SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------
FORM 10-KSB/A
(Mark One)
[X] Annual Report to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Fiscal Year ended December 31, 1997.
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from _____________to______________
Commission File No. 333-15127
AZUREL LTD.
(Exact name of registrant as specified in its character)
DELAWARE 13-3842844
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
509 MADISON AVENUE NEW YORK, NEW YORK 10022
- ------------------------------------- -----
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (212) 317-0712
--------------
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- ------------------- -----------------------------------------
Not Applicable None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.001 PAR VALUE
-----------------------------
(Title of Class)
REDEEMABLE COMMON STOCK PURCHASE WARRANTS
-----------------------------------------
(Title of Class)-
<PAGE>
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter prior that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. Yes No X
--- ---
The issuer's net sales for the most recent fiscal year were
$12,481,556.
The aggregate market value of the voting stock held by non-affiliates
based upon the last sale price on March 26, 1998 was approximately $11,159,562.
As of March 26, 1998 there were 5,293,745 shares of Common Stock, par
value $.001 per share, outstanding.
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
The Company, directly and through wholly-owned subsidiaries,
manufactures, markets and sells cosmetics, fragrances, skin care products and
also provides accounting, marketing, warehousing and other administrative
services to cosmetic, fragrance and accessory companies. Through wholly-owned
subsidiaries comprising its Private Label Group, acquired by the Company in
August 1996, the Company operates a manufacturing and filling facility which
sells cosmetics principally to major cosmetic companies for sale by each
customer under the customer's own brand name (commonly known as "private label"
sales). In addition, in order to take advantage of the Company's manufacturing
capabilities and product development expertise, the Company currently is
developing cosmetic, skin care and fragrance lines which it intends to market
under brand names created internally or owned by others and licensed to the
Company. These products are sometimes referred to as "Branded Products." To
date, the Company has developed only one line of Branded Products internally and
has obtained two licenses to sell product lines using brand names owned by third
parties, but is seeking to terminate one of these licenses. The Company
intended, through its Scent 123 subsidiary, which acquired the assets of Scent
Overnight in October 1996, to sell well- recognized men's cologne and women's
fragrances directly to the consumer by overnight delivery through toll-free
telephone numbers. Due to mixed consumer reaction to the concept, the Company
has determined to defer further development of this marketing concept at this
time. The Company is considering refinements to the concept, but the Company has
not determined at this time, whether it will again actively seek to develop the
concept.
PRODUCTS AND SERVICES
Virtually all of the Company's business during 1997 was conducted
through the Private Label Group. The Company's Private Label Group consists of
subsidiaries acquired in August 1996 from Michael J. Assante ("Assante"), who
continues to be employed as the President and CEO of the Private Label Group.
These subsidiaries operate a cosmetic facility (the "Facility") which
manufactures, fills and packages a broad range of cosmetics. The Facility also
includes a laboratory which develops cosmetic products formulae for customers
according to their specific requirements. The laboratory also develops and
maintains a library of cosmetic products formulae for use by customers who have
not developed their own formulae for a specific product. The laboratory also
performs quality control functions for the Facility and is responsible for
assuring compliance with governmental regulations regarding the manufacture and
packaging of cosmetics including compliance with good manufacturing practices
("GMP"). Substantially all of the Private Label Group's assets have been pledged
to financing institutions to secure indebtedness relating to financing
agreements. In addition, all of the outstanding capital stock of the entities
comprising the Private Label Group has been pledged to Assante to secure
indebtedness related to the acquisition of the Private Label Group.
<PAGE>
The Facility manufactures and fills a wide variety of cosmetics,
including body lotions and powders, lipsticks, mascara, eye shadows, eye liners,
skin care products and hair care products. Depending upon the customer's
requirements, the Company either provides some or all of the raw ingredients and
packaging for the customer's product or uses material provided directly by the
customer. A quantity of raw ingredients and packaging material is maintained in
inventory, but generally such materials are purchased by the Company to fill
specific orders. Presently, the Facility does not manufacture or fill
fragrances, which require additional machinery, nor does the Facility
manufacture or fill nail products or liquid soaps.
Generally, a customer places an order for a quantity of merchandise
to be produced and shipped over a period of time, typically one to three months,
with payment due 30 days after each shipment. While the raw ingredients and
packaging materials to produce an order are generally readily available, for
cash management purposes, the necessary raw materials and packaging are ordered
by the Company for receipt by it in stages to coincide with the
manufacturing/packaging cycle and the customer's delivery requirements. In this
way, the Company minimizes the need to maintain an inventory of raw ingredients
and packaging materials, and in effect, produces product only against the order.
Except for nail products, liquid soaps and fragrances, which it does
not manufacture or fill, the Facility does not limit its services to a
particular market niche within the cosmetic industry. It manufactures a wide
variety of high and low priced products sold in department, specialty and
discount stores. The Company believes that this diversity minimizes its exposure
to business cycles and changes in customer preferences over time.
Since the manufacturing operation has been in business for over 49
years, the laboratory maintains a large library of formulae for a wide variety
of products. Moreover, the laboratory continuously develops new formulae based
on the Company's assessment of future product demand, changing consumer
preferences and the availability of new ingredients. The Company believes that
it can quickly and efficiently develop formulations for a customer's product by
using or adapting a formula from its library. When the Company develops a
formula for a customer's product, the Company, and not the customer, owns the
formula; however, since it is the Company's policy not to use the same formula
for different customers, customers generally continue purchasing from the
Company so long as they sell the product and do not change the formula or have
another laboratory replicate the product formula.
The Company's marketing efforts revolve around its sales force of
three full-time sales representatives and contacts maintained or developed by
its management.
In order to take advantage of the Company's manufacturing
capabilities and product development expertise, the Company currently is
developing cosmetic, skin care and fragrance lines which it intends to market
and distribute under brand names created internally or owned by others and
licensed to the Company. These products are sometimes referred to as "Branded
Products." To date, the Company has developed one line of Branded Products
internally and has obtained two
4
<PAGE>
licenses to sell product lines using brand names owned by third parties.
Development of the Company's first Branded Product line, an original
unisex fragrance line and related grooming products to be sold under the SPORTS
EXTREME USA(TM) trade name, commenced in January 1996 and was completed in
September 1996, at which time marketing of the line commenced. Presently, the
SPORTS EXTREME USA(TM) line consists of a unisex fragrance, bath and shower gel,
muscle and body relaxer and face moisturizer containing sunscreen and
alphahydroxy fruit acids, of which the unisex fragrance and bath and shower gel
are being marketed. The marketing of the SPORTS EXTREME USA(TM) line features
"extreme" sports such as mountain climbing, ice climbing, bungee jumping, sky
surfing, in-line skating, snowboarding, snow bicycling and mountain biking. The
fragrance for the SPORTS EXTREME USA(TM) line was developed for the Company by
Firmenich Incorporated, a major developer of fragrances for the cosmetic
industry. Retail sales of this line commenced in the second quarter of 1997.
The Company seeks to sell Branded Products in the United States and
currently sells Branded Products internationally. In the United States, the
Company expects to sell directly to retail outlets that sell similar products,
such as chain drug stores, mass merchandisers and discount stores. Initially,
the Company's personnel, independent sales representatives or a combination of
the two will sell the Branded Products in the United States. Internationally,
the Company currently sells Branded Products and expects to continue to sell to
distribution companies having a major presence in the Far East, Middle East and
parts of Europe. The Company entered into distribution agreements with two
foreign distributors which cover certain countries in the Middle East and the
Far East, pursuant to which such distributors will purchase the Company's
products for resale in their distribution territories. In addition, the Company
currently has a sales agency agreement with foreign sales agent which covers
certain countries in Europe. The Company's foreign distribution agreements are
exclusive for the Far East and the Middle East and do not require the
distributor to purchase any minimum quantity of products. The Company intends to
establish a wholly-owned subsidiary for international distribution of its
Branded Products and licensed products in France.
In October 1997, the Company began developing cosmetics, fragrances
and related products for sale under the HANG TEN trade name pursuant to a
license agreement with the owner of the HANG TEN trade name (the "Licensor").
The HANG TEN trade name is a brand name used on men's outerwear, active wear and
a wide variety of other merchandise which has been marketed in print media in
both the United States and internationally. Hang Ten currently operates
approximately 400 retail outlets internationally.
The license agreement relating to the Hang Ten trade name provides
for the Hang Ten products developed by the Company to be sold and marketed
directly and exclusively to the Hang Ten outlets until March 31, 1999. Hang Ten
has the option to sell the products developed by the Company exclusively in
their stores. From January 1, 1999 until December 31, 2003 the Company may sell,
distribute and market products developed under the Hang Ten tradename to other
parties in the United States and internationally and to Hang Ten outlets. Under
the License, the Company is required to pay a royalty of five percent of net
sales, excluding sales to Hang Ten outlets, subject to minimum royalties. The
5
<PAGE>
Company's manufacture, sale and promotion of Hang Ten fragrances, grooming
products and cosmetics is subject to the prior review and approval of such
products by the Licensor as is typical in similar licenses. The Licensor has
approved the products currently being developed by the Company.
The Company entered into a license agreement with Members Only
("Licensor") on May 15, 1996. The Company is negotiating with the Licensor to
terminate such agreement. If such negotiations do not result in such termination
the Company may remain liable for minimum royalties thereunder. Initially a
customer had indicated that it would purchase significant amounts of product
bearing the Members Only name. After development of such products the customer
informed the Company that current market conditions did not call for purchase of
the products from the Company. Based upon such customer information the Company
decided to seek to terminate the license agreement with Members Only.
While the Company has had discussions with other companies, it has
not entered into any other formal agreements for the development of cosmetic and
fragrance lines under brand names owned by other companies. There can be no
assurance that the Company will market successfully any original cosmetic or
fragrance line, or that the Company will enter into any additional formal
agreements for the development of cosmetic and fragrance lines for other
companies either under brand names created internally or owned by others and
licensed to the Company.
In October 1997, the Company acquired all of the outstanding capital
stock of Cambridge Business Services, Inc. ("Cambridge") for a purchase price of
$212,000, of which $95,000 was paid in October 1997 and the balance was paid in
February 1998. Cambridge provides outsourcing and distribution services such as:
accounting, sales, marketing, warehousing and other administrative and back
offices services to cosmetic, fragrance and accessory companies.
COMPETITION
All aspects of the cosmetic, fragrance and skin care industry are
subject to intense competition throughout the world. In all aspects of its
business, the Company will compete with numerous companies, many of which are
better known in the industry and have established channels of distribution and
substantially all of which have greater financial and other resources than the
Company. These competitors include Estee Lauder, Revlon, Avon and Maybelline.
The Company competes against approximately thirty companies in the
United States which manufacture and/or package cosmetic products for
third-parties. To a lesser degree, the Company competes with cosmetic companies
which have their own manufacturing facilities that can produce all, or a part,
of their own products. The Company believes that the primary elements of
competition in the private label manufacture of cosmetics differ depending upon
the retail price point of the particular product. With respect to higher priced
cosmetics and fragrances, the principal methods of competition are quality,
including consistency of the work performed, and reliability of meeting
6
<PAGE>
delivery dates. With respect to lower priced products, the principal method of
competition is price. The Company believes that the Facility has a reputation in
the cosmetic industry as a high quality, reliable source for manufacturing and
packaging cosmetics. It is the Company's belief that the availability of its
laboratory gives it a competitive advantage over those firms not having
laboratories to assist customers in the formulation of their products. The
Company also believes that its ability to produce a broad range of products for
sale at varying retail price points is beneficial in attracting and retaining
customers who would prefer all of their products to be produced by the same
manufacturer.
In selling the Branded Products, and licensed products the Company
competes against numerous companies, some of which are customers of the Private
Label Group. Many of these competitors are better known in the industry, have
established channels of distribution and greater financial and other resources
than the Company.
The Company believes that the primary elements of competition in the
sale of Branded Products are product awareness and consumer acceptance of the
competing brands. Achieving market acceptance may require substantial marketing
efforts and expenditure of significant funds. The Company markets its Branded
Products to niche markets such as chain drug stores, discount stores and mass
merchandisers and intends to develop Branded Products which it believes will
appeal to the customers of these retailers.
The Company believes that Cambridge is the only company organized to
provide complete accounting, marketing, warehousing and other administrative
services to cosmetic, fragrance and accessory companies, by a single company.
Although the Company believes it is the only Company which performs all of these
services, there are other companies that perform each of these services
individually, and such companies have greater financial and personnel resources,
and are better known in the industry than the Company.
GOVERNMENT REGULATION
The Company's manufacturing activities and the Facility are subject
to extensive and rigorous governmental regulation relating to the protection of
the environment and the quality of manufacturing. Federal, state and local
regulatory agencies actively enforce these regulations and conduct periodic
inspections to determine compliance with such government regulations. The FDA
enforces regulations regarding GMP through periodic surveillances and audits.
The Company believes that the Private Label Group has obtained all material
approvals, permits and licenses for its manufacturing activities. In the event
that the Company seeks to expand its operations to manufacture and fill
fragrances, the Company would have to obtain new or expanded governmental
permits. However, changes in existing regulations, the interpretation thereof,
or adoption of new regulations could impose costly new procedures for
compliance, or prevent the Company from obtaining, or affect the timing of,
additional regulatory approvals. There can be no assurance that the Private
Label Group, if audited, will be found in compliance with GMP or environmental
regulations. Failure to comply with GMP, environmental or other applicable
regulatory
7
<PAGE>
requirements may result in fines, suspension of approvals, cessation of
distribution, product recalls and criminal prosecution, any of which would have
a material adverse effect on the Company.
The Federal Trade Commission ("FTC") and state and local authorities
regulate the advertising of over-the-counter drugs and cosmetics. The Federal
Food, Drug and Cosmetic Act, as amended (the "Food and Drug Act"), and the
regulations promulgated thereunder, and other federal and state statutes and
regulations, govern, among other things, the testing, manufacture, safety,
effectiveness, labeling, composition storage, record keeping, approval,
advertising and promotion of the Company's products. In general, products
falling within the FDA's definition of "new drugs" require pre-market approval
by the FDA. Products falling within the FDA's definition of "cosmetics' do not
require pre-market approval. In the Company's opinion, the Company's products,
as they are and will be promoted, fall within the FDA's definition of
"cosmetics" and therefore do not require pre-market approval. There can be no
assurance that the FDA will concur in this view. In the event that the Company
fails to comply with applicable regulations with respect to any products, the
Company may be required to change its labeling, formulation or possibly cease
manufacture and marketing of such products.
The FDA may require post-marketing testing and surveillance to
monitor the record of the Company's products and continued compliance with
regulatory requirements. The FDA also may require the submission of any lot of
product for inspection and may restrict the release of any lot that does not
comply with FDA standards, or may otherwise order the suspension of manufacture,
recall or seizure of non-compliant product is discovered. Product approvals may
be withdrawn if compliance with regulatory standards is not maintained or if
problems concerning safety or efficacy of a product are discovered following
approval.
The Company may also be subject to foreign regulatory authorities
governing testing or sales of certain of the Company's products. Whether or not
FDA approval has been obtained, approval of a product by the comparable
regulatory authorities of foreign countries must be obtained in certain cases
prior to the commencement of marketing of the product in those countries. There
can be no assurance that any product developed or marketed by the Company will
be approved by the FDA or any foreign regulatory authority.
Various laws and regulations relating to safe working conditions, and
other employment matters, including the Occupational Safety and Health Act, are
also applicable to the Company. The Company believes it is in substantial
compliance with all material federal, state and local laws and regulations
regarding safe working conditions, and other employment matters.
TRADEMARKS
The Company has three United States registered trademark, Scent
Overnight(R), which was acquired in the acquisition of Scent Overnight, Scent
123(R) and Sports Extreme(R).
The right to use trademarks and trade names in connection with the
sale of the Branded
8
<PAGE>
Products is material to the Company's business. In cases where the Company is
the licensee of the trademark or trade name, the ownership of the trademark or
trade name will be retained by the licensor. In such cases, the Company may be
subject to material claims of infringement by third- parties and may or may not
be indemnified by the licensor.
The Company will be the owner of brand names developed by it and will
seek to establish protection of names. There can be no assurance, however, that
trademark rights would sufficiently protect the Company's right to use such
names or that, if and when the Company files trademark applications for such
names, such applications would be approved. Notwithstanding such ownership,
third-parties may claim that such names infringe such third party's rights. Such
claims may seek to require the Company to cease use of the names as well as pay
monetary damages. At the time any such claim is brought, the Company may not
have the financial resources to defend against such claim. The cessation of the
use of any brand name used by the Company might have a material adverse effect
on it.
INSURANCE
In view of the activities conducted by the Company, there are
inherent risks of exposure to certain liabilities including product liability
and negligence claims resulting from the use of the Company's products. The
Company currently carries a general liability insurance policy (including
products liability) which provides for coverage of $1,000,000 per occurrence and
$2,000,000 in the aggregate. The Company also carries property damage insurance
of approximately $2,000,000. The Company does not have insurance coverage for
product withdrawal or recall. Although the Company believes such insurance is
sufficient, no assurance can be given that the amount of the Company's present
coverage will prove to be adequate.
The Company currently maintains officer and director liability
insurance which provides for coverage of $2,000,000 per occurrence and
$2,000,000 in the aggregate.
MAJOR CUSTOMERS AND SUPPLIERS
Approximately 19% and 10% of the Company's revenues for the year
ended December 31, 1997 were derived from two major customers. Approximately 22%
and 12% of the Company's revenues derived from manufacturing activities for the
year ended December 31, 1996 were derived from the same two major customers. A
loss of the sales to either or both of these customers could have a material
adverse effect on the Company's results of operations.
EMPLOYEES
The Company presently employs approximately 261 employees of which
251 are located at the Facility. Of the 251 employees located at the Facility,
43 are employed on a full-time basis and approximately 208 are employed on an
as-needed basis. The Company has regularly employed between 175 and 225
individuals on an as-needed basis for approximately 12 months and anticipates
9
<PAGE>
a continued need for a minimum of 208 such employees in order to maintain its
current level of operations. Of the 251 employees located at the Facility, 222
are manufacturing personnel, 14 are laboratory personnel, three are executive
and administrative personnel and 12 are engaged in sales, marketing and customer
service. The manufacturing employees located at the Facility are covered by a
collective bargaining agreement with Local #300-S, Affiliated with the
Production Service and Sales Distribution Council, Industrial Union Council,
which expires on May 31, 1998, extended from February 28, 1998.
Of the ten employees that are not located at the Facility, five are
executive officers. The Company believes that there is an available pool of
persons and firms who could be hired or retained by the Company when needed. The
Company considers its relationships with both union and non-union employees to
be satisfactory.
SEASONALITY AND BACKLOG
The cosmetic and fragrance business in general is subject to seasonal
fluctuations, with net sales in the second half of the year substantially higher
than those in the first half as a result of increased demand by retailers in the
United States in anticipation of and during for the back-to- school,
Thanksgiving and Holiday seasons. The Company anticipates that the sales of
Branded Products and Distributed Fragrances will follow the general industry
trend.
Although the Company's manufacturing business, as a whole, is not
seasonal, its product mix is subject to seasonal variations. Since the gross
profit margins on various products differ, the backlog and results of operations
in any period are not necessarily indicative of the result for the fiscal year.
At December 31, 1997 the Private Label Group's backlog of orders believed by the
Company to be firm was approximately $2,926,000 and at December 31, 1996 the
amount of such orders was approximately $3,068,000. The Company expects that
approximately 97% of the current backlog will be filled during the current
fiscal year. Since the Company's orders for manufacturing and filling are
generally for the delivery of merchandise over a period of time, backlog is
viewed as an important indication of future performance.
ITEM 2. PROPERTIES
PROPERTIES
The Company leases 2,400 square feet of space at 509 Madison Avenue,
New York, New York, which is used as its executive offices. The lease expires in
April 2001 and provides for an annual base rent of $74,000, including utilities.
These facilities are in good condition and adequate for the Company's current
needs, and substitute space is readily available.
The Company's manufacturing and packaging plant and laboratory and
the Private Label Group's general and executive offices are located at a leased
155,000 square foot building in Fairlawn, New Jersey. The lease, expiring in
August 2002 provides for annual rent of approximately $500,000, including common
charges and real estate taxes and is subject to increase based on increases in
the Consumer Price Index. In addition, the Company is responsible for
substantially all repairs to the building. The Facility is presently operating
at less than full capacity and is in good condition and physically adequate for
the Company's present and foreseeable purposes. The Company expects to continue
to update the manufacturing and packaging equipment at the Facility with more
modern and automated equipment.
Contemporary, a related party, utilizes approximately 10,000 square
feet of the Facility on a month-to-month basis for approximately $7,000 per
month under an oral arrangement. There is no
10
<PAGE>
assurance that the landlord will continue to permit this arrangement.
Cambridge leases approximately 2,500 square feet of office space in
Port Washington, New York. The lease is on a month to month basis at a rate of
$3,090 per month.
ITEM 3. LEGAL PROCEEDINGS
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceeding, nor is
it aware of any pending or threatened claim of a material nature. The Company
anticipates that it will be subject to claims and suits in the ordinary course
of its business in the future, including product liability and negligence
claims. The Company believes that it will maintain adequate insurance to cover
such anticipated claims, of which, however, there can be no assurance.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this report,
the Company did not submit any matters to a vote of security holders.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK
As of the date hereof, the Company has outstanding 5,293,745 shares of
its Common Stock $.001 par value ("Common Stock"). The Company's Common Stock is
traded on the Nasdaq SmallCap Market ("Nasdaq SmallCap") under the symbol
"AZUR." The following table sets forth the high and low bid prices for Common
Stock as reported by on the Nasdaq SmallCap. The high and low bid prices reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not represent actual transactions.
11
<PAGE>
COMMON STOCK
------------
FISCAL 1997 HIGH LOW
- ----------- ---- ---
Third (from July 31, 1997) $4.6875 $3.875
Fourth 5.03125 4.25
FISCAL 1998
- -----------
First (through March 26, 1998) $4.9375 $3.1875
On March 26, 1998, there were approximately 72 holders of record of
the Company's 5,293,745 outstanding shares of Common Stock.
On March 26, 1998, the last sale price of the Common Stock as
reported on the Nasdaq SmallCap Market was $3.625.
DIVIDEND POLICY
The Company has never paid or declared dividends on its Common Stock.
The payment of cash dividends, if any, in the future is within the discretion of
the Board of Directors and will depend upon the Company's earnings, its capital
requirements, financial condition and other relevant factors. The Company
intends, for the foreseeable future, to retain future earnings for use in the
Company's business.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
AZUREL LTD. AND SUBSIDIARIES
- ----------------------------
FORWARD-LOOKING STATEMENTS
When used in this Form 10-KSB and in future filings by the
Company with the Securities and Exchange commission, the words or phrases "will
likely result" and "the company expects," "will continue," "is anticipated,"
"estimated," "project," or "outlook" or similar expressions are intended to
identify "forward-looking statements." The Company wishes to caution readers not
to place undue reliance on any such forward-looking statements, each of which
speak only as of the date made. Such statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. The Company
has no obligation to publicly release the result of any revisions which may be
made to any forward-looking statements to reflect anticipated or unanticipated
events or circumstances occurring after the date of such statements.
GENERAL
Azurel, through its wholly-owned subsidiaries, manufactures, markets
and sells private label cosmetics, fragrances and skincare products and also
provides accounting, marketing, warehousing and other administrative services.
In August 1996, Azurel acquired the stock of the Private Label Group,
and in October 1996, Azurel acquired the stock of Scent Overnight. In October
1997, Azurel acquired the stock of Cambridge Business Services.
The following discussion and analysis should be read together with
the financial statements and notes for Azurel included herein.
12
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the
percentage of net sales represented by certain items included in the statements
of operations:
----------------------------
Year ended December 31,
----------------------------
1997 1996
----------- ----------
(Dollars in thousands)
Net sales ................. $ 12,482 $ 3,745
Cost of goods sold ........ 8,608 2,871
-------- -------
Gross profit .............. 3,874 874
Selling, general and
administrative expenses ... 3,897 1,652
Amortization expense ...... --
-------- -------
Operating (loss) .......... (23) (778)
Interest expense .......... 475 595
-------- -------
Net (loss) ................ $ (499) $(1,373)
======== =======
YEAR ENDED DECEMBER 31, 1997 (THE "1997 PERIOD") AND YEAR ENDED DECEMBER 31,
1996 (THE "1996 PERIOD").
Net sales for the year ended December 31, 1997 increased by
$8,736,220, or approximately 233%, from the 1996 Period. The increase resulted
almost entirely from the acquisition of Private Label Group on August 22, 1996
("Acquisition Date"). The increase is attributable to the net sales of Private
Label Group for the period ended December 31, 1997 as compared with 1996 Net
Sales of Private Label Group from the Acquisition Date until December 31, 1997.
Cost of goods sold for the 1997 Period were $8,607,759, or 69% of net
sales, as compared to cost of goods sold of $2,870,888, or 77% of net sales for
the 1996 Period. The increase in cost of goods sold resulted almost entirely
from the acquisition of the Private Label Group on August 22, 1996. The
reduction in the percentage of cost of goods sold as a percentage of net sales
to 69% in the 1997 Period from 77% in the 1996 Period was due primarily to
increased sales volume and the favorable mix of products sold in the 1997
Period.
13
<PAGE>
Selling, general and administrative expenses for the 1997 Period were
$3,896,990, or 31.2% of net sales, as compared to $1,652,240, or 44.1% of net
sales for the 1996 Period. The increase resulted almost entirely from the
acquisition of the Private Label Group on August 22, 1996. The reduction in the
selling, general and administrative costs as a percentage of net sales is
attributable to higher sales volume in the 1997 Period, and reduced selling,
general and administrative expenses in the second half of 1997.
Interest expense decreased from $595,129 in the 1996 Period to
$475,310 in the 1997 Period. The decrease is attributable to the reduction in
debt due to equity received from the public offering in July 1997.
LIQUIDITY AND CAPITAL RESOURCES
From inception to date, Azurel's operations have been funded by a
combination of debt and equity financings. Azurel completed its initial public
offering of its securities in August 1997, whereby the Company issued 1,200,000
shares of common stock and 1,200,000 common stock purchase warrants. The Company
received approximately $5,538,000 from its initial public offering. In addition,
Azurel sold 750,000 shares of Common Stock at $2.00 per share from February
through July 1996.
Azurel secured a revolving line of credit of $3,500,000 with Finova
Capital Corporation until February 2000. Such line of credit bears an interest
rate of 2.5% above the prime rate. The line of
14
<PAGE>
credit is secured by the Company's receivables, inventory and a second lien on
machinery and equipment. In December 1997 the Company secured a 4 year term loan
of $800,000 at 11.3% from GE Capital. Such loan is secured by the Company's
existing machinery and equipment. In March of 1997, the Company secured a 5
year term loan of $260,000 at a rate of approximately 10.5% from CIT, secured by
new machinery and equipment acquired by the Company.
Azurel borrowed an aggregate of $1,037,827 in the 1996 Period and
repaid an aggregate of $626,149 of such borrowings in that period (The various
obligations are more fully described in the notes to the financial statements).
In the 1997 Period, Azurel borrowed an additional aggregate amount of $424,000
from various lenders and repaid $48,304 of borrowings in that same period.
Azurel offered certain holders of outstanding promissory notes the right to
convert their debt into shares of common stock at $2.00 per share. In July and
October 1996, lenders with obligations totaling $667,494 (including principal
and interest) elected to convert such loans into 438,747 shares of Common Stock.
Azurel sold 750,000 shares of Common Stock at $2.00 per share from February
through July 1996. In the 1996 Period, Azurel had net proceeds of $1,283,900
from these sales.
Proceeds of the aforementioned financings were utilized from inception
to date to (i) finance operations, (ii) advance funds to the Private Label
Group, (iii) fund increases to deferred financing costs, furniture and equipment
and deferred registration costs, (iv) fund advances to certain stockholders, (v)
fund the acquisition of the Private Label Group, (vi) repay outstanding accrued
expenses, indebtedness and payroll taxes, (vii) marketing, and (viii) purchase
inventory and equipment.
In January and April of 1997 the Company secured additional debt
financing in connection with the completion of private placements of $200,000
and $350,000 respectively, which were repaid upon the completion of the
Company's initial public offering.
-15-
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
AZUREL LTD. AND SUBSIDIARIES
REPORT ON CONSOLIDATED
FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
<PAGE>
AZUREL LTD.AND SUBSIDIARIES
FINANCIAL STATEMENTS
INDEX
Page
Number
--------------
INDEPENDENT AUDITORS' REPORT F - 1
FINANCIAL STATEMENTS:
Balance Sheet F - 2
Statement of Operations F - 3
Statement of Stockholders' Equity F - 4
Statement of Cash Flows F - 5-6
Notes to Financial Statements F - 7-15
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Shareholders and Board of Directors
Azurel Ltd. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Azurel
Ltd. and Subsidiaries as of December 31, 1997 and the related consolidated
statements of operations, stockholders' equity and cash flows for the years
ended December 31, 1997 and 1996. These financial statements are the
responsibility of the Azurel Ltd. And Subsidiaries' management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Azurel
Ltd. and Subsidiaries as of December 31, 1997 and the results of its
consolidated operations, stockholders' equity and its consolidated cash flows
for each of the years ended December 31, 1997 and 1996 in conformity with
generally accepted accounting principles.
/s/ Feldman Radin & Co., P.C.
Feldman Radin & Co., P.C.
