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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
June 28, 1996
--------------
Date of report (Date of earliest event reported)
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THE SOURCE COMPANY
------------------
(Exact name of Registrant as specified in its charter)
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Missouri 0-26238 43-1710906
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(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
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11644 Lilburn Park Road, St. Louis, Missouri 63146
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(Address of principal executive offices) (Zip Code)
(314) 995-9040
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(Registrant's telephone number, including area code)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
--------------------------------------------
On June 28, 1996, The Source Company (the "Company"), through a
wholly-owned subsidiary, acquired all the outstanding stock of Magazine
Marketing, Inc. ("Magazine Marketing") of Canton, Ohio from the sole
shareholder James Looman ("Looman") in exchange for 100,000 shares of the
Company's $0.01 par value common stock (the "Common Stock"), $275,000 in
cash, and delivery of a non-interest bearing note in the amount of $80,000
payable over a two year period. (the "Acquisition"). The Acquisition was
effected pursuant to a Stock Acquisition Agreement dated as of June 20,
1996 (the "Acquisition Agreement"). Of the 100,000 shares of the Common
Stock issued and delivered in connection with its acquisition of the shares
of Magazine Marketing, 33,333 shares were deposited in escrow to secure
certain indemnification obligations of Magazine Marketing and Looman to the
Company pursuant to the Acquisition Agreement.
The total purchase price for the Magazine Marketing stock acquired by
the Company was determined by arm's length negotiation and was based upon,
among other factors, (i) the current and historical financial results of
Magazine Marketing, and (ii) Magazine Marketing's customer base.
Other than in connection with the Acquisition, neither Magazine
Marketing nor the sole shareholder of Magazine Marketing, Looman, have had
any material relationship with the Company or any of its affiliates, any
director or officer of the Company or any associate of any such director or
officer.
Prior to the Acquisition, the Company was engaged in providing
information and marketing services to retail stores selling magazines and
other periodicals. The Company intends to continue such business and does
not intend to substantially change the nature of Magazine Marketing's
operation.
The Company derived the cash portion of the purchase price from an
existing term loan with The Boatmen's National Bank of St. Louis.
A copy of the Company's press release announcing the Acquisition is
attached as Exhibit 99.2.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
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(a) Financial Statements of business acquired. It is impracticable to
provide financial statements of the acquired business meeting the
requirements of this Item 7(a) at the time of this report on Form 8-
K. Such financial statements will be provided as an amendment to
this Form as soon as practicable, but no later than 60 days following
the filing of this report. [option to provide unaudited F/S in this
initial report and supplement w/ audited F/S within 60 days]
(b) Pro Forma Financial Information. It is impracticable to provide Pro
Forma financial information meeting the requirements of this Item
7(b) at the time of this report on Form 8-K. Such financial
information will be provided as an amendment to this Form as soon as
practicable, but no later than 60 days following the filing of this
report.
(c) Exhibits - See Exhibit Index on page 5 hereof.
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SIGNATURE
---------
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 hereto duly authorized.
Date: July 11, 1996
THE SOURCE COMPANY
By: /s/ Lance C. McCord
---------------------------
Lance C. McCord
Chief Financial Officer
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EXHIBIT INDEX
Exhibit No. Exhibit
- ----------- -------
10.14 Stock Acquisition Agreement dated as of June 20, 1996, among
James Looman, the sole shareholder of Magazine Marketing, Inc.,
Magazine Marketing, Inc. and the Source Company.
99.2 Press Release dated June 28, 1996
5
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STOCK ACQUISITION AGREEMENT
Among
JAMES LOOMAN
the Sole Shareholder of MAGAZINE MARKETING, INC.,
MAGAZINE MARKETING, INC.
and
THE SOURCE COMPANY,
June 20, 1996
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Table of Contents
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I. DEFINITIONS.......................................................... 1
II. TRANSFER OF COMPANY STOCK............................................. 4
2.01. Transfer of Company Stock: Purchase Price...................... 4
2.02. Transactions at Closing........................................ 5
III. HOLD BACK; PRICE GUARANTEE; ADJUSTMENT................................ 5
3.01. Hold Back...................................................... 5
3.02. Price Guarantee; Adjustment.................................... 6
IV. WARRANTIES AND REPRESENTATIONS OF SELLER AND COMPANY.................. 6
4.01. Organization and Standing of Company........................... 6
4.02. Authority...................................................... 6
4.03. Capitalization and Share Ownership;Transfer of Company Stock;
Good Title and Condition of Assets........................ 7
4.04. Books and Records; Financial Statements; Customer Revenues..... 7
4.05. Absence of Changes............................................. 8
4.06. Payment of All Debts and Liabilities........................... 9
4.07. No Conflicting Agreements or Orders............................ 9
4.08. Compliance..................................................... 10
4.09. Litigation..................................................... 10
4.10. Condition of Company........................................... 10
4.11. Employment Agreements.......................................... 10
4.12. Labor Relations................................................ 11
4.13. Taxes.......................................................... 11
4.14. Names of Company............................................... 11
4.15. Real and Personal Property, Leases............................. 11
4.16. Insurance...................................................... 12
4.17. Certain Information............................................ 12
4.18. Customers; Accounts Receivable................................. 12
4.19. Employee Benefit Plans......................................... 13
4.20. Receipt of the Source Shares Under the Securities Act.......... 15
4.21. Other Contracts................................................ 17
4.22. Corporate Records; Documents................................... 17
4.23. No Misrepresentation........................................... 17
V. REPRESENTATIONS AND WARRANTIES OF THE SOURCE.......................... 17
5.01. Organization and Standing of The Source and L-Sub.............. 18
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5.02. Binding Agreement............................................... 18
5.03. Agreement Within Authority...................................... 18
5.04. No Conflicting Agreements or Orders............................. 18
5.05. Corporate Action................................................ 18
5.06. No Conflict..................................................... 18
5.07. No Misrepresentation............................................ 18
5.08. Source Shares Validly Issued.................................... 19
VI. COVENANTS OF SELLER AND COMPANY PENDING CLOSING......................... 19
6.01. Access to Information........................................... 19
6.02. Maintain Properties............................................. 19
6.03. Maintain Organization........................................... 19
6.04. Regular Course of Business...................................... 19
6.05. Insurance....................................................... 19
6.06. Employees....................................................... 19
6.07. Business Changes................................................ 20
6.08. Consents........................................................ 20
6.09. Building Lease.................................................. 20
6.10. Termination of Profit Sharing Plan.............................. 20
VII. COVENANTS OF THE SOURCE................................................. 20
7.01. Administrative Assistant........................................ 20
7.02. Building Lease.................................................. 20
VIII. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SOURCE
AND L-SUB.............................................................. 21
8.01. No Adverse Change............................................... 21
8.02. Representations, Warranties and Agreements of Seller and
Company................................................... 21
8.03. Opinion of Counsel.............................................. 21
8.04. Absence of Litigation........................................... 21
8.05. Officers' Certificate........................................... 21
8.06. Approval of Documents........................................... 21
8.07. Casualty Loss................................................... 21
8.08. Satisfactory Review of the Company, the Business and
the Assets; Audit......................................... 22
8.09. Minimum Net Worth............................................... 22
8.10. Employment Agreement with Seller................................ 22
IX. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER........................... 22
9.01. Representations, Warranties and Agreements of The Source........ 22
9.02. Opinion of Counsel.............................................. 22
9.03. Consents........................................................ 22
9.04. Approval of Documents........................................... 23
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9.05. The Source's Certificate........................................ 23
9.06. Employment Agreement............................................ 23
X. INDEMNIFICATION........................................................ 23
10.01. Indemnification of The Source by Seller and Company............ 23
10.02. Indemnification of Seller by The Source and L-Sub.............. 24
10.03. Notice to Indemnifying Party................................... 25
10.04. Termination of Indemnification Obligations of Company.......... 25
10.05. Claims Threshold and Limitation................................ 26
XI. CLOSING AND RISK OF LOSS................................................ 26
11.01. Place and Time.................................................. 26
11.02. Simultaneous Performance........................................ 26
XII. MISCELLANEOUS........................................................... 26
12.01. Non-competition................................................. 26
12.02. Information..................................................... 27
12.03. Incorporation of Schedules...................................... 27
12.04. Further Assurances.............................................. 27
12.05. Transfer Taxes.................................................. 27
12.06. Notices......................................................... 27
12.07. No Commission................................................... 28
12.08. Survival of Representations and Warranties...................... 28
12.09. Entire Agreement................................................ 28
12.10. Binding Effect.................................................. 29
12.11. Third Parties................................................... 29
12.12. Expenses of the Parties......................................... 29
12.13. Counterparts.................................................... 29
12.14. Ohio Law to Govern.............................................. 29
12.15. Mail and Communications......................................... 29
12.16. Review of Closing Balance Sheet................................. 29
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STOCK ACQUISITION AGREEMENT
---------------------------
This Stock Acquisition Agreement ("Agreement") is entered into as of the
20th day of June, 1996, among THE SOURCE COMPANY, a Missouri corporation ("The
Source"), JAMES LOOMAN ("Seller"), the sole shareholder of MAGAZINE MARKETING,
INC., an Ohio corporation ("Company"), and Company.
