).
"Inventory" has the meaning specified in Section 1.1(b).
"IRS" means the Internal Revenue Service.
"Key Shareholder" means each of Laurence Locks, Anthony Cutrone and
Michael Cutrone.
"Knowledge" or words to that effect shall mean, as to any Person, to
the knowledge of such Person after due inquiry and investigation. With respect
to the Seller, "knowledge" shall mean the knowledge of the Shareholders or of
any other officer of the Seller.
"Law" means any law, statute, rule, regulation, ordinance and other
pronouncement having the effect of law of the United States, any foreign country
or any domestic or foreign state, county, city or other political subdivision or
of any Governmental Authority.
39
"Liabilities" has the meaning specified in Section 2.10.
"Lien" means any lien, pledge hypothecation, mortgage, security
interest, claim, lease, charge, option, right of first refusal, easement,
servitude, transfer restriction under any stockholder or similar agreement,
encumbrance or any other restriction or limitation whatsoever.
"Losses" has the meaning specified in Section 7.2.
"Material Adverse Effect" means, in the case of any Person, any change
or changes or effect or effects that individually or in the aggregate are or
would reasonably be expected to be materially adverse to (i) the assets,
business, operations, income, prospects or condition (financial or otherwise) of
such Person or the transactions contemplated by this Agreement or (ii) the
ability of such Person to perform its obligations under this Agreement.
"Material Contracts" has the meaning specified in Section 2.14.
"Note" means a promissory note of Purchaser in the principal amount of
$1,000,000, in substantially the form of Exhibit A-1 hereto.
"Order" means any writ, judgment, decree, injunction or similar order
of any Governmental Authority, in each case whether preliminary or final.
"Person" means any individual, corporation, partnership, limited
liability company, firm, joint venture, association, joint-stock company, trust,
unincorporated organization, Governmental Authority or other entity.
"Personal Property Leases" has the meaning specified in Section
1.1(e).
"Plan" means any plan, fund, program, understanding, policy,
arrangement, contract or commitment, whether qualified or not qualified for
federal income tax purposes, whether formal or informal, whether for the benefit
of a single individual or more than one individual, which is in the nature of
(a) an employee pension benefit plan (as defined in ERISA 3(2)), (b) an employee
welfare benefit plan (as defined in ERISA ss. 3(1)) or (c) an incentive,
deferred compensation, or other benefit arrangement for employees, former
employees, their dependents or their beneficiaries.
"Purchaser" has the meaning specified in the recitals to this
Agreement.
"Real Property" means the real property located at 200-F Executive
Drive, Edgewood, New York 11717.
"Real Property Lease" has the meaning specified in Section 1.1(a).
40
"Release" means any release, spill, emission, leaking, pulping,
injection, deposit, disposal, discharge, dispersal, leaching or migration into
the indoor or outdoor environment, including, without limitation, the movement
of Hazardous Materials through ambient air, soil, surface water, ground water,
wetlands, land or subsurface strata.
"Required Non-Commission Sales Amount" means (a) $5,450,000 for the
period from July 1, 1999 through June 30, 2000, (b) $6,180,000 for the period
from July 1, 2000 through June 30, 2001, and (c) $6,370,000 for the period from
July 1, 2001 through June 30, 2002.
"Required Sales Amount" means (a) $7,550,000 for the period from July
1, 1999 through June 30, 2000, (b) $8,550,000 for the period from July 1, 2000
through June 30, 2001, and (c) $8,800,000 for the period from July 1, 2001
through June 30, 2002.
"Restricted Period" has the meaning specified in Section 6.4(a).
"Restrictive Covenants" has the meaning specified in Section 6.4(d).
"Seller" has the meaning specified in the recitals to this Agreement.
"Shareholders" has the meaning specified in the Recitals.
"Supplemental Note" means a promissory note of the Purchaser in the
principal amount of $1,000,000, in substantially the form of Exhibit A-2 hereto.
"Tangible Property" has the meaning specified in Section 2.19.
"Tax" and "Taxes" means all taxes, charges, fees, levies, duties or
other assessments of a Governmental Authority including without limitation, all
income, gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental, duties, capital stock,
franchise, profits, withholding, social security, unemployment, real property,
gains, personal property, ad valorem sales, use, transfer, registration, value
added, alternative or add-on minimum, estimated, or other tax of any kind
whatsoever (including any charge in lieu of any tax), including any interest,
penalty, or addition thereto, whether disputed or not, imposed by any federal,
territorial, state, local or foreign government, agency or political subdivision
thereof, or other taxing authority.
"Tax Returns" means any return, declaration, report, claim for refund,
information return, statement or other document relating to Taxes, including any
schedule or attachment thereto, or any related or supporting information, and
including any amendment thereof.
41
Section 9.2 Expenses. Each of the parties hereto shall pay its own
expenses (including, without limitation, attorneys' and accountants' fees and
out-of-pocket expenses) incident to this Agreement and the transactions
contemplated hereby.
Section 9.3 Purchaser's Right to Off-Set. In addition to any other
rights or remedies provided hereunder or at law, the Purchaser shall have the
right to apply amounts payable by the Seller or the Shareholders to the
Purchaser hereunder (whether such amounts arise pursuant to a claim for
indemnity or otherwise) to reduce amounts payable to the Seller or the
Shareholders hereunder or under any document or instrument executed in
connection herewith. Notwithstanding the foregoing, before the Purchaser
exercises the right provided in the preceding sentence with respect to any claim
for indemnity the Purchaser shall comply with the provisions of Section 7.4
hereof, and nothing herein shall preclude the Seller's right to seek redress if
the Seller disputes the Purchaser's exercise of its set-off rights hereunder.
Section 9.4 Further Assurances. At any time and from time to time
after the Closing Date at the request of the Purchaser, and without further
consideration, the Seller and each Shareholder will execute and deliver such
other instruments of sale, transfer, conveyance, assignment and confirmation and
take such other action as the Purchaser may reasonably deem necessary or
desirable in order to transfer, convey and assign more effectively to the
Purchaser the Assets to put the Purchaser in actual possession and operating
control of the Business and to assist the Purchaser in exercising all rights
with respect thereto.
Section 9.5 Notices. All notices, requests, demand and other
communication required or permitted to be given hereunder shall be in writing
and shall be given by hand against receipt or sent by reputable overnight
delivery service or certified, registered or express mail, postage prepaid. Any
such notice shall be deemed to be effective upon the earlier of (a) actual
receipt, or (b) when received, if delivered in person or (c) one (1) Business
Day after sent by overnight delivery service or (d) three (3) Business Days
following the mailing thereof, if mailed by certified first class mail, postage
prepaid, return receipt requested, in any such case as follows (or to such other
address or addresses as a party may have advised the other in the manner
provided in this Section 9.5):
If to the Seller:
Contemporary Color Graphics, Inc.
200-F Executive Drive
Edgewood, New York 11717
Attention: Laurence Locks
Facsimile:(516) 242-7310
If to any Shareholder:
c/o Laurence Locks
Contemporary Color Graphics, Inc.
42
200-F Executive Drive
Edgewood, New York 11717
Facsimile:(516) 242-7310
In each case, with a copy to:
McMillan Rather Bennett & Rigano
48 South Service Road
Melville, New York 11747
Attn.: William Cornachio, Esq.
Facsimile:(516) 694-2100
If to the Purchaser:
Disc Graphics, Inc.
10 Gilpin Avenue
Hauppauge, New York 11787
Attention: Donald Sinkin
Facsimile: (516) 582-4537
With a copy to:
Frank A. Bress, Esq.
Disc Graphics, Inc.
10 Gilpin Avenue
Hauppauge, New York 11787
Facsimile: (516) 234-3403
Section 9.6 Publicity. No publicity release or announcement concerning
this Agreement or the transactions contemplated hereby shall be made without
advance approval thereof by the Purchaser.
Section 9.7 Entire Agreement. This Agreement (including the Exhibits
and Schedules) and the agreements, certificates and other documents delivered
pursuant to this Agreement contain the entire agreement among the parties with
respect to the transactions described herein, and supersede all prior
agreements, written or oral, with respect thereto.
