FORM-8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act Of 1934
Date of Report: September 11,1997
CREATIVE BAKERIES, INC.
(Exact name of reistrant as specified by its charter)
NEW YORK 1-13984 13-3832215
(State or other jurisdic- (Commission File (IRS Employer
tion of incorporation) Number) Identification
Number)
222 New Road,Parsippany, NJ 07054
(Address of principal executive offices)
Registrant's Telephone Number:201-808-8248
Former name: William Greenberg Jr. Desserts and Cafes, Inc.
<PAGE>
ITEM 7. FINANICAL STATEMENTS AND EXHIBITS
On its Form 8-K filed September 17,1997, Creative Bakeries advised the
Commission that it woulf file audited finanical statements relationg to
the acquistion. Attached hereto are the required finanical statements.
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
Page
Independent auditors' report 1
Financial statements:
Balance sheet 2
Statement of retained earnings (deficit) 3
Statement of income (loss) 4
Statement of cash flows 5-6
Notes to financial statements 7-11
Supplementary information:
Cost of goods sold 12
Selling and administrative expenses 13
</TABLE>
<PAGE>
(BEHRMAN & COMPANY,LLP LETTERHEAD)
INDEPENDENT AUDITORS' REPORT
To Chatterley Elegant Desserts, Inc.:
We are engaged to audit the accompanying balance sheet of Chatterley Elegant
Desserts, Inc. as of December 31, 1996 and 1995, and the related statements of
income (loss), retained earnings (deficit) and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management.
We did not observe the counting of physical inventories in 1996, 1995 and 1994
stated in the accompanying financial statements at $135,000 as of December 31,
1996, $131,300 as of December 31, 1995 and $97,800 as of December 31, 1994.
Since we did not observe physical inventories and we are not able to apply other
auditing procedures to satisfy ourselves as to inventory quantities the scope of
our work was not sufficient to enable us to express, and we do not express, an
opinion on these financial statements.
Our audits were made for the purpose of forming an opinion on the financial
statements taken as a whole. The supplementary information included in the
report (shown on Pages 12 and 13) is presented for purposes of additional
analysis and is not a required part of the financial statements of Chatterley
Elegant Desserts, Inc. Such information has been subjected to the auditing
procedures applied in the audits of the financial statements and, in our
opinion, is fairly presented in all material respects in relation to the
financial statements taken as a whole.
/s/ BEHRMAN & COMPANY, LLP
1
<PAGE>
CHATTERLEY ELEGANT DESSERTS, INC.
BALANCE SHEET
DECEMBER 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
---- ----
Current assets:
Accounts receivable $151,750 $179,351
Inventories 135,000 131,300
Prepaid expenses 3,903
Other assets 4,713 6,863
-------- --------
Total current assets 291,463 321,417
-------- --------
Property, equipment and leasehold improvements (Note 7):
Cost 650,215 502,585
Less: accumulated depreciation 227,722 194,135
-------- --------
422,493 308,450
-------- --------
Long-term asset:
Deferred tax asset (Note 9) 54,073 29,036
-------- --------
$768,029 $658,903
======== ========
LIABILITIES
Current liabilities:
Due to bank - cash overdraft $ 33,497 $115,008
Accounts payable - trade 221,496 129,755
Accrued expenses 64,857 24,342
Taxes payable 55,388 152,589
Deferred straight-lining of rent adjustment
(Note 2(d)) 136,958 95,974
Loan payable (Note 5) 20,000 20,000
Due to officers and related parties (Note 4) 27,320 36,432
Capital lease payable - current 53,812 9,962
-------- --------
Total current liabilities 613,328 584,062
-------- --------
Long-term liability:
Capital lease payable (net of current portion
of $53,812 in 1996 and $9,962 in 1995) 57,222 20,130
-------- --------
Total liabilities 670,550 604,192
-------- --------
STOCKHOLDERS EQUITY
Capital stock - no par value, authorized
200 shares, issued 200 shares 105,000 105,000
Paid-in capital 42,000
Retained earnings (deficit) ( 49,521) ( 50,289)
-------- --------
Total stockholders' equity 97,479 54,711
-------- --------
$768,029 $658,903
======== ========
</TABLE>
THE NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
2
<PAGE>
CHATTERLEY ELEGANT DESSERTS, INC.
STATEMENT OF RETAINED EARNINGS (DEFICIT)
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
---- ----
Retained earnings (deficit) - January 1, ($50,289) $32,664
Net income (loss) for the year 768 ( 82,953)
------- -------
Retained earnings (deficit) - December 31, ($49,521) ($50,289)
======= =======
</TABLE>
THE NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
3
<PAGE>
CHATTERLEY ELEGANT DESSERTS, INC.
STATEMENT OF INCOME (LOSS)
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
---- ----
Gross sales - net of returns, discounts
and allowances $2,197,154 $2,470,709
Cost of goods sold 1,785,057 2,112,650
---------- ----------
Gross profit on sales 412,097 358,059
---------- ----------
Operating expenses:
Selling, administrative expenses and taxes 129,975 145,335
Administrative expenses 300,200 309,718
---------- ----------
Total operating expenses 430,175 455,053
---------- ----------
Loss from operations ( 18,078) ( 96,994)
---------- ----------
Other income (expense):
Interest ( 20,685) ( 19,759)
Gain on sale of equipment 5,076 2,351
Rental income - sublease 20,000
Fees - services 10,550
---------- ----------
4,391 ( 6,858)
---------- ----------
Loss before taxes ( 13,687) ( 103,852)
Deferred tax benefit 25,037 30,033
Income taxes - current ( 10,582) ( 9,134)
---------- ----------
Net income (loss) $ 768 ($ 82,953)
========== ==========
</TABLE>
THE NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
4
<PAGE>
CHATTERLEY ELEGANT DESSERTS, INC.
STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
---- ----
Cash flows from operating activities:
Net income (loss) $ 768 ($ 82,953)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization 44,529 32,831
Gain on sale of equipment ( 5,076)
Decrease in accounts receivable (net of bad
debts of $26,589) (Note 4) 27,601 40,770
(Increase) in inventories ( 3,700) ( 33,500)
Decrease (increase) in prepaid expenses 3,903 ( 3,903)
Increase in accounts payable, accrued expenses
and accrued taxes 76,039 27,948
Decrease (increase) in other assets 2,150 ( 1,025)
(Increase) in deferred tax asset ( 25,037) ( 30,033)
-------- --------
Net cash provided by (used in) operating
activities 121,177 ( 49,865)
-------- --------
Cash flows from investing activities:
Purchase of property and equipment ( 44,996) ( 8,156)
Sales proceeds of equipment 6,500
--------
Net cash used in investing activities ( 38,496) ( 8,516)
-------- --------
Cash flows from financing activities:
Paid-in capital 42,000
Principal payment on capital lease obligations ( 34,058) ( 12,306)
Loans from related parties 12,851 51,660
Payment of loans due to officers and advances
due to officers ( 21,963) ( 96,346)
-------- --------
Net cash used in financing activities ( 1,170) ( 56,992)
-------- --------
Increase (decrease) in cash 81,511 ( 115,373)
(Overdraft) - beginning of year ( 115,008) 365
-------- --------
(Overdraft) - end of year ($ 33,497) ($115,008)
======== ========
Supplemental disclosure of cash flow information: Cash paid during the year for:
Interest $ 4,000 $ 14,641
Income taxes $ 1,433 $ 5,824
</TABLE>
THE NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
5
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CHATTERLEY ELEGANT DESSERTS, INC.
