<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From to
Commission File Number 1-5439
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DEL LABORATORIES, INC.
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(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 13-1953103
(State or other jurisdiction of (I.R.S. Employer I.D. Number)
incorporation or organization)
178 EAB PLAZA, UNIONDALE, NY 11556
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code (516) 844-2020
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
Title of Each Class Name of Each Exchange on Which Registered
- ----------------------------------------------------------- -----------------------------------------------------------
<S> <C>
Common Stock, $1 par value American Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
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 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-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the Common Stock held by non-affiliates of the
Registrant on March 26, 1999 was $85,406,480. On such date, the average bid
and asked price for the Common Stock was $19.31 per share.
The number of shares of Common Stock outstanding as of March 26, 1999 was
7,403,124 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
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<CAPTION>
DOCUMENT Part of the Form 10-K Into Which the Document is Incorporated
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<S> <C>
Definitive Proxy Statement for 1999 Annual Part III, Items 10, 11, 12 and 13
Meeting of Stockholders
</TABLE>
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Part I
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Item 1--Business
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Del Laboratories, Inc. (the "Company") manufactures, markets and distributes
cosmetics and proprietary over-the-counter pharmaceuticals. The Company's
principal cosmetics products are nail care products, nail color, color
cosmetics, beauty implements, bleach and depilatories, personal care products,
and other related cosmetic items. The Company's cosmetics products are marketed
under such well-known brand names as Sally Hansen Hard as Nails and Sally Hansen
Professional Nail (nail care and nail color products), Corn Silk (face make-up),
Naturistics (color cosmetics and bath and body care) and LaCross (beauty
implements). The Company's proprietary pharmaceutical products include oral
analgesics, acne treatment products, first aid products and eye/ear medications.
The Company's pharmaceutical products are marketed under such well-known brand
names as Orajel and Tanac (oral analgesics), Propa pH (acne treatment), Pronto
(pediculicides), Arthricare (topical arthritis treatment), Stye (opthalmic
ointment) and Auro-Dri (ear remedy). The Company's products are sold principally
in the United States and Canada to wholesalers and independent and chain drug,
mass merchandisers and food stores.
The Company seeks to increase sales by aggressively marketing its products
under established brand names. The Company targets the mass market, which
accounts for a major portion of the decorative color cosmetics market and the
majority of the over-the-counter pharmaceuticals market. The Company's customers
in the mass market channel include Walgreens, Rite Aid, CVS, and Eckerd, major
drug store chains; Wal-Mart, K-Mart and Target, major national chain mass
merchandisers; and numerous regional chain drug stores and mass merchandisers.
The Company also distributes its pharmaceutical products to drug wholesalers,
including McKesson Drug and Bergen Brunswig and national food chains, including
Kroger and Albertson's. Other than Wal-Mart Stores, Inc., which accounted for
21.5%, 22.7% and 21.7% of the Company's total net sales for 1998, 1997 and 1996,
respectively, and Walgreens which accounted for 10.3% of the Company's total net
sales in 1998, no single customer accounted for more than 10% of the Company's
total net sales.
The Company advertises its products on television and radio and in
magazines. In-store displays and promotional activities are also utilized to
attract consumer attention and to inform them of the products available under
the Company's various brands. Cooperative advertising programs with retailers
are also employed to further enhance consumer awareness of the Company's
products and brands. Advertising expenditures were $30.9 million in 1998, or
11.2% as a percentage of total net sales.
The Company utilizes two in-house national sales organizations, one for its
cosmetics product lines and one for its pharmaceutical product lines. The
Company also employs independent manufacturers' representatives in selected
geographic areas where a full-time sales employee would not be economically
justified.
Certain financial information regarding the Company's industry segments is
set forth in the table below:
Industry Segments (In thousands of dollars)
<TABLE>
<CAPTION>
1998 1997 1996
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<S> <C> <C> <C>
Net Sales to unaffiliated customers:
Cosmetics $ 213,714 $ 207,260 $ 179,031
Pharmaceuticals 61,148 55,750 53,920
Operating income:
Cosmetics 10,381 15,424 8,885
Pharmaceuticals 12,513 9,828 10,120
Identifiable assets:
Cosmetics 120,664 87,449 71,362
Pharmaceuticals 20,205 16,635 15,841
Corporate (unallocated assets) 36,605 45,230 35,179
</TABLE>
The Company was incorporated in Delaware in 1961. The Company's cosmetics
business is conducted primarily by the Company and its wholly-owned subsidiary,
Del Laboratories (Canada) Inc., which sells the Company's cosmetics products to
the Canadian market. The Company's pharmaceuticals business is conducted
primarily by the Company's wholly-owned subsidiary, Del Pharmaceuticals, Inc.,
and its indirect wholly-owned subsidiary, Del Pharmaceutics (Canada) Inc., which
sell the Company's pharmaceutical products to the Canadian market.
2
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The Company's products are sold in a limited number of foreign countries.
Export net sales (which exclude sales in Canada and Puerto Rico) have
historically not exceeded 5.0% of total net sales in any year. In 1998, export
net sales represented approximately 2.0% of the Company's total net sales. The
Company has formed a limited number of subsidiaries to conduct its business in
certain foreign countries. In certain other foreign countries, the Company
licenses local representatives and appoints local distributors to sell the
Company's products.
The Company sells standard packaged cosmetic and over-the-counter
pharmaceutical products. The Company's customers expect quick response on
standard merchandise orders. The Company does not have a material amount of
order backlog. Consistent with the packaged goods industry, the Company accepts
authorized returns of unmerchantable, defective or discontinued products.
The Company purchases raw materials used in its manufacturing processes from
various other manufacturers, paperboard suppliers and bottle distributors. The
Company has not experienced any difficulty obtaining raw materials and believes
that such materials are readily available.
The Company expended approximately $4,927,000, $5,038,000 and $4,559,000 in
1998, 1997 and 1996, respectively, on research activities relating to the
development of new products, clinical and regulatory affairs and quality
control, all of which activities are conducted internally by the Company.
Competition in both the cosmetics and over-the-counter pharmaceuticals
markets is intense. Many of the principal competitors in each of the Company's
industry segments are well-established firms with greater financial and
marketing resources. Frequent new product introductions and attendant
advertising characterize both industry segments in which the Company operates.
Consumer brand preferences in the Company's industry segments are generally
influenced by advertising, promotional support and price. The cosmetics industry
is sensitive to consumer purchasing power. The Company's competitors in the
cosmetics market include Revlon, Inc., Procter and Gamble (Cover Girl), Cosmair
(Maybelline) and L'Oreal and in the over-the-counter pharmaceuticals market,
include, Whitehall-Robbins Division of American Home Products Corp.,
Warner-Lambert Company, Pfizer, Block Drug, Thompson Medical, Procter and Gamble
Co., SmithKline Beecham, Bristol Myers Squibb, Colgate Palmolive and Johnson and
Johnson.
The Company has registered its principal trademarks in each segment of its
business both in the United States and in many countries throughout the world.
The Company considers its trademarks to be material assets, and the registration
and protection of its trademarks in the aggregate to be important to its
business, in that the success of certain of the products is due at least in part
to the goodwill associated with the Company's primary brand names. The Company
has also been issued several United States patents, expiring at various times
through 2010, and has licensed certain intellectual property from third parties.
While the Company believes its patents and licenses to be important, it does not
consider its business as a whole to be dependent on such licenses or patent
protection.
The Company currently has approximately 1,560 employees. Approximately 450
of the Company's employees are represented by two labor unions. The Company has
not experienced any work stoppages and considers its employee and labor
relations to be satisfactory.
Item 2--Properties
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The Company's corporate offices are located in 44,000 square feet of leased
space in Uniondale, New York.
The Company's principal manufacturing facilities for both the cosmetics and
pharmaceutical segments are located in two buildings at 565 Broad Hollow Road,
Farmingdale, New York. One building is a brick faced concrete block structure
containing approximately 120,000 square feet of floor space. The other is a
steel beamed and brick faced concrete block building, adjacent to the
Farmingdale facility described above, containing approximately 20,000 square
feet of floor space. Both buildings are owned by the Company.
The Company also owns certain property used for manufacturing facilities for
its cosmetics segment in Newark, New Jersey. The Newark buildings are brick
faced concrete block and contain approximately 90,000 square feet of floor
space.
The Company owned, at December 31, 1998, property at 163 East Bethpage Road,
Plainview, New York. This steel beamed and brick faced concrete block building
contains approximately 63,000 square feet of floor space. This property was sold
in February, 1999.
The Company owns property located in Canajoharie, New York, consisting of a
two-story brick and steel building with approximately 50,000 square feet of
floor space. This building is used by the cosmetics segment.
The Company owns property located in the City of Barrie, Province of
Ontario, Canada, consisting of a building with approximately 39,000 square feet
of floor space. The facility is used for manufacturing and shipping and contains
the administrative offices of its Canadian subsidiaries.
3
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The Company also owns property located in the City of Little Falls, New
York, consisting of a building with approximately 63,000 square feet of floor
space. The facility is used for production and warehousing. The Company owns a
second building located in close proximity to the Little Falls facility
described above. This 100,000 square foot facility is a one-story steel and
masonry industrial plant built in 1974 and is used for production and
warehousing.
The Company's distribution center is located in two owned buildings
containing approximately 225,000 square feet, in Rocky Point, North Carolina.
Both buildings are of insulated metal construction. The buildings and land are
subject to a first mortgage. The distribution center services both the cosmetics
and pharmaceutical segments.
The Company also has short-term leases for space in public warehouses. The
space is primarily used for the cosmetics segment.
The Company believes that its facilities are adequate to meet the needs of
the Company, operating at reasonable levels of production.
Item 3--Legal Proceedings
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The Company is not a party to any material pending legal proceedings, other
than ordinary routine litigation incidental to its business.
Item 4--Submission of Matters to a Vote of Security Holders
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Not applicable.
Part II
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Item 5--Market for Company's Common Equity and Related Stockholder Matters
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The Company's common stock is traded on the American Stock Exchange under
the symbol "DLI". The range of high and low sales prices as reported in the
consolidated transaction reporting system of such exchange for each quarterly
period during the past two years is as follows:
<TABLE>
<CAPTION>
1998 1997
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<S> <C> <C> <C> <C>
HIGH LOW HIGH LOW
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First Quarter $ 44.25 $ 29.63 $ 16.69 $ 15.38
Second Quarter $ 32.75 $ 21.75 $ 26.63 $ 15.56
Third Quarter $ 28.50 $ 19.50 $ 30.00 $ 24.94
Fourth Quarter $ 26.38 $ 16.00 $ 30.75 $ 25.50
</TABLE>
There were 496 holders of record of the Company's common stock at December
31, 1998. This does not include beneficial holders whose shares are held of
record by nominees. The Company paid regular quarterly dividends of $.026 from
January 1997 through December 1997 and $.035 from January 1998 through December
1998. The Company has paid uninterrupted dividends for the past twenty-five
years. The Company expects to pay comparable cash dividends for the foreseeable
future. The per share information set forth above has been adjusted for a
4-for-3 stock split on February 20, 1998, effected in the form of a stock
dividend.
The terms of the Company's various borrowing agreements provide, among other
things, for restrictions on the payment of cash dividends and certain other
expenditures. At December 31, 1998, amounts available for dividends and the
repurchase of treasury stock amounted to approximately $4,276,000.
4
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Item 6--Selected Financial Data
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(Amounts in Thousands Except Per Share and Employee Data)
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<CAPTION>
1998 1997 1996 1995 1994
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<S> <C> <C> <C> <C> <C>
Operating data:
Net sales $ 274,862 $ 263,010 $ 232,951 $ 212,048 $ 190,102
Net earnings 11,077 13,127 9,278 7,025 5,681
Earnings per common share: (a)
Basic 1.46 1.73 1.25 .94 .76
Diluted 1.36 1.59 1.14 .86 .71
Cash dividends per share (a) .14 .105 .079 .079 .074
Weighted average common shares
outstanding: (a)
Basic 7,581 7,593 7,449 7,465 7,516
Diluted 8,126 8,250 8,157 8,165 8,033
Balance sheet data:
Total assets $ 177,474 $ 149,314 $ 122,382 $ 114,717 $ 104,957
Long-term debt 59,400 43,879 40,000 40,000 40,070
Working capital 62,728 53,576 51,266 42,034 38,813
Shareholders' equity 59,097 54,530 44,842 38,021 34,203
Other data:
Capital additions $ 7,224 $ 15,230 $ 5,327 $ 7,569 $ 5,827
Approximate # of employees 1,560 1,390 1,329 1,243 1,175
</TABLE>
(a) Adjusted to reflect 4-for-3 stock splits effective February 20, 1998 and
November 8, 1996, a 2-for-1 stock split effective June 16, 1995 and a
4-for-3 stock split effective June 15, 1994.
5
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Item 7--Management's Discussion and Analysis of Financial Condition And Results
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of Operations
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Results of Operations
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Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
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Net Sales. Net sales were $274.9 million and $263.0 million for 1998 and
1997, respectively, an increase of $11.9 million or 4.5%. Cosmetics net sales
were $213.7 million and $207.3 million for 1998 and 1997, respectively, an
increase of $6.4 million or 3.1%. The increase in cosmetics net sales resulted
primarily from volume growth in existing products and new product introductions
in the Sally Hansen, LaCross and Corn Silk brands. The cosmetics net sales
increase in 1998 was partially offset in the fourth quarter by incremental sales
returns of approximately $4.0 million associated with the acceleration of a
program to reposition and repackage the Naturistics cosmetics line.
Net pharmaceutical sales were $61.2 million and $55.8 million for 1998 and
1997, respectively, an increase of $5.4 million or 9.5%. The increase in net
pharmaceutical sales resulted primarily from volume growth in the Orajel family
of products and the Pronto line of pediculicides.
Cost of Sales. Cost of sales were $115.8 million, or 42.1% of net sales in
1998, compared to $101.1 million, or 38.4% of net sales in 1997, an increase of
$14.7 million, or 14.6%. The increase in cost of sales, as a percentage of net
sales, is primarily due to higher product returns, inventory write-downs of the
Naturistics cosmetics and bath & body care line of $1.5 million in the fourth
quarter of 1998, higher manufacturing costs and a change in the mix of business
compared to prior year.
Selling and Administrative Expenses. Selling and administrative expenses
were $136.2 million in 1998 compared to $136.7 million in 1997, a decrease of
$.5 million. The increase in net sales together with a reduction in advertising
and promotional expenditures are the primary reasons for the decrease in selling
and administrative expenses as a percentage of net sales to 49.5% in 1998 from
52.0% in 1997.
Operating Income. As a result of the above, operating income decreased by
9.3% to $22.9 million or 8.3% of net sales in 1998 compared to $25.3 million or
9.6% of net sales in 1997.
Net Interest Expense. Net interest expense was $4.4 million in 1998
compared to $3.4 million in 1997. Interest expense increased $657,000 to $4.7
million in 1998 from $4.0 million in 1997 due primarily to borrowings related to
the acquisition of intellectual property rights and other assets of the Corn
Silk brand of facial make-up in May 1998 and to imputed interest (non-cash
expense) related to the purchase of land and buildings in North Carolina in May
1997.
Income Taxes. The Company's effective tax rate was 40% in both 1998 and
1997. In the fourth quarter of 1998, the Company revised its 1998 projected
effective tax rate from 41% to 40% resulting in an additional tax benefit of
$180,000.
Net Earnings. As a result of the above, net earnings decreased to $11.1
million or 4.0% of net sales compared to $13.1 million or 5.0% of net sales in
1997.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
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Net Sales. Net sales were $263.0 million and $233.0 million for 1997 and
1996, respectively, an increase of $30.0 million or 12.9%. Net cosmetics
sales were $207.3 million and $179.0 million for 1997 and 1996, respectively,
an increase of $28.3 million or 15.8%. The increase in net cosmetics sales
resulted primarily from volume growth in existing products and new product
introductions in the Sally Hansen, Sally Hansen Professional Nails, LaCross
and Naturistics brands and increased advertising and promotional support. Net
pharmaceutical sales were $55.8 million and $53.9 million for 1997 and 1996,
respectively, an increase of $1.9 million or 3.5%. The increase in net
pharmaceutical sales resulted primarily from volume growth in the Orajel
family of products and the Pronto line of pediculicides. Pharmaceutical net
sales were negatively impacted during 1997 by consolidations within the drug
wholesaler market segment and the increasing importance of competing private
label products in categories in which the Company enjoys a leadership
position.