Section 9.8 Waivers and Amendments. This Agreement may be amended,
superseded, cancelled, renewed or extended, and the terms hereof may be waived,
only by a written instrument signed by the parties or, in the case of a waiver,
by the party waiving compliance. No delay on the party of any party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof. The rights and remedies of any parties based upon, arising out of or
otherwise in respect of any inaccuracy in or breach of any representation,
43
warranty, covenant or agreement contained in this Agreement shall in no way be
limited by the fact that the act, omission, occurrence or other state of facts
upon which any claim of any such inaccuracy or breach is based may also be the
subject matter of any other representation, warranty, covenant or agreement
contained in this Agreement (or in any other agreement between the parties as to
which there is no inaccuracy or breach).
Section 9.9 Reserved.
Section 9.10 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. Section 9.11 Binding Effect; Assignment. This
Agreement shall be binding upon and inure to the benefit of the parties and
their respective successors and legal representatives. This Agreement is not
assignable by any party hereto without the prior written consent of the other
parties hereto except by operation of law and any other purported assignment
shall be null and void. Notwithstanding the foregoing, the Purchaser may assign
its rights under this Agreement to a wholly-owned subsidiary of the Purchaser
(the "Principal Purchaser"). The Purchaser hereby guarantees the full and prompt
performance by the Principal Purchaser of all its obligations under this
Agreement and the other agreements to which the Principal Purchaser becomes a
party in accordance with this Agreement.
Section 9.12 Variations in Pronouns. All pronouns and any variations
thereof refer to the masculine, feminine or neuter, singular or plural, as the
context may require.
Section 9.13 Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument.
Section 9.14 Exhibits, Schedules and Annexes. The Exhibits, Schedules
and Annexes are a part of this Agreement as if fully set forth herein. All
references herein to Sections, subsections, clauses, Exhibits, Schedules and
Annexes shall be deemed references to such parts of this Agreement, unless the
context shall otherwise require.
Section 9.15. Bulk Sales Laws. The Purchaser and Seller each hereby
waive compliance by the Seller with the provisions of the Uniform Commercial
Code "bulk sales", "bulk transfer" or similar laws of any state. The Seller
agrees to indemnify and hold the Purchaser harmless against any and all claims,
losses, damages, liabilities, costs and expenses incurred by the Purchaser or
any of its affiliates as a result of the failure to comply with such laws.
Section 9.16 Headings. The headings in this Agreement are for
reference only, and shall not effect the interpretation of this Agreement.
44
Section 9.17. Severability of Provisions. If any provision or any
portion of any provision of this Agreement or the application of such provision
or any portion thereof to any Person or circumstance, shall be held invalid or
unenforceable, the remaining portion of such provision and the remaining
provisions of this Agreement, or the application of such provision or portion of
such provision as is held invalid or unenforceable to persons or circumstances
other than those as to which it is held invalid or unenforceable, shall not be
affected thereby.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
DISC GRAPHICS, INC.
By: /s/ Donald Sinkin
---------------------
Name: Donald Sinkin
Title: President and Chief Executive Officer
CONTEMPORARY COLOR GRAPHICS, INC.
By: /s/ Laurence Locks
----------------------
Name: Laurence Locks
Title: President
/s/ Laurence Locks
------------------
Laurence Locks, as a Shareholder
/s/ Ronald Locks
----------------
Ronald Locks, as a Shareholder
/s/ Anthony Cutrone
-------------------
Anthony Cutrone, as a Shareholder
/s/ Michael Cutrone
-------------------
Michael Cutrone, as a Shareholder
45
EXHIBIT 2.2
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT")
OR THE SECURITIES LAWS OF ANY STATE. THIS NOTE MAY NOT BE OFFERED FOR SALE,
SOLD, DELIVERED AFTER SALE, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF EFFECTIVE REGISTRATION STATEMENTS COVERING THIS NOTE UNDER THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
THIS NOTE IS SUBJECT TO THE TERMS AND CONDITIONS OF THAT CERTAIN SUBORDINATION
AGREEMENT BY AND AMONG THE MAKER, THE PAYEE AND KEYBANK, NATIONAL ASSOCIATION,
DATED OF EVEN DATE HEREWITH, PURSUANT TO WHICH ALL PAYMENTS HEREUNDER ARE
SUBORDINATED TO MAKER'S OBLIGATIONS TO KEYBANK, NATIONAL ASSOCIATION.
PROMISSORY NOTE
$1,000,000 July 1, 1999
FOR VALUE RECEIVED, the undersigned, DISC GRAPHICS, INC., a Delaware
corporation (the "Maker"), hereby promises to pay to the order of Contemporary
Color Graphics, Inc., a New York corporation (the "Payee"), at 200-F Executive
Drive, Edgewood, New York 11717, or at such other place as may be designated
from time to time in writing by the Payee, the principal sum of ONE MILLION
DOLLARS ($1,000,000) (the "Principal Amount"), together with interest in arrears
from and including the date hereof on the unpaid Principal Amount hereunder at
the rate of eight and 33/100 percent (8.33%) per annum, payable as set forth
below. Principal and interest shall be payable in lawful money of the United
States of America.
Principal shall be paid in three (3) annual installments as follows (each,
a "Principal Payment"): (a) $200,000, shall be due and payable on August 1,
2000, (b) $400,000, shall be due and payable on August 1, 2001 and (c) $400,000,
shall be due and payable on July 1, 2002 (each, a "Payment Date"), provided that
the final payment on August 1, 2002 (the "Maturity Date") shall be in an amount
equal to all unpaid principal on the Maturity Date. Interest on the unpaid
principal balance of this Note shall be paid quarterly in arrears, commencing
November 1, 1999 and continuing on the first day of each February, May, August
and November thereafter. The final payment of principal on the Maturity Date
shall be accompanied by all accrued and unpaid interest to such date.
If any installment of principal, interest or other sum payable under this
Note is not paid when due and such failure shall continue unremedied for a
period of thirty (30) days after the date of receipt (the "Notice Date") by the
Maker of written notice thereof from the Payee such overdue installment shall
bear interest at a rate equal to the sum of two percent (2%) plus the Prime Rate
as quoted by the Company's primary bank at such time; per annum (to the extent
permitted by law), commencing on the thirtieth (30th) day following the Notice
Date through the date such installment is paid.
This Note is issued pursuant and subject to a certain Asset Purchase
Agreement, dated as of the date hereof, between the Maker, the Payee and contain
shareholders of the Payee (as amended, restated or supplemented, from time to
time, the "Purchase Agreement"), and all ancillary documents thereto, and all
such documents are incorporated by reference.
NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN, THE PRINCIPAL AMOUNT OF
THIS NOTE MAY BE REDUCED IN ACCORDANCE WITH SECTION 1.7(d) OF THE PURCHASE
AGREEMENT.
If any day on which a payment is due pursuant to the terms of this Note is
not a day on which banks in New York City, State of New York are generally open
(a "Business Day"), such payment shall be due on the next Business Day
following.
This Note may be prepaid at any time, without premium or penalty, in whole
or in part, all such prepayments to be applied to installments of most remote
maturity. Any prepayment of principal shall be accompanied by a payment of
accrued interest in respect of the principal being prepaid.
Payments of principal and interest hereunder are subject to, and shall be
reduced by, the amount of any set-off provided for in Section 9.3 of the
Purchase Agreement.
Upon the occurrence of any Event of Default (as defined below), the holder
hereof may declare any or all obligations or liabilities of the Maker to such
holder (including the unpaid principal hereunder and any interest due thereon),
immediately due and payable. Each of the following shall constitute an Event of
Default:
(a) the Maker shall fail (i) to pay the principal amount
hereunder when and as it becomes due and payable, whether on
any Payment Date, at maturity, upon redemption, upon
acceleration or otherwise, or (ii) to pay the interest when
and as it becomes due and payable in accordance with the
provisions hereof, and such interest is not paid thereafter
within thirty days after written notice from the Payee to
the Maker; or
(b) the Maker shall (i) voluntarily commence any proceeding or
file any petition seeking relief under Title 11 of the
United States Code or any other federal or state bankruptcy,
insolvency or similar law, (ii) consent to the institution
of, or fail to controvert in a timely and appropriate
manner, any such proceeding or the filing of any such
petition, (iii) apply for or consent to the employment of a
receiver, trustee, custodian, sequestrator or similar
official for the Maker or for a substantial part of its
property; (iv) file an answer admitting the material
allegations of a petition filed against it in such
proceeding, (v) make a general assignment for the benefit of
creditors, (vi) take corporate action for the purpose of
effecting any of the foregoing; or (vii) become unable or
admit in writing its inability or fail generally to pay its
debts as they become due; or
(c) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent
jurisdiction seeking (i) relief in respect of the Maker or
of a substantial part of its property, under Title 11 of the
United States Code or any other federal or state bankruptcy
insolvency or similar law, (ii) the appointment of a
receiver, trustee, custodian, sequestrator or similar
official for the Maker or for a substantial part of its
property, or (iii) the winding-up or liquidation of the
Maker and such proceeding or petition shall continue
undismissed for 90 days or an order or decree approving or
ordering any of the foregoing shall continue unstayed and in
effect for 90 days; or
(d) Maker shall fail to pay any amounts due to Payee or its
Shareholders under the Purchase Agreement or the documents
referred to therein; or
(e) the Maker shall cease doing business as a going concern.