SUPPLEMENTAL SCHEDULES OF NONCASH INVESTING AND FINANCING ACTIVITIES
YEARS ENDED DECEMBER 31, 1996 AND 1995
The Company acquired equipment financed by leases with bargain purchase options
to buy the equipment at the end if the lease period and is therefore accounted
for as capital leases as follows (Note 8):
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
---- ----
Estimated cost of equipment based on present
value of future lease payments $133,500 $26,500
Less: Principal portion of lease payments ( 23,905) ( 4,843)
Downpayment ( 18,500)
--------
Obligation under capital lease $ 91,095 $21,657
======== =======
</TABLE>
THE NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
6
<PAGE>
CHATTERLEY ELEGANT DESSERTS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
1. Nature of business:
The Company was incorporated on February 14, 1985 in the State of New
Jersey for the primary purpose of baking and distributing confectionery
products. The Company's customers are retailers and wholesalers
principally located in the northeast portion of the United States.
2. Summary of significant accounting policies:
a) Merchandise inventories are estimated by management and have not
been physically counted.
b) Property, equipment and leasehold improvements are stated at cost
and are depreciated over the estimated useful lives of the
related assets.
Depreciation and amortization are determined based on the
following useful lives and methods:
Machinery and equipment - 3 to 20 years using the straight-line
method
Furniture and equipment - 15 years using the straight-line method
Leasehold improvements - over the term of the related lease
Transportation equipment - 5 years using the straight-line method
c) For purposes of the statement of cash flows, the Company
considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
d) Rent payments under a lease providing for scheduled rent increases are
recognized evenly over the life of their related lease, as required by generally
accepted accounting principles. The effect of this adjustment was to increase
rent expense for 1996 and 1995 by $40,984 and $62,651, respectively. The
cumulative effect of these adjustments since the inception of the lease is
$136,958 which is shown on the balance sheet as "deferred straight-lining of
rent adjustments".
3. Operating leases:
The Company entered into a triple net lease for use of 29,362 square feet
of office and plant space located in the State of New Jersey commencing
January 31, 1994 and expiring December 31, 2004. The Company is also
obligated under noncancelable operating leases for automobiles that
expire over the next two years. The lease terms include minimum annual
rent for the term of the leases as follows:
7
<PAGE>
CHATTERLEY ELEGANT DESSERTS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
3. Operating leases (continued):
Future minimum rents for the next five years and in the aggregate are:
1997 $ 175,516
1998 181,850
1999 191,830
2000 200,114
2001 199,565
Thereafter 629,220
----------
$1,578,095
Rent expense for all operating leases for the years 1996 and 1995 amounted
to $178,484 and $201,299, respectively, and includes straight-lining of
rent adjustments discussed in Note 2.
4. Related party transactions:
In1996 and 1995, the Company sold baked goods to an affiliated company in
the amounts of $57,492 and $7,741, respectively. In 1996, trade accounts
receivable from and loans to this affiliate in the amounts of $26,589
and $8,500, respectively, were considered uncollectible and charged to
bad debt expense on the income statement.
The Company has received loans from and made advances to the following
officers, employee and related party:
Due to (from)
1996 1995
---- ----
Officers ($ 9,691) $ 4,772
Employee 27,011 21,660
Related party 10,000 10,000
------- -------
$27,320 $36,432
======= =======
The loans from officers bear no interest and have no stated terms for
repayment.
The loan from an employee that bears interest at 10% will be repaid in 84
equal installments over a period beginning February 1, 1997 until
January 1, 2004, at which time all remaining principle and interest
shall be due and payable.
8
<PAGE>
CHATTERLEY ELEGANT DESSERTS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
4. Related party transactions (continued):
Future principal payments on this loan for the next five years and the
remaining term of the loan are as follows:
1997 $11,560
1998 1,878
1999 2,075
2000 2,292
2001 2,312
Thereafter 6,894
-------
$27,011
The loan from the related party in the net amount of $10,000 bears
interest at the annual rate of 10% with no stated terms for repayment.
5. Loan payable:
The Company borrowed $20,000 from an associate of an officer. This loan
bears interest at the annual rate of 10% and is payable in 1997. This
loan has been renewed in past years and management believes it will be
renewed in 1997 for an additional year.
6. Major customer:
In1996 and 1995, net sales to two customers amounted to 61% and 67% of
net sales and $54,340 and $63,025 of accounts receivable, respectively.
7. Property, equipment and leasehold improvements:
1996 1995
---- ----
Factory machinery and equipment $318,244 $296,714
Office furniture and equipment 21,660 19,435
Transportation equipment 12,896 25,262
Leasehold improvements 122,415 119,674
Property held under capital lease 175,000 41,500
-------- --------
650,215 502,585
Less: accumulated depreciation 227,722 194,135
-------- --------
$422,493 $308,450
======== ========
9
<PAGE>
CHATTERLEY ELEGANT DESSERTS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
8. Capital leases:
The Company is the lessee of equipment under capital leases expiring in
various years through 1999. The assets and liabilities under capital
leases are recorded at the fair value of the asset. The assets are
depreciated over their estimated productive lives. Depreciation of
assets under capital lease is included in depreciation expense for 1996
and 1995.
Following is a summary of property held under capital leases:
1996 1995
---- ----
Packaging equipment $ 82,500
Ovens and racks 51,000
Forklifts 15,000 $15,000
Rack washer 26,500 26,500
-------- -------
175,000 41,500
Less: accumulated depreciation 10,222 2,273
-------- -------
$164,778 $39,227
======== =======
Minimum future lease payments under capital leases as of December 31, 1996
for each of the next three years until expiration of all of the leases
are:
Year ended December 31,
1997 $ 53,812
1998 45,405
1999 31,337
--------
Total minimum lease payments 130,554
Less: Executory costs 1,185
Net minimum lease payments 129,369
Less: amount representing interest 18,335
------
Present value of net minimum lease payment $111,034
========
Interest rates on capitalized leases vary from 10.30% to 17.87% and are
imputed based on the lower of Company's incremental borrowing rate at
the inception of each lease or the lessor's implicit rate of return.
10
<PAGE>
CHATTERLEY ELEGANT DESSERTS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
9. Deferred tax asset:
The following temporary differences gave rise to the deferred tax asset at
1996 and 1995.
1996 1995
---- ----
Inventory adjustment pursuant to IRC Section
263A ($ 1,502) ($ 1,502)
Excess of tax over financial accounting
depreciation 21,538 27,972
Differences in rent expense arising from
straight-lining of rent adjustment for
financial accounting purposes ( 22,074) ( 34,152)
Excess of interest expense - capital leases
arising from use of interest method for
financial reporting purposes ( 570) ( 2,350)
Differences in timing of recognizing expenses
for financial statement purposes ( 26,427) ( 44,041)
------- -------
($29,036) ($54,073)
======= =======
10. Use of estimates in financial statements:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported in the financial statements.