Certified Public Accountants
February 20, 1998
New York, New York
F-1
<PAGE>
AZUREL LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
ASSETS
------
CURRENT ASSETS:
Cash $ 414,731
Restricted cash 290,521
Accounts receivable net of allowance for doubtful
accounts of $60,000 1,985,232
Inventories 1,882,807
Due from related parties 232,921
Prepaid expenses and other current assets 262,886
-----------
TOTAL CURRENT ASSETS 5,069,098
-----------
FURNITURE AND EQUIPMENT 1,462,580
-----------
INTANGIBLES 3,137,248
-----------
OTHER ASSETS:
Due from related party 135,000
Deferred financing costs 35,700
-----------
170,700
$ 9,839,626
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving line of credit $ 1,133,393
Accounts payable 819,514
Accrued expenses and other liabilities 436,899
Customer advances 104,145
Current portion of long term debt 634,294
Due to related parties 269,916
-----------
TOTAL CURRENT LIABILITIES 3,398,161
-----------
LONG TERM DEBT 1,623,757
-----------
STOCKHOLDERS' EQUITY:
Preferred stock - par value $.001 per share
1,000,000 shares authorized; issued and outst -
Common stock, par value $.001 per share;
24,000,000 authorized; 5,293,745 issued
and outstanding 5,294
Additional paid in capital 7,438,001
Accumulated deficit (2,609,830)
Cumulative translation adjustment (13,582)
Stock subscription receivable (2,175)
-----------
TOTAL STOCKHOLDERS' EQUITY 4,817,708
-----------
$ 9,839,626
===========
See notes to financial statements
F-2
<PAGE>
AZUREL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
------------------------
1997 1996
---- ----
NET SALES $ 12,481,556 $ 3,745,336
COST OF GOODS SOLD 8,607,759 2,870,888
------------ -----------
GROSS PROFIT 3,873,797 874,448
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 3,896,990 1,652,240
------------ -----------
LOSS FROM OPERATIONS (23,193) (777,792)
INTEREST EXPENSE 475,310 595,129
------------ -----------
NET LOSS $ (498,503) $(1,372,921)
============ ===========
LOSS PER COMMON SHARE $ (0.11) $ (0.42)
============ ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 4,468,325 3,287,759
============ ===========
See notes to financial statements
F-3
<PAGE>
<TABLE>
<CAPTION>
AZUREL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
COMMON STOCK ADDITIONAL STOCK CUMULATIVE TOTAL
NUMBER OF PAID-IN ACCUMULATED SUBSCRIPTIONS TRANSLATION STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT RECEIVABLE ADJUSTMENT EQUITY
------ ------ ------- ------- ---------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1996 2,450,000 $2,450 $ 64,734 $ (513,406) $(2,175) $ -- $ (448,397)
Stock issued in connection with
bridge financing 125,000 125 124,875 -- -- -- 125,000
Sale of common stock 750,000 750 1,283,150 -- -- -- 1,283,900
Stock issued for services 60,000 60 119,940 -- -- -- 120,000
Stock issued in connection with acquisition 5,000 5 21,245 -- -- -- 21,250
Stock issued in connection with a penalty 25,000 25 49,975 -- -- -- 50,000
Stock issued in connection with a loan 25,000 25 38,070 -- -- -- 38,095
Conversion of debt to common stock 438,747 439 642,701 -- -- -- 643,140
Stock options issued for services -- -- 37,500 -- -- -- 37,500
Distribution -- -- -- (225,000) -- -- (225,000)
Net loss -- -- -- (1,372,921) -- -- (1,372,921)
--------- ------ ----------- ----------- ------- -------- -----------
Balance - December 31, 1996 3,878,747 3,879 2,382,190 (2,111,327) (2,175) -- 272,567
Sale of common stock - initial
public offering 1,200,000 1,200 5,536,810 -- -- -- 5,538,010
Expenses associated with initial
public offering -- -- (1,373,278) -- -- -- (1,373,278)
Stock issued to shareholders as additional 199,998 200 892,294 -- -- -- 892,494
Stock issued for legal services 15,000 15 (15) -- -- -- --
Cumulative effect of foreign currency -- -- -- -- -- (13,582) (13,582)
translation
Net loss -- -- -- (498,503) -- -- (498,503)
--------- ------ ----------- ----------- ------- -------- -----------
Balance December 31, 1997 5,293,745 $5,294 $ 7,438,001 $(2,609,830) $(2,175) $(13,582) $ 4,817,708
========= ====== =========== =========== ======= ======== ===========
</TABLE>
See notes to financial statements.
F-4
<TABLE>
<CAPTION>
AZUREL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
------------------------
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (498,503) $(1,372,921)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 224,789 57,384
Amortization 202,025 397,432
Other -- 237,494
Changes in assets and liabilities, net of effect of acquisition:
(Increase) decrease in accounts receivable (444,027) 34,613
(Increase) decrease in inventories (641,298) 249,265
(Increase) decrease in prepaid expenses and other
current assets (142,925) (59,736)
(Increase) decrease in other assets 217,845 (276,721)
Increase (decrease) in accounts payable and accrued expenses (1,302,005) 684,173
Increase (decrease) in customers advances 46,385 (97,382)
Increase (decrease) in related party loans 343,154 (767,700)
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (1,994,560) (914,099)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions, net of cash acquired (57,556) (665,107)
Purchase of property and equipment (286,193) (87,411)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (343,749) (752,518)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in cash overdraft (10,635) 10,635
Increase in restricted cash (21,790) (7,304)
Decrease (Increase) in long-term debt (1,349,426) 411,680
Decrease in capital lease obligations (16,259) (11,520)
Net proceeds from stock issuance 4,164,732 1,259,545
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,766,622 1,663,036
----------- -----------
Effect of exchange rate changes on cash and cash equivalents (13,582) --
NET INCREASE (DECREASE IN CASH) 414,731 (3,581)
CASH AT BEGINNING OF YEAR -- 3,581
----------- -----------
CASH AT END OF YEAR $ 414,731 $ --
=========== ===========
See notes to financial statements.
F-5
<PAGE>
YEARS ENDED DECEMBER 31,
------------------------
1997 1996
SUPPLEMENTAL DISCLOSURES OF CASH FLOW ---- ----
INFORMATION:
Cash paid for interest $ 231,656 $ 259,083
Cash paid for income taxes $ -- $ --
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Additional stock issued to shareholder as compe $ 892,494 $ --
=========== ===========
Note issued for the acquisition of Cambridge Bu $ 121,012 $ --
=========== ===========
Issuance of common stock through conversion of $ -- $ 163,095
Issuance of common stock in connection with acq $ -- $ 21,250
=========== ===========
Conversion of debt to common stock $ -- $ 637,500
=========== ===========
Distribution through assumption of long-term de $ -- $ 225,000
=========== ===========
Purchase of equipment through capital lease $ -- $ 11,304
=========== ===========
Assumption of debt in connection with acquisiti $ -- $ 1,758,750
=========== ===========
Stock issued for services $ -- $ 170,000
=========== ===========
</TABLE>
F-6
<PAGE>
AZUREL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT EVENTS
-----------------------------------
Azurel Ltd. (the "Company") was incorporated in Delaware on June 26,
1995. In July 1996, the Company formed a subsidiary, Scent 123, Inc.
and subsequently acquired the assets of Scent Overnight, Inc., an
overnight delivery service of men's cologne and women's fragrances.
The Company intends to market and develop original cosmetic and
fragrance lines. At year end, no significant operations had
commenced.
In August 1996, Azurel, Ltd. purchased all of the outstanding common
stock of Private Label Cosmetics, Inc. and affiliates ("Private Label
Group") for cash, notes and common stock aggregating $2,782,500 plus
acquisition costs of $285,000. The Private Label Group is located in
New Jersey and manufactures cosmetics for sale to major cosmetic
companies.
In August 1997, the Company sold 1,200,000 units consisting of
1,200,000 shares of common stock and an equal number of common stock
purchase warrants in an initial public offering. The Company received
gross proceeds before underwriter discounts and offering expenses of
$5,538,000. Offering expenses were approximately $1,373,000.
The Company concurrently issued approximately 200,000 common shares
to a principal shareholder and a former shareholder as additional
consideration for machinery and equipment included in the Private
Label Group acquisition.
In October 1997, the Company acquired all of the outstanding shares
of Cambridge Business Services Corporation for $212,000 of which
$95,000 was paid at the closing and the balance in February 1998.
The Company opened a sales and distribution facility in France in the
latter part of 1997. Significant operations had not commenced at
December 31, 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
a. Principles of consolidation - The consolidated financial
statements include the accounts of the Company and its
wholly owned subsidiaries. All material intercompany
transactions and balances have been eliminated.
b. Accounting estimates - The preparation of financial
statements in accordance with generally accepted accounting
principles requires management to make significant
estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from those estimates.
F-7
<PAGE>
c. Inventories - Inventories are recorded at the lower of cost
or market. Cost was determined using the average cost
method.
d. Property and equipment - Property and equipment are stated
at cost and depreciated using the straight-line method over
the estimated useful lives of the assets.
e. Deferred registration costs - Deferred registration costs
were charged against additional paid-in capital upon
completion of the Company's public offering.
f. Deferred financing costs - Deferred financing costs are
charged to interest expense over the terms of the
respective loans.
g. Fair value of financial instruments - The carrying amounts
reported in the balance sheet for cash, receivables,
accounts payable, and accrued expenses approximate fair
value based on the short-term maturity of these
instruments.
h. Income taxes - The Company accounts for income taxes under
the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS No.
109). SFAS No. 109 requires the recognition of deferred tax
assets and liabilities for both the expected impact of
differences between the financial statements and tax basis
of assets and liabilities, and for the expected future tax
benefit to be derived from tax loss and tax credit
carryforwards. SFAS No. 109 additionally requires the
establishment of a valuation allowance to reflect the
likelihood of realization of deferred tax assets.
i. Stock based compensation - The Company accounts for
employee stock transactions in accordance with APB Opinion
No. 25, "Accounting For Stock Issued To Employees." The
Company has adopted the proforma disclosure requirements of
Statement of Financial Accounting Standards No. 123,
"Accounting For Stock-Based Compensation."
j. Goodwill - Goodwill resulting from various acquisitions
represents the remaining unamortized value of the excess of
the purchase price over the fair value of the net assets
acquired. Goodwill is amortized on a straight line basis
over a period of 20 years.
k. Impairment of long - lived assets - The Company has adopted
Statement of Financial Accounting Standards No. 121,
"Accounting For The Impairment Of Long-Lived Assets And For
Long-Lived Assets To Be Disposed Of" as of January 1, 1996.
Such adoption had no material effect on the financial
statements of the Company.
F-8
<PAGE>
AZUREL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
l. Earnings per share - In February 1997, the Financial
Accounting Standards Board issued Statement of Financial
Accounting Standard No. 128 ("SFAS 128"), "Earnings Per
Share". SFAS 128 is effective for financial statements
issued for interim and annual periods ending after December
15,1997; after the effective date, all prior period
earnings per share data are required to be restated. Net
Loss per common share is based on the weighted average
number of shares outstanding. Potential common shares
includable in the computation of fully diluted per share
results are not presented in the financial statements as
their effect would be anti-dilutive.
m. Foreign currency translation - The assets and liabilities
of the Company's foreign operation were translated into
U.S. dollars based on the current exchange rate at December
31, 1997 and at the weighted average rate for the statement
of operations for the period then ended.
3. INVENTORIES
-----------
Inventories at December 31, 1997 consisted of the following:
Raw Materials $ 874,304
Work In Process 828,115
Finished Goods 180,388
-----------------------
$ 1,882,807
=======================
4. RELATED PARTY TRANSACTIONS
--------------------------
Amounts due from related parties consist of loans and
advances to officers, shareholders and an affiliated entity. The
loans are interest-free and are as follows:
Loans to affiliate $ 332,279
Advances to officers/shareholders 35,642
-------------------------
367,921
Less loans to affiliate - non-current 135,000
-------------------------
$ 232,921
=========================
F-9
<PAGE>
AZUREL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Additionally, trade receivables included $308,840 due from affiliates
at December 31, 1997.
Private Label Group has an informal arrangement with an affiliate to
sublease part of its facilities at a cost of $86,000 per annum. Sales
in 1997 to two entities controlled by a principal shareholder were
$655,000.
5. PROPERTY AND EQUIPMENT
----------------------
Property and equipment consists of the following:
<TABLE>
<CAPTION>
Estimated years December 31,
of useful lives 1997
------------------------------ -----------------------------
<S> <C> <C>
Machinery and equipment held under
capital leases 5-7 years $ 41,478
Machinery and equipment 5-9.5 years 3,775,752
Leasehold improvements 15 years 211,498
-----------------------------
4,028,728
Less accumulated depreciation 2,566,148
-----------------------------
$ 1,462,580
=============================
</TABLE>
6. INTANGIBLE ASSETS:
------------------
Intangible assets result primarily from the acquisition of Private
Label Group and are as follows:
Estimated Useful Cost
Life
----------------------------- -----------------------
Formulae 15 Years $ 2,285,000
Customer List 19 Years 952,000
Goodwill 20 Years 164,265
-----------------------
3,401,265
Less: Accumulated Amortization 264,017
-----------------------
$ 3,137,248
========================
F-10
<PAGE>
AZUREL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
7. REVOLVING CREDIT FACILITY
-------------------------
In February 1998, the Company refinanced their borrowing arrangement
with Finova. The line of credit was increased to $3,500,000 and bears
interest at 2.5% per annum above the existing prime rate. Borrowings
are secured by trade receivables, inventories and a second lien on
machinery and equipment. The agreement expires in February 2000.
8. LONG-TERM DEBT
--------------
The following is a summary of long-term debt:
<TABLE>
<CAPTION>
December 31,
1997
------------------------
<S> <C>
Note payable - shareholder, payable in monthly installments of
$5,551 including interest at 6% per annum, through August 2003 $ 313,154
Note payable - shareholder, payable in semi-annual installments of
$9,219 plus interest at 9% per annum, through 2000. 55,314
Note payable - shareholder payable in semi-annual installments of
$184,375 plus interest at 9% per annum, through 2000. 1,106,250
Note payable - GE Capital Corp. - payable in monthly installments
of $16,667 plus interest at 11.3% per annum through 2001. The
note is secured by machinery and equipment. 783,333
-----------------
2,258,051
Less current portion 634,294
-----------------
$ 1,623,757
=================
</TABLE>
Notes payable to shareholders are unsecured.
Long-term debt maturities for the next five years are as follows:
1998 - $634,294; 1999 - $638,976; 2000 - $642,170; 2001 - $241,706;
2002 - $61,974.
F-11
<PAGE>
AZUREL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
9. INCOME TAXES
------------
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes ("SFAS No.
109"). SFAS No. 109 requires the recognition of deferred tax assets
and liabilities for both the expected impact of differences between
the financial statements and tax basis of assets and liabilities, and
for the expected future tax benefit to be derived from tax loss and
tax credit carry forwards. SFAS No. 109 additionally requires the
establishment of a valuation allowance to reflect the likelihood of
realization of deferred tax assets. At December 31, 1997, the Company
had net deferred tax assets of $1,331,000. The Company has recorded a
valuation allowance for the full amount of the net deferred tax
assets.
The following table illustrates the source and status of the
Company's major deferred tax assets:
Net operating loss carryforward $ 1,227,000
Accounts receivable allowance 24,000
Inventory allowance 80,000
Valuation allowance (1,331,000)
-----------------------------
Net deferred tax asset recorded $ -
=============================
The provision for income taxes for year ended December 31, 1997
differs from the amount computed applying the statutory federal
income tax rate to income before income taxes as follows:
Income tax benefit computed at statutory $ (199,000)
rate
Tax benefit not recognized 199,000
-----------------------
Provision for income taxes $ -
=======================
The Company has net operating loss carry forwards for tax
purposes totaling $3,068,000 at December 31, 1997 expiring
in the years 2008 to 2012. Approximately $952,000 of the
carry forwards are subject to limitations on annual
utilization because there are "equity structure shifts" or
"owner shifts" involving 5% stockholders (as these terms
are defined in Section 382 of the Internal Revenue Code),
which have resulted in a more than 50% change in ownership.
The annual limitation is based primarily on the value of
the Private Label Group as of the date of the ownership
change multiplied by the applicable Federal Long Term Tax
Exempt Bond Rate.
F-12
<PAGE>
AZUREL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
10. STOCK OPTION PLAN
-----------------
In March 1997 the Company adopted a stock option plan which provides
for grants to officers and other employees, directors, consultants and other
persons who perform significant services for the Company. The exercise price of
each option may not be less than 100% of the fair market value of the common
stock at the time of the grant. Options to acquire up to 750,000 shares may be
granted under the plan.
As of December 31, 1997, 130,750 options were outstanding, of which
129,000 were exercisable at $4.25 per share and 1,750 were exercisable at $4.375
per share. No options were exercised as of December 31, 1997.
Pro-forma information regarding net loss and loss per share is
presented below as if the Company had accounted for its employee stock options
under the fair value method; such pro forma information is not necessarily
representative of the effect on reported net loss for future years due to the
vesting period of the stock options and the fair value of additional stock
options in future years.
Had compensation cost for the Company's stock option plan been
determined based on fair value at the grant date, the Company's pro-forma net
loss for the year ended December 31, 1997 would have been $780,000 or $0.17 per
share.
The weighted average fair value of the options granted during the
year ended December 31, 1997 are estimated as $2.17 on the date of the grant
using the Black-Scholes option pricing model with the following assumptions used
for the year ended December 31, 1997: expected dividend yield of 0%, expected
volatility of 50%, risk free interest rate of 5.7% and estimated life of five
years.
11. REDEEMABLE COMMON STOCK PURCHASE WARRANTS
-----------------------------------------
The Company issued 1,200,000 warrants in connection with the initial
public offering of its common stock. Each warrant entitles its holder
to purchase one share of Common Stock at an exercise price of $4.50
per share. The warrants are exercisable commencing July 30, 1998 and
expire in July 2002. The warrants are redeemable by the company at a
price of $.10 each commencing July 30, 1998 and thereafter up to
their expiration. The Company additionally issued 120,000 redeemable
warrants to the underwriter for $18,000. Such warrants are
exercisable for four years commencing July 30, 1998 at a price equal
to 150% of the initial public offering price of the Common Stock and
Redeemable Warrants. The Company has reserved 1,320,000 shares of
common stock for issuance upon exercise of the warrants.
12. PREFERRED STOCK
---------------
The Company is authorized to issue preferred stock with such
designations, rights and preferences as may be determined from time
to time by the Board of Directors. Accordingly, the Board of
Directors is empowered, without stockholder approval, to issue
preferred stock with dividend, liquidation, conversion, voting or
other rights. The Company has no preferred stock outstanding at
December 31, 1997.
13. LEASES
------
The Company is obligated under a lease for its operating facilities
in New Jersey for annual rentals ranging from $475,000 to $529,000
through August 31, 2002. The Company sub-lets part of its premises to
F-13
<PAGE>
AZUREL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
a related party for an annual rental of $86,000. The Company is
further obligated under a lease for its administrative facility in
New York City for annual rentals of $74,512 through April 2001. The
lease for the Company's subsidiary, Cambridge Business Services,
requires monthly payments of $3,000. The payments are adjusted
annually for inflation.
Total rent expense for the year ended December 31, 1997 was
$574,000 and for the four months ended December 31, 1996 rent
expense was $212,000.
Future minimum rental payments under non cancelable leases as of
December 31, 1997 were as follows: 1998 - $557,000; 1999 -
$573,000; 2000 - $589,000; 2001 - $605,000; 2002 - $361,512.
14. SIGNIFICANT CUSTOMERS
---------------------
During the year ended December 31, 1997, one customer accounted for
19% and another accounted for 10% of the total sales.
15. COMMITMENTS
-----------
a. In May 1996, the Company entered into a license agreement with the
owner of the "Members Only" trademark. The agreement grants the
Company the exclusive right to manufacture and distribute cosmetics
and other items under the "Members Only" mark. The agreement
expires in September 2001, with the Company's option to renew the
license agreement for an additional five year term. Under this
agreement, the Company is to required to pay aggregate minimum
royalties of $1,225,000 through September 2001. The Company is
currently in negotiations to terminate this contract. Management
believes that any potential settlement will not be material to the
Company.
b. In October 1997, the Company entered into a license agreement with
the owner of the "Hang-Ten" trademark. The agreement grants the
Company the exclusive right to manufacture and distribute cosmetics
and other items under the "Hang-Ten" mark. The agreement which
expires in December 2003, requires the Company to pay aggregate
minimum royalties of $563,000 through December 2003.
c. The Company has a three year employment agreement with an officer
for a base salary of $195,000 which expires in August 1999. The
officer has an option to renew the agreement for an additional two
years. Additionally, the officer will receive a bonus equal to 10%
of the Private Label Group's annual profits, as defined, in excess
of $500,000 for the years ending December 31, 1997, 1998 and 1999.
F-14
<PAGE>
AZUREL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
d. The Company is obligated under a consulting agreement with a former
officer for monthly payments of $11,117 through August 2003.
e. The Company is obligated under a three year employment agreement
with its chief executive officer commencing July 30, 1997. The
officer will receive an annual salary of $95,000 plus bonuses as
determined by the Board of Directors.
F-15
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in or disagreements with the Company's Accountants on
accounting or financial disclosures.
PART III
16
<PAGE>
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Incorporated by reference from the Registrant's definitive proxy statement, to
be filed in accordance with Rule 14a-101 with the Commission not later than 120
days after the end of the fiscal year covered by this form.
ITEM 10. EXECUTIVE COMPENSATION
Incorporated by reference from the Registrant's definitive proxy statement, to
be filed in accordance with Rule 14a-101 with the Commission not later than 120
days after the end of the fiscal year covered by this form.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from the Registrant's definitive proxy statement, to
be filed in accordance with Rule 14a-101 with the Commission not later than 120
days after the end of the fiscal year covered by this form.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the Registrant's definitive proxy statement, to
be filed in accordance with Rule 14a-101 with the Commission not later than 120
days after the end of the fiscal year covered by this form.
ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K
---------------------------------------
(A) EXHIBITS (NUMBERED IN ACCORDANCE WITH ITEM 601 OF REGULATION S-B).
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- -------------- ----------------------
3.1** Certificate of Incorporation of the Registrant.
3.2** Amended By-Laws of the Registrant.
3.3** Amended Certificate of Incorporation of the Registrant
4.1** Specimen Common Stock Certificate.
4.2** Specimen Redeemable Common Stock Purchase Warrant
Certificate.
17
<PAGE>
4.3** Form of Public Warrant Agreement.
4.4** Form of Warrant Agreement between the Registrant and
Network 1, including Form of Underwriter's Warrant
Certificate.
10.1** Employment Agreement between the Registrant and Gerard
Semhon dated October 28, 1996.
10.2** Employment Agreement between the Registrant and Michael
J. Assante dated August 22, 1996.
10.3** Lease for 509 Madison Avenue, New York, New York 10022
dated April 29, 1996.
10.4** Lease for 20-10 Maple Avenue, Fair Lawn, New Jersey
dated April 11, 1991.
10.5** License Agreement between the Registrant and Europe
Craft Imports, Inc. dated May 15, 1996.
10.6** Stock Purchase and Sale Agreement dated July 17, 1996
by and among Michael J. Assante, Azurel Ltd., Private
Label Cosmetics, Inc., P.L.C. Specialties, Inc.,
International Cosmetic Group, Inc. and Fashion
Laboratories, Inc.
10.7** Agreement by and between Scent Overnight, Inc. and
Scent 123, Inc. dated September 9, 1996.
10.8** Registrant's 1997 Stock Option Plan.
10.9** Registrant's Promissory Note dated August 22, 1996 in
the principal amount of $1,675,000 issued to Michael J.
Assante.
10.10** Registrant's Promissory Note dated
August 22, 1996 in the principal
amount of $83,750 issued to Louis
DiVita.
10.11** Consulting Services Agreement dated August 12, 1993
between Louis DiVita and Private Label Cosmetics, Inc.
PLC Specialties, Inc., Fashion Laboratories, Inc.,
Contemporary Cosmetic Group, Inc., International
Cosmetic Group, Inc., D.A. Advertising Group
International, Inc. and Intra-Africa Corporation.
18
<PAGE>
10.13** Collective Bargaining Agreement
10.14** Rubigo Cosmetics Agreement - January 1992
10.15** Revolving Credit Agreement
10.16** Agreement by and among Azurel, Ltd., Scent Overnight, .
Inc. and Gerard Semhon dated July 14, 1997.
10.17* License Agreement between Azurel Ltd. and International
Licensing Corporation dated October 6, 1997.
10.18* Security Agreement dated February 6, 1998 by and
between Azurel Ltd. and Finova Capital Corporation.
10.19* Security Agreement dated December 30, 1997 by and
between Azurel Ltd. And Private Label Cosmetics, and
General Electric Capital Corporation.
10.20* Equipment Lease Agreement dated February 19, 1998 by
and between Azurel Ltd. and The CIT Group/Equipment
Financing.
21.1** Subsidiaries of the Registrant.
24.1** Power of Attorney (included with signature page).
27.1*** Financial Data Schedule
- ----------
* Filed herewith.
** Incorporated by Reference from the Company's Registration Statement
filed with the Securities and Exchange Commission on July 30, 1997.
*** Previously filed.
19
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant has duly caused this Annual Report on Form 10-KSB/A to
be signed on its behalf by the undersigned, thereunto duly authorized.
AZUREL LTD.
By: /S/ GERARD SEMHON
Gerard Semhon, Chief Executive
Officer and Chairman of the Board
In accordance with the Exchange Act, this report has been signed
below by the following persons and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/S/ GERARD SEMHON Chief Executive Officer and April 28, 1998
Gerard Semhon Chairman of the Board
/S/ CONSTANTINE BEZAS President and Director April 28, 1998
Constantine Bezas
/S/ FRANK DESIMONE Executive Vice President, Chief April 28, 1998
Frank DeSimone Financial Officer and Director
/S/ JOSEPH TRUITT BELL Executive Vice President April 28, 1998
Joseph Truitt Bell and Director
/S/ VAN CHRISTAKOS Secretary, Treasurer April 28, 1998
Van Christakos and Director
Director April 28, 1998
Kay Shortway
Director April 28, 1998
Norman Grief
Portions of this exhibit marked with a series of X's have been deleted pursuant
to the Company's application for Confidential Treatment of such information.
EXHIBIT 10.17
LICENSE AGREEMENT
THIS LICENSE AGREEMENT is made and entered into as of October 6, 1997 by
and between INTERNATIONAL LICENSING CORPORATION , a Luxembourg corporation
("Licensor"), whose address is 15, rue de la Chapelle, L-1325 Luxembourg, and
AZUREL LTD., a New York corporation ("Licensee"), whose address is 509 Madison
Avenue, Suite 804, New York, New York 10022, with reference to the following
facts:
WHEREAS Licensor has been granted the rights to license and enter into
agreements with third parties to utilize certain trademarks and tradenames owned
by Hang Ten International ("HTI"), a California corporation, including the words
"Hang Ten", designs showing bare footprints, and combinations thereof (all of
the above shall be hereinafter referred to as the "Trademarks"); and
s
WHEREAS Licensee seeks a License from Licensor to design, manufacture,
advertise, sell and promote the items listed in Appendix "A"; said item(s)
hereinafter referred to as the "Licensed Items"; and
WHEREAS The parties hereto agree that Licensor shall grant to Licensee a
license to use the Trademarks in the design, manufacture, advertising, sale and
promotion of the Licensed Items, subject to each of the terms, provisions and
conditions of the Special Provisions (the "S.P.'s") and General Provisions (the
"G.P.'s") hereof. This Agreement consists of the S.P.'s and the G.P.'s, as said
S.P.'s are set forth below, and as said G.P.'s are attached hereto and
incorporated by reference as though fully set forth herein. (Whenever the term
"Agreement" or "License Agreement" is used, it specifically includes both the
S.P.'s and the G.P.'s). In case of a difference, conflict and/or discrepancy
between the S.P.'s and G.P.'s, the S.P.'s shall control and prevail.
NOW, THEREFORE, IT IS AGREED AS FOLLOWS:
SPECIAL PROVISIONS
S.P. 1 GRANT OF LICENSE AND DESIGNATION OF LICENSED
ITEMS:
A) Effective October 1, 1997 and subject to Paragraph B below, Licensor grants
to Licensee, for the period hereinafter specified and upon the terms, provisions
and conditions of this License Agreement, the exclusive right and license to use
the Trademarks within the Territory as Territory is defined in Article S.P. 3,
in the design, manufacture, advertising, sale and promotion of the Licensed
Items. In the event of any question regarding the definition of products which
Licensee may wish to produce pursuant to this Agreement, the final decision
shall rest in the sole discretion of Licensor. The rights granted to Licensee
herein are limited to use on or in connection with the Licensed Items and
Licensee specifically agrees not to use the Trademarks or give consent to the
use of any of them in any manner or on any product or item, except as set forth
in this Agreement, without the prior written consent of Licensor, or in any
manner inconsistent with Licensor's grant of rights to Licensee herein.
Page 1 of 9 Pages
<PAGE>
B) Licensor reserves the exclusive right to use and license the Trademarks with
respect to the Licensed Items for premiums, giveaways and promotional sales,
sales solely within Hang Ten branded retail stores and for direct mail sales to
retail consumers.
C) Licensor represents that the Trademarks shall be registered for use on the
Licensed Items in the United States and Licensor will, at its own expense, take
whatever steps are necessary to register the Trademarks for use on the Licensed
Items in the remainder of the Territory and in those countries to which the
Territory is expanded. Licensor represents that it has no knowledge that the use
of the Trademarks on the Licensed Items constitutes an infringement of another
trademark anywhere in the Territory. If, at any time, during the term of the
Agreement or renewal terms, Licensee is prevented from selling the Licensed
Items in a portion of the Territory, then, in addition to whatever other
remedies Licensee may have, Licensee shall be relieved of its obligations with
regard to such country including its obligations to make Minimum Sales or to pay
Minimum Royalties.
S.P. 2 PREVIOUS LICENSEE: Notwithstanding anything contained herein,
Licensee specifically agrees that this exclusive right and license may be
subject to a former third party licensee's prior disposition rights,
<PAGE>
as exemplified by Article G.P. 17 hereof, and acknowledges that its rights under
this Agreement are subject thereto, and such disposition rights shall neither
alter nor diminish Licensee's duties and obligations hereunder. Licensor
represents that excluding Master Licensee Agreements, there are no other
existing licenses for the Trademarks for the Licensed Items.
S.P. 3 GEOGRAPHIC AREA: The rights granted to Licensee hereunder may be
exercised by Licensee only within the United States of America and its
territories and possessions (including the Commonwealth of Puerto Rico, Guam and
all U.S. military bases worldwide), Canada and Mexico, and shall be exclusive
therein. The rights granted to Licensee for duty free distribution and in the
countries of the Middle East which include Saudi Arabia, United Arab Emirates,
Kuwait, Oman, Iran, Lebanon, Bahrain and Jordan, are limited to use on or in
connection with the Licensed Items and Licensee specifically agrees not to use
the Trademarks or give consent to the use of any of them in any manner or on any
product or item, without the prior written consent of Licensor. In addition,
Licensee shall have the worldwide right to sell to duty-free shops, including
facilities of international airlines, international airports, cruise lines and
duty-free shops at border crossings. (Licensee's "Territory" shall include the
above-listed countries as well as the worldwide duty-free shops). Upon
Licensee's request, Licensor may, in its sole discretion, extend the areas in
which Licensee may exercise said rights, but any extension shall, in each
instance, be first evidenced by a written and duly executed amendment to this
Agreement for such periods and upon such terms and conditions mutually
acceptable to both Licensor and Licensee. Licensor shall not offer a license of
the Trademarks for use on the Licensed items in any location without offering
said license first to Licensee, for a period of thirty (30) days.
Notwithstanding the foregoing, Licensee agrees that it possesses no rights to
and shall not sell the Licensed Items to exporters or others for resale or
reshipment outside of the Territory.
S.P. 4 TERM: This Agreement shall consist of two separate terms. The first
term shall be for a period commencing as of October 1, 1997 and ending March 31,
1999 (the "First Term"). The second term shall commence on January 1, 1999 and
continue for five (5)
Page 2 of 9 Pages
<PAGE>
years and until December 31, 2003 unless sooner terminated or extended pursuant
hereto (the "Second Term").
During the First Term Licensee shall distribute the Licensed Items exclusively
to Hang Ten stores on the terms set forth in Paragraph S.P.15.
During the Second Term, each period from January 1 through December 31 is
hereafter referred to as the "(sequential number) Contract Year", with the
exception of the "First Contract Year" which shall be for the period January 1,
1999 through December 31, 1999; for example, the period from January 1, 2000
through December 31, 2000 shall be referred to herein as the "Second Contract
Year" and so forth. When the term "Contract Year" is used, it shall mean each of
the First Contract Year, the Second Contract Year, and so forth.