This Note is delivered in and shall be enforceable in accordance with the
laws of the State of New York, and shall be construed in accordance therewith,
and shall have the effect of a sealed instrument.
In the event any one or more of the provisions of this Note shall for any
reason be held to be invalid, illegal or unenforceable, in whole or in part or
in any respect, or in the event that any one or more of the provisions of this
Note operate or would prospectively operate to invalidate this Note, then and in
any such event, such provision(s) only shall be deemed null and void and shall
not affect any other provision of this Note and the remaining provisions of this
Note shall remain operative and in full force and effect and in no way shall be
affected, prejudiced, or disturbed thereby.
The Maker shall pay all costs and expenses incurred by the holder of this
Note to enforce its rights under this Note, including reasonable counsel fees
and other reasonable out of pocket expenses.
IN WITNESS WHEREOF, the Maker has caused this Note to be executed by its
duly authorized representative as of the date and year first above written.
DISC GRAPHICS, INC.
By: /s/ Donald Sinkin
Name: Donald Sinkin
Title: President and Chief Executive Officer
EXHIBIT 2.3
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT")
OR THE SECURITIES LAWS OF ANY STATE. THIS NOTE MAY NOT BE OFFERED FOR SALE,
SOLD, DELIVERED AFTER SALE, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF EFFECTIVE REGISTRATION STATEMENTS COVERING THIS NOTE UNDER THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
THIS NOTE IS SUBJECT TO THE TERMS AND CONDITIONS OF THAT CERTAIN SUBORDINATION
AGREEMENT BY AND AMONG THE MAKER, THE PAYEE AND KEYBANK, NATIONAL ASSOCIATION,
DATED OF EVEN DATE HEREWITH, PURSUANT TO WHICH ALL PAYMENTS HEREUNDER ARE
SUBORDINATED TO MAKER'S OBLIGATIONS TO KEYBANK, NATIONAL ASSOCIATION.
SUPPLEMENTAL NOTE
$1,000,000 July 1, 1999
FOR VALUE RECEIVED, the undersigned, DISC GRAPHICS, INC., a Delaware
corporation (the "Maker"), hereby promises to pay to the order of Contemporary
Color Graphics, Inc., a New York corporation (the "Payee"), at 200-F Executive
Drive, Edgewood, New York 11717, or at such other place as may be designated
from time to time in writing by the Payee, the principal sum of ONE MILLION
DOLLARS ($1,000,000) (the "Principal Amount"), together with interest in arrears
from and including the date hereof on the unpaid Principal Amount hereunder at
the rate of eight and 33/100 percent (8.33%) per annum payable as set forth
below. Principal and interest shall be payable in lawful money of the United
States of America.
Principal shall be paid in two (2) annual installments as follows (each, a
"Principal Payment"): (a) $500,000, shall be due and payable on August 1, 2003,
and (b) $500,000, shall be due and payable on August 1, 2004 (each, a "Payment
Date"), provided that the final payment on August 1, 2004 (the "Maturity Date")
shall be in an amount equal to all unpaid principal on the Maturity Date.
Interest on this Note shall be paid on each Payment Date in an amount equal to
the interest accrued on the unpaid principal balance hereunder through the
applicable Payment Date. The final payment of principal on the Maturity Date
shall be accompanied by all accrued and unpaid interest to such date.
If any installment of principal, interest or other sum payable under this
Note is not paid when due and such failure shall continue unremedied for a
period of thirty (30) days after the date of receipt (the "Notice Date") by the
Maker of written notice thereof from the Payee such overdue installment shall
bear interest at a rate equal to the sum of two percent (2%) plus the Prime
Rate, as quoted by the Company's primary bank at such time; per annum (to the
extent permitted by law), commencing on the thirtieth (30th) day following the
Notice Date through the date such installment is paid.
This Note is issued pursuant and subject to a certain Asset Purchase
Agreement, dated as of the date hereof, between the Maker, the Payee and contain
shareholders of the Payee (as amended, restated or supplemented, from time to
time, the "Purchase Agreement"), and all ancillary documents thereto, and all
such documents are incorporated by reference.
NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN, THE PRINCIPAL AMOUNT OF
THIS NOTE MAY BE REDUCED IN ACCORDANCE WITH SECTION 1.7(d) OF THE PURCHASE
AGREEMENT.
If any day on which a payment is due pursuant to the terms of this Note is
not a day on which banks in New York City, State of New York are generally open
(a "Business Day"), such payment shall be due on the next Business Day
following.
This Note may be prepaid at any time, without premium or penalty, in whole
or in part, all such prepayments to be applied to installments of most remote
maturity. Any prepayment of principal shall be accompanied by a payment of
accrued interest in respect of the principal being prepaid.
Payments of principal and interest hereunder are subject to, and shall be
reduced by, the amount of any set-off provided for in Section 9.3 of the
Purchase Agreement.
Upon the occurrence of any Event of Default (as defined below), the holder
hereof may declare any or all obligations or liabilities of the Maker to such
holder (including the unpaid principal hereunder and any interest due thereon),
immediately due and payable. Each of the following shall constitute an Event of
Default:
(a) the Maker shall fail (i) to pay the principal amount
hereunder when and as it becomes due and payable, whether on
any Payment Date, at maturity, upon redemption, upon
acceleration or otherwise, or (ii) to pay the interest when
and as it becomes due and payable in accordance with the
provisions hereof, and such interest is not paid thereafter
within thirty days after written notice from the Payee to
the Maker; or
(b) the Maker shall (i) voluntarily commence any proceeding or
file any petition seeking relief under Title 11 of the
United States Code or any other federal or state bankruptcy,
insolvency or similar law, (ii) consent to the institution
of, or fail to controvert in a timely and appropriate
manner, any such proceeding or the filing of any such
petition, (iii) apply for or consent to the employment of a
receiver, trustee, custodian, sequestrator or similar
official for the Maker or for a substantial part of its
property; (iv) file an answer admitting the material
allegations of a petition filed against it in such
proceeding, (v) make a general assignment for the benefit of
creditors, (vi) take corporate action for the purpose of
effecting any of the foregoing; or (vii) become unable or
admit in writing its inability or fail generally to pay its
debts as they become due; or
(c) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent
jurisdiction seeking (i) relief in respect of the Maker or
of a substantial part of its property, under Title 11 of the
United States Code or any other federal or state bankruptcy
insolvency or similar law, (ii) the appointment of a
receiver, trustee, custodian, sequestrator or similar
official for the Maker or for a substantial part of its
property, or (iii) the winding-up or liquidation of the
Maker and such proceeding or petition shall continue
undismissed for 90 days or an order or decree approving or
ordering any of the foregoing shall continue unstayed and in
effect for 90 days; or
(d) Maker shall fail to pay any amounts due to Payee or its
Shareholders under the Purchase Agreement or the documents
referred to therein; or
(e) the Maker shall cease doing business as a going concern.
This Note is delivered in and shall be enforceable in accordance with the
laws of the State of New York, and shall be construed in accordance therewith,
and shall have the effect of a sealed instrument.
In the event any one or more of the provisions of this Note shall for any
reason be held to be invalid, illegal or unenforceable, in whole or in part or
in any respect, or in the event that any one or more of the provisions of this
Note operate or would prospectively operate to invalidate this Note, then and in
any such event, such provision(s) only shall be deemed null and void and shall
not affect any other provision of this Note and the remaining provisions of this
Note shall remain operative and in full force and effect and in no way shall be
affected, prejudiced, or disturbed thereby.
The Maker shall pay all costs and expenses incurred by the holder of this
Note to enforce its rights under this Note, including reasonable counsel fees
and other reasonable out of pocket expenses.
IN WITNESS WHEREOF, the Maker has caused this Note to be executed by its
duly authorized representative as of the date and year first above written.
DISC GRAPHICS, INC.