Actual results could differ from those estimates.
11
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SUPPLEMENTARY INFORMATION
<PAGE>
CHATTERLEY ELEGANT DESSERTS, INC.
SUPPLEMENTARY INFORMATION
COST OF GOODS SOLD
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
---- ----
Inventory - beginning of year $ 131,300 $ 97,800
Purchases 720,673 772,559
Wages (factory) 351,482 524,296
Rent 178,484 201,299
Repairs and maintenance 45,174 40,383
Utilities 56,827 49,428
Supplies 299,875 369,561
Equipment rental 145
Rubbish removal 7,765 12,558
Product test and analysis 900 5,735
Real estate taxes 32,627 29,653
Depreciation and amortization 39,167 25,299
Officers' salaries 55,783 115,234
---------- ----------
1,920,057 2,243,950
Less: inventory - end of year 135,000 131,300
---------- ----------
$1,785,057 $2,112,650
========== ==========
</TABLE>
THE NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
12
<PAGE>
CHATTERLEY ELEGANT DESSERTS, INC.
SUPPLEMENTARY INFORMATION
SELLING AND ADMINISTRATIVE EXPENSES
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
---- ----
Selling:
Salesmen's salaries $ 38,926 $ 51,360
Advertising 7,537 10,719
Entertainment 3,255 7,008
Travel 5,112 11,147
Freight out 60,933 63,436
Commissions 14,062 1,405
Sales expenses miscellaneous 150 260
-------- --------
$129,975 $145,335
======== ========
Administrative:
Salaries - officers $ 6,000 $106,300
Factory maintenance salaries 95,150 36,342
Lease expense 25,172 30,484
Bank charges 2,028 4,282
Office expenses 41,030 12,262
Penalties 11,146 272
Legal and accounting fees 43,393 19,556
Outside service 8,140 13,993
Telephone and telegraph 13,377 13,606
Depreciation - furniture and fixtures 5,362 7,532
Contributions 25 800
Employee benefits 14,310 12,823
Insurance 30,874 47,846
Miscellaneous 4,193 3,620
-------- --------
$300,200 $309,718
======== ========
</TABLE>
THE NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
13
<PAGE>
STOCK PURCHASE AGREEMENT
AGREEMENT (the "Agreement") dated August 27, 1997 by and among YONA
ABRAHAMI ("Seller"), CHATTERLEY ELEGANT DESSERTS, INC., a New Jersey corporation
(the "Company"), and CREATIVE BAKERIES, INC., a New York corporation
("Purchaser"):
W I T N E S S E T H
WHEREAS, Seller owns 200 shares of the common stock, no par value (the
"Purchased Shares"), of the Company, which Purchased Shares constitute 100% of
the issued and outstanding capital stock of the Company; and
WHEREAS, Seller desires to sell and Purchaser desires to purchase the
Purchased Shares on the terms and subject to the conditions set forth herein,
NOW, THEREFORE, in consideration of the premises and the respective
mutual agreements, covenants, representations and warranties herein contained,
and for other good and valuable consideration, the receipt and sufficiency of
which hereby are acknowledged, the parties agree as follows:
1. PURCHASE AND SALE OF SHARES. Subject to all of the terms and
conditions of this Agreement, Seller agrees to sell, transfer and deliver to
Purchaser, and Purchaser agrees to purchase, acquire and accept from Seller, the
Purchased Shares at the Closing (as hereinafter defined).
2. CONSIDERATION. (a) The purchase price for the Purchased Shares shall
be an aggregate of 1,300,000 shares of common stock, $.001 par value, of
Purchaser (the "Creative Shares"). The Creative Shares have not been registered
under the Securities Act of 1933, as amended (the "Act"), and the certificate
evidencing these shares shall contain a restrictive legend.
3. CLOSING AND EFFECTIVE DATE. (a) Time and Place. The closing (the
"Closing") of the transactions contemplated by this Agreement (the "Contemplated
Transactions") shall be held at 1:00 p.m. on the date hereof at the offices of
Baer Marks & Upham LLP, 805 Third Avenue, New York, New York 10022, or at some
other time, date or place as the parties may mutually agree upon (the time and
date upon which the Closing occurs is herein called the "Closing Date"). The
effective date of this Agreement shall be September 1, 1997.
(b) Deliveries. At the Closing:
(i) Purchaser shall deposit with Baer Marks & Upham LLP, as
escrow agent (the "Escrow Agent"), one or more stock certificates evidencing the
Creative Shares registered in the name of Seller and such designees of Seller as
Seller shall direct and Seller shall deliver to Purchaser the stock certificate
evidencing the Purchased Shares, together with a stock power, duly completed and
in proper form for the transfer of the
<PAGE>
Purchased Shares from Seller to Purchaser (a copy of such form of Stock Power is
attached hereto as Exhibit A);
(ii) Purchaser shall deliver to Seller and Seller shall deliver to
Purchaser an opinion of counsel, each of which shall be satisfactory to
their respective counsel;
(iii) Seller shall deliver to Purchaser a bring down
certificate from
the President of the Company certifying that since June 30, 1997, the Company
has conducted its business solely in the ordinary course consistent with past
practice and there has not been any event that has had or can reasonably be
expected to have a material adverse effect on the operations, condition
(financial or otherwise), business, assets, properties, liabilities, prospects
or results of operations of the Company, individually or in the aggregate; and
(iv) Seller shall deliver to Purchaser (A) a certificate from the
Secretary of the Company certifying that attached thereto are true and correct
copies of (i) the Certificate of Incorporation and By-laws of the Company, and
all amendments thereto, (ii) resolutions of the board of directors and the
shareholders of the Company authorizing the execution and delivery of this
Agreement and the consummation of the Contemplated Transactions, and (iii) the
names and signatures of all officers and directors of the Company; (B) a
certificate from the Secretary of the State of New Jersey dated the date hereof
or just prior thereto certifying that the Company is in good standing; and (C)
such other instruments and documents, in form and substance reasonably
satisfactory to Purchaser, as Purchaser shall have reasonably requested.
(c) Escrow Agreement. At the closing, the parties shall enter
into an escrow agreement with the Escrow Agent (the "Escrow Agreement"). The
Escrow Agreement shall provide, among other things, that the Escrow Agent will
hold the Creative Shares in escrow until the Audited Financial Statements (as
defined herein) are delivered to the Purchaser in accordance with Section
4.10(d) and the Good Standing Certificate (as defined herein) is delivered to
Purchaser in accordance with Section 4.1. The Escrow Agreement will provide that
upon delivery of the Audited Financial Statements and the Good Standing
Certificate, the Escrow Agent will deliver the Creative Shares to Seller;
provided however, that if, by September 27, 1997, (i) the Good Standing
Certificate is not delivered, or (ii) the Audited Financial Statements are (A)
not delivered by Seller to Purchaser in accordance with Section 4.10(d) hereof;
or (B) not consistent with the Company Financial Statements (as defined herein)
delivered hereunder, as determined in the sole discretion of Purchaser, then
upon notice from Purchaser to the Escrow Agent, the Escrow Agent shall return
the Creative Shares to Purchaser and Purchaser shall return to Seller the
Purchased Shares.
