UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
--------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 4, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-24178
--------------
BEST PRODUCTS CO., INC.
(Exact name of registrant as specified in its charter)
Virginia 54-0853592
(State or other jurisdiction (I. R. S. Employer Identification No.)
of incorporation or organization)
1400 Best Plaza, Richmond, Virginia 23227-1125
(Address of principal executive offices) (Zip Code)
(804) 261-2000
(Registrant's telephone number, including area code)
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 period 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 whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES X NO
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date.
As of May 31, 1996, the registrant had 31,019,969 common shares
outstanding. Additionally 322,360 common shares will be issued upon the
settlement of certain claims which are currently unresolved.
BEST PRODUCTS CO., INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
<S> <C>
ITEM 1: Financial Statements Pages
Statements of Operations for the thirteen weeks ended May 4, 1996 and April 29, 1995 3
Balance Sheets as of May 4, 1996 and February 3, 1996 4
Statements of Cash Flows for the thirteen weeks ended May 4, 1996 and April 29, 1995 5
Notes to Financial Statements 6
ITEM 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 7-8
PART II - OTHER INFORMATION
ITEM 6: Exhibits and Reports on Form 8-K 9
SIGNATURES 9
</TABLE>
2
BEST PRODUCTS CO., INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Thirteen weeks ended
----------------------------------------
May 4, April 29,
1996 1995
-------------- ---------------
(Dollar amounts in thousands, except per share amounts)
<S> <C>
Net sales $ 269,791 $ 272,759
Cost of goods sold 211,610 206,167
------------ ------------
Gross margin 58,181 66,592
Selling, general and administrative expenses 79,777 72,212
Depreciation and amortization 5,503 3,618
Interest expense, net 7,546 4,194
------------ ------------
Loss before income tax benefit (34,645) (13,432)
Income tax benefit -- 5,373
------------ ------------
Net loss $ (34,645) $ (8,059)
============ ============
Net loss per common share $ (1.11) $ (0.25)
============ ============
Weighted average common shares outstanding 31,342,108 31,660,711
============ ============
</TABLE>
See accompanying notes to financial statements.
3
BEST PRODUCTS CO., INC.
BALANCE SHEETS
May 4, February 3,
1996 1996
---------- ----------
(Dollar amounts in thousands)
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 9,607 $ 29,003
Merchandise inventories 476,937 481,847
Other current assets 25,628 19,796
--------- ---------
Total current assets 512,172 530,646
Property and equipment, net 174,827 173,239
Other assets, net 10,141 12,755
--------- ---------
Total Assets $ 697,140 $ 716,640
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings $ 47,926 $ --
Current maturities of long-term debt
and capital lease obligations 22,714 20,895
Accounts payable 107,375 128,834
Accrued expenses and other 44,349 44,426
Accrued insurance 12,105 10,870
Accrued restructuring charges 26,633 28,400
--------- ---------
Total current liabilities 261,102 233,425
Long-term debt 120,206 129,833
Capital lease obligations 80,518 83,312
Other liabilities 14,885 14,996
--------- ---------
Total Liabilities 476,711 461,566
--------- ---------
Stockholders' Equity
Common stock 31,342 31,345
Additional paid-in capital 297,646 297,643
Retained earnings (accumulated deficit) (105,219) (70,574)
--------- ---------
223,769 258,414
Loans under Stock Purchase Loan Plan (3,340) (3,340)
--------- ---------
Total Stockholders' Equity 220,429 255,074
--------- ---------
Total Liabilities and Stockholders' Equity $ 697,140 $ 716,640
========= =========
See accompanying notes to financial statements.
4
BEST PRODUCTS CO., INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Thirteen weeks ended
--------------------------
May 4, April 29,
1996 1995
----------- -----------
(Dollar amounts in thousands)
<S> <C>
Cash Provided By (Used For):
Operating Activities
Net loss $ (34,645) $ (8,059)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization 5,503 3,618
Deferred income taxes -- (5,373)
Deferred finance cost amortization 1,500 --
Changes in operating assets and liabilities:
Merchandise inventories 4,910 20,069
Other current assets (944) (4,790)
Accounts payable (21,459) (25,638)
Accrued expenses and other (609) (15,699)
Other, net 2,884 895
--------- ---------
Net cash used for operating activities (42,860) (34,977)
--------- ---------
Investing Activities
Purchases of property and equipment (6,734) (6,383)
Other investing activities (738) (4,994)
--------- ---------
Net cash used for investing activities (7,472) (11,377)
--------- ---------
Financing Activities
Short-term borrowings, net 47,926 --
Net payments on capital lease obligations (2,759) (1,107)
Payments on long-term debt (7,843) (564)
Payments for deferred financing costs and other (6,388) --
--------- ---------
Net cash provided by (used for) financing activities 30,936 (1,671)
--------- ---------
Decrease in cash and cash equivalents (19,396) (48,025)
Cash and cash equivalents at beginning of period 29,003 136,770
--------- ---------
Cash and cash equivalents at end of period $ 9,607 $ 88,745
========= =========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
BEST PRODUCTS CO., INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. The Company
Best Products Co., Inc. (the "Company") is a specialty retailer
offering category-dominant assortments of jewelry and home furnishings and
operates 169 stores in 23 states. The home furnishings category includes
ready-to-assemble furniture, housewares/tabletop, leisure/juvenile/fitness and
electronics.
2. Opinion of Management
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (consisting of normal recurring accruals and
accounting estimates) considered necessary to present fairly the Company's
financial position as of May 4, 1996 and February 3, 1996 and its results of
operations and cash flows for the thirteen weeks ended May 4, 1996 and April 29,
1995. The accompanying unaudited financial statements are presented in
accordance with the requirements of Form 10-Q and consequently do not include
all disclosures normally required by generally accepted accounting principles
nor those normally disclosed in the annual financial statements; however,
management considers the disclosures adequate to make the information presented
not misleading.
The accompanying financial statements should be read in conjunction
with the annual financial statements and notes thereto filed in the Company's
annual report on Form 10-K for the fiscal year ended February 3, 1996.
3. Interim LIFO Estimates
Quarterly estimates of the last-in, first-out ("LIFO") provision are
based on estimates of year-end inventory levels, the inflation rate, purchases
and sales for a fiscal year.
4. Per Share Information
Per share amounts have been computed based upon the weighted average
shares of common stock currently outstanding. Stock options and warrants issued
are not considered for purposes of computing per share amounts since their
effect would be anti-dilutive.
5. Seasonality
Operating results are subject to significant seasonal fluctuations. Net
earnings (loss) of any quarter are seasonally disproportionate to sales since
many operating expenses are relatively constant throughout a year. As a
consequence, interim results should not be relied upon as necessarily indicative
of results for any entire year.