By: /s/ Donald Sinkin
Name: Donald Sinkin
Title: President and Chief Executive Officer
EXHIBIT 2.4
SECURITY AGREEMENT
SECURITY AGREEMENT dated as of the 1st day of July, 1999 (the "Security
Agreement") from DISC GRAPHICS, INC., a Delaware corporation, having its
principal place of business at 10 Gilpin Avenue, Hauppauge, New York (the
"Disc") to CONTEMPORARY COLOR GRAPHICS, INC., a New York corporation, having an
office at 200-F Executive Drive, Edgewood, New York 11717 ("CCG").
RECITALS
A. Pursuant to the Asset Purchase Agreement, dated as of the date hereof,
by and among Disc, CCG and the Shareholders named therein (the "Agreement") Disc
has executed two promissory notes in favor of CCG each in the amount of One
Million Dollars ($1,000,000), dated as of the date hereof (the "Notes"), and a
$600,000 Debenture (the "Debenture") representing a portion of the purchase
price payable under the Agreement (the Notes and the Debenture, are all
obligations of Disc thereunder, are collectively the "Obligations").
B. To induce CCG to execute and deliver the Agreement, Disc wishes to grant
CCG security and assurance in order to secure the payment and performance of the
Obligations and, to that effect, to grant CCG a second priority perfected
security interest in its certain assets and in connection therewith to execute
and deliver this Security Agreement.
NOW, THEREFORE, in consideration of the premises and to evidence further
the security interest granted to CCG, Disc and CCG hereby agree as follows:
Section 1. Grant of Security. As security for the Obligations, Disc hereby
transfers, assigns and grants to CCG a second lien on and perfected security
interest in the personal property described on Schedule A attached hereto
(collectively, the "Collateral"), subject to the provisions of Section 7 hereof.
Section 2. Disc's Obligations. Disc agrees that it will perform and
discharge and remain liable for all its covenants, duties and obligations
arising in connection with the Collateral. CCG shall have no obligation or
liability in connection with the Collateral, nor shall CCG be required to
perform any covenant, duty or obligation of Disc arising in connection with the
Collateral or to take any other action regarding the Collateral.
Section 3. Use Prior to Default. Unless and until an Event of Default
hereunder shall occur and be continuing, Disc shall retain the legal and
equitable title to the Collateral and shall have the right to use the Collateral
in the ordinary course of its business, subject to the terms and covenants of
this Security Agreement.
Section 4. Events of Default. It shall be an Event of Default hereunder if:
(a) Disc shall default in the performance of any of its obligations, covenants
or agreements hereunder; or (b) there occurs an event of default under the
Obligations. Any Event of Default hereunder shall constitute an event of default
under the Notes and the Debenture.
Section 5. Warranties and Representations. Disc warrants and represents
that it has the right, power and authority to execute and deliver this Security
Agreement, subject only to the limitations of law and of the Agreements.
Section 6. Remedies. Upon the occurrence of any Event of Default, CCG shall
have, in addition to all of its other rights under this Security Agreement and
the Note, by operation of law or otherwise (which rights shall be cumulative),
all of the rights and remedies of a secured party under the Uniform Commercial
Code. Proceeds of any sale, lease or other disposition of the Collateral shall
be applied to the payment of the Obligations in whatever order CCG may elect.
CCG shall return any excess to Disc or to whomever may be fully entitled to
receive the same or as a court of competent jurisdiction may direct. Disc shall
remain liable for any deficiency.
Section 7. SUBORDINATIONS. THIS SECURITY AGREEMENT IS SUBJECT TO THE TERMS
AND CONDITION OF THAT CERTAIN SUBORDINATION AGREEMENT, DATED AS OF THE DATE
HEREOF, BY AND AMONG KEYBANK NATIONAL ASSOCIATION, CCG AND DISC. ALL RIGHTS AND
REMEDIES OF CCG HEREUNDER WITH RESPECT TO THE COLLATERAL ARE SUBORDINATE TO THE
RIGHTS AND REMEDIES OF KEYBANK NATIONAL ASSOCIATION.
Section 8. Termination. This Security Agreement shall remain in full force
and effect until all the Obligations shall have been indefeasibly fully paid and
satisfied and, until such time, CCG shall retain all security in and title to
the Collateral held by it hereunder.
Section 9. Remedies Cumulative. CCG's rights and remedies under this
Security Agreement shall be cumulative and non-exclusive of any other rights or
remedies which it may have under the Agreement or the Notes on the Debenture, by
operation of law or otherwise and may be exercised alternatively, successively
or concurrently as CCG may deem expedient.
Section 10. Binding Effect. This Agreement is entered into for the benefit
of the parties hereto and their successors and assigns. It shall be binding upon
and shall inure to the benefit of the said parties, their successors and
assigns.
Section 11. Notices. Wherever this Agreement provides for notice to either
party (except as expressly provided to the contrary), it shall be given in the
manner specified and shall be addressed as set forth in Section 9.5 of the
Agreement.
2
Section 12. Waiver. No delay or failure on the part of CCG in exercising
any right, privilege, remedy or option hereunder shall operate as a waiver of
such or any other right, privilege, remedy or option, and no waiver shall be
valid unless in writing and signed by an officer of CCG and under only to the
extent therein set forth.
Section 13. Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW.
Section 14. Modifications and Amendments. This Agreement and the other
agreements to which it refers constitute the complete agreement between the
parties with respect to the subject matter hereof and may not be changed,
modified, waived, amended or terminated orally, but only by a writing signed by
the party to be charged.
Section 15. Survival of Representations and Warranties. The representations
and warranties of Disc made or deemed made herein shall survive the execution
and delivery of this Agreement and shall terminate when the Obligations are paid
and satisfied in full.
IN WITNESS WHEREOF, the parties hereto have each duly executed this
Security Agreement the day and year first above written.
DISC GRAPHICS, INC.
By: /s/ Donald Sinkin
Name: Donald Sinkin
Title: President and Chief Executive
Officer
3
SCHEDULE A
EQUIPMENT
Electronic Pre-Press:
1- Hell 399ER Laser Scanner
1- DS757 Digital Color Scanner with CK-100 Preview Station
1- DS Model Sg-688 Digital and Analog Color Scanner with
CK-100 Preview Station
1- Scitex Dolev 200
2- OS-530 Input Stations
2- DS-MTR-1100 Image Setters film output 28 x 40
1- TaigaSpace Workstation
1- Starplexer Mass Storage Device
1- SM510 Scanmount Electronic Scaling
1- Falcon Server, Raid Protected
2- "Tiga" Rips
1- "Adobe" Rip
1- Iris Graphics printer 3024 with color base for calibrated digital proofs
1- PS Link Interface
8- MAC 7100/80 8/700/CD/G3's Computers
T 1 Line
1- WamNet!
Prep:
1- Misomex Step & Repeat Machine
6- Olite Exposure Systems (5K & 7.5K)
2- 3M Matchprint Laminators
2- 3M Matchprint Processors
1- Stoesser Pin Register System
1- DS Vertical Camera 6500E
1- 37" Fuji Film Processor
1- 37" C Dupont Rapid Access Processor
1- 30" 3M Plate Processor
6- Plate and Proof Frames
Press:
1- Six Color 40" Mitsubishi with console 1- 5-Color 26" with perfecting
Omni-Adast with console
Finishing:
1- 44" Heidelberg Polar Cutter
1- Stahl U.S.A. B-20 Folder 20.5" x 33"
1- 36" O&M 16 Page Folder
1- 12" Shrink Wrapping Machine
1- High Speed Three Head Drill
EXHIBIT 2.5
AGREEMENT OF AMENDMENT
THIS AGREEMENT OF AMENDMENT (the "Agreement") made this 1st day of
July 1999, between KEYBANK NATIONAL ASSOCIATION, a national banking association,
with an office for the transaction of business located at 1377 Motor Parkway,
Islandia, New York 11788 ("KeyBank" or "Bank"), and DISC GRAPHICS, INC., a
Delaware corporation, having an office for the transaction of business at 10
Gilpin Avenue, Hauppauge, New York 11788 (the "Borrower").