(d) Employment Agreements. Concurrently with the execution
hereof, the Company shall enter into employment agreements with each of Seller
and David Abrahami substantially in the forms attached hereto as Exhibits B and
C. The employment agreements will become effective only upon the release from
escrow of the Creative Shares by the Escrow Agent to Seller in accordance with
the Escrow Agreement.
-2-
<PAGE>
(e) Registration Rights. (i) Purchaser hereby agrees that, if
the Purchaser at any time proposes to register any of its securities under the
Act (other than in connection with a merger, consolidation, acquisition of stock
or assets of another corporation, securities to be offered to directors or
employees of the Company, or pursuant to Form S-8 or other comparable form),
Purchaser shall request that the managing underwriter (if any) of such
underwritten offering include one-third (433,333 shares) of the Creative Shares
in such registration.
(ii) In addition to the above, in the event that the closing bid price
of the shares of common stock of Purchaser is above $8 for a period of 15
continuous days, Seller shall have the right, on one occasion, exercisable by
written request to Purchaser within one day of such period, to have Purchaser
prepare and file with the Securities and Exchange Commission (the "Commission")
a registration statement on Form SB-2 (or other appropriate form), and such
other documents, including a prospectus, as may be necessary in the opinion of
counsel for Purchaser, in order to comply with the provisions of the Act, so as
to permit a public offering and sale of one-third (433,333 shares) of the
Creative Shares. Notwithstanding the foregoing, if in the good faith judgment of
the Board of Directors of Purchaser, it would be materially detrimental to the
Purchaser and its shareholders for such registration statement to be filed at
that time, and it is therefore essential to defer the filing of such
registration statement, Purchaser shall have the right to defer the commencement
of such a filing for a period of not more than 180 days after receipt of the
request of Seller.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER
Seller represents and warrants to, and covenants with, Purchaser as
follows:
4.1 Corporate Existence, Power and Good Standing. The Company
is a corporation duly organized and validly existing under the laws of the State
of New Jersey, and has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as it is now being
conducted. The Company will be in good standing under the laws of the State of
New Jersey upon the filing of this 1996 annual report and payment of a fee in a
de minimis amount. Seller hereby undertakes to do all things necessary at
Seller's expense, to promptly obtain a certificate of good standing from the
State of New Jersey (the "Good Standing Certificate") and deliver the same to
Purchaser.
4.2 Due Execution. This Agreement has been duly and validly
executed and delivered by Seller and the Company and constitutes the valid and
binding agreement of Seller and the Company, enforceable against Seller and the
Company in accordance with its terms, except as may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally or by the principles governing the availability of
equitable remedies.
4.3 No Conflicts. The execution and delivery of this
Agreement, the consummation of the Contemplated Transactions and the fulfillment
of the terms thereof (i) will not constitute a breach of or result in a
termination or modification of, or constitute a default under, or conflict with
or cause any acceleration of any obligation under, or permit any other party to
modify or terminate, any agreement or other instrument relating to Seller
-3-
<PAGE>
or the Company; (ii) will not violate any judgment, decree, order or award of
any court, governmental body or arbitrator relating to Seller or the Company; or
(iii) will not contravene any provision of the Company's charter, by-laws or
other governing instruments.
4.4 Consents. No consent, approval or authorization of, or
registration or filing with, any governmental authority or other regulatory
agency or any other person is required in connection with the execution or
delivery of this Agreement or the consummation of the Contemplated Transactions.
4.5 The Purchased Shares. The Purchased Shares have been duly
authorized, validly issued, fully paid and are non-assessable. Immediately prior
to the Closing, Seller owned, of record, the Purchased Shares free and clear of
any right of first refusal, preemptive right, option, mortgage, security
interest, encumbrance or lien of any kind (collectively "Liens"). Upon delivery
of the Purchased Shares to Purchaser, Purchaser will acquire good title to the
Purchased Shares free and clear of any Lien.
4.6 Investment Intention. Seller is acquiring the Creative
Shares for Seller's own account and not with a present intention to make any
sale, disposition, distribution or other transfer of the Creative Shares in a
manner that would be in violation of any applicable securities laws. Seller
acknowledges and understands that the Creative Shares have not been registered
under the Act, are subject to restrictions on transferability imposed by the Act
and applicable state securities laws and that the certificate evidencing the
Creative Shares will contain a legend with respect thereto.
4.7 Capitalization. The authorized capital stock of the
Company consists of 1,000 shares of common stock, no par value (the "Company
Common Stock"), of which 200 shares are issued and outstanding and are owned by
Seller. The Purchased Shares constitute 100% of the issued and outstanding
capital stock of the Company. There are no voting trusts or other agreements or
understandings with respect to the voting of the capital stock of the Company.
There are no other outstanding securities of the Company. In addition, the
Company does not own stock in any other entity and has no subsidiaries.
4.8 Charter Documents and Corporate Records. Seller has
heretofore (i) delivered to Purchaser true and complete copies of the
Certificate of Incorporation and By-laws of the Company as in effect on the date
hereof together with all amendments thereto, and (ii) has made available to
Purchaser for inspection the true and complete minute books and stock ledger of
the Company. Since January 1, 1995 all financial, business and accounting books
and records relating to the Company of whatever kind have been accurately kept
and completed in all material respects, and there are no material inaccuracies
or discrepancies of any kind contained or reflected therein.
4.9 Litigation. Except as set forth in Schedule 4.9 hereto,
there is no litigation, proceeding, judgment, order, decree or action of any
kind pending or threatened against Seller or the Company or to which Seller or
the Company is a party. To the best of Seller's knowledge, there is no fact,
event or circumstance that could give rise to any claim or action of any kind
against the Company that could have a material adverse effect on the condition
(financial or otherwise), results of operations or prospects of the Company. An
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unfavorable disposition of the litigation described in Schedule 4.9 will not
have a material adverse effect on the condition (financial or otherwise),
results of operations or prospects of the Company.
4.10 Financial Condition. (a) Seller has delivered to
Purchaser (i) the unaudited balance sheets of the Company as of December 31,
1996 and 1995, and the related statements of income and retained earnings, and
cash flows for the years then ended and (ii) the unaudited balance sheets of the
Company as at June 30, 1997 and 1996 and the related statements of income and
retained earnings and cash flows for the periods then ended, (collectively, the
"Company Financial Statements"), a copy of which is annexed hereto as Schedule
4.10(a). The Company Financial Statements are true, complete and correct in all
material respects and fairly present the financial condition of the Company as
of such date and its results of operations for the periods then ended.
(b) As of the date of the Company's most recent balance sheet
delivered to Purchaser hereunder, the Company did not have any liabilities
(which shall mean any direct or indirect indebtedness, liability, assessment,
claim, loss, damage, deficiency, obligation or responsibility, fixed or unfixed,
choate or inchoate, liquidated or unliquidated, secured or unsecured, accrued,
absolute, actual or potential, contingent or otherwise) that were not fully and
adequately reflected or reserved against on the Company's most recent balance
sheet, and the Company has not, except in the ordinary course of business,
incurred any liabilities since the date of the Company's most recent balance
sheet delivered hereunder.