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth the results of operations for the
thirteen weeks ended May 4, 1996 and April 29, 1995, expressed in dollars and as
a percentage of net sales:
<TABLE>
<CAPTION>
(Unaudited)
Thirteen weeks ended
----------------------------------------------------------------------------
May 4, April 29, May 4, April 29,
1996 1995 1996 1995
-------------- -------------- ------------ -------------
(Dollar amounts in millions, except per share amounts) (% of net sales)
<S> <C>
Net sales $ 269.8 $ 272.8 100.0% 100.0%
Cost of goods sold 211.6 206.2 78.4% 75.6%
------------- ------------ ----- -----
Gross margin 58.2 66.6 21.6% 24.4%
Selling, general and
administrative expenses 79.8 72.2 29.6% 26.5%
Depreciation and
amortization 5.5 3.6 2.0% 1.3%
Interest expense, net 7.5 4.2 2.8% 1.5%
------------- ------------ ----- -----
Loss before income
tax benefit (34.6) (13.4) (12.8)% (4.9)%
Income tax benefit - 5.3 - % 1.9%
------------- ------------ ----- -----
Net loss $ (34.6) $ (8.1) (12.8)% (3.0)%
============= ============ ===== =====
Net loss per common
share $ (1.11) $ (0.25)
============= ============
Weighted average common
shares outstanding 31,342,108 31,660,711
</TABLE>
Comparison of thirteen weeks ended May 4, 1996 and April 29, 1995
Net sales. Net sales for the thirteen weeks ended May 4, 1996 decreased
$3.0 million primarily due to a 6.4% decrease in same store sales compared to
fiscal 1995. The Company attributes the decrease in same store sales
primarily to lower sales due to the planned exiting of selected low margin
rate categories.
Gross margin. Gross margin decreased $8.4 million for the first quarter
of fiscal 1996 compared to the first quarter of fiscal 1995. This decrease
is primarily due to lower margin rates experienced in conjunction with the
exiting of selected categories of merchandise and a higher percentage of
sales occurring at promotional prices.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased to 29.6% of sales compared to 26.5% during
the first quarter of fiscal 1995. The increase is primarily due to lower
same store sales and higher expenses associated with 15 new stores that
opened in the later part of fiscal 1995.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Depreciation and amortization. Depreciation and amortization expense
increased $1.9 million for the first quarter of fiscal 1996 over the same
period in fiscal 1995. The increase is primarily attributable to
depreciation on 15 new stores placed in service in the later part of fiscal
1995.
Interest expense, net. Interest expense, net for the first quarter of
fiscal 1996 increased $3.3 million compared to the same period of fiscal
1995. The increase is due primarily to interest expense on short-term
borrowings in the first quarter of fiscal 1996.
Income tax benefit. No current or deferred income tax expense or
benefit was recorded for the first quarter of fiscal 1996 due to the
uncertainty regarding the ability of the Company to realize its net operating
loss carryforwards. A benefit of $5.3 million was recognized for the first
quarter of fiscal 1995 in anticipation of the Company earning income for
fiscal 1995.
Net loss and net loss per share. The Company's net loss for the
thirteen weeks ended May 4, 1996 was $34.6 million or $1.11 per share
compared to a net loss of $8.1 million or $.25 per share for fiscal 1995.
The increased loss is attributed primarily to the decrease in same store
sales and gross margin rates, higher selling, general and administrative
expenses, and higher interest, depreciation and amortization during the first
quarter of fiscal 1996 compared to the same period of fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
As of May 4, 1996, the Company's cash and cash equivalents were $9.6
million compared to $29.0 million as of February 3, 1996. The decrease is
primarily attributed to normal seasonal declines in cash balances, the
decline in same store sales and margin during the first quarter of fiscal
1996 and capital expenditures.
Net cash used for operating activities was approximately $42.9 million
for the thirteen weeks ended May 4, 1996. The use of cash is primarily due
to the seasonal nature of the Company's business and the decline in same
store sales and margin.
Seasonality. As a retailer, the Company's business is very seasonal,
with approximately 34% of its annual net sales occurring in the nine-week
period of November and December. As a result, substantially all of the
Company's operating earnings occur in the fourth fiscal quarter. Similar to
many other retailers, the Company's performance is sensitive to the overall
U.S. economic cycle and related economic conditions which influence consumer
trends and spending patterns. Net earnings (loss) for any quarter are
seasonally disproportionate to net sales since many operating expenses are
relatively constant throughout the fiscal year. As a consequence, interim
results should not be relied upon as necessarily indicative of results for an
entire fiscal year.
Summary. The Company believes cash and cash equivalents and cash
provided by operations, as well as cash available from the existing credit
facility, will be sufficient to meet the Company's working capital and
capital expenditure needs depending on the Company's operating results and
the Company's continued compliance with the financial covenants under the
existing credit facility. The Company's operating results will depend on,
among other things, the success of the Company's initiatives to restructure
its business, its ability to reduce costs, the continued support of the
Company's numerous providers of goods and services, the competitive
environment, the prevailing economic climate and the ability of the Company
to adapt to these conditions.
This report contains forward-looking statements that are subject to risks
and uncertainties, including but not limited to risks associated with the
repositioning of the Company, its strategic initiatives, and customer and vendor
support for such changes. Additional discussions of factors that could cause
actual results to differ materially from management's projections, forecasts,
estimates, anticipations and expectations are contained in the Company's Current
Report on Form 8-K for June 18, 1996.
8
BEST PRODUCTS CO., INC.
Part II - Other Information
ITEM 6: Exhibits and Reports on Form 8-K
a. Exhibits
10.1 1996 Working Capital Facility Amendment dated April 5, 1996.
10.2 1996 Working Capital Facility Amendment dated June 12, 1996.
10.3 Employment Agreement between the Company and Daniel H. Levy dated
April 23, 1996.
b. Reports on Form 8-K
1. A Current Report on Form 8-K for June 18, 1996 was filed with the
Securities and Exchange Commission on June 18, 1996 to report, under item 5,
a discussion of strategic initiatives for 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BEST PRODUCTS CO., INC.
Date: June 18, 1996 /s/ Frederick G. Kraegel
-----------------------------
Frederick G. Kraegel
Senior Vice President and Chief
Financial Officer
(Principal financial officer and
duly authorized officer)
June 18, 1996 /s/ Sharyn P. Hunt
-----------------------------
Sharyn P. Hunt
Vice President and Controller
(Principal accounting officer)
9
EXHIBIT INDEX
Exhibit
Number Description
10.1 1996 Working Capital Facility Amendment dated April 5, 1996.
10.2 1996 Working Capital Facility Amendment dated June 12, 1996.
10.3 Employment Agreement between the Company and Daniel H. Levy
dated April 23, 1996.
SECOND AMENDMENT
TO
REVOLVING CREDIT AGREEMENT
Second Amendment, dated as of April 5, 1996 to the Revolving
Credit Agreement, dated as of February 7, 1996, as amended (the "Credit
Agreement"), by and among BEST PRODUCTS CO., INC., a Virginia corporation
(the "Borrower"), the financial institutions from time to time party
thereto (collectively, the "Lenders" and individually, a "Lender"), the co-
agents from time to time party thereto (collectively, the "Co-Agents") and
THE CIT GROUP/BUSINESS CREDIT, INC. ("CIT"), as agent for the Lenders (in
such capacity, the "Agent").
The Borrower, the Lenders and the Agent desire to amend the
definitions of the terms "Borrowing Base" and "Covenant EBITDA" on the
terms and conditions hereinafter set forth. Accordingly, the Borrower, the
Agent and the Lenders hereby agree as follows:
1. Definitions. All capitalized terms used herein and not
otherwise defined herein are used herein as defined in the Credit
Agreement.
2. Existing Definitions. (a) Subclause (ii) of the definition
of the term "Borrowing Base" in Section 1.01 of the Credit Agreement is
hereby amended in its entirety to read as follows:
"(ii) the sum of (A) the Rent Reserve and (B) $20,000,000,
provided that the dollar amount of the reserve set forth in this
clause (ii)(B) shall be reduced to $10,000000 during the months
of September, October and November."