Cost of Sales. As a percentage of net sales, cost of sales was 38.4% for
1997 compared to 41.9% for 1996. In 1996, the Company recorded an additional
charge to cost of sales of $2.5 million for excess fashion oriented color
cosmetics and natural based beauty products inventory. No such charge was
included in 1997. Absent the charge in 1996, cost of sales would have improved
from 40.8% in 1996 to 38.4% in 1997, primarily due to improved product mix
within certain brands and the benefits of improved overhead absorption resulting
from higher production volumes.
6
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Selling and Administrative Expenses. As a percentage of sales, selling and
administrative expenses were 52.0% for 1997 and 50.0% for 1996. The Company
increased advertising, promotions, and research and development in 1997 compared
to 1996 to support growth in existing products and new product launches as well
as incurred a higher level of expenses related to the purchase of promotional
and merchandise displays. Advertising expenses increased by 22.2% to $33.0
million or 12.5% of net sales compared to $27.0 million or 11.6% of net sales in
1996.
Operating Income. As a result of the above, operating income increased by
32.9% to $25.3 million or 9.6% of net sales compared to $19.0 million or 8.2% of
net sales in 1996.
Net Interest Expense. Net interest expense was $3.4 million in 1997,
compared with $3.3 million in 1996. Interest expense increased $195,000 to $4.0
million in 1997 from $3.8 million in 1996 due to imputed interest (non-cash
expense) related to the Company's purchase of land and buildings in North
Carolina. Partially offsetting this increase were higher levels of interest
income.
Income Taxes. The Company's effective tax rate was 40.0% in 1997 compared
to 41.0% in 1996.
Net Earnings. Net earnings increased by 41.5% to $13.1 million or 5.0% of
net sales compared to $9.3 million or 4.0% of net sales in 1996.
LIQUIDITY AND CAPITAL RESOURCES
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At December 31, 1998, the Company had cash and cash equivalents of $3.7
million as compared to $15.0 million at December 31, 1997.
Net cash used by operating activities was $2.5 million for the year ended
December 31, 1998. Net cash provided by operating activities was $17.9 million
and $16.2 million for the years ended December 31, 1997 and 1996, respectively.
The decrease of $20.4 million in net cash provided by operating activities for
1998 compared to 1997 resulted primarily from an increase in accounts
receivable, an increase in inventories and lower earnings. The increase in
accounts receivable of $16.4 was due to a concentration of sales in the latter
part of the fourth quarter. The Company's inventories increased $6.7 million
over 1997 as a result of new cosmetic product launches and growth in existing
product sales.
Cash used for the purchase of intangibles and other assets related to the
Corn Silk brand of facial make-up was $12.0 million in 1998. Cash used for
property, plant and equipment additions was $7.2 million, $10.8 million and $5.3
million for 1998, 1997 and 1996, respectively. Capital expenditures for 1998 and
1997 were primarily for manufacturing machinery and equipment. Cash used for
capital expenditures in 1997 included $2.0 million of equipment for the
Company's new distribution facility. In 1997, the Company exchanged a
non-interest bearing purchase money promissory note discounted to $4.4 million
for land and buildings in North Carolina to be used for a new distribution
facility.
Net cash provided by (used in) financing activities was $10.5 million, ($6.6
million) and ($4.9 million) for 1998, 1997 and 1996, respectively. In 1998,
cash was primarily provided by proceeds received under a four year credit
agreement with a bank and short-term borrowings under lines of credit with
banks. Cash was used primarily for acquisition of shares of the Company's
common stock aggregating $7.3 million, $5.9 million and $4.3 million in 1998,
1997 and 1996, respectively, and dividend payments of $1.0 million, $0.7
million and $0.6 million in 1998, 1997 and 1996, respectively. From time to
time, the Company has acquired shares of its common stock pursuant to a plan
approved by the Board of Directors in 1987. The Company will generally
undertake such purchases if management believes that the prevailing market
price for its common stock does not adequately reflect the intrinsic value of
the Company's business. All shares purchased in 1998, 1997 and 1996, were
placed in treasury. The shares purchased were predominantly from employees
who held shares issued pursuant to the Company's stock option plans, with the
balance through open market purchases. As of December 31, 1998, the Company
was authorized to purchase up to 51,771 additional shares based on the
existing Board authorization.
Estimated cash flow from operations and available working capital lines of
credit along with leasing transactions, are expected to be adequate to fund the
Company's anticipated working capital requirements, spending for property, plant
and equipment, dividend payments and common share repurchases in the foreseeable
future.
The Company believes that general inflation has had no significant impact on
its income from operations during the last three years.
7
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Year 2000 Conversion
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The Company is addressing the issue of many existing computer programs using
only the last two digits to refer to a year. Therefore, these computer programs
do not properly recognize a year that begins with "20" instead of the familiar
"19". If not corrected, many computer applications could fail or create
erroneous results. A committee specifically created to resolve Year 2000 issues,
led by a member of the Board of Directors and comprised of senior corporate
executives and an outside expert, as well as sub-committees and task forces meet
regularly.
The Company's efforts to identify and address issues relating to its
readiness for Year 2000 have included the following: the identification phase
(100% complete) consisting of computer based systems, software, third party
programs and all hardware including embedded microprocessors. The assessment
phase (approximately 90% complete) has focused on those applications most
critical to the business including examination of all coding used for date
calculations. The remediation phase (approximately 75% complete) consists of
systems changes, where necessary, by replacement, modification or upgrade. The
testing phase (approximately 35% complete) includes full system tests planned
during the second quarter of 1999 at which time systems dates will be rolled
forward on test machines to check performance and computational accuracy. All
significant suppliers, customers and financial institutions, as well as all
customers doing business electronically with the Company, have been contacted in
order to identify potential areas of concern. It is anticipated that all of the
above phases will be substantially completed by mid 1999.
The Company currently estimates that remediation costs will not exceed
$1,000,000 for replacement systems, discovery tools and expenses necessary to
achieve Year 2000 compliance.
Improper or inadequate remediation of Year 2000 problems by parties with
whom the Company does business could adversely affect the Company's supply chain
and subsequently the ability to effectively manage production and distribution
activities. In addition, administrative functions essential to the day to day
operations of the business could be impaired if Year 2000 remediation is not
completed in a timely manner. Due to the general uncertainty inherent in the
Year 2000 problem, resulting primarily from the uncertainty of the Year 2000
readiness of parties with whom the Company does business, the Company is unable
to determine at this time whether the consequences of Year 2000 failures will
have a material impact on the Company's results of operations, liquidity or
financial condition.
The Company is currently identifying and documenting potential business
disruptions and continuity planning procedures. The focus of this activity is
on potential failures of internal and external systems required to carry out
normal business operations, including services provided by the public
infrastructure such as electric power, transportation and telecommunications.
The Company expects this activity to be an on-going process well into the
third quarter of 1999.
The above comments on the Year 2000 issue contain forward-looking statements
relating to the Company's plans, strategies, objectives, intentions, and
resources that should be read in conjunction with the following disclosure on
Forward-Looking Statements.
Forward-looking Statements
- --------------------------
Management's Discussion and Analysis of the Results of Operations and
Financial Condition and other sections of this Annual Report include
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities and Exchange Act of 1934 (the
"Exchange Act"). All statements other than statements of historical information
provided herein are forward-looking statements and may contain information about
financial results, economic conditions, trends and known uncertainties. The
forward-looking statements contained herein are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
reflected in the forward-looking statements. Factors that might cause such a
difference include, but are not limited to, delays in introducing new products
or failure of consumers to accept new products, actions by competitors which may
result in mergers, technology improvement or new product introductions, the
dependence on certain national chain drug stores, food stores and mass
merchandiser relationships due to the concentration of sales generated by such
chains, changes in fashion oriented color cosmetics trends, and trends in the
general economy.
Readers are cautioned not to place undo reliance on these forward-looking
statements, which reflect management's analysis, judgment, belief or expectation
only as of the date hereof. The Company undertakes no obligation to publicly
revise these forward-looking statements to reflect events or circumstances that
arise after the date hereof. In addition to the disclosure contained herein,
readers should carefully review any disclosure of risks and uncertainties
contained in other documents the Company files or has filed from time to time
with the Securities and Exchange Commission pursuant to the Exchange Act.
8
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New Accounting Pronouncements
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The Financial Accounting Standards Board issued Statement of Financial
Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS No. 133), which is effective for fiscal years beginning after
June 15, 1999. SFAS No. 133 provides guidance for accounting for all derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. The management of the Company does not
believe that the implementation of SFAS No. 133 will have a significant impact
on its financial position or results of operations.
Item 7A--Market Risk Sensitive Instruments
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The market risk inherent in the Company's market risk sensitive instruments
is the potential loss arising from adverse changes in interest rates and foreign
currency exchange rates.
Interest Rate Risk
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The Company's borrowings under the revolving credit agreement and short-term
credit lines expose earnings to changes in short-term interest rates since
interest rates on the underlying obligations are either variable or fixed for
such a short period of time as to effectively become variable. The Company
believes that a hypothetical 10% change in interest rates would not have a
material effect on earnings.
Foreign Exchange Risk
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The Company is subject to risk from changes in the foreign exchange rate for
its foreign subsidiaries which use a foreign currency as their functional
currency and is translated into U.S. dollars. Such changes result in cumulative
translation adjustments which are included in shareholders' equity and in the
determination of other comprehensive income. Intercompany transactions between
the Company and its foreign subsidiaries are recorded by the foreign
subsidiaries in their functional currency. The potential loss resulting from a
hypothetical 10% adverse change in the quoted foreign currency exchange rate
amounts to approximately $0.6 million. Actual results may differ.
Item 8--Financial Statements and Supplementary Data
- ---------------------------------------------------
See Consolidated Financial Statements and Schedule included separately
herein.
Item 9--Changes in and Disagreements with Accountants on Accounting and
- -----------------------------------------------------------------------
Financial Disclosure
- --------------------
None.
Part III
- --------
Item 10--Directors and Executive Officers of the Company
- --------------------------------------------------------
(a) The information required with respect to Directors is set forth under
the caption "Election of Directors--Information Concerning Directors" in
Company's definitive Proxy Statement for the 1999 Annual Meeting of
Stockholders to be filed pursuant to Regulation 14A and incorporated
herein by reference.
9
<PAGE>
(b) The executive officers of the Company, the positions held by them, their
ages and the years in which they began to serve in the position or office
held as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
YEAR IN
WHICH BEGAN
TO SERVE IN
POSITION OR AS
NAME POSITION AGE EXECUTIVE OFFICER
- ---- -------- --- -----------------
<S> <C> <C> <C>
Dan K. Wassong Chairman, President and Chief Executive Officer,
Director 68 1969
Charles J. Hinkaty Vice President, President of Del Pharmaceuticals,
Inc., Director 49 1985
Enzo J. Vialardi Executive Vice President, Chief Financial Officer 62 1998
William H. McMenemy Executive Vice President of Marketing, Cosmetics
Division, North America 52 1980
Harvey P. Alstodt Executive Vice President of Sales, Cosmetics
Division, North America 59 1988
James F. Lawrence Group Vice President--Operations 64 1993
Joseph Kanapka Senior Vice President--Scientific Affairs 53 1996
Shawn A. Smith Vice President--General Counsel and Secretary 40 1996
Thomas Redder Vice President--Chief Information Officer 51 1996
</TABLE>
There is no arrangement or understanding between any executive officer and
any other person pursuant to which he/she was selected as an officer. The
executive officers of the Company are elected annually at the meeting of the
Board of Directors immediately following the Annual Meeting of the
Stockholders. No family relationship exists among any of the executive officers
and directors of the Company.
During the past five years, the principal occupation and employment of each
of the Company's executive officers has been his/her service in the respective
position shown for him/her in the above table, except as follows:
Enzo J. Vialardi has been Executive Vice President and Chief Financial
Officer of the Company since August 1998. Prior to that time, he served as an
independent consultant from January 1995 to August 1998, Chief Operating Officer
of Nice-Pak Products, Inc. from April 1993 to December 1994 and Senior Vice
President at Del Laboratories, Inc. from September 1991 to March 1993.
James F. Lawrence has been Group Vice President-Operations of the Company
since April 1993. Prior to that time, Mr. Lawrence served as an independent
consultant from September 1992 to April 1993, Vice President, Operations of
Artmatic Cosmetics, Inc. from April 1991 to September 1992, Senior Vice
President, Sales and Marketing of Kolmar Laboratories, Inc., a contract
manufacturer, from April 1990 to April 1991 and President of Hazel Bishop, a
cosmetics manufacturer, from December 1987 to April 1990.
10
<PAGE>
Dr. Joseph Kanapka has been Senior Vice President-Scientific Affairs of the
Company since February 1996. From 1989 to 1996, he was employed by Unilever,
where his most recent position was Senior Principal Scientist and Head of Dental
Development for the Unilever Personal Products Group, Italy.
Shawn A. Smith has been Vice President-General Counsel of the Company since
August 1996 and Secretary of the Company since March 1998. From 1988 through
1995, she served as Secretary and Corporate Counsel of Data Switch Corporation.
Thomas Redder has served as Vice President-Chief Information Officer of the
Company since February 1996. From 1986 through 1995, he was employed by Newsday
as Vice President, Information Systems.
Item 11--Executive Compensation
- -------------------------------
The information required is set forth under the caption "Executive
Compensation" in the Company's definitive Proxy Statement for the 1999 Annual
Meeting of Stockholders to be filed pursuant to Regulation 14A and is
incorporated herein by reference.
Item 12--Security Ownership of Certain Beneficial Owners and Management
- -----------------------------------------------------------------------
The information required is set forth under the captions "Securities
Ownership of Certain Beneficial Owners" and "Election of Directors--Information
Concerning Directors" in the Company's definitive Proxy Statement for the 1999
Annual Meeting of Stockholders to be filed pursuant to Regulation 14A and is
incorporated herein by reference.
Item 13--Certain Relationships and Related Transactions
- -------------------------------------------------------
The information required is set forth under the caption "Executive
Compensation" in the Company's definitive Proxy Statement for the 1999 Annual
Meeting of Stockholders to be filed pursuant to Regulation 14A and is
incorporated herein by reference.
Part IV
- -------
Item 14--Exhibits, Financial Statement Schedules and Reports on Form 8-K
- ------------------------------------------------------------------------
a) Documents filed as part of this report:
(1) and (2) See Consolidated Financial Statements and Schedule included
herein.
(3) Exhibit Index
11
<PAGE>
<TABLE>
<CAPTION>
Item No. Item Title Exhibit No. Description
- -------- ---------- ----------- -----------
<S> <C> <C> <C>
3 Articles of 3.1(a) Restated Certificate of Incorporation as filed with the Delaware Secretary of State
Incorporation on March 29, 1996.
and By-Laws
3.2(b) Certificate of Amendment filed with the Delaware Secretary of State on June 4, 1996.
3.3(c) By-Laws as amended through December 14, 1995.
10 Material 10.1(c) Employee Pension Plan, effective January 1, 1989 (amended and restated).*
Contracts
10.2(d) Employee's Stock Ownership Plan, effective January 1, 1989.*
10.3(e) Amendment No. 1 to Employee's Stock Ownership Plan.*
10.4(c) Amendment No. 2 to Employee's Stock Ownership Plan.*
10.5(e) 1984 Stock Option Plan, as amended to date.*
10.6(f) 1994 Stock Plan.*
10.7(f) Annual Incentive Plan.*
10.8(e) Loan Agreement with Dan K. Wassong, dated as of August 22, 1984 and related promissory notes.
10.9(c) Loan Agreement with Dan K. Wassong, dated as of April 9, 1988.
10.10(g) Loan Agreement with Dan K. Wassong, dated as of November 14, 1990.
10.11(c) 401(k) Plan effective January 1, 1989(amended and restated).*
10.12(c) Supplemental Executive Retirement Plan(amended and restated).*
10.13(o) Amendment effective January 1, 1997 to Supplemental Executive Retirement Plan.*
10.14(h) Employment Agreement with Dan K. Wassong, dated as of November 13, 1992.*
10.15(c) Amendment to Employment Agreement with Dan K. Wassong, dated March 21, 1994.*
10.16 Amendment No. 2 to Employment Agreement with Dan K. Wassong, dated March 31, 1997.*
10.17(i) Loan Agreement dated as of May 26, 1993 with Jackson National Life Insurance Company and
Jackson National Life Insurance Company of Michigan.
</TABLE>
* Constitutes a "management contract or compensatory plan or arrangement"
required to be filed pursuant to Item 14 (c) of the Form 10-K.