WHEREAS, KeyBank and Borrower entered into a credit agreement dated
February 26, 1997 and thereafter entered into an amended and restated credit
agreement dated December 1, 1998 (collectively, "Credit Agreement"); and
WHEREAS, the Borrower is about to purchase all assets of Contemporary
Color Graphics, Inc. ("Contemporary") and Progressive Label and Litho, Inc. and
the Borrower has asked the Bank, in connection with such purchase, to amend
certain requirements under the Credit Agreement; and
WHEREAS, by this Agreement, the parties hereto have agreed to amend
the Credit Agreement such that:
(1) under Section 9.01 of the Credit Agreement, Borrower shall be
permitted to incur (a) the debt evidenced by that certain Promissory Note in the
amount of $1,000,000 made by the Borrower to Contemporary Color Graphics, Inc.,
(b) the debt created by that certain Convertible Debenture in the amount of
$600,000 made by Borrower to Contemporary Color Graphics, Inc., and (c) the debt
evidenced by that certain Supplemental Note in the amount of $1,000,000 made by
Borrower to Contemporary Color Graphics, Inc., each dated on or about July 1,
1999 in connection with Borrower's purchase of Contemporary; and
(2) under Section 9.01 of the Credit Agreement, Borrower shall be
permitted to assume the debt of Contemporary in an amount not to exceed
$1,400,000 relating to Contemporary's existing equipment lease financings; and
(3) under Section 9.02 of the Credit Agreement, (a) the liens on the
specific leased equipment representing the collateral for the debt of
Contemporary Borrower is assuming under Section 9.01 above, shall be permitted,
as some are evidenced by the existing UCC-1 filings set forth on Schedule A
attached hereto, which UCC filings shall be assigned to and assumed by Borrower,
as Debtor and (b) subordinate liens on Borrower's assets held by Contemporary as
collateral for the Promissory Note and Debenture referenced in Section 9.01
above, shall be permitted; and
(4) under Section 10.03 of the Credit Agreement, Maximum Liabilities
to Worth Ratio shall be amended to calculate the ratio on the basis of Total
Liabilities to Net Worth; and
NOW, THEREFORE, in consideration of the mutual covenants and
provisions herein contained and other good and valuable consideration, the
parties hereto agree as follows:
1. The Credit Agreement is hereby amended as follows:
(a) Section 9.01 (a) is hereby amended to add a new subparagraph (v)
which shall read as follows:
(v) Debt of Borrower to Contemporary Color Graphics, Inc. in the
amount of $1,000,000 evidenced by Borrower's Promissory Note dated July 1, 1999,
debt of Borrower to Contemporary Color Graphics, Inc. evidenced by Borrower's
Convertible Debenture dated July 1, 1999 in the amount of $600,000, and debt of
Borrower to Contemporary in the amount of $1,000,000 evidenced by Borrower's
supplemental note dated July 1, 1999.
(b) Section 9.01(a) is further amended to add a new subparagraph (vi)
which shall read as follows:
(vi) The assumption of the existing debt of Contemporary Color
Graphics, Inc. in an amount not to exceed $1,400,000 representing existing
financings of certain equipment leases.
(c) Section 9.02 of the Credit Agreement is hereby amended to add a
new subparagraph (g) and a new subparagraph (h) which shall read as follows:
(g) Liens in connection with Borrower's assumption of equipment
lease financings in an amount not to exceed $1,400,000 in connection with
Borrower's purchase of the assets of Contemporary Color Graphics, Inc., which
liens are on specific pieces of leased equipment and are evidenced by the UCC-1
financing statements listed on Schedule A annexed hereto, to be assigned to and
assumed by Borrower simultaneously herewith.
(h) Subordinate liens on Borrower's assets held by Contemporary
Color Graphics, Inc, as collateral for the Promissory Note and Debenture
referenced in Section 9.01.
(d) Section 10.03 of the Credit Agreement is hereby amended to read as
follows:
"Section 10.03. Maximum Liabilities to Worth Ratio. Borrower shall
maintain on a consolidated basis at all times a ratio of Total Liabilities to
Net Worth of not more than 2.75:1.0. Net Worth means, at any particular date,
the amount of excess of Total Assets over Total Liabilities which would, in
accordance with GAAP, be included under shareholders' equity on a consolidated
balance sheet of Borrower and its Subsidiaries as at such date.
2. Except as specially modified herein the terms and conditions
contained in the Credit Agreement remain in full force and effect and each of
the undersigned specifically approves of, ratifies and reaffirms the terms and
conditions of the Credit Agreement and each
2
of the other documents executed in connection with the Credit Agreement to which
the Borrower and the Bank are parties or which the Borrower and/or the
Guarantors (as such term is defined in the Credit Agreement) executed and
heretofore delivered to the Bank.
3. All capitalized terms not defined herein shall have the meanings
ascribed to such terms in the Credit Agreement.
4. This Agreement forms an integral part of the Credit Agreement.
5. This Agreement may be executed in any number of counterparts, and
each such counterpart hereof shall be deemed to be an original instrument, but
all such counterparts together shall constitute but one Agreement.
6. This Agreement shall not become effective until the date on which
the Agreement shall have been duly executed and delivered by each of the parties
hereto and the Bank shall have received an executed copy hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
DISC GRAPHICS, INC
(Borrower)
By: /s/ Donald Sinkin
---------------------
Donald Sinkin
President and Chief Executive Officer
KEYBANK NATIONAL ASSOCIATION
By: /s/ Joseph F. Burns
----------------------
Joseph F. Burns
Vice President
AGREED TO BY:
FOUR SEASONS LITHO, INC.
By: /s/ Donald Sinkin
-----------------
Name: Donald Sinkin
Title: President
3
DISC GRAPHICS LABEL GROUP, INC.
By: /s/ Donald Sinkin
-----------------
Name: Donald Sinkin
Title: President
COSMETIC SAMPLING TECHNOLOGIES, INC.
By: /s/ Donald Sinkin
-----------------
Name: Donald Sinkin
Title: President
STATE OF NEW YORK )
)ss.:
COUNTY OF SUFFOLK )
On the 1st day of July, 1999, before me the subscriber personally
appeared, Donald Sinkin, who being by me duly sworn, did depose and say that he
resides at 10 Gilpin Avenue, Hauppauge, New York; that he is President and Chief
Executive Officer of DISC GRAPHICS, INC., the corporation described in and which
executed the foregoing instrument; and that he signed his name thereto by order
of the Board of Directors of said corporation.
/s/ Frank Bress
---------------
Notary Public
STATE OF NEW YORK )
)ss.:
COUNTY OF SUFFOLK )
On the 1st day of July, 1999, before me the subscriber personally
appeared, JOSEPH F. BURNS, who being by me duly sworn, did depose and say that
he has an address c/o KeyBank National Association, 1377 Motor Parkway,
Islandia, New York; that he is a Vice President at KEYBANK NATIONAL ASSOCIATION,
the corporation described in and which executed the foregoing instrument; and
that he signed his name thereto by order of the Board of Directors of said
corporation.
/s/ Frank Bress
---------------
Notary Public
4
Schedule A
Permitted Liens
Harold M. Pitman Co. - Cosigned Inventory consisting of films, photographic
paper, chemistry and supplies
5
EXHIBIT 4.1
THIS CONVERTIBLE DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, HYPOTHECATED OR
OTHERWISE ASSIGNED EXCEPT PURSUANT TO (i) A REGISTRATION STATEMENT WITH RESPECT
TO THIS DEBENTURE WHICH IS EFFECTIVE UNDER SUCH ACT OR (ii) RULE 144 OR 144A
UNDER SUCH ACT (OR ANY OTHER EXEMPTION FROM REGISTRATION UNDER SUCH ACT RELATING
TO THE DISPOSITION OF SECURITIES).
THIS DEBENTURE IS SUBJECT TO THE TERMS OF THAT CERTAIN SUBORDINATION AGREEMENT
BY AND AMONG THE COMPANY, THE HOLDER AND KEYBANK NATIONAL ASSOCIATION, DATED OF
EVEN DATE HEREWITH, PURSUANT TO WHICH ALL PAYMENTS HEREUNDER ARE SUBORDINATED TO
THE COMPANY'S OBLIGATIONS TO KEYBANK, NATIONAL ASSOCIATION.
$600,000
DISC GRAPHICS, INC.