(b) Subclauses (C) and (D) of clause (ii) of the definition
of the term "Covenant EBITDA" in Section 1.01 of the Credit Agreement are
hereby amended in their entirety to read as follows:
"(C) cash outlays of the Borrower and its Consolidated
Subsidiaries relating to (1) store closings permitted by Section
8.04(b) hereof, and (2) the failure of the Borrower to open any
new store which the Borrower has committed or otherwise become
obligated to open and (D) charges or losses incurred by the
Borrower and its Consolidated Subsidiaries relating to (1) store
closings permitted by Section 8.04(b) hereof and (2) any
Inventory discontinued by the Borrower or classified by the
Borrower as "exit inventory", in each case resulting from the
sale, liquidation or other disposition of Inventory to the
extent, if any, that the Realization Rate from such sale,
liquidation or other disposition of such Inventory is less than
70%."
3. Mortgages
(a) Paragraph (a) of Section 7.15 of the Credit Agreement
is hereby amended by deleting the date "April 5, 1996" each time it appears
therein and substituting in lieu thereof "May 3, 1996."
1
(b) Schedule 7.15 of the Credit Agreement is hereby amended
by deleting Initial Mortgaged Location #13 (Raw Land located at Chula
Vista, CA).
4. Conditions to Effectiveness. This Amendment shall become
effective only upon satisfaction in full of the following conditions
precedent (the first date upon which all such conditions have been
satisfied being herein called the "Amendment Effective Date"):
(a) The representations and warranties contained in this
Amendment and in Article VI of the Credit Agreement and each other Related
Document shall be correct in all material respects on and as of the
Amendment Effective Date as though made on and as of such date (except
where such representations and warranties relate to an earlier date in
which case such representations and warranties shall be true and correct as
of such earlier date); no Event of Default or Potential Default shall have
occurred and be continuing on the Amendment Effective Date or result from
this Amendment becoming effective in accordance with its terms.
(b) The Agent shall have received counterparts of this
Amendment which bear the signatures of the Borrower and the Majority
Lenders.
(c) All legal matters incident to this Amendment shall be
satisfactory to the Agent and its counsel.
5. Representations and Warranties. The Borrower represents and
warrants to the Lenders as follows:
(a) The Borrower (i) is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation and (ii) has all requisite corporate power, authority and
legal right to execute, deliver and perform this Amendment, and to perform
the Credit Agreement, as amended hereby.
(b) The execution, delivery and performance by the Borrower
of this Amendment and the performance by the Borrower of the Credit
Agreement as amended hereby (i) have been duly authorized by all necessary
corporate action, (ii) do not and will not violate or create a default
under the Borrower's charter or by-laws, any such applicable law or any
contractual restriction binding on or otherwise affecting the Borrower or
any of the Borrower's properties, and (iii) except as provided in the
Related Documents, do not and will not result in or require the creation of
any Lien upon or with respect to the Borrower's property.
(c) No authorization or approval or other action by, and no
notice to or filing with, any Governmental Authority or other regulatory
body is required in connection with the due execution, delivery and
performance by the Borrower of this Amendment and the performance by the
Borrower of the Credit Agreement, as amended hereby.
(d) This Amendment and the Credit Agreement, as amended
hereby, constitute the legal, valid and binding obligations of the
Borrower, enforceable against the Borrower in accordance with their terms.
(e) The representations and warranties contained in Article
VI of the Credit Agreement are correct on and as of the Amendment Effective
2
Date as though made on and as of the Amendment Effective Date (except to
the extent such representations and warranties expressly relate to an
earlier date), and no Event of Default or Potential Default, has occurred
and is continuing on and as of the Amendment Effective Date.
6. Continued Effectiveness of Credit Agreement. The Borrower
hereby (i) confirms and agrees that each Related Document to which it is a
party is, and shall continue to be, in full force and effect and is hereby
ratified and confirmed in all respects except that on and after the
Amendment Effective Date all references in any such Related Document to
"the Credit Agreement", "thereto", "thereof", "thereunder" or words of like
import referring to the Credit Agreement shall mean the Credit Agreement as
amended by this Amendment, and (ii) confirms and agrees that to the extent
that any such Related Document purports to assign or pledge to the Agent,
or to grant to the Agent a Lien on any collateral as security for the
Obligations of the Borrower from time to time existing in respect of the
Credit Agreement and the Related Documents, such pledge, assignment and/or
grant of a Lien is hereby ratified and confirmed in all respects.
7. Miscellaneous.
a. This Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each
of which shall be deemed to be an original, but all of which taken together
shall constitute one and the same agreement.
b. Section and paragraph headings herein are included for
convenience of reference only and shall not constitute a part of this
Amendment for any other purpose.
c. This Amendment shall be governed by, and construed in
accordance with, the laws of the State of New York.
d. The Borrower will pay on demand all fees, costs and
expenses of the Agent in connection with the preparation, execution and
delivery of this Amendment, including, without limitation, the reasonable
fees, disbursements and other charges of Schulte Roth & Zabel, counsel to
the Agent.
3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be executed by their respective officers thereunto duly authorized as of
the day and year first above written.
BEST PRODUCTS CO., INC.
/s/Frederick G. Kraegel
---------------------------------------
Title: Senior Vice President and Chief
Financial Officer
AGENT AND LENDER
THE CIT GROUP/BUSINESS CREDIT, INC.
/s/Sam Cirelli
---------------------------------------
Title: Vice President
CO-AGENTS AND LENDERS
BANKAMERICA BUSINESS CREDIT, INC.
/s/Lisa Palmiere
---------------------------------------
Title: Senior Account Executive
GENERAL ELECTRIC CAPITAL CORPORATION
/s/Anne T. Troxell
---------------------------------------
Title: Duly Authorized Signatory
THE FIRST NATIONAL BANK OF BOSTON
/s/Maureen H. Forrester
---------------------------------------
Title: Vice President
4
LENDERS
HELLER FINANCIAL, INC.
/s/Jeff Schumacher
---------------------------------------
Title: Assistant Vice President
CONGRESS FINANCIAL CORPORATION
/s/Eric Miller
---------------------------------------
Title: Assistant Vice President
SANWA BUSINESS CREDIT CORPORATION
/s/Peter Skazla
---------------------------------------
Title: Vice President
FOOTHILL CAPITAL CORPORATION
/s/Bryan Hamm
---------------------------------------
Title: Assistant Vice President
GENERAL ELECTRIC CAPITAL CORPORATION
/s/Anne T. Troxell
---------------------------------------
Title: Duly Authorized Signatory
THE FIRST NATIONAL BANK OF BOSTON
/s/Maureen H. Forrester
---------------------------------------
Title: Vice President
5
TRANSAMERICA BUSINESS CREDIT CORPORATION
/s/Michael Burns
---------------------------------------
Title: Vice President
FREMONT FINANCIAL CORPORATION
/s/Gregory C. Lacker
---------------------------------------
Title: Vice President
THIRD AMENDMENT
TO
REVOLVING CREDIT AGREEMENT
Third Amendment, dated as of June 12, 1996 to the Revolving
Credit Agreement, dated as of February 7, 1996, as amended (the "Credit
Agreement"), by and among BEST PRODUCTS CO., INC., a Virginia corporation
(the "Borrower"), the financial institutions from time to time party
thereto (collectively, the "Lenders" and individually, a "Lender"), the co-
agents from time to time party thereto (collectively, the "Co-Agents") and
THE CIT GROUP/BUSINESS CREDIT, INC. ("CIT"), as agent for the Lenders (in
such capacity, the "Agent").