S.P. 5 FAILURE TO MARKET:
A) Notwithstanding the above grant of rights to Licensee, in the event that
Licensee is not actively and substantially producing any of the separately
denoted Licensed Item(s) by June 1, 1998, or fails to have such Item(s)
available to the trade in commercially reasonable quantities during any ninety
(90) day period thereafter (except seasonal items out of season), then Licensor,
at its option, may terminate this Agreement with respect to such Licensed
Item(s) upon giving thirty (30) days written notice to Licensee. If the Licensee
has not cured this failure within that time (or commenced activities necessary
to cure), Licensor shall be free to proceed with any third party for such
Licensed Item(s). Notwithstanding any such termination as provided in this
Paragraph, provided that Licensee is still producing one or more of the Licensed
Items, the balance of this Agreement shall remain unaffected, Licensee's rights
and obligations shall be exactly as provided in this Agreement, and there shall
be no reduction or alteration of any Minimum Royalty or Minimum Net Shipment
amount stated in this Agreement.
B) In addition to the above requirement concerning marketing of the Licensed
Items, in the event that Licensor requests Licensee to produce and market
particular specimens of goods that Licensee is offering in other lines sold by
Licensee, and Licensee declines to produce and market same, Licensor shall have
the right to contract with any third party for production of the declined
specimens, after thirty (30) days and shall further have the right to sell such
items itself or through a third party. Licensee shall have fifteen (15) working
days from the date of Licensor's solicitation to accept or decline Licensor's
request as stated hereinabove.
S.P. 6 ROYALTIES: Licensee shall pay to Licensor as royalties for the
rights granted hereunder the greater of the Minimum Royalty set out in Article
S.P. 8 or a sum equal to five percent (5%) of Licensee's actual Net Shipments of
Licensed Items, as "Net Shipments" is defined in Article G.P. 1. provided
however that no royalties shall be owed to Licensor for sales to the Hang Ten
retail stores. Such royalties shall be paid and accounted for on a monthly basis
in accordance with Article G.P. 3.
S.P. 7 ADVANCE DEPOSIT: Licensee shall pay to Licensor US$ 10,000 upon
signing by Licensee of this Agreement as an Advance Deposit to be applied
against royalties due under Articles S.P. 6 and S.P. 8 during the First Contract
Year.
Page 3 of 9 Pages
<PAGE>
S.P. 8 MINIMUM ROYALTY: Licensee shall pay a Minimum Royalty to Licensor as
follows: Middle East/ United States Canada Mexico Duty-Free Total
First Contract Year (1999) US$XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Second Contract Year (2000) US$XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Third Contract Year (2001) US$XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Fourth Contract Year (2002) US$XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Fifth Contract Year (2003) US$XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
however, the Minimum Royalty for the Second Contract Year and each succeeding
Contract Year shall be the amount stated above, or 75% of the preceding Contract
Year's actual royalties due, whichever is greater.
The above Minimum Royalties shall be due and payable on or before the 20th day
of the month following each Contract Year calendar quarter at the rate of 25%
per quarter for each of the respective Contract Years. In the event actual
royalties paid monthly are less than the quarterly minimums set forth above,
Licensee will be responsible for the difference between actual royalties paid on
Net Shipments and the cumulative Minimum Royalties due.
S.P. 9 MINIMUM NET SHIPMENTS OF LICENSED ITEMS: Notwithstanding anything to
the contrary set forth herein, Licensee shall maintain Minimum Net Shipments as
follows: Middle East/ United States Canada Mexico Duty-Free Total
First Contract Year (1999) US$ XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Second Contract Year (2000) US$ XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Third Contract Year (2001) US$ XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Fourth Contract Year (2002) US$ XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Fifth Contract Year (2003) US$ XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
however, the Minimum Net Shipments for the Second Contract Year and each
succeeding Contract Year shall be the amount stated above or 75% of the
preceding Contract Year's actual Net Shipments for each respective
country/category, whichever is greater.
If Licensee fails to maintain the required Minimum Net Shipments, Licensor
may terminate this Agreement by written notice delivered to Licensee within six
(6) months after the end of the Contract Year in which Licensee failed to
maintain such required Minimum Net Shipments. Any such termination shall not
affect Licensee's obligations to pay any amounts due to Licensor, arising or
accruing prior to or as of the date of such termination including but not
limited to a claim for the balance of Minimum Royalties, pro-rated to the date
of termination. Licensee and Licensor shall have all of the rights and
obligations set forth in G.P.17 regarding termination. Licensee shall not be
permitted to cross-collateralize Net Shipments achieved in one country/category
with Minimum Net Shipments in respect of any other country/category within the
Territory.
Page 4 of 9 Pages
<PAGE>
S.P. 10 ADVERTISING REQUIREMENTS:
A) In each Contract Year, Licensee shall expend at least a sum equal to the
greater of two percent (2%) of Licensee's Minimum Net Shipments (as Minimum Net
Shipments are defined at Article S.P. 9) or two percent (2%) of Licensee's
actual Net Shipments (as "Net Shipments" is defined in Article G.P. 1) for that
Contract Year for institutional advertising and promotion of the Licensed Items.
(Institutional advertising and promotion shall include trade and/or consumer
media such as newspapers, magazines, television and/or radio, but does not
include catalogues and brochures.) Concurrently with the rendition of the annual
report required by Article G.P. 4, Licensee shall submit a report certified as
accurate by Licensee's Chief Financial Officer evidencing the performance of its
financial obligation during the preceding Contract Year for such institutional
advertising and promotion. If said annual report shows that less than the
required amount was spent, the difference between the amount actually spent and
the amount to be spent must be remitted to Licensor within thirty (30) days for
use in the Hang Ten Advertising and Promotion Program Pool.
(B) In addition to and separate from the institutional advertising requirement
as set forth in Article S.P. 10(A), Licensee shall pay to Licensor for the Hang
Ten Advertising and Promotion Program Pool (the "Ad Pool"), the greater of the
"Minimum Ad Pool Fee" set forth below, or a sum equal to one percent (1%) of
Licensee's actual Net Shipments (as Net Shipments is defined in Article G.P. 1).
Such actual Ad Pool fees shall be paid and accounted for on a monthly basis in
accordance with Article G.P. 3.
The Minimum Ad Pool Fee shall be due and payable on or before the 20th
day of the month following each Contract Year quarter at the rate of 25% per
quarter for each of the respective Contract Year quarters. The actual Ad Pool
fees paid monthly will be applied against the quarterly minimums set forth
below, and Licensee will be responsible only for the difference between actual
Ad Pool fees paid on Net Shipments and the cumulative Minimum Ad Pool Fee due.
MINIMUM AD POOL FEE
-------------------
MIDDLE EAST/
UNITED STATES CANADA MEXICO DUTY-FREE TOTAL
------------- ------ ------ --------- -----
First Contract Year (1999) US$ 3,000 1,000 1,500 2,000 7,500
Second Contract Year (2000) US$ 6,000 2,000 3,000 4,000 15,000
Third Contract Year (2001) US$ 11,000 3,000 4,000 7,000 25,000
Fourth Contract Year (2002) US$ 13,500 3,500 4,500 8,500 30,000
Fifth Contract Year (2003) US$ 16,000 4,000 5,000 10,000 35,000
C) The payments required under both Paragraphs (A) and (B) of this Article S.P.
10 are separate from and in addition to Licensee's obligations to pay actual and
Minimum Royalties under this Agreement, and may not be applied against or
credited towards such royalty obligations.
D) Licensee shall submit to Licensor for prior approval all advertising and
promotional items, programs and materials relating to the Licensed Items at
least twenty (20) days prior to media deadlines. Licensor shall have the right
to disapprove any proposed items which do not
Page 5 of 9 Pages
<PAGE>
meet Licensor's standard requirements as to image and character. Failure of
Licensor to disapprove of same within fifteen (15) days after Licensor's receipt
thereof shall constitute approval.
S.P. 11 ADDRESS FOR NOTICES: All notices and other communications required
under this Agreement shall be in writing and shall be personally delivered, sent
by registered or certified mail, postage prepaid, return receipt requested, or
sent by an overnight express courier service that provides written confirmation
of delivery, to Licensee at its address as set forth above in the introductory
Paragraph of this Agreement, and to Licensor at the following address:
International Licensing Corporation
15, Rue de la Chapelle
L-1325 Luxembourg
All items required under G.P. 11, and a copy of all notices and communications
should be delivered to:
International Licensing (California) Corp.
3636 Nobel Drive
Suite 400
San Diego, CA 92122
Attention: Paul B. Epner, President
Each such notice or other communication shall be deemed given, delivered and
received upon its actual receipt, except that if it is sent by mail in
accordance with this Paragraph, then it shall be deemed given, delivered and
received 144 hours after the date such notice or other communication is
deposited with the United States Postal Service in accordance with this
Paragraph. Any party to this Agreement may give notice of a change of its
address to the other party to this Agreement.
S.P. 12 TIME IS OF THE ESSENCE IN EXECUTION: Licensee and Licensor
acknowledge that time is of the essence with respect to the Licensor's and
Licensee's execution and delivery to Licensor of this license agreement, which
shall occur no later than October 15, 1997. This license agreement shall have no
force and effect unless and until signed by both Licensee and Licensor.
S.P. 13 FISCAL YEAR: Licensee's fiscal year is January to December.
S.P. 14 PRODUCT DISTRIBUTION: Licensee acknowledges the marketing
techniques and retailing standards of Licensor and agrees to maintain these
standards to protect the value of the Trademarks and the image of the Licensed
Items. Licensee shall maintain the same or higher standards for the selection of
retail, wholesale and other outlets as those maintained by Licensor, namely
those stores that are commonly referred to in the market as "up-market" stores.
In the event of any question regarding the type of store or stores to which this
requirement applies, Licensee shall first request Licensor's approval of a
proposed store or
Page 6 of 9 Pages
<PAGE>
stores and the final decision regarding same shall be determined by Licensor.
Licensee acknowledges that Licensor may change such standards from time to time
during the term of this Agreement and that the changed standards shall apply to
Licensee after reasonable notice thereof. Such changed standards shall not apply
to stores in which the Licensed Items are already being sold or which Licensor
has previously approved without been given a reasonable time frame to execute
the change.
Licensor shall have the right, at any time, and from time to time, to
disapprove of the sale of Licensee's Licensed Items to particular wholesale
and/or retail outlets that were previously acceptable, including the right to
disapprove of outlets that were previously acceptable. Unless prior written
approval is obtained from Licensor, Licensee is specifically prohibited from the
sale and distribution of the Licensed Items through (i) any disapproved outlets,
and (ii) any factory outlet stores, warehouse sales, parking lot sales, swap
meets, flea markets and similar sale or disposal techniques. Licensee's failure
to comply with the requirements of this Article S.P. 14 shall constitute a
material breach of this License Agreement and Licensor may, at its sole option,
terminate Licensee's rights under this Agreement for failure to adhere to these
retailing and marketing standards and/or obtain specific performance to enjoin
any such actions or threatened actions by Licensee. Licensor's determination as
to whether a retail outlet satisfies the criteria of this Article S.P. 14 shall
be final and binding as between Licensee and Licensor.
S.P. 15 DISTRIBUTION TO HANG TEN RETAIL STORES:
A) Licensee agrees to offer the Licensed Items at manufacturer's cost plus
ten percent (10%) on F.O.B., New Jersey, to all Hang Ten retail stores, owned,
operated or franchised by Licensor or its affiliates including without
limitation to those in the countries of Taiwan, Hong Kong, Macao, Singapore,
Philippines, Indonesia, Thailand, Myanmar, China, Vietnam, Malaysia, India and
Middle East countries which include Saudi Arabia, United Arab Emirates, Kuwait,
Oman, Iran, Lebanon, Bahrain, Qatar, Syria, Egypt, Iraq and Jordan. Such Hang
Ten store(s) shall have no obligation to purchase the Licensed Items unless it
is reasonably satisfied with the quality, delivery and pricing terms associated
therewith, failing which the Hang Ten store(s) shall have the right to purchase
the Licensed Items from any third party of their choosing.
B) Licensee may employ at its own expense a Master Distributor to
merchandise the Licensed Items in the Hang Ten retail stores.
Page 7 of 9 Pages
<PAGE>
IN WITNESS WHEREOF, THE AUTHORIZED OFFICERS OF THE PARTIES HERETO HAVE EXECUTED
THIS AGREEMENT AS OF THE DATE SET FORTH BELOW.
INTERNATIONAL LICENSING CORPORATION
A Luxembourg corporation
("Licensor")
By: /s/Kung Ging Kong, Dennis
Kung Ging Kong, Dennis
Director
Dated: _______________________
AZUREL LTD.
A New York corporation
("Licensee")
By /s/ Gerard Semhon
Gerard Semhon
Chief Executive Officer/Chairman
Dated _______________________
Page 8 of 9 Pages
<PAGE>
APPENDIX "A"
Licensed Items
Cologne
Sun Care products
Bath and Shower Gels
Bath soap
Shampoo
Hair Conditioner
Massage Oils
* The above products are included in International Class 3 in the international
trademark classification system. Licensee acknowledges that the Trademarks are
not currently registered in International Class 3 in Canada, Mexico along with
other markets where duty free sales may occur and Middle Eastern Countries
covered by this Agreement. Licensor will file new trademark applications on
behalf of Hang Ten International in these territories upon execution of this
Agreement.
Page 9 of 9 Pages
<PAGE>
GENERAL PROVISIONS
THESE GENERAL PROVISIONS AND THE SPECIAL PROVISIONS TO WHICH THEY ARE ATTACHED
CONSTITUTE THE LICENSE AGREEMENT BETWEEN INTERNATIONAL LICENSING CORPORATION
("LICENSOR"), AND AZUREL LTD. ("LICENSEE") DATED.
THESE GENERAL PROVISIONS ARE OF FULL FORCE AND EFFECT IN CONJUNCTION WITH THE
SPECIAL PROVISIONS HEREOF, PROVIDED, HOWEVER, THAT IN THE EVENT ANY TERM HEREOF
IS INCOMPATIBLE AND/OR AT VARIANCE AND/OR AMBIGUOUS WITH ANY TERM OR PROVISION
OF THE SPECIAL PROVISIONS, THE SPECIAL PROVISIONS SHALL CONTROL AND PREVAIL.
G.P. 1 DEFINITION OF "NET SHIPMENTS": "Net Shipments" shall mean the
invoice price charged by Licensee for Licensed Items sold and shipped by
Licensee, less refunds, credits and allowances actually made or allowed to
customers for returned Licensed Items. In the event that Licensee sells to a
related party of Licensee, the pricing structure for said sale shall be uniform
for all licensees at a reasonable discounted price, excluding at least
royalties, advertising, sales commission and discounts. Sales to Hang Ten retail
stores shall not be included in Net Shipments for purposes of calculating
royalties.
G.P. 2 LICENSEE'S RECORDS: Licensee shall keep and maintain at its regular
place of business, during the term of this Agreement and for twelve months
thereafter, complete books and records of all business transacted by Licensee in
connection with the Licensed Items, including but not limited to books and
records relating to Net Shipments and orders for Licensed Items. Such books and
records shall be maintained in accordance with Generally Accepted Accounting
Principles consistently applied.
G.P. 3 LICENSEE'S MONTHLYEPORTS OF SHIPMENTS; ROYALTY PAYMENTS: On or
before the 20th day of each month during the term hereof and any extension
thereof, Licensee shall deliver to Licensor a written statement, certified to be
true and correct by the Chief Financial Officer of Licensee setting forth the
gross and Net Shipments by Licensee, itemized by category of Licensed Items, for
each of the Licensed Items during the preceding calendar month. Full payment of
the amounts due under Articles S.P. 6, S.P. 8 and S.P. 10 hereof shall be wire
transferred to Licensor's bank account as designated at Appendix "B" attached
hereto. In the event of shipments of Licensed Items prior to commencement of the
term hereof, Licensee shall submit monthly reports and royalty payments as if
the term had commenced on the date of the first such shipment. If Licensee fails
to pay any sum due hereunder within ten (10) days after its due date, the amount
owing shall thereupon bear interest until paid at the rate of 18% with the
amount of such interest calculated from such time as said amounts were initially
due hereunder until they are actually paid. In no event shall the interest rate
charged exceed the maximum rate allowable under the relevant provisions of the
laws of California and Licensee's domicile.
Page 1 of 11 Pages
<PAGE>
Concurrent with Licensee's delivery of the above-described monthly report,
Licensee shall provide Licensor with a listing of all of Licensee's accounts and
customers showing the completed Net Shipments of Licensed Items achieved by
Licensee for each account and/or each customer for the previous shipment month.
In addition, Licensee shall provide Licensor with a listing, by account, of all
account/bookings (open order dollar volume) open at the time of the report.
G.P. 4 LICENSEE'S ANNUAL REPORTS AND ANNUAL ROYALTY PAYMENTS: On or before
the 20th day of the third month following the end of Licensee's fiscal year,
Licensee shall render to Licensor a written statement, certified by a certified
public accountant, showing gross shipments, Net Shipments, royalties due and
royalties paid for Licensee's preceding fiscal year, and for any Contract Year
which ended within said fiscal year. If said statement discloses that the amount
of royalties paid during any period to which said statement relates was less
than the amount required to be paid, Licensee shall pay said deficiency
concurrently with the delivery of the statement, together with interest at 18%,
with the amount of such interest calculated from such time as said amounts were
initially due hereunder until they are actually paid. In no event shall the
interest rate charged exceed the maximum rate allowable under the relevant
provisions of the laws of California and Licensee's domicile. If said statement
discloses that Licensee has paid royalties in excess of the amounts required to
be paid, Licensee shall be entitled to a credit equal to such excess royalties
against the royalties next accruing under this Agreement. In the event of excess
royalty payments during the final year of this Agreement, adjustments shall be
made in cash rather than in the form of a credit.
G.P. 5 AUDIT BY LICENSOR: At all times during the existence of this
Agreement and for twelve (12) months thereafter, Licensor, upon giving Licensee
at least ten (10) days advance written notice of its intention so to do, shall
have the right to inspect or audit all books and records which Licensee is
required to maintain pursuant to Article G.P. 2 above. If any such audit shall
disclose that Licensee has understated Net Shipments or underpaid royalties for
any reporting period, Licensee, upon written demand, shall forthwith pay the
amount, if any, by which the royalties owing exceed royalties paid, with
additionally, interest at 18% from such time as said amounts were initially due.
In the event that Licensee has understated Net Shipments in excess of 2% or
underpaid royalties in excess of 2% of the amount due for any Contract Year,
Licensee shall forthwith and upon written demand also pay all costs, fees and
expenses incurred by Licensor in conducting such audit, including, without
limitation, reasonable travel expenses. Should such audit disclose that the
royalties paid exceed the royalties due, Licensee shall receive credit equal to
such excess royalties against the same royalties next accruing, except that when
such audit is conducted at the expiration of the Agreement, any excess royalty
payments revealed by such audit will be remitted to Licensee within thirty (30)
days thereafter.
G.P. 6 BEST EFFORTS OF LICENSEE: Licensee shall use its best efforts and
skill to design, manufacture, advertise, sell and ship the Licensed Items and
shall continuously and diligently during the term hereof produce an inventory of
Licensed Items and procure and maintain facilities and trained personnel
sufficient and adequate to accomplish the foregoing. A cessation of the above
for a continuous period of ninety (90) days shall be grounds for termination,
without prior notice. Licensor shall have the right to inspect Licensee's said
Page 2 of 11 Pages
<PAGE>
facilities during regular business hours, without prior notice. Licensor shall
use reasonable efforts to make such inspection in the presence of a
representative of Licensee.
G.P. 7 LICENSED ITEMS TO BE KEPT DISTINCTIVE: Licensee shall consistently
distinguish the Licensed Items from other products manufactured and sold by
Licensee and shall avoid confusing similarity between such the packaging of
other products and that of the Licensed Items. Licensee shall take such efforts
as are necessary to maintain the Licensed Items as separate and distinct lines
in styling, design and merchandising from any other product manufactured or sold
by Licensee. Licensor agrees to render reasonable assistance and advice to
Licensee concerning style trends and direction. In the event Licensor shall
create any design or style and submit the same for use by Licensee, Licensee
shall not be required to use it, but regardless of Licensee's election, Licensee
shall have no right to such design or style and shall not use it in connection
with any product or service other than Licensed Items.
G.P. 8 ADDITIONAL OBLIGATIONS OF LICENSEE AS TO QUALITY, MERCHANDISING AND
OTHER ASPECTS OF LICENSED ITEMS:
A) Licensee shall provide and maintain at its sole cost and expense adequate
facilities and qualified personnel to assure and perpetuate the quality of the
Licensed Items consistent with the type, style and price range thereof.
Licensee's accounting records of sales, shipments and returns of Licensed Items
shall be maintained separately from Licensee's accounting records relating to
other items manufactured or sold by Licensee.
B) Licensee shall similarly furnish to Licensor, without request, prior to sale
or shipment of such items, samples of each proposed new and/or introductory
specimen to be utilized so as to insure the consistent high quality of the image
and character of the Licensed Items. Licensor shall have the right to disapprove
any proposed new sample which does not meet Licensor's standard requirements as
to image, quality and character, but failure of Licensor to notify Licensee of
such disapproval within fourteen (14) days after receipt of the sample shall
constitute Licensor's disapproval.
C) Licensee shall maintain distinctive advertising, design, styling and
merchandising for the Licensed Items. Upon request, Licensee, at its sole cost,
shall furnish to Licensor photographs and negatives of each previously approved
product samples and finished production samples of Licensed Items for Licensor's
further approval as to styling, materials and manufacturing quality. Licensor
shall not arbitrarily or unreasonably withhold said approval.
D) In addition thereto, prior to submission of such samples to Licensor,
Licensee shall conduct normal tests and verification procedures on each such
sample to assure that the quality of the Licensed Items are at least equal to
the quality of similar competitive non-licensed items manufactured and sold at
retail at comparable prices. In the event that Licensed Items are wearing
apparel, Licensee shall further conduct tests relating to color fastness,
maximum shrinkage, burst strength, curing and the like.
E) Each Licensed Item shall contain thereon at least one representation of the
Trademarks. All representations of the Trademarks placed upon any Licensed Item
shall be either
Page 3 of 11 Pages
<PAGE>
embroidered, knitted, screenprinted or flocked thereon unless Licensor gives its
prior written consent to some alternate method. Licensor specifically reserves
the right to withhold approval as to any representation of any of the Trademarks
on the Licensed Items, including without limitation any hang tags, labeling or
packaging thereof, which does not conform to Licensor's standard requirements
regarding uniformity as to such Trademark.
G.P. 9 RESTRICTIONS UPON SUBCONTRACTS: Licensee shall have the right to
enter into subcontracts for the manufacture of Licensed Items; provided, however
that Licensee shall first ascertain to its satisfaction that each subcontractor
is able to meet Licensee's quality standards and delivery schedules. In any
event, Licensee shall not permit any subcontractor to further subcontract the
work contracted for and shall discontinue using any subcontractor who shall
consistently fail to comply with the required quality standards and/or delivery
schedules.
G.P. 10 LICENSOR - LICENSEE MEETINGS: Licensor shall have the right to call
meetings to be held at Licensor's primary place of business not more frequently
than once a year, with at least thirty (30) days advance written notice to
Licensee. Such meeting shall be called to generally review matters relating to
the terms and conditions of this Agreement and the compliance of each of the
parties herewith, and to consider policies, planning and performance relating to
quality controls, production, marketing, advertising and promotion of the
Licensed Items and any other matter or matters of concern. In addition thereto,
any party shall have the right to call meetings, as necessary, with at least
thirty (30) days advance written notice to the other party to discuss and
resolve specific matters of concern as they occur. If such meeting requires the
attendance of Licensor then it should be held at Licensor's primary place of
business. All meetings shall be attended by the representatives of the parties
who are responsible for the performance as to those matters to be discussed and
the costs thereof shall be borne by the respective parties. In addition,
Licensor holds an annual Licensee convention and it is intended that the
convention shall, among other things, foster cooperative projects among
licensees, resolve outstanding business matters and provide an opportunity to
review current licensee product and advertising. Due to the importance of this
convention, Licensor expects Licensee to use its best efforts to have its
representative(s) attend and participate.
G.P. 11 SAMPLES, PROMOTIONAL MATERIALS AND ACCOUNT LISTS:
A) Upon completion of same, Licensee shall make available to Licensor the
following:
1) Current representative samples of all Licensed Items as well as
findings, as Licensor or any other licensee may reasonably designate. Licensor,
or any other licensee shall pay Licensee's normal salesperson's sample charges
for said Licensed Items. Samples provided to Licensor for quality and design
approval in accordance with the requirements set forth below shall be provided
without cost to Licensor.
2) Copies of Licensee's advertising, sales and promotional materials when
the material is developed and available. Licensee shall keep a reasonable supply
of such materials in stock to facilitate requests.
Page 4 of 11 Pages
<PAGE>
3) Two (2) complete sample lines, at the same time as sample lines are
provided to licensee's sales force, at the same price that Licensee charges its
salespeople.
Licensee shall furnish the items specified in Article G.P. 11 (A) 1), 2)
and 3) within seven (7) days after said items first become available to
Licensee's sales representatives.
B) Licensee acknowledges that providing the above items to Licensor and/or other
licensees is of the essence of this Agreement and the recipient of any such
items shall be free to incorporate any features or otherwise, in the manufacture
of Licensed Items under other license agreements with Licensor; provided,
however, that nothing herein shall be construed to alter and/or diminish the
exclusive license granted Licensee hereby.
G.P. 12 PROHIBITION OF ASSIGNMENTS AND TRANSFERS: Without the prior written
consent of Licensor, Licensee shall not voluntarily, involuntarily or by
operation of law assign or transfer this Agreement or any of Licensee's rights
or duties hereunder (except as specifically provided herein) or any interest of
Licensee herein, nor shall Licensee enter into any sublicense for the use of the
Trademarks by others. Further, without the prior written consent of Licensor,
Licensee shall not sell or otherwise transmit or transfer to any party engaged
in the design or manufacture of items similar to any of the Licensed Items, any
design, style, know-how, technology or other item or knowledge of a technical or
competitive nature furnished to Licensee by or through Licensor. Included within
the prohibitions set forth herein are: (1) any transfer of any interest of
Licensee under this Agreement to any entity in which the present controlling
shareholders of Licensee do not have voting control, and (2) any transfer to any
other party or parties of voting control of Licensee by its present controlling
shareholders. Licensor shall not arbitrarily or unreasonably withhold its
consent to any assignment or transfer of ownership or control of Licensee. It
shall not be arbitrary or unreasonable for the Licensor to withhold its consent
to an assignment or transfer made without its prior permission, even though if
its permission had been sought it would have been arbitrary or unreasonable not
to grant it. The consent of Licensor to one assignment, transfer or sublicense
shall not be deemed to be consent to any subsequent assignment, transfer or
sublicense. Any assignment, transfer or sublicense without Licensor's written
consent shall be void and at the option of the Licensor shall constitute a
default hereunder.
G.P. 13 NO DILUTION OF TRADEMARKS NO ATTACK UPON TRADEMARKS:
A) Licensee shall not at any time use, promote, advertise, display or otherwise
publish any of the Trademarks or any material utilizing or reproducing any of
them in whole or in part, in such a manner as may adversely affect any of
Licensor's rights therein.
B) Licensee shall cause to appear on all Licensed Items and on all materials on
or in connection with which any of the Trademarks are used, such legends,
markings and notices as may be required by law to give appropriate notice of all
trademark, tradename or other rights therein or pertaining thereto.
C) Licensee shall not contest the validity of the Trademarks or any rights of
Licensor therein, nor will Licensee willingly become an adverse party to
litigation in which others shall
Page 5 of 11 Pages
<PAGE>
contest the Trademarks or Licensor's said rights. In addition thereto, Licensee
shall not in any way seek to avoid its obligations hereunder because of the
assertion or allegation by any person(s) or government(s) that the Trademarks or
any of them are invalid or by reason of any contest concerning the rights of
Licensor therein.
D) Licensor shall file all applications and documents necessary to maintain its
exclusive ownership of the Trademark for use on the Products in the Territory
during the term of this Agreement and all renewal terms.
G.P. 14 INFRINGEMENT AND OTHER TRADEMARK LITIGATION:
A) Licensee shall apprise Licensor as soon as practicable of any possible
infringement of the Trademarks which comes to the attention of Licensee.
Licensor at its sole cost and expense, and in its own name, shall prosecute and
defend any action or proceeding which Licensor deems necessary or desirable to
protect the Trademarks, including but not limited to actions or proceedings
involving their infringement. Upon written request by Licensor, Licensee shall
join Licensor at Licensor's sole cost in any such action or proceeding. In no
event shall Licensee commence any action or proceeding to protect the Trademarks
or any action or proceeding alleging infringement thereof without the prior
written consent of Licensor. In addition, Licensee shall not unilaterally defend
any infringement action unless it shall first make written demand upon Licensor
so to do, and Licensor shall fail to do so in a timely manner. Any and all
damages recovered in any action or proceeding commenced by Licensor shall belong
solely and exclusively to Licensor. Notwithstanding the foregoing, Licensee may
prosecute and defend, at its sole cost and expense, and in its own name, any
action or proceeding to protect its designs or styles, provided, however, that,
in connection therewith, Licensee shall indemnify and hold Licensor harmless
from any liability (including attorney's fees and costs of defense) arising from
any such action or proceeding, or from Licensee's creation or use of its designs
or styles.
B) Licensor shall indemnify and hold Licensee harmless from any damage, cost or
liability arising solely from Licensee's use of the Trademarks as authorized
herein. Licensor shall not have any such obligation with regard to damages,
costs or liabilities allegedly or actually arising, in whole or in part, from
any other causes, including violations of laws and statutes governing antitrust
regulation, trade regulation or unfair competition. Further, in the event of any
threatened or actual action or proceeding in which they are or may be charged
with jointly violating any antitrust, trade regulation or similar statute,
Licensee may, at its option, choose to be represented in such threatened or
actual action or proceeding by Licensor's counsel at no cost to Licensee for
fees, costs or expenses. Licensor shall maintain full control of such threatened
or actual action or proceeding and such representation of Licensee shall
continue only so long as Licensor's counsel, in its sole discretion, is of the
opinion that it may properly and ethically represent both Licensor and Licensee.
Thereafter, Licensor's counsel shall continue to represent only Licensor and
Licensee's continued defense shall be at its expense with separate counsel.
Licensee shall, in a timely manner, execute and deliver to Licensor any pleading
or other document necessary to carry out such change in legal representation.
C) Other than as expressly set forth in this Article G.P. 14, Licensee shall
have no rights against Licensor with respect to any of the matters covered in
this Article G.P. 14. Licensee shall
Page 6 of 11 Pages
under no circumstances incur legal expenses on Licensor's account without first
obtaining Licensor's specific written authorization.