WHEREAS, Seller owns all of the issued and outstanding shares of capital
stock of Company;
WHEREAS, Company operates a business engaged in the collection of retail
display allowances for retail store chains (the "Business");
WHEREAS, the Board of Directors of The Source has approved this Agreement
and determined that it is in the best interests of The Source to acquire,
through a wholly-owned subsidiary of The Source ("L-Sub"), all of the issued and
outstanding shares of common stock of Company in exchange for shares of common
stock of The Source and cash, upon the terms and subject to the conditions of
this Agreement;
WHEREAS, Seller has determined that it is in the best interests of Seller
to transfer Company Stock to L-Sub in exchange for common stock of The Source
and cash upon the terms and subject to the conditions of this Agreement; and
WHEREAS, the Board of Directors and sole shareholder of Company have
determined that it is in the best interests of Company and the conduct of the
Business to become affiliated with and a subsidiary of The Source.
THEREFORE, it is agreed as follows:
I. DEFINITIONS.
-----------
For purposes of this Agreement, the following words and phrases have the
following meanings:
"Accounting Firm" means BDO Seidman.
"Accounts Receivable" means any amounts which are or will be due from
retail display customers relating to all checks Company has received from
publishers for which Company has invoiced, or will invoice, its retail display
customers for any fees and charges, but for which Company has not received
payment. "Accounts Receivable" shall not include claims processed by the
Company and submitted to a publisher for which Company has not received a check
from the publisher. Other than as provided for in this definition, all amounts
due to or paid to Company shall be accounted for on the cash basis, without
regard to the period in which the amount relates.
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"Accounts Receivables Schedule" is defined in Section 4.18.
"Assets" means all of the right, title and interest in and to the property,
real, personal and mixed, tangible or intangible, of every kind or character and
wherever located, owned by Company and comprising the Business in its entirety.
"Audit" is defined in Section 8.08.
"Business" is defined in the third paragraph of this Agreement.
"Closing" means the consummation of the transactions contemplated by this
Agreement.
"Closing Accounts Receivable" means any amounts which are or will be due
from retail display customers relating to all checks Company has received from
publishers as of the Closing Date for which the Company has invoiced, is in the
process of invoicing, or promptly after the Closing invoices with respect to
checks received from publishers through the Closing Date its retail display
customers for any fees and charges, but for which Company has not received
payment. "Closing Accounts Receivable" shall not include claims processed by
the Company and submitted to a publisher for which Company has not received a
check from the publisher on or before the Closing Date. Other than as provided
for in this definition and in the definition of Accounts Receivable, all amounts
due to or paid to Company shall be accounted for on the cash basis, without
regard to the period in which the amount relates.
"Closing Balance Sheet" means the balance sheet of Company as of the close
of business on the day preceding the Closing Date.
"Closing Balance Sheet Date" means the date of the Closing Balance Sheet.
"Closing Customer List" is defined in Section 4.18.
"Closing Date" means 10:00 a.m. on or before June 27, 1996, or such other
date and time as are mutually agreed upon in writing by The Source and Seller.
"Closing Liabilities" means any liabilities or obligations of Company as of
the Closing Date, including (but not by way of limitation) all current year
income taxes, franchise taxes, or other taxes measured by the income of Company
(as a cash basis tax payer) through the Closing Date.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means Magazine Marketing, Inc., an Ohio corporation.
2
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"Company Stock" means all of the issued and outstanding shares of common
stock of Company.
"Contracts" means the contracts, leases and other agreements set forth in
Schedule 4.21 to which Company is a party.
"December 31 Balance Sheet" means the balance sheet contained in the
December 31, 1995 Financial Statements provided in accordance with Section 4.04.
"December 31 Financial Statements" means the financial statements of
Company as of and for the year ended December 31, 1995, as delivered to The
Source by Seller and Company in accordance with Section 4.04.
"Employment Agreement" is defined in Section 8.10.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations thereunder.
"Excluded Assets" means cash, the Closing Accounts Receivable, the Cadillac
and Subaru automobiles owned by Company and included in the Assets and such
other assets of Company as are set forth in Schedule 1.01 and will be delivered
to Seller at Closing.
"Financial Statements" are defined in Section 4.04.
"Hold Back Stock" means that number of Source Shares, rounded to the
nearest whole number, which equals one-third (1/3) of the Source Shares being
transferred by L-Sub to Seller or delivered to the Escrow Agent at Closing.
"Indemnification Escrow Agent" is defined in Section 2.02(c).
"Indemnification Escrow Agreement" is defined in Section 2.02(c).
"Interim Financial Statements" is defined in Section 4.04.
"Liabilities" means the liabilities and obligations of Company, including
accounts payable, existing as of the close of business on December 31, 1995 and
set forth on the December 31 Balance Sheet, and as paid or incurred in the
ordinary course of business of Company, consistent with past practice, from
December 31, 1995 to the Closing Date, if and to the extent that the same are
accrued or reserved for on the Closing Balance Sheet and remain unpaid and
undischarged on the Closing Date, and the liabilities and obligations of Company
set forth in Schedule 1.01 or otherwise in the Schedules to this Agreement.
"1995 Customer Revenues" is defined in Section 4.04(b).
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"Non Hold Back Stock" means the Source Shares, except for the Hold Back
Stock.
"Promissory Note" is defined in Section 2.01.
"Quarterly Payments" is defined in Section 2.01.
"Registration Statement" means the Registration Statement filed by The
Source on Form 10-SB under the Securities Exchange Act of 1934, and all
amendments thereto.
"Securities Act" means the Securities Act of 1933, as amended, and rules
and regulations thereunder.
"Seller" means James Looman, the sole shareholder of Company.
"Source Shares" is defined in Section 2.01.
"Subsequent Financial Statements" is defined in Section 4.04(a).
"Transaction" means the exchange of the Source Shares and cash for the
Company Stock, as contemplated in Section 2.01.
"Undisclosed Liabilities" means liabilities of Company which are not
included in the Liabilities.
II. TRANSFER OF COMPANY STOCK.
2.01. Transfer of Company Stock: Purchase Price.
At the Closing, subject to the terms and conditions of this Agreement, and
in reliance on the representations, warranties and covenants contained herein,
Seller shall transfer, convey and assign to L-Sub, and L-Sub shall acquire, all
of the Company Stock in exchange for payment of Two Hundred Seventy-Five
Thousand Dollars ($275,000), plus One Hundred Thousand (100,000) shares of The
Source common stock, par value $.01 per share (the "Source Shares"). In
addition, Company shall pay Seller Ten Thousand Dollars ($10,000) as of the end
of each quarter for the two year period following the Closing Date (or a total
of $80,000)(the "Quarterly Payments"), for which the first payment shall be due
on June 30, 1996, by delivery of a Promissory Note in substantially the same
form as attached Schedule 2.01 (the "Promissory Note").
2.02. Transactions at Closing. At the Closing:
(a) Seller will deliver the Company Stock to L-Sub, duly endorsed for
transfer to L-Sub, in form acceptable to The Source's counsel, so as to
effectively vest in L-Sub full, indefeasible, merchantable, legal,
equitable and beneficial title to the
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Company Stock, free and clear of all debts, claims, security interests,
liens, encumbrances and other title retention agreements, pledges,
assessments, covenants, restrictions and charges of every nature;
(b) The Source will pay to Seller Two Hundred Seventy Five Thousand
Dollars ($275,000) by bank wire transfer (instructions for the payment of
which will be delivered to The Source by Seller not less than two business
days prior to the Closing Date) and deliver to Seller the Promissory Note;
(c) L-Sub will deliver the Hold Back Stock to the Indemnification
Escrow Agent (the "Indemnification Escrow Agent") under the Indemnification
Escrow Agreement set forth in Schedule 2.02(c) or otherwise required by and
acceptable to the Indemnification Escrow Agent (the "Indemnification Escrow
Agreement"), which shall be executed by Seller, The Source and the
Indemnification Escrow Agent at the Closing (and Seller will deliver
appropriate irrevocable stock powers, fully endorsed in blank, with respect
to the Hold Back Stock) and will deliver the Non Hold Back Stock to Seller,
free and clear of all debts, claims, security interests, liens,
encumbrances, and other title retention agreements, pledges, assessments,
covenants, restrictions and charges of every nature;
(d) Company will convey, assign and transfer to Seller the Excluded
Assets;
(e) Seller shall pay or assume, in a manner acceptable to The Source
and L-Sub, and pay promptly following the Closing all Closing Liabilities;
and
(f) the parties shall perform all of the other obligations required
to be performed by them under this Agreement on or before the Closing.
III. HOLD BACK; PRICE GUARANTEE; ADJUSTMENT.
3.01. Hold Back. To secure the rights of The Source under Section 10.01,
at the Closing, the shares of Hold Back Stock will be deposited with the
Indemnification Escrow Agent, together with separate stock powers endorsed by
Seller in blank, to be held by the Indemnification Escrow Agent under the terms
of the Indemnification Escrow Agreement. Indemnification Escrow Agreement shall
include a provision that, if no claim for indemnification is pending, the Escrow
Agent shall remit to the Seller the balance of the Hold Back Stock in escrow on
the date that is one year after the Closing Date. If on such date The Source
has any indemnification claims pending, the Escrow Agent shall retain Hold Back
Stock in an amount specified in Purchaser's notice delivered pursuant to Section
X of this Agreement in respect of such claims, and remit the remaining balance,
if any, to the Seller.