The Borrower, the Lenders and the Agent desire to (i) amend the
definition of the term "Borrowing Base" and (ii) amend the financial
covenants with respect to Cumulative Covenant EBITDA and the minimum and
maximum amounts of Inventory contained in the Credit Agreement, in each
case on the terms and conditions hereinafter set forth. Accordingly, the
Borrower, the Agent and the Lenders hereby agree as follows:
1. Definitions. All capitalized terms used herein and not
otherwise defined herein are used herein as defined in the Credit
Agreement.
2. Existing Definition. Subclause (ii) of the definition of
the term "Borrowing Base" in Section 1.01 of the Credit Agreement is hereby
amended in its entirety to read as follows:
"(ii) the sum of (A) the Rent Reserve, (B) $20,000,000,
provided that the dollar amount of the reserve set forth in this
subclause (ii)(B) shall be reduced to $10,000000 during the
months of September, October and November, and (C) such
additional reserves as the Agent, in the exercise of its
reasonable business judgment, may deem appropriate."
3. Cumulative Covenant EBITDA. Section 8.12 of the Credit
Agreement is hereby amended in its entirety to read as follows:
1
"8.12. Cumulative Covenant EBITDA. Permit Cumulative
Covenant EBITDA for any fiscal month of the Borrower set forth
below to be less than the amount specified opposite each such
fiscal month:
Month Amount
----- ------
February, 1996 ($12,500,000)
March, 1996 ($20,000,000)
April, 1996 ($25,000,000)
May, 1996 ($35,000,000)
June, 1996 ($45,000,000)
July, 1996 ($55,000,000)
August, 1996 ($55,000,000)
September, 1996 ($55,000,000)
October, 1996 ($55,000,000)
November, 1996 ($45,000,000)
December, 1996 ($20,000,000)
January, 1997 ($20,000,000)
February, 1997 ($20,000,000)
March, 1997 ($20,000,000)
April, 1997 ($20,000,000)
May, 1997 ($20,000,000)
June, 1997 ($20,000,000)
July, 1997 ($20,000,000)"
4. Maintenance of Inventory. Section 8.16 of the Credit
Agreement is hereby amended in its entirety to read as follows:
"8.16. Maintenance of Inventory. The Borrower shall not permit
the aggregate amount of its Inventory (valued at Book Value) at the
end of each fiscal month set forth below to be less than the minimum
amount or more than the maximum amount specified opposite each such
fiscal month set forth below:
Fiscal Month Minimum Amount Maximum Amount
------------ -------------- --------------
February, 1996 $432,000,000 $586,000,000
March, 1996 $401,000,000 $544,000,000
April, 1996 $397,000,000 $538,000,000
May, 1996 $406,000,000 $551,000,000
June, 1996 $372,000,000 $518,000,000
July, 1996 $377,000,000 $515,000,000
August, 1996 $402,000,000 $545,000,000
September, 1996 $437,000,000 $600,000,000
October, 1996 $493,000,000 $682,000,000
November, 1996 $507,000,000 $701,000,000
December, 1996 $371,000,000 $484,000,000
January, 1997 $368,000,000 $460,000,000
February, 1997 $350,000,000 $460,000,000
March, 1997 $343,000,000 $460,000,000
April, 1997 $337,000,000 $450,000,000
May, 1997 $316,000,000 $425,000,000
June, 1997 $319,000,000 $400,000,000
July, 1997 $325,000,000 $410,000,000"
2
5. Conditions to Effectiveness. This Amendment shall become
effective only upon satisfaction in full of the following conditions
precedent (the first date upon which all such conditions have been
satisfied being herein called the "Amendment Effective Date"):
(a) The representations and warranties contained in this
Amendment and in Article VI of the Credit Agreement and each other Related
Document shall be correct in all material respects on and as of the
Amendment Effective Date as though made on and as of such date (except
where such representations and warranties relate to an earlier date in
which case such representations and warranties shall be true and correct as
of such earlier date); no Event of Default or Potential Default shall have
occurred and be continuing on the Amendment Effective Date or result from
this Amendment becoming effective in accordance with its terms.
(b) The Agent shall have received counterparts of this
Amendment which bear the signatures of the Borrower and the Majority
Lenders.
(c) All legal matters incident to this Amendment shall be
satisfactory to the Agent and its counsel.
6. Representations and Warranties. The Borrower represents and
warrants to the Lenders as follows:
(a) The Borrower (i) is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation and (ii) has all requisite corporate power, authority and
legal right to execute, deliver and perform this Amendment, and to perform
the Credit Agreement, as amended hereby.
(b) The execution, delivery and performance by the Borrower
of this Amendment and the performance by the Borrower of the Credit
Agreement as amended hereby (i) have been duly authorized by all necessary
corporate action, (ii) do not and will not violate or create a default
under the Borrower's charter or by-laws, any such applicable law or any
contractual restriction binding on or otherwise affecting the Borrower or
any of the Borrower's properties, and (iii) except as provided in the
Related Documents, do not and will not result in or require the creation of
any Lien upon or with respect to the Borrower's property.
(c) No authorization or approval or other action by, and no
notice to or filing with, any Governmental Authority or other regulatory
body is required in connection with the due execution, delivery and
performance by the Borrower of this Amendment and the performance by the
Borrower of the Credit Agreement, as amended hereby.
(d) This Amendment and the Credit Agreement, as amended
hereby, constitute the legal, valid and binding obligations of the
Borrower, enforceable against the Borrower in accordance with their terms.
3
(e) The representations and warranties contained in Article
VI of the Credit Agreement are correct on and as of the Amendment Effective
Date as though made on and as of the Amendment Effective Date (except to
the extent such representations and warranties expressly relate to an
earlier date), and no Event of Default or Potential Default, has occurred
and is continuing on and as of the Amendment Effective Date.
7. Continued Effectiveness of Credit Agreement. The Borrower
hereby (i) confirms and agrees that each Related Document to which it is a
party is, and shall continue to be, in full force and effect and is hereby
ratified and confirmed in all respects except that on and after the
Amendment Effective Date all references in any such Related Document to
"the Credit Agreement", "thereto", "thereof", "thereunder" or words of like
import referring to the Credit Agreement shall mean the Credit Agreement as
amended by this Amendment, and (ii) confirms and agrees that to the extent
that any such Related Document purports to assign or pledge to the Agent,
or to grant to the Agent a Lien on any collateral as security for the
Obligations of the Borrower from time to time existing in respect of the
Credit Agreement and the Related Documents, such pledge, assignment and/or
grant of a Lien is hereby ratified and confirmed in all respects.
8. Miscellaneous.
a. This Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each
of which shall be deemed to be an original, but all of which taken together
shall constitute one and the same agreement.
b. Section and paragraph headings herein are included for
convenience of reference only and shall not constitute a part of this
Amendment for any other purpose.
c. This Amendment shall be governed by, and construed in
accordance with, the laws of the State of New York.
d. The Borrower will pay on demand all fees, costs and
expenses of the Agent in connection with the preparation, execution and
delivery of this Amendment, including, without limitation, the reasonable
fees, disbursements and other charges of Schulte Roth & Zabel, counsel to
the Agent.
4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be executed by their respective officers thereunto duly authorized as of
the day and year first above written.
BEST PRODUCTS CO., INC.
/s/Frederick G. Kraegel
---------------------------------------
Title: Senior Vice President and Chief
Financial Officer
AGENT AND LENDER
THE CIT GROUP/BUSINESS CREDIT, INC.
/s/Cyril Prince
---------------------------------------
Title: Vice President
CO-AGENTS AND LENDERS
BANKAMERICA BUSINESS CREDIT, INC.