G.P. 15 ADDITIONAL RESTRICTIONS UPON USE OF TRADEMARKS: Licensee shall not
use or permit the use on any of the Licensed Items, or on any carton, container
or packaging which is received by the general public (as opposed to retailers),
any tag, label, sticker, or other mark or identification which includes with any
of the Trademarks, including the name "Hang Ten", the name of Licensee or of any
other person, firm or entity (e.g., "Hang Ten by Licensee") nor shall Licensee
include or permit the inclusion, with the name "Hang Ten" or any of the other
Trademarks, in any advertising or promotional material featuring any of the
Licensed Items which is disseminated to the general public (as opposed to trade
advertising) the name of Licensee or of any other person, firm or entity. In
addition to the foregoing, Licensee shall not use or permit the use of any of
the Trademarks, including the name "Hang Ten", on or in connection with any
product or service, other than the Licensed Items, which are manufactured or
sold by Licensee, or which is licensed by Licensee to others for manufacture or
sale (e.g., "Licensed by the makers of Hang Ten"), nor shall any of the
Trademarks be used as part of the company name of Licensee. It is the intention
of the parties hereto and the purpose of this Article G.P. 15 that all of the
Licensed Items, and only the Licensed Items, be identified to the general public
solely by one or more of the Trademarks. Licensee also agrees to use a
registration indicator in the form of a circle - R symbol (or any alternative
indicator complying with the trademark laws of the country(s) in which Licensee
uses the marks) in conjunction with the Trademarks, except that the registration
indicator may be omitted from the trademarks where the marks are used as design
elements on the Licensed Items. However, all labels and hang tags shall include
the registration indicator.
G.P. 16 DEFAULTS BY LICENSEE:
A) Except as otherwise expressly provided in this Agreement, i) in the event
Licensee shall default in the performance of any of the terms, obligations and
conditions on the part of Licensee to be performed hereunder, and if such
default involves the payment of money and the same shall not be cured within ten
(10) days after Licensee's receipt of written notice, or if such default
involves performance other than the payment of money and same shall not be cured
within thirty (30) days after Licensee's receipt of written notice, or ii) if a
Receiver is appointed to, or one or more creditors do take possession of all or
substantially all of the assets of Licensee, or iii) if Licensee shall make a
general assignment for the benefit of creditors, or iv) if any action is taken
or suffered by Licensee under any insolvency or bankruptcy act; then, and in any
one or more of such events, and in addition to any other rights which Licensor
may have under this Agreement or at law or in equity, Licensor may immediately
and without prior notice cancel and terminate this Agreement. In the event
Licensee commits three or more defaults and corrections thereof of any nature
during the term hereof and any extension, of which Licensor has given written
notice, Licensor, in addition to its other rights hereunder and at law or in
equity, may immediately and without prior notice, cancel and terminate this
Agreement. The time for performance of any act required of either party shall be
extended by a period equal to the period during which such party was actually
prevented from performance by fire, flood, storm or other like casualty.
B) The termination of this Agreement for any reason shall not relieve Licensee
of any accrued obligations to Licensor, nor shall such action relieve Licensee
of any obligation or duty
Page 7 of 11 Pages
<PAGE>
which, but for the termination of this Agreement, would have otherwise arisen
under this Agreement, including without limitation, the obligation to pay
Minimum Royalties for any Contract Years subsequent to the date of such
termination.
G.P. 17 DISPOSAL OF INVENTORY OF LICENSED ITEMS UPON TERMINATION OF LICENSE
AGREEMENT: Immediately upon the Termination or Cancellation of this License
Agreement, for any reason whatsoever, Licensee shall discontinue its use of the
Trademarks in connection with the design, manufacture and sale of the Licensed
Items and Licensee shall no longer have the right to use the Trademarks in any
form or manner.
Licensor shall have a right of first refusal to purchase all finished goods
and goods in progress (in production or on order) in the possession of Licensee
at a price equal to the average wholesale price received by Licensee in the
prior six (6) months for said goods. Licensor shall have fifteen (15) days from
Licensor's receipt of a complete list of such inventory (itemized by style, size
and color) of Licensed Items to be disposed of (including the applicable costs
for same), in which to exercise said right of first refusal. In the event
Licensor declines to exercise its right of first refusal within the stated time
period, and if Licensee has fully complied with the terms of this Agreement,
including the payment of all monies due to Licensor, Licensee shall have ninety
(90) days from the date of Termination or Cancellation of this License Agreement
to dispose of its inventory of Licensed Items, provided however, that said
disposal shall be through approved outlets acceptable to Licensor, in accordance
with the terms and conditions stipulated in Article S.P. 15 hereof. If any of
the Licensed Items remain unsold after the expiration of the ninety (90) day
disposal period, Licensee shall then remove from the Licensed Items all
identification of the trademarks, including but not limited to any labels, hang
tags, wrappers and packaging on which the Trademarks appear, before they are
further sold or distributed. Any unsold Licensed Items upon which the trademarks
cannot be removed shall be destroyed by Licensee. Such destruction shall be
attested to in a certificate signed by an independent third party, approved by
Licensor, and delivered forthwith to Licensor. In the event that this Agreement
was terminated by Licensor for cause, Licensor shall have the right to purchase
the remaining goods at Licensee's cost with all other provisions of this
paragraph remaining the same. Licensee agrees that any sales of Licensed Items
following any termination for cause will cause Licensor undue harm for which
monetary damages will not suffice, and Licensor shall be entitled to seek and
obtain injunctive relief prohibiting Licensee from selling any Licensed Items
following such termination.
Licensee shall continue to abide by the terms of this Agreement with
respect to such Licensed Items during the period that they are being disposed of
as aforesaid, including without limitation, the payment of all royalties and
fees in connection therewith. Neither Licensee nor any creditor (judgment or
otherwise), assignee, transferee, trustee, or receiver of Licensee, or similar
person or officer, or purchaser other than in the regular course of Licensee's
business, may sell or transfer any of the Licensed Items until and unless all
sums due Licensor from Licensee have been paid.
G.P. 18 ADDITIONAL RIGHTS UPON TERMINATION: During the final Contract Year
of the Term hereof or of any extension thereof, Licensor shall have the right to
design, manufacture, and sell merchandise of the types covered by this Agreement
Page 8 of 11 Pages
<PAGE>
and to negotiate and conclude such agreements as it desires pursuant to which it
may grant licenses to any party or parties of any of the rights herein granted
to Licensee, except that no merchandise herein identified as Licensed Items
shall be shipped by Licensor, or any third party other than Licensee, prior to
the expiration or termination of this Agreement (exclusive of the additional six
(6) month period for the disposition of the Licensed Items), but any successor
Licensee may at all times solicit orders for shipment subsequent to the final
Contract Year or any extension hereof.
G.P. 19 GOOD WILL: Licensee acknowledges that the Trademarks have acquired
a valuable secondary meaning and good will. Accordingly, Licensee shall not use
the Trademarks in any manner whatsoever which, directly or indirectly, might
derogate or detract from their secondary meaning or good will. Except as may be
otherwise specified in this Agreement, Licensee shall not use any of the
Trademarks or any name or symbol confusingly similar thereto as part of its
company name or symbol or as part of the name or symbol of any company which it
controls or which is affiliated with it.
G.P. 20 INSURANCE: Licensee and its subcontractors and sublicensees, if
any, shall carry product liability insurance with respect to the Licensed Items
with a limit of liability of not less than US$1,000,000, and Licensor, its
agents and affiliated companies shall be named therein as coinsured. Such
insurance may be obtained in conjunction with a policy of product liability
insurance which covers products other than the Licensed Items and shall provide
for at least ten (10) days prior written notice to Licensor of the cancellation
or substantial modification thereof. Licensee shall deliver to Licensor a
certificate evidencing the existence of such insurance policies promptly after
their issuance. Licensee hereby agrees to provide Licensor a copy of said
insurance policy within sixty (60) days from the effective date of the License
Agreement.
G.P. 21 BROKERS: Each of the parties hereby represents and warrants to the
other that it has not employed or dealt with any broker or finder in connection
with this Agreement or the transactions contemplated hereby and agrees to
indemnify the other and hold it harmless from any and all liabilities including,
without limitation, reasonable attorney's fees and disbursements paid or
incurred in connection with any such liabilities for any claimed brokerage
commissions or finders' fees in connection with this Agreement or the
transactions contemplated hereby.
G.P. 22 RESERVED RIGHTS; OWNERSHIP: Rights not herein specifically and
expressly granted to Licensee herein are reserved by Licensor and may be used by
Licensor without limitation. Any use by Licensor of such reserved rights,
including but not limited to the use or authorization of the use of the
Trademarks in any manner whatsoever not inconsistent with Licensee's rights
hereunder, shall not be deemed to be interference with or infringement of any of
Licensee's rights, nor a breach of this Agreement. Licensee agrees that it does
not and shall not possess any right, title or interest in the Trademarks, except
the right to use the Trademarks in accordance with the terms and conditions of
this Agreement, and that the Trademarks are and shall be the sole property of
Licensor.
Page 9 of 11 Pages
<PAGE>
G.P. 23 ATTORNEY'S FEES; SITUS OF ACTIONS; APPLICABLE LAW: In the event any
party hereto shall commence any action or proceeding against the other by reason
of any breach or claimed breach in the performance of any of the terms or
conditions of this Agreement, or to seek a judicial declaration of rights
hereunder, the prevailing party in such action or proceeding shall be entitled
to reasonable attorney's fees to be fixed by the trial court. This License
Agreement shall be governed by, and construed in accordance with, the laws of
the State of California. It is further agreed that this License Agreement is
deemed to be consummated in the State of California and the forum for any
dispute shall be the Federal Courts located in the State of California whose
jurisdiction is the County of San Diego or the Superior Court of California for
the County of San Diego, whichever is appropriate.
G.P. 24 NON-AGENCY OF PARTIES: This Agreement does not constitute Licensee
as the agent or legal representative of Licensor, or Licensor as the agent or
legal representative of Licensee, for any purpose whatsoever. Licensee is not
granted any right or authority to assume or create any obligation or
responsibility, express or implied, on behalf of or in the name of Licensor or
to bind Licensor in any manner or thing whatsoever; nor is Licensor granted any
right to authority to assume or create any obligation or responsibility, express
or implied, on behalf of or in the name of Licensee or to bind Licensee in any
manner or thing whatsoever. No joint venture or partnership between the parties
hereto is intended or shall be inferred.
G.P. 25 WAIVER BY LICENSOR: In the event Licensor shall at any time waive
any of its rights under this Agreement or the performance by Licensee of any of
its obligations hereunder, such waiver shall not be construed as a continuing
waiver of the same rights or obligations, or a waiver of any other rights or
obligations, and no waiver shall be effective unless made in writing by
Licensor.
G.P. 26 INTEGRATED AGREEMENT: This Agreement (both S.P.'s and G.P.'s)
constitutes the entire agreement between the parties as to the subject matter
hereof and supersedes and replaces all prior understandings between the parties.
No modifications, amendments or revisions hereof shall be of any force or effect
unless the same are in writing and executed by the parties hereto. No officer,
employee or representative of Licensor has any authority to make any
representation or promise in connection with this Agreement or the subject
matter hereof which is not contained herein; and Licensee agrees that it has not
executed this Agreement in reliance upon any such representation or promise.
G.P. 27 SEVERABILITY OF PROVISIONS: Any provisions of this Agreement which
shall be finally determined invalid shall be ineffective but such invalidity
shall not affect the remaining provisions hereof. The titles to the Articles
hereof are for convenience only and have no substantive effect.
G.P. 28 BINDING UPON SUCCESSORS: This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns. This Article shall not be construed to alter or modify the
prohibitions upon assignments or transfers by Licensee expressed elsewhere in
this Agreement.
####
Page 10 of 11 Pages
<PAGE>
APPENDIX "B"
Wire Transfer Instructions
To: Bank of America NT&SA
San Diego, California
ABA Number: 121000358
Company: International Licensing Corporation
Account Number: 13619-02403
* Please specify in the comments section the name of the
sender and the purpose of the payment.
Page 11 of 11 Pages
EXHIBIT 10.18
SECURITY AGREEMENT
(ACCOUNTS RECEIVABLE
INVENTORY AND EQUIPMENT)
BETWEEN
FINOVA CAPITAL CORPORATION
111 WEST 40TH STREET
NEW YORK, NEW YORK 10018
AND
AZUREL LTD.
SCENT 1-2-3, INC.
509 MADISON AVENUE
NEW YORK, NEW YORK 10022
PRIVATE LABEL COSMETICS, INC.
FASHION LABORATORIES, INC.
P.L.C. SPECIALTIES, INC.
INTERNATIONAL COSMETIC GROUP, INC.
20-10 MAPLE AVENUE
FAIRLAWN, NEW JERSEY 07410
CAMBRIDGE BUSINESS SERVICES CORPORATION BUSINESS SERVICES CORPORATION
14 VANDERVENTER AVENUE
PORT WASHINGTON, NEW YORK 11050
1
<PAGE>
[GRAPHIC OMITTED]
This Security Agreement, made and entered into in Maricopa County,
Arizona, this 6th day of February, 1998 by and between AZUREL LTD. and SCENT
1-2-3, INC., corporations existing under and by virtue of the laws of the State
of Delaware, with their principal place of business located at 509 Madison
Avenue, New York, New York 10022, CAMBRIDGE BUSINESS SERVICES CORPORATION, a
corporation existing under and by virtue of the laws of the State of Delaware,
with its principal place of business located at 14 Vanderventer Avenue, Port
Washington, New York, 11050, FASHION LABORATORIES, INC., a corporation existing
under and by virtue of the laws of the State of Delaware, with its principal
place of business located at 20-10 Maple Avenue, Fairlawn, New Jersey 07410,
PRIVATE LABEL COSMETICS, INC. , P.L.C. SPECIALTIES, INC. and INTERNATIONAL
COSMETIC GROUP, INC., corporations existing under any by virtue of the laws of
the State of New Jersey ("Borrower") and FINOVA CAPITAL CORPORATION, a Delaware
corporation, with a place of business located at 111 West 40th Street, New York,
New York 10018 ("FINOVA"). This Agreement sets forth the terms and conditions
upon which FINOVA may, in its sole and absolute discretion, make loans, advances
and other financial accommodations to or for the benefit of Borrower upon the
security referred to herein.
Section 1. DEFINED TERMS
1.1. All terms used herein which are defined in Article 1 or Article 9 of
the Uniform Commercial Code (the "UCC") shall have the same meaning as given
therein unless otherwise defined in this Agreement. All references to the plural
shall also mean the singular.
1.2. "Account" or "Accounts" shall mean all of Borrower's present and
hereafter created accounts receivable, contract rights, general intangibles,
security deposits, trade styles, trademarks, chattel paper, notes, drafts,
acceptances, leases, lease payments, rents, tax refunds, options to purchase
real or personal property, securities, stock options, customer lists, insurance
claims, patents, patent applications, documents, instruments, copyrights,
claims, and any other choses in action, as such terms may be defined in the UCC,
including, without limitation, all obligations for the payment of money arising
out of Borrower's sale, lease or other disposition of goods or other property or
Borrower's rendition of services, and to all of Borrower's merchandise which is
represented thereby whether delivered or undelivered, and to all proceeds
thereof including, but not limited to, the proceeds of any insurance thereon
whether or not specifically assigned to FINOVA.
1.3."Account Debtor" shall mean each debtor or obligor in any way
obligated on or in connection with any Account.
1.4. "Collateral" shall have the meaning set forth in Section 4.1 hereof.
1.5. "Costs and Expenses" shall include, but not be limited to
commissions, fees, appraisal fees, taxes, title insurance premiums, internal and
external audit expenses for routine and non-routine audits, field examination
expenses, filing, recording and search expenses, reasonable attorney's fees and
disbursements (as may be incurred with respect to the effectuation of this
Agreement or any claim of any nature or litigation whatsoever arising out of or
as a result of the interpretation of this Agreement or the financing provided
for hereunder, including, but not limited to,
-2-
<PAGE>
FINOVA Capital Corporation Security Agreement
all fees and expenses for the service and filing of papers, premiums on bonds
and undertakings, fees of marshals, sheriffs, custodians, auctioneers and
others, travel expenses and all court costs and collection charges), Facility
Fees (as defined herein), postage, wire transfer fees, check dishonor fees and
other out of pocket expenses arising out of or relating to the negotiations,
preparation, consummation, administration and enforcement of this Agreement or
any other agreement between Borrower and FINOVA including, but not limited to
any guaranty of the Obligations (as defined herein).
1.6. "Default Rate of Interest" shall have the meaning set forth in
Section 3.2 hereof.
1.7. "Eligible Accounts" shall mean Accounts created by Borrower in the
ordinary course of its business arising out of its sale of goods or rendition of
services, which are and at all times shall continue to be acceptable to FINOVA
in its sole and absolute discretion. Standards of eligibility may be fixed and
revised from time to time solely by FINOVA in its exclusive judgment. In
determining eligibility, FINOVA may, but need not, rely on agings, reports and
schedules of Accounts furnished by Borrower but reliance by FINOVA thereon from
time to time shall not be deemed to limit its right to revise standards of
eligibility at any time without notice as to both Borrower's present and future
Accounts.
1.8. "Events of Default" shall have the meaning set forth in Section 8.1
hereof.
1.9. "Facility Fee" shall have the meaning set forth in Section 3.5
hereof.
1.10. "Line of Credit" as used herein is solely for the purpose of
computing the Facility Fee and does not represent any amount or amounts
available for borrowing purposes nor any limit as to the amount or amounts
available for borrowing purposes, each of which shall be determined at FINOVA's
sole and absolute discretion. Subject to the preceding sentence, Borrower's Line
of Credit is $3,500,000.
1.11. "Net Amount of Eligible Accounts" shall mean the gross amount of
Eligible Accounts less sales, excise or similar taxes, and less returns,
discounts, claims, credits, reserves (as determined by FINOVA in its sole
discretion) and allowances of any nature at any time issued, owing, granted,
outstanding, available or claimed.
1.12. "Obligations" shall mean any and all loans, advances,
accommodations, indebtedness, liabilities, Costs and Expenses and all
obligations of every kind and nature owing by Borrower to FINOVA, however
evidenced, whether as principal, guarantor or otherwise, whether arising under
this Agreement, any supplement hereto, or otherwise, whether now existing or
hereafter arising, whether direct or indirect, absolute or contingent, joint or
several, due or not due, primary or secondary, liquidated or unliquidated,
secured or unsecured, original, renewed, modified or extended, and whether
arising directly or acquired from others (including, without limitation,
wherever applicable, FINOVA's participations or interests in Borrower's
obligations to others) and including, without limitation,
-3-
<PAGE>
FINOVA Capital Corporation Security Agreement
FINOVA's charges, of whatever nature, commissions, interest, expenses, costs and
attorneys' fees, all of which are chargeable to Borrower in connection with any
of the foregoing.
1.13. "Records" shall have the meaning set forth in Section 4.1(f)
hereof.
1.14. "Renewal Date" shall have the meaning set forth in Section 9.1
hereof.
Section 2 . LOANS AND ADVANCES
2.1. FINOVA shall from time to time, in its sole and absolute discretion,
make loans, advances and other financial accommodations to or for the benefit of
Borrower of up to: (a) 85% of the Net Amount of Eligible Accounts (or such
greater or lesser percentage thereof as FINOVA shall, in its sole and absolute
discretion determine); (b) 50% of eligible inventory (as determined by FINOVA in
its sole and absolute discretion and priced at the lower of cost or market) in
an amount not to exceed $500,000.
2.2. All Obligations shall be charged to an account in the Borrower's
name as maintained on FINOVA's books. FINOVA shall render to Borrower a monthly
statement of its account which statement shall be deemed correct, accepted by,
and conclusively binding upon Borrower as an account stated, except to the
extent that Borrower shall deliver to FINOVA written notice of any specific
exceptions thereto within thirty (30) days after the date such statement is
rendered.
2.3. All principal, interest, fees, commissions, charges, Costs and
Expenses incurred with or in respect of this Agreement or any supplement or
amendment hereto (all of which shall be cumulative and not exclusive) and any
and all Obligations shall be charged as an advance to Borrower's account as
maintained by FINOVA.
2.4. All Obligations shall be payable at FINOVA's office specified above
or at such other place as FINOVA may hereafter designate from time to time. If
requested, Borrower shall execute and deliver to FINOVA one or more promissory
notes in form and substance satisfactory to FINOVA to further evidence the
Obligations.
Section 3. INTEREST AND FEES
3.1. FINOVA is authorized to charge the Borrower's loan account as an
advance on the first day of each month as follows: (a) all Costs and Expenses;
(b) interest on Borrower's monthly average loan balance (inclusive of all
advances made pursuant to paragraph 2.1 of this Agreement together with all
costs and expenses charged to Borrower's account); and (c) Letter of Credit,
Guaranty or Acceptance Fees ("LC Fees"), if any. Interest shall be payable by
Borrower to FINOVA at the per annum Prime Rate (the "Prime Rate") plus 2.5% (the
"Interest Rate"). As used herein the term "Prime Rate" shall be deemed to mean
the prime commercial rate as published from time to time in the Wall Street
Journal, in effect on the date hereof (whether or not such rate is the lowest
rate available by FINOVA) and as same may be adjusted upwards or downwards from
time to time. The Interest Rate shall never be less than six (6%) percent per
annum nor greater than the highest rate permitted by law. Any change in the
Interest Rate shall become effective on the first day of the month following the
month in which the Prime Rate shall have been increased or decreased, as the
case may be. The Interest Rate shall be calculated based on a three hundred
sixty (360) day year for the actual number of days elapsed and shall be charged
to Borrower on all Obligations. All interest charged or chargeable to Borrower
shall be deemed as an additional advance and shall become part of the
Obligations.
3.2. In the event any amount to be advanced or charged to the Borrower
under this Agreement (together with any other agreement between FINOVA and the
Borrower) exceeds the amount available to Borrower for borrowing pursuant to any
percentage or sublimit set forth in this
-4-
<PAGE>
FINOVA Capital Corporation Security Agreement
Agreement (hereinafter sometimes referred to as an "Overadvance") on each of any
day in any month, the Interest Rate charged to the Borrower for that month on
all Obligations shall be at a rate which is one percent (1%) above the Interest
Rate otherwise applicable herein without regard as to whether any such
Overadvance is made with or without FINOVA's knowledge or consent. The Interest
Rate will be restored each time the Overadvance is fully repaid to FINOVA.
3.3. Borrower agrees that upon the occurrence of any Event of Default
(whether caused by the Borrower, an Account Debtor or others), the Interest Rate
on all Obligations shall immediately convert to the daily rate of two (2%)
percent per annum above the then applicable Interest Rate (the "Default Rate of
Interest") and all interest accruing hereunder together with all Obligations
shall thereafter be payable upon demand.
3.4. In no event shall the Interest Rate or the Default Rate of Interest
exceed the highest rate permitted under any applicable law or regulation. If any
part or provision of this Agreement is in contravention of any such law or
regulation such part or provision shall be deemed amended to conform thereto and
any payments of interest made in excess of such highest rate permitted, if any,
shall be deemed to be payments of principal Obligations to the extent of such
excess.
3.5. Borrower shall pay FINOVA an annual Facility Fee in the amount of
.5% of the Line of Credit extended by FINOVA to Borrower. The Facility Fee is
payable upon the execution and delivery of this Agreement and upon each annual
anniversary date of this Agreement until such time as this Agreement has been
terminated in accordance with its terms.
3.6. Borrower shall pay FINOVA an Audit Fee in the amount of $750 per day
for each auditor performing an examination of the Borrower's books and records,
such Audit Fee to be in addition to all other Costs and Expenses incurred by
FINOVA with regard to each such examination, all of which shall be deemed part
of the Obligations.
Section 4. GRANTING PROVISIONS
4.1. As security for the prompt performance, observance and payment in
full of all Obligations, Borrower hereby grants to FINOVA a continuing security
interest in, lien upon and right of setoff against, and Borrower hereby assigns,
transfers, pledges and sets over to FINOVA the following (which, together with
any of Borrower's other property in which FINOVA may at any time have a security
interest or lien, whether pursuant to any supplement or amendment hereto, or
otherwise, all of which are herein collectively referred to as the
"Collateral"): (a) All of Borrower's present and future Accounts; (b) all of
Borrower's monies, securities and other property and the proceeds thereof, now
or hereafter held or received by, or in transit to, FINOVA from or for Borrower,
or for the account of Borrower, whether for safekeeping, pledge, custody,
transmission, collection or otherwise, and all of Borrower's deposits (general
or special) including, but not limited to security deposits, balances, sums and
credits with FINOVA at any time existing or with a third party for the
Borrower's account; (c) all of Borrower's present and future right, title and
interest, and all of Borrower's present and future rights, remedies, security
and liens, in, to and in respect of the Accounts and other Collateral,
including, without limitation, rights of stoppage in transit, replevin,
repossession and reclamation and other rights and remedies of an unpaid vendor,
lienor or secured party, guarantees or other contracts of suretyship with
respect to the Accounts, deposits or other security for the obligation of any
Account Debtor, and credit and other insurance; (d) all of Borrower's present
and future right, title and interest in, to and in respect of all goods relating
to, or which by sale have resulted in, Accounts including, without limitation,
all goods described in invoices, documents, contracts or instruments with
respect to, or otherwise representing or evidencing, any Accounts or other
Collateral, including without limitation, all returned, reclaimed or
-5-
<PAGE>
FINOVA Capital Corporation Security Agreement
repossessed goods; (e) all of Borrower's present and future deposit accounts;
(f) all of Borrower's present and future books, records, ledger cards, computer
programs (including all software and data contained in or by any computer
whether in the possession of the Borrower or any other party) and other property
and general intangibles evidencing or relating to the Accounts and any other
Collateral or any Account Debtor, together with the file cabinets, containers,
tapes or disks, in which the foregoing are stored ("Records"); (g) all of
Borrower's presently owned or hereafter acquired inventory; (h) all of
Borrower's machinery and equipment, whether presently owned or hereinafter
acquired; (i) all other of Borrower's present and future general intangibles of
every kind and description, including, without limitation, customer lists, stock
options, patent, trademark and copyright applications, trade names and
trademarks, and the goodwill of the business symbolized thereby, patents,
copyrights, licenses and Federal, State and local tax refund claims, leases,
rents and insurance claims of all kinds; and (j) all proceeds of the foregoing,
in any form, including, without limitation, all claims against third parties for
loss or damage to or destruction of any or all of the foregoing. The security
interests granted herein shall remain effective whether or not the Collateral
covered thereby is acceptable to FINOVA or deemed by it to be ineligible for the
purposes of any loans or advances contemplated under this Agreement.
4.2. Borrower shall deliver to FINOVA a duplicate and/or original invoice,
and all original documents evidencing the delivery of goods or the performance
of services with regard to each Account, including but not limited to all
original contracts, orders, invoices, bills of lading, warehouse receipts,
delivery tickets and shipping receipts, together with schedules describing the
Accounts and/or written confirmatory assignments to FINOVA of each Account, in
form and substance satisfactory to FINOVA and duly executed by Borrower,
together with such other information as FINOVA may request. In no event shall
the making (or the failure to make) of any schedule or assignment or the content
of any schedule or assignment or Borrower's failure to comply with the
provisions hereof be deemed or construed as a waiver, limitation or modification
of FINOVA's security interest in, lien upon and assignment of the Collateral or
Borrower's representations, warranties or covenants under this Agreement or any
supplement or amendment hereto.
Section 5. ENFORCEMENT OF RIGHTS IN AND TO COLLATERAL
5.1. Until Borrower's authority to do so is curtailed or terminated at any
time by FINOVA in its sole and absolute discretion, Borrower shall (at
Borrower's expense) collect on FINOVA's behalf as FINOVA's property and in trust
for FINOVA, and deliver to FINOVA in their original form on the same date as the
date of the actual receipt thereof, all checks, drafts, notes, acceptances,
cash, wire transfers and any other evidences of payment, applicable to any
assigned Account ("Collection"). Five (5) working days shall be allowed
subsequent to receipt by FINOVA of all Collections (other than wire transfers)
to permit bank clearance and collection. Two (2) working days shall be allowed
subsequent to receipt by FINOVA of all wire transfers.
5.2. FINOVA or FINOVA's representatives shall at all times have free
access to and right of inspection of the Collateral and have full access to and
the right to examine and make copies of Borrower's Records, to confirm and
verify all Accounts, to perform general audits and to do whatever else FINOVA
deems necessary to protect FINOVA's interests. FINOVA may at any time remove
from Borrower's premises or require Borrower or its accountants or auditors to
deliver any Records to FINOVA. FINOVA may, at Borrower's cost and expense, use
any of Borrower's personnel, supplies, computer equipment (including all
computer programs, software and data) and space at Borrower's places of business
or at any other place as FINOVA may designate, as may be reasonably necessary
for the handling of collections.
5.3 . Merchandise received in settlement
-6-
<PAGE>
FINOVA Capital Corporation Security Agreement
of any assigned Account shall be received in trust for, segregated and delivered
to or for the account of FINOVA. All returns of merchandise, credits issued by
Borrower, claims or disputes of Account Debtors whether or not accepted by
Borrower or given an allowance of any nature shall be reported by Borrower to
FINOVA at least weekly. Each such report shall be accompanied by copies of all
documentation provided to Borrower in support of all merchandise returns,
credits, claims and disputes. Borrower shall immediately upon obtaining
knowledge thereof report to FINOVA all reclaimed, repossessed and returned
goods, Account Debtor claims and any other matter affecting the value,
enforceability or collectability of Accounts. At FINOVA's request, any goods
reclaimed or repossessed by or returned to Borrower will be set aside, marked
with FINOVA's name and held by Borrower (at Borrower's place of business or at
such other place as FINOVA may designate) for FINOVA's account and subject to
FINOVA's security interest.
5.4 All claims and disputes relating to Accounts shall be adjusted within
a reasonable time at Borrower's own cost and expense.
5.5. FINOVA is authorized and empowered at any time, with or without the
occurrence of an Event of Default, to compromise or extend the time for payment
of any Account, for such amounts and upon such terms as FINOVA may in its sole
discretion determine, and to accept the return of the merchandise represented by
any Account, all without notice to or consent by Borrower, and without
discharging or affecting Borrower's Obligations hereunder to any extent, and
Borrower will, upon demand, pay to FINOVA the amount of any allowance given or
authorized by FINOVA hereunder. FINOVA shall have the right (in addition to its
other rights hereunder or otherwise), with or without the occurrence of an Event
of Default and without notice to Borrower, to appropriate, set off and apply to
the payment of any or all of the Obligations, any portion or all of the
Collateral, in such manner as FINOVA shall in FINOVA's sole discretion
determine, to enforce payment of any Collateral, to settle, compromise or
release in whole or in part, any amounts owing on any Collateral, to prosecute
any action, suit or proceeding with respect to the Collateral, to extend the
time of payment of any and all Collateral, to make allowances and adjustments
with respect thereto, to issue credits in FINOVA's or Borrower's name, to sell,
assign and deliver the Collateral (or any part thereof) at public or private
sale, for cash, upon credit or otherwise at FINOVA's sole option and discretion,
and FINOVA may bid or become purchaser at any such sale, free from any right of
redemption which is hereby expressly waived. Any public or private sale of the
Collateral shall be deemed reasonable to the extent Borrower shall have received
written notice of such sale at least five (5) days prior to its occurrence and
shall not have delivered written objection to FINOVA.