12
<PAGE>
<TABLE>
<CAPTION>
Item No. Item Title Exhibit No. Description
- -------- ---------- ----------- -----------
<S> <C> <C> <C>
10.18(e) Employment Agreement with Charles J. Hinkaty, as amended.*
10.19(l) Amendment to Employment Agreement with Charles J. Hinkaty, dated April 22, 1996.*
10.20(e) Employment Agreement with Harvey P. Alstodt, as amended.*
10.21(m) Amendment to Employment Agreement with Harvey P. Alstodt, dated April 22, 1996.*
10.22 Amendment to Employment Agreement with Harvey P. Alstodt dated December 30, 1997.*
10.23(e) Employment Agreement with William H. McMenemy, as amended.*
10.24(n) Amendment to Employment Agreement with William H. McMenemy, dated April 22, 1996.*
10.25(e) Life Insurance Agreement with Robert H. Haines, as trustee, dated as of February 18, 1993.*
10.26(k) Lease between Registrant and Coliseum Towers Associates.
10.27(k) Purchase Money Promissory Note with Carver Boat Corporation.
10.28 Amendment to Loan Agreement, dated March 31, 1997, to the Loan Agreement, dated May 26, 1993
with Jackson National Life Insurance Company and Jackson National Life Insurance Company of
Michigan.
10.29 Employment Agreement with Enzo Vialardi, dated December 30, 1998.*
10.30 Employment Agreement with James Lawrence, dated March 1993.*
10.31 Amendment to Employment Agreement with James Lawrence, dated July 12, 1995.*
10.31 Second Amendment and Employment Agreement with James Lawrence, dated March 31, 1998.*
10.32 Amendment No. 3 to Supplemental Executive Retirement Plan.*
10.33 Loan Agreement with Chase Manhattan Bank.
21 Subsidiaries 21.1(j) Listing of Subsidiaries.
of Registrant
23 Consents of 23.1 Consent of KPMG LLP dated March 26, 1999.
Experts and
Counsel
</TABLE>
(a) These exhibits were filed on April 1, 1996 as exhibits to the Registrant's
Form 10-K for the year ended December 31, 1995 (File No. 1-5439) and are
incorporated herein by reference. The exhibit numbers in such Form 10-K are
as follows: Restated Certificate, Exhibit 1; and By-Laws, Exhibit 2.
13
<PAGE>
(b) This exhibit was filed on August 14, 1996 as an exhibit to the Registrant's
Form 10-Q for the quarter ended June 30, 1996 (File No. 1-5439) and is
incorporated herein by reference. The exhibit number in such Form 10-Q is
Exhibit 1.
(c) These exhibits were filed on March 31, 1995 as exhibits to the Registrant's
Form 10-K for the year ended December 31, 1994 (File No. 1-5439) and are
incorporated herein by reference. The exhibit numbers in such Form 10-K are
as follows: Employee Pension Plan, Exhibit 2; Amendment No. 2 to Employee's
Stock Ownership Plan, Exhibit 3; Loan Agreement with Dan K. Wassong, Exhibit
4; 401 (k) Plan, Exhibit 5; Supplemental Executive Retirement Plan, Exhibit
6; Amendment to Employment Agreement with Dan K. Wassong, Exhibit 7.
(d) This exhibit was filed on April 2, 1990 as an exhibit to the Registrant's
Form 10-K for the year ended December 31, 1989 (File No. 1-5439) and is
incorporated herein by reference. The exhibit number in such Form 10-K is
Exhibit 2.
(e) These exhibits were filed on March 31, 1994, as exhibits to the Registrant's
Form 10-K for the year ended December 31, 1993 (File No. 1-5439) and are
incorporated herein by reference. The exhibit numbers in such Form 10-K are
as follows: Amendment No. 1 to Employee's Stock Ownership Plan, Exhibit 2;
1984 Stock Option Plan, Exhibit 3; Loan Agreement with Dan K. Wassong dated
August 22, 1984, Exhibit 4; Employment Agreement with Charles J. Hinkaty,
Exhibit 5; Employment Agreement with Harvey P. Alstodt, Exhibit 6;
Employment Agreement with William H. McMenemy, Exhibit 7; Life Insurance
Agreement with Robert H. Haines, as trustee, Exhibit 9.
(f) These exhibits were filed on or about April 25, 1994, as exhibits to the
Registrant's Definitive Proxy dated April 25, 1994, relating to the
Registrant's 1994 Annual Meeting of Stockholders (File No. 1-5439) and are
incorporated herein by reference. The exhibit numbers in such Proxy
Statement are as follows: 1994 Stock Plan, Annex A; Annual Incentive Plan,
Annex B.
(g) This exhibit was filed on April 1, 1991, as an exhibit to the Registrant's
Form 10-K for the year ended December 31, 1990 (File No. 1-5439) and is
incorporated herein by reference. The exhibit number in such Form 10-K is
Exhibit 2.
(h) This exhibit was filed on March 31, 1993, as an exhibit to the Registrant's
Form 10-K for the year ended December 31, 1992 (File No. 1-5439) and is
incorporated herein by reference. The exhibit number in such Form 10-K is
Exhibit 1.
(i) This exhibit was filed on July 1, 1993, as an exhibit to the Registrant's
Current Report on Form 8-K dated June 29, 1993 (File No. 1-5439) and is
incorporated herein by reference. The exhibit number in such Form 8-K is
Exhibit 1.
(j) This exhibit was filed on March 30, 1992, as an exhibit to the Registrant's
Form 10-K for the year ended December 31, 1991 (File No. 1-5439) and is
incorporated herein by reference. The exhibit number in such Form 10-K is
Exhibit 4.
(k) These exhibits were filed on November 14, 1997 as exhibits to the
Registrant's Form 10-Q for the quarter ended September 30, 1997 (File No.
1-5439) and are incorporated herein by reference. The exhibit numbers in
such Form 10-Q are as follows: Lease between Registrant and Coliseum Towers
Associates, Exhibit 10.1; Purchase Money Promissory Note with Carver Boat
Corporation, Exhibit 10.2.
(l) This exhibit was filed on March 28, 1997, as exhibit 2 to the Registrant's
Form 10-K for the year ended December 31, 1996.
(m) This exhibit was filed on March 28, 1997, as exhibit 3 to the Registrant's
Form 10-K for the year ended December 31, 1996.
(n) This exhibit was filed on March 28, 1997, as exhibit 4 to the Registrant's
Form 10-K for the year ended December 31, 1996.
(o) This exhibit was filed on March 28, 1997, as exhibit 1 to the Registrant's
Form 10-K for the year ended December 31, 1996.
14
<PAGE>
Signatures
Pursuant to the requirements of Section 13 of 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused the report to be signed on
its behalf by the undersigned, thereunto duly authorized.
DEL LABORATORIES, INC.
(Registrant)
By /s/ Dan K. Wassong March 26, 1999
----------------------------------------------
Dan K. Wassong, Chairman, President & Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
in the capacities and on the dates indicated.
By /s/ Dan K. Wassong
------------------------- March 26, 1999
Dan K. Wassong, Chairman, President & Chief Executive
Officer (Principal Executive Officer)
By /s/ Charles Hinkaty
------------------------- March 26, 1999
Charles Hinkaty, Director, Vice President
By /s/ Martin E. Revson
------------------------- March 26, 1999
Martin E. Revson, Director
By /s/ Jack Futterman
------------------------- March 26, 1999
Jack Futterman, Director
By /s/ Robert A. Kavesh
------------------------- March 26, 1999
Robert A. Kavesh, Director
By /s/ Steven Kotler
------------------------- March 26, 1999
Steven Kotler, Director
By /s/ George Lindemann
------------------------- March 26, 1999
George Lindemann, Director
By /s/ Marcella Maxwell
------------------------- March 26, 1999
Marcella Maxwell, Director
By /s/ Enzo J. Vialardi
------------------------- March 26, 1999
Enzo J. Vialardi, Executive Vice President,
Chief Financial Officer
15
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements and Schedule
<TABLE>
<S> <C>
Independent Auditors' Report F-2
Financial Statements:
Consolidated Balance Sheets as of December 31, 1998 and 1997 F-3
Consolidated Statements of Earnings for the years ended December 31, 1998, 1997
and 1996 F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1998,
1997 and 1996 F-5
Consolidated Statements of Shareholders' Equity for the years ended December 31,
1998, 1997 and 1996 F-6
Notes to Consolidated Financial Statements F-7
Schedule:
II Valuation and Qualifying Accounts for the years ended December 31, 1998, 1997
and 1996 F-29
</TABLE>
All other schedules are omitted as the required information is inapplicable or
the information is presented in the consolidated financial statements or
related notes.
F-1
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
Del Laboratories, Inc.:
We have audited the accompanying consolidated financial statements of Del
Laboratories, Inc. and subsidiaries (the Company) as listed in the accompanying
index. In connection with our audits of the consolidated financial statements,
we also have audited the financial statement schedule as listed in the
accompanying index. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Del
Laboratories, Inc. and subsidiaries at December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
KPMG LLP
Melville, New York
February 19, 1999
F-2
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
------ ------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,730,557 $ 14,978,616
Accounts receivable, less allowance for doubtful accounts of $1,300,000 in 1998
and 1997 47,115,818 30,708,083
Inventories 55,619,832 47,687,154
Deferred income taxes, net 3,649,565 2,126,565
Prepaid expenses and other current assets 2,975,378 1,858,368
------------- -------------
Total current assets 113,091,150 97,358,786
------------- -------------
Property, plant and equipment, at cost 57,178,427 54,489,263
Less accumulated depreciation and amortization (19,263,190) (18,097,510)
------------- -------------
Net property, plant and equipment 37,915,237 36,391,753
Intangibles arising from acquisitions, net 18,449,664 8,143,875
Other assets 8,017,854 7,419,272
------------- -------------
Total assets $ 177,473,905 $ 149,313,686
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Notes payable to bank $ 3,500,000 $ -
Current portion of long-term debt 485,610 496,313
Accounts payable 35,781,224 28,501,167
Accrued liabilities 10,023,943 13,967,459
Income taxes payable 572,109 817,753
------------- -------------
Total current liabilities 50,362,886 43,782,692
Long-term pension liability, less current portion 7,895,044 5,801,308
Deferred income taxes, net 718,500 1,320,500
Long-term debt, less current portion 59,400,401 43,879,464
------------- -------------
Total liabilities 118,376,831 94,783,964
------------- -------------
------------- -------------
Shareholders' equity:
Preferred stock $.01 par value, authorized 1,000,000 shares; no shares issued - -
Common stock $1 par value, authorized 10,000,000 shares; issued 10,000,000
shares 10,000,000 10,000,000
Additional paid-in capital 1,850,617 699,000
Accumulated other comprehensive income (1,465,750) (819,146)
Retained earnings 81,203,670 71,187,777
------------- -------------
91,588,537 81,067,631
Less: Treasury stock at cost, 2,490,823 shares in 1998 and 2,378,063 shares in
1997 (31,097,213) (24,990,659)
Receivables for stock options exercised (1,394,250) (1,547,250)
------------- -------------
Total shareholders' equity 59,097,074 54,529,722
------------- -------------
Total liabilities and shareholders' equity $ 177,473,905 $ 149,313,686
------------- -------------
------------- -------------
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
F-3
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Net sales $ 274,861,637 $ 263,010,452 $ 232,951,382
Cost of goods sold 115,809,582 101,089,472 97,520,017
Selling and administrative expenses 136,158,135 136,668,570 116,426,276
-------------- -------------- --------------
Operating income 22,893,920 25,252,410 19,005,089
Interest expense 4,655,016 3,998,057 3,803,218
Interest income (222,040) (623,287) (521,067)
-------------- -------------- --------------
Interest expense, net 4,432,976 3,374,770 3,282,151
-------------- -------------- --------------
Earnings before income taxes 18,460,944 21,877,640 15,722,938
Income taxes 7,384,000 8,751,000 6,445,000
-------------- -------------- --------------
Net earnings $ 11,076,944 $ 13,126,640 $ 9,277,938
-------------- -------------- --------------
-------------- -------------- --------------
Earnings per common share:
Basic $ 1.46 $ 1.73 $ 1.25
-------------- -------------- --------------
-------------- -------------- --------------
Diluted $ 1.36 $ 1.59 $ 1.14
-------------- -------------- --------------
-------------- -------------- --------------
Weighted average common shares outstanding:
Basic 7,581,000 7,593,000 7,449,000
-------------- -------------- --------------
-------------- -------------- --------------
Diluted 8,126,000 8,250,000 8,157,000
-------------- -------------- --------------
-------------- -------------- --------------
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
F-4
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 11,076,944 $ 13,126,640 $ 9,277,938
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization 6,393,597 5,819,437 6,301,831
Deferred income taxes (2,062,000) 269,125 (1,437,053)
Provision for doubtful accounts 174,000 65,000 40,000
Other non-cash operating items (131,975) 67,679 85,661
Changes in operating assets and liabilities:
Accounts receivable (16,581,735) 8,511 (6,195,412)
Inventories (6,718,080) (13,899,407) 3,290,162
Prepaid expenses and other current assets (1,117,010) (54,611) (557,536)
Other assets and other liabilities 1,326,292 (1,992,349) 2,216,167
Accounts payable 6,966,581 11,109,182 2,190,641
Accrued liabilities (3,943,516) (927,171) 399,906
Income taxes payable 2,088,944 4,259,815 617,136
------------- ------------- -------------
Net cash (used) provided by operating activities (2,527,958) 17,851,851 16,229,441
------------- ------------- -------------
Cash flows used in investing activities:
Purchase of intangibles and other assets (11,964,598) - -
Property, plant and equipment additions (7,223,537) (10,827,246) (5,327,085)
------------- ------------- -------------
Net cash used in investing activities (19,188,135) (10,827,246) (5,327,085)
------------- ------------- -------------
Cash flows provided by (used in) financing activities:
Proceeds from borrowings 19,250,000 - -
Principal payments of long-term debt (487,076) (219,572) (70,395)
Exercise of stock options 38,203 264,507 4,393
Decrease in receivables for stock options exercised 13,000 15,672 18,344
Acquisition of treasury stock (7,323,295) (5,875,068) (4,313,371)
Dividends paid (996,911) (740,308) (584,054)
Other financing activities (4,434) - (4,500)
------------- ------------- -------------
Net cash provided by (used in) financing activities 10,489,487 (6,554,769) (4,949,583)
------------- ------------- -------------
Effect of exchange rate changes on cash (21,453) (7,167) (201)
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents (11,248,059) 462,669 5,952,572
Cash and cash equivalents at beginning of year 14,978,616 14,515,947 8,563,375
------------- ------------- -------------
Cash and cash equivalents at end of year $ 3,730,557 $ 14,978,616 $ 14,515,947
------------- ------------- -------------
------------- ------------- -------------
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
F-5
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
ADDITIONAL ACCUMULATED OTHER RECEIVABLES FOR
COMMON PAID-IN COMPREHENSIVE RETAINED TREASURY STOCK OPTIONS SHAREHOLDERS'
STOCK CAPITAL INCOME EARNINGS STOCK EXERCISED EQUITY
----------- ---------- ----------------- ----------- ------------ --------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December
31, 1995 $ 8,784,514 $2,831,970 $ (492,831) $52,659,920 $(23,867,674) $(1,894,664) $ 38,021,235
Issuance of treasury
stock upon exercise
of stock options
(385,575 shares) - (842,938 ) - - 3,118,273 - 2,275,335
Purchase of treasury
stock (313,452
shares) - - - - (6,584,313) - (6,584,313)
Income tax benefit
arising from stock
options exercised - 2,336,599 - - - - 2,336,599
Repayment of
receivables - - - - - 158,344 158,344
Dividends declared
($.105 per share) - - - (584,400) - - (584,400)
Net earnings - - - 9,277,938 - - -
Foreign currency
translation
adjustment - - (54,197) - - - -
Total comprehensive
income - - - - - - 9,223,741
Cash paid for
fractional shares - (4,500 ) - - - (4,500)
----------- ---------- ----------------- ----------- ------------ --------------- -------------
Balances at December
31, 1996 8,784,514 4,321,131 (547,028) 61,353,458 (27,333,714) (1,736,320) 44,842,041
Issuance of treasury
stock upon exercise
of stock options
(347,633 shares) - (592,898 ) - - 3,282,807 - 2,689,909
Purchase of treasury
stock (276,638
shares) - - - - (8,370,111) - (8,370,111)
Income tax benefit
arising from stock
options exercised - 3,118,206 - - - - 3,118,206
Repayment of
receivables - - - - - 189,070 189,070
Dividends declared
($.14 per share) - - - (793,915) - - (793,915)
Four-for-three stock
split (note 1(k)) 1,215,486 (6,147,439) - (2,498,406) 7,430,359 - -
Net earnings - - - 13,126,640 - - -
Foreign currency
translation
adjustment - - (272,118) - - - -
Total comprehensive
income - - - - - - 12,854,522
----------- ---------- ----------------- ----------- ------------ --------------- -------------
Balances at December
31, 1997 10,000,000 699,000 (819,146) 71,187,777 (24,990,659) (1,547,250) 54,529,722
Issuance of treasury
stock upon exercise
of stock options
(242,168 shares) - (1,178,537) - - 2,686,943 - 1,508,406
Purchase of treasury
stock (354,928
shares) - - - - (8,793,497) - (8,793,497)
Income tax benefit
arising from stock
options exercised - 2,334,588 - - - - 2,334,588
Repayment of
receivables - - - - - 153,000 153,000
Dividends declared
($.14 per share) - - - (1,061,051) - - (1,061,051)
Four-for-three stock
split-cash in lieu of
fractional shares - (4,434 ) - - - - (4,434)
Net earnings - - - 11,076,944 - - -
Foreign currency
translation
adjustment - - (540,742) - - - -
Minimum pension
liability
adjustment - - (105,862) - - - -
Total comprehensive
income - - - - - - 10,430,340
----------- ---------- ----------------- ----------- ------------ --------------- -------------
Balances at December
31, 1998 $10,000,000 $1,850,617 $(1,465,750) $81,203,670 $(31,097,213) $(1,394,250) $ 59,097,074
----------- ---------- ----------------- ----------- ------------ --------------- -------------
----------- ---------- ----------------- ----------- ------------ --------------- -------------
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
F-6
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Accounting Policies
------------------------------
(a) Description of Business
-----------------------
Del Laboratories, Inc. and subsidiaries (the Company) is a manufacturer and
distributor of cosmetics and proprietary pharmaceuticals. The principal products
in the cosmetics segment are nail care, nail color, color cosmetics, beauty
implements, personal care products and other related cosmetic items. The
principal products in the pharmaceutical segment are of a proprietary nature and
range from oral analgesics to acne treatment products and first aid products.