/s/Lisa Palmiere
---------------------------------------
Title: Senior Account Executive
GENERAL ELECTRIC CAPITAL CORPORATION
/s/Murry Stegelman
---------------------------------------
Title: Duly Authorized Signatory
THE FIRST NATIONAL BANK OF BOSTON
/s/Maureen H. Forrester
---------------------------------------
Title: Vice President
5
LENDERS
HELLER FINANCIAL, INC.
/s/Salvatore Salzillo
---------------------------------------
Title: Assistant Vice President
CONGRESS FINANCIAL CORPORATION
/s/Laurence Forte
---------------------------------------
Title: Vice President
SANWA BUSINESS CREDIT CORPORATION
/s/Peter Skazla
---------------------------------------
Title: Vice President
FOOTHILL CAPITAL CORPORATION
/s/Bryan Hamm
---------------------------------------
Title: Assistant Vice President
TRANSAMERICA BUSINESS CREDIT CORPORATION
/s/Steve Fischer
---------------------------------------
Title: Senior Vice President
FREMONT FINANCIAL CORPORATION
/s/Gregory C. Lacker
---------------------------------------
Title: Vice President
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), dated as of April 23, 1996,
between Daniel H. Levy (the "Executive") and Best Products Co., Inc., a
Virginia corporation (the "Company"), recites and provides as follows:
WHEREAS, the Board of Directors of the Company (the "Board") expects
that the Executive will make substantial contributions to the growth and
prospects of the Company; and
WHEREAS, the Board desires to obtain for the Company the services of the
Executive, and the Executive desires to be employed by the Company, all on
the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants herein contained, the Company and the Executive agree as
follows:
1. Employment.
(a) Position; Election to the Board of Directors. On the terms
and subject to the conditions set forth herein, the Company agrees to
employ the Executive as its Chief Executive Officer throughout the
Employment Term (as defined below). At the request of the Board, to the
extent consistent with the Executive's position as Chief Executive
Officer and without additional compensation, the Executive shall serve
as the President of the Company and as an officer and/or director of any
subsidiaries of the Company. In addition, the Board agrees that during
the Employment Term it shall (i) nominate the Executive for election to
the Board at each annual meeting of shareholders and use its best
efforts to cause the Executive to be duly elected to the Board at each
such meeting, and (ii) elect the Executive to the position of Chairman
of the Board.
(b) Duties and Responsibilities. The Executive shall have such
duties and responsibilities consistent with his position as the Board
determines and shall perform such duties and carry out such
responsibilities to the best of his ability for the purpose of advancing
the business of the Company and its subsidiaries. Subject to the
provisions of Section 1(c) below, during the Employment Term the
Executive shall devote his full business time, skill and attention to
the business of the Company and its subsidiaries, and, except as
specifically approved by the Board, shall not engage in any other
business activity or have any other business affiliation.
(c) Other Activities. Notwithstanding anything else to the
contrary set forth herein, as part of the Executive's business efforts
and duties on behalf of the Company, he may participate fully in social,
charitable and civic activities, and, if specifically approved by the
Board, he may serve on the boards of directors of other companies,
provided that such activities do not unreasonably interfere with the
performance of and do not involve a conflict of interest with his duties
or responsibilities hereunder. Each board of directors upon which the
Executive serves as of the date hereof is deemed to have been approved
by the Board; provided, that each such directorship shall be subject to
further review by the Board upon a material change in the business of
the subject company.
2. Employment Term. Subject to the provisions of Section 4 hereof,
the "Employment Term" hereunder shall be a constant rolling period of two (2)
years, commencing on April 23, 1996, with the result that, for each day after
April 23, 1996, the Executive's term of employment shall be extended for an
additional day so that at all times the remaining period of the Executive's
term of employment shall be two (2) years.
3. Compensation. During the Employment Term, the Company will pay
and/or otherwise provide the Executive with compensation and related benefits
as follows:
(a) Signing Bonus. In consideration of his execution of this
Agreement, the Company has paid to the Executive a signing bonus of
$650,000 (the "Signing Bonus"). The parties hereto agree that the
Signing Bonus has been earned by the Executive and that the Company
shall not be entitled to any refund or repayment of the Signing Bonus
notwithstanding any termination of the Executive's employment for any
reason whatsoever.
(b) Base Salary. During the Employment Term, the Company agrees
to pay the Executive, for services rendered hereunder, a base salary at
the annual rate of $650,000 or such higher rate as the Compensation
Committee of the Board may designate in its sole and absolute discretion
(the "Base Salary"). The Base Salary shall be payable in equal periodic
installments, not less frequently than monthly, less any sums which may
be required to be deducted or withheld under applicable provisions of
law. The Base Salary for any partial year shall be prorated based upon
the number of days elapsed in such year.
(c) Bonus. The Executive shall be entitled to an annual bonus
(the "Bonus") in respect of each fiscal year of the Company in an amount
not to exceed 75% of the Base Salary earned in such fiscal year. The
amount of Bonus payable, if any, for any fiscal year shall depend upon
the Company's actual earnings before interest, taxes, depreciation and
amortization ("EBITDA"), net earnings or other figure established by the
Board or its duly authorized designee during such year in relation to
the EBITDA, net earnings or other figure targeted in the annual business
plan approved by the Board or its duly authorized designee for such year
(the "Target Amount"), as follows: (i) 25% of the Executive's Base
Salary if the Company's performance equals 90% of the Target Amount;
(ii) 50% of the Executive's Base Salary if the Company's performance
equals the Target Amount; and (iii) 75% of the Executive's Base Salary
if the Company's performance equals or exceeds 125% of the Target
Amount. If the Company's performance falls between any of the aforesaid
levels of Target Amount, the amount of the Bonus shall be prorated. At
the beginning of each fiscal year of the Company (or as soon as
practicable thereafter), the Executive shall present to the Board for
review and approval, in its good faith judgment, an annual business plan
for such fiscal year for purposes of designating the Target Amount.
(d) Benefits. During the Employment Term (and thereafter to the
extent expressly provided herein), the Executive shall be entitled to
participate in all of the Company's employee benefit plans applicable
to, and to the same extent as, the Company's highest ranking executives,
according to the terms of those plans, except that the Executive shall
not be eligible for any severance payments (other than as provided
herein). In addition, the Executive shall be entitled to: (i) annual
vacation of four weeks with salary; and (ii) reimbursement for
reasonable business travel and entertainment expenses incurred by the
Executive, which shall be evidenced by such documentation as the Company
shall reasonably request.
(e) Executive Retirement Plan. As soon as practicable after
execution of this Agreement, the Company's Executive Retirement Plan
(the "ERP") shall be amended or otherwise modified to: (i) cause the two
year waiting period set forth in Section 2.1(b) of the ERP to be
inapplicable to the Executive's participation thereunder, with the
result that the Executive shall immediately be deemed a participant
therein; (ii) provide that the Executive's normal retirement benefit
shall be determined by reference to 12 years of vesting service; and
(iii) provide that the Executive will be credited with 8 years of
additional vesting service for purposes of calculating his benefits
under the ERP upon the earliest to occur of (x) April 23, 1999, (y) the
date of the Executive's death or disability (as defined in the ERP) and
(z) a change of control (as defined in the ERP) of the Company. The
Company shall promptly provide the Executive with a true, correct and
complete copy of such amendment, duly certified by the Secretary of the
Company as being duly adopted, in full force and effect and not further
amended.