(c) There is set forth on Schedule 4.10(c): (i) a brief description of
each liability in the amount of $5,000 or more outstanding on the date hereof;
(ii) the name and address of the creditor, if any; and (iii) the amount thereof.
(d) Within 30 days from the date hereof, Seller shall
deliver to
Purchaser the audited balance sheets of the Company as of December 31, 1996 and
1995, and the related statements of income and retained earnings, and cash flows
for the years then ended (the "Audited Financial Statements"). Upon delivery to
Purchaser, the Audited Financial Statements will be true, complete and correct
in all material respects and will fairly present the financial condition of the
Company as of such dates and its results of operations for the periods then
ended. The Audited Financial Statements will have been prepared in accordance
with GAAP applied consistently throughout the relevant periods, except that the
statements relating to the Company's inventories have not been prepared in
accordance with GAAP.
4.11 Taxes. (a) The Company has filed all returns required to
be filed by the Company on or before the Closing Date with respect to all Taxes
(as defined below). All Tax returns of the Company filed prior to the Closing
Date are true and correct in all material respects as of the date on which they
were filed.
(b) Schedule 4.11 sets forth, for each outstanding Tax liability of
the Company, (i) the amount of Taxes owing, including any and all interest,
penalties and additional assessments of any kind, as of the Closing Date, (ii)
the year or period for which the Taxes are owing, (iii) the type of Taxes owing,
and (iv) whether or not any agreement(s)
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was entered into for the payment of Taxes with the Internal Revenue Service
("IRS") or other relevant Taxing Authority (as defined below) (a "Tax Settlement
Agreement"). Seller has provided Purchaser with true, complete and accurate
copies of each Tax Settlement Agreement entered into by the Company with respect
to each outstanding Tax liability of the Company.
(c) Except as specifically set forth on Schedule 4.11:
(i) the Company and Seller have paid all Taxes shown to be
due on all returns of the Company filed on or before the Closing Date;
(ii) all Tax deficiencies asserted of assessed against the Company have
been paid or finally settled;
(iii) all of the Company's returns have been audited by the
IRS or the relevant state and local Tax Authorities or, except for the Company's
returns filed in connection with fiscal years ending in 1994, 1995 and 1996,
closed by applicable statutes of limitation, and all liabilities for Taxes
asserted by the IRS (or the relevant Tax Authority) have been satisfied;
(iv) there is no outstanding request for any extension of time within which
to pay any Taxes of the Company not yet paid. There has been no waiver or
extension of any applicable statute of limitations for the assessments or
collection of any Company Taxes;
(v) all amounts required to be withheld by the Company
from employees for income Taxes, social security and other payroll Taxes have
been collected and withheld, and either paid to the respective governmental
bodies, set aside in accounts for such purpose, or have been accrued, reserved
against and entered upon the books and records of the Company;
(vi) the Company has collected and remitted to the appro-
priate Tax Authority all sales and use or similar Taxes required to have been
collected on or prior to the Closing Date and has been furnished properly
completed exemption certificates for all exempt transactions. The Company has
maintained and has in its possession all records, supporting documents and
exemption certificates required by applicable sales Tax statutes and regulations
to be retained in connection with the collection and remittance of sales and use
Taxes for all periods up to and including the Closing Date; and
(vii) there is no pending or threatened action, audit, proceeding or
investigation for the assessment or collection of Taxes of the Company.
(d) The Company has not taken any action nor engaged in any
activity outside the ordinary course of business that would have the effect of
(i) deferring any Tax liability for the Company from any taxable period of the
Company ending on or before the Closing Date to any taxable period ending after
the Closing Date; (ii) deferring the recognition of any item of income from any
taxable period of the Company ending on or
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before the Closing Date to any taxable period ending after the Closing Date; or
(iii) accelerating the recognition of any item of loss, deduction or credit from
any taxable period of the Company ending after the Closing Date to any taxable
period ending on or before the Closing Date.
(e) No consent has been filed under Section 341(f) of the Internal Revenue
Code with respect to the Company.
(f) The Company is not and never has been a party to any Tax allocation or
sharing agreements.
(g) The Company is not required to include in income any adjustment
pursuant to Sections 481(a) of the Internal Revenue Code by reason of a change
in accounting method nor does Seller or the Company have any knowledge that the
IRS (or the relevant Tax Authority) has proposed, or is considering, any such
change in accounting method.
(h) There are no Tax Liens upon any assets of the Company except for Tax
Liens for Taxes not yet due and payable.
(i) Any adverse determination by the IRS or any other Taxing Authority with
respect to any unpaid Taxes of the Company or Seller will not have a material
adverse effect on the condition (financial or otherwise), results of operations
or prospects of the Company.
For purposes of this Agreement, "Tax" (including, with
correlative meaning, the terms "Taxes" and "Taxable") shall mean (i) any net
income, gross income, gross receipts, sales, use, ad valorem, transfer, transfer
gains, franchise, profits, license, withholding, payroll, employment, excise,
severance, stamp, rent, recording, occupation, premium, real or personal
property, intangibles, environmental or windfall profits tax, alternative or
add-on minimum tax, customs duty or other tax, fee, duty, levy, impost,
assessment or charge of any kind whatsoever (including but not limited to taxes
assessed to real property and water and sewer rents relating thereto), together
with any interest and any penalty, addition to tax or additional amount imposed
by any government or political subdivision thereof, whether federal, state,
local or foreign, or any agency or instrumentality of any such government or
political subdivision, or any court or arbitrator (a "Tax Authority")
responsible for the imposition of any such tax, with respect to the Company, the
business or the assets of the Company (or the transfer thereof); (ii) any
liability for the payment of any amount of the type described in the immediately
preceding clause (i) as a result of the Company being a member of an affiliated
or combined group with any other corporation at any time on or prior to the
Closing Date; and (iii) any liability of the Company for the payment of any
amounts of the type described in the immediately preceding clause (i) as a
result of a contractual obligation to indemnify any other person.
4.12 Permits. Schedule 4.12 sets forth each material permit,
license, consent, approval, or order of or from or registration with, any
governmental entity, that is required or necessary for or to the conduct of the
business of the Company or ownership or
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use of any of the Company's properties or assets (collectively, "Permits"). Each
Permit listed on Schedule 4.12 is in full force and effect until the expiration
date set forth thereon and no violations are or have been recorded in respect of
any Permit, and no proceeding, investigation, or request for information which
may lead to a proceeding is pending or, to the knowledge of Seller, threatened,
to revoke or limit any Permit.
4.13 Absence of Certain Changes. (a) Since December 31, 1996,
the Company has conducted its business solely in the ordinary course consistent
with past practices and there has not been any event that has had or can
reasonably be expected to have a material adverse effect on the operations,
condition (financial or otherwise), business, assets, properties, liabilities,
prospects or results of operations of the Company, individually or in the
aggregate.