3.02. Price Guarantee; Adjustment. If, at any time during the two year
period following the Closing Date, the average closing price of the common stock
of The Source,
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as reported by NASDAQ (or the applicable exchange) for any consecutive ten
trading days, is such that the aggregate value of the Source Shares initially
delivered to Seller at Closing (including the Hold Back Stock) (or such lesser
number of Source Shares as may remain after the delivery of Source Shares to
meet the indemnification obligations of Seller under Section 10.01), is less
than $100,000 (or proportionately lesser amount after the deduction of any
amount and shares necessary to meet Seller's indemnification obligations under
Section 10.01), Seller shall have the option, exercisable upon written notice
and tender of the Source Shares then held by Seller after application of Section
10.01 (in fully negotiable form) to The Source, to sell to The Source, and The
Source agrees to purchase from Seller, not later than ten (10) business days
after receipt of such notice, all (but not less than all) of the Source Shares
then held by Seller after application of Section 10.01, for a total purchase
price of One Hundred Thousand Dollars ($100,000) or, if Seller does not then
hold all of the Source Shares because the Hold Back Stock continues to be held
under the Indemnification Escrow Agreement and/or Source Shares have been
redelivered to meet Seller's indemnification obligations under Section 10.01,
such lesser proportionate amount as shall be applicable to the Source Shares
then held by Seller and delivered to The Source against the purchase thereof by
The Source hereunder.
IV. WARRANTIES AND REPRESENTATIONS OF SELLER AND COMPANY.
----------------------------------------------------
Seller and Company, jointly and severally, hereby represent and warrant to,
and covenant and agree with, The Source as follows:
4.01. Organization and Standing of Company. Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Ohio and has all necessary power and authority to own its assets as now owned
and to carry on its business as now being conducted. The Source acknowledges
that the Company has not been qualified to do business in any other jurisdiction
and that neither the Company nor Seller makes any warranty or representation
that the Company is not required to so qualify in any jurisdiction.
4.02. Authority. Seller and Company have full power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby, and no further authorization, consent or approval of any regulatory body
or third party is required to be obtained by them as a condition to the validity
of this Agreement or to give effect to the transactions contemplated hereby.
This Agreement constitutes a valid and binding agreement of Seller and Company
and is enforceable against Seller and Company in accordance with its terms.
4.03. Capitalization and Share Ownership; Transfer of Company Stock; Good
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Title and Condition of Assets.
-----------------------------
(a) The Company's only authorized capital stock consists of Seven
Hundred Fifty (750) shares of no par value common stock. There are One
Hundred (100)
6
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shares of the Company's common stock presently outstanding (the "Company
Stock"). All of the Company Stock is owned by Seller, free and clear of
any debts, claims, security interests, liens, encumbrances and other title
retention agreements, pledges, assessments, covenants, restrictions and
charges of every nature. All of the Company Stock has been duly authorized
and validly issued, is fully paid and nonassessable, was not issued in
violation of the terms of any contract, agreement, covenant or restriction
binding upon Company or Seller, and was issued in compliance with the
Articles of Incorporation of Company and all applicable federal and state
securities laws and regulations. Except for the Company Stock, no capital
stock of the Company is issued or outstanding. There are: (i) no
contracts, agreements, subscriptions, options, warrants, calls, commitments
or rights of any character to purchase or otherwise acquire any capital
shares or other securities of Company, whether or not presently issued or
outstanding, from Company or Seller, at any time, or upon the happening of
any stated event; (ii) no outstanding securities of Company that are
convertible into or exchangeable for capital stock or other securities of
Company; and (iii) no contracts, agreements, subscriptions, options,
warrants, calls, commitments or rights to purchase or otherwise acquire
from Company or Seller any such convertible or exchangeable securities.
(b) At Closing, Seller will convey to L-Sub good and marketable title
to, and all rights and interests in, the Company Stock, free and clear of
all restrictions on or conditions to transfer or assignment, mortgages,
conditional sales agreements, liens, pledges, charges, claims,
encumbrances, security interests, easements, covenants, conditions and
restrictions.
(c) (i) Company has good and marketable title to and interest in all
of the Assets, free and clear of restrictions on or conditions to transfer
or assignment, and free and clear of all mortgages, conditional sales
agreements, liens, pledges, charges, encumbrances, claims, security
interests, easements, covenants, conditions or restrictions.
(ii) All of the tangible personal property included in the Assets is
in good operating condition and repair, ordinary wear and tear excepted,
and conforms to all applicable laws, ordinances and regulations.
4.04. Books and Records; Financial Statements; Customer Revenues.
----------------------------------------------------------
(a) The books of account of the Company fully and fairly reflect the
transactions, assets and liabilities of the Company, as prepared using a
cash method of accounting. The Balance Sheet of Company at December 31,
1995 and 1994 and the Statements of Operations and Retained Earnings of
Company for each of the two years then ended are attached hereto as
Schedule 4.04(a) (the "Financial Statements"). Seller and Company have
provided The Source with financial statements for the quarter ended March
31, 1996 and financial statements for the
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month ended April 30, 1996 (the "Interim Financial Statements") and will
provide The Source with financial statements for each succeeding calendar
month preceding the Closing Date (the "Subsequent Financial Statements") as
promptly as practicable following the end of each such month, such
financial statements need not also contain information with respect to the
comparable period in the most recently concluded fiscal year. Except as
expressly stated on Schedule 4.04(a), the Financial Statements and the
Interim Financial Statements have been, and the Subsequent Financial
Statements will be, prepared using a cash method of accounting,
consistently applied, are, and will be, accurate and complete, and fairly
represent, and will fairly represent, the financial condition of Company
and the income, expenses and results of operation of Company at the times
and for the time periods covered thereby on a cash basis of accounting,
consistently applied, and do not, and will not, omit to state or reflect
any material fact concerning Company or the Business required to be stated
or reflected therein under the cash method of accounting consistently
utilized by the Company. Company does not have any outstanding or
potential unasserted claims, contingent obligations (whether itself or as a
guarantor, indemnitor, surety, accommodation party or otherwise), or
forward or long-term commitments or obligations, except as set forth in the
Financial Statements, the Interim Financial Statements or the Schedules to
this Agreement.
(b) For the year ended December 31, 1995, the net revenues of the
Company from the customers of Company (the "1995 Customer Revenues") were
not less than $450,000, as reported on the cash method of accounting;
provided, however, that if and to the extent that the 1995 Revenues were
below $450,000, as proven by the Audit, the Source Shares deliverable by L-
Sub under Section 2.01 shall be recovered dollar for dollar by redelivery
and transfer to L-Sub and The Source by Seller of Source Shares (based upon
a $4.50 per share price) sufficient to meet and offset such lesser amount
of 1995 Customer Revenues.
4.05. Absence of Changes.
------------------
(a) Except as set forth in Schedule 4.05(a), since December 31, 1995,
----------------
there has not been any:
(i) declaration or payment of any dividend by Company;
(ii) transaction by Company, except in the ordinary course of business
of Company as previously conducted, except that the Seller may cause
Company to pay to Seller as compensation all or part of the Excluded
Assets, including any cash of Company which is not required to be
retained to pay any Closing Liabilities of Company as of the Closing
Date;
(iii) amendment or termination of any contract, agreement or license
to which Company is a party, except for the termination of contracts
and agreements in
8
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the ordinary course of business in accordance with the past practice of
Company, none of which are material, individually or in the aggregate,
to the continued conduct of the Business of Company as previously
conducted;
(iv) mortgage, pledge or other encumbrance of, or the granting of any
security interest or lien with respect to, any of the Assets; or
(v) any other event or condition of any character, of which the Seller
has knowledge, that has had or in the future may have a material
adverse effect on the financial condition, Business, Assets or
prospects of Company or the Business as heretofore conducted.
(b) Except as set forth in Schedule 4.05(b), since December 31, 1995,
Company has not had any customer account which was included in the 1995
Customer Revenues cease doing business with Company or advise Company that
it intends to cease doing business with Company or intends to reduce the
amount of business it does or proposes to do with Company.
(c) Except as set forth on Schedule 4.05(c), there are no proposals
currently outstanding to provide new, modified or additional services or
products to any customer or proposed customer of Company.
4.06. Payment of All Debts and Liabilities. The Company has no
Undisclosed Liabilities. On or prior to the Closing Date, Company shall have
paid or provided for the payment of all accounts, debts, bills and liabilities
of Company which are, or subsequent to the Closing could become, a lien or
encumbrance on or result in a security interest in the Assets or otherwise
affect the free and unencumbered use of the Assets subsequent to the Closing.
4.07. No Conflicting Agreements or Orders. There is no: (a) provision of
the Articles of Incorporation or Code of Regulations of Company, or of any
mortgage, indenture, lease, contract, security agreement, document, instrument,
license or agreement binding on Company or Seller or affecting the Assets, or of
any federal, state or local law, rule or regulation, or (b) order, writ,
injunction, decree, judgment, award, determination, direction or demand of any
court, arbitrator, or federal, state, municipal or other governmental
department, bureau, agency or instrumentality to which Company or Seller is
subject, which conflicts with or in any way prevents or will be violated by the
execution, delivery or carrying out of the terms of this Agreement or the
consummation of the Transaction, nor will such execution, delivery or
consummation constitute a default, or an event which, with the giving of notice
or the passage of time, or both, would constitute a default, under any of the
foregoing, nor be the grounds for the suspension, revocation, impairment,
forfeiture, nonrenewal or termination of any license, permit, franchise,
certificate, consent or authorization.
9
<PAGE>
4.08. Compliance.
----------
(a) Except as set forth in Schedule 4.08, Company is not required to
obtain any license, permit or consent from any federal, state, county or
municipal authority with respect to the ownership or use of the Assets or
the operation of its Business or otherwise.
(b) Company has conducted its Business and maintained its properties,
including all real property covered by any lease or otherwise used by
Company, in compliance with, and is not in violation of, applicable laws,
rules, regulations or orders of federal, state or local governments or
regulatory bodies. Neither Company nor Seller has received any claim or
notice that Company has not complied in all respects in the operation of
the Business and related properties with such laws, rules and regulations.