CONVERTIBLE DEBENTURE DUE JULY 1, 2002
FOR VALUE RECEIVED, the undersigned, DISC GRAPHICS, INC., a corporation
duly organized and existing under the laws of the State of Delaware (the
"Company"), with its principal place of business at 10 Gilpin Avenue, Hauppauge,
New York 11788, hereby promises to pay to the order of CONTEMPORARY COLOR
GRAPHICS, INC. (the "Holder"), a New York corporation, with its principal place
of business at 200-F Executive Drive, Edgewood, New York 11717, the principal
amount of SIX HUNDRED THOUSAND DOLLARS ($600,000) (the "Principal Amount") in
three installments, as follows: (a) $120,000, due and payable on August 1, 2000,
(b) $240,000, due and payable on August 1, 2001 (each such date of payment, an
"Payment Date") and (c) $240,000, due and payable on August 1, 2002 (such date
of payment, the "Maturity Date"). The Company further agrees to pay to the
Holder interest on the unpaid principal amount hereof at the rate of eight and
33/100 percent (8.33%) per annum from the date hereof to maturity, whether by
acceleration or otherwise, such interest to be paid quarterly, in arrears,
commencing November 1, 1999 and continuing on the first day of each February,
May, August and November thereafter, with a final payment on the Maturity Date,
together with the repayment of the principal balance and all charges, amounts,
sums and interest which have accrued and have not been paid.
NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN, THE PRINCIPAL AMOUNT
OF THIS DEBENTURE MAY BE REDUCED IN ACCORDANCE WITH SECTION 1.7(d) OF THE
PURCHASE AGREEMENT (AS DEFINED BELOW).
This Debenture is issued pursuant and subject to a certain Asset
Purchase Agreement, dated as of the date hereof, between the Maker, the Holder
and certain shareholders of the Holder (as amended, restated, supplemented or
otherwise modified, from time to time, the "Purchase Agreement"), and all
ancillary documents thereto, and all such documents are incorporated by
reference.
All payments to be made pursuant to this Debenture shall be made in
lawful money of the United States of America. All such payments shall be made by
electronic funds wire transfer in accordance with the wire transfer instructions
submitted by the Holder as the first payment method option; provided, the Holder
may designate that payment may be made by bank or certified check, at the
offices of the Holder set forth above or such other place as the Holder shall
designate in writing to the Company. In the event that any installment of
principal or interest on this Debenture is not paid when due and such failure
shall continue unremedied for a period of thirty (30) days after the date of
receipt (the "Notice Date"), by the Maker of written notice thereof from the
Holder such overdue principal or interest shall bear interest at a rate equal to
the sum of two percent (2%) plus the Prime Rate as quoted by the Company's
primary bank at such time; per annum (to the extent permitted by law) commencing
on the thirtieth (30th) day following the Notice Date through the date such
installment is paid. In the event the rate of interest hereunder shall exceed
the maximum rate permitted by applicable law, such rate of interest shall
automatically and without further action on the part of any person be reduced to
the maximum rate permitted by applicable law.
1. Conversion.
1.1 Right to Convert. On any Payment Date, including the Maturity
Date, the Holder shall have the right, at its option, to convert the principal
amount and interest thereon of this Debenture that is due to be paid to the
Holder on such Payment Date (the "Payment Amount"), into that number of
fully-paid and nonassessable shares of Common Stock of the Company, obtained by
dividing the Payment Amount surrendered for conversion by the conversion rate
(the "Conversion Rate") equal to Five Dollars and 50/100 ($5.50) per share. The
Holder is not entitled to any rights as a holder of the Company's Common Stock,
until such Holder shall have converted all or a portion of this Debenture into
shares of Common Stock of the Company, as provided herein.
1.2 Exercise of Conversion Privilege; Issuance of Common Stock on
Conversion; No Adjustment for Interest or Dividends. In order to exercise the
conversion privilege, the Holder shall surrender this Debenture to the Company
and shall give written notice of conversion to the Company not less than 30 days
before the applicable Payment Date, in the form provided herein, that the Holder
elects to convert the portion of this Debenture due on such Payment Date as
thereof specified in said notice.
2
As promptly as practicable (but not more than 10 days) after the
surrender of this Debenture and the receipt of such notice as aforesaid, the
Company shall issue and shall deliver to the Holder a certificate or
certificates for the number of full shares issuable upon the conversion of this
Debenture or portion thereof in accordance with the provisions of this Debenture
and a check or cash in respect of any fractional interest in respect of a share
of Common Stock arising upon such conversion as provided in Section 2.3 of this
Debenture. In each case this Debenture shall be surrendered for partial
conversion, the Company shall also promptly execute and deliver to the Holder a
new Debenture or Debentures in an aggregate principal amount equal to the
unconverted portions of the surrendered Debenture.
Each conversion shall be deemed to have been effected on the date on
which this Debenture shall have been surrendered and such notice shall have been
received by the Company (the "Conversion Date"), as aforesaid, and the Holder
shall be deemed to have become on the Conversion Date the holder of record of
the shares issuable upon such conversion; provided, however, that any such
surrender on any date when the stock transfer books of the Company shall be
closed shall constitute the Holder as the record holder thereof for all purposes
on the next succeeding day on which such stock transfer books are open.
No adjustment of the number of shares to be issued upon conversion
shall be made for interest accrued on this Debenture prior to the date it is
surrendered or for cash dividends on any shares issued upon the conversion of
this Debenture prior to the date it is surrendered.
1.3 Cash Payments in Lieu of Fractional Shares. No fractional
shares of Common Stock or scrip representing fractional shares shall be issued
upon conversion of Debentures. If any fractional shares of stock would be
issuable upon the conversion of this Debenture, the Company shall make a payout
therefor in cash based on the Conversion Rate.
1.4 Adjustment of Conversion Rate. The Conversion Rate shall be
adjusted from time to time as follows:
(a) Dividends, Subdivision, and Combination. In case the
Company shall (i) subdivide or reclassify its outstanding Common Stock
into a greater number of shares, or (ii) combine its outstanding
Common Stock into a smaller number of shares, the Conversion Rate in
effect immediately prior thereto shall be adjusted so that the holder
of any Debenture thereafter surrendered for conversion shall be
entitled to receive the number of shares of capital stock of the
Company which it would have owned or have been entitled to receive
after the happening of any of the events described above had this
Debenture been converted immediately prior to the happening of such
event. An adjustment made pursuant to this subsection (a) shall become
effective immediately upon the effective date in the case of
subdivision, reclassification or combination.
(b) No Nominal Adjustments. No adjustment in the Conversion
Rate shall be required unless such adjustment would require an
increase or decrease of at least two
3
percent (2%) in such price. All calculations under this Section shall
be made to the nearest cent or to the nearest one-hundredth (1/100th)
of a share, as the case may be.
(c) Conversion Rate Adjustment Notice. Whenever the
Conversion Rate is adjusted, as herein provided, the Company shall
prepare a notice of such adjustment of the Conversion Rate setting
forth the adjusted Conversion Rate and the date on which such
adjustment becomes effective and shall mail such notice of such
adjustment of the Conversion Rate to the Holder.
1.5 Effect of Reclassification, Consolidation, Merger or Sale. If
any of the following events occur, namely (i) any reclassification or change of
outstanding shares of Common Stock issuable upon conversion of this Debenture
(other than a change in par value, or from par value to no par value, or from no
par value to par value, or as a result of a subdivision or combination), (ii)
any consolidation or merger to which the Company is a party other than a
consolidation or merger in which the Company is the continuing corporation and
which does not result in any reclassification of, or change (other than a change
in par value, or from par value to no par value, or from no par value to par
value or as a result of a subdivision or combination) in, outstanding shares of
Common Stock, or (iii) any sale or conveyance of the properties and assets of
the Company as, or substantially as, an entirety to any other corporation
("Fundamental Change"); then the Maturity Date of this Debenture at the option
of the Holder (i) shall be accelerated to a date not less than fifteen days
after the Holder received notice from the Company of such Fundamental Change or
(ii) this Debenture shall be convertible into the kind and amount of shares of
stock and other securities or property receivable upon such reclassification,
change, consolidation, merger, sale or conveyance by a holder of the number of
shares of Common Stock issuable upon conversion of this Debenture immediately
prior to such reclassification, change, consolidation, merger, sale or
conveyance. The above provisions of this Section shall similarly apply to
successive Fundamental Changes.
1.6 Reservation of Shares; Shares to be Fully Paid. As of the
date hereof, the Company has reserved, free from preemptive rights, out of its
authorized but unissued shares, or out of shares held in its treasury,
sufficient shares to provide for: the conversion of this Debenture. Before
taking any action which would cause an adjustment reducing the Conversion Rate
below the then par value, if any, of the shares of Common Stock issuable upon
conversion of this Debenture, the Company shall promptly take all corporate
action which may be necessary in order that the Company may validly and legally
issue shares of such Common Stock at such adjusted Conversion Rate. The Company
covenants that all shares of Common Stock which may be issued upon conversion of
Debentures will upon issue be fully paid and nonassessable.