(b) Since December 31, 1996, there has not been: (i) any creation,
incurrence or assumption by the Company of any Lien on any asset other than (A)
Liens for taxes not yet due; (B) Liens which do not materially detract from the
value of such asset as now used, or materially interfere with any present or
intended use of such asset; or (C) warehousemen's, mechanics, carriers',
landlords' repairmen's or other similar Liens arising in the ordinary course of
business;
(ii) Any making or forgiving of any loan, advance or capital contributions
to or investment in any person other than loans, advances or capital
contributions to or investments in wholly-owned subsidiaries made in the
ordinary course of business;
(iii) Any grant of any severance or termination pay to any
employee of the Company, any entering into of any employment, deferred
compensation or other similar agreement (or any amendment to any such existing
agreement) with any employee of the Company or any increase in benefits payable
under any existing severance or termination pay policies or employment
agreements, or any increase in compensation, bonus or other benefits payable to
any employee of the Company, other than routine increases for employees in the
ordinary course of business or disclosed to Purchaser in writing prior to the
date hereof or on any Schedule;
(iv) Any intentional waiver of any material right under any contract of the
type required to be set forth on any Schedule hereto;
(v) Any termination or failure to renew, or the receipt of any written
threat (that was not subsequently withdrawn) to terminate or fail to renew, any
Contract that is or was material to the operation; or
(vi) Any agreement or arrangement made by Seller to take any action which,
if taken prior to the date hereof, would have made any representation or
warranty in this Section untrue or incorrect in any material respect.
4.14 Properties. (a) The Company does not own any real property. Schedule
4.14 sets forth a complete list and brief description of all real property
leased or
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operated by the Company (the "Company Leased Real Property"). With respect to
the Company Leased Real Property, Schedule 4.14 also sets forth the date of each
lease and any amendments thereto, the term thereof, including any renewal
options, options to purchase, rights of first refusal, and the aggregate monthly
rental payable thereunder. With respect to the Company Leased Real Property and
the Company's operations thereat:
(i) there are no violations of any law (including but not limited to zoning
and setback requirements) where the effect of any such violation, individually
or in the aggregate, would have a materially adverse effect on the condition of
the Company;
(ii) the Company has obtained and complied with all material permits and
orders;
(iii) all material buildings, structures and other improvements located
thereon are in working condition and repair, reasonable wear and tear excepted;
and
(iv) the Company has a valid and existing leasehold interest in the Company
Leased Real Property not subject to any Liens.
(b) All machinery, equipment, furniture, furnishings, leasehold
improvements, fixtures, vehicles and other tangible property of the Company has
been maintained in the ordinary course and is in good working order, reasonable
wear and tear excepted. All of such machinery, equipment, furniture,
furnishings, leasehold improvements, fixtures, vehicles and other tangible
property of the Company are listed in Schedule 4.14(b) hereto.
(c) The Company has good title to all of the Company's tangible
property reflected on Schedule 4.14(b). The Company has good title to all raw
materials, work in process or finished Company products, wherever located. None
of the Company's tangible property is subject to any Liens.
4.15 Intangible Property. The Company does not own or use any
patents, trademarks, registered copyrights, service marks or trade names except
for the tradename Chatterley.
4.16 Insurance Policies. Except as set forth on Schedule 4.16,
there are no insurance policies in effect with respect to the Company or the
business of the Company. All insurance policies in effect with respect to the
Company or the business of the Company are in full force and effect. Neither the
Company nor Seller knows of any threatened termination of, or premium increase
with respect to, any of such policies. True and complete copies of all of such
policies have been made available to Purchaser.
4.17 Contracts. Schedule 4.17 sets forth as of the date hereof
a complete and accurate list and description of all contracts to which the
Company is a party or by or to which it or its assets or properties are bound or
subject, true and complete copies of which have been delivered to Purchaser. All
such contracts and all contracts reflected on any other
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Schedule hereto are valid, subsisting, in full force and effect and binding upon
the Company, and, to the knowledge of Seller, on the other parties thereto, in
accordance with their terms, and the Company has paid in all respects or accrued
all amounts due thereunder, including all amounts in dispute, and has satisfied
in all respects or provided for all of its liabilities and obligations
thereunder to be satisfied or provided for through the date hereof, and is not
in default under any of them in any material respect, nor, to the knowledge of
the Seller, is any other party to any such contract in default thereunder in any
respect, nor, to the knowledge of the Seller, does any condition exist that with
notice or lapse of time or both would constitute a default thereunder. To
Seller's knowledge, none of the parties to any such contracts intends to
terminate or materially alter the provisions of any contract.
4.18 Suppliers, Customers and Contractors. Since January 1,
1995, (i) no supplier or contractor has refused to provide credit, or has
suspended the provision of credit, to the Company or as a result of the failure
or delay in payment of amounts due to such suppliers or contractors; (ii) all
amounts owing to such suppliers and contractors, if not in dispute, have been
paid in accordance with their respective terms; (iii) no person within the last
twelve months has threatened to cancel, or otherwise terminate, the relationship
of such person with the Company, and (iv) no person during the last twelve
months has decreased materially or threatened to decrease or limit materially,
its relationship with the Company or, to the knowledge of Seller, intends to
decrease or limit materially its services or supplies to the Company or its
usage or purchase of the services or products of the Company.
4.19 Employee Benefits Plans. Neither the Company nor any
other company or entity which constitutes a member of the Company's "controlled
group" (within the meaning of Sections 4001(a)(14) and/or (b) of ERISA, and/or
Sections 414(b), (c), (m) or (o) of the Internal Revenue Code (hereinafter
referred to collectively as the "Company Group")), has at any time adopted,
maintained, or has any present or future obligation to contribute to or make
payment under, any employee pension benefit, employee welfare benefit, pension,
profit sharing, retirement, deferred compensation, stock purchase, stock option,
incentive, bonus, sabbatical leave, vacation, severance (including, without
limitation, arrangements providing for benefits in the event of a change of
ownership in whole or in part of the Company), disability, hospitalization,
medical insurance, relocation, child care, educational assistance or other
employee benefit plan as defined in Section 3(3) of ERISA or any such employment
benefit program or other fringe benefit, or any employment, consulting, or
service contract of any kind whatsoever.
4.20 Company Receivables. All the accounts receivable of the
Company (the "Company Receivables") reflected in the Company's most recent
balance sheet delivered hereunder and all Company Receivables that have arisen
since the Company's most recent balance sheet delivered hereunder (except such
Company Receivables as have been collected since such date) are valid and
enforceable claims, and constitute bona fide Company Receivables resulting from
the sale of goods and services in the ordinary course of business in conformity
with applicable purchase orders, agreements and specifications. Except as set
forth on Schedule 4.20 the Company Receivables are subject to no valid defense,
offsets, returns, allowances or credits of any kind other than in the ordinary
course of business and are fully collectible within 90 days from the date they
are invoiced except to the extent of the amount of the reserve for doubtful
accounts reflected in the Company's most recent balance
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sheet. Seller has heretofore delivered to Purchaser a schedule as at July 31,
1997 setting forth the total amount of Company Receivables and a schedule of the
aging of such Company Receivables based on 0-30 days, 31-60 days, 61-90 days and
over 90 days.