4.09. Litigation. No suit, action, decree, arbitration or legal,
administrative or other proceeding, controversy or investigation is pending or
threatened against Company or Seller, which might materially affect the Business
or financial condition of Company or any of the Assets, the possession and use
of the Assets, the right of Seller to transfer the Company Stock, or the
operation of the Business by The Source subsequent to the Closing, as heretofore
conducted by Company with the Assets, and to the knowledge of Company and
Seller, and without notice to the contrary, there is no basis for any such
litigation, proceeding, controversy or investigation. Neither Company nor
Seller is in default with respect to any order, writ, injunction or decree of
any federal, state, local or foreign court, department, agency or
instrumentality, nor has the time period of compliance by Company or Seller with
respect to any of the same been extended or stayed. Company is not a party to
any legal action to recover moneys due to Company or damages sustained by
Company.
4.10. Condition of Company. Since December 31, 1995, Company has kept the
Business and its organization intact and has conducted the Business in the same
manner as it had been conducted prior to that date.
4.11. Employment Agreements. Except as set forth in Schedule 4.11,
Company has neither entered into, nor has any obligation or liability with
respect to, any employment or consulting agreement, incentive compensation
agreement, bonus plan, collective bargaining agreement or any other agreement or
arrangement providing for remuneration to employees or their dependents, other
than the employment of Company employees at will and as provided in Section
4.19.
4.12. Labor Relations. Company has complied with all applicable laws,
rules and regulations relating to the employment of labor, including those
relating to wages (including overtime), benefits (including vacation), hours,
employee safety or other conditions of employment, collective bargaining and the
withholding and payment of taxes. Company has withheld all amounts required by
law or agreement to be withheld from the wages or salaries
10
<PAGE>
of its employees, and is not liable for any arrears of wages or any tax or
penalties for failure to comply with the foregoing. Company has paid over to
the appropriate governmental agencies or depositories, at the time or times
required by law (without any extensions or stays), all "employment taxes" and
"withholding taxes." Company is not a party to any collective bargaining
agreement with any labor union or other representative of employees. No labor
dispute, controversy, grievance, strike, lockout, work slowdown or stoppage,
boycott, or other employment or labor trouble or other occurrence, event or
condition of a similar character has occurred or been threatened within the past
three years, nor has Company or any officer or managerial employee of Company
been the subject of any proceedings before any court, governmental agency or
arbitrator relating to such matters, including unfair labor practice claims. No
discharge has occurred which forms the basis for any claim of discrimination
against Company.
4.13. Taxes. Except as reflected on Schedule 4.13, Company has filed, or
will file on or before the Closing Date, all federal, state and local tax
returns and estimates required to be filed by it within the times and in the
manner prescribed by law, including extensions, which returns and estimates were
correct and complete in all material respects. Company has withheld and paid
all taxes required to have been withheld and paid in connection with amounts
paid or owing to any person or entity. None of the Liabilities is an obligation
to make a payment that will not be deductible under Code Section 280G. Company
and Seller have delivered to The Source true and complete copies of the federal
income tax returns of Company for the three years ended December 31, 1993, 1994
and 1995 and the results of the most recent audit of the tax returns of Company,
if any, by the Internal Revenue Service and the State of Ohio. There are no
pending audits with respect to such returns. No waiver or extension of any
filing or payment date or of any statute of limitations with respect to taxes
has been requested of or given by Company. No unpaid claims have been asserted
or threatened for taxes against Company or the Assets. Since the Company uses
the cash method of accounting, Company has not accrued on its books and records
any taxes, charges and assessments accruing on the Assets, the Business or the
operations thereof. All taxes which are due and payable or will become due and
payable by Company prior to the Closing Date have been, or prior to the Closing
Date will be, paid in full.
4.14. Names of Company. Company is the sole legal owner of, and uses, the
trade name(s) listed on Schedule 4.14 (the "Names"). The use of the Names does
not conflict with the rights of others.
4.15. Real and Personal Property, Leases. Company does not own and has
not owned any Real Property. No personal or real property used by Company is
held under any lease or rental arrangement, except for the lease of the premises
(which are owned by Seller) in which the Business is conducted, a copy of which
is set forth in Schedule 4.15 (the "Building Lease"), and such other lease or
rental arrangements as are described in Schedule 4.15. The Building Lease is
currently in full force and effect. Neither Company nor the lessor is in
default under the Building Lease, nor has any event occurred, nor does any
condition exist, which with the giving of notice or the passage of time, or
both, would
11
<PAGE>
constitute a default under the Building Lease. The use of such leased property
in the Business as heretofore used does not violate or encroach upon the rights
of any other party.
4.16. Insurance. Company has maintained and now maintains: (a) "all
risk" insurance on the full fair market value of all of the tangible Assets and
on the Business, covering property damage by fire or other casualties, and (b)
adequate insurance protection against all other liabilities, claims and risks
against which it is customary to insure. All such insurance policies are listed
in Schedule 4.16.
4.17. Certain Information. Schedule 4.17 contains accurate lists and
------------------- -------------
summary descriptions of the following:
(a) the names of all present officers and directors of Company;
(b) The names and addresses of every bank and other financial
institution in which Company maintains an account (whether checking, savings or
otherwise), lock box or safe deposit box, and the account numbers and names of
persons having signing authority or other access thereto;
(c) the names of all persons authorized to borrow money or incur or
guarantee indebtedness on behalf of Company;
(d) the names of all persons holding powers of attorney from Company
and a summary statement of the purposes and terms thereof; and
(e) all names under which Company has conducted any business or which
it has otherwise used during the last five years.
4.18. Customers; Accounts Receivable.
------------------------------
(a) Company and Seller will, promptly following full execution of this
Agreement, provide The Source with a list of the customers of the Company
and the revenues received from each customer during 1995, and, at Closing
will supplement such list with the same information for the period from
January 1, 1996 through the most recent practicable date prior to the
Closing Date (the "Closing Customer List").
(b) Company and Seller have delivered to The Source a current aged list
of unpaid Accounts Receivable owing to Company (the "Accounts Receivable
Schedule"), and will deliver to The Source at the Closing a preliminary
"Closing Accounts Receivable" schedule which details the parties and
specific amount each owes the Company as of the close of business on the
second day immediately preceding the Closing Date. Such schedule shall be
modified and supplemented not later than two business days following the
Closing Date to reflect business conducted on the Closing Date and the day
immediately preceding the Closing Date. The
12
<PAGE>
Accounts Receivable Schedule and any such updates thereto or other related
information provided to The Source sets forth or will set forth a true and
correct list of all Accounts Receivable as of the respective dates thereof.
(c) Notwithstanding the assignment of the Closing Accounts Receivable to
Seller, as provided in Section 2.02, the Company shall continue its
historical customary efforts to collect the Closing Accounts Receivable on
behalf of Seller and shall pay on a weekly basis to Seller the amounts
collected, and provide Seller with a summary list of amounts collected, by
Company, L-Sub and The Source. The parties agree that any amounts
collected from a particular payor shall be applied first to the Closing
Accounts Receivable prior to any other receivable or other fee or charge of
the Company, L-Sub, or The Source.
4.19. Employee Benefit Plans.
----------------------
(a) Employee Benefit Plans and Similar Arrangements.
-----------------------------------------------
(i) Schedule 4.19 lists all employee benefit plans and other
similar arrangements to which Company is, or has been since January 1,
1991, a party or by which it is, or has been since January 1, 1991,
bound, legally or otherwise, including, without limitation: (A) any
profit-sharing, deferred compensation, bonus, stock option, stock
purchase, pension, retirement, severance, welfare or incentive plan,
agreement or arrangement; (B) any plan, agreement or arrangement
providing for "fringe benefits" or perquisites to employees, officers,
directors or agents, including but not limited to benefits relating to
Company, automobiles, clubs, vacation, child care, parenting,
sabbatical, sick leave, medical, dental, hospitalization, life
insurance and other types of insurance; and (C) any other "employee
benefit plan" (within the meaning of Section 3(3) of ERISA).
(ii) Company has delivered to The Source true and complete copies
of all documents and summary plan descriptions with respect to such
plans, agreements and arrangements, or summary descriptions of any such
plans, agreements or arrangements not otherwise in writing.
(iii) Except with respect to the transactions contemplated by this
Agreement, including the Employment Agreement, there are no
negotiations, demands or proposals that are pending or have been made
which concern matters now covered, or that would be covered, by plans,
agreements or arrangements of the type described in this section.
(iv) Company is in full compliance with ERISA and all other laws
applicable with respect to all such employee benefit plans, agreements
and arrangements. Company has performed all of its obligations under
all such
13
<PAGE>
plans, agreements and arrangements, including, but not limited to, the
full payment when due of all amounts required to be made as
contributions thereto or otherwise. To the best knowledge of Company
and Seller, and without notice to the contrary, there are no actions,
suits or claims (other than routine claims for benefits) pending or
threatened against such plans or their assets, or arising out of such
plans, agreements or arrangements, and no facts exist which could give
rise to any such actions, suits or claims.
(v) Except as specified in Schedule 4.19, each of the plans,
agreements or arrangements can be terminated by Company within a period
of 30 days, without payment of any additional compensation or amount or
the additional vesting or acceleration of any such benefits.
(vi) With respect to each such plan which is an "employee benefit
plan" (within the meaning of Section 3(3) of ERISA) or a "Plan" (within
the meaning of Section 4975(e)(1) of the Code), there has occurred no
transaction prohibited by Section 406 of ERISA and no "prohibited
transaction" (within the meaning of Section 4975(c) of the Code).
(b) Qualified Plans.