(b) Principles of Consolidation
---------------------------
The consolidated financial statements of the Company include the accounts of
all wholly-owned domestic and foreign subsidiaries. The net assets and results
of foreign operations are not significant to the consolidated financial
statements. The accounts of foreign subsidiaries are translated in accordance
with the provisions of Statement of Financial Accounting Standards (SFAS) No.
52, "Foreign Currency Translation." As such, balance sheet accounts are
translated at the exchange rate as of December 31, of each year and income
statement accounts are translated at average exchange rates during the period.
The resulting translation adjustments are recorded as a component of
shareholders' equity. Gains or losses resulting from foreign currency
transactions are included in other income. All intercompany accounts and
transactions have been eliminated in consolidation.
(c) Cash and Cash Equivalents
-------------------------
Cash and cash equivalents include deposits in banks, short term commercial
paper, United States Treasury bills and money market funds with an initial term
of less than three months. Cash equivalents were $695,000 and $14,181,000 as of
December 31, 1998 and 1997, respectively. For purposes of the consolidated
statements of cash flows, the Company considers all highly liquid debt
instruments with original maturities of three months or less to be cash
equivalents.
(d) Revenue Recognition
-------------------
The Company sells its products to chain drug stores, mass volume retailers,
supermarkets and wholesalers. Sales of such products are principally denominated
in U.S. dollars. The Company's accounts receivable reflect the granting of
credit to these customers. Revenues are recognized and product discounts are
recorded when merchandise is shipped. Net sales are comprised of gross revenues
less returns, trade discounts and customer allowances. Merchandise returns are
accrued at the earlier of customer deduction or receipt of goods. The Company
generally grants credit based upon analysis of the customer's financial position
and previously established buying and selling patterns.
(e) Inventories
-----------
Inventories are valued at the lower of cost (principally first-in/first-out)
or market value. The components of inventories are as follows:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Raw materials $ 26,911,795 $ 22,563,304
Work in process 6,247,489 4,325,842
Finished goods 22,460,548 20,798,008
------------- -------------
$ 55,619,832 $ 47,687,154
------------- -------------
------------- -------------
</TABLE>
F-7
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(f) Property, Plant and Equipment
-----------------------------
The Company provides for depreciation on the straight-line method over the
estimated useful lives of the assets. The range of estimated lives applicable to
the assets are as follows:
<TABLE>
<S> <C>
Building and building improvements 10 to 50 years
Machinery and equipment 3 to 15 years
Furniture and fixtures 3 to 10 years
</TABLE>
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(g) Income Taxes
------------
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(h) Research and Development
------------------------
The Company has expended $4,927,000, $5,038,000 and $4,559,000 during 1998,
1997 and 1996, respectively, for research and development relating to the
development of new products, clinical and regulatory affairs, and quality
control/assurance of the Company's product lines. All costs associated with
research and development are expensed as incurred and included in selling and
administrative expenses in the accompanying consolidated statements of earnings.
(i) Advertising Costs
-----------------
Advertising costs are expensed as incurred. Advertising expenses were
approximately $31,000,000, $33,000,000 and $27,000,000 in 1998, 1997 and 1996,
respectively.
(j) Earnings Per Share
------------------
Earnings per share is computed in accordance with the provisions of SFAS No.
128, "Earnings per Share," which was effective for the Company as of December
31, 1997. As required by SFAS No. 128, earnings per share for all prior periods
presented have been restated. Basic earnings per share is computed by dividing
income available to common shareholders (which for the Company equals its
recorded net income) by the weighted average number of common shares outstanding
during the period. For the years ended December 31, 1998, 1997 and 1996, the
weighted average number of common shares outstanding was 7,581,000, 7,593,000
and 7,449,000, respectively. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to issue common
stock, such as stock options, were exercised, converted into common stock or
otherwise resulted in the issuance of common stock. For the years ended December
31, 1998, 1997 and 1996, the weighted average number of shares of diluted common
stock outstanding was 8,126,000, 8,250,000 and 8,157,000, respectively.
(k) Stock Splits
------------
On February 6, 1998, the Company's Board of Directors approved a
four-for-three common stock split to be distributed in the form of a stock
dividend. As a result, 1,908,377 shares were issued on March 10, 1998 to
shareholders of record on February 20, 1998, of which 692,891 shares
represented treasury stock of the Company. Accordingly, the effect of the
four-for-three stock split has been reflected on the consolidated balance
sheet and consolidated statement of shareholders' equity as of December 31,
1997. In addition, all references to number of shares, per share amounts and
stock option data, excluding share and per share amounts reflected on the
consolidated statement of shareholders' equity for the years ended December
31, 1997 and 1996, have been restated. In connection with the stock dividend,
treasury stock was reduced by $7,430,359, with a corresponding reduction in
retained earnings of $2,498,406 and a reduction in additional paid-in-capital
of $6,147,439 as of December 31, 1997.
On October 29, 1996, the Company's Board of Directors approved a
four-for-three split of the Company's common stock which was effective
November 8, 1996 in the form of a stock dividend. All share, per share and
conversion amounts relating to common stock and stock options included in the
accompanying consolidated financial statements and footnotes have been
restated to reflect the stock split.
F-8
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(l) Stock Option Plan
-----------------
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees", and related interpretations, in accounting for
its fixed plan stock options. As such, compensation expense would be recorded on
the date of grant only if the current market price of the underlying stock
exceeded the exercise price.
(m) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of
-----------------------------------------------------------------------
The Company accounts for long-lived assets in accordance with the provisions
of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of". This Statement requires that long-lived
assets and certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amounts of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceed the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell. Adoption of SFAS No. 121 on January 1, 1996 gave rise to a charge
to income of $2,775,000 (note 4) in the year ended December 31, 1996.
(n) Reclassifications
-----------------
Certain reclassifications were made to prior year amounts to conform with
the 1998 presentation.
(o) Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
(2) Supplemental Cash Flow Information
----------------------------------
The following is supplemental information relating to the consolidated
statements of cash flows:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash transactions:
Interest $ 4,591,000 $ 3,805,000 $ 3,804,000
------------ ------------ ------------
------------ ------------ ------------
Income taxes $ 7,630,000 $ 4,171,000 $ 7,173,000
------------ ------------ ------------
------------ ------------ ------------
Non-cash transactions:
Income tax benefit arising from stock options exercised $ 2,335,000 $ 3,118,000 $ 2,337,000
------------ ------------ ------------
------------ ------------ ------------
Purchase of North Carolina property - $ 4,403,000 -
------------ ------------ ------------
------------ ------------ ------------
Shares tendered to exercise stock options $ 1,470,000 $ 2,495,000 $ 2,271,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
F-9
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(3) Property, Plant and Equipment
-----------------------------
The components of property, plant and equipment, at cost, are as follows:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Land $ 2,829,295 $ 2,790,479
Building & building improvements 17,175,319 16,982,845
Machinery & equipment 30,031,476 29,569,208
Furniture & fixtures 7,142,337 5,146,731
------------- -------------
$ 57,178,427 $ 54,489,263
------------- -------------
------------- -------------
</TABLE>
Depreciation expense for the years ended December 31, 1998, 1997 and 1996 was
$5,700,053, $5,466,462 and $5,539,631, respectively.
In 1997, the Company purchased for $4,678,000 land and buildings in North
Carolina to be used as a warehouse and distribution center, which replaced
the Company's leased facility in Huntington, New York.
(4) Impairment of Long-Lived Assets
-------------------------------
In the fourth quarter of 1996 the Company concluded that the recoverability
of the carrying value of long-lived assets associated with its Naturistics
brand of bath & body care and its Propa pH brand, was impaired. The initial
non-cash charge upon the adoption of SFAS No. 121 was $2,775,000 ($1,842,000
after tax or $.25 basic earnings per common share and $.23 diluted earnings
per common share), which included $2,275,000 of tools, dies, molds and
displays associated with the Naturistics brand of bath & body care and
$500,000 of goodwill associated with Propa pH. Of the $2,775,000 non-cash
charges, $902,000 was charged to cost of sales, while $1,873,000 was charged
to selling and administrative expenses. During 1998 and 1997, purchases for
Naturistics bath & body care, tools, dies, molds and displays of $732,000 and
$725,000, respectively, were charged to cost of sales, and $710,000 and
$2,861,000, respectively, were charged to selling and administrative expenses.
This initial charge resulted from the Company grouping assets at a lower
level than under its previous accounting policy for evaluating and measuring
impairment. Under the Company's previous policy, each of the segment's
long-lived assets to be held and used by the segment were evaluated as a
group for impairment. Because of the strong operating performance and
prospects for each segment, no impairment evaluation had been required in the
past under the Company's previous accounting policy. This initial charge
represented a reduction of the carrying amounts of the impaired assets (as
defined in note 1) to their estimated fair value, as determined by using
discounted estimated cash flows. Considerable management judgment is
necessary to estimate discounted future cash flows. Accordingly, actual
results could vary significantly from such estimates.
(5) Intangibles Arising from Acquisitions
-------------------------------------
Intangibles represent the excess of the purchase prices paid for companies
and product lines over amounts assigned to net tangible assets. Total
intangibles related to acquisitions prior to 1971 amount to $6,660,000, of
which $378,000 was written off in 1995 due to a diminution in value. The
remaining $6,282,000 has been determined to be recoverable under the
provisions of SFAS No. 121, therefore, no amortization has been provided for
this amount. The portion of intangibles, $3,350,000, acquired in 1980,
attributable to Propa pH, had been amortized using the straight-line method
over 30 years. In 1996, the Company reduced the carrying value of goodwill
associated with the Propa pH brand by $500,000, which is included in
amortization expense, and accelerated amortization of the remaining net book
value ($1,015,000 at December 31, 1996) over a five-year period. The
trademarks acquired in 1984, $3,000,000, are being amortized using the
straight-line method over 20 years. In 1998, the Company acquired the
intellectual property rights and other assets of the Corn Silk brand of
facial make-up for approximately $10.9 million and $1.0 million in cash,
respectively. The intellectual property rights are being amortized over 20
years.
Accumulated amortization amounted to $5,559,773, $4,866,229 and $4,513,254 at
December 31, 1998, 1997 and 1996, respectively. Amortization expense amounted
to $693,544, $352,975 and $762,200 for the years ended December 31, 1998,
1997 and 1996, respectively.
F-10
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(6) Income Taxes
------------
The components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
1998 Federal State Foreign Total
- ---- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Current tax $ 8,107,000 $ 1,011,000 $ 328,000 $ 9,446,000
Deferred tax (1,780,000) (282,000) - (2,062,000)
------------ ------------ ----------- ------------
$ 6,327,000 $ 729,000 $ 328,000 $ 7,384,000
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
1997
- ----
Current tax $ 7,206,000 $ 988,000 $ 288,000 $ 8,482,000
Deferred tax 241,000 28,000 - 269,000
------------ ------------ ----------- ------------
$ 7,447,000 $ 1,016,000 $ 288,000 $ 8,751,000
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
1996
- ----
Current tax $ 7,102,000 $ 706,000 $ 74,000 $ 7,882,000
Deferred tax (1,295,000) (142,000) - (1,437,000)
------------ ------------ ----------- ------------
$ 5,807,000 $ 564,000 $ 74,000 $ 6,445,000
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
</TABLE>
In the fourth quarter of 1998, the Company revised its 1998 projected
effective tax rate from 41% to 40% resulting in an additional tax benefit of
$180,000. Total income tax expense differed from the statutory United States
Federal income tax rate of 35% for the years ended December 31, 1998 and 1997
and 34% for the year ended December 31, 1996 of earnings before income taxes
as a result of the following items:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Tax provision at statutory rate $ 6,461,000 $ 7,658,000 $ 5,425,000
Increases in taxes resulting from:
State income taxes, net of Federal income tax benefit 474,000 661,000 373,000
Amortization of intangibles 225,000 225,000 208,000
Other, net 224,000 207,000 439,000
------------ ------------ ------------
Actual provision for income taxes $ 7,384,000 $ 8,751,000 $ 6,445,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
F-11
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. For presentation
purposes, certain of such tax assets and liabilities are shown net on the
accompanying balance sheets. Significant components of the Company's deferred
tax assets and liabilities as of December 31, are as follows:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to allowance for doubtful accounts $ 470,000 $ 470,000
Supplemental Executive Retirement Plan (SERP) expense, principally due to
accrual for financial statement purposes 1,291,000 988,000
Inventory, principally due to reserves 2,442,000 1,294,000
Pension accrual for financial reporting purposes 1,233,000 763,000
Sales discounts and returns, coupon redemptions and other 1,043,000 684,000
------------- -------------
Total gross deferred tax assets 6,479,000 4,199,000
Less valuation allowance - -
------------- -------------
Net deferred tax assets 6,479,000 4,199,000
------------- -------------
Deferred tax liabilities:
Property, plant and equipment, principally due to differences in depreciation
methods (3,243,000) (2,923,000)
Other (305,000) (470,000)
------------- -------------
Total gross deferred tax liabilities (3,548,000) (3,393,000)
------------- -------------
Net deferred tax asset $ 2,931,000 $ 806,000
------------- -------------
------------- -------------
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income over the
periods which the deferred tax assets are deductible, management believes it is
more likely than not the Company will realize the benefits of these deductible
differences.
F-12
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(7) Debt
----
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Maturing within one year
- ------------------------
Current portion of long-term debt $ 485,610 $ 496,313
Notes payable under lines of credit 3,500,000 -
------------- -------------
$ 3,985,610 $ 496,313
------------- -------------
------------- -------------
Long-term debt
- --------------
9.5% senior notes $ 40,000,000 $ 40,000,000
Notes payable under revolving credit agreement 15,750,000 -
Purchase money promissory note 4,136,011 4,375,777
------------- -------------
$ 59,886,011 $ 44,375,777
Less current portion 485,610 496,313
------------- -------------
$ 59,400,401 $ 43,879,464
------------- -------------
------------- -------------
</TABLE>
The senior notes, as amended, require annual principal repayments of
$8,000,000 beginning May 31, 2001 through May 31, 2005. The terms of the
agreement include covenants which provide, among other things, for the
maintenance of certain financial covenants and ratios relating to consolidated
net worth and working capital, as well as restrictions on cash dividends and
certain other expenditures. During 1997, this agreement was amended, which
increased the limit on amounts available for dividends and the repurchase of
treasury stock. At December 31, 1998, amounts available for dividends and the
repurchase of treasury stock was approximately $4,276,000. The Company was in
compliance with all covenants at December 31, 1998.