SECTION 6. REPRESENTATIONS AND WARRANTIES
Borrower hereby represents, warrants and covenants to FINOVA the following
(which shall survive the execution and delivery of this Agreement), the truth
and accuracy of which, and continuing compliance with, being a continuing
condition of the making of all loans and advances hereunder by FINOVA or under
any supplement or amendment hereto:
6.1 . Borrower is and shall be the owner of the Collateral free and clear
of all liens, security interests, claims and encumbrances of every kind and
nature, except in FINOVA's favor or as otherwise consented to in writing by
FINOVA, and Borrower shall indemnify and defend FINOVA from and against all
cost, loss and expense with regard to the same. None of Borrower's Accounts nor
any of its inventory has been previously sold or assigned to any person, firm or
corporation and will not be sold or assigned, other than to FINOVA, at any time
during the term of this Agreement without first obtaining FINOVA's consent in
writing. Borrower shall not execute any security agreement or UCC financing
statement in favor of any other party or borrow against the security
-7-
<PAGE>
FINOVA Capital Corporation Security Agreement
of any corporate asset, including but not limited to the Collateral, without
first obtaining FINOVA's consent in writing. FINOVA shall have the right of
first refusal to provide Borrower with financing in order to: (a) purchase or
lease of any property which is presently subject to a lien senior to that of
FINOVA=s and pursuant to financing which the Borrower seeks to replace; and (b)
acquire any property after the date of this Agreement with purchase money
financing. Such right of first refusal to be based upon substantially the same
terms and conditions offered to Borrower in writing by any other lender. FINOVA
shall respond to any written request for financing, which request shall include
a copy of the other lender's financing proposal or offer, within ten (10) days
of such written request. FINOVA shall not unreasonably withhold its consent to
such financing. FINOVA's right of first refusal shall become effective sixty
(60) days from the date of this Agreement.
6.2 . (a) Without first obtaining FINOVA's consent in writing Borrower
will not directly or indirectly sell, lease, transfer, abandon or otherwise
dispose of all or any portion of Borrower's property or assets (except in the
ordinary course of business) or consolidate or merge with or into any other
entity or permit any other entity to consolidate or merge with or into Borrower;
(b) Borrower will preserve, renew and keep in full force and effect
Borrower's existence and good standing as a corporation and its rights and
franchises with respect thereto;
(c) Borrower will continue to engage in business of the same type as
Borrower is engaged as of the date hereof; and
(d) Borrower will give FINOVA thirty (30) days prior written notice
of any proposed change in Borrower's corporate name which notice shall set forth
the new name.
6.3. Borrower's Records and principal executive office are maintained at
the address referred to herein. Borrower shall not change such location without
FINOVA's prior written consent and prior to making any such change, Borrower
agrees to execute any additional financing statements or other documents or
notices which FINOVA may require.
6.4 . Borrower shall maintain its shipping forms, invoices and other
related documents in a form satisfactory to FINOVA and shall maintain its books,
records and accounts in accordance with generally accepted accounting principles
consistently applied. Borrower agrees to furnish FINOVA monthly with accounts
receivable agings, inventory reports (if requested by FINOVA), and interim
financial statements (including balance sheet, statement of income and surplus
account, and cash flow statement) hereafter collectively referred to as "Interim
Financial Statements"), and to furnish FINOVA, at any time or from time to time
with such other information regarding Borrower's business affairs and financial
condition as FINOVA may reasonably request, including, without limitation, cash
flow and other projections, earnings forecasts, schedules, agings and reports.
Borrower hereby irrevocably authorizes and directs all accountants, auditors and
any other third parties to deliver to FINOVA, at Borrower's expense, copies of
Borrower's financial statements, papers related thereto, and other accounting
records of any kind or nature in their possession and to disclose to FINOVA any
information they may have regarding Borrower's business affairs and financial
condition. Borrower shall furnish FINOVA with audited financial statements
within ninety (90) days of the end of its fiscal year end certified by
independent public accountants selected by Borrower and as to whom FINOVA has no
objection. All financial statements and information shall fairly present
Borrower's financial condition and the results of Borrower's operations for the
periods in which the financial statements are furnished.
6.5 . Each Account represents a valid and legally enforceable indebtedness
based upon a bona fide sale and delivery of goods or rendition of services
usually dealt in by Borrower in the ordinary course of
-8-
<PAGE>
FINOVA Capital Corporation Security Agreement
its business which has been finally accepted by the Account Debtor. Each Account
is and will be for a liquidated amount maturing as stated in the invoice
rendered to the Account Debtor who is unconditionally liable to make payment at
maturity of the amount stated in each invoice, document or instrument evidencing
the Account in accordance with the terms thereof, without offset, defense,
deduction, counterclaim, discount or condition. Every assigned Account, and any
evidence of indebtedness with respect thereto shall be paid in full at maturity.
If any Account is not paid in full at maturity, the amount of such unpaid
Account (whether in whole or in part) may be charged against and deducted from
any advance then or thereafter made by FINOVA to Borrower or, in the event
Borrower then has no borrowing availability, Borrower shall pay FINOVA, upon
demand, the full amount remaining unpaid thereon. Such payment or deduction
shall not constitute a reassignment, and FINOVA may retain the Account as
collateral for all Obligations of Borrower to FINOVA until the same have been
fully satisfied.
6.6. All statements made and all unpaid balances appearing in the
invoices, documents and instruments evidencing each Account are true and correct
and are in all respects what they purport to be and all signatures and
endorsements that appear thereon are genuine and all signatories and endorsers
have full capacity to contract. Each Account Debtor is solvent and financially
able to pay in full each Account when it matures. None of the transactions
underlying or giving rise to any Account shall violate any state or federal laws
or regulations, and all documents relating to the Accounts shall be legally
sufficient under such laws or regulations and shall be legally enforceable in
accordance with their terms and all recording, filing and other requirements of
giving public notice under any applicable law have been and shall be duly
complied with.
6.7. Borrower is solvent and will so remain. Borrower's federal, state and
local taxes of every kind and nature, including, but not limited to employment
taxes, are current, and there are no pending tax audits or examinations with
respect to Borrower's federal, state or local tax returns.
6.8. Borrower shall duly pay and discharge all taxes, assessments,
contributions and governmental charges upon or against it or its properties or
assets prior to the date on which penalties attach thereto unless disputed in
good faith provided FINOVA is notified in writing and adequate reserves are
provided therefor. Borrower shall be liable for all taxes and penalties imposed
upon any transaction under this Agreement or any supplement or amendment hereto
or giving rise to the Accounts or any other Collateral or which FINOVA may be
required to withhold or pay for any reason. Borrower agrees to indemnify and
hold FINOVA harmless with respect thereto, and to repay to FINOVA on demand the
amount thereof, and until paid by Borrower such amounts shall be added to and
included in Borrower's Obligations.
6.9. There is no investigation by any state, federal or local agency
pending or threatened against Borrower and there is no action, suit, proceeding
or claim pending or threatened against Borrower or Borrower's assets or goodwill
or affecting any transactions contemplated by this Agreement, or any supplement
or amendment hereto, or any agreements, instruments or documents delivered in
connection herewith or therewith before any court, arbitrator, or governmental
or administrative body or agency which if adversely determined with respect to
Borrower would result in any material adverse change in Borrower's business,
properties, assets, goodwill or condition, financial or otherwise.
6.10. The execution, delivery and performance of this Agreement, any
supplement or amendment hereto, or any agreements, instruments and documents
executed and delivered in connection herewith, are within Borrower's corporate
powers, have been duly authorized, are not in contravention of law or the terms
of Borrower's charter, by-laws or other incorporation papers, or of any
indenture, agreement or undertaking to which Borrower is a party or by which
Borrower is bound.
-9-
<PAGE>
FINOVA Capital Corporation Security Agreement
6.11. Borrower shall keep and maintain, at its sole cost and expense,
satisfactory and complete Records including records of all Accounts, all
payments received and credits granted thereon, and all other dealings therewith.
Upon the sale of goods or the rendering of services, Borrower shall make
appropriate entries in its books and records disclosing such assignments of
Accounts to FINOVA, and shall execute and deliver all papers and instruments,
and do all things necessary to effectuate this Agreement and facilitate the
collection of the Accounts. FINOVA is hereby vested with all of Borrower's
rights, securities and guarantees with respect to each Account, including the
right of stoppage in transit. Notwithstanding the failure of Borrower to execute
and deliver such written assignment as aforesaid, each Account created by
Borrower shall be deemed assigned to FINOVA and shall become its property.
6.12. If any Account Debtor of Borrower shall reject or return any of the
goods which created an assigned Account, Borrower shall promptly deliver the
same to FINOVA, or notify FINOVA and hold the same, separate and apart from
Borrower's stock, in trust for and subject to the order of FINOVA, and FINOVA
may take and sell the same, without notice, for such price and upon such terms
as it may, in its sole and absolute discretion, determine. Borrower shall remain
liable for any difference between the original invoice price and the net
proceeds of re-sale, after deducting any expenses incurred by FINOVA in
connection with such re-sale. Notwithstanding the foregoing, FINOVA may require
Borrower to pay to it the original invoice price of such rejected or returned
goods. In case any such goods shall be re-sold, the Account thereby created
shall be FINOVA's property and shall be deemed assigned hereunder.
6.13. All monies, Accounts and other property of Borrower which may come
into FINOVA's possession in any manner, and all sums to the credit of Borrower
may be retained by FINOVA and applied to the Obligations or any of the
Borrower's obligations owing to FINOVA's parent, any of its subsidiaries or any
of its affiliates. Borrower's obligations as set forth in the preceding sentence
shall remain applicable and enforceable as against Borrower should FINOVA be
merged into or with any other entity, including, but not limited to, its parent
corporation. Borrower absolutely and unconditionally guarantees and grants a
security interest to FINOVA in and to all of its Collateral to secure any and
all Obligations (including but not limited to all obligations of any entity
which is a parent, subsidiary or affiliate of Borrower, whether arising under
this Agreement or otherwise, and whether or not then due and however created)
which Borrower may at any time owe to FINOVA or its parent, any of its
subsidiaries or any of its affiliates.
6.14. FINOVA's agents and examiners shall have the right at any time
during business hours to review, inspect, examine, check and make copies of
extracts from Borrower's Records.
6.15. Borrower shall, at Borrower's expense, duly execute and deliver, or
shall cause to be duly executed and delivered, such further agreements,
instruments and documents, including, without limitation, additional security
agreements, mortgages, deeds of trust, deeds to secure debt, collateral
assignments, UCC financing statements or amendments and continuations thereof,
landlord's or mortgagee's waivers of liens and consents to the exercise by
FINOVA of all of its rights and remedies hereunder, under any supplement or
amendment hereto, or applicable law with respect to the Collateral. In addition,
Borrower shall do or cause to be done such further acts as may be necessary or
proper, in FINOVA's opinion, to evidence, perfect, maintain and enforce its
security interest and the priority thereof in and to the Collateral and to
otherwise effect the provisions and purposes of this Agreement or any supplement
or amendment hereto. Where permitted by law, Borrower hereby authorizes FINOVA
to execute and file one or more UCC financing statements covering the Collateral
signed only by FINOVA.
6.16. Borrower shall, at Borrower=s expense, maintain insurance covering
the Collateral
-10-
<PAGE>
FINOVA Capital Corporation Security Agreement
in such amounts and with such insurance companies as may be acceptable to FINOVA
in its sole and absolute discretion. Borrower shall have FINOVA named as
mortgagee, loss payee and additional insured on all such insurance policies. In
the event Borrower shall fail to maintain insurance acceptable to FINOVA, FINOVA
without notice, may obtain such insurance in the name of the Borrower and charge
Borrower's account with the costs and expenses of such insurance. All expenses
incurred by FINOVA with regard to such insurance policies shall be deemed part
of the Obligations.
6.17. The Borrower is not engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of purchasing or
carrying margin stock (within the meaning of Regulation G issued by the Board of
Governors of the Federal Reserve System), and no proceeds of any loan or
advances made by FINOVA to Borrower pursuant to Section 2.1 will be used to
purchase or carry any margin stock or to extend credit to others for the purpose
of purchasing or carrying any margin stock, or in any manner which might cause
such loan or advance or the application of such proceeds to violate (or require
any regulatory filing under) Regulation G, Regulation T, Regulation U, or
Regulation X of the Board of Governors of the Federal Reserve System, in each
case as in effect on the date or dates of such loan or advance and such use of
proceeds. Further, no proceeds of any loan or advance will be used to acquire
any security of a class which is registered pursuant to Section 12 of the
Securities Exchange Act of 1934.
6.18. The Borrower hereby agrees that it shall have a minimum net worth of
at least Three Million Five Hundred Thousand Dollars ($3,500,000) at the time of
the execution and delivery of this Agreement and for so long as this Agreement
is in effect.
Section 7. ADDITIONAL POWERS
7.1. FINOVA shall have the right at any time in its sole and absolute
discretion: (a) to notify Account Debtors that Borrower's Accounts have been
assigned to and are payable to FINOVA; and (b) to collect any and all Accounts
directly in its own name and charge all of its collection costs and expenses
including, but not limited to, its legal expenses to the Borrower's account as
part of the Obligations.
7.2 . Borrower hereby appoints FINOVA or FINOVA's designee as Borrower's
attorney-in-fact, at Borrower's own cost and expense, to exercise at any time
all or any of the following powers which, being coupled with an interest, shall
be irrevocable until all Obligations have been paid in full: (a) to redirect,
receive, open and dispose of all mail addressed to Borrower and to notify postal
authorities to change the address for delivery thereof to such address as FINOVA
may designate; (b) to execute and file in Borrower's name financing statements
and amendments under the UCC; (c) to receive, take, endorse, assign, deliver,
accept and deposit, in FINOVA's or Borrower's name, any and all checks, notes,
drafts, acceptances, money orders, remittances or other evidences of payment of
money or Collateral which may come into FINOVA's possession; (d) to sign
Borrower's name on any drafts against Account Debtors, assignments and
verifications of Accounts; (e) to transmit to Account Debtors notice of FINOVA's
interest therein and to request from such Account Debtors at any time, in
FINOVA's or Borrower's name or that of FINOVA's designee, information concerning
the Accounts and the amounts owing thereon; (f) to notify Account Debtors to
make payment directly to FINOVA; (g) to take or bring, in FINOVA's or Borrower's
name, and in FINOVA's sole and absolute discretion all steps, actions, suits or
proceedings deemed necessary or desirable by FINOVA to effect collection of the
Collateral; and (h) to do all other acts and things necessary to carry out this
Agreement. Borrower hereby releases FINOVA and FINOVA's officers, employees and
designees, from all liability arising from any act or acts under this Agreement
or in furtherance thereof, whether by omission or commission, and whether based
upon any error of judgment or mistake of law or fact.
-11-
<PAGE>
FINOVA Capital Corporation Security Agreement
Section 8 . EVENTS OF DEFAULT
8.1 . All Obligations shall be, at FINOVA's option, immediately due and payable
without notice or demand and the provision of this Agreement (or any supplement
or amendment hereto) as to future loans and advances to or for the benefit of
Borrower shall, at FINOVA's option, terminate forthwith upon the occurrence of
any one or more of the following events of default (the "Events of Default"):
(a) if Borrower shall fail to pay FINOVA when due any amounts owing to FINOVA
under any Obligation, or shall breach any of the terms, covenants, conditions or
provisions of this Agreement, any supplement or amendment hereto or any other
agreement between Borrower and FINOVA; (b) if any guarantor, endorser or other
person liable on the Obligations shall terminate or breach any of the terms,
covenants, conditions or provisions of any guaranty, endorsement or other
agreement of such person with, or in favor of FINOVA; (c) if any representation,
warranty, or statement of fact made to FINOVA at any time by Borrower or on
Borrower's behalf is false or misleading; (d) if Borrower, or any guarantor,
endorser or other person liable on the Obligations shall become insolvent, fail
to meet its or their debts as they mature, call a meeting of creditors or have a
creditors' committee appointed, make an assignment for the benefit of creditors,
commence or have commenced by or against Borrower or any guarantor, endorser or
other person liable on the Obligations any action or proceeding for relief under
any bankruptcy law (except that in the event an involuntary bankruptcy petition
is filed against the Borrower, such action may be dismissed within forty-five
(45) days from the date the petition is filed which dismissal shall be deemed to
cure such default, however, in any event the Borrower must promptly obtain an
order of the Bankruptcy Court authorizing the Borrower to continue to borrow
from FINOVA on a secured basis in accordance with this Agreement pending the
dismissal of the involuntary petition or entry of an order for relief), or if a
judgment is entered against Borrower or any guarantor, endorser or other person
liable on the Obligations (which has not been bonded or otherwise secured) or if
Borrower or any guarantor, endorser or other person liable on the Obligations
suspends or
-12-
<PAGE>
FINOVA Capital Corporation Security Agreement
discontinues doing business for any reason, or if a receiver, custodian or
trustee of any kind is appointed with regard to any property of Borrower or
guarantor, endorser or other person liable on the Obligations; (e) if there
shall be a material adverse change in Borrower's business, assets or condition
(financial or otherwise) from the date hereof; (f) if there is any change in the
voting control of Borrower; or (g) if at any time FINOVA shall, in FINOVA's sole
and absolute discretion, consider the Obligations insecure or any part of the
Collateral unsafe, insecure or insufficient and Borrower (or other person or
entity acting on Borrower's behalf) shall not on FINOVA's demand furnish other
Collateral or make payment on account, satisfactory to FINOVA. However,
notwithstanding anything to the contrary contained in the foregoing, Borrower
shall have fifteen (15) days after receipt of written notice from FINOVA to cure
any failure to comply with any of the requirements contained in paragraphs 6.1,
6.2(b), 6.4, 6.7 and 6.8 of this Agreement.
8.2 . In the event FINOVA seeks to take possession of all or any portion
of the Collateral by judicial process (including, but not limited to, FINOVA
obtaining an order of attachment, a temporary restraining order, a preliminary
or permanent injunction or otherwise) against the Borrower or with regard to the
Collateral, Borrower irrevocably waives: (a) the posting of any bond, surety or
security with respect thereto which might otherwise be required, (b) any demand
for possession prior to the commencement of any suit or action to recover the
Collateral, and (c) any requirement that FINOVA retain possession and not
dispose of any Collateral until after trial or final judgment.
8.3. Borrower agrees that the giving of ten (10) days' notice by FINOVA,
sent by ordinary mail, postage prepaid, to Borrower's address set forth herein,
designating the place and time of any public sale or of the time after which any
private sale or other intended disposition of the Collateral is to be made,
shall be deemed to be reasonable notice thereof and Borrower waives any other
notice with respect thereto.
8.4. The net cash proceeds resulting from the exercise of any of FINOVA's
rights or remedies under this Agreement, under the UCC or otherwise, shall be
applied by FINOVA to the payment of the Obligations in such order as FINOVA may
elect, and Borrower shall remain liable to FINOVA for any deficiency. Without
limiting the generality of the foregoing, if FINOVA enters into any credit
transaction, directly or indirectly, in connection with the disposition of any
Collateral, FINOVA shall have the option, at any time, in FINOVA's sole and
absolute discretion, to reduce the Obligations by the amount of such credit
transaction or any part thereof or to defer the reduction thereof until actual
receipt by FINOVA of cash in connection therewith.
8.5. The enumeration of the foregoing rights and remedies is not intended
to be exclusive, and such rights and remedies are in addition to and not by way
of limitation of any other rights or remedies FINOVA may have under the UCC or
other applicable law. FINOVA shall have the right, in FINOVA's sole and absolute
discretion, to determine which rights and remedies, and in which order any of
the same, are to be exercised, and to determine which Collateral is to be
proceeded against and in which order, and the exercise of any right or remedy
shall not preclude the exercise of any others, all of which shall be cumulative.
8.6. No act, failure or delay by FINOVA shall constitute a waiver of any
of its rights or remedies. No single or partial waiver by FINOVA of any
provision of this Agreement or any supplement or amendment hereto, or breach or
default thereunder, or of any right or remedy which FINOVA may have shall
operate as a waiver of any other provision, breach, default, right or remedy or
of the same provision, breach, default, right or remedy on a future occasion.
8.7 . Borrower waives presentment, notice of dishonor, protest and notice
of protest of all instruments included in or evidencing any of the Obligations
or the Collateral and any and all notices or demands whatsoever (except as
expressly provided
-13-
<PAGE>
FINOVA Capital Corporation Security Agreement
herein). FINOVA may, at all times, proceed directly against Borrower or any
guarantor or endorser to enforce payment of the Obligations and shall not be
required to take any action of any kind to preserve, collect or protect FINOVA's
or Borrower's rights in the Collateral.
Section 9. MISCELLANEOUS
9.1. This Agreement shall become effective upon acceptance by FINOVA and
shall continue in full force and effect for a term ending two (2) years from the
date hereof (the "Renewal Date") and from year to year thereafter, unless and
until terminated pursuant to the terms hereof. In addition to FINOVA's right to
declare this Agreement immediately terminated at any time upon the occurrence of
an Event of Default, either party may terminate this Agreement on the Renewal
Date or on the anniversary of the Renewal Date in any year by giving the other
party at least sixty (60) days prior written notice by registered or certified
mail, return receipt requested. No termination of this Agreement, however, shall
relieve or discharge Borrower of Borrower's duties, obligations and covenants
hereunder until all Obligations have been paid in full and FINOVA's continuing
security interest in and to the Collateral shall remain in effect until all such
Obligations have been fully discharged.
9.2 If FINOVA terminates this Agreement upon the occurrence of an Event of
Default or if Borrower terminates this Agreement as to future transactions other
than on the Renewal Date or any anniversary o the Renewal Date, in view of the
impracticality and extreme difficulty in ascertaining FINOVA's actual damages
and by mutual agreement of the parties as to a reasonable calculation of
FINOVA's lost profits as a result thereof, Borrower hereby agrees that it shall
immediately pay to FINOVA by wire transfer, certified check or bank cashier's
check, Borrower's entire Obligations owing thereunder, plus liquidated damages
of an amount equal to: (a) four percent (4%) of the Line of Credit if this
Agreement is terminated prior to February 5, 1999; (b) two percent (2%) of the
Line of Credit if this Agreement is terminated during the period from February 6
1999, to February 5, 2000; and (c) one percent (1%) of the Line of Credit if
this Agreement is terminated during any subsequent term. Prior to its actual
receipt of payment as aforesaid, FINOVA shall be free to exercise, without
limitation, all of its rights under this Agreement or under any other agreement
it may then have with Borrower. Borrower's default of any provision under this
Agreement may be considered and construed at the sole option of FINOVA, as a
termination of this Agreement by Borrower. The liquidated damages provided for
in this paragraph 9.2 shall be deemed included in the Obligations and shall be
presumed to be the amount of damages sustained by FINOVA due to the Borrower's
early termination and Borrower agrees that such damages are reasonable and
appropriate under the circumstances currently existing.
9.3. This Agreement, and any supplement or amendment hereto and any
agreements, instruments or documents delivered or to be delivered in connection
herewith, constitute the entire agreement and understanding between FINOVA and
Borrower concerning the subject matter hereof and thereof and as such supersedes
all other prior or contemporaneous agreements, understandings, negotiations and
discussions, representations, warranties, commitments, offers, contracts,
whether written or oral, all of which are merged into this Agreement. FINOVA and
Borrower agree that neither party shall be bound by anything not expressed
herein, nor shall this Agreement be modified orally.
9.4. All amendments to and modifications of this Agreement shall be in
writing and signed by Borrower and FINOVA, which requirement shall not be
modified by oral agreement or by course of conduct.
9.5. All notices, requests and demands to or upon the respective
parties hereto shall be deemed to have been duly given or made: (a) by hand,
immediately upon sending: (b) upon posting if by Federal Express, Express Mail
or any other overnight delivery service; or (c) upon posting if by certified
mail, return receipt requested. All notices, requests and demands are to be
given or made to the respective parties at the addresses set forth herein or at
such other
-14-
<PAGE>
FINOVA Capital Corporation Security Agreement
addresses as either party may designate in writing by notice in accordance with
the provisions of this paragraph.
9.6. Borrower and FINOVA each hereby waive all rights to a trial by jury in
any action or proceeding of any kind arising out of or relating to this
Agreement, any supplement or amendment hereto, the Obligations, the Collateral
or any such other transaction. Borrower hereby waives all of its rights of
setoff and rights to interpose any defenses and/or counterclaims in the vent of
any litigation with respect to any matter connected with this Agreement, any
supplement or amendment hereto, the Obligations, the Collateral or any other
transaction between the parties. Borrower hereby irrevocably consents and
submits to the jurisdiction and venue of the federal and state courts located in
Maricopa County, Arizona (without regard to an choice of law rules) in
connection with any action or proceeding of any kind arising out of or relating
to this Agreement, any supplement hereto, the Obligations, the Collateral or any
such other transaction. Borrower agrees that any action brought by it against
FINOVA whether with regard to this Agreement or otherwise shall be subject to
the jurisdiction and venue of the federal and state courts located in Maricopa
County, Arizona (without regard to any choice of law rules.)
9.7. In any litigation brought by FINOVA, Borrower waives personal service
of any summons, complaint or other process and agrees that service thereof may
be made by certified or registered mail directed to Borrower at Borrower's
address set forth below and service so made shall be complete two (2) days after
the same shall have been posted. Within twenty (20) days after such mailing,
Borrower shall appear ans answer such summons, complaint or other process,
failing which Borrower shall be deemed in default and judgement may be entered
by FINOVA against Borrower for the amount of the claim and for any other relief
requested therein.
9.8. This Agreement and all transactions hereunder are deemed to be
consummated in the State of Arizona and shall be governed by and interpreted in
accordance with the substantive and procedural laws of the State of Arizona
(without regard to any choice of law rules). If any part or provision of this
Agreement shall be determined to be invalid or in contravention of any
applicable law or regulation of the controlling jurisdiction, such part or
provision shall be severed without affecting the validity of any other part or
provision of this Agreement.
9.9. Borrower hereby consents to and authorized FINOVA to issue appropriate
press releases and to cause a tombstone to be published announcing the
consummation of this transaction and the aggregate amount thereof.
9.10. This Agreement shall inure to and be binding upon the parties hereto
and their successors and assigns.
<PAGE>
ATTEST: AZUREL, LTD.
/s/ Van Christakos By: /s/Gerard Semhon
Van Christakos, Secretary Gerard Semhon, Chairman of the Board
ATTEST: PRIVATE LABEL COSMETICS, INC.
/s/ Van Christakos By: /s/Gerard Semhon
Van Christakos, Secretary Gerard Semhon, Chairman of the Board
ATTEST: CAMBRIDGE BUSINESS SERVICES CORPORATION
/s/ Frank DeSimone By: /s/Gerard Semhon
Frank DeSimone, Secretary Gerard Semhon, Chairman of the Board
ATTEST: SCENT 1-2-3, INC.
/s/Van Christakos By: /s/Gerard Semhon
Van Christakos, Secretary Gerard Semhon, Chairman of the Board
ATTEST: P.L.C. SPECIALTIES, INC.
/s/Van Christakos By: /s/Gerard Semhon
Van Christakos, Secretary Gerard Semhon, Chairman of the Board
ATTEST: INTERNATIONAL COSMETIC GROUP, INC.
/s/Van Christakos By:/s/Gerard Semhon
Van Christakos, Secretary Gerard Semhon, Chairman of the Board
ATTEST: FASHION LABORATORIES, INC.
/s/Van Christakos By: /s/Gerard Semhon
Van Christakos, Secretary Gerard Semhon, Chairman of the Board
-17-
<PAGE>
ACCEPTED:
FINOVA CAPITAL CORPORATION
By: /s/ Melissa Schneck
Melissa Schneck, Underwriter
-18-
MASTER SECURITY AGREEMENT
THIS MASTER SECURITY AGREEMENT, made as of December 30, 1997
("AGREEMENT"), by and between GENERAL ELECTRIC CAPITAL CORPORATION, a New
York corporation with an address at 44 OLD RIDGEBURY ROAD, DANBURY,
CONNECTICUT ("Secured Party"), and AZUREL, LTD., a corporation organized
and existing under the laws of the state of New York with its chief
executive offices located at 509 MADISON AVENUE, SUITE 804, NEW YORK, NEW
YORK 10022 and PRIVATE LABEL COSMETICS, INC., a corporation organized and
existing under the laws of the state of New Jersey with its chief executive
offices located at 20-10 MAPLE AVENUE, FAIR LAWN, NJ 07410, jointly and
severally ("Debtor").
In consideration of the promises herein contained and of
certain other good and valuable consideration, the receipt and sufficiency
of which are hereby are acknowledged, Debtor and Secured Party hereby agree
as follows:
1. CREATION OF SECURITY INTEREST.
Debtor hereby gives, grants and assigns to Secured Party, its
successors and assigns forever, a security interest in and against any and
all property listed on any collateral schedule now or hereafter annexed
hereto or made a part hereof ("COLLATERAL SCHEDULE"), and in and against
any attachments, accessories and accessions thereto, any and all
substitutions, replacements or exchanges therefor, and any and all
insurance and/or other proceeds thereof (all of the foregoing being
hereinafter individually and collectively referred to as the "COLLATERAL").
The foregoing security interest is given to secure the payment and
performance of any and all debts, obligations and liabilities of any kind,
nature or description whatsoever (whether primary, secondary, direct,
contingent, sole, joint or several, or otherwise, and whether due or to
become due) of Debtor to Secured Party, now existing or hereafter arising,
including but not limited to the payment and performance of certain
Promissory Notes from time to time identified on any Collateral Schedule
(collectively "NOTES" and each a "NOTE"), and any renewals, extensions and
modifications of such debts, obligations and liabilities (all of the
foregoing being hereinafter referred to as the "INDEBTEDNESS").
Notwithstanding the foregoing, and notwithstanding anything to the contrary
contained elsewhere in this Agreement, to the extent that Secured Party
asserts a purchase money security interest in any items of Collateral
("PMSI COLLATERAL"): (i) the PMSI Collateral shall secure only that portion
of the Indebtedness which have been advanced by Secured Party to enable
Debtor to purchase, or acquire rights in or the use of such PMSI Collateral
(the "PMSI INDEBTEDNESS"), and (ii) no other Collateral shall secure the
PMSI Indebtedness.
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF DEBTOR.