---------------
Except as set forth in Schedule 4.19, no plan listed in Schedule 4.19
is a stock bonus, pension or profit sharing plan within the meaning of
Section 401(a) of the Code.
(c) Welfare Benefit Plans.
---------------------
All group health plans of Company and any ERISA Affiliate have been
operated in compliance with the group health plan continuation coverage
requirements of Part 6 Subtitle B of Title I of ERISA and 4980B of the Code
to the extent such requirements are applicable. Except to the extent
required under Section 4980B of the Code, Company does not provide and has
not provided health or welfare benefits (through the purchase of insurance
or otherwise) for any retired or former employees.
(d) Fines and Penalties.
-------------------
There has been no act or omission by Company or any ERISA Affiliate
that has given rise to or may give rise to fines, penalties, taxes or
related charges under Section 502(c), (i) or (1) Section 4071 of ERISA or
Chapter 43 of the Code.
14
<PAGE>
4.20. Receipt of the Source Shares Under the Securities Act.
-----------------------------------------------------
(a) Seller: (i) has received, read carefully and understands this
Agreement and the Registration Statement and the Report of The Source on
Form 10-KSB for the fiscal year ended January 31, 1996 and 10-QSB for the
three months ended April 30, 1996; (ii) is familiar with the financial
condition and results of operation of The Source; (iii) has received all
materials which have been requested by Seller relating to The Source and
its business, plans and financial condition and results of operation; (iv)
has had a reasonable opportunity to ask questions of The Source and its
officers and representatives, and The Source has answered all inquiries
that Seller or Seller's representatives have put to it; (v) has had access
to all additional information necessary to verify the accuracy of the
information set forth in this Agreement and in the Registration Statement
and in any other materials furnished to Seller by The Source; and (vi) has
taken all steps necessary to evaluate the merits and risks of an investment
in the Source Shares.
(b) Seller has such knowledge and experience in finance, securities,
investments and other business matters so as to be able to protect the
interests of Seller in connection with this transaction.
(c) Seller understands the various risks of an investment in The
Source by Seller, as contemplated hereunder, and in the consummation of the
Transaction and receipt of the Source Shares thereunder and can afford to
bear such risks, including, without limitation, the risk of losing the
entire investment of Seller in the Source Shares.
(d) Seller has been advised by The Source that the Source Shares have
not been and will not be registered under the Securities Act, that the
Source Shares will be issued in the Transaction in exchange for the Company
Stock on the basis of the statutory exemption provided by Section 4(2) of
the Securities Act or Regulation D thereunder, or both, relating to
transactions by an issuer not involving any public offering and under
similar exemptions under any applicable state securities laws, that this
transaction has not been reviewed by, passed on or submitted to any Federal
or state agency or self-regulatory organization where an exemption is being
relied upon, and that the reliance of The Source thereon is based in part
upon the representations made by Seller under this Agreement. Seller
acknowledges that Seller has been informed by The Source of, or is
otherwise familiar with, the nature of the limitations imposed by the
Securities Act and the rules and regulations thereunder on the transfer of
the Source Shares to Seller hereunder. In particular, Seller agrees that
no sale, assignment or transfer of any of the Source Shares shall be valid
or effective, and Seller shall not be required to give any effect to such a
sale, assignment or transfer, unless: (i) the sale, assignment or transfer
of the Source Shares is registered under the Securities Act, it being
understood that the Source Shares are not currently registered or
contemplated to be registered for sale and that The Source does not
15
<PAGE>
have any obligation or intention to so register the Source Shares;
provided, however, that The Source will offer to include the Source Shares
(other than the Hold Back Stock during the period it is being held in
escrow) and any option shares acquired (and not otherwise covered by an
effective registration statement) as of the date of the registration
received by Seller under this Agreement in a registration statement which
is filed by The Source during the two year period following the Closing
Date, unless The Source is prevented from including any such shares in a
registration statement by the underwriter of securities therein or by law;
or (ii) the Source Shares are sold, assigned or transferred in accordance
with all the requirements and limitations of Rule 144 under the Securities
Act, it being understood that Rule 144 is not expected to be available at
the Closing Date or for the foreseeable future for the sale of any of the
Source Shares, or (iii) such sale, assignment or transfer is otherwise
exempt from registration under the Securities Act. Seller further
understands that an opinion of counsel (as contemplated by the below share
legend) and other documents may be required to be provided to The Source by
counsel acceptable to The Source to transfer the Source Shares. Seller
acknowledges that the certificates evidencing the Source Shares shall bear
the following or a substantially similar legend and such other legends as
may be required by state blue sky laws or otherwise:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the "Act"), or
any state securities laws and neither such securities nor any interest
therein may be offered, sold, pledged, assigned or otherwise
transferred unless: (1) a registration statement with respect thereto
is effective under the Act and any applicable state securities laws, or
(2) the issuer receives an opinion of counsel to the holder of such
securities, which counsel and opinion are reasonably satisfactory to
The Source, that such securities may be offered, sold, pledged,
assigned or transferred in the manner contemplated without an effective
registration statement under the Act or applicable state securities
laws."
(e) Seller will acquire the Source Shares for Seller's own account for
investment and not with a view to the sale or distribution thereof or the
granting of any participation therein, and has no present intention of
distributing or selling to others any of such interest or granting any
participation therein.
(f) It never has been represented, guaranteed or warranted by The
Source or any partner, shareholder, officer, director, employee, agent, or
controlling person of any such person, or by any other person, expressly or
by implication, that:
(i) The Source or Seller will realize any given percentage of
profits, or any amount or type of consideration, profit or loss, as a
result of the activities of The Source; or
16
<PAGE>
(ii) the past performance or experience of The Source, its
management, or of any other person, in any way indicates the
predictable results of the ownership of the Source Shares or of the
activities of Seller.
(g) Seller is not relying on The Source or its officers or any
affiliate or agent of The Source with respect to the tax or economic
considerations of an investment in the Source Shares.
4.21. Other Contracts. Except as listed on Schedule 4.21 (the
"Contracts"), Company is not a party to, nor are the Assets bound by, any
agreement, indenture, mortgage, deed of trust, lease or any other agreement
between Company and any third party. There is no default of Company or event
that with notice or lapse of time, or both, would constitute a default, nor, to
the knowledge of Company or Seller and without notice to the contrary, any
default or threatened default by any other party thereto, existing with respect
to any of such agreements. Neither Company nor Seller has received notice that
any party to any of such agreements intends to cancel or terminate any of such
agreements or to exercise or not exercise any options under any of such
agreements.
4.22. Corporate Records; Documents.
----------------------------
(a) The minute books of the Company are current and contain correct and
complete copies of the Articles of Incorporation and Code of Regulations of the
Company, including all amendments thereto and restatements thereof, and of all
minutes of meetings, resolutions and other actions and proceedings of its
shareholders and board of directors and all committees thereof, duly signed by
the Secretary or an Assistant Secretary. The stock record book of the Company is
current, correct and complete and reflects the issuance of all Company Stock.
(b) Company and Seller have furnished to The Source for its examination:
(i) a copy of all Contracts, agreements, policies, leases, and other instruments
and documents listed on the Schedules attached hereto, (ii) a copy of all tax
receipts for all taxes required to be paid by Company, where Company has
received receipts, for the preceding three years, and (iii) a copy of Company's
Articles of Incorporation and Code of Regulations.
4.23. No Misrepresentation. No representation or warranty made by either
Company or Seller in this Agreement or any Schedule hereto contains or will
contain any untrue statement of a material fact or omits or will omit to state a
material fact necessary to make the statements contained herein and therein not
materially misleading.
V. REPRESENTATIONS AND WARRANTIES OF THE SOURCE.
--------------------------------------------
The Source hereby represents and warrants to, and covenants and agrees
with, Seller as follows:
5.01. Organization and Standing of The Source and L-Sub. The Source is a
Missouri corporation, duly organized, validly existing and in good standing
under the laws of the State of Missouri. L-Sub is, or at the Closing will be, a
Missouri corporation, duly organized
17
<PAGE>
validly existing and in good standing under the laws of the State of Missouri
and is, or at the Closing will be, qualified to do business as a foreign
corporation under the laws of the State of Ohio. The Source owns, or at the
Closing will own, all of the issued and outstanding shares of capital stock of
L-Sub, which have been, or at or prior to the Closing will be, issued in
consideration of the issuance to L-Sub by The Source of the Source Shares.
5.02. Binding Agreement. This Agreement constitutes, and each other
instrument to be executed and delivered by The Source and L-Sub in accordance
herewith will constitute, when executed and delivered pursuant hereto, the valid
and legally binding obligations of The Source.
5.03. Agreement Within Authority. The execution and delivery of this
Agreement, consummation of the Transaction and performance of this Agreement and
the agreements and instruments to be executed and delivered in connection with
this Agreement by The Source and L-Sub will not: (a) violate the Articles of
Incorporation or Bylaws of The Source or L-Sub, or (b) violate any judgment,
order, writ, injunction, decree or demand against The Source or L-Sub of any
court or federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality.
5.04. No Conflicting Agreements or Orders. No approval or consent of any
foreign, federal, state, county, local or other governmental or regulatory body
is required as a condition to the validity of this Agreement or to give effect
to the transactions contemplated hereby.
5.05. Corporate Action. The Source has, and L-Sub has or at Closing will
have, full corporate power and authority to enter into and deliver this
Agreement and to perform the acts contemplated to be performed by The Source and
L-Sub hereunder, and no further authorization, consent or approval of its board
of directors or shareholders, or of any regulatory body or third party, is
required as a condition to the validity of this Agreement or to give effect to
the Transaction by L-Sub.