In conjunction with the 1997 purchase of land and buildings in North
Carolina (note 3), the Company issued a non-interest bearing purchase money
promissory note to the seller of the property for $5,225,000 which is
collateralized by the land and buildings in North Carolina. The Company recorded
the note payable at its present value using an interest rate of 7.3% which
approximated the Company's incremental borrowing rate. Interest expense is being
recognized over the term of the note based upon the effective yield method. The
repayment terms of the note include $1,375,000 to be repaid over three years
($225,000 in 1997, $525,000 in 1998, $500,000 in 1999 and $125,000 in 2000) and
a single lump sum payment of $3,850,000 due on May 15, 2000.
In December 1998, the Company entered into a four year credit agreement with
a bank providing a $20,000,000 revolving credit facility which expires in 2002.
Under the terms of the agreement, interest rates on borrowings are based on, at
the Company's option, LIBOR, prime or federal funds rates. The terms of the
agreement include a commitment fee based on unutilized amounts, and covenants
which provide, among other things, for the maintenance of financial covenants
and ratios relating to consolidated net worth, as well as restrictions on cash
dividends and certain other expenditures. No compensating balances are required.
The Company was in compliance with all covenants at December 31, 1998. The
weighted-average interest rate at December 31, 1998 was 6.5%.
The aggregate maturities of long-term debt for each of the five years
subsequent to December 31, 1998, including amounts outstanding under the
revolving credit agreement, are as follows: 1999, $500,000; 2000, $3,975,000;
2001, $8,000,000; 2002, $23,750,000; and 2003, $8,000,000.
(8) Financing Arrangements
----------------------
At December 31, 1998, the Company had arrangements with banks providing
$17,500,000 of lines of credit. These lines, which are renewable annually, are
currently in force and are expected to be renewed at their respective expiration
dates. Borrowings under these lines at December 31, 1998 were $3,500,000 and
were refinanced in January 1999 under the four year revolving credit facility.
There were no borrowings under these lines during the years ended December 31,
1997 and 1996. No compensating balances are required for these lines or for
drawings thereunder and there are no restrictive covenants.
F-13
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(9) Employee Retirement Plans
-------------------------
(a) Pension Plans
-------------
The Company maintains two non-contributory defined benefit pension plans
covering all U.S. eligible employees. The Del Non-Union Plan formula is based on
years of service and the employee's compensation during the five years before
retirement. The Del LaCross Union Plan formula is based on years of service. The
Company made contributions to these plans of $519,000, $606,000 and $586,000 for
the years 1998, 1997 and 1996. Assets held by these plans consist of cash and
cash equivalents, fixed income securities, consisting of U.S. government and
corporate bonds, and common stocks. The Company also has a defined benefit
supplemental executive retirement plan (SERP) for certain of its executives. The
SERP is a non-qualified plan under the Internal Revenue Code. The plan assets of
the SERP, which were approximately $2,105,000 and $1,710,000 as of December 31,
1998 and 1997, are considered assets of the Company and, as such, are included
in other assets on the accompanying consolidated balance sheets. The assets of
the SERP, which consist of cash and cash equivalents and U.S. government bonds,
are held-to-maturity securities and, as such, are carried at cost plus accrued
interest. The Company made contributions to the SERP of $265,000 and $750,000 in
1998 and 1997, respectively.
Total pension expense for the years ended December 31, 1998, 1997 and 1996
amounted to approximately $1,736,000, $1,826,000 and $1,587,000,
respectively. The change in benefit obligation, change in plan assets and
funded status as of December 31, 1998 and 1997 and components of net periodic
cost for the years ended December 31, 1998, 1997 and 1996 of the Company's
domestic plans are set forth in the following tables:
<TABLE>
<CAPTION>
1998
------------------------------------------
<S> <C> <C> <C>
Del Non- Del LaCross
Union Plan Union Plan SERP
------------- ------------ -------------
Change in benefit obligation:
Benefit obligation at the beginning of the year $ 14,271,480 $ 1,044,667 $ 3,475,818
Service cost 963,336 21,418 49,694
Interest cost 996,031 71,603 316,291
Plan amendments - 9,786 938,546
Actuarial loss 729,738 21,816 275,327
Benefits paid (565,854) (59,633) (7,790)
------------- ------------ -------------
Benefit obligation at the end of the year 16,394,731 1,109,657 5,047,886
------------- ------------ -------------
Change in plan assets:
Fair value of assets at the beginning of the year $ 12,190,109 $ 508,921 -
Actual return on plan assets 2,478,540 19,748 -
Employer contributions 468,750 50,000 -
Benefits paid (565,854) (59,633) -
------------- ------------ -------------
Fair value of assets at the end of the year 14,571,545 519,036 -
------------- ------------ -------------
Funded status $ (1,823,186) $ (590,621) $ (5,047,886)
Unrecognized transition (assets) obligation (252,241) 74,329 -
Unamortized prior service cost 429,727 53,233 1,826,539
Unrecognized net actuarial (gain) loss (908,745) 168,862 119,813
------------- ------------ -------------
Net amount recognized $ (2,554,445) $ (294,197) $ (3,101,534)
------------- ------------ -------------
------------- ------------ -------------
Amounts recognized in the balance sheet consist of:
Accrued benefit liability $ (2,554,445) $ (590,621) $ (4,912,188)
Intangible assets - 127,562 1,810,654
Accumulated other comprehensive income - 168,862 -
------------- ------------ -------------
Net amount recognized $ (2,554,445) $ (294,197) $ (3,101,534)
------------- ------------ -------------
------------- ------------ -------------
</TABLE>
F-14
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
1997
--------------------------------------------
Del Non- Del LaCross
Union Plan Union Plan SERP
-------------- ------------- -------------
<S> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at the beginning of the year $ 14,843,169 $ 1,068,293 $ 2,558,003
Service cost 1,020,529 22,419 46,209
Interest cost 888,092 70,859 224,367
Plan amendments - 23,040 905,706
Actuarial (gain) (2,000,858) (86,454) (258,467)
Benefits paid (479,452) (53,490) -
-------------- ------------- -------------
Benefit obligation at the end of the year 14,271,480 1,044,667 3,475,818
-------------- ------------- -------------
Change in plan assets:
Fair value of assets at the beginning of the year $ 10,316,157 $ 507,359 -
Actual return on plan assets 1,784,654 18,052 -
Employer contributions 568,750 37,000 -
Benefits paid (479,452) (53,490) -
-------------- ------------- -------------
Fair value of assets at the end of the year 12,190,109 508,921 -
-------------- ------------- -------------
Funded status $ (2,081,371) $ (535,746) $ (3,475,818)
Unrecognized transition (assets) obligation (314,817) 99,106 -
Unamortized prior service cost 485,883 53,632 1,153,098
Unrecognized net actuarial (gain) loss (128,832) 128,616 (124,480)
-------------- ------------- -------------
Net amount recognized $ (2,039,137) $ (254,392) $ (2,447,200)
-------------- ------------- -------------
-------------- ------------- -------------
Amounts recognized in the balance sheet consist of:
Accrued benefit obligation $ (2,039,137) $ (739,072) $ (3,556,849)
Intangible assets - 484,680 1,109,649
-------------- ------------- -------------
Net amount recognized $ (2,039,137) $ (254,392) $ (2,447,200)
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
1998
--------------------------------------------
Del Non- Del LaCross
Union Plan Union Plan SERP
-------------- ------------- -------------
<S> <C> <C> <C>
Components of net periodic cost:
Service cost $ 963,336 $ 21,418 $ 48,767
Interest cost 996,031 71,603 327,482
Expected return on plan assets (968,889) (39,994) -
Amortization of unrecognized transition (assets) obligations (62,576) 24,776 -
Recognized prior service cost 56,156 10,185 265,106
Recognized net losses - 1,817 20,769
-------------- ------------- -------------
Net periodic cost $ 984,058 $ 89,805 $ 662,124
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>
F-15
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
1997
-------------------------------------
Del Non- Del LaCross
Union Plan Union Plan SERP
------------ ----------- ----------
<S> <C> <C> <C>
Components of net periodic cost:
Service cost $ 1,020,529 $ 22,419 $ 53,381
Interest cost 888,092 70,859 207,823
Expected return on plan assets (828,793) (40,069) -
Amortization of unrecognized transition (assets) obligations (62,576) 24,776 -
Recognized prior service cost 56,156 9,206 171,251
Recognized net losses 191,386 20,789 20,769
------------ ----------- ----------
Net periodic cost $ 1,264,794 $ 107,980 $ 453,224
------------ ----------- ----------
------------ ----------- ----------
</TABLE>
<TABLE>
<CAPTION>
1996
-------------------------------------
Del Non- Del LaCross
Union Plan Union Plan SERP
------------ ----------- ----------
<S> <C> <C> <C>
Components of net periodic cost:
Service cost $ 902,914 $ 22,892 $ 29,339
Interest cost 802,656 60,209 143,132
Expected return on plan assets (734,832) (37,880) -
Amortization of unrecognized transition (assets) obligations (62,576) 24,776 -
Recognized prior service cost 56,156 6,902 88,020
Recognized net losses 252,304 12,007 21,286
------------ ----------- ----------
Net periodic cost $ 1,216,622 $ 88,906 $ 281,777
------------ ----------- ----------
------------ ----------- ----------
</TABLE>
The weighted-average actuarial assumptions used as of December 31, 1998,
1997 and 1996 were:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Discount rates 6.75% 7.00% 6.00%
Rate of compensation increase 5.50% 5.50% 5.50%
Expected long-term rate of return on plan assets 9.00% 8.00% 8.00%
</TABLE>
The Company contributes to a multi-employer pension plan for the benefit of
its union employees not covered by the above plans. This plan is a defined
benefit plan based on years of service. The costs recognized for the years ended
December 31, 1998, 1997 and 1996 were approximately $430,000, $447,000 and
$394,000, respectively.
Effective January 1, 1991, the Company established a defined contribution
plan for the benefit of its Canadian employees not covered by the above plans.
The costs recognized for the years ended December 31, 1998, 1997 and 1996 were
approximately $60,000, $57,000 and $54,000 in U.S. dollars, respectively.
F-16
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(b) Employee Stock Ownership Plan
-----------------------------
The Company has an employee stock ownership plan and related trust, covering
substantially all full-time non-union employees. Under the terms of the plan,
the Company may make contributions to the trust in cash, shares of Company stock
or other property in amounts as may be determined by the Board of Directors. The
Board of Directors authorized contributions of $525,000 and $800,000 for the
years ended December 31, 1997 and 1996, respectively. At December 31, 1998 the
trust held 488,000 shares of Company common stock.
(c) Employee 401(k) Savings Plan
----------------------------
The Company maintains an Employee 401(k) Savings Plan. The plan is a defined
contribution plan which is administered by the Company. All regular, full-time
employees are eligible for voluntary participation upon completing six months of
service and having attained the age of twenty-one. The plan provides for growth
in savings through contributions and income from investments. It is subject to
the provisions of the Employee Retirement Income Security Act of 1974 (ERISA),
as amended. Plan participants are allowed to contribute a specified percentage
of their base salary. However, the Company retains the right to make optional
contributions for any plan year. No such optional contributions were made for
the years ended December 31, 1998, 1997 and 1996.
(10) Shareholders' Equity
--------------------
(a) Stock Option Plans
------------------
The 1994 Stock Plan (the 1994 Plan) provides for the granting of incentive
and non-incentive options and other stock-based awards. A total of 1,521,978
shares have been authorized for issuance under the 1994 Plan. At December 31,
1998, non-incentive options have been the only awards issued under the 1994
Plan. The exercise price of options granted under the 1994 Plan shall not be
less than the fair market value of the common stock at the date of the grant.
The Compensation Committee of the Board of Directors (the Committee) determines
the persons to whom options will be granted, the prices at which options may be
exercised, the vesting period and whether the options will be incentive or
non-incentive. Incentive options, if granted, are exercisable for a period of up
to ten years from the date of the grant. The exercise price of the shares to be
purchased shall be paid either in cash, delivery (i.e., surrender) of shares of
common stock owned by the optionee at the time of exercise of the option, in
installments payable in cash if permitted by the Committee or in any combination
of the foregoing.
Shares received by an optionee upon exercise of a non-incentive option may
not be sold or otherwise disposed of for a period (restricted period) determined
by the Committee upon grant of the option, which shall be not less than six
months or more than three years from the date of the exercise, during which
period the Company is entitled, in the event the employment of the optionee with
the Company terminates, to repurchase the shares at the exercise price.
Following the restricted period, the Company shall have a right of first refusal
to purchase the shares at fair market value. Shares issuable upon exercise of
options granted to date under the 1994 Plan are subject to a six month
restricted period. At December 31, 1998, 783,139 of the 1,223,239 options
outstanding were exercisable under the 1994 Plan, at a weighted-average exercise
price of $13.47.
The 1984 Stock Option Plan, as amended (the 1984 Plan), provided for the
granting of incentive and non-incentive options to purchase shares of the
Company's common stock at prices which are not less than the fair market value
of the common stock at the dates of grant. Options are exercisable as determined
by
F-17
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
the Committee for a period up to ten years and one day from the date of grant.
Incentive options granted to a 10% stockholder must be granted at 110% of fair
market value and may be exercised up to five years from the date of grant.
Payment of the exercise price of options may be made in the same manner as
provided by the 1994 Plan, and shares issued upon exercise are subject to a
restricted period similar to that provided under the 1994 Plan. At December 31,
1998, all 487,837 options outstanding under the 1984 Plan were exercisable at a
weighted-average exercise price of $5.09. No further options will be granted
under the 1984 Plan.
Limited stock appreciation rights also may be granted under the 1994 Plan
and 1984 Plan, which will be effective only upon a change in control of the
Company (as defined). These plans also accelerate the exercisability of all
unexercised options or stock appreciation rights immediately in the event of a
change in control of the Company.
Shares outstanding, option prices and option transactions during the last
three years, are summarized below:
<TABLE>
<CAPTION>
1994 Stock Plan
-----------------------------
<S> <C> <C>
Weighted-average
Shares exercise price
---------- -----------------
Outstanding December 31, 1995 634,668 $ 11.02
Granted 319,243 15.76
Exercised (2,180) 10.73
Forfeited (4,469) 11.97
----------
Outstanding December 31, 1996 947,262 12.61
Granted 303,667 23.77
Exercised (80,311) 9.81
Forfeited (86,842) 18.40
----------
Outstanding December 31, 1997 1,083,776 15.48
Granted 195,055 26.06
Exercised (28,265) 14.05
Forfeited (27,327) 26.49
----------
Outstanding December 31, 1998 1,223,239 $ 16.71
----------
----------
</TABLE>
<TABLE>
<CAPTION>
1984 Stock Option Plan
-----------------------------
<S> <C> <C>
Weighted-average
Shares exercise price
---------- -----------------
Outstanding December 31, 1995 1,596,863 $ 4.85
Granted - -
Exercised (511,920) 4.40
Forfeited - -
----------
Outstanding December 31, 1996 1,084,943 5.06
Granted - -
Exercised (383,200) 4.96
Forfeited - -
----------
Outstanding December 31, 1997 701,743 5.12
Granted - -
Exercised (213,903) 5.20
Forfeited (3) 4.67
----------
Outstanding December 31, 1998 487,837 $ 5.09
----------
----------
</TABLE>
At December 31, 1998, a total of 1,711,076 shares of common stock were
subject to outstanding options under all stock option plans.
F-18
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The Company applies APB Opinion No. 25 and interpretations in accounting for
stock option plans. Accordingly, no compensation cost has been recognized. Had
compensation cost for the stock option plans been determined based on the fair
value at the grant dates for awards under the plans, consistent with the
alternative method set forth under SFAS No. 123, "Accounting for Stock-Based
Compensation", the Company's net earnings and net earnings per share would have
been reduced. The pro forma amounts are indicated below:
<TABLE>
<CAPTION>
Year Ended December 31 1998 1997 1996
- --------------------------------------------------------------------- ------------- ------------- ------------
<S> <C> <C> <C>
Net earnings
As reported $ 11,077,000 $ 13,127,000 $ 9,278,000
Pro forma $ 10,076,000 $ 12,488,000 $ 8,283,000
Basic net earnings per share
As reported $ 1.46 $ 1.73 $ 1.25
Pro forma $ 1.33 $ 1.64 $ 1.11
Diluted net earnings per share
As reported $ 1.36 $ 1.59 $ 1.14
Pro forma $ 1.24 $ 1.51 $ 1.02
</TABLE>
The fair value of each option grant was estimated at the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions for 1998, 1997 and 1996, respectively: dividend yields .58%, .46%,
and .50%; expected lives of 5.5, 5.3 and 5.1 years; risk-free interest rates of
5.02%, 6.40% and 6.08%; and expected volatility of 39.0%, 26.6% and 25.5%. The
weighted-average fair value of options granted during 1998, 1997 and 1996 were
$10.21, $8.60 and $5.33, respectively.