(f) Miscellaneous. In addition to the foregoing compensation, the
Company agrees that during the Employment Term it shall: (i) provide an
automobile, selected by the Executive in his reasonable discretion, that
is owned or leased by the Company for the Executive's use, and pay all
costs and expenses regarding such automobile (including, without
limitation, gas, oil, parking, tolls, insurance, maintenance and
repairs); (ii) pay the Executive's initiation and annual membership fees
for one club of the Executive's choice within the Richmond, Virginia,
metropolitan area; and (iii) reimburse the Executive for the actual
annual expenses he incurs in connection with financial planning services
not to exceed $10,000 per year.
4. Termination of Employment.
(a) By the Company For Cause. The Company may terminate the
Executive's employment under this Agreement at any time for Cause (as
defined below) by delivery of written notice of termination to the
Executive (which notice shall specify in reasonable detail the basis
upon which such termination is made) at least ten days prior to the
termination date set forth in such notice. No such termination shall
become effective until the Executive, after receipt of such notice,
shall have been offered the opportunity to attend a meeting of the Board
of Directors of the Company at which a quorum is present (with the
Executive's counsel present and participating, if desired by the
Executive) regarding such termination notice and the allegations set
forth therein and, based upon such meeting, the Board of Directors shall
have elected to proceed with such termination. In the event the
Executive's employment is terminated for Cause, all provisions of this
Agreement (other than Paragraphs 6 through 13, and 15 through 17 hereof)
and the Employment Term shall be terminated; provided, however, that
such termination shall not divest the Executive of any previously vested
benefit or right. In addition, the Executive shall be entitled only to
payment of his earned and unpaid salary to the date of termination,
earned and unpaid bonus for the prior fiscal year, additional salary
payments in lieu of the Executive's accrued and unused vacation,
unreimbursed business and entertainment expenses in accordance with the
Company's policy, and unreimbursed medical, dental and other employee
benefit expenses incurred in accordance with the Company's employee
benefit plans (hereinafter referred to as the "Standard Termination
Payments").
(b) Upon Death or Disability. If the Executive dies, all
provisions of this Agreement (other than rights or benefits arising as
a result of such death) and the Employment Term shall be automatically
terminated; provided, however, that the Standard Termination Payments
and pro rata Bonus for the fiscal year during which such death occurs
shall be paid to the Executive's surviving spouse or, if none, his
estate, and the death benefits under the Company's employee benefit
plans shall be paid to the Executive's beneficiary or beneficiaries as
properly designated in writing by the Executive. If the Executive is
unable to perform his responsibilities under this Agreement by reason of
physical or mental disability or incapacity and such disability or
incapacity shall have continued for six consecutive months or any period
aggregating six months within any 12 consecutive months, the Company may
terminate this Agreement and the Employment Term at any time thereafter.
In such event, the Executive shall be entitled to receive his normal
compensation hereunder during said six (6) month period, and shall
thereafter be entitled to receive the Standard Termination Payments, pro
rata Bonus for the fiscal year during which such disability occurs and
such disability and other employee benefits as may be provided under the
terms of the Company's employee benefit plans. Pro rata Bonus, in the
event of the Executive's death or disability, shall be an amount equal
to the Bonus at Target Amount (regardless of the Company's actual
performance) for the fiscal year during which such death or disability
occurs, prorated by a fraction, the numerator of which is the number of
days of employment elapsed during the fiscal year prior to termination
of employment and the denominator of which is 365.
(c) By the Company Without Cause.
(i) The Company may terminate the Executive's employment
under this Agreement without Cause, and other than by reason of his
death or disability, by sending written notice of termination to
the Executive, which notice shall specify a date within 90 days
after the date of such notice as the effective date of such
termination (the "Termination Date"). From the date of such notice
through the Termination Date, the Executive shall continue to
perform the normal duties of his employment hereunder, and shall be
entitled to receive when due all compensation and benefits
applicable to the Executive hereunder. Thereafter, and within
thirty (30) days after the Termination Date, the Company shall pay
the Executive, by wire transfer of immediately available funds, an
amount equal to the Base Salary that he would have been entitled to
receive (A) for a period of 12 months following such termination,
in the event that such termination is effective on or before April
23, 1998, or (B) for a period of 24 months following such
termination, in the event that such termination is effective after
April 23, 1998. Except as set forth in Section 9(a) hereof, the
Executive shall have no obligation whatsoever to mitigate any
damages, costs or expenses suffered or incurred by the Company with
respect to the severance obligations set forth in this Section
4(c)(i), and no such severance payments received or receivable by
the Executive shall be subject to any reduction, offset, rebate or
repayment as a result of any subsequent employment or other
business activity by the Executive.
(ii) The Company shall also be obligated (A) to provide
continued coverage under the Company's medical, dental, life
insurance and total disability benefit plans or arrangements with
respect to the Executive for a period of 24 months following the
date of any termination of employment pursuant to this Section
4(c), and (B) to pay to the Executive the Standard Termination
Payments and pro rata Bonus for the fiscal year during which such
termination of employment occurs. Pro rata Bonus, in the event the
Executive's employment is terminated by the Company without Cause,
shall be an amount equal to the Bonus at Target Amount (regardless
of the Company's actual performance) for the fiscal year during
which such termination of employment occurs, pro rated by a
fraction, the numerator of which is the number of days of
employment elapsed during the fiscal year prior to termination of
employment and the denominator of which is 365. The Company's
obligation to provide continued benefits coverage in accordance
with clause (A) of this Section 4(c)(ii) shall be subject to
mitigation to the extent that substantially similar benefits are
provided by any successor employer during such continuation period.
(iii) Until April 23, 1998, the Company, at its sole cost
and expense, shall maintain an irrevocable letter of credit or
other security mutually satisfactory in form and substance to the
Company and the Executive to secure the payment by the Company of
the severance obligation set forth in clause (A) of Section 4(c)(i)
hereof. After April 23, 1998, if the Executive shall deem it to be
warranted by the financial condition of the Company, the Company,
at its sole cost and expense, shall maintain an irrevocable letter
of credit or other security mutually satisfactory in form and
substance to the Company and the Executive to secure the payment by
the Company of the severance obligation set forth in clause (B) of
Section 4(c)(i) hereof. Anything in this Section 4(c) or in any
document or instrument delivered pursuant hereto to the contrary
notwithstanding, not less than fourteen (14) days prior to the
expiration date of any letter of credit or other agreed-upon
security issued or posted in favor of the Executive hereunder, the
Company shall provide the Executive with written evidence
(reasonably satisfactory to the Executive and his counsel) that any
such letter of credit or other security has been renewed and
extended in continuing satisfaction of the Company's obligation
hereunder to provide such letter of credit or other security. If
the Executive shall fail to timely receive such written evidence,
the Executive, without any notice to the Company or any obligation
whatsoever to terminate his employment with the Company, shall have
the absolute and unrestricted right to fully draw upon such letter
of credit, or take complete ownership of such collateral, as the
case may be, and any funds realized therefrom shall be the sole and
exclusive property of the Executive as a partial or compete
prepayment of the Company's severance obligation pursuant to
Sections 4(c)(i) or 4(d) hereof; provided, however, that such funds
shall immediately be returned by the Executive to the Company
(without interest thereon) in the event the Executive's employment
is thereafter terminated under circumstances that do not entitle
the Executive to a severance payment pursuant to Sections 4(c)(i)
or 4(d) hereof.