5.06. No Conflict. The execution and delivery of this Agreement and each
other instrument to be executed by The Source and L-Sub in accordance herewith
and the consummation of the transactions contemplated herein by The Source and
L-Sub will not conflict or be inconsistent with or result in the termination of
or constitute a breach of or default under the terms of any indenture, mortgage,
deed of trust, covenant, agreement or other instrument to which The Source or L-
Sub is a party or to which its property is subject.
5.07. No Misrepresentation. No representation or warranty made by The
Source or L-Sub in this Agreement or any Schedule hereto contains or will
contain any untrue statement of a material fact or omits or will omit to state a
material fact necessary to make the statements contained herein and therein not
misleading.
18
<PAGE>
5.08. Source Shares Validly Issued. The Source Shares, when issued
pursuant to and as contemplated by this Agreement in exchange for the capital
stock of L-Sub, will be validly issued, fully paid and nonassessable.
VI. COVENANTS OF SELLER AND COMPANY PENDING CLOSING.
-----------------------------------------------
Pending Closing, Seller and Company, jointly and severally, covenant and
agree as follows:
6.01. Access to Information. The Source and its counsel, accountants and
other representatives shall have full access during normal business hours, with
the assistance and cooperation of Company and Seller but without unreasonable
disruption to Company's operations and employees, to all properties, books,
accounts, records, files, agreements and documents of or relating to Company and
the Business, including electronic files. Company and Seller shall furnish or
cause to be furnished to The Source and its counsel, accountants and
representatives all data and information concerning the operations, finances and
assets of Company requested by The Source.
6.02. Maintain Properties. Company shall maintain the Assets in good
repair, order and condition.
6.03. Maintain Organization. Company shall keep its organization intact,
and endeavor to keep available the services of its employees, and maintain the
relationship and goodwill of its customers.
6.04. Regular Course of Business. Company shall not, without the prior
written consent of The Source, purchase, sell or otherwise dispose of any of the
Assets, incur any liability, obligation or commitment, or engage in any activity
or transaction, except in the regular and customary course of business in
accordance with its past practices.
6.05. Insurance. Company shall cause its policies of insurance relating
to the Business and the Assets to continue to be kept in full force and effect
and refrain from taking any action which impairs the continued insurability of
the Assets or the Business.
6.06. Employees. Without the prior written consent of The Source, Company
will not, except as contemplated by Sections 2.02(d) and 4.05(a)(ii), nor will
it agree to, enter into or amend any representation, employment or compensation
agreement or grant any increase or change in the salaries or other compensation
or benefits payable or to become payable by Company to any officer, employee,
sales agent or representative of Company.
6.07. Business Changes. Company will not do or agree to do any of the
following without the prior written consent of The Source:
19
<PAGE>
(a) Enter into any contract, commitment or transaction not in the
usual and ordinary course of the Business as heretofore conducted;
(b) Make any capital expenditure; or
(c) Agree to, modify, amend, cancel or terminate any of its existing
contracts or agreements.
6.08. Consents. As soon as reasonably practical after the execution and
delivery of this Agreement, and in any event on or before the Closing Date,
Seller will obtain the written consent of all persons whose consent to Seller's
and Company's execution of this Agreement and Closing of the Transaction is
required, in form and substance acceptable to The Source; and Seller will
furnish The Source original executed copies of any such consents as they are
obtained.
6.09. Building Lease. At or prior to Closing, Seller will cause Company
and the lessor under the Building Lease to enter into an amendment to the
Building Lease (the "Building Lease Amendment") which provides for the Company
to continue to lease the premises thereunder for the six month period following
the Closing Date at a monthly rental of $2,000.
6.10. Termination of Profit Sharing Plan. Prior to the Closing, Company
shall have taken all actions necessary to terminate its profit sharing plan and
shall have applied for a determination letter from the IRS that the profit
sharing plan and related trust of Seller continue to qualify under Section
4.01(a) of the Code. Buyer agrees to use its best efforts to assist Seller in
making such filing.
VII. COVENANTS OF THE SOURCE.
-----------------------
7.01. Administrative Assistant. At the Closing, the Company will offer to
employ Seller's Administrative Assistant at a salary of $25,000 per annum, which
employment shall be "at will", and Company shall provide such fringe benefits as
are provided to employees of The Source and its subsidiaries and affiliates
holding similar positions. For purposes of determining coverage, calculating
benefits, or otherwise determining benefits under any of he Source's fringe
benefit plans, Seller's Administrative Assistant's pre-Closing period of
employment with the Company shall be fully taken into account.
7.02. Building Lease. If Company and the lessor under the Building Lease
have not entered into an amendment to the Building Lease Amendment as of the
Closing, The Source shall cause Company to do so at Closing. Subsequent to the
termination of the Building Lease, as contemplated herein, The Source agrees to
provide Seller, during Seller's continued employment by The Source, with office
facilities in Canton, Ohio, or the immediately surrounding vicinity, comparable
to those provided by The Source to its other regional offices.
20
<PAGE>
VIII. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SOURCE AND L-SUB.
-----------------------------------------------------------
The obligations of The Source and L-Sub hereunder are subject to
fulfillment (or waiver by The Source), prior to or on the Closing Date, of the
following conditions:
8.01. No Adverse Change. There shall have been no material adverse change
in or loss or damage to the Company, the Assets or the Business.
8.02. Representations, Warranties and Agreements of Seller and Company.
The representations, warranties, covenants and agreements of the Seller and
Company herein shall be true and not breached as of the Closing Date, with the
same effect as though such representations, warranties, covenants and agreements
had been repeated by the Seller and Company as of the Closing Date, and all of
the obligations of Seller and Company hereunder shall have been duly performed.
8.03. Opinion of Counsel. The Source shall have received the favorable
opinion of counsel for Seller and Company, dated as of the Closing Date, in the
form of Schedule 8.03 and otherwise in form and substance reasonably
satisfactory to The Source and The Source's counsel. In rendering such opinion,
such counsel may rely on written certificates of Seller and the president of
Company as to factual matters, provided a copy thereof is attached to and forms
a part of the opinion of counsel with the knowledge and consent of the
president.
8.04. Absence of Litigation. No action, suit or proceeding before any
court or any governmental body or authority pertaining to the Transaction or to
the consummation of the Closing, or to the Company, the Assets or the Business,
shall have been instituted or threatened on or before the Closing Date, which
materially affects or could materially affect the Business or the Company.
8.05. Officers' Certificate. The Source shall have received a
certificate, dated the Closing Date, signed and verified by the Seller and the
president of Company certifying, in the form of Schedule 8.05 hereto, that the
conditions specified in this Article VIII relating to Seller and Company have
been fulfilled.
8.06. Approval of Documents. The form and substance of all certificates,
instruments, opinions and other documents delivered to The Source under this
Agreement shall be satisfactory to The Source and its counsel.
8.07. Casualty Loss. The Business shall not have been curtailed or
interrupted by, and the Business or the Assets shall not have been materially
affected by, any loss, destruction or damage.
8.08. Satisfactory Review of the Company, the Business and the Assets;
Audit. The Source shall have been given access to and been permitted to review
the Company, the Assets, the Business and such other information as shall have
been requested by The Source;
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and The Source shall be satisfied, in its sole discretion, with the physical,
operating and financial condition of the Company, the Assets and the Business.
The Accounting Firm shall have determined that the December 31, 1995 Financial
Statements, Company's results of operation for the two fiscal years then ended
and the Interim Financial Statements, are capable of being reviewed and audited
so as to permit to permit the filing thereof in a registration statement filed
by The Source with the Securities and Exchange Commission (the "Audit").
8.09. Minimum Net Worth. Company shall have stockholders' equity, as set
forth on the Closing Balance Sheet, equal to or greater than $1.00.
8.10. Employment Agreement with Seller. Seller and The Source shall have
entered into an Employment Agreement as a Vice President of The Source in the
form set forth in Schedule 8.10 (the "Employment Agreement"), which shall
include as a provision thereof that for purposes of determining coverage,
calculating benefits, or otherwise determining benefits under any of The
Source's fringe benefit plans, Seller's pre-Closing period of employment with
the Company shall be fully taken into account.
IX. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER.
---------------------------------------------
The obligations of Seller hereunder are conditioned upon the fulfillment
(or waiver by Seller) prior to or at the Closing Date, of the following:
9.01. Representations, Warranties and Agreements of The Source. The
representations, warranties, covenants and agreements of The Source and L-Sub
contained herein shall be true and not breached at and as of the Closing Date,
with the same effect as though such representations, warranties, covenants and
agreements had been repeated by The Source at and as of such time, and all of
the obligations of The Source hereunder shall have been duly performed.
9.02. Opinion of Counsel. Seller shall have received the favorable
opinion of counsel for The Source and L-Sub, dated as of the Closing Date, in
the form of Schedule 9.02 and otherwise in form and substance satisfactory to
Seller's counsel. In rendering their opinion, counsel for The Source and L-Sub
may rely on written certificates of the officers of The Source and appropriate
public officials as to factual matters, provided a copy thereof is attached to
and forms a part of the opinion of counsel to The Source and L-Sub with the
knowledge and consent of such officers.
9.03. Consents. All necessary agreements and consents of any parties to
the consummation of the Transaction by L-Sub or otherwise pertaining to the
matters contemplated by this Agreement shall have been obtained by L-Sub and/or
The Source, as appropriate.
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9.04. Approval of Documents. The form and substance of all certificates,
instruments, opinions and other documents delivered to Seller under this
Agreement shall be satisfactory to Seller and its counsel.