The following table summarizes information about stock options at December
31, 1998:
<TABLE>
<CAPTION>
Exercisable stock
Outstanding stock options options
------------------------------------------------ -----------------------
<S> <C> <C> <C> <C> <C>
Weighted-
Weighted- Weighted-average average
Range of remaining exercise exercise
exercise prices Shares contractual life price Shares price
- ------------------ ---------- ----------------- ----------------- ---------- -----------
$ 0.01 to $ 4.00 135,626 2.21 $ 3.05 135,626 $ 3.05
$ 4.01 to $ 8.00 457,983 2.70 $ 6.21 457,983 $ 6.21
$ 8.01 to $12.00 168,968 3.88 $ 11.41 168,305 $ 11.41
$12.01 to $16.00 499,313 4.72 $ 14.09 418,003 $ 13.79
$16.01 to $20.00 89,745 5.40 $ 18.50 29,416 $ 17.83
$20.01 to $24.00 148,109 5.73 $ 21.94 35,426 $ 22.13
$24.01 to $28.00 115,024 8.05 $ 25.20 2,473 $ 26.71
$28.01 to $32.00 96,308 6.97 $ 29.90 23,744 $ 30.15
------------------------------------------------------------------------
$ 0.01 to $32.00 1,711,076 4.37 $ 13.39 1,270,976 $ 10.25
------------------------------------------------------------------------
------------------------------------------------------------------------
</TABLE>
F-19
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(b) Receivables for Stock Options Exercised
---------------------------------------
In 1984, the Company loaned an officer $367,000 in connection with the
payment of taxes arising from the exercise of stock options (the 1984 Loan).
The Company also loaned the officer $1,065,313 in 1988 (the 1988 Loan) and
$1,100,000 in 1990 (the 1990 Loan), each in connection with the exercise of
stock options and the tax liability arising therefrom. These loans were
payable in annual installments. In addition, the 1988 Loan and the 1990 Loan
agreements provided that, if the officer was employed by the Company at the
time any interest or debt payments were due, such payment would be forgiven.
Pursuant to an amendment to this officer's employment agreement, the 1984
Loan, the 1988 Loan and the 1990 Loan were consolidated, effective as of January
1, 1994, with the aggregate principal balance to be repaid, with interest at the
rate of 6.0% per annum, in annual amounts of $140,000 for each year during the
period from 1995 through 2005 and a final payment of $362,250 on January 20,
2006, provided that each payment of interest and principal will be forgiven when
due so long as the officer is then employed by, or then serves as a consultant
to the Company and, provided further, that the Company may (but is not required
to) forgive, during any year until 2005, in excess of $140,000 of principal, so
long as the aggregate of principal and interest forgiven by the Company in any
such year shall not exceed $360,000. This loan must be secured by collateral
with a fair value of 110% of the unpaid principal. The loan balance at December
31, 1998 was $1,342,250 and was collateralized by 77,331 shares of the Company's
common stock.
During 1992, the Company loaned another officer $130,000 to enable him to
exercise an option for 9,719 shares. The loan bears interest at the prime rate
and is payable in quarterly installments. The loan balance at December 31, 1998
was $52,000 and was secured by a pledge of 8,500 shares of the Company's common
stock.
The balance of all loans made to officers and employees is reflected as a
reduction of shareholders' equity in the accompanying consolidated financial
statements.
(11) Accrued Liabilities
-------------------
Accrued liabilities at December 31, 1998 and 1997 consisted of the
following:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Salaries, wages, commissions & employee benefits $ 2,432,968 $ 3,618,762
Interest 381,036 316,667
Advertising and promotion costs 3,994,744 7,113,385
Other 3,215,195 2,918,645
------------- -------------
$ 10,023,943 $ 13,967,459
------------- -------------
------------- -------------
</TABLE>
F-20
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(12) Earnings Per Share
------------------
A reconciliation between the numerators and denominators of the basic and
diluted income per common share is as follows:
<TABLE>
<CAPTION>
(Amounts in thousands, except
per share data)
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
Net earnings (numerator) $ 11,077 $ 13,127 $ 9,278
--------- --------- ---------
Weighted-average common shares (denominator for basic earnings per share) 7,581 7,593 7,449
Effect of dilutive securities:
Employee stock options 545 657 708
Weighted-average common and potential common shares outstanding (denominator for
diluted earnings per share) 8,126 8,250 8,157
--------- --------- ---------
Basic earnings per share $ 1.46 $ 1.73 $ 1.25
--------- --------- ---------
Diluted earnings per share $ 1.36 $ 1.59 $ 1.14
--------- --------- ---------
</TABLE>
Employee stock options for 124,000, 107,000 and 261,000 shares for the years
ended December 31, 1998, 1997 and 1996, respectively, were not included in the
net earnings per share because their effect would have been anti-dilutive.
F-21
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(13) Commitments and Contingencies
-----------------------------
In June 1997, the Company entered into a settlement agreement with respect
to a shareholders' derivative action against members of the Company's Board of
Directors in which, among other things, the Company's insurance carrier agreed
to pay $400,000 to the Company on behalf of the individual defendants, and the
Company paid $150,000 in connection with plaintiff's attorney's fees. The
stipulation of settlement expressly acknowledges that the settlement does not
constitute an admission by the defendants of any liability or wrongdoing by
them, but was entered into by the defendants to avoid the burden and costs of
further litigation.
The Company is involved in various other claims and legal actions arising in
the ordinary course of business, including environmental matters. In the opinion
of management, the ultimate disposition of these matters will not have a
material adverse effect on the Company's consolidated financial position,
results of operations or liquidity.
The Company leases executive office space, furniture, data processing
equipment, transportation equipment and warehouse space under terms of leases
expiring through 2004. Rentals under these operating leases aggregated
approximately $2,439,000, $2,491,000 and $1,993,000 in the years ended
December 31, 1998, 1997 and 1996, respectively. The Company's obligations
under non-cancelable leases are summarized as follows:
<TABLE>
<S> <C>
1999 $ 2,467,274
2000 2,272,969
2001 2,119,433
2002 1,951,389
2003 1,467,479
Thereafter 1,328,896
-----------
$11,607,440
-----------
-----------
</TABLE>
(14) Financial Instruments
---------------------
The carrying value of all financial instruments classified as a current
asset or current liability are deemed to approximate fair value because of the
short maturity of these instruments.
The difference between the fair value of long-term debt and its carrying
value at December 31, 1998 is approximately $5,000,000. The fair value of
long-term debt is based upon discounted cash flows using rates available to the
Company for debt with similar terms and maturities. The Company continually
evaluates the benefits of refinancing versus the related prepayment penalties.
Because considerable judgement is required in interpreting market data to
develop estimates of fair value, the estimates are not necessarily indicative of
the amounts that could be realized or would be paid in a current market
exchange. The effect of using different market assumptions or estimation
methodologies may be material to the estimated fair value amount.
F-22
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(15) Comprehensive Income (Loss)
---------------------------
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income". This Statement requires that all items recognized
under accounting standards as components of comprehensive income be reported
in a financial statement that is displayed with the same prominence as other
financial statements. Other comprehensive income may include foreign currency
translation adjustments, minimum pension liability adjustments and unrealized
gains and losses on marketable securities classified as available for sale.
The Company's items of other comprehensive income (loss) include foreign
currency translation adjustments and minimum pension liability adjustments.
The components of other comprehensive loss for the years ended December 31,
1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
Accumulated Other Comprehensive Income (Loss)
-------------------------------------------------------
<S> <C> <C> <C>
Foreign Currency
Translation Minimum Pension
Adjustment Liability Total
--------------------- ----------------- -------------
Balance at 12/31/95 $ (492,831) $ - $ (492,831)
Foreign currency translation adjustment (54,197) - (54,197)
----------- ----------------- -------------
Balance at 12/31/96 (547,028) - (547,028)
Foreign currency translation adjustment (272,118) - (272,118)
----------- ----------------- -------------
Balance at 12/31/97 (819,146) - (819,146)
Foreign currency translation adjustment (540,742) - (540,742)
Minimum pension liability, net of taxes of $63,000 - (105,862) (105,862)
----------- ----------------- -------------
Balance at 12/31/98 $ (1,359,888) $ (105,862) $ (1,465,750)
----------- ----------------- -------------
----------- ----------------- -------------
</TABLE>
F-23
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(16) Segment Information
-------------------
At December 31, 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information". This statement established
standards for reporting information about operating segments and related
disclosure about products and services and geographic areas. The Company
operates in two segments, Cosmetics and Pharmaceutical, that have been organized
by the products and services they offer. The Cosmetics segment's principal
products are nail care, nail color, color cosmetics, beauty implements, bleaches
and depilatories, personal care products and other related cosmetic items. The
Pharmaceutical segment's principal products are proprietary oral analgesics,
acne treatment products and first aid products. The accounting policies of the
segments are the same as those described in the summary of significant
accounting policies. The Company evaluates the performance of its operating
segments based on operating income. Certain assets, including property, plant
and equipment and deferred tax assets, are not allocated to the identifiable
segments. However, depreciation and amortization of unallocated assets are
charged to each segment.
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net sales
Cosmetics $ 213,714 $ 207,260 $ 179,031
Pharmaceutical 61,148 55,750 53,920
---------- ---------- ----------
Consolidated $ 274,862 $ 263,010 $ 232,951
---------- ---------- ----------
---------- ---------- ----------
Operating income
Cosmetics $ 10,381 $ 15,424 $ 8,885
Pharmaceutical 12,513 9,828 10,120
---------- ---------- ----------
Consolidated $ 22,894 $ 25,252 $ 19,005
---------- ---------- ----------
---------- ---------- ----------
Interest expense, net $ 4,433 $ 3,375 $ 3,282
---------- ---------- ----------
Earnings before taxes $ 18,461 $ 21,878 $ 15,723
---------- ---------- ----------
Identifiable assets
Cosmetics $ 120,664 $ 87,449 $ 71,362
Pharmaceutical 20,205 16,635 15,841
Corporate (unallocated assets) 36,605 45,230 35,179
---------- ---------- ----------
Consolidated $ 177,474 $ 149,314 $ 122,382
---------- ---------- ----------
---------- ---------- ----------
Depreciation and amortization
Cosmetics $ 5,966 $ 5,418 $ 5,506
Pharmaceutical 428 401 796
---------- ---------- ----------
Consolidated $ 6,394 $ 5,819 $ 6,302
---------- ---------- ----------
---------- ---------- ----------
Expenditures for property, plant and equipment and long-lived assets
Cosmetics $ 14,167 $ 2,282 $ 2,082
Pharmaceutical 320 253 154
Corporate (unallocated assets) 4,702 12,695 3,091
---------- ---------- ----------
Consolidated $ 19,189 $ 15,230 $ 5,327
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Sales to one customer by the cosmetics and pharmaceutical segments combined
were 21.5%, 22.7% and 21.7% of consolidated net sales for 1998, 1997 and 1996,
respectively and combined sales to another customer were 10.3% of consolidated
net sales in 1998.
Two customers accounted for 35.4% and 37.4% of the Company's net accounts
receivables at December 31, 1998 and 1997, respectively.
F-24
<PAGE>
DEL LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(17) Subsequent Event
----------------
In February 1999, the Company sold a warehouse facility in Plainview, New
York for $2,700,000. At December 31, 1998, this facility was included in
property, plant and equipment, with a net book value of approximately $804,000,
and was accounted for as a held for sale asset.
(18) Unaudited Quarterly Financial Data
----------------------------------
The following is a summary of quarterly operating results (in thousands of
dollars except per share amounts):
<TABLE>
<CAPTION>
Year Ended December 31, 1998
------------------------------------------
<S> <C> <C> <C> <C>
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- --------- ---------
Net sales $ 65,416 $ 73,971 $ 70,663 $ 64,812
Cost of goods sold 25,438 29,420 30,527 30,425
Net earnings (loss) 3,251 4,405 3,784 (363)
Earnings (loss) per common share:
Basic $ .43 $ .58 $ .50 $ (.05)
--------- --------- --------- ---------
--------- --------- --------- ---------
Diluted $ .39 $ .54 $ .47 $ (.05)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1997
------------------------------------------
<S> <C> <C> <C> <C>
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- --------- ---------
Net sales $ 54,215 $ 75,093 $ 68,865 $ 64,837
Cost of goods sold 21,386 29,142 26,541 24,020
Net earnings 1,061 5,427 3,675 2,964
Earnings per common share:
Basic $ .14 $ .72 $ .49 $ .39
--------- --------- --------- ---------
--------- --------- --------- ---------
Diluted $ .13 $ .66 $ .44 $ .36
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
Earnings per share calculations for each of the quarters are based on
weighted-average number of shares outstanding in each period. Therefore, the sum
of the quarters in a year does not necessarily equal the year's earnings per
share.
F-25
<PAGE>
SCHEDULE II
DEL LABORATORIES, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Additions
Balance at Charged to Balance at
Beginning Costs and End
DESCRIPTION of Period Expenses Deductions(1) of Period
- ----------- ------------ ---------- ------------- ------------
<S> <C> <C> <C> <C>
Year ended December 31, 1996 allowances for doubtful
accounts $ 1,700,000 $ 40,000 $ 240,000 $ 1,500,000
------------ ---------- ------------- ------------
------------ ---------- ------------- ------------
Year ended December 31, 1997 allowances for doubtful
accounts $ 1,500,000 $ 65,000 $ 265,000 $ 1,300,000
------------ ---------- ------------- ------------
------------ ---------- ------------- ------------
Year ended December 31, 1998 allowances for doubtful
accounts $ 1,300,000 $ 174,000 $ 174,000 $ 1,300,000
------------ ---------- ------------- ------------
------------ ---------- ------------- ------------
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
F-26
<PAGE>
AMENDMENT NO. 3
TO
DEL LABORATORIES, INC.
AMENDED AND RESTATED
SUPPLEMENTAL EXECUTIVE RIETIREMENT PLAN
WHEREAS, effective January 1, 1988, Del Laboratories, Inc. (the "Company")
adopted the Del Laboratories, Inc. Supplemental Executive Retirement Plan
("SERP") which provides for payment to selected employees of pension or
pension-related benefits which cannot be paid under the Del Laboratories, Inc.
Employees Pension Plan; and
WHEREAS, the SERP was amended and restated in its entirety effective
January 1, 1994 (the "Restated SERP"); and
WHEREAS, the Company has determined that Section 3(a) of the Restated SERP
should be amended, effective as of January 1, 1998, to modify the formula for
determining the benefit payable under the Restated SERP to each of the Initial
Participants (as defined therein) to use up to 30 years of service as in the
Basic Plan.
NOW, THEREFORE, the Company hereby amends, effective as of January 1,
1998, the Restated SERP as follows:
Section 3(a) of the Restated SERP is hereby amended to read in its
entirety:
"(a) Initial Participants. The Supplemental Benefit payable to an Initial
Participant under this Plan shall equal the excess, if any, of (i) over (ii)
where,
(i) is the benefit which would have been paid to such Initial
Participant, or to his beneficiary, under the Basic Plan, if the
provisions of the Basic Plan were administered without regard to the
limitations set forth in Sections 415(b), 415(e), and 401(a)(17) of the
Code, except that the benefit shall be calculated utilizing the Basic Plan
formula in effect on January 1, 1998 notwithstanding any change in such
formula following such date, and the Average Monthly Compensation shall be
the monthly average of all Compensation paid to such Initial Participant
in respect of the 1996 Plan Year; and
<PAGE>
(ii) the benefit which is payable to such Initial Participant, or to
his beneficiary, under the Basic Plan, as amended and in effect on the
date of determination of such Supplemental Benefit."
IN WITNESS WHEREOF, DEL LABORATOIES, Inc. has caused this Amended No. 3 to
the Del Laboratories, Inc. Amended and Restated Supplemental Executive
Retirement Plan to be executed by its duly authorized officers and its corporate
seal to be affixed hereto.
Dated: July 23, 1999 DEL LABORATORIES, INC.