Debtor hereby represents, warrants and covenants as of the date hereof and
as of the date of execution of each Collateral Schedule hereto that:
<PAGE>
(a) Debtor is, and will remain, duly organized, existing and in
good standing under the laws of the State set forth in the first paragraph of
this Agreement, has its chief executive offices at the location set forth in
such paragraph, and is, and will remain, duly qualified and licensed in every
jurisdiction wherever necessary to carry on its business and operations;
(b) Debtor has adequate power and capacity to enter into, and to
perform its obligations, under this Agreement, each Note and any other documents
evidencing, or given in connection with, any of the Indebtedness (all of the
foregoing being hereinafter referred to as the "DEBT DOCUMENTS");
(c) This Agreement and the other Debt Documents have been duly
authorized, executed and delivered by Debtor and constitute legal, valid and
binding agreements enforceable under all applicable laws in accordance with
their terms, except to the extent that the enforcement of remedies may be
limited under applicable bankruptcy and insolvency laws;
(d) No approval, consent or withholding of objections is required
from any governmental authority or instrumentality with respect to the entry
into, or performance by, Debtor of any of the Debt Documents, except such as may
have already been obtained;
(e) The entry into, and performance by, Debtor of the Debt
Documents will not (i) violate any of the organizational documents of Debtor or
any judgment, order, law or regulation applicable to Debtor, or (ii) result in
any breach of, constitute a default under, or result in the creation of any
lien, claim or encumbrance on any of Debtor's property (except for liens in
favor of Secured Party) pursuant to, any indenture mortgage, deed of trust, bank
loan, credit agreement, or other agreement or instrument to which Debtor is a
party;
(f) There are no suits or proceedings pending or threatened in
court or before any commission, board or other administrative agency against or
affecting Debtor which could, in the aggregate, have a material adverse effect
on Debtor, its business or operations, or its ability to perform its obligations
under the Debt Documents;
(g) All financial statement delivered to Secured Party in
connection with the Indebtedness have been prepared in accordance with generally
accepted accounting principles, and since the date of the most recent financial
statement, there has been no material adverse change;
(h) The Collateral is not, and will not be, used by Debtor for
personal, family or household purposes;
-2-
<PAGE>
(i) The Collateral is, and will remain, in good condition and
repair and Debtor will not be negligent in the case and use thereof;
(j) Debtor is, and will remain, the sole and lawful owner, and in
possession of, the Collateral, and has the sole right and lawful authority to
grant the security interest described in this Agreement; and
(k) The Collateral is, and will remain, free and clear of all
liens, claims and encumbrances of every kind, nature and description, except for
(i) liens in favor of Secured Party, (ii) liens for taxes not yet due or for
taxes being contested in good faith and which do not involve, in the reasonable
judgment of Secured Party, any risk of the sale, forfeiture or loss of any of
the Collateral, and (iii) inchoate materialmen's, mechanic's, repairmen's and
similar liens arising by operation of law in the normal course of business for
amounts which are not delinquent (all of such permitted liens being hereinafter
referred to as "PERMITTED LIENS").
3. COLLATERAL.
(a) Until the declaration of any default hereunder, Debtor shall remain in
possession of the Collateral; provided, however, that Secured Party shall have
the right to possess (i) any chattel paper or instrument that constitutes a part
of the Collateral, and (ii) any other Collateral which because of its nature may
require that Secured Party's security interest therein be perfected by
possession. Secured Party, its successor, and assigns, and their respective
agents, shall have the right to examine and inspect any of the Collateral at any
time during normal business hours. Upon any request from Secured Party, Debtor
shall provide Secured Party with notice of the then current location of the
Collateral.
(b) Debtor shall (i) use the Collateral only in its trade or business, (ii)
maintain all of the Collateral in good condition and working order, (iii) use
and maintain the Collateral only in compliance with all applicable laws. and
(iv) keep all of the Collateral free and clear of all liens, claims and
encumbrances (except for Permitted Liens).
(c) Debtor shall not, without the prior written consent of Secured Party,
(i) part with possession of any of the Collateral (except to Secured Party or
for maintenance and repair), (ii) remove any of the Collateral from the
continental United States, or (iii) sell, rent, lease, mortgage, grant a
security interest in or otherwise transfer or encumber (except for Permitted
Liens) any of the Collateral.
(d) Debtor shall pay promptly when due all taxes, license fees, assessments
and public and private charges levied or assessed on any of the Collateral, on
the use thereof, or on this Agreement or any of the other Debt Documents. At its
option, Secured Party may discharge taxes, liens, security interests or other
encumbrances at any time levied or placed on the Collateral and may pay for the
maintenance, insurance and preservation of the
-3-
<PAGE>
Collateral or to effect compliance with the terms of this Agreement or any of
the other Debt Documents. Debtor shall reimburse Secured Party, on demand, for
any and all costs and expenses incurred by Secured Party in connection therewith
and agrees that such reimbursement obligation shall be secured hereby.
(e) Debtor shall, at all times, keep accurate and complete records of the
Collateral, and Secured Party, its successors and assigns, and their respective
agents. shall have the right to examine, inspect, and make extracts from all of
Debtor's books and records relating to the Collateral at any time during normal
business hours.
(f) If agreed by the parties, Secured Party may, but shall in no event be
obligated to, accept substitutions and exchanges of property for property and
additions to the property, constituting all or any part of the Collateral. Such
substitutions, exchanges and additions shall be accomplished at any time and
from time to time, by the substitution of a revised Collateral Schedule for the
Collateral Schedule now or hereafter annexed. Any property which may be
substituted, exchanged or added as aforesaid shall constitute a portion of the
Collateral and shall be subject to the security interest granted herein.
Additions to, reductions or exchanges of, or substitutions for, the Collateral,
payments on account of any obligation or liability secured hereby, increases in
the obligations and liabilities secured hereby, or the creation of additional
obligations and liabilities secured hereby, may from time to time be made or
occur without affecting the provisions of this Agreement or the provisions of
any obligation or liability which this Agreement secures.
(g)Any third person at any time and from time to time holding all or any
portion of the Collateral shall be deemed to, and shall, hold the Collateral as
the agent of, and as pledge holder for, Secured Party. At any time and from time
to time, Secured Party may give notice to any third person holding all or any
portion of the Collateral that such third person is holding the Collateral as
the agent of, and as pledge holder for, the Secured Party.
4. INSURANCE.
The Collateral shall at all times be held at Debtor's risk, and Debtor
shall keep it insured against loss or damage by fire and extended coverage
perils, theft, burglary, and for any or all Collateral which are vehicles, for
risk of loss by collision, and where requested by Secured Party, against other
risks as required thereby, for the full replacement value thereof, with Company,
in amounts and under Policies acceptable to Secured Party. Debtor shall, if
Secured Party so requires, deliver to Secured Party policies or certificates of
insurance evidencing such coverage. Each policy shall name Secured Party as loss
payee thereunder, shall provide for coverage to Secured Party regardless of the
breach by Debtor of any warranty or representation made therein, shall not be
subject to co-insurance, and shall provide for thirty (30) days written notice
to Secured Party of the cancellation or material modification thereof. Debtor
hereby appoints Secured Party as its attorney in fact to make proof of loss,
claim for insurance and adjustments with insurers, and to execute or endorse
-4-
<PAGE>
all documents, checks or drafts in connection with payments made as a result of
any such insurance policies. Proceeds of insurance shall be applied, at the
option of Secured Party, to repair or replace the Collateral or to reduce any of
the Indebtedness secured hereby.
5. REPORTS.
(a) Debtor shall promptly notify Secured Party in the event of (i) any
change in the name of Debtor, (ii) any relocation of its chief executive
offices, (iii) any relocation of any of the Collateral, (iv) any of the
Collateral being lost, stolen, missing, destroyed, materially damaged or worn
out, or (v) any lien, claim or encumbrance attaching or being made against any
of the Collateral other than Permitted Liens.
(b) Debtor agrees to furnish its annual financial statements and such
interim statements its Secured Party may require in form satisfactory to Secured
Party. Any and ill financial statements submitted and to be submitted to Secured
Party have and will have been prepared on a basis of generally accepted
accounting principles, and are and will be complete and correct and fairly
present Debtor's financial condition as at the date thereof. Secured Party may
at any reasonable time examine the books and records of Debtor and make copies
thereof.
6. FURTHER ASSURANCES.
(a) Debtor shall upon request of Secured Party, furnish to Secured Party
such further information, execute and deliver to Secured Party such documents
and instruments (including, without limitation, Uniform Commercial Code
financing statements) and do such other acts and things, as Secured Party may at
any time reasonably request relating to the perfection or protection of the
security interest created by this Agreement or for the purpose of carrying out
the intent of this Agreement. Without limiting the foregoing, Debtor shall
cooperate and do all acts deemed necessary or advisable by Secured Party to
continue in Secured Party a perfected first security interest in the Collateral,
and shall obtain and furnish to Secured Party any subordinations, releases,
landlord, lessor, or mortgagee waivers, and similar documents as may be from
time to time requested by, and which are in form and substance satisfactory to,
Secured Party.
(b) Debtor hereby grants to Secured Party the power to sign Debtor's name
and generally to act on behalf of Debtor to execute and file applications for
title, transfers of title, financing statements, notices of lien and other
documents pertaining to any or all of the Collateral. Debtor shall, if any
certificate of title be required or permitted by law for any of the Collateral,
obtain such certificate showing the lien hereof with respect to the Collateral
and promptly deliver same to Secured Party.
(e) Debtor shall indemnify and defend the Secured Party, its successors and
assigns, and their respective directors, officers and employees, from and
against any and all
-5-
<PAGE>
claims, actions and suits (including, without limitation, related attorneys'
fees) of any kind, nature or description whatsoever arising, directly or
indirectly, in connection with any of the Collateral.
7. EVENTS OF DEFAULT.
Debtor shall be in default under this Agreement and each of the other Debt
Documents upon the occurrence of any of the following "Event(s) of Default":
(a) Debtor fails to pay any installment or other amount due or coming due
under any of the Debt Documents within ten (10) days after its due date;
(b) Any attempt by Debtor, without the prior written consent of Secured
Party, to sell, rent, lease, mortgage, grant a security interest in, or
otherwise transfer or encumber (except for Permitted Liens) any of the
Collateral;
(c) Debtor fails to procure, or maintain in effect at all times, any of the
insurance on the Collateral in accordance with Section 4 of this Agreement;
(d) Debtor breaches any of its other obligations under any of the Debt
Document and fails to cure the same within thirty (30) days after written notice
thereof;
(e) Any warranty, representation or statement made by Debtor in any of the
Debt Documents or otherwise in connection with any of the Indebtedness shall be
false or misleading in any material respect;
(f) Any of the Collateral being subjected to, or being threatened with,
attachment, execution, levy, seizure or confiscation in any legal proceeding or
otherwise;
(g) Any default by Debtor under any other agreement between Debtor and
Secured Party;
(h) Any dissolution, termination of existence, merger, consolidation,
change in controlling ownership, insolvency, or business failure of Debtor or
any guarantor or other obligor for any of the Indebtedness (collectively
"GUARANTOR"), or if Debtor or any Guarantor is a natural person, any death or
incompetency of Debtor or such Guarantor;
(i) The appointment of a receiver for all or of any part of the property of
Debtor or any Guarantor, or any assignment for the benefit of creditors by
Debtor or any Guarantor; or
(j) The filing of a petition by Debtor or any Guarantor under any
bankruptcy, insolvency or similar law, or the filing of any such petition
against Debtor or any Guarantor
-6-
<PAGE>
if the same is not dismissed within thirty (30) days of such filing.
8. REMEDIES ON DEFAULT.
(a) Upon the occurrence of an Event of Default under this Agreement, the
Secured Party, at its option, may declare any or all of the Indebtedness,
including without limitation the Notes, to be immediately due and payable,
without demand or notice to Debtor or any Guarantor. The obligations and
liabilities accelerated thereby shall bear interest (both before and after any
judgment) until paid in full at the lower of eighteen percent (18%) per annum or
the maximum rate not prohibited by applicable law.
(b) Upon such declaration of default, Secured Party shall have all of the
rights and remedies of a Secured Party under the Uniform Commercial Code, and
under any other applicable law. Without limiting the foregoing, Secured Party
shall have the right to (i) notify any account debtor of Debtor or any obligor
on any instrument which constitutes part of the Collateral to make payment to
the Secured Party, (ii) with or without legal process, enter any premises where
the Collateral may be and take possession and/or remove said Collateral from
said premises, (iii) sell the Collateral at public or private sale, in whole or
in part, and have the right to bid and purchase at said sale, and/or (iv) lease
or otherwise dispose of all or part of the Collateral, applying proceeds
therefrom to the obligations then in default. If requested by Secured Party,
Debtor shall promptly assemble the Collateral and make it available to Secured
Party at a place to be designated by Secured Party which is reasonably
convenient to both parties. Secured Party may also render any or all of the
Collateral unusable at the Debtor's premises and may dispose of such Collateral
on such premises without liability for rent or costs. Any notice which Secured
Party is required to give to Debtor under the Uniform Commercial Code of the
time and place of any public sale or the time after which any private sale or
other intended disposition of' the Collateral is to be made shall be deemed to
constitute reasonable notice if such notice is given to the last known address
of Debtor at least five (5) days prior to such action.
(c) Proceeds from any sale or lease or other disposition shall be applied:
first, to all costs of repossession, storage, and disposition including without
limitation, attorneys, appraisers', and auctioneers' fees; second, to discharge
the obligations then in default; third, to discharge any other Indebtedness of
Debtor to Secured Party, whether as obligor, endorser, guarantor, surety or
indemnitor; fourth, to expenses incurred in paying or settling liens and claims
against the Collateral; and lastly, to Debtor, if there exists any surplus.
Debtor shall remain fully liable for any deficiency.
(d) In the event this Agreement, any Note or any other Debt Documents are
placed in the hands of an attorney for collection of money due or to become due
or to obtain performance of any provision hereof, Debtor agrees to pay all
reasonable attorneys' fees incurred by Secured Party, and further agrees that
payment of such fees is secured hereunder. Debtor and Secured Party agree that
such fees to the extent not in excess of twenty percent (20%) of subject amount
-7-
<PAGE>
owing after default (if permitted by law, or such lesser sum as may otherwise be
permitted by law) shall be deemed reasonable.
(e) Secured Party's rights and remedies hereunder or otherwise arising are
cumulative and may be exercised singularly or concurrently. Neither the failure
nor any delay on the part of the Secured Party to exercise any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. Secured
Party shall not be deemed to have waived any of its rights hereunder or under
any other agreement, instrument or paper signed by Debtor unless such waiver be
in writing and signed by Secured Party. A waiver on any one occasion shall not
be construed as a bar to or waiver of any right or remedy on any future
occasion.
(f) DEBTOR HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY,
THIS AGREEMENT, ANY OF THE OTHER DEBT DOCUMENTS, ANY OF THE INDEBTEDNESS SECURED
HEREBY, ANY DEALINGS BETWEEN DEBTOR AND SECURED PARTY RELATING TO THE SUBJECT
MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP
THAT IS BEING ESTABLISHED BETWEEN DEBTOR AND SECURED PARTY. THE SCOPE OF THIS
WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE
FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS). THIS
WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN
WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS,
SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, ANY OTHER DEBT DOCUMENTS, OR TO
ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED
TRANSACTION. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A
WRITTEN CONSENT TO A TRIAL BY THE COURT.
9. MISCELLANEOUS.
(a) This Agreement, any Note and/or any of the other Debt Documents may be
assigned, in whole or in part, by Secured Party without notice to Debtor, and
Debtor hereby waives any defense, counterclaim or cross-complaint by Debtor
against any assignee, agreeing that Secured Party shall be solely responsible
therefor.
(b) All notices to be given in connection with this Agreement shall be in
writing, shall be addressed to the parties at their respective addresses set
forth hereinabove (unless and until a different address may be specified in a
written notice to the other party), and shall
-8-
<PAGE>
be deemed given (i) on the date of receipt if delivered in hand or by facsimile
transmission, (ii) on the next business day after being sent by express mail,
and (iii) on the fourth business day after being sent by regular, registered or
certified mail. As used herein, the term "business day" shall mean and include
any day other than Saturdays, Sundays, or other days on which commercial banks
in New York, New York are required or authorized to be closed.
(c) Secured Party may correct patent errors herein and fill in all blanks
herein or in any Collateral Schedule consistent with the agreement of the
parties.
(d) Time is of the essence hereof. This Agreement shall be binding, jointly
and severally, upon all parties described as the "Debtor" and their respective
heirs, executors, representatives, successors and assigns, and shall inure to
the benefit of Secured Party, its successors and assigns.
(e) This Agreement and its Collateral Schedules constitute the entire
agreement between the parties with respect to the subject matter hereof and
supercede all prior understandings (whether written, verbal or implied) with
respect thereto. This Agreement and its Collateral Schedules shall not be
changed or terminated orally or by course of conduct, but only by a writing
signed by both parties hereto. Section headings contained in this Agreement have
been included for convenience only, and shall not affect the construction or
interpretation hereof.
(f) This Agreement shall continue in full force and effect until all of the
Indebtedness has been indefeasibly paid in full to Secured Party. The surrender,
upon payment or otherwise, of any Note or any of the other documents evidencing
any of the Indebtedness shall not affect the right of Secured Party to retain
the Collateral for such other Indebtedness as may then exist or as it may be
reasonably contemplated will exist in the future. This Agreement shall
automatically be reinstated in the event that Secured Party is ever required to
return or restore the payment of all or any portion of the Indebtedness (all as
though such payment had never been made).
-9-
<PAGE>
IN WITNESS WHEREOF, Debtor and Secured Party, intending to be legally
bound hereby, have duly executed this Agreement in one or more
counterparts, each of which shall be deemed to be an original, as of the
day and year first aforesaid.
SECURED PARTY DEBTOR:
General Electric Capital Corporation Azurel Ltd.
By:/s/ James Trinacria By:/s/ Frank DeSimone
Title: Senior Risk Manager Title:Executive V.P. - CFO
Private Label Cosmetics, Inc.
By:/s/ Joseph Truitt Bell
Title: Executive V.P.
-10-
<PAGE>
CERTIFIED COPY OF RESOLUTION OF BOARD OF DIRECTORS
The undersigned hereby certifies: (i) that he/she is the
Secretary of Azurel Ltd., a New York corporation; (ii) that the following
is a true, accurate and complete transcript of resolutions duly adopted at
a meeting of the Board of Directors of said Corporation duly held on the
30th day of December, 1997, at which a quorum was present, and that the
proceedings were in accordance with the Articles and by-laws of said
Corporation; and (iii) that said resolutions have not been amended or
revoked, and are in full force and effect.
"RESOLVED, that each of the officers of this Corporation whose
name appears below, or the duly elected or appointed successor in office of
any or all of them, be and hereby is authorized and empowered in the name
and on behalf of this Corporation to borrow from General Electric Capital
Corporation (hereinafter referred to as "GE Capital") from time to time,
such sum or sums of money as in the judgment of such officer or officers
the Corporation may require and to execute on behalf of the Corporation and
to deliver to GE Capital in the form required by GE Capital a promissory
note or notes of this Corporation evidencing the amount or amounts borrowed
or any renewals and/or extensions thereof, such note or notes to bear such
rate of interest and be payable in such installments and on such terms and
conditions as such officer may agree to by his signature thereon.
FURTHER RESOLVED, that any of the aforesaid officers, or his
duly elected or appointed successor in office, be and hereby is authorized
and empowered to do any acts, including, but not limited to, the mortgage,
pledge, or hypothecation from time to time with GE Capital of any or all
the assets of this Corporation to secure such loan or loans and any other
indebtedness or obligations, now existing or hereafter arising, of this
Corporation to GE Capital, and to execute in the name of and on behalf of
this Corporation, any chattel mortgages, notes, security agreements,
financing statements, renewal, extension or consolidation agreements, and
any other instruments deemed necessary or proper by GE Capital in respect
of the collateral securing any indebtedness of this Corporation, and to
affix the seal of this Corporation to any mortgage, pledge, or other such
instrument if so required or requested by GE Capital.
FURTHER RESOLVED, that each said officer of this Corporation
is hereby authorized to do and perform all other acts and deeds that may be
requisite or necessary to carry fully into effect the foregoing
resolutions.
FURTHER RESOLVED, that the officers referred to in the
foregoing resolutions, their names and signatures are as follows:
Frank DeSimone Executive V.P. - CFO /s/ Frank DeSimone
- --------------------------------------------------------------------------------
NAME TITLE SIGNATURE
- ---------------------------- ---------------------------- ---------------------
- ---------------------------- ---------------------------- ---------------------
- ---------------------------- ---------------------------- ---------------------
FURTHER RESOLVED, that GE is authorized to rely upon the
aforesaid resolutions until receipt by it of written notice of any change,
which changes of whatever nature shall not be effective as to GE Capital to
the extent that it has theretofore relied upon the aforesaid resolutions in
the above form."
IN WITNESS WHEREOF, I have set my hand and affixed the seal of
said Corporation this 30th day of December, 1997.
/s/ Van Christakos
-----------------------------------
Secretary
(Corporate Seal)
<PAGE>
PROMISSORY NOTE
DECEMBER 30, 1997
-----------------
(DATE)
509 MADISON AVENUE, SUITE 804, NEW YORK, NEW YORK COUNTY, NEW YORK 10022
------------------------------------------------------------------------
(ADDRESS OF MAKER)
FOR VALUE RECEIVED, Azurel Ltd. and Private Label Cosmetics, Inc. promises,
jointly and severally, if more than one (each a "Maker"), to pay to the
order of General Electric Capital Corporation or any subsequent holder
hereof (each, a "Payee") at its office located at 44 Old Ridgebury Road,
Danbury, Connecticut 06810 or at such other place as Payee or the holder
hereof may designate, the principal sum of Eight hundred thousand and
00/100 Dollars ($800,000.00), with interest thereon, from the date hereof
through and including the dates of payment, at a fixed per annum simple
interest rate of Eleven and 30/100 percent (11.30%).
Subject to the other provisions hereof, the principal on this Note is
payable in lawful money of the United States in forty-seven (47)
consecutive monthly installments of Sixteen thousand six hundred sixty-six
and 67/100 Dollars ($16,666.67) each ("Periodic Installment") and a final
installment which shall be in the amount of the total outstanding unpaid
principal. The first Periodic Installment shall be due and payable on
January 1, 1998 and the following Periodic Installments and the final
installment shall be due and payable on the same day of each succeeding
period (each, a "Payment Date"). In addition to the payments of principal
provided above, accrued interest shall be payable on the Payment Date. All
payments shall be applied first to interest and then to principal. Each
payment may, at the option of the Payee, be calculated and applied on an
assumption that such payment would be made on its due date. The acceptance
by Payee of any payment which is less than payment in full of all amounts
due and owing at such time shall not constitute a waiver of Payee's right
to receive payment in full at such time or at any prior or subsequent time.
Interest shall be calculated on the basis of a 365 day year (366 day leap
year).
The Maker hereby expressly authorizes the Payee to insert the date value is
actually given in the blank space on the face hereof and on all relate
documents pertaining hereto.
This Note may be secured by a security agreement, chattel mortgage, pledge
agreement or like instrument (each of which being hereinafter called a
"Security Agreement").
Time is of the essence hereof. If any installment or any other sum due
under this Note or any Security Agreement is not received within ten (10)
days after the applicable due date, each Maker agrees to pay, in addition
to the amount of each such installment or other sum, a late payment charge
of five percent (5%) of said installment or other sum, but not exceeding
any
<PAGE>
lawful maximum. If (i) Maker fails to make payment of any amount due
hereunder within ten (10) days after the same becomes due and payable; or
(ii) Maker is in default under or fails to perform under any term or
condition contained in any Security Agreement, then the entire principal
sum remaining unpaid, together with all accrued interest hereon and any
other sum payable under this Note or the Security Agreement, at the
election of Payee, shall immediately become due and payable, with interest
thereon at the lesser of eighteen percent (18%) per annum or the highest
rate not prohibited by applicable law from the date of such accelerated
maturity until paid (both before and after any judgment).
The Maker may prepay in full, but not in part, its entire indebtedness
hereunder upon payment of an additional sum as a premium equal to the
following percentages of the original principal balance for the indicated
period:
<TABLE>
<S> <C> <C>
Prior to the first anniversary date of this Note: four percent (4%)
Thereafter and prior to the second annual anniversary date of this Note: three percent (3%)
Thereafter and prior to the third annual anniversary date of this Note: two percent (2%)
Thereafter and prior to the fourth annual anniversary date of this Note: one percent (1%)
Thereafter and prior to the fifth annual anniversary date of this Note: N/A percent (N/A%)
and zero percent (0%) thereafter, plus all other sums due hereunder or
under any Security Agreement.
</TABLE>
It is the intention of the parties hereto to comply with the applicable
usury laws; accordingly, it is agreed that, notwithstanding any provision
to the contrary in Note or any Security Agreement, in no event shall this
Note or any Security Agreement require the payment or permit the collection
of interest in excess of the maximum amount permitted by applicable law. If
any such excess interest is contracted for, charged or received under this
Note or any Security Agreement, or if that all of the principal balance
shall be prepaid, so that under any of such circumstances the amount of
interest contracted for, charged or received under this Note or the
Security Agreement on the principal balance shall exceed the maximum amount
of interest permitted by applicable law, then in such event (a) the
provisions of this paragraph shall govern and control, (b) neither Maker
nor any other person or entity now or thereafter liable for the payment
hereof shall be obligated to pay the amount of such interest to the extent
that it is in excess of the maximum amount of interest permitted by
applicable law, (c) any such excess which may have been collected shall be
either applied as a credit against the then unpaid principal balance or
refunded to Maker, at the option of the Payee, and (d) the effective rate
of interest shall be automatically reduced to the maximum lawful contract
rate allowed under applicable law as now or hereafter construed by the
courts having jurisdiction thereof. It is further agreed that without
limitation of the foregoing, all calculations of the rate of interest
contracted for, charged or received under this Note or the Security
Agreement whicha re made for the purpose of determining whether such rate
exceeds the maximum lawful contract rate, shall be made, to the extent
permitted by applicable law, by amortizing, prorating, allocating and
spreading in equal parts during the period of the full stated term of the
indebtedness evidenced hereby, all interest at any time
-2-
<PAGE>
contracted for, charged or received from Maker or otherwise by Payee in
connection with such indebtedness; provided, however, that if any
applicable state law is amended or the law of the United States of America
preempts any applicable state law, so that it becomes lawful for the Payee
to receive a greater interest per annum rate than is presently allowed, the
Maker agrees that, on the effective date of such amendment or preemption,
as the case may be, the lawful maximum hereunder shall be increased to the
maximum interest per annum rate allowed by the amended state law or the law
of the United States of America.
The Maker and all sureties, endorsers, guarantors or any others (each such
person, other than the Maker, an "OBLIGOR") who may at any time become
liable for the payment hereof jointly and severally consent hereby to any
and all extensions of time, renewals, waivers or modifications of, and all
substitutions or releases of, security or of any party primarily or
secondarily liable on this Note or any Security Agreement or any term and
provision of either, which may be made, granted or consented to by Payee,
and agree that suit may be brought and maintained against any one or more
of them, at the election of Payee without joinder of any other as a party
thereto, and that Payee shall not be required first to foreclose, proceed
against, or exhaust any security hereof in order to enforce payment of this
Note. The Maker and each Obligor hereby waive presentment, demand for
payment, notice of nonpayment, protest, notice of protest, notice of
dishonor, and all other notices in connection herewith, as well as filing
of suit (if permitted by law) and diligence in collecting this Note or
enforcing any of the security hereof, and agree to pay (if permitted by
law) all expenses incurred in collection, including Payee's actual
attorneys' fees. Maker and each Obligor agree that fees not in excess of
twenty percent (20%) of the amount then due shall be deemed reasonable.
THE MAKER HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR
INDIRECTLY, THIS NTOE, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS BETWEEN
MAKER AND PAYEE RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY
RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED
BETWEEN MAKER AND PAYEE. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL
ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT
(INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF
DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS). THIS WAIVER IS
IRREVOCABLE MEANING THAT IT MAY NOT BE MODIFIED EITHER RORALLY OR IN
WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,R ENEWALS,
SUPPLEMTNS OR MODIFICATIONS TO THIS NOTE, ANY RELATED DOCUMENTS, OR TO ANY
OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED
TRANSACTION. IN THE EVENT OF LITIGATION, THIS NOTE MAY BE FILED AS A
WRITTEN CONSENT TO A TRIAL BY THE COURT.
-3-
<PAGE>
This Note and any Security Agreement constitute the entire agreement of the
Maker and Payee with respect to the subject matter hereof and supercedes
all prior understandings, agreements and representations, express or
implied.
No variation or modification of this Note, or any waiver of any of its
provisions or conditions, shall be valid unless in writing and signed by an
authorized representative of Maker and Payee. Any such waiver, consent,
modification or change shall be effective only in the specific instance and
for the specific purpose given.
Any provision in this Note or any Security Agreement which is in conflict
with any statute, law or applicable rule shall be deemed omitted, modified
or altered to conform thereto.
AZUREL LTD.
Van Christakos By: /s/ Frank DeSimone (L.S.)
(Witness) (Signature)
Van Christakos Frank DeSimone
--------------------------------- -----------------------------------
(Print name) Print name (and title, if applicable)
133842844
----------------------------------- -----------------------------------
(Address) (Federal tax identification number)
PRIVATE LABEL COSMETICS, INC.
By:/s/ Joseph Truitt Bell (L.S.)
(Signature)
Joseph Truitt Bell
------------------------------------
Print name (and title, if applicable)
13-1573923
-----------------------------------
(Federal tax identification number)
<PAGE>
COLLATERAL SCHEDULE NO. 001
THIS COLLATERAL SCHEDULE NO. 001 is annexed to and made a part of that
certain Master Security Agreement dated as of December 30,1 997 between
GENERAL ELECTRIC CAPITAL CORPORATION as Secured Party and AZUREL LTD. AND
PRIVATE LABEL COSMETICS, INC., jointly and severally as Debtor and
describes collateral in which Debtor has granted Secured Party a security
interest in connection with the Indebtedness (as defined in the Security
Agreement) including without limitation that certain Promissory Note dated
December 30, 1997 in the original principal amount of $800,000.00.
All of Debtors' equipment and machinery now owned described on the
Exhibit to Collateral Schedule No. 001 attached hereto and made a part
hereof, together with all parts, accessories, attachments, substitutions,
repairs, improvements and replacements and any and all proceeds thereof,
including without limitation insurance proceeds.
Equipment is located at 20-10 Maple Avenue, Fair Lawn, New Jersey 07410
SECURED PARTY: DEBTOR:
GENERAL ELECTRIC CAPITAL CORPORATION AZUREL LTD.
By: James Trinacria By: /s/ Frank DeSimone
Title: Senior Risk Analyst Title:Executive V.P. - CFO
Date:_____________________________ Date: December 30, 1997
PRIVATE LABEL COSMETICS, INC.
By: /s/ Joseph Truitt Bell
Title: Executive V.P.