9.05. The Source's Certificate. Seller shall have received a certificate,
dated the Closing Date, signed and verified by the chief executive officer and
chief financial officer of The Source certifying, in the form of Schedule 9.05
hereto, that the conditions specified in this Article IX have been fulfilled.
9.06. Employment Agreement. Seller and The Source shall have entered into
the Employment Agreement.
X. INDEMNIFICATION
---------------
This Article sets forth the manner in which The Source and L-Sub shall be
indemnified by Seller and Company, jointly and severally, in the event of any
misrepresentation or breach of warranty or agreement on the part of Seller or
Company hereunder, and the respects in which Seller shall be indemnified by The
Source and L-Sub, jointly and severally, in the event Seller shall become
obligated for, or shall discharge, any liabilities of L-Sub or The Source
subsequent to the Closing, and/or in the event of any misrepresentation or
breach of warranty or agreement on the part of The Source or L-Sub hereunder.
10.01. Indemnification of The Source by Seller and Company.
---------------------------------------------------
(a) Representations, Warranties, Covenants and Agreements. Seller
and Company, jointly and severally (prior to the Closing and Seller alone
subsequent to the Closing), agree to indemnify The Source and L-Sub against
and hold The Source and L-Sub harmless from any and all loss, liability,
damage, claim, cost and expense of any nature whatsoever, including,
without limitation, reasonable attorneys' fees, arising from or in
connection with any representation or warranty made by Seller or Company
not being complete, accurate, and true at the date of this Agreement and on
the Closing Date, or the failure by Seller or Company to fulfill and fully
perform each covenant or agreement of Seller and Company under this
Agreement or under any other instrument or document executed and delivered
by Seller or Company in connection with the Transaction or as otherwise
contemplated hereby.
(b) Remedies Not Exclusive.
----------------------
(i) The rights and remedies of The Source and L-Sub provided
for in this Article or otherwise in this Agreement shall be deemed
to be cumulative and in addition to and not in limitation or
exclusion of all other rights and remedies, whether by the
provisions of this Agreement or at law or in equity or otherwise,
which may exist on the part of The Source or L-
23
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Sub by reason of any misrepresentation or breach of warranty,
covenant or agreement on the part of Seller or Company hereunder.
Such rights and remedies shall be cumulative and may be exercised at
any time or from time to time, and any failure or delay of The
Source or L-Sub in exercising any right or remedy at any time shall
not constitute a waiver thereof or restrict its subsequent
enforcement or the enforcement of any other right or remedy of The
Source or L-Sub.
(ii) Any amounts due and payable to The Source or L-Sub by
reason of the obligations of Seller or Company to indemnify The
Source and L-Sub and hold The Source and L-Sub harmless hereunder
may, at Seller's sole discretion, be paid in cash or by the delivery
to The Source of so much of the Source Shares (including Hold Back
Stock) as will satisfy Seller's obligations hereunder.
Notwithstanding the foregoing, if any indemnification obligation of
Seller is not promptly satisfied by Seller, the Hold Back Stock
shall be subject to a right of setoff and reduction, at the sole
discretion of The Source and L-Sub, subject to the claim procedures
set forth in the Indemnification Escrow Agreement. For the purposes
of meeting Seller's indemnification obligations hereunder, the
parties acknowledge that the Source Shares shall at all times be
valued at $4.50 per share.
10.02. Indemnification of Seller by The Source and L-Sub.
-------------------------------------------------
(a) Representations, Warranties, Covenants and Agreements. The
Source and L-Sub agree, jointly and severally, to indemnify Seller against
and hold Seller harmless from any and all loss, liability, damage, claim,
cost and expense of any nature whatsoever, including, without limitation,
reasonable attorneys' fees, arising from or in connection with any
representation or warranty made by The Source not being complete, accurate
and true at the date of this Agreement and on the Closing Date or the
failure by The Source or L-Sub to fulfill and fully perform each covenant
or agreement of The Source or L-Sub under this Agreement or under any other
instrument or document executed and delivered by The Source or L-Sub in
connection with the Transaction or otherwise as contemplated hereby.
(b) Remedies Not Exclusive. The rights and remedies of Seller
provided for in this Article or otherwise in this Agreement shall be
cumulative and in addition to and not in limitation or exclusion of all
other rights and remedies, whether by the provisions of this Agreement or
at law or in equity or otherwise, which may exist on the part of Seller by
reason of any misrepresentation or breach of warranty, covenant or
agreement on the part of The Source or L-Sub hereunder. Such rights and
remedies shall be cumulative and may be exercised at any time or from time
to time, and any failure or delay of Seller in exercising any right or
remedy at any time shall
24
<PAGE>
not constitute a waiver thereof or restrict its subsequent enforcement or
the enforcement of any other right or remedy of Seller.
10.03. Notice to Indemnifying Party; Objection; Arbitration.
----------------------------------------------------
(a) In the event that any party may be entitled to, or intends to
assert a claim for, indemnification hereunder, not later than thirty (30)
days after actual notice of any claim or the filing of any action giving
rise to such claim for indemnification, the indemnified party will, if a
claim in respect thereof is to be made against another party or parties
hereto, notify the indemnifying party or parties thereof. In case any
action is threatened or brought against any indemnified party, and it
notifies the indemnifying party or parties thereof, the indemnifying party
or parties will be entitled to participate in or assume the defense thereof
with counsel reasonably satisfactory to such indemnified party and, after
notice of its election to assume the defense thereof, the indemnifying
party or parties will no longer be liable for any legal or other expense
subsequently incurred by the indemnified party in connection with the
defense thereof; provided, however, that the indemnified party shall be
entitled at all times to participate in the defense of any such action at
its own cost.
(b) If a claim for indemnification is made hereunder against either
party by the other party and the party against whom the claim is made
disputes the claim, it shall notify the party making the claim in writing
within ten (10) days after its receipt of the claim, specifying in
reasonable detail the nature of the dispute.
(c) During the ten (10) day period following the date of such notice,
Seller and The Source shall attempt to resolve such dispute and determine
the appropriateness of the claim.
(d) If at the end of such ten (10) day period, the parties have
failed to reach an agreement with respect to the dispute, the matter shall
be referred to an independent accounting firm mutually approved by The
Source and Seller, which approval shall not be unreasonably withheld by
either party (the "Arbitrator"). If the parties cannot agree on the
selection of the Arbitrator, the Arbitrator shall be appointed by the Dean
of the School of Business, Washington University, St. Louis, Missouri. The
Arbitrator shall issue its report as to the appropriateness of the claim
within fifteen (15) days after such dispute is referred to and accepted by
the Arbitrator. Each of the parties shall bear all costs and expenses
incurred by it in connection with such arbitration, and The Source and
Seller shall equally bear the fees and expenses of the Arbitrator. This
provision for arbitration shall be specifically enforceable by the parties
and the decision of the Arbitrator in accordance with the provisions hereof
shall be final and binding and there shall be no right of appeal therefrom.
25
<PAGE>
10.04. Termination of Indemnification Obligations of Company.
Notwithstanding any other provision of this Article X, the obligations of
Company to indemnify and hold harmless The Source and L-Sub hereunder shall
expire and be of no further force or effect effective as of the consummation of
the Closing, and thereafter Seller shall be solely responsible and liable to The
Source and L-Sub therefor, subject to the provisions of Section 12.08.
10.05. Claims Threshold and Limitation. Notwithstanding the provisions of
subsections 10.01, 10.02, 10.03 and 10.04, Seller on the one hand and The Source
and L-Sub on the other shall have no obligation to indemnify and hold harmless
the other: (a) until the aggregate of all claims asserted under subsection 10.01
or 10.02, as applicable, exceeds Twenty-Five Thousand Dollars ($25,000) and, in
such event, the indemnifying party's obligation to the indemnified party shall
be only to the extent that the aggregate of all claims exceeds such amount; and
(b) for claims which exceed, in the aggregate, $725,000.
XI. CLOSING AND RISK OF LOSS.
------------------------
11.01. Place and Time. The Closing shall take place on the Closing Date
at the offices of Black, McCuskey, Souers & Arbaugh, 1000 United Plaza, 220
Market Ave., South, Canton, Ohio, or at such other place as may be agreed upon
by The Source and Seller.
11.02. Simultaneous Performance. None of the transactions described in
Article II will occur unless all such transactions occur.
XII. MISCELLANEOUS.
-------------
12.01. Non-competition. In consideration of the Closing, but without the
separate allocation of any specific portion of the Source Shares, Seller agrees,
effective on and after the Closing Date and for the three year period following
the Closing Date, not to engage, directly or indirectly, either personally, or
as an owner, employee, partner, associate, officer, manager, agent, advisor,
consultant or otherwise in the periodical rebate or pocket payment business in
the United States or Canada, which shall not prevent Seller from being employed
by any publisher of periodicals in areas unrelated to and not affecting such
publisher's payment of periodical rebates or pocket payments. Seller
acknowledges and agrees that the restrictions contained in this section are
reasonable in light of the unique circumstances of this Agreement, and that any
violation of this section would cause immediate serious and irreparable harm to
The Source and L-Sub, incapable of being measured in money damages. Accordingly,
Seller agrees that in the event of any breach or threatened breach of this
section, The Source and/or L-Sub shall be entitled to an injunction or
restraining order and to reasonable attorneys' fees and expenses incurred in
connection therewith and otherwise in the enforcement hereof.
Notwithstanding anything to the contrary in this Agreement, The Source and
L-Sub acknowledge and agree that the non-competition provisions of this
Agreement, including Section 12.01, shall not prohibit or limit Seller from
preparing claim forms and contracts,
26
<PAGE>
and providing services otherwise prohibited by this Agreement to City News of
Wooster, Ohio ("City News") with respect to claims for payment due to City News
for periodicals sold by City News.