1.7 Notice to Holder Prior to Certain Actions. In case:
(a) the Company shall declare a dividend (or any other
distribution) on its Common Stock (other than in cash out of retained
earnings); or
4
(b) the Company shall authorize the granting to the holders
of its Common Stock of rights or warrants to subscribe for or purchase
any share of any class or any other rights or warrants; or
(c) of any Fundamental Change; or
(d) of the voluntary or involuntary dissolution, liquidation
or winding up of the Company;
the Company shall give notice to the Holder in accordance with this Debenture as
promptly as possible but, in any event, at least thirty days prior to the
applicable date hereinafter specified, notice stating (x) the date on which a
record is to be taken for the purpose of such dividend, distribution or rights
or warrants,or, if a record is not to be taken, the date as of which the holders
of Common Stock of record to be entitled to such dividend, distribution or
rights are to be determined, or (y) the date on which such Fundamental Change,
dissolution, liquidation or winding-up is expected to become effective, and the
date as of which it is expected that holders of Common Stock of record shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding up. Failure to give such notice, or any
defect therein, shall no affect the legality or validity of such dividend,
distribution, Fundamental Change, dissolution, liquidation or winding up;
without limiting the definition of a breach of this Debenture, such failure
shall constitute a breach hereunder.
2. REGISTRATION RIGHTS.
2.1 Grant of Piggyback Right. So long as there shall be
outstanding any principal or interest under this Debenture or the Holder shall
hold any shares of Common Stock issuable to the Holder pursuant to this
Debenture ("Conversion Shares"), the Company shall send written notice to the
Holder in accordance with this Agreement at least one month prior to the filing
by the Company of any registration statement filed by the Company on any form
for registration of securities (other than Form S-4, Form S-8), or any successor
form covering the sale of common stock, and shall give to the Holder the right
to have included in any such registration statement any Conversion Shares. In
order to have the Conversion Shares included in such registration statement, the
Holder must give written notice to the Company within fifteen days after the
date of the Holder's receipt of written notice from the Company indicating the
number of Conversion Shares requested to be included for sale in such
registration statement. Upon receipt of such notice from the Holder, the Company
shall use its best efforts to cause all of the Common Stock specified in such
notice to be registered under the Securities Act of 1933, as amended (the
"Securities Act"). The registration expenses in connection with such
registration statement shall be paid by the Company (exclusive of underwriter's
spread and commissions with respect to stock sold by the Holder or fees and
disbursements of the Holder's counsel). If the registration statement to be
filed by the Company pertains to an underwritten public offering of shares of
common stock to be sold solely for the account of the Company and, if in the
judgment of the prospective managing or lead underwriter for the Company as set
forth
5
in a letter to the Company, the registration of the Conversion Shares would
materially adversely affect the proposed public offering by the Company, the
Company shall not be obligated to register such number of Conversion Shares in
such registration statement for inclusion in such public offering as such
underwriter shall have identified as having, in its judgment, such material
adverse effect.
2.2 Undertaking to File Documents. The Holder shall execute,
deliver and/or file with or supply to the Company, the Securities and Exchange
Commission and/or any state or other regulatory authority such information,
documents, representations, undertakings and/or agreements necessary to carry
out the provisions of the registration covenants contained herein and/or to
effect the registration or qualification of the Conversion Shares under the
Securities Act and/or any of the laws and regulations of any state or
governmental instrumentality.
2.3 Commitment to Keep Effective. The Company will be obligated
to keep any registration statement filed by it hereunder and any registration or
qualification pursuant to Section 3.4 below effective under the Securities Act
for a period of twelve months after the actual effective date of such
registration statement and to prepare and file such supplements and amendments
which may be necessary to maintain an effective registration statement for such
period. The Company will furnish to the Holder such number of prospectuses and
other appropriate documents as the Holder may from time to time reasonably
request.
2.4 Blue Sky Registration. The Company will use its best efforts
to register or qualify the shares of Common Stock covered by any registration
statement under the Securities Act which includes Conversion Shares to be sold
on behalf of the Holder pursuant hereto under such securities or blue sky laws
in other jurisdictions within the United States as the Holder may reasonably
request; provided, however, that the Company reserves the right, in its sole
discretion, not to register or qualify such shares of Common Stock in any
jurisdiction it which such shares of Common Stock do not satisfy the
requirements of such jurisdiction or in which the Company would be required to
qualify as a foreign corporation to do business in such jurisdiction and is not
so qualified therein or is required to file any general consent to service of
process.
2.5 Deregistration. In the event the Holder has not sold all of
the Conversion Shares included in the registration statement or prior to the
expiration of the twelve-month period specified above, the Holder hereby agrees
that the Company may deregister, by post-effective amendment, any Conversion
Shares of the Holder covered by the registration statement but not sold on or
prior to such date. The Company agrees that it will notify the Holder of the
filing and effective date of each such post-effective amendment.
2.6 Right to Delay. The Company shall have the right at any
time after it shall have received written notice pursuant to Section 3.1 to
elect not to file or to delay any such proposed registration statement, or to
withdraw the same after the filing but prior to the effective date thereof.
6
2.7 Selection of Underwriters. If a registration pursuant to
Section 3.1 hereof involves an underwritten offering, the Company shall have the
right to select the investment banker or investment bankers and manager or
managers that will serve as underwriter with respect to the underwritten
offering. The Holder may not participate in any underwritten offering under this
Debenture unless the Holder completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwritten offering, in each case, in the form and
upon terms reasonably acceptable to the Company and the underwriters.
2.8 Indemnification. In connection with any registration of the
Conversion Shares under the Securities Act pursuant to this Agreement, the
Company shall indemnify and hold harmless the holders of the Conversion Shares,
each underwriter, broker or any other person acting on behalf of the holders of
the Conversion Shares and each other person, if any, who controls any of the
foregoing persons within the meaning of the Securities Act against any losses,
claims, damages or liabilities, joint or several (or actions in respect
thereof), to which any of the foregoing persons may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or allegedly untrue statement of a material fact contained in
the registration statement under which the Conversion Shares were registered
under the Securities Act, any preliminary prospectus or final prospectus
contained therein or otherwise filed with the Securities and Exchange
Commission, any amendment or supplement thereto or any document incident to
registration or qualification of the Conversion Shares, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading or, with respect to any prospectus, necessary to make the statements
therein in light of the circumstances under which they were made not misleading,
or any violation by the Company of the Securities Act or state securities or
blue sky laws applicable to the Company and relating to action or inaction
required of the Company in connection with such registration or qualification
under such state securities or blue sky laws; the holders of the Conversion
Shares; provided, however, that the Company shall not be liable in any such case
to the extent that nay such loss, claim, damage, liability or action (including
any legal or other expenses incurred) arises out of or is based upon an untrue
statement or allegedly untrue statement or omission or alleged omission made in
said registration statement, preliminary prospectus, final prospectus,
amendment, supplement or document incident to registration or qualification of
the Conversion Shares in reliance upon and in conformity with written
information furnished to the Company through an instrument duly executed by the
holders of the Conversion Shares or underwriter specifically for use in the
preparation thereof; provided further, however, that the foregoing indemnity
agreement is subject to the condition that, insofar as it relates to any untrue
statement, allegedly untrue statement, omission or alleged omission made in any
preliminary prospectus but eliminated or remedied in the final prospectus (filed
pursuant to Rule 424 of the Securities Act), such indemnity agreement shall not
inure to the benefit of any investor, underwriter, broker or other person acting
on behalf of holders of the Conversion Shares from whom the person asserting any
loss, claim, damage, liability or expense purchased the Conversion Shares which
are the subject thereof, if a copy of such final prospectus had been made
available to such person and such Investor,
7
underwriter, broker or other person acting on behalf of holders of the
Conversion Shares and such final prospectus was not delivered to such person
with or prior to the written confirmation of the sale of the Conversion Shares
to such person.
In connection with any registration of Registrable Securities
under the Securities Act pursuant to this Agreement, each holder of the
Conversion Shares shall severally and not jointly indemnify and hold harmless
(in the same manner and to the same extent as set forth in the preceding
paragraph of this Section 8) the Company, each director of the Company, each
officer of the Company who shall sign such registration statement, each
underwriter, broker or other person acting on behalf of the holders of the
Conversion Shares and each person who controls any of the foregoing persons
within the meaning of the Securities Act with respect to any statement or
omission from such registration statement, any preliminary prospectus or final
prospectus contained therein or otherwise filed with the Company, any amendment
or supplement thereto or any document incident to registration or qualification
of any Registrable Securities, if such statement or mission was made in reliance
upon and in conformity with written information furnished to the Company or such
underwriter specifically for use in connection with the preparation of such
registration statement, preliminary prospectus, final prospectus, amendment,
supplement or document.