By: ___________________________
Dan K. Wassong
Chairman, President and
Chief Executive Officer
[Corporate Seal]
ATTEST:
_________________________________
Vice President - General Counsel
<PAGE>
December 30, 1998
Mr. Enzo Vialardi
14 Larissa Lane
Thornwood, NY 10594
Dear Enzo:
This is to confirm our understanding relative to your employment with Del
Laboratories, Inc. ("Del").
1. You will be employed as Executive Vice President, Finance and
Administration and Chief Financial Officer of Del, effective as of August 1,
1998, reporting to Del's Chief Executive Officer, and based in Del's offices in
Long Island, New York, or such other place as Del may designate in the New York
metropolitan area. The initial term of this Agreement will be two (2) years,
terminating on July 31, 2000, or such earlier date upon which your employment
many terminate in accordance with the provisions hereof. Notwithstanding the
foregoing, Del agrees that it shall give you six (6) months' notice of its
intent not to renew this Agreement.
2.. In your capacity as Executive Vice President, Finance and
Administration and Chief Financial Officer, you shall faithfully adhere to,
execute and fulfill all policies established by Del. You shall devote all of
your business time and attention to the affairs of Del.
3. You shall be compensated at the annual base rate of not less than
$260,000. Any and all compensation payments required by this Agreement shall be
payable in accordance with Del policy during the stated term of this Agreement.
In addition, you will receive an incoming bonus of $15,000.
4. Del will furnish to you for use, in connection with company business,
an automobile in a class comparable to executives of your rank. Del shall pay
for all of the operating and maintenance costs of such automobile, including all
insurance charges. You shall be responsible for all tax liability arising from
income reportable by Del to federal, state and local tax authorities and
attributable to your non-business use of the automobile furnished by Del.
5. Del will reimburse you for all properly documented necessary and
reasonable business expenses in accordance with Del policy.
6. You shall participate, subject to eligibility, in such vacation,
profit-sharing, pension, group insurance, executive medical, hospitalization or
other incentive benefit plans or arrangements as Del may now or in the future
maintain for its executives of comparable rank to
<PAGE>
you. Nothing herein shall be construed to require Del to establish or continue
such plans or arrangements. Rather, the establishment and/or continuance of any
such plan or arrangement is within the sole discretion of Del. Notwithstanding
the foregoing, in connection with the first twelve (12) months of your
employment, you will receive a minimum guaranteed bonus of $100,000; such bonus
will be payable on a pro rated annualized basis at the times that Del pays
annual bonuses to other executives of your rank. During the period of your
employment hereunder, Del shall provide a policy of life insurance in the
principal amount of not less than $500,000, payable to your designee, provided
that you are insurable at normal rates for a person of your age and sex. You
will cooperate in enabling Del to obtain such a policy.
7. (a) You recognize that as an executive of Del you will have access to,
acquire or assist in the development of secret and confidential information
regarding Del, its products, customers and plans, the disclosure of which to the
competitors of Del or others would cause Del to suffer substantial and
irreparable damage. You acknowledge that such information is of great value to
Del, is the sole property of Del and that such information has been and will be
acquired by you in confidence. In consideration of the obligations undertaken by
Del as set forth herein, you will not, at any time, during or after your
employment hereunder, publish, disclose or use, or authorize any other person or
entity to publish, disclose or use, any secret or confidential information,
whether patentable or not, of or about Del, including trade secrets (as that
term is defined below) and any other secret or confidential information of which
you become aware or informed during the term of your employment, whether or not
developed by you, except as required in your duties to Del. For purposes hereof,
"trade secrets" shall include, without limitation, compilations, studies,
strategies, programs, methods, techniques and processes of or about Del and its
affiliates or their business, customers or suppliers, which derive independent
economic value, actual or potential, from not being generally known to, and not
being readily ascertainable by, other persons who can obtain economic value from
their disclosure or use and which are the subject of efforts to maintain their
secrecy that are reasonable under the circumstances. Some examples are
information relating to (i) special needs and characteristics of customers of
Del and its affiliates, (ii) computer programs and controls, (iii) existing and
new or envisioned products, formulas, ingredients, devices, methods, processes
and techniques, (iv) laboratory tests and data, studies and analyses, research
and development data and projections, (v) marketing, sales, pricing, costs and
other financial data and projections, (vi) marketing, promotional and
advertising studies, programs and strategies and (vii) names of current, former
and prospective customers and suppliers of Del.
(b) Upon termination of your employment with Del, you shall promptly
deliver to Del all files, records, documents, drawings, blueprints, product
samples, tests, test results, manuals, letters, notes, notebooks and reports of
Del, and all copies thereof, and all other materials of a secret or confidential
nature relating to Del's business.
8. (a) You recognize that the services to be performed by you hereunder
are special, unique and extraordinary. The parties confirm that it is reasonably
necessary for the protection of Del that you agree, and accordingly, you do
hereby agree that, unless you have obtained the prior written consent of Del,
you will not, directly or indirectly, at any time during
2
<PAGE>
your employment hereunder and thereafter for the remaining stated term of the
Agreement or one year from the date of termination of your employment, whichever
is longer (provided that, if this Agreement is terminated without cause by Del,
the provisions of this paragraph 8 shall only be applicable while you are being
paid by Del as an employee or consultant):
i) become an officer, director, stockholder, principal,
associate, partner, employee, owner, agent, creditor, independent contractor or
co-venturer of, or engage or participate in any other individual or
representative capacity whatsoever, in the conduct or management of, or own or
have any stock or other proprietary or financial interest in, or any other way
be interested in or associated with any other corporation, firm or business
engaged in the same or similar business competitive with that of Del except that
you shall be free without such consent to own up to 3% of the capital stock of
corporations whose securities are publicly owned and regularly traded on any
national exchange or in the over-the-counter market; or
ii) solicit, or cause or authorize any other person or entity
to solicit, for or on behalf of yourself or any third party, persons or entities
who were customers of Del at any time within one year prior to the cessation of
your employment hereunder for any business similar to the business transacted by
Del with such customer; or
iii) sell to or accept, or cause or authorize any other person
or entity to sell to or accept, for or on behalf of you or any third party, any
such business from any such customers of Del.
9. During the period of this Agreement and for a period of two (2) years
after the termination of your employment with Del, you will not solicit, or
cause or authorize any other person or entity to solicit, advise, recommend, or
in any way participate in the hiring process of, any employee, consultant or
contractor of Del, or any other person, who was at any time within one year
prior to the cessation of your employment hereunder then under contract with or
rendering services to Del, to terminate his or her employment by, or consulting
or consulting or contractual relationship with Del, or to refrain from extending
or renewing the same (upon the same or new terms), to refrain from rendering
services to Del, or to become employed or retained by or to enter into
contractual relations with persons or entities other than Del.
10. All inventions, ideas, processes, designs, or discoveries relating to
the business of Del, whether or not patentable or entitled to trademark,
copyright or other protection, which you conceive, produce or make, alone or
jointly with others, during your employment with Del or at any time thereafter
if you use Del's trade secrets or other confidential information which in any
way relates to the present or anticipated business, development, tests, products
or activities of Del, or which in any way results from or are suggested by or
connected with your employment with Del, are and shall be the property of the
Del. You also agree to, and hereby do, assign and transfer to Del all of your
rights, title and interest in and to such inventions, and in any and all Letter
Patents and/or patent applications with respect thereto, and you further agree
that whenever requested by Del, either during or subsequent to your employment,
you shall execute patent, trademark and/or copyright applications, and other
instruments considered
3
<PAGE>
necessary or desirable by Del, to apply for and obtain Letters Patent and/or
copyrights of the United States and foreign countries covering such inventions,
processes, designs, discoveries, and/or ideas, and you shall make assignments
and execute any other instruments necessary to convey to Del ownership and
exclusive rights to such inventions, discoveries, patent applications,
trademarks, patents and copyrights. Del shall bear all expenses connected with
such patent, patent applications and maintenance of patent protection, and
copyrights, and if services in connection therewith are performed by you at the
request of Del after the termination of your employment, Del shall pay
reasonable compensation for such services.
11. (a) You agree that any breach or threatened breach by you of any
provisions of paragraphs 7, 8, 9 or 10 would result in irreparable harm to Del
and could not reasonably or adequately be compensated in damages and that, in
the event of any such breach or threatened breach, Del shall be entitled to (i)
equitable relief, including but not limited to temporary, preliminary and
permanent injunctive relief enforcing the specific performance by you of this
Agreement or enjoining or restraining you from any violation or threatened
violation of the terms of this Agreement, and an equitable accounting of all
earnings, profits and other benefits arising from such breach, and (ii) recover
from you an amount equal to all profits, commissions or other compensation or
remuneration received or earned, directly or indirectly, by you from or on
account of any violation of your obligations under paragraphs 7, 8, 9 and 10 of
this Agreement. You further agree that if it is determined that you have
breached the restrictions contained in paragraphs 7, 8, 9 and 10 of this
Agreement, Del shall be entitled to recover from you all costs and reasonable
attorney's fees incurred as a result of its attempts to redress such breach or
enforce its rights and protect its legitimate interest. If any of the
restrictions contained in paragraph 8 or 9 shall be deemed to be unenforceable
by reason of the extent, duration or geographical scope thereof, or otherwise,
then the court making such determination shall have the right to reduce such
extent, duration, geographical scope, or other provisions thereof, and in its
reduced form such paragraph shall then be enforceable in the manner contemplated
hereby.
(b) Paragraphs 7, 8, 9 and 10 shall survive the termination of your
employment hereunder for the periods therein provided.
(c) For purposes of paragraphs 7, 8, 9 and 10, "Del" shall mean Del
and its affiliates.
12. (a) This Agreement shall terminate upon your death and may be
terminated by Del upon your permanent disability, by Del's giving you written
notice of such termination, effective immediately. Permanent disability shall be
deemed to exist if in the judgment of a physician licensed to practice in the
State of New York selected by Del, you have been unable or will be unable, due
to mental or physical incapacity, disease or injury to perform your duties or
services to Del for a period of not less than three consecutive months for an
aggregate of 100 days during any twelve month period. If this Agreement
terminates due to your death, Del shall pay you or your legal representative, as
the case may be, an amount equal to your base salary for three months. If the
Agreement terminates due to your permanent disability, Del shall pay you or your
legal representative, as the case may be, an amount equal to your base salary
for
4
<PAGE>
the greater of three months or until you are eligible for long term disability
coverage under Del's long term disability plan (provided, however, that such
period shall not exceed six months). Such amounts shall be paid in monthly
installments.
(b) Del may terminate this Agreement for cause by giving you written
notice of such termination, effective immediately, in the event you:
(i) commit any act of fraud or dishonesty in connection with
your employment or otherwise involving Del;
(ii) fail, refuse or neglect to perform any material duty or
obligation to Del following receipt of written notice of such
failure, or fail, refuse or neglect to carry out any written
instructions or directions of Del,;
(iii) engage in conduct which, in Del's good faith opinion, is
detrimental to Del's interests;
(iv) commit a material breach of any provision of this
Agreement or any fiduciary or other duty to Del;
(v) engage in misconduct in connection with your employment;
(vi) violate paragraphs 7, 8, 9 or 10 above; or
(vii) misrepresent or fail to disclose any material fact,
information or statement to Del.
(c) In the event Del terminates this Agreement for cause, or with
notice of termination as provided in Paragraph 12 above, Del's obligations
(other than those, if any, pursuant to paragraph 13 below) shall cease and
terminate as of the date of such termination.
(d) In the event Del terminates this Agreement during the initial
term without cause, by giving you written notice of such termination, which
notice shall be effective on the date specified therein, you shall be entitled
to receive as liquidated damages and in lieu of any other payment from or claim
against Del, the greater of (i) your base salary for the remainder of the
initial term or (ii) your base salary for a six month period, less appropriate
deductions as required by law.
13. You agree that you will give Del at least one hundred twenty (120)
days' notice prior to any voluntary termination of your employment hereunder. In
the event of the termination of your employment hereunder for any reason, Del
shall have the option, in its sole discretion, to retain your services as a
consultant for a period of up to six (6) months from the date of such
termination, at the annual base rate set forth in paragraph 3 of this Agreement.
Your duties as a consultant shall be determined by Del, and you shall spend such
time during
5
<PAGE>
normal business hours as is reasonably necessary to accomplish those duties. If
you fail or refuse to act as a consultant during such period, Del may elect to
terminate your consultancy by notice in accordance herewith. During any period
when you are receiving compensation hereunder, including periods when Del has
tendered such compensation despite your failure or refusal to act, you shall
continue to be bound by the provisions of paragraphs 7, 8, 9 and 10 of this
Agreement, and all such provisions shall survive the termination of your
consultancy hereunder for the periods therein provided. Payments pursuant to
this paragraph shall offset any payments payable to you pursuant to paragraph
12(d) above, and are in lieu of, and supersede, any other obligations Del has to
you pursuant to this Agreement. During the period of such consultancy, you shall
not accept any other employment or other consultancy that would require you to
devote more than one-third of your business time to such other employment or
consultancy, so long as Del continues to pay you as herein provided.
14. You have represented and hereby represent and warrant to Del that
there are no restrictions, covenants, agreements or limitations on your right or
ability to enter into and perform the terms of this Agreement, and agree to
indemnify and save Del harmless from any liability, cost or expense, including
attorneys' fees, based upon or arising out of any such restrictions, covenants,
agreements or limitations that may be found to exist.
15. You agree that during the period you are employed by Del, and at all
reasonable times thereafter, you will assist and cooperate with Del in
connection with any ongoing or future investigation, dispute or claim of any
kind involving Del, including any proceeding before any arbitral,
administrative, regulatory, judicial, legislative or other body or agency, to
the extent that such claims, investigations or proceedings relate to services
performed or required to be performed by you, pertinent knowledge possessed by
you or any act or omission by you.
16. In connection with your employment with Del, you shall comply in all
material respects with all federal, state and local laws, rules and regulations
applicable to Del's business.
17. This Agreement is personal and non-assignable to you. It shall extend
to, and be binding upon any corporation or other entity with which Del shall
merge or consolidate or to which Del shall lease or sell all or substantially
all of its assets and may be assigned by Del to any affiliate of Del or to any
corporation or entity with which such affiliate shall merge or consolidate or to
which such affiliate shall lease or sell all or substantially all of its assets.
18. Any notices or other communications required by or permitted to be
given hereunder shall be in writing, and shall be duly given if delivered
personally or sent by registered or certified mail, return receipt requested, to
Del at 178 EAB Plaza, Uniondale, New York 11556, Attention: Dan K. Wassong,
President and Chief Executive and to you at your address first set forth above,
or to such other address as either party shall designate by written notice to
the other.
6
<PAGE>
19. Except as set forth in Paragraphs 7, 8, 9 and 11 above, any claim or
controversy arising out of or relating to this Agreement, or any breach thereof,
or otherwise relating to your employment, compensation and benefits with Del, or
the termination thereof, shall be settled by arbitration in New York, New York
in accordance with the rules established by the American Arbitration
Association; provided, however, that you and Del agree that (i) the arbitrator
shall be prohibited from disregarding, adding to or modifying the terms of this
Agreement; (ii) the arbitrator shall be required to follow established
principles of substantive law and the law governing burdens of proof; (iii) only
legally protected rights may be enforced in arbitration; (iv) the arbitrator
shall be without authority to award punitive or exemplary damages; (v) the
arbitrator shall be an attorney licensed to practice law in New York who has
experience in similar matters; and (vi) any demand for arbitration must be filed
and served, if at all, within 180 days of the occurrence of the act or omission
complained of. Any claim or controversy not submitted to arbitration in
accordance with this Paragraph 19 shall be considered waived and, thereafter, no
arbitration panel or tribunal or court shall have the power to rule or make any
award on any such claim or controversy. The award rendered in any arbitration
proceeding held under this Paragraph 19 shall be final and binding, and judgment
upon the award may be entered in any court having jurisdiction thereof, provided
it conforms to established principles of law and is supported by substantial
record evidence.
20. This Agreement constitutes the entire agreement between us in any way
relating to your employment, compensation and benefits with Del and supersedes
all prior agreements and understandings between us. This Agreement may not be
altered or amended except by a writing signed by you and the Chief Executive
Officer of Del.
21. This Agreement shall be governed by, construed and interpreted in
accordance with the laws of the State of New York, without reference to choice
of law principles.
Very truly yours,
AGREED:
DEL LABORATORIES, INC.