(d) By the Executive. The Executive may terminate his
employment, and any further obligations which Executive may have to
perform services on behalf of the Company hereunder at any time after
the date hereof, by sending written notice of termination to the Company
not less than ninety (90) days prior to the effective date of such
termination. During such ninety (90) day period, the Executive shall
continue to perform the normal duties of his employment hereunder, and
shall be entitled to receive when due all compensation and benefits
applicable to the Executive hereunder. Except as provided below, if the
Executive shall elect to terminate his employment hereunder (other than
as a result of his death or disability), then the Executive shall remain
vested in all vested benefits provided for hereunder or under any
benefit plan of the Company in which Executive is a participant and
shall be entitled to receive the Standard Termination payments, but the
Company shall have no further obligation to make payments or provide
benefits to the Executive. Anything in this Agreement to the contrary
notwithstanding, the termination of the Executive's employment by the
Executive after (i) a Change of Control of the Company (as defined in
the Company's 1995 Executive Stock Option Plan) has occurred, or (ii)
the institution of bankruptcy, reorganization, arrangement, insolvency
or liquidation proceedings by or against the Company (which proceedings,
if instituted against the Company, have been consented to by the Company
or have remained undismissed for a period of 60 days) shall be deemed to
be a termination of the Executive's employment without Cause by the
Company for purposes of this Agreement, and the Executive shall be
entitled to the payments and benefits set forth in Section 4(c) above.
(e) Definition of Cause. For purposes of this Agreement, "Cause"
shall mean: (A) the misappropriation or embezzlement of corporate funds;
(B) the conviction of a felony involving moral turpitude or which in the
reasonable opinion of the Board brings the Executive into disrepute or
is likely to cause material harm to the Company's business, customer or
supplier relations, financial condition or prospects; (C) a material
violation of any statutory or common law duty of loyalty to the Company;
and (D) gross and continuing dereliction by the Executive in the
performance of his duties hereunder which is not cured or discontinued
within thirty (30) days after written notice thereof to the Executive.
5. Stock Options
(a) Grant of Options. Effective April 23, 1996, the Company
granted the Executive options to purchase seven hundred and fifty thousand
(750,000) shares of common stock of the Company (the "Options"), three
hundred thirty thousand (330,000) of which were granted pursuant to the
Company's 1994 Management Stock Option Plan (the "1994 Plan") and four
hundred twenty thousand (420,000) of which were granted pursuant to the
Company's 1995 Management Stock Option Plan (the "1995 Plan").
(b) Vesting of Options. Each Option granted to the Executive
under the 1994 Plan and the 1995 Plan provided that one half (1/2) of the
Options granted to the Executive thereunder were deemed fully vested and
nonforfeitable upon the grant of such Option and the remaining one-half (1/2)
shall become fully vested and nonforfeitable upon the earliest to occur of:
(i) April 23, 1997; (ii) any termination of the Executive's employment by the
Company without Cause; or (iii) a Change of Control of the Company (as
defined under each such Plan).
(c) Representations and Warranties of the Company. The Company
represents and warrants to the Executive as follows:
(i) the Options have been duly granted to the Executive by the
Company pursuant to the express provisions of the 1994 Plan and the 1995
Plan, respectively, and all necessary corporate action with respect
thereto has been duly taken;
(ii) the 1994 Plan and the 1995 Plan are in full force and effect
in accordance with their respective terms, and the options granted to
the Executive under each such Plan were available for grant thereunder;
(iii) the grant of the Options to the Executive does not
violate or breach any provision of the Articles of Incorporation or
Bylaws of the Company or any agreement to which the Company is subject
or by which it is bound, and no shareholder approval of such grant or
the exercise of any Options thereunder is required; and
(iv) the Options and all agreements related thereto to be entered
into by the Company shall be duly executed and delivered by the Company
and shall constitute valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms (except
as the enforceability thereof may be limited or otherwise affected by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
generally affecting the rights of creditors and subject to general
equity principles, whether considered at law or in equity).
6. Confidential Information. The Executive understands and
acknowledges that during his employment with the Company he will be exposed
to Confidential Information (as defined below) which is proprietary and which
rightfully belongs to the Company. The Executive agrees that he will not use
or cause to be used for his own benefit, either directly or indirectly, or
disclose any of such Confidential Information at any time, either during or
after his employment with the Company, without the Company's prior written
consent. The Executive shall take all reasonable steps to safeguard such
Confidential Information that is within his possession or control and to
protect such information against disclosure, misuse, loss or theft. The
Executive's obligations under this Section with respect to any specific
Confidential Information shall cease when that specific Confidential
Information becomes publicly known or when it is disclosed by any person,
firm, corporation or business entity which is not bound by the terms of a
confidentiality agreement with the Company. The term "Confidential
Information" shall mean any information not generally known in the relevant
trade or industry, which was obtained from the Company, or which was learned
as a result of the performance of any services by the Executive on behalf of
the Company, and which falls within the following general categories:
(i) information concerning trade secrets of the Company;
(ii) information concerning existing or contemplated products,
services, technology, designs, processes and research or product
developments of the Company;
(iii) information concerning business plans, sales or
marketing methods, methods of doing business, customer lists,
customer usages and/or requirements, or supplier information of the
Company; and
(iv) any other confidential information which the Company may
reasonably have the right to protect by patent, copyright or by
keeping it secret and confidential.
7. Return of Documents. All writings, records and other documents and
things containing any Confidential Information in the Executive's custody or
possession shall be the exclusive property of the Company, shall not be
copied and/or removed from the premises of the Company, except in pursuit of
the business of the Company, and shall be delivered to the Company, without
retaining any copies, upon the termination of the Executive's employment or
at any time as requested by the Company.
8. Reaffirm Obligations. Upon termination of the Executive's
employment with the Company, the Executive shall, if requested by the
Company, reaffirm in writing Employee's recognition of the importance of
maintaining the confidentiality of the Company's proprietary information and
trade secrets and reaffirm all of the obligations set forth in Section 6 of
this Agreement.
9. Non-Compete; Non-Solicitation. The Executive agrees that:
(a) Except as is set forth below, for a period commencing on the
date hereof and ending on the date 12 months after the Executive ceases
to be employed by the Company (the "Non-Competition Period"), the
Executive shall not in the United States of America, directly or
indirectly, either for himself or any other person, own, manage,
control, participate in, invest in, permit his name to be used by, act
as consultant or advisor to, render services for (alone or in
association with any person, firm, corporation or other business
organization) or otherwise assist in any manner any entity that engages
in or owns, invests in, manages or controls any venture or enterprise
engaged in the catalog showroom and jewelry retail industry (or any
other business of the type that constitutes a substantial portion of the
Company's business at the date the Executive ceases to be employed by
the Company) (collectively, a "Competitor"); provided, however, that the
restrictions set forth above shall immediately terminate and shall be of
no further force or effect (i) in the event of a default by the Company
in the payment of any compensation or benefits to which the Executive is
entitled hereunder, which default is not cured within ten (10) days
after written notice thereof, or (ii) at the election of the Executive,
if the Executive's employment has been terminated by the Company without
Cause and if the Executive (A) gives written notice to the Company
during the Non-Competition Period that he desires to accept employment
with a Competitor, and (B) agrees that the severance payment specified
in Section 4(c)(i) hereof shall be mitigated by the amount of salary and
pro rata target bonus payable to the Executive by the Competitor and
attributable to employment during the Non-Competition Period (it being
understood that the amount of such mitigated severance shall be paid by
the Executive to the Company in a lump-sum payment within thirty (30)
days after the Executive commences employment with the Competitor).
Nothing herein shall prohibit the Executive from being a passive owner
of not more than 2% of the equity securities of a corporation engaged in
such business which is publicly traded, so long as he has no active
participation in the business of such corporation.