4.21 Inventories. The inventories of the Company reflected in
the Company's most recent balance sheet and all material inventory items
acquired since the date of the Company's most recent balance sheet consist of
raw materials, supplies, work- in-process and finished goods of such quality and
in such quantities as are being used or are reasonably anticipated to be usable,
or are being sold or are suitable for sale, in the ordinary course of its
business. Such inventories are valued at the lower of cost or market and were
determined in accordance with GAAP consistently applied. Since the date of the
Company's most recent balance sheet, the Company has continued to replenish its
inventories in a normal and customary manner consistent with prior practice and
prudent business judgment. The Company does not own any inventory that does not
constitute part of its current line.
4.22 Employment-Related Matters. Schedule 4.22 sets forth (a)
a true and correct list of the name and total annual compensation of each
officer, director and employee of the Company and each officer, director and
employee of the Company engaged to operate the Business of the Company, and (b)
any payments or commitments (whether formal or informal) to pay any severance or
termination pay to any such persons or to any other person. The Company is not a
party to any contract with any union or other labor organization or other
representative of its employees. There is no unfair labor practice charge or
complaint pending or threatened against the Company. There is no labor strike,
slowdown, work stoppage or other material labor controversy in effect,
threatened against or otherwise affecting the Company. The Company is in
compliance in all material respects with all applicable laws, policies,
procedures, contracts, relating to employment, terms and conditions of
employment and with the proper withholding and remission to the proper taxing
authority of all sums required to be withheld from employees or persons deemed
to be employees under applicable tax laws respecting such withholding. The
Company has paid in full to all of its employees all wages, salaries,
commissions, bonuses, benefits and other compensation due and payable to such
employees on or prior to the date hereof.
4.23 Related Party Transactions. Except as set forth on
Schedule 4.23, neither the Company nor Seller is a party to any contract that
gives rise to current obligations thereunder (whether or not in writing) or any
other transaction between the Company, on the one hand, and any officer,
director, shareholder or former shareholder of the Company or any affiliate of
any of them, on the other hand that gives rise to current obligations
thereunder.
4.24 Compliance with Laws. The Company has not violated and is
not in violation of any order, rule, regulation or law of any governmental
entity applicable to it or affecting the business or the Company, including any
environmental laws, except for such violations which individually or in the
aggregate do not and will not have a material adverse effect on the Company.
4.25 Prohibited Payments. Neither the Seller nor any officer, director,
employee or agent of the Company has offered, paid or agreed to pay any illegal
payment or
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other illegal consideration to any supplier or other third party in connection
with the business of the Company, or engaged in any other illegal practice with
respect to the business of the Company.
4.26 Disclosure. Neither this Agreement nor any other
document, exhibit or schedule delivered herewith, nor the Company Financial
Statements, nor any other financial statements, documents, certificates or
statements furnished to Purchaser by Seller in connection with the Contemplated
Transactions contains any untrue statement of a material fact or omits to state
a material fact necessary in order to make the statements contained herein or
therein not misleading. There are no facts which do or may materially adversely
affect the Company which have not been set forth herein, or in any exhibit or
schedule hereto, or in any certificate or statement furnished to Purchaser by
Seller.
4.27 Environmental Matters. The Company is currently and at
all times in the past has operated in compliance with all applicable laws,
rules, orders and regulations relating to the protection of human health and
safety, the environment or hazardous or toxic substances or waste, pollutants or
contaminants (collectively, "Environmental Laws"). The Company currently is not
nor has it in the past produced, used, stored, handled or disposed of, in
connection with the operation of its business or the use of its assets or
otherwise, any hazardous substances or hazardous wastes other than in incidental
amounts which do not and will not individually or in the aggregate have a
material adverse effect on the Company, nor, to the best of Seller's knowledge,
have any such substances or wastes been dumped, buried or otherwise disposed of
or stored on or under any of the Company Leased Real Property or other assets of
the Company, other than in incidental amounts which do not and will not
individually or in the aggregate have a material adverse effect on the Company.
The Company has not received any notification of any asserted present or past
failure to so comply with Environmental Laws. No Lien has attached to and no
basis exists for the attachment of a Lien to, any revenues of the Company or any
of its assets pursuant to Environmental Laws. There has not been any Phase I,
Phase II or other environmental report conducted by or on behalf of the Company
with respect to any of its properties or assets.
5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PURCHASER.
Purchaser represents and warrants to, and covenants with,
Seller as follows:
5.1 Corporate Existence, Power and Good Standing. Purchaser is
a corporation duly organized, validly existing and in good standing under the
laws of the State of New York and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as it is now being conducted.
5.2 Due Authorization. Except as set forth on Schedule 5.2,
the execution and delivery of this Agreement and the consummation of the
Contemplated Transactions have been duly and validly authorized and approved by
all necessary corporate action of Purchaser, and no other corporate proceedings
on the part of Purchaser are necessary to authorize this Agreement or the
Contemplated Transactions. This Agreement has been duly and validly executed and
delivered by Purchaser and constitutes the valid and binding
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agreement of Purchaser, enforceable against Purchaser in accordance with its
terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights generally
or by the principles governing the availability of equitable remedies.
5.3 No Conflicts. The execution and delivery of this
Agreement, the consummation of the Contemplated Transactions and the fulfillment
of the terms thereof (i) will not constitute a breach of or result in a
termination or modification of, or constitute a default under, or conflict with
or cause any acceleration of any obligation under, or permit any other party to
modify or terminate, any agreement or other instrument relating to Purchaser;
(ii) will not violate any judgment, decree, order or award of any court,
governmental body or arbitrator relating to Purchaser; and (iii) will not
contravene any provision of Purchaser's charter or by-laws.
5.4 Consents. No consent, approval or authorization of, or
registration or filing with, any governmental authority or other regulatory
agency or any other person is required in connection with the execution or
delivery of this Agreement or the consummation of the Contemplated Transactions.
5.5 Investment Intention. Purchaser is acquiring the Purchased
Shares for Purchaser's own account and not with a present intention to make any
sale, disposition, distribution or other transfer of the Purchased Shares in a
manner that would be in violation of any applicable securities laws.
5.6 Creative Shares. Upon issuance, the Creative Shares will be duly
authorized, validly issued, fully paid and non-assessable.
5.7 SEC Reports; Financial Statements. (i) Purchaser has made
available to Seller and the Company true, correct and complete copies of its
Annual Report on Form 10-KSB (as amended) for the fiscal years ended December
31, 1995 and 1996 and its Quarterly Report on Form 10-Q for the quarters ended
March 31, 1997 and June 30, 1997 (all such documents collectively called the
"SEC Documents"), each as filed with Securities and Exchange Commission (the
"SEC"). Each of the SEC Documents has been duly filed and when filed was in
compliance in all material respects with the requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations of the SEC
thereunder applicable to such SEC Document. Each of the SEC Documents (including
the financial statements included therein) was complete and correct in all
material respects as of its date and, as of its date, did not contain any untrue
statement of material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading.