3. Acceleration. In the case of the happening of any of the following
events (each an "Event of Default"):
(a) the Company shall fail (i) to pay the principal amount hereunder
when and as it becomes due and payable, whether at maturity, upon redemption,
upon acceleration or otherwise, or (ii) to pay the interest when and as it
becomes due and payable in accordance with the provisions hereof, and such
interest is not paid thereafter within thirty (30) days after written notice
from the Holder to the Company; or
(b) the Company shall (i) fail to pay, when due, any amount in respect
of Bank Debt (as that term is defined in that certain Subordination Agreement,
dated the date hereof executed by the Company in favor of KeyBank National
Association or (ii) an "Event of Default" (as defined in the agreements giving
rise to the Senior Debt shall have occurred and be continuing; or
(c) the Company shall (i) voluntarily commence any proceeding or file
any petition seeking relief under Title 11 of the United States Code or any
other federal or state bankruptcy, insolvency or similar law, (ii) consent to
the institution of, or fail to controvert in a timely and appropriate manner,
any such proceeding or the filing of any such petition, (iii) apply for or
consent to the employment of a receiver, trustee, custodian, sequestrator or
similar official for the Company or for a substantial part of its property; (iv)
file an answer admitting the material allegations of a petition filed against it
in such proceeding, (v) make a general assignment for the benefit of creditors,
(vi) take corporate action for the purpose of effecting any of the foregoing; or
(vii) become unable or admit in writing its inability or fail generally to pay
its debts as they become due; or
8
(d) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed in a court of competent jurisdiction seeking (i) relief
in respect of the Company or of a substantial part of its property, under Title
11 of the United States Code or any other federal or state bankruptcy insolvency
or similar law, (ii) the appointment of a receiver, trustee, custodian,
sequestrator or similar official for the Company or for a substantial part of
its property, or (iii) the winding-up or liquidation of the Company and such
proceeding or petition shall continue undismissed for 90 days or an order or
decree approving or ordering any of the foregoing shall continue unstayed and in
effect for 90 days; or
(e) the Company shall fail to pay to the Holder or its Shareholders
any amounts due under the Purchase Agreement of the documents referred to
therein; or
(f) the Company shall cease doing business as a going concern;
then, at any time thereafter during the continuance of any such event, the
Holder may, in addition to any other rights and remedies the Holder may have
hereunder or otherwise, including, without limitation, the right to an increased
rate of interest as set forth on the first page of this Debenture, declare this
Debenture to be due and payable without presentment, demand, protest or other
notice of any kind, all of which are hereby expressly waived.
4. Waivers; Modifications.
4.1 In General. No forbearance, indulgence, delay or failure to
exercise any right or remedy with respect to this Debenture shall operate as a
waiver nor as an acquiescence in any: default. No single or partial exercise of
any right or remedy shall preclude any other or further exercise thereof or any
exercise of any other right or remedy.
4.2 Presentment, Etc.; Jury Trial Waived. The Company hereby
waives presentment, demand, notice of dishonor, protest and notice of protest.
The Company hereby waives all rights to a trial by jury in any litigation
arising out of or in connection with this Debenture.
4.3 Modifications. This Debenture may not be modified or
discharged orally, but only in writing duly executed by the Holder and the
Company.
5. Successors and Assigns. All the covenants, stipulations, promises
and agreements in this Debenture made by the Company shall bind its successors
and assigns, whether so expressed or not, and inure to the benefit of the Holder
and its successors and assigns.
9
6. Miscellaneous.
6.1 Headings. The headings of the various paragraphs of this
Debenture are for convenience of reference only and shall in no way modify any
of the terms or provisions of this Debenture.
6.2 Governing Law. This Debenture and the obligations of the
Company and the rights of the Holder shall be governed by and construed in
accordance with the laws of the State of New York applicable to instruments made
and to be performed entirely within such State.
6.3 Collection Costs. The Company shall pay all costs and
expenses incurred by the Holder to enforce its rights under this Debenture,
including reasonable counsel fees and other reasonable out-of-pocket expenses,
provided, however, that the foregoing shall not relate to the issuance of
routine notices sent no more frequently than once in any twelve-month period.
6.4 Notices. All notices, requests, consents, and other
communications hereunder shall be given in accordance with the notice provisions
of the Purchase Agreement.
IN WITNESS WHEREOF, the Company has caused this Debenture to be signed
in its corporate name by a duly authorized, officer and to be dated as of the
day and year written below.
Dated: July 1, 1999 DISC GRAPHICS, INC.
By: /s/ Donald Sinkin
---------------------
Name: Donald Sinkin
Title: President and Chief
Executive Officer
10
FORM OF CONVERSION NOTICE
TO: DISC GRAPHICS, INC.
The undersigned holder of this Debenture hereby irrevocably exercises the option
to convert this Debenture, or portion hereof, below designated (which amount
shall not be less than the Principal Balance to be paid on date hereof and which
date shall be a Payment Date) into shares of Common Stock of Disc Graphics,
Inc., in accordance with the terms and conditions of this Debenture and directs
that the shares issuable and deliverable upon the conversion, together with any
check in payment for fractional shares and any Debentures representing any
unconverted principal amount hereof, be issued and delivered to the registered
holder hereof.
Dated:
Name of Owner:
Signature:
Title:
Address:
Taxpayer Identification No.:
Amount to be Converted:
11
EXHIBIT 20.1
DISC GRAPHICS
10 Gilpin Avenue
Hauppauge, New York 11788
516-234-1400
IMMEDIATE RELEASE
DISC GRAPHICS COMPLETES ACQUISITION OF
CONTEMPORARY COLOR GRAPHICS
Hauppauge, NY (July 7, 1999) - Disc Graphics, Inc. ("Disc Graphics" or
the "Company") (NASDAQ Small Cap Symbol DSGR), a national folding carton and
specialty-printing company, today announced that it has completed the
acquisition of Contemporary Color Graphics ("Contemporary"). Contemporary is a
high-quality commercial printer with an emphasis on electronic pre-press
services located in Edgewood, New York.
Contemporary has been in business for approximately 11 years with an
energetic management team that has built Contemporary to approximately $8.0
million in annual revenue. This team will remain in place and will have the
added technical and financial support from Disc Graphics to continue an
aggressive growth strategy. Don Sinkin, Chairman and Chief Executive Officer of
Disc Graphics, said, "Contemporary offers a wide range of commercial printing
and electronic pre-press services and has a loyal customer base. Its management
team is dedicated to providing high-quality printing services, and we are
pleased to have them join the Disc team. The greatest asset of this acquisition
is the Contemporary team. We look forward to their continued success and
positive influence on the organization as a whole."
Disc Graphics, headquartered in Hauppauge, NY, is a diversified
manufacturer and printer of specialty packaging focused on the home video,
pharmaceutical, music, publishing and cosmetic markets. Disc Graphics' products
include pre-recorded video, CD-ROM and audiocassette packaging, folding cartons
for pharmaceuticals and cosmetics, book jackets, posters, pressure-sensitive
labels and general commercial printing. With the completion of this acquisition,
Disc Graphics has 5 facilities with annualized revenues based on year to date
performance of approximately $70 million.
This announcement does not constitute an offer to sell or the
solicitation of offers to buy any security and shall not constitute an offer,
solicitation or sale of any security in any jurisdiction in which such offer,
solicitation or sale would be unlawful. Except for historical information
contained herein, the matters set forth herein are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995, and
involve risks and uncertainties that could affect the Company's actual results
of operations. Potential risks and uncertainties include among other things,
such factors as volume, pricing and mix of sales of the Company's products, the
success of the Company's integration of the production facilities and businesses
of acquired companies and the future financial results of those companies, the
Company's ability to implement its business strategy, and other factors set
forth in the Company's filings with the Securities and Exchange Commission,
including but not limited to its Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999, which has been previously filed.
For further information contact:
INVESTOR RELATIONS COMPANY
John Aneralla Margaret Krumholz
Buttonwood Advisory Group, Inc. Chief Financial Officer
Toll Phone (800) 940-9087 Phone: (516) 234-1400
www.buttonwoodadvisor.com www.discgraphics.com
--------------------