(b) During the Non-Competition Period, the Executive shall not,
directly or indirectly, (i) induce or attempt to induce or aid others in
inducing an employee of the Company to leave the employ of the Company,
or in any way interfere with the relationship between the Company and an
employee of the Company except in the proper exercise of the Executive's
authority, or (ii) in any way interfere with the relationship between
the Company and any customer, supplier, licensee or other business
relation of the Company.
(c) If, at the time of enforcement of this Section, a court shall
hold that the duration, scope, area or other restrictions stated herein
are unreasonable under circumstances then existing, the parties agree
that the maximum duration, scope, area or other restrictions reasonable
under such circumstances shall be substituted for the stated duration,
scope, area or other restrictions.
(d) The covenants made in this Section shall be construed as an
agreement independent of any other provision of this Agreement, and
shall survive the termination of this Agreement. Moreover, the
existence of any claim or cause of action of the Executive against the
Company or any of its affiliates, whether or not predicated upon the
terms of this Agreement, shall not constitute a defense to the
enforcement of this covenant.
10. Purchase of Former Residence; Reimbursement of Expenses.
(a) As soon as practical after the execution of this Agreement, the
Executive's residence at 3575 Mistletoe Lane, Longboat Key, Florida, shall be
appraised by a qualified independent appraiser mutually satisfactory to the
Executive and the Company to determine the fair market value thereof in an
arm's length, third party sale. As soon as practical after receipt of such
appraisal, but in no event later than fourteen (14) days after the Company's
receipt of such appraisal, the Company or its designee shall purchase such
property from the Executive for cash in an amount equal to such appraised,
fair market value, subject to customary representations and warranties as to
title and absence of liens or encumbrances.
(b) The Company shall: (i) pay the Executive an allowance of $3,000.00
per month, for a period anticipated by the parties to be approximately six
months (but ending, in any event, no later than December 31, 1996), with
respect to the Executive's expenses incurred in maintaining a temporary
residence in the Richmond, Virginia, metropolitan area pending the purchase
of permanent housing in such area by the Executive; and (ii) reimburse the
Executive promptly upon demand for the following out-of-pocket expenses
incurred by the Executive in connection with his employment by the Company:
(i) reasonable legal fees and expenses, not to exceed $10,000, incurred in
connection with the review and execution of this Agreement; (ii) moving
expenses incurred in connection with the Executive's relocation to the
Richmond, Virginia, metropolitan area; and (iii) the federal, state and local
income taxes, and the hospital insurance tax under Section 3111(b) of the
Internal Revenue Code, for which the Executive is liable on account of the
payments described in clauses (a) and (b) (i) and (ii) of this Section,
together with an amount sufficient to satisfy any additional federal, state
or local income taxes or hospital insurance tax for which the Executive is
liable on account of the amounts received pursuant to this clause (iii).
11. Representations. The Executive represents and warrants to the
Company that the execution, delivery and performance of this Agreement by the
Executive does not conflict with, or result in the breach by the Executive or
violation by the Executive of, any other agreement to which the Executive is
a party or by which the Executive is bound. The Executive hereby agrees to
indemnify the Company, its officers, directors and stockholders and hold them
harmless from and against any liability (including, without limitation,
reasonable attorneys' fees and expenses) which they may at any time suffer or
incur arising out of or relating to any breach of a representation or
warranty made by the Executive herein. The Company represents and warrants
that this Agreement and the transactions contemplated hereby have been duly
authorized by the Company by all necessary corporate and shareholder action,
and that the execution, delivery and performance of this Agreement by the
Company does not conflict with, or result in the breach or violation by the
Company of, its Articles of Incorporation or Bylaws or any other agreement to
which the Company is a party or by which it is bound. The Company hereby
agrees to indemnify the Executive and hold the Executive harmless from and
against any liability (including, without limitation, reasonable attorneys'
fees and expenses) which the Executive may at any time suffer or incur
arising out of or relating to any breach of a representation or warranty made
by the Company herein.
12. Remedies. The parties hereto agree that the Company would suffer
irreparable harm from a breach by the Executive of any of the covenants or
agreements contained herein. Therefore, in the event of the actual or
threatened breach by the Executive of any of the provisions of this
Agreement, the Company may, in addition and supplementary to other rights and
remedies existing in its favor, apply to any court of law or equity of
competent jurisdiction for specific performance and/or injunctive or other
relief in order to enforce or prevent any violation of the provisions hereof.
In the event of a breach or violation by the Executive of any of the
provisions of Section 9 hereof, the running of the Non-Competition Period
shall be tolled during the continuance of any actual breach or violation.
The Executive agrees that these restrictions are reasonable.
13. Indemnity. The Executive will be indemnified, in his capacity as
an officer and director of the Company, to the fullest extent permitted by
the Company's Articles of Incorporation and Bylaws.
14. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the Company and its affiliates and their successors
and assigns, and shall be binding upon and inure to the benefit of the
Executive and his legal representatives and assigns, provided that in no
event shall the Executive's obligations to perform services for the Company
and its affiliates be delegated or transferred by the Executive. The Company
may assign or transfer its rights hereunder to a successor corporation in the
event of a merger, consolidation or transfer or sale of all or substantially
all of the assets of the Company or of the Company's business (provided,
however, that no such assignment or transfer shall have the effect of
relieving the Company of any liability to the Executive hereunder or under
any other agreement or document contemplated herein), but only if such
assignment or transfer does not result in employment terms, conditions,
duties or responsibilities which are or may be materially different than the
terms, conditions, duties or responsibilities of the Executive hereunder.
15. Modification or Waiver. No amendment, modification, waiver,
termination or cancellation of this Agreement shall be binding or effective
for any purpose unless it is made in a writing signed by the party against
whom enforcement of such amendment, modification, waiver, termination or
cancellation is sought. No course of dealing between or among the parties to
this Agreement shall be deemed to affect or to modify, amend or discharge any
provision or term of this Agreement. No delay on the part of the Company or
the Executive in the exercise of any of their respective rights or remedies
shall operate as a waiver thereof, and no single or partial exercise by the
Company or the Executive of any such right or remedy shall preclude other or
further exercises thereof. A waiver of a right or remedy on any one occasion
shall not be construed as a bar to or waiver of any such right or remedy on
any other occasion.
16. Governing Law; Jurisdiction. This Agreement and all rights,
remedies and obligations hereunder, including, but not limited to, matters of
construction, validity and performance shall be governed by the laws of the
Commonwealth of Virginia without regard to its conflict of laws principles or
rules. To the full extent lawful, each of the Company and the Executive
hereby consents irrevocably to personal jurisdiction, service and venue in
connection with any claim or controversy arising out of this Agreement in the
courts of the Commonwealth of Virginia located in Richmond, Virginia, and in
the federal courts in the Eastern District of Virginia.
17. Severability. Whenever possible each provision and term of this
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision or term of this Agreement shall be
held to be prohibited by or invalid under such applicable law, then such
provision or term shall be ineffective only to the extent of such prohibition
or invalidity, without invalidating or affecting in any manner whatsoever the
remainder of such provisions or term or the remaining provisions or terms of
this Agreement.
18. Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which
taken together constitute one and the same Agreement.
19. Headings. The headings of the Sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute a part
hereof and shall not affect the construction or interpretation of this
Agreement.
20. Entire Agreement. This Agreement (together with all documents and
instruments referred to herein) constitutes the entire agreement, and
supersedes all other prior agreements and undertakings, both written and
oral, among the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
BEST PRODUCTS CO., INC.
By: /s/ Donald D. Bennett
Name: Donald D. Bennett
Title: Director
EXECUTIVE
/s/ Daniel H. Levy
Daniel H. Levy
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