6. INDEMNIFICATION.
6.1 Survival of Representations. The representations,
warranties, covenants and agreements contained in this Agreement (including any
Exhibits and Schedules hereto), and in any agreements, certificates or other
instruments delivered pursuant to this
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Agreement, shall remain in full force and effect, regardless of any
investigations made by or on behalf of any party, and shall survive the Closing
hereunder.
6.2 Seller Indemnity. Seller agrees to indemnify and hold
harmless Purchaser and its officers, directors and affiliates against and in
respect of (i) any claim, cost, loss, liability or damage ("Liability") incurred
or sustained by Purchaser or its officers directors or affiliates as a result of
any misrepresentation or breach of representation or warranty by Seller or the
Company or a breach by Seller or the Company of any covenant or other agreement
contained herein or under any other agreement executed and delivered by the
parties in furtherance of the Contemplated Transactions described herein; (ii)
except for those Tax obligations set forth on Schedule 4.11, Liabilities for
sales, use, income and other Taxes and penalties or other assessments related
thereto, whether disclosed or undisclosed, arising at any time from the
operation of the business of the Company prior to the opening of business on the
Closing Date; and (iii) any Liability incurred or sustained by Purchaser or its
officers, directors or affiliates as a result of the operation of the business
of the Company prior to the opening of business on the Closing Date. Seller
agrees to indemnify and hold harmless Purchaser and its officers, directors and
affiliates against and in respect of all reasonable costs and expenses
(including reasonable attorneys' fees and disbursements) incurred by Purchaser
or its officers, directors and affiliates in connection with any action,
investigation, demand, assessment or judgment incident to any of the matters
indemnified against in this Section 6.2.
6.3 Purchaser Indemnity. Purchaser agrees to indemnify and
hold harmless Seller from and against any claim, cost, loss, liability or damage
incurred or sustained by Seller as a result of any misrepresentation or breach
of representation or warranty, covenant or agreement contained herein or under
any other agreement executed and delivered by the parties in furtherance of the
Contemplated Transactions described herein.
6.4 Limits on Indemnification. Seller shall not be liable to
Purchaser for any Liability arising under Section 6.2 above unless and until one
or more Liabilities amounts to or exceeds $25,000 in the aggregate (the
"Stipulated Amount"), in which case Seller shall be liable for the full amount
of such Liabilities in excess of the Stipulated Amount. Notwithstanding the
foregoing, any Liability in respect of any Taxes (except for those Tax
obligations set forth on Schedule 4.11 shall be fully indemnifiable without
regard to the provisions hereof relating to the Stipulated Amount and, in the
event Seller indemnifies Purchaser with respect to such Liabilities, the amount
of such Liabilities shall not be included in the calculation of the Stipulated
Amount.
7. MISCELLANEOUS
7.1 Captions. The section and other headings contained in this
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of this Agreement.
7.2 Notices. (i) Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally by
hand, telecopied, or mailed, certified or registered, return receipt requested,
postage prepaid as follows:
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if to Purchaser, to:
Creative Bakeries, Inc.
20 Passaic Avenue
Fairfield, NJ 07004
Attn: Philip Grabow, Chairman
Telecopier: (201) 808-0459
if to Seller, to:
Yona Abrahami
c/o Creative Bakeries, Inc.
20 Passaic Avenue
Fairfield, NJ 07004
Telecopier: (201) 808-0459
with a copy to:
Leonard A. Peduto, Jr., Esq.
Chapman, Henkoff, Kessler, Peduto
& Saffer
425 Eagle Rock Ave.
Roseland, NJ 07068
Fax: (201) 403-9444
(ii) Each notice or other communication shall be deemed given
(A) on the date of delivery if delivered by messenger, overnight courier or
other similar personal delivery; (B) on the date of transmission, if transmitted
by telecopier; or (C) five days after the date of deposit in the mails, if
mailed by certified or registered mail, return receipt requested.
(iii) Any party, by notice given in accordance with this Section to the
other party, may designate another address (or telecopier number) or person for
receipt of notices hereunder. Notices by a party may be given by counsel to such
party.
7.3 Expenses. All costs and expenses incurred in connection
with the Contemplated Transactions shall be paid by the party incurring such
costs and expenses, provided that Purchaser shall pay for the cost of the
preparation of the Audited Financial Statements.
7.4 Entire Agreement. This Agreement contains the entire
agreement among the parties with respect to the subject matter hereof and
supersedes all prior agreements or undertakings, written or oral, of any nature
whatsoever.
7.5 Amendments. This Agreement may not be amended nor shall any waiver,
change, modification, consent or discharge be effected except by an instrument
in
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writing executed by or on behalf of the party seeking or against whom
enforcement of any amendment, waiver, change, modification, consent or discharge
is sought.
7.6 No Waiver. Any failure or delay on the part of a party in
exercising any power or right hereunder shall not operate as a waiver thereof,
nor shall any single or partial exercise of any such right or power preclude any
other or further exercise thereof or the exercise of any other right or power
hereunder or otherwise available in law or in equity. Any waiver of any default
hereunder shall not be effective unless in writing.
7.7 Severability. If any provisions of this Agreement for any
reason shall be held to be illegal, invalid or unenforceable, such illegality
shall not affect any other provision of this Agreement, but this Agreement shall
be construed as if such illegal, invalid or unenforceable provision had never
been herein.
7.8 Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of New York applicable to
agreements made and to be performed entirely within such State.
7.9 Binding Effect. This Agreement and all of its provisions,
rights and obligations shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and permitted assigns.
Nothing herein express or implied is intended or shall be construed to confer
upon or give anyone other than the parties hereto and their respective
successors and permitted assigns any rights or benefits under of by reason of
this Agreement.
7.10 Counterparts. The Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original as against any
party whose signature appears thereon, and all of which shall together
constitute one and the same instrument. This Agreement shall become binding when
one or more counterparts hereof, individually or taken together, shall bear the
signatures of all of the parties reflected hereon as the signatories.
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IN WITNESS WHEREOF, the parties hereto have executed this
Stock Purchase Agreement as of the date first above written.
Yona Abrahami
CHATTERLEY ELEGANT DESSERTS, INC.
By:
Name:
Title:
CREATIVE BAKERIES, INC.
By:
Philip Grabow
President and Chief Executive Officer
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Exhibit A
STOCK POWER
FOR VALUE RECEIVED, YONA ABRAHAMI hereby sells, assigns and
transfers unto CREATIVE BAKERIES, INC., __________ shares of capital stock,
$____ par value, of CHATTERLEY ELEGANT DESSERTS, INC., a New Jersey corporation
(the "Company"), standing in his name on the books of the Company and
represented by Certificate No. ___, and does hereby irrevocably constitute and
appoint any officer or director of the Company as his attorney to transfer the
said stock on the books of the Company with full power of substitution in the
premises.
WITNESSED BY
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Yona Abrahami
Dated: __________ ___, 1997
<PAGE>
Exhibit B
Employment Agreement
(Yona Abrahami)
<PAGE>
Exhibit C
Employment Agreement
(David Abrahami)