Date: December 30, 1997
<PAGE>
EXHIBIT TO COLLATERAL SCHEDULE NO. 001
PAGE 1 OF 13
<TABLE>
<CAPTION>
ITEM QTY DESCRIPTION OF MANUFACTURER MODEL SERIAL #
ARTICLE
- ------------ ---------- --------------------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
1 5 ASSORTED HAND TRUCKS
- ------------ ---------- --------------------------- ---------------- ---------------- --------------
2 12 ASSORTED PORTABLE
PLATFORM SCALES
- ------------ ---------- --------------------------- ---------------- ---------------- --------------
3 13 PEDESTAL FANS
- ------------ ---------- --------------------------- ---------------- ---------------- --------------
4 17 DRUM DOLLIES
- ------------ ---------- --------------------------- ---------------- ---------------- --------------
5 LOT APPROX. (200) SECTIONS
METAL ADJUSTABLE
SHELVING
- ------------ ---------- --------------------------- ---------------- ---------------- --------------
6 1 FLOOR VACUUM, HEAVY- NILFISK 200
DUTY FACTORY TYPE
- ------------ ---------- --------------------------- ---------------- ---------------- --------------
7 9 ASSORTED SAFETY
LADDERS - 3-7 STEP
- ------------ ---------- --------------------------- ---------------- ---------------- --------------
8 10 HYDRAULIC PALLET
JACKS
- ------------ ---------- --------------------------- ---------------- ---------------- --------------
9 314 SECTIONS OF PALLET
RACKING - ASSORTED
MANUFACTURERS AND
DIMENSIONS
- ------------ ---------- --------------------------- ---------------- ---------------- --------------
10 1 STENCIL CUTTER - DIAGRAPH
MANUAL TYPE
- ------------ ---------- --------------------------- ---------------- ---------------- --------------
11 4 ELECTRIC FORKLIFT YALE UCC ESC030ABN 9552678
TRUCK - STAND UP RIDER 24SE083
TYPE, 3700 LB. CAP., 190"
LIFT (PLC #4)
- ------------ ---------- --------------------------- ---------------- ---------------- --------------
12 2 ELECTRIC FORKLIFT YALE UCC NR035ABN 556165
TRUCK - STAND UP RIDER N 556166
TYPE, 3500 LB. CAP., 197" 24SE089
LIFT W/BATTERY
CHARGER (PLS #5) (PLC
#3)
- ------------ ---------- --------------------------- ---------------- ---------------- --------------
13 1 ELECTRIC FORKLIFT PRIME MOVER RR34B 194256
TRUCK - STAND UP RIDER
TYPE, 4000 LB. CAP., 180"
LIFT W/BATTERY
CHARGER (PLC #7)
- ------------ ---------- --------------------------- ---------------- ---------------- --------------
14 1 ELECTRIC FORKLIFT YALE UCC NEOMAN24 419399
TRUCK - STAND UP RIDER ST03
TYPE, 3000 LB. CAP., 181"
LIFT (PLC #6)
- ------------ ---------- --------------------------- ---------------- ---------------- --------------
15 1 ELECTRIC PALLET JACK - YALE UCC MPW060LC 555403
6000 LB. CAP W/BATTERY M
CHARGER 2472748
- ------------ ---------- --------------------------- ---------------- ---------------- --------------
16 1 ELECTRIC PALLET JACK - YALE N/A N/A
6000 LB. CAP. W/BATTERY
CHARGER (IN STORAGE -
AS IS)
- ------------ ---------- --------------------------- ---------------- ---------------- --------------
17 1 HYDRAULIC LIFT OLSON 88113-8
- ------------ ---------- --------------------------- ---------------- ---------------- --------------
18 2 DOCK BOARDS
- ------------ ---------- --------------------------- ---------------- ---------------- --------------
19 1 PRODUCTION-THREE KENT 13X32 KMC-1
ROLL MILL - 13" X 32"
ROLLS, MANUAL ROLL
SET
- ------------ ---------- --------------------------- ---------------- ---------------- --------------
20 1 PRODUCTION THREE KENT 9X24 KMC-3
ROLL MILL - 9" X 24"
ROLLS, MANUAL ROLL
SET
- ------------ ---------- --------------------------- ---------------- ---------------- --------------
21 1 LABORATORY THREE DAY 5X12 KMC-4
ROLL MILL - 5" X 12"
ROLLS, MANUAL ROLL
SET
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
22 1 LABORATORY THREE HILDEBRAND 5X12 KMC-2
ROLL MILL - 5" X 12"
ROLLS, MANUAL ROLL
SET
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
23 11 STAINLESS STEEL GROEN N60 15603
HEMISPHERICAL 15603
88900
16440
85532
0231
85532
82980
88960
2-N/A
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
24 4 STAINLESS STEEL GROEN DN10 54574
HEMISPHERICAL TILTING 54573
KETTLES - 10 GAL. CAP. 54571
2429
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
-2-
<PAGE>
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
25 4 STAINLESS STEEL GROEN N100 00992
HEMISPHERICAL 82162
KETTLES - 100 GAL. CAP.
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
26 7 STAINLESS STEEL GROEN N30 05145
HEMISPHERICAL 05345
KETTLES - 30 & 40 GAL. 41569H
CAP. 05551
05551
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
27 1 STAINLESS STEEL HUBBERT 8359
HEMISPHERICAL KETTLE
- 50 GAL. CAP.
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
28 2 STAINLESS STEEL GROEN DM20 87081
HEMISPHERICAL TILTING
KETTLES - 20 GAL. CAP.
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
29 1 STAINLESS STEEL LEGION LT20 1443
HEMISPHERICAL KETTLE
- 20 GAL. CAP.
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
30 2 STAINLESS STEEL LEE 65J
HEMISPHERICAL
KETTLES - 150 GAL. CAP.
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
31 1 STAINLESS STEEL
HEMISPHERICAL KETTLE
- 80 GAL. CAP.
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
32 1 STAINLESS STEEL GROEN
HEMISPHERICAL TILTING
KETTLE - 30 GAL. CAP.
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
33 4 STAINLESS STEEL LEGION & 124883 682442
HEMISPHERICAL HUBBERT 70237
KETTLES - 30 & 40 GAL. 661989
CAP.
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
34 1 STAINLESS STEEL GROEN DEE-4/20 656
HEMISPHERICAL TILTING
KETTLE - 20 GAL. CAP.,
SELF-CONTAINED
ELECTRICAL HEATING
SYSTEM
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
35 2 STAINLESS STEEL GROEN F50 22043
HEMISPHERICAL F40 31437
KETTLES - 40 & 50 GAL.
CAP.
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
36 8 PORTABLE VARIABLE PARAMETRICS
SPEED AGITATORS
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
37 1 ULTRASONIC CLEANER BRANSON P501216W 25874378
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
-3-
<PAGE>
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
38 2 VACUUM PUMPS - 1/4 HP GAST
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
39 LOT (7) ASST. LIPSTICK CHILL
TABLES - 2 1/2" X 4" TO 3"
X 6" SIZES
W/REFRIGERATION
SYSTEMS
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
40 LOT (15) ASSORTED KEMWALL
ELECTRICALLY HEATED VAN ALST
LIPSTICK KETTLES, ALL STA WARM
WITH SLOW SPEED
CENTER AGITATION
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
41 LOT LIPSTICK MOLDS (A
SCHEDULE OF LIPSTICK
MOLDS SUPPLIED BY
PRIVATE LABEL
COSMETICS IS ENCLOSED)
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
42 3 PULVERIZERS - STIRRUP MIKRO PUL 1SH L0716
HAMMER TYPE 5042
W/HORIZONTAL SCREW 6252
FEED W/NON-STAINLESS
STEEL CONTACT PARTS
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
43 1 PULVERIZER - STIRRUP MIKRO PUL 1S1 61698
HAMMER TYPE
W/INCLINED SCREW FEED
W/STAINLESS STEEL
CONTACT PARTS
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
44 5 PULVERIZERS - STIRRUP MIKRO PUL 2DH 77J5264
HAMMER TYPE 65J143
W/DOUBLE HORIZONTAL 62J3143
SCREW FEED W/NON- 78J5299
STAINLESS STEEL N/A
CONTACT PARTS ((1)
PULVERIZER IS PART OF
UNITED JERSEY BANK
LEASE)
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
45 1 PULVERIZER - STIRRUP MIKRO PUL 2DH 9812
HAMMRE TYPE
W/DOUBLE HORIZONTAL
SCREW FEED W/NON-
STAINLESS STEEL
CONTACT PARTS
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
-4-
<PAGE>
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
46 3 PADDLE BLENDERS - RAPIDS MARION 59158
APPROX. 80 CU. FT. CAP. MACHINERY MIXER 63010
N/A
W/CARBON STEEL
CONTACT PARTS
W/BUCKET ELEVATOR
FOR INFEEDING
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
47 2 RIBBON BLENDER S- J.H. DAY 77365
APPROX. 5 CU. FT. CAP. 82545
W/STAINLESS STEEL
CONTACT PARTS
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
48 1 RIBBON BLENDER - J.H. DAY 81629
APPROX. 17 CU. FT. CAP.
W/STAINLESS STEEL
CONTACT PARTS
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
49 4 RIBBON BLENDERS - J.H. DAY 73101(3)
APPROX. 36 CU. FT. CAP. N/A
W/CARBON STEEL
CONTACT PARTS
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
50 1 RIBBON BLENDER - S. HOWES
APPROX. 20 CU. FT. CAP.
W/CARBON STEEL
CONTACT PARTS
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
51 3 RIBBON BLENDERS - J.H.
APPROX. 10 CU. FT. CAP. DAY/STANDARD/
W/CARBON STEEL MUNSON
CONTACT PARTS
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
52 1 COMPOUND GEARED J.H. DAY
PONY MIXER - APPROX. 80
GAL. CAP., DOUBLE
MOTION AGITATION
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
53 3 COMPOUND GEARED J.H. DAY
PONY MIXERS - 40, 20 AND
5 GAL. CAP.
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
54 1 DOUBLE ARM MIXER - J.H. DAY CINCINAT
APPROX. 50 GAL. CAP. TUS
W/CARBON STEEL
CONTACT PARTS
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
-5-
<PAGE>
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
55 1 CHECKWEIGHER - SOLID CINTEX CS250 11641
STATE ELECTRICS, ALL
STAINLESS STEEL
CONSTRUCTION (PART OF
UNITED JERSEY BANK
LEASE)
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
56 1 SEMIAUTOMATIC MATEER 31A
POWDER FILLER - SINGLE
AUGER TYPE, STAINLESS
STEEL CONTACT PARTS,
AGITATED HOPPER,
ROTARY COUNTER
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
57 5 ASSORTED PACK-OUT
TABLES - 30' TO 50' LONG,
ALL WITH CENTER BELT
CONVEYOR
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
58 1 CONTAINER TRANSFER CONTROL PRINT
UNIT - SIDE BELT TYPE
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
59 1 AUTOMATIC POWDER AMS A400 A400137
FILLER - SINGLE AUGER
TYPE, STAINLESS STEEL
CONTACT PARTS,
AGITATED HOPPER,
BOTTOM-UP FILL
CAPABLE, SOLID STATE
CONTROLS (PART OF
UNITED JERSEY BANK
LEASE)
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
60 2 AUTOMATIC POWDER MATEER 33A A-359
FILLERS - SINGLE AUGER 2638-
TYPE, STAINLESS STEEL A4642
CONTACT PARTS,
AGITATED HOPPER,
BOTTOM-UP FILL
CAPABLE, SOLID STATE
CONTROLS, DIGICOUNT
CONTROLS
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
61 1 SEMIAUTOMATIC MATEER 31A 12238
POWDER FILLER - SINGLE
AUGER TYPE, STAINLESS
STEEL CONTACT PARTS,
AGITATED HOPPER,
DIGICOUNT CONTROL
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
-6-
<PAGE>
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
62 8 POWDER COMPACTING KEMWALL
PRESSES - MECHANICAL
TYPE
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
63 3 POWDER COMPACTING CAVALA 10075
PRESSES - HYDRAULIC 10074
TYPE N/A
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
64 1 LOT OF DIES, CHANGE
PARTS, ET.C, FOR
KEMWALL AND CAVALA
POWDER COMPACTING
PRESSES
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
65 1 PAPER UNWIND/VACUUM/ CAVALA
REWIND UNIT
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
66 1 POWDER PRESS-SPECIAL VENTRACO
HORIZONTAL DESIGN
W/TOOLING (PART OF
UNITED JERSEY BANK
LEASE) (*SEE NOTE IN
LETTER)
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
67 1 STAINLESS STEEL LEE A4434-
HEMISPHERICAL KETTLE A11976
- 100 GAL. CAP., DOUBLE
MOTION AGITATION
W/VARIABLE SPEED
DRIVE
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
68 1 STAINLESS STEEL LEE 140-T
HEMISPHERICAL KETTLE
- 500 GAL. CAP., DOUBLE
MOTION AGITATION
W/VARIABLE SPEED
DRIVE W/PNEUMATIC
TILT-OUT BRIDGE
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
69 1 HOMO MIXER - 2 HP ARDE BACENCO
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
70 1 STAINLES STEEL GROEN GN150SP 27350
HEMISPHERICAL KETTLE
-150 GAL. CAP.
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
71 1 STAINLESS STEEL GROEN TA500SP 54342
HEMISPHERICAL KETTLE
- 500 GAL. CAP., DOUBLE
MOTION AGITATION
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
-7-
<PAGE>
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
72 2 STAINLESS STEEL GROEN DN/TA-40SP 58000
HEMISPHERICAL 58010
KETTLES - 40 GAL. CAP.,
DOUBLE MOTION
AGITATION W/VARIABLE
SPEED DRIVE
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
73 1 STAINLESS STEEL GROEN
HEMISPHERICAL KETTLE
- 80 GAL. CAP.
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
74 1 STAINLESS STEEL GROEN N125SP 02318
HEMISPHERICAL KETTLE
- 125 GAL. CAP.
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
75 2 STAINLESS STEEL LEE 170-R
HEMISPHERICAL 169-R
KETTLES - 150 GAL. CAP.,
DOUBLE MOTION
AGITATION W/VARIABLE
SPEED DRIVE
W/PNEUMATIC TILT OUT
BRIDGE
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
76 1 AUTO-STOP LIQUID NEPTUNE S442
METER
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
77 2 STAINLES STEEL LEE
HEMISPHERICAL
KETTLES - 100 GAL. CAP.,
SHALLOW TYPE
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
78 1 VERTICAL MOREHOUSE MOREHOUSE B1400
MILL - 20 HP, COWLES
MICROMETER
ADJUSTMENT
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
79 1 STAINLESS STEEL HUBBERT 10563-9
HEMISPHERICAL KETTLE
-80 GAL. CAP.
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
80 2 HOBART-TYPE GLEN 474
PLANETARY MIXERS- 473
APPROX. 20 GAL. CAP.
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
81 1 HOBART-TYPE FALFUS
PLANETARY MIXER -
APPROX. 20 GAL. CAP.
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
82 1 HOBART-TYPE READ
PLANETARY MIXER -
APPROX. 20 GAL. CAP.
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
-8-
<PAGE>
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
83 1 STAINLESS STEEL GIFFORD AC1MIXED 118882
HEMISPHERICAL KETTLE WOOD/HUBBERT
- 1000 GAL. CAP., TRIPPLE
MOTION AGITATION
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
84 1 STAINLESS STEEL GROEN/KMC SA-F-500 6888
HEMISPHERICAL KETTLE
- 500 GAL. CAP., DOUBLE
MOTION "TA" AGITATION
W/VARIABLE SPEED
DRIVE
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
85 1 STAINLESS STEEL GROEN/KMC N80
HEMISPHERICAL KETTLE
- 80 GAL. CAP., DOUBLE
MOTION "TA" AGITATION
W/HOMO MIXER (PART OF
UNITED JERSEY BANK
LEASE)
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
86 1 COLLOID MILL - CHARLOTTE ND2 N/A
STAINLESS STEEL
CONTACT PARTS,
DIRECTLY COUPLED TO 2
HP MOTOR
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
87 1 POSITIVE DISPLACEMENT WAUKESHA 25D0 N/A
PUMP-STAINLESS STEEL
CONTACT PARTS
W/VARISPEED DRIVE
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
88 2 DOUBLE DIAPHRAGM WARREN RUPP SANDPIPER N/A
PUMPS - STAINLESS STEEL
CONTACT PARTS, 2"
INLET/OUTLET
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
89 3 DOUBLE DIAPHRAHM WARREN RUPP SANDPIPER N/A
PUMPS-STAINLESS STEEL
CONTACT PARTS, 1"
INLET/OUTLET
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
90 1 PIPELINE MIXER - PREMIER MXS-3 90853-95-
STAINLESS STEEL 0063
CONTACT PARTS, 5 HP
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
91 1 STAINLESS STEEL LEE 387
HEMISPHERICAL KETTLE
- 200 GAL. CAP.
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
92 2 STAINLESS STEEL GROEN N40SP 41569A
HEMISPHERICAL N/A
KETTLES - 40 GAL. CAP.
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
-9-
<PAGE>
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
93 2 STAINLESS STEEL GROEN F40 22672
HEMISPHERICAL N/A
KETTLES - 40 GAL. CAP.
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
94 1 HOMO MIXER, GREERCO N/A N/A
FRACTIONAL HP
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
95 1 VERTICAL MOREHOUSE MOREHOUSE N/A N/A
MILL - LABORATORY COWLES
TYPE, STAINLESS STEEL
CONTACT PARTS
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
96 1 VERTICAL OPEN TOP
STAINLESS STEEL TANK -
60 GAL. CAP.,
W/PORTABLE STAND
MOUNTED 5 HP
AGITATOR
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
97 9 ASSORTED PORTABLE LIGHTNIN &
AGITATORS OTHERS
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
98 1 STAINLESS STEEL GROEN TDH/720 2120
HEMISPHERICAL KETTLE
- 20 GAL. CAP., TILTING
TYPE, SELF CONTAINED
ELECTRIC HEATING
SYSTEM
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
99 LOT LABORATORY STORAGE
CABINETS APPROX. 48"
CHEMICAL RESISTANT
COUNTER TOP
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
100 LOT LABORATORY AND FISHER
GLASSWARE STORAGE SCIENTIFIC
CABINETS CONSISTING
OF:
-(27) GLASSWARE
STORAGE CABINETS -
WALL MOUNTED, SLIDING
GLASS DOOR TYPE
- LABORATORY STORAGE
CABINETS - APPROX. 142",
CHEMICAL RESISTANT
COUNTER TOP W/(3) SINKS
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
101 2 POWDER COMPACTING CARVER 1161-2 C-108
PRESSES - LABORATORY 300 N/A
TYPE
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
102 1 VISCOMETER BROOKFIELD LVT 14163
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
103 1 MICROSCOPE BAISCH & LOMB
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
-10-
<PAGE>
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
104 1 PH METER METROHM 632
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
105 1 CAPILLARY MELTING A.H. THOMAS C427F10 71-841
POINT APPARATUS
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
106 1 ANALYTICAL BALANCE - SARTORIUS 2432 182236
MECHANICAL TYPE, 200
GRAM CAP.
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
107 1 MELTING POINT FISHER JOHNS 4012
APPARATUS
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
108 1 LABORATORY FUME LABCONCO 47700 23703
HOOD
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
109 1 INFARED PERKIN ELMER 710B 129428
SPECTROPHOTOMETER
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
110 1 INCUBATOR - PRECISION 31535 940601
MECHANICAL
CONVECTION TYPE,
DIGITAL CONTROLS
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
111 2 INCUBATORS FISHER/LABLINE
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
112 2 ELECTRONIC SCALES SARTORIUS QS4000
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
113 2 LABORATORY HOMO GREERCO
MIXERS W/STAND
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
114 5 LABORATORY
AGITATORS W/STANDS
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
115 7 ELECTRONIC SCALES SARTORIOUS 43600P
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
116 1 SIEVE SHAKER CSC SCIENTIFIC
W/STANDARD SIEVE SET 18480
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
117 1 PLASTIC TUBE SEALER A LINE
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
118 1 LABORATORY SINGLE KITCHEN AID
PLANETARY MIXER
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
119 1 ELECTRONIC BALANCE A&D FX2000 5218641
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
120 1 UNIVERSAL HUMBLE
PENETROMETER
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
121 1 PH METER ORION
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
122 1 DIGITAL FORCE GAUGE CHATILLON DF12
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
-11-
<PAGE>
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
123 LOT LABORATORY
GLASSWARE, SUPPLIES
AND ASSORTED
APPARATUS
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
124 4 ELECTRONIC SCALES SARTORIUS QS4000 125
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
125 1 REFRIGERATOR - HOWARD APPALO
INDUSTRIAL, 2 DOOR LINE
TYPE
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
126 1 AUTOMATIC TUBE FILLER UNIPAC COMBI- 10201409
- SINGLE PISTON TYPE, MATIC 3-10M
COMPUTERIZED SILVER 100
ELECTRONIC CONTROLS,
PLASTIC HEAD
W/PORTABLE SHILLER HESLAB CFT-75
(PART OF UNITED JERSEY
BANK LEASE)
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
127 1 AUTOMATIC TUBE FILLER KALIX KX14B 2452
SINGLE PISTON TYPE,
PLASTIC HEAD
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
128 3 MODIFIED AUTOMATIC KALIX KX60 1533
TUBE FILLERS - SINGLE 2309
PISTON TYPE 2063
W/O TUBE
CRIMPTING/SEALING
(THESE UNITS HAEV BEEN
CONVERTED TO
MASCARA FILLERS)
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
129 1 AUTOMATIC TUBE FILLER ARENCO GAB 48729
- SINGLE PISTON TYPE,
PLASTIC HEAD
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
130 1 AUTOMATIC STRAIGHT COZZOLI VR5200 340
LINE FILLER - (4) PISTON
TYPE, BOTTOM-UP FILL
CAPABLE
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
131 1 AUTOMATIC STRAIGHT COZZOLI
LINE FILLER - (2) PISTON
TYPE, BOTTOM-UP FILL
CAPABLE
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
-12-
<PAGE>
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
132 1 AUTOMATIC STRAIGHT KMC TPFAMKI 12923
LINE FILLER - (2) PISTON
TYPE, BOTTOM-UP FILL
CAPABLE (PART OF
UNITED JERSEY BANK
LEASE)
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
133 3 AUTOMATIC TWO LANE ELGIN TWIN 6599
FILLERS - TWO (2) PISTON (2) N/A
TYPE, BOTTOM-UP FILL
CAPABLE, MANUAL
CONTAINER INFEED
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
134 1 SEMIAUTOMATIC SINGLE DUMEK N/A N/A
PISTON FILLER -
ELECTRICALLY HEATED
AND AGITATED HOPPER
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
135 1 SEMIAUTOMATIC SINGLE KALISH N/A N/A
PISTON FILLER
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
136 2 SEMIAUTOMATIC HOT ERWEKA SG3W 20638
FILL FILLERS - SINGLE KE1 B040227
NOZZLE TYPE
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
137 1 SEMIAUTOMATIC HOT CAVALLA
FILL FILLER - EIGHT (8)
NOZZLE TYPE
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
138 1 HOT FILL FILLING CAVALLA
SYSTEM W/(2) VIBRATORY (TECHNICOLL)
BOWL CONTAINER
FEEDERS W/HOT FILL
FILLER, SINGLE NOZZLE
TYPE W/TRANSFER
CONVEYOR - 4" WIDE
W/COOLING TUNNEL
SECTION
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
139 4 PACK-OUT TABLES -
APPROX. 60' LONG, EACH
WITH CENTER BELT
CONVEYOR AND SIMPLE
LIPSTICK FLAMING
STATIONS
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
140 6 PACK-OUT TABLES
APPROX. 50' LONG, EACH
WITH CENTER BELT
CONVEYOR
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
-13-
<PAGE>
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
141 3 PACK-OUT TABLES -
APPROX. 30' LONG,E ACH
WITH CENTER BELT
CONVEYOR
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
142 1 PACK-OUT TABLES -
APPROX. 60' LONG, EACH
WITH CENTER BELT
CONVEYOR
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
143 1 INK JET CODER (PART OF VIDEOJET EXCEL 100 HE93E190
UNITED JERSEY BANK 11
LEASE)
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
144 1 INDUSTRIAL MICROWAVE LITTON 70/80
OVEN
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
145 1 SEMIAUTOMATIC BIVANS TUCK-O-
CARTON ERECTOR MAT
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
146 1 SEMIAUTOMATIC BAG AUTOMATED H-100
OPENER/SEALER - ROLL PACKAGING
FEED TYPE SYSTEMS
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
147 2 SEMIAUTOMATIC CAP SWANMATIC
TIGHTENERS
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
148 2 INK JET CODERS VIDEOJET EXCEL 100 89E20006
EXCEL 100 89V24012
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
149 1 STAINLESS STEEL GROEN DEE/1-20SP 325E
HEMISPHERICAL KETTLE
- 20 GAL. CAP., TILTING
TYPE W/SELF CONTAINED
ELECTRIC HEATING
SYSTEM
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
150 1 "L" BAR SEALER AND CLAMCO
SHRINK TUNNEL
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
151 2 LABEL CODING GUHL &
MACHINES SCHEPLER
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
152 1 TORQUE TESTER - OWENS ILLINOIS
MANUAL TYPE
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
153 1 SEMIAUTOMATIC TUCK TUCKOMA
PRESSURE SENSITIVE TIC
LABELER
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
154 1 PNEUMATIC PISTON PUMP GRACO JTF 205837
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
-14-
<PAGE>
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
155 1 AIR COMPRESSOR - 25 HP, CHAMPION
TANK MOUNTED TYPE
(PART OF UNITED JERSEY
BANK LEASE)
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
156 1 AIR COMPRESSOR - 25 HP, BINKS 33 1069
TANK MOUNTED TYPE
W/REFRIGERATOR AIR ZERNJ R55A R13247
DRYER
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
157 1 PACKAGED STEAM NORTH 4350PBA
GENERATOR - 150 PSI, 2, AMERICAN
100,000 BTU/HR, GIL OR
GAS FIRED
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
158 1 PACKAGED BOILER - 15 FEDERAL AST-G- 82-157B
PSI, OIL OR GAS FIRED 250SP
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
159 LOT EQUIPMENT AND
SUPPLIES IN THE REPAIR
SHOP, INCLUDING BUT
NOT LIMITED TO THE
FOLLOWING ITEMS:
- DOUBLE END GRINDER
- PEDESTAL DRILL PRESS
- LATHE CONTINENTAL DPF14-12 D6670
- BENCH DRILL PRESS SOUTHBEND 5/8" CL370
- OXY-ACETYLENE A
BURNING RIG CRAFTSMAN 230M
- WELDER NASSAU AC/DC JH317510
- WELDER RESEARCH
- TABLE SAW CRAFTSMAN 300
- PIPE THREADER RIGID
- HORIZONTAL BAND SAW
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
-15-
<PAGE>
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
160 LOT EQUIPMENT IN STORAGE
INCLUDING BUT NOT
LIMITED TO THE
FOLLOWING ITEMS:
- (2) POWDER KEMWALL
COMPACTING PRESSES
- (4) ASST. STAINLESS
STEEL TANKS MOYNO
- PROGRESSIVE CAVITY
PUMP W/STAINLESS
STEEL CONTACT PARTS
- (3) ASST. COLLOID MILLS
W/STAINLESS STEEL EPPENBACK
CONTACT PARTS
- (2) ASST. HOMO MIXERS
W/STAINLESS STEEL EPPENBACH
CONTACT PARTS
- CONTAINER TRANSFER
UNIT - SIDE BELT TYPE
- BOTTOM CODER - SIDE
BELT TYPE CONTROL PRING
- (2) ASST. LIPSTICK
KETTLES
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
161 LOT OFFICE FURNITURE AND
OFFICE EQUIPMENT
CONSISTING OF:
- TELEPHONE SYSTEM
- CLOSED CIRCUIT
TELEVISION SECURITY
AND OBSERVATION
SYSTEM
- THIS LOT INCLUDES ALL
OF THIS CATEGORY
LOCATED THROUGHOUT
THE FACILITY
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
162 LOT COMPUTER EQUIPMENT
AS PER ATTACHED LIST
- ------------ ---------- --------------------------- ----------------------- ---------------- --------------
</TABLE>
-16-
<PAGE>
CERTIFICATE OF DELIVERY/INSTALLATION
UNDERSIGNED HEREBY CERTIFY THAT ALL EQUIPMENT AND PROPERTY COVERED BY A
SECURITY AGREEMENT OR CHATTEL MORTGAGE DATED DECEMBER 30, 1998 AND NOTE
DATED DECEMBER 30, 1998, BETWEEN GENERAL CAPITAL CORPORATION ("SECURED
PARTY") AND UNDERSIGNED HAS BEEN DELIEVRED TO UNDERSIGNED AND THAT ANY AND
ALL INSTALLATION HAS BEEN SATISFACTORILY COMPLETED. IN ORDER TO INDUCE
SECURED PARTY TO ADVANCE THE LOAN EVIDENCED BY SUCH NOTE, UNDERSIGNED
HEREBY WAIVE ANY DEFENSE, COUNTERCLAIM OR OFFSET THEREUNDER AS
AGAINST SECURED PARTY.
AZUREL LTD.
BY: /s/ Frank DeSimone
TITLE: Executive V.P. - CFO
DATED: December 30, 1997
PRIVATE LABEL COSMETICS, INC.
BY:/s/ Joseph Truitt Bell
TITLE: Executive Vice President
DATE: December 30, 1997
<PAGE>
DATE:_______________
GENERAL ELECTRIC CAPITAL CORPORATION
44 OLD RIDGEBURY ROAD
DANBURY, CT 06810
GENTLEMEN:
YOU ARE HEREBY IRREVOCABLY AUTHORIZED AND DIRECTED TO DELIVER
AND APPLY THE PROCEEDS OF YOUR LOAN TO THE UNDERSIGNED EVIDENCED BY THAT
NOTE DATED ________________ AND SECURED BY THAT SECURITY AGREEMENT OR
CHATTEL MORTGAGE DATED ________________, AS FOLLOWS:
FINOVA CAPITAL CORPORATION $399,655.62
111 WEST 40TH STREET
NEW YORK, NY 10018
AZUREL LTD. $400,344.387
509 MADISON AVENUE
NEW YORK, NY 10022
<PAGE>
THIS AUTHORIZATION AND DIRECTION IS GIVEN PURSUANT TO THE SAME
AUTHORITY AUTHORIZING THE ABOVE-MENTIONED BORROWING.
AZUREL LTD.
BY: /s/ Frank DeSimone
TITLE:Executive V.P. - CFO
DATED: December 30, 1997
PRIVATE LABEL COSMETICS, INC.
BY: /s/ Joseph Truitt Bell
TITLE: Executive V.P.
EXHIBIT 10.20
MASTER LEASE AGREEMENT
MASTER LEASE AGREEMENT ("Master Lease") dated as of FEBRUARY 19, 1998 between
The CIT Group/Equipment Financing, Inc. (Lessor),
having a place of business at 900 ASHWOOD PARKWAY ATLANTA GA 30338,
--------------------------------------------------
Address City State Zip Code
and PRIVATE LABEL COSMETICS, INC. ("Lessee"),
-----------------------------
having a place of business at 20-10 MAPLE AVENUE FAIRLAWN NJ 07410.
--------------------------------------------------
Address City State Zip Code
This Master Lease Agreement provides a set of terms and conditions that the
parties hereto intend to be applicable to various transactions for the lease of
personal property. Each lease contract shall be evidenced by an equipment
schedule ("Schedule") executed by Lessor and Lessee that explicitly incorporates
the provisions of this Master Lease Agreement and that sets forth specific terms
of that particular lease contract. Where the provisions of a Schedule conflict
with the terms hereof, the provisions of the Schedule shall prevail. Each
Schedule shall constitute a complete and separate lease agreement, independent
of all other Schedules, and without any requirement of being accompanied by an
originally executed copy of this Master Lease Agreement. The term "Lease" when
used herein shall refer to an individual Schedule.
One originally executed copy of the Schedule shall be denominated "Originally
Executed Copy No. 1 of ___ originally executed copies" and such copy shall be
retained by Lessor. If more than one copy of the Schedule is executed by Lessor
and Lessee, all such other copies shall be numbered consecutively with numbers
greater than 1. Only transfer of possession by Lessor of the originally executed
copy denominated "Originally Executed Copy No. 1" shall be effective for
purposes of perfecting an interest in such Schedule by possession.