12.02. Information. Except as required by law, each of the parties hereto
agrees to maintain non-public proprietary or otherwise confidential documents
and information of the other in confidence and not to disclose or use the same
other than for the purpose of consummating the Transaction. In the event the
Transaction is not consummated for any reason, all copies of non-public
proprietary or otherwise confidential documents and information: (a) provided
to The Source or its officers, directors, employees, agents, accountants,
counsel, investment bankers and other financing sources (its "Representatives"),
by or on behalf of Seller or Company or otherwise hereunder for the purpose of
consummating the Transaction shall be returned to Seller by The Source, and The
Source and its Representatives shall maintain the same in confidence and shall
not disclose or utilize the same, or (b) provided to Seller or Company or their
Representatives by or on behalf of The Source or L-Sub or otherwise hereunder
for the purpose of consummating the Transaction shall be returned to The Source
by Seller and Company, and Seller and Company shall maintain the same in
confidence and shall not disclose or utilize the same.
12.03. Incorporation of Schedules. The Schedules hereto shall be deemed
to be incorporated in and form part of this Agreement.
12.04. Further Assurances. Each of the parties agrees to do, execute,
acknowledge and deliver, and cause to be done, executed, acknowledged and
delivered, all such further acts, assignments, transfers, instruments,
documents, deeds and assurances as shall be required in order to carry out this
Agreement and give effect hereto.
12.05. Transfer Taxes. Any sales, transfer, excise and other taxes, if
any, payable by reason of the consummation of the Transaction and transfer of
the Company Stock contemplated hereby shall be paid by Seller.
12.06. Notices. Any notice, consent, request, claim or other
communication hereunder shall be in writing and shall be deemed to have been
duly given when mailed by First Class Certified, Registered or Express mail, or
when sent by next business day courier (for example, Federal Express) or
confirmed telefax, addressed as follows:
If to The Source or L-Sub:
S. Leslie Flegel,
THE SOURCE COMPANY
11644 Lilburn Park Rd.
St. Louis, Missouri 63146
Fax: 314-995-9022
27
<PAGE>
If to Seller or Company:
James Looman
MAGAZINE MARKETING, INC.
2454 Whipple Ave., N.W.
Canton, Ohio 44708
Mail: P.O. Box 36209
Canton, Ohio 44735
Fax: 216-477-6126
With a copy to:
Robert I. Friedman, Esq.
BLACK, McCUSKEY, SOUERS & ARBAUGH
1000 United Bank Plaza
220 Market Ave., South
Canton, Ohio 44702
Fax: 330-456-5756
or to such other address as any party may designate by written notice hereunder.
12.07. No Commission. All negotiations on behalf of Seller and The Source
and L-Sub, respectively, relative to this Agreement and the transactions
contemplated hereby have been carried on by or on behalf of Seller and The
Source and L-Sub directly between Seller and The Source and L-Sub, without the
intervention of any third party, either as the result of any action of Seller or
The Source and L-Sub, or otherwise, to the knowledge of Seller or The Source and
L-Sub, in such a manner as to give rise to any valid claim against Seller or The
Source or L-Sub for a finders' fee, brokerage commission or other like payment.
12.08. Survival of Representations and Warranties. The representations
and warranties of The Source and L-Sub and of Seller, respectively, contained
herein shall survive the Closing, regardless of any investigations made by or on
behalf of or any disclosure to The Source, L-Sub or Seller, for one (1) year
following the Closing Date, except that the representations and warranties of
Seller contained in Sections 4.02, 4.03(a), (b) and (c)(i), 4.08(b), 4.13 and
4.20, and of The Source and L-Sub contained in Section 5.03, shall survive the
Closing for the period of the statute of limitations applicable thereto.
12.09. Entire Agreement. This Agreement embodies the entire Agreement
between the parties, and no representations, inducements, promises or other
agreements, oral or otherwise, not embodied herein, shall be of any force or
effect. This Agreement may not be modified or terminated except in writing
signed by the parties hereto.
28
<PAGE>
12.10. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties and their respective successors and assigns.
12.11. Third Parties. Nothing in this Agreement or in any instrument or
document executed by any party hereto in connection with the transactions
contemplated hereby shall create any rights in, or be deemed to have been
executed for the benefit of, any person, firm, corporation or other entity or
body that is not a party hereto.
12.12. Expenses of the Parties. All expenses involved in the preparation,
authorization and consummation of this Agreement, including, without limitation,
all fees and expenses of agents, representatives, counsel and accountants in
connection therewith, shall be borne solely by the party who shall have incurred
the same, and no other party shall have any liability in respect thereof.
12.13. Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute one and the same instrument.
12.14. Ohio Law to Govern. This Agreement shall be governed by and
construed under the internal laws of the State of Ohio, without regard to its
conflicts of law provisions or interpretations.
12.15. Mail and Communications. After the Closing, each party will
promptly deliver to the other party the original of any mail or other
communication received by that party but pertaining to the business of the other
party.
12.16. Review of Closing Balance Sheet. Seller represents, warrants and
covenants to The Source that at the Closing, the Minimum Stockholders' Equity of
Company shall be not less than $1.00. In order to confirm whether the Minimum
Stockholders' Equity has been met, not later than 30 days following the Closing
Balance Sheet Date, Seller, in cooperation with The Source, shall prepare the
Closing Balance Sheet and the related statements of income for the period from
December 31, 1995 to the Closing Balance Sheet Date, on a cash basis,
consistently applied. In preparing the Closing Balance Sheet and related
financial statements, Seller shall consult with The Source and shall permit The
Source to participate in and review the preparation thereof, including all work
papers, schedules and calculations related thereto, prior to the issuance
thereof. The Source shall commence its review of said work papers, schedules
and calculations as soon as practicable. Any dispute which arises between
Seller on the one hand and The Source on the other hand as to such financial
statements shall be resolved in the following manner:
(a) The Source, if it disputes the financial statements, shall notify
Seller in writing within ten days after its receipt of such financial
statements that The Source
29
<PAGE>
disputes the financial statements, specifying in reasonable detail the
nature of the dispute;
(b) During the five day period following the date of such notice,
Seller and The Source shall attempt to resolve such dispute and determine
the appropriateness of the Closing Balance Sheet and related financial
statements; and
(c) If at the end of such five day period, the parties have failed to
reach an agreement with respect to the dispute, the matter shall be
referred to an Arbitrator selected in the manner provided in Section
10.03(d). The Arbitrator shall issue its report as to the Closing Balance
Sheet and related financial statements within ten days after such dispute
is referred to the Arbitrator. Each of the parties shall bear all costs and
expenses incurred by it in connection with such arbitration except for the
fees and expenses of the Arbitrator which shall be borne equally by Seller
and The Source. This provision for arbitration shall be specifically
enforceable by the parties and the decision of the Arbitrator in accordance
with the provisions hereof shall be final and binding and there shall be no
right of appeal therefrom.
Any amount by which the total Stockholders' Equity or net worth of Company,
calculated on a cash basis, is less than the Minimum Stockholders' Equity shall
be recovered in the manner provided in Section 10.01(b)(ii).
IN WITNESS WHEREOF, the parties hereto executed this Agreement as of the
date first set forth above.
THE SOURCE COMPANY
By: /s/ S. Leslie Flegel /s/ James Looman
------------------------------- ----------------------------------
S. Leslie Flegel James Looman
Chairman and
Chief Executive Officer
MAGAZINE MARKETING, INC.
By: /s/ James Looman
----------------------------------
James Looman, President
30
<PAGE>
NEWS
FOR IMMEDIATE RELEASE
CONTACT:
Lance McCord, CFO
THE SOURCE COMPANY
St. Louis, MO 63146
(314) 995-9040
THE SOURCE COMPANY ANNOUNCES ACQUISITION
ST. LOUIS, MISSOURI, JUNE 28, 1996...THE SOURCE COMPANY (NASDAQ-SORC) announced
today its acquisition of Magazine Marketing Associates, Inc. of Canton, Ohio for
an undisclosed amount of company stock and cash. The Source Company and
Magazine Marketing provide information and marketing services to retail stores
selling magazines and other periodicals.
"This acquisition is an excellent opportunity which will further enhance our
management team and strengthen our presence in the north central United States,
particularly in mid-sized accounts," said S. Leslie Flegel, Chairman and CEO of
The Source Company. "We believe we will be able to achieve operational
efficiencies with this acquisition and better service our clients due to the
substantial position The Source Company holds in the periodical industry," said
James W. Looman, President of Magazine marketing, Inc. who will join The Source
Company as a Regional Vice President.
The Source Company is the leading provider of periodical information and related
marketing services to operators of approximately 53,000 mass merchandise,
grocery, convenience and pharmacy stores primarily in connection with the
display, marketing and rebate collection of magazines and periodicals. With the
acquired company, The Source Company's list of exclusive clients includes
approximately 600 of the largest retail chains in the U.S. and Canada.
This Press Release contains forward looking information that is subject to
certain risks, trends and uncertainties that could cause actual results to
differ materially from those projected. Among these risks, trends and
uncertainties are those related to the ability of the Company to attract
adequate capital resources to fund its growth, and the dependence of the Company
on the terms of incentive programs over which it has no control. For a more
complete discussion of these and other risks, trends and uncertainties,
investors are directed to Exhibit 99.1 attached to the Company's Annual Report
on Form 10-KSB, a copy of which may be obtained without charge by written
request to the Company.