1. EQUIPMENT LEASED AND TERM.
This Lease shall cover such personal property as is described in any Schedule
executed by or pursuant to the authority of Lessee, accepted by Lessor in
writing and identified as a part of this Lease (which personal property with all
replacement parts, additions, repairs, accessions and accessories incorporated
therein and/or affixed thereto is hereinafter called the "Equipment"). Lessor
hereby leases to Lessee and Lessee hereby hires and takes from Lessor, upon and
subject to the covenants and conditions hereinafter contained, the Equipment
described in any Schedule. NOTWITHSTANDING THE COMMENCEMENT DATE OF THE TERM OF
THIS LEASE WITH RESPECT TO ANY ITEM OF EQUIPMENT, LESSEE AGREES THAT ALL RISK OF
LOSS OF THE EQUIPMENT SHALL BE ON LESSEE FROM AND AFTER SHIPMENT OF THE
EQUIPMENT TO LESSEE BY THE SELLER THEREOF, F.O.B. seller's point of shipment,
the date of such shipment being hereinafter called "date of shipment." The term
of this Lease with respect to any item of Equipment shall be for the period as
set forth in the Schedule. Lessee hereby gives Lessor authority to insert the
actual commencement date and date of first monthly rental for any item of
Equipment in any Schedule as well as such items as serial numbers if such are
not already inserted when such Schedule is executed by Lessee. "Seller" as used
in this Lease means the supplier from which Lessor acquires any item of
Equipment.
2. RENT.
The aggregate rent payable with respect to each item of Equipment shall be in
the amount shown with respect to such item on the Schedule. Lessee shall pay to
Lessor the aggregate rental for each item of Equipment for the full period and
term for which the Equipment is leased, such rental to be payable at such times
and in such amounts for each item of Equipment as shown in the applicable
Schedule.
All rent shall be paid at Lessor's place of business shown above, or such other
place as Lessor may designate by written notice to the Lessee. ALL RENTS SHALL
BE PAID WITHOUT NOTICE OR DEMAND AND WITHOUT ABATEMENT, DEDUCTION OR SET OFF OF
ANY AMOUNT WHATSOEVER. The operation and use of the Equipment shall be at the
risk of Lessee and not of Lessor and the obligation of Lessee to pay rent
hereunder shall be unconditional.
Page 1 of 7
<PAGE>
3. DESTRUCTION OF EQUIPMENT.
If any Equipment is lost, totally destroyed, damaged beyond repair or taken by
governmental action, the liability of the Lessee to pay rent therefor may be
discharged by paying to Lessor all the rent due thereon, plus all the rent to
become due thereon less the net amount of the recovery, if any, actually
received by Lessor from insurance or otherwise for such loss or damage.
In the event of partial destruction of any Equipment, the rent due and to become
due thereon shall not abate and Lessee shall, at its own expense, cause such
Equipment to be restored to usable condition, but Lessor shall, upon receiving
satisfactory evidence of such restoration, promptly pay Lessee the proceeds of
any insurance or compensation received by reason of such damage. If the
estimated cost of restoring such Equipment exceeds 50% of the unmatured rent
therefor, such Equipment shall, on notice by Lessee, be deemed, for all purposes
hereof, to be totally destroyed and the liability of the Lessee to pay rent
therefor shall be discharged if Lessee pays the rent described in the preceding
paragraph of this Section.
Lessor shall not be obligated to undertake by litigation or otherwise the
collection of any claim against any person for loss or damage to the Equipment.
Except as expressly provided above, the total or partial destruction of any
Equipment or the total or partial loss of use or possession thereof to Lessee
shall not release or relieve Lessee from the duty to pay the rent herein
provided.
4. NO WARRANTIES BY LESSOR; MAINTENANCE AND COMPLIANCE WITH LAWS.
Lessor, not being the manufacturer of the Equipment, nor manufacturer's agent,
MAKES NO WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, AS TO THE
FITNESS, QUALITY, DESIGN, CONDITION, CAPACITY, SUITABILITY, MERCHANTABILITY OR
PERFORMANCE OF THE EQUIPMENT OR OF THE MATERIAL OR WORKMANSHIP THEREOF, IT BEING
AGREED THAT THE EQUIPMENT IS LEASED "AS IS" AND THAT ALL SUCH RISKS, AS BETWEEN
LESSOR AND LESSEE, ARE TO BE BORNE BY LESSEE AT ITS SOLE RISK AND EXPENSE,
Lessee accordingly agrees not to assert any claim whatsoever against Lessor
based thereon. Lessee further agrees, regardless of cause, not to assert any
claim whatsoever against Lessor for loss of anticipatory profits or
consequential damages. Lessor shall have no obligation to install, erect, test,
adjust or service the Equipment. Lessee shall look to the manufacturer and/or
Seller for any claims related to the Equipment. Lessor hereby acknowledges that
any manufacturer's and/or Seller's warranties are for the benefit of both Lessor
and Lessee.
No oral agreement, guaranty, promise, condition, representation or warranty
shall be binding; all prior conversations, agreements or representations related
hereto and/or to the Equipment are integrated herein.
Lessee agrees, at its own cost and expense:
(a) to pay all shipping charges and other expenses incurred in connection with
the shipment of the Equipment by the Seller to Lessee;
(b) to pay all charges and expenses in connection with the operation of each
item of Equipment;
(c) to comply with all governmental laws, ordinances, regulations, requirements
and rules with respect to the use, maintenance and operation of the
Equipment; and
(d) to make all repairs and replacements required to be made to maintain the
Equipment in good condition, reasonable wear and tear excepted.
5. INSURANCE.
Lessee shall maintain at all times on the Equipment, at its expense, all-risk
physical damage insurance and comprehensive general and/or automobile (as
appropriate) liability insurance (covering bodily injury and property damage
exposures including, but not limited to, contractual liability and products
liability) in such amounts, against such risks, in such form and with such
insurers as shall be satisfactory to Lessor; provided, that the amount of
all-risk physical damage insurance shall not on any date be less than the
greater of the full replacement value or a sum equal to all the rent due
thereon, plus all rent to become due. Each physical damage insurance policy will
name Lessor as loss payee. Each liability insurance policy will name Lessor as
additional insured. Each insurance policy will also require that the insurer
give Lessor at least thirty (30) days prior written notice of any alteration in
or cancellation of the terms of such policy and require that Lessor's interests
be continued insured regardless of any breach or violation by Lessee or others
of any warranties, declarations or conditions contained in such insurance
policy. In no event shall Lessor be responsible for premiums, warranties or
representations to any insurer or any agent thereof. Lessee shall furnish to
Lessor a certificate or other evidence satisfactory to Lessor
Page 2 of 7
<PAGE>
that such insurance coverage is in effect, but Lessor shall be under no duty to
ascertain the existence or adequacy of such insurance. The insurance maintained
by Lessee shall be primary without any right of contribution from insurance
which may be maintained by Lessor. Lessee shall be liable for all deductible
portions of all required insurance. Lessor may, at its own expense, for its own
benefit, purchase insurance in excess of that required under this Lease
Agreement. Physical damage insurance proceeds shall be applied as set forth in
Section 6.
6. LOSS AND DAMAGE.
Lessee agrees to assume and bear the entire risk of any partial or complete loss
with respect to the Equipment from any and every cause whatsoever including
theft, loss, damage, destruction or governmental taking, whether or not such
loss is covered by insurance or caused by any default or neglect of Lessee.
Lessee agrees to give Lessor prompt notice of any damage to or loss of any
Equipment. All physical damage insurance proceeds shall be payable directly to
Lessor. Following payment of such loss, and if no Event of Default as defined in
Section 11 has occurred and remains continuing, Lessor will then:
(a) transfer to Lessee Lessor's rights to such Equipment "as-is, where-is and
with all defects," without recourse and without representation or warranty,
express or implied, other than a warranty that the Equipment is free and
clear of any liens created by Lessor; and
(b) remit to Lessee any physical damage insurance proceeds arising out of such
loss in excess of the sum due the Lessor.
Lessee shall determine in the exercise of its reasonable judgment whether the
Equipment is damaged beyond repair, subject to Lessor's approval. In the event
of damage or loss which does not result in damage beyond repair or a total loss
of the Equipment or any item thereof, Lessee shall cause the affected Equipment
to be restored to the condition required by the terms of this Lease. Upon
completion of such repair and after supplying Lessor with satisfactory evidence
thereof (and provided no Event of Default has occurred and remains continuing),
Lessee shall be entitled to receive any insurance proceeds or other recovery to
which Lessor would otherwise be entitled in connection with such loss up to the
amount expended by Lessee in making the repair.
Lessor shall not be obligated to undertake by litigation or otherwise the
collection of any claim against any person for loss of, damage to, or
governmental taking of the Equipment, but Lessor will cooperate with Lessee at
Lessee's expense to pursue such claims.
Except as expressly provided above, the total or partial destruction of any
Equipment or Lessee's total or partial loss of use or possession thereof shall
not release or relieve Lessee from its obligations under this Master Lease or
any Schedule including the duty to pay the rent(s) herein provided.
7. TAXES.
Lessee agrees that, during the term of this Lease, in addition to the rent and
all other amounts provided herein to be paid, it will promptly pay all taxes,
assessments and other governmental charges (including penalties and interest, if
any, and fees for titling or registration, if required) levied or assessed:
(a) upon the interest of Lessee in the Equipment or upon the use or operation
thereof or on the earnings arising therefrom; and
(b) against Lessor on account of its acquisition or ownership of the Equipment
or any part thereof, or the use or operation thereof or the leasing hereof
to Lessee, or the rent herein provided for, or the earnings arising
therefrom, exclusive, however, of any taxes based on net income of Lessor.
Lessee agrees to file, in behalf of Lessor, all required tax returns and reports
concerning the Equipment with all appropriate governmental agencies, and within
not more than 45 days after the due date of such filing to send Lessor
confirmation, in form satisfactory to Lessor, of such filing.
8. LESSOR'S TITLE, RIGHT OF INSPECTION AND IDENTIFICATION OF EQUIPMENT.
TITLE TO THE EQUIPMENT SHALL AT ALL TIMES REMAIN IN LESSOR and Lessee will at
all times protect and defend, at its own cost and expense, the title of Lessor
from and against all claims, liens and legal processes of creditors of Lessee
and keep all the Equipment free and clear from all such claims, liens and
processes. The Equipment is and shall remain personal property. Upon the
expiration or termination of this Lease with respect to any item of Equipment:
(a) Lessee at Lessee's sole expense shall return such Equipment unencumbered to
Lessor at the place where the rent is payable or to such other place as
Lessor and Lessee agree upon, and in the same condition as when received by
Lessee, reasonable wear and tear resulting from use thereof alone excepted;
or
Page 3 of 7
<PAGE>
(b) in lieu of returning such Equipment to Lessor, Lessee agrees that Lessee
will, upon request of Lessor, store such Equipment on Lessee's premises, at
an inside location protected from the weather and elements, without charge
to Lessor for a period of 180 days following the date of expiration or
termination of this Lease. During such storage period Lessee shall not use
the Equipment for any purpose. Upon expiration of such storage period
Lessee will return such Equipment to Lessor in accordance with the
provisions of (a) above.
Lessor shall have the right from time to time during reasonable business hours
to enter upon Lessee's premises or elsewhere for the purpose of confirming the
existence, condition and proper maintenance of the Equipment and during any
period of storage Lessor shall also have the right to demonstrate and show the
Equipment to others. The foregoing rights of entry are subject to any applicable
governmental laws, regulations and rules concerning industrial security. Lessee
shall, upon the request of Lessor, and at its own expense firmly affix to the
Equipment, in a conspicuous place, such a decalcomania or metal plate as shall
be supplied by Lessor showing the Lessor as the owner and lessor of such
Equipment.
9. POSSESSION, USE AND CHANGES IN LOCATION OF EQUIPMENT.
So long as Lessee shall not be in default under the Lease it shall be entitled
to the possession and use of the Equipment in accordance with the terms of this
Lease. The Equipment shall be used in the conduct of the lawful business of
Lessee, and no item of Equipment shall be removed from its location shown on the
Schedule, without the prior written consent of Lessor. Lessee shall not, without
Lessor's prior written consent, part with possession or control of the Equipment
or attempt or purport to sell, pledge, mortgage or otherwise encumber any of the
Equipment or otherwise dispose of or encumber any interest under this Lease.
10. PERFORMANCE OF OBLIGATIONS OF LESSEE BY LESSOR.
In the event that the Lessee shall fail duly and promptly to perform any of its
obligations under the provisions of Sections 4, 5, 6, 7, and 8 of this Lease,
Lessor may, at its option, perform the same for the account of Lessee without
thereby waiving such default, and any amount paid or expense (including
reasonable attorneys' fees), penalty or other liability incurred by Lessor in
such performance, together with interest at the rate of 1 1/2% per month thereon
(but in no event greater than the highest rate permitted by relevant law) until
paid by Lessee to Lessor, shall be payable by Lessee upon demand as additional
rent for the Equipment. Lessee shall be responsible for and pay to Lessor a
returned check fee, not to exceed the maximum permitted by law, which fee will
be equal to the sum of (i) the actual bank charges incurred by Lessor plus (ii)
all other actual costs and expenses incurred by Lessor. The returned check fee
is payable upon demand as additional rent under this Lease.
11. DEFAULT.
An Event of Default shall occur if:
(a) Lessee fails to pay when due any installment of rent and such failure
continues for a period of 10 days;
(b) Lessee shall fail to perform or observe any covenant, condition or
agreement to be performed or observed by it hereunder and such failure
continues uncured for 15 days after written notice thereof to Lessee by
Lessor;
(c) Lessee ceases doing business as a going concern, makes an assignment for
the benefit of creditors, admits in writing its inability to pay its debts
as they become due, files a voluntary petition in bankruptcy, is
adjudicated a bankrupt or an insolvent, files a petition seeking for itself
any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar arrangement under any present or future statute, law
or regulation or files an answer admitting the material allegations of a
petition filed against it in any such proceeding, consents to or acquiesces
in the appointment of a trustee, receiver, or liquidator of it or of all or
any substantial part of its assets or properties, or if it or its
shareholders shall take any action looking to its dissolution or
liquidation;
(d) within 60 days after the commencement of any proceedings against Lessee
seeking reorganization, arrangement, readjustment, liquidation, dissolution
or similar relief under any present or future statute, law or regulation,
such proceedings shall not have been dismissed, or if within 60 days after
the appointment without Lessee's consent or acquiescence of any trustee,
receiver or liquidator of it or of all or any substantial part of its
assets and properties, such appointment shall not be vacated; or
(e) Lessee attempts to remove, sell, transfer, encumber, part with possession
or sublet the Equipment or any item thereof.
Upon the occurrence of an Event of Default, Lessor shall have all the rights and
remedies provided by applicable law and by this Lease. Notwithstanding that this
Agreement is a lease and title to the Equipment is at all times in Lessor,
Lessor may nevertheless at its option choose those rights and remedies of a
secured party under the Uniform Commercial Code. In addition, Lessor, at its
option, may:
Page 4 of 7
<PAGE>
(a) declare all sums due and to become due hereunder immediately due and
payable, but in no event shall the Lessee, upon demand by Lessor for
payment of the unpaid rent, upon acceleration of the maturity thereof or
otherwise, be obligated to pay any amount in excess of that permitted by
law;
(b) proceed by appropriate court action or actions or other proceedings either
at law or equity to enforce performance by the Lessee of any and all
covenants of this Lease and to recover damages for the breach thereof;
(c) demand that Lessee deliver the Equipment forthwith to Lessor at Lessee's
expense at such place as Lessor may designate; and
(d) Lessor and/or its agents may without notice or liability or legal process,
enter into any premises of or under control or jurisdiction of Lessee or
any agent of Lessee where the Equipment may be or by Lessor is believed to
be, and repossess all or any item thereof, disconnecting and separating all
thereof from any other property and using all force necessary or permitted
by applicable law so to do, Lessee hereby expressly waiving all further
rights to possession of the Equipment and all claims for injuries suffered
through or loss caused by such repossession; Lessor may sell or lease the
Equipment at a time and location of its choosing provided that the Lessor
acts in good faith and in a commercially reasonable manner, but the Lessor
shall nevertheless, be entitled to recover immediately as liquidated
damages for loss of the bargain and not as a penalty any unpaid rent that
accrued on or before the occurrence of the event of default plus an amount
equal to the difference between the aggregate rent reserved hereunder for
the unexpired term of this Lease and the then aggregate rental value of all
Equipment for such unexpired term, provided, however, that if any statute
governing the proceeding in which such damages are to be proved specifies
the amount of such claim, Lessor shall be entitled to prove as and for
damages for the breach an amount equal to that allowed under such statute.
The provisions of this paragraph shall be without prejudice to any rights
given to the Lessor by such statute to prove for any amounts allowed
thereby. Should any proceedings be instituted by or against Lessor for
monies due to Lessor hereunder and/or for possession of any or all of the
Equipment or for any other relief, Lessee shall pay a reasonable sum as
attorneys' fees.
No remedy of Lessor hereunder shall be exclusive of any remedy herein or by law
provided, but each shall be cumulative and in addition to every other remedy.
12. INDEMNITY.
Lessee agrees that Lessor shall not be liable to Lessee for, and Lessee shall
indemnify and save Lessor harmless from and against any and all liability, loss,
damage, expense, causes of action, suits, claims or judgments arising from or
caused directly or indirectly by:
(a) Lessee's failure to promptly perform any of its obligations under the
provisions of Sections 4, 5, 6, 7 and 8 of this Lease; or
(b) injury to persons or damage to property resulting from or based upon actual
or alleged use, operation, delivery or transportation of any or all of the
Equipment or its location or condition; or
(c) inadequacy of the Equipment, or any part thereof, for any purpose or any
deficiency or defect therein or the use or maintenance thereof or any
repairs, servicing or adjustments thereto or any delay in providing or
failure to provide any thereof or any interruption or loss of service or
use thereof or any loss of business; and shall, at its own cost and
expense, defend any and all suits which may be brought against Lessor,
either alone or in conjunction with others upon any such liability or claim
or claims and shall satisfy, pay and discharge any and all judgments and
fines that may be recovered against Lessor in any such action or actions,
provided, however, that Lessor shall give Lessee written notice of any such
claim or demand. Lessee agrees that its obligations under this Section 12
shall survive the expiration or termination of this Lease.
13. ASSIGNMENT, NOTICES AND WAIVERS.
This Lease and all rights of Lessor hereunder shall be assignable by Lessor
without Lessee's consent, but Lessee shall not be obligated to any assignee of
Lessor except after written notice of such assignment from Lessor. Following
such assignment,
solely for the purpose of determining assignee's rights hereunder, the term
"Lessor" shall be deemed to include or refer to Lessor's assignee. WITHOUT THE
PRIOR WRITTEN CONSENT OF LESSOR, LESSEE SHALL NOT ASSIGN THIS LEASE OR ITS
INTERESTS HEREUNDER OR ENTER INTO ANY SUB-LEASE WITH RESPECT TO THE EQUIPMENT
COVERED HEREBY, IT BEING AGREED LESSOR WILL NOT UNREASONABLY WITHHOLD ITS
CONSENT TO A SUB-LEASE OF THE EQUIPMENT. All notices to Lessor shall be
delivered in person to an officer of the Lessor, or shall be sent certified mail
return receipt requested to Lessor at its address shown herein or at any later
address last known to the sender. All notices to Lessee shall be in writing and
shall be delivered by mail at its address shown herein or at any later address
last known to the sender. A waiver of a default shall not be a waiver of any
other or a subsequent default.
Page 5 of 7
<PAGE>
14. FURTHER ASSURANCES.
Lessee shall execute and deliver to Lessor, upon Lessor's request such
instruments and assurances as Lessor deems necessary or advisable for the
confirmation or perfection of this Lease and Lessor's rights hereunder. Lessee
may not terminate any Schedule without the written consent of Lessor. If Lessor
in good faith believes itself insecure or performance impaired, it may declare a
default hereunder or, instead of declaring a default, Lessor may demand, and
Lessee hereby agrees to give, additional Equipment or other collateral as
security for the obligations hereunder.
15. LEASE IRREVOCABILITY.
This Lease is irrevocable for the full terms thereof as set forth in any
Schedule and for the aggregate rentals therein reserved and the rent shall not
abate by reason of termination of Lessee's right of possession and/or the taking
of possession by the Lessor or for any other reason. Any payment not made when
due shall, at the option of Lessor, bear late charges thereon calculated at the
rate of 1 1/2% per month, but in no event greater than the highest rate
permitted by relevant law.
16. PURCHASE OPTION.
If any Schedule has a purchase option price set forth therein with respect to
the items of Equipment listed on such Schedule, then at the expiration of the
original lease term in such Schedule with respect to such items of Equipment, if
Lessee has paid in full all rentals owing under such Schedule, and be not then
in default under this Lease (including all obligations under any Schedule),
Lessee shall have the option to purchase ALL, BUT NOT LESS THAN ALL, THE ITEMS
OF EQUIPMENT IN THE APPLICABLE SCHEDULE upon giving written notice not less than
30 DAYS prior to expiration of the original term thereof. The purchase price
shall be as set forth in the applicable Schedule and shall be payable upon
expiration of the original Lease term. If any Schedule does not contain a
purchase option price, then Lessee shall not have an option to purchase any
Equipment on such Schedule.
Any purchase option price stated as "fair market value" ("FMV") for any item of
Equipment on a Schedule shall be determined on the basis of, and shall be equal
in amount to, the value which would obtain in an arm's length transaction
between an informed and willing buyer-user (other than a Lessee currently in
possession and a used Equipment dealer) and an informed and willing seller under
no compulsion to sell and, in such determination, costs of removal of the items
of Equipment from their location of current use shall not be a deduction from
such value.
17. RENEWAL.
Any renewal privilege shown on any Schedule with respect to any item of
Equipment shall be exercised by Lessee giving Lessor a notice in writing and
paying Lessor the amount of the renewal rental plus applicable taxes, at least
45 DAYS prior to the commencement of the renewal term of the Lease with respect
to such item of Equipment. Upon such notification and payment, this Lease shall
be renewed for the stated renewal period at the stated renewal rental with the
other provisions and conditions of the lease continuing unchanged.
18. MISCELLANEOUS
If any provision of this Lease is contrary to, prohibited by or deemed invalid
under applicable laws or regulations of any jurisdiction, such provision shall
be inapplicable and deemed omitted but shall not invalidate the remaining
provisions hereof.
IN THE EVENT THIS LEASE OR ANY PART HEREOF IS DEEMED TO BE A LEASE INTENDED AS
SECURITY, LESSEE GRANTS LESSOR A SECURITY INTEREST IN EACH ITEM OF EQUIPMENT AS
SECURITY FOR ALL OF LESSEE'S INDEBTEDNESS AND OBLIGATIONS OWING UNDER THIS LEASE
AND UNDER EACH SCHEDULE AS WELL AS ALL OTHER PRESENT AND FUTURE INDEBTEDNESS AND
OBLIGATIONS OF LESSEE TO LESSOR OF EVERY KIND AND NATURE WHATSOEVER.
This lease contains the entire agreement between the parties with respect to the
Equipment and may not be altered, modified, terminated or discharged except by a
writing signed by the party against whom such alteration, modification,
termination or discharge is sought. LESSEE'S INITIALS ___________________
Page 6 of 7
<PAGE>
19. SPECIAL PROVISIONS.
If Lessee is a corporation, this Lease is executed by authority of its Board of
Directors. If Lessee is a partnership or joint venture, this Lease is executed
by authority of all its partners or co-venturers.
Dated: FEBRUARY 19, 1998
LESSEE:
PRIVATE LABEL COSMETICS, INC.
- ------------------------------------------------------------
Name of individual, corporation or partnership
By /s/ Van Christakos Title Treasurer V.P.
------------------ -------------
If corporation, have signed by President, Vice President or Treasurer, and
give official title. If owner or partner, state which.
By --------------------------------------------- Title -----
LESSOR:
THE CIT GROUP/EQUIPMENT FINANCING, INC.
By /S/ Sean Jarnagin Title Senior Credit Analyst
--------------------------------------------- ---------------------
- -------------------------------------------------------------------------------
If Lessee is a partnership, enter:
PARTNERS' NAMES HOME ADDRESSES
- --------------- --------------
Page 7 of 7
<PAGE>
GUARANTY
To: The CIT Group/Equipment Financing, Inc.
900 Ashwood Parkway
- -----------------------------------------------------------------
Address
Atlanta GA 30338
- -----------------------------------------------------------------
City State Zip Code
Each of us severally requests you to extend credit to or to purchase security
agreements, leases, notes, accounts and/or other obligations (herein generally
termed "paper") of or from or otherwise to do business with
Private Label Cosmetics, Inc. Fairlawn NJ
- --------------------------------------------------------------------------------
Company City State
hereinafter called the "Company," and to induce you so to do and in
consideration thereof and of benefits to accrue to each of us therefrom, each of
us, as a primary obligor, jointly and severally and unconditionally guarantees
to you that the Company will fully and promptly pay and perform all its present
and future obligations to you, whether direct or indirect, joint or several,
absolute or contingent, secured or unsecured, matured or unmatured and whether
originally contracted with you or otherwise acquired by you, irrespective of any
invalidity or unenforceability of any such obligation or the insufficiency,
invalidity or unenforceability of any security therefor; and agrees, without
your first having to proceed against the Company or to liquidate paper or any
security therefor, to pay on demand all sums due and to become due to you from
the Company and all losses, costs, attorneys' fees or expenses which may be
suffered by you by reason of the Company's default or default of any of the
undersigned hereunder; and agrees to be bound by and on demand to pay any
deficiency established by a sale of paper and/or security held, with or without
notice to us. This guaranty is an unconditional guarantee of payment and
performance. No guarantor shall be released or discharged, either in whole or in
part, by your failure or delay to perfect or continue the perfection of any
security interest in any property which secures the obligations of the Company
or any of us to you, or to protect the property covered by such security
interest.
No termination hereof shall be effected by the death of any or all of us. No
termination shall be effective except by notice sent to you by certified mail
return receipt requested naming a termination date effective not less than 90
days after the receipt of such notice by you; or effective as to any of us who
has not given such notice; or affect any transaction effected prior to the
effective date of termination.
Each of us waives: notice of acceptance hereof; presentment, demand, protest and
notice of nonpayment or protest as to any note or obligation signed, accepted,
endorsed or assigned to you by the Company; any and all rights of subrogation,
reimbursement, indemnity, exoneration, contribution or any other claim which any
of us may now or hereafter have against the Company or any other person directly
or contingently liable for the obligations guaranteed hereunder, or against or
with respect to the Company's property (including, without limitation, property
collateralizing its obligations to you), arising from the existence or
performance of this guaranty; all exemptions and homestead laws and any other
demands and notices required by law; all setoffs and counterclaims; any and all
defenses based on suretyship or any other applicable law, including without
limitation all rights and defenses arising out of (i) an election of remedies by
you even though that election of remedies may have destroyed rights of
subrogation and reimbursement against the Company by operation of law or
otherwise, (ii) protections afforded to the Company pursuant to antideficiency
or similar laws limiting or discharging the Company's obligations to you, (iii)
the invalidity or unenforceability of this guaranty, (iv) the failure to notify
any of us of the disposition of any property securing the obligations of the
Company, (v) the commercial reasonableness of such disposition or the
impairment, however caused, of the value of such property, and (vi) any duty on
your part (should such duty exist) to disclose to any of us any matter, fact or
thing related to the business operations or condition (financial or otherwise)
of the Company or its affiliates or property, whether now or hereafter known by
you.
You may at any time and from time to time, without our consent, without notice
to us and without affecting or impairing the obligation of any of us hereunder,
do any of the following:
(a) renew, extend (including extensions beyond the original term of the
respective item of paper), modify (including changes in interest rates),
release or discharge any obligations of the Company, of its customers, of
co-guarantors (whether hereunder or under a separate instrument) or of any
other party at any time directly or contingently liable for the payment of
any of said obligations;
(b) accept partial payments of said obligations;
(c) accept new or additional documents, instruments or agreements relating to
or in substitution of said obligations;
(d) settle, release (by operation of law or otherwise), compound, compromise,
collect or liquidate any of said obligations and the security therefor in
any manner;
Page 1 of 3
<PAGE>
(e) consent to the transfer or return of the security, take and hold
additional security or guaranties for said obligations;
(f) amend, exchange, release or waive any security or guaranty; or
(g) bid and purchase at any sale of paper or security and apply any proceeds
or security, and direct the order and manner of sale.
If a claim is made upon you at any time for repayment or recovery of any
amount(s) or other value received by you, from any source, in payment of or on
account of any of the obligations of the Company guaranteed hereunder and you
repay or otherwise become liable for all or any part of such claim by reason of:
(a) any judgment, decree or order of any court or administrative body having
competent jurisdiction; or
(b) any settlement or compromise of any such claim,
we shall remain jointly and severally liable to you hereunder for the amount so
repaid or for which you are otherwise liable to the same extent as if such
amount(s) had never been received by you, notwithstanding any termination hereof
or the cancellation of any note or other agreement evidencing any of the
obligations of the Company. This guaranty shall bind our respective heirs,
administrators, representatives, successors, and assigns, and shall inure to
your successors and assigns, including, but not limited to, any party to whom
you may assign any item or items of paper, we hereby waiving notice of any such
assignment. All of your rights are cumulative and not alternative.
BY EXECUTION OF THIS GUARANTY EACH GUARANTOR HEREUNDER AGREES TO WAIVE ALL
RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM ON ANY MATTER
WHATSOEVER ARISING OUT OF, IN CONNECTION WITH, OR RELATED TO THIS GUARANTY.
Executed ____________________________.
INDIVIDUAL NOTE: Individual guarantors must sign without titles.
GUARANTORS Sign "John Smith," not "John Smith, President."
Use street addresses, not P.O. Boxes.
____________________________________ Individually
____________________________________ Home Address
____________________________________ Individually
____________________________________ Home Address
____________________________________ Individually
____________________________________ Home Address
____________________________________ Individually
____________________________________ Home Address
WITNESS ____________________________________
Home Address ____________________________________
Page 2 of 3
<PAGE>
CORPORATE NOTE: Enter exact name of corporation on first blank line, followed
GUARANTORS by city, state and zip code.
Azurel Ltd.
- --------------------------------------------------------------------------
Name of Corporation
- --------------------------------------------------------------------------
City State Zip code
By /S/ Frank DeSimone Title Executive V.P. - CFO
------------------------------------------- --------------------------
Have signed by President, Vice President or Treasurer.
By ------------------------------------------- Title---------------------
CORPORATE SEAL
/V/ VAN CHRISTAKOS
- --------------------------------------------------------------------------
Attest Secretary
- --------------------------------------------------------------------------
Name of Corporation
- --------------------------------------------------------------------------
City State Zip Code
By ------------------------------------------- Title---------------------
Have signed by President, Vice President or Treasurer.
By ------------------------------------------- Title---------------------
CORPORATE SEAL
- --------------------------------------------------------------------------
Attest Secretary
<PAGE>