By:_______________________ By:____________________________________
Enzo J. Vialardi Dan K. Wassong
Chairman of the Board, President
and Chief Executive Officer
7
<PAGE>
March ,1993
Mr. James F. Lawrence
175 North Lane
Hauppage, New York 11788
Dear Mr. Lawrence:
This will confirm our understanding relative to your employment with
Del Laboratories, Inc. ("Del").
1. You will be employed as Vice President - Operations of Del,
effective on March 10, 1993, for a term of two years, unless sooner terminated
pursuant to paragraph 10 herein. You shall be compensated at the annual base
rate of not less than $190,000 ("Base Salary"). Any and all compensation
payments required by this Agreement shall be payable in equal pro-rata
installments in accordance with Del policy during the stated term of this
Agreement. You shall devote all of your business time and attention to the
affairs of Del.
2. Del will furnish to you, for use in connection with company
business, an automobile in a class comparable to those furnished to executives
of your rank. Del shall pay for all of the operating and maintenance costs of
such automobile, including all insurance charges.
3. Del will reimburse you for all properly documented necessary and
reasonable business expenses in accordance with its usual practice.
4. (a) You shall participate, subject to eligibility, in such
vacation, profit-sharing, pension, group insurance, executive medical,
hospitalization or other incentive benefit plans or arrangements of Del for its
executives of comparable rank to you, as Del shall, in its sole discretion,
currently have or hereafter establish. Nothing herein shall be
<PAGE>
-2-
construed to require Del to establish any such plan or, having established any
of them, to continue any such plan.
(b) You shall receive an incoming bonus of $5,000 within 30
days after your employment with Del commences.
5. You recognize that as an executive of Del you will have access to
secret and confidential information regarding Del, its products, customers and
plans. You acknowledge that such information is of great value to Del, is the
sole property of Del and that such information has been and will be acquired by
you in confidence. In consideration of the obligations undertaken by Del as set
forth herein, you will not, at any time, during or after your employment
hereunder, divulge to any person other than a person associated with Del, any
such information concerning Del acquired by you during the course of your
employment, unless required to do so by law.
6. (a) You recognize that the services to be performed by you
hereunder are special, unique and extraordinary. The parties confirm that it is
reasonably necessary for the protection of Del that you agree, and accordingly,
you do hereby agree that you will not, directly or indirectly, except for the
benefit of Del, at any time during your employment hereunder and thereafter for
the remaining stated term of the Agreement or six months from the date of
termination of your employment, whichever is longer:
(i) become an officer, director, stockholder, partner,
associate, employee, owner, agent, creditor, independent contractor,
co-venturer or otherwise, or (except for up to a 3% interest in a
company whose shares are publicly traded) be interested in or
associated with any other corporation, firm or business engaged in
the same or any similar business competitive with that of Del; or
(ii) solicit, cause or authorize, directly or indirectly, to
be solicited for or on behalf of yourself or third parties from
persons who were customers of Del at any time within one year prior
to the cessation of your employment hereunder, any business similar
to the business transacted by Del with such customer; or
(iii) accept or cause or authorize, directly or indirectly, to
be accepted for or on behalf of you or third parties, any such
business from any such
<PAGE>
-3-
customers of Del as defined in the preceding subsection; or
(iv) (A) solicit, entice, persuade or induce, directly or
indirectly, any employee of Del or any other person, who was at
anytime within one year prior to the cessation of your employment
hereunder, then under contract with or rendering services to Del, to
terminate his or her employment by, or contractual relationship
with, Del or to refrain from extending or renewing the same (upon
the same or new terms) or to refrain from rendering services to Del
or from Del or to become employed by or to enter into contractual
relations with persons other than Del; or
(B) approach any such employee or other person for any
of the foregoing purposes; or
(C) authorize or knowingly approve or assist in the
taking of any such actions by any person other than Del.
7. (a) You agree that any breach or threatened breach by you of any
provisions of paragraphs 5 or 6 shall entitle Del, in addition to any other
legal or equitable remedies available to it, to apply to any court of competent
jurisdiction to enjoin such breach or threatened breach without the posting of
any bond or any security. If any of the restrictions contained in paragraph C
shall be deemed to be unenforceable by reason of extent, duration or
geographical scope thereof, or otherwise, then the court making such
determination shall have the right to reduce such extent, duration, geographical
scope, or other provisions hereof, and in its reduced form such paragraph shall
then be enforceable in the manner contemplated hereby.
(b) Paragraphs 5, 6 and 7 shall survive the termination of
your employment hereunder.
(c) For purposes of paragraphs 5, 6 and 7, "Del" shall mean
Del and its affiliates.
8. You agree to give to Del not less than 90 days notice prior to
any voluntary termination of your employment hereunder. Del has expended time,
effort and money in the search for an executive to occupy the position you have
accepted and has lost the opportunity to engage the services of other qualified
persons who might have accepted such position. Del also has undertaken to
acquaint you with the information necessary to perform your services under this
Agreement and has used the
<PAGE>
-4-
services of counsel to prepare this Agreement. In view of that, in the event of
the termination of your employment hereunder voluntarily by you or by Del with
or without Cause (as hereinafter defined), Del shall have the option to retain
your services as a consultant for a period of up to 180 days from the date of
such termination, at a salary at the then annual Base Salary set forth in
paragraph 1 of this Agreement. Your duties as a consultant shall be determined
by Del, and you shall spend such time during normal business hours as is
reasonably necessary to accomplish those duties. If you fail or refuse to act as
a consultant during such period, Del may elect to terminate your consultancy by
notice in accordance herewith. Payments pursuant to this paragraph are in lieu
of, and supersede, any other obligations Del has to you pursuant to this
Agreement. During the period of such consultancy, you shall not accept any other
employment so long as Del continues to pay your salary as herein provided.
9. (a) Del shall have the right to terminate your employment upon
your death, upon your permanent disability or for Cause. If this Agreement
terminates due to your death or permanent disability, Del shall pay you or your
legal representative, as the case may be, all of your Base Salary at the then
annual rate set forth in paragraph 1 of this Agreement earned to the date of
death or determination of permanent disability, plus an amount equal to three
months' Base Salary payable at the then annual rate set forth in paragraph 1 of
this Agreement.
(b) At least three (3) months prior to the end of the term of
this Agreement, Del will advise you if it does not intend to renew or extend
this Agreement.
(c) For purposes of this Agreement, termination for "Cause"
shall be limited to the following:
(i) you are convicted of, or plead nolo contendere to,
any crime or offense involving monies or other property of Del or
any other crime (whether or not involving Del) which constitutes a
felony or serious misdemeanor in the jurisdiction involved;
(ii) your continuing willful failure or refusal to carry
out the specific written directions of the Chief Executive Officer,
which violation continues for five (5) business days following your
receipt of such written directions;
<PAGE>
-5-
(iii) conduct of yours which brings public obloquy upon
Del; or
(iv) a material breach by you of any provision of this
Agreement which continues for five (5) business days following
receipt of notice by you specifying such breach.
(d) "Permanent disability" shall be deemed to exist if, in
the judgment of a physician licensed to practice in the State of New York
selected by the Board of Directors, you have been unable or will be unable due
to mental or physical incapacity, disease or injury to perform your duties or
services to Del for a period of not less than three (3) consecutive months.
10. This Agreement is personal and non-assignable by you. It shall
extend to, and be binding upon, any corporation or other entity with which Del
shall merge or consolidate or to which Del shall lease or sell all or
substantially all of its assets and may be assigned by Del to any affiliate of
Del or to any corporation or entity with which such affiliate shall merge or
consolidate or which shall lease or purchase all or substantially all of the
assets of such affiliate.
11. Any notices or other communications required or permitted to be
given hereunder shall be in writing, and shall be duly given if delivered
personally or sent by registered or certified mail, return receipt requested, to
Del at 565 Broad Hollow Road, Farmingdale, New York 11735, Attention: Dan K.
Wassong, Chairman of the Board and to you at your address first set forth above,
or such other address as either party shall designate by written notice to the
other.
12. This Agreement constitutes the entire agreement between us in
any way relating to your employment and supersedes all prior agreements and
understandings between us. This Agreement may not be altered or amended except
by a writing signed by the party against whom such alteration or amendment is
sought to be enforced.
<PAGE>
-6-
13. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York applicable to agreements made and to be
performed within this state.
Very truly yours,
DEL LABORATORIES, INC.
By: /s/ Dan K. Wassong
------------------------------------
Dan K. Wassong
Chairman, President
and Chief Executive
Officer
AGREED:
/s/ James F. Lawrence
- -------------------------
James F. Lawrence
<PAGE>
[Letterhead of Del Laboratories, Inc.]
March 31, 1998
Mr. James Lawrence
c/o Del Laboratories, Inc.
178 EAB Plaza
Uniondale, New York 11556
Dear Jim:
This will confirm that your Employment Agreement, as amended, is hereby
further amended and extended as follows:
1. The term of the Agreement is hereby extended to March 31, 2001.
2. Your annual base salary shall not be less than $208,000 per year.
3. You agree that you will give Del at least one hundred twenty (120) days'
notice prior to any voluntary termination of your employment hereunder.
4. The following new paragraph 14 is hereby added to the Agreement:
Except as set forth in Paragraphs 5 and 6 of this Agreement, any claim or
controversy arising out of or relating to this Agreement, or any breach
thereof, or otherwise relating to your employment, compensation and
benefits with he Company, or the termination thereof, shall be settled by
arbitration in New York, New York in accordance with the rules established
by the American Arbitration Association; provided, however, that you and
Del agree that (i) the arbitrator shall be prohibited from disregarding,
adding to or modifying the terms of this Agreement; (ii) the arbitrator
shall be required to follow established principles of substantive law and
the law governing burdens of proof; (iii) only legally protected rights
may be enforced in arbitration; (iv) the arbitrator shall be without
authority to award punitive or exemplary damages; (v) the arbitrator shall
be an attorney licensed to practice law in New York who has experience in
similar matters; and (vi) any demand for arbitration must be filed and
served, if at all, within 180 days of the occurrence of the act or
omission complained of. Any claim or controversy not submitted to
arbitration in accordance with this Paragraph 14 shall be considered
waived and, thereafter, no arbitration panel or tribunal or court shall
have the power to rule or make any award on any such claim or controversy.
The award rendered in any arbitration proceeding held under this Agreement
shall be final and binding, and judgment upon the award
<PAGE>
March 24, 1998
Mr. James Lawrence
Page 2
may be entered in any court having jurisdiction thereof, provided it
conforms to established principles of law and is supported by substantial
record evidence.
Please indicate your acceptance of the foregoing by singing a copy of this
letter in the space indicated below and returning it to me.
Very truly yours,
/s/ Dan K. Wassong
Dan K. Wassong
Chairman of the Board, President
and Chief Executive Officer
AGREED AND ACCEPTED:
/s/ James Lawrence
- -------------------------
James Lawrence
<PAGE>
[Letterhead of Del Laboratories, Inc.]
CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
July 12, 1995
Mr. James F. Lawrence
c/o Del Laboratories, Inc.
565 Broad Hollow Road
Farmingdale, NY 11735
Dear Mr. Lawrence:
This will confirm that your Employment Agreement, as amended and extended,
is further extended to March 31, 1998.
In all other respects the Employment Agreement, as amended and extended,
shall continue in full force and effect.
Please signify your agreement with the foregoing by counter-signing the
copy of this letter and returning it to me.
Very truly yours,
DEL LABORATORIES, INC.
By: /s/ Dan K. Wassong
Dan K. Wassong
Chairman of the Board
ACCEPTED AND AGREED:
/s/ James F. Lawrence
------------------------------
James F. Lawrence
<PAGE>
LOAN AGREEMENT
Dated as of December 30, 1998
DEL LABORATORIES, INC., a Delaware corporation, having its principal place
of business at 178 EAB Plaza, Uniondale, New York 11556 (the "Borrower"), DEL
PHARMACEUTICALS, INC., a Delaware corporation, having its principal place of
business at 178 EAB Plaza, Uniondale, New York 11556 ("DPI" or, a "Guarantor")
and THE CHASE MANHATTAN BANK, a New York banking corporation, having an office
at 395 North Service Road, Suite 302, Melville, New York 11747 (the "Bank")
hereby agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"Adjusted LIBOR Rate" means, with respect to any Eurodollar Loan for any
Interest Period, an interest rate per annum (rounded, if not already a whole
multiple of 1/16th of one (.01%) percent to the nearest 1/16th of one (.01%)
percent) equal to the product of (a) the LIBOR Rate and (b) Statutory Reserves.
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"Affiliate" means, as to any Person (i) a Person which directly or
indirectly controls, or is controlled by, or is under common control with, such
Person; (ii) a Person which directly or indirectly beneficially owns or holds
twenty (20%) percent or more of any class of voting stock of, or twenty (20%)
percent or more of the equity interest in, such Person; or (iii) a Person twenty
(20%) percent or more of the voting stock of which, or twenty (20%) or more of
the equity interest of which, is directly or indirectly beneficially owned or
held by such Person. The term "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract, or otherwise.
"Agreement" means this Loan Agreement, as amended, supplemented or
modified from time to time.
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"Alternate Base Rate" means, for any day, the higher of (a) the Prime Rate
(computed on the basis of the actual number of days elapsed over a year of 360
days) in effect on such day or (b) the Federal Funds Effective Rate in effect on
such day plus one-half of one (1/2%) percent (computed on the basis of the
actual number of days elapsed over a year of 360 days). For purposes of this
Agreement any change in the Alternate Base Rate due to a change in the Prime
Rate or the Federal Funds Effective Rate shall be effective on the effective
date of such change in the Prime Rate or the Federal Funds Effective Rate,
respectively. If for any reason the Bank shall have reasonably determined (which
determination shall be conclusive absent manifest error) that it is unable to
ascertain the Federal Funds Effective Rate for any reason, including, without
limitation, the inability or failure of the Bank to obtain sufficient bids or
publications in accordance with the terms thereof, the Alternate Base Rate shall
be determined without regard to clause (b) of the first sentence of this
definition, as appropriate, until the circumstances giving rise to such
inability no longer exist.
"Alternate Base Rate Loan" means a Loan bearing interest at the Alternate
Base Rate in accordance with the provisions of Article II hereof.
"Applicable Margin" means the amount of basis points to be added to the
Adjusted LIBOR Rate as provided in Section 2.04 of
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this Agreement and as determined pursuant to Section 2.05 of this Agreement.
"Board of Governors" means the Board of Governors of the Federal Reserve
System of the United States of America.
"Business Day" means a day of the year on which banks are not required or
authorized to close in New York City, provided that, if the relevant day relates
to a Eurodollar Loan, a Eurodollar Interest Period, or notice with respect to a
Eurodollar Loan, the term "Business Day" shall mean a day on which dealings in
dollar deposits are also carried on in the London interbank market and banks are
open for business in London.
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"Capital Expenditures" means as to any Person, the aggregate amount of any
expenditures (including purchase money debt and purchase money liens) by such
Person for assets (including fixed assets acquired under Capital Leases) which
it is contemplated will be used or usable in fiscal years subsequent to the year
of acquisition and that are required to be capitalized in accordance with GAAP.
"Capital Lease" means a lease which has been, or should be, in accordance
with GAAP, capitalized on the books of the lessee.
"Commitment" means the Bank's obligation to make Revolving Credit Loans to
the Borrower pursuant to the terms and subject to the conditions of this
Agreement.
"Consolidated Capital Expenditures" means, as to any Person, the aggregate
amount of the Capital Expenditures by such Person and its Consolidated
Subsidiaries, computed and consolidated in accordance with GAAP.
"Consolidated EBITDA" means, as to any Person, for any period, the EBITDA
of such Person and its Consolidated Subsidiaries, computed and consolidated in
accordance with GAAP.
"Consolidated Funded Debt" means, as to any Person, at any date, any Debt
of such Person and its Consolidated Subsidiaries which is (i) indebtedness or
liability for borrowed money having an original maturity of one (1) year or more
(including the current portion thereof) or which is extendable at the option of
the
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obligor to a date more than one year from the date of such extension, including,
in any event, all of the outstanding
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Revolving Credit Loans; (ii) indebtedness or liability for borrowed money under
lines of credit extended to such Person or any of its Consolidated Subsidiaries;
(iii) the deferred purchase price of property (excluding trade obligations);
(iv) obligations as a lessee under Capital Leases; (v) obligations to reimburse
a letter of credit issuer for draws under letters of credit; and (vi) all
liabilities under any preferred stock which, at the option of the holder or upon
the occurrence of one or more certain events, is redeemable by such holder, or
which, at the option of such holder is convertible into Debt.
"Consolidated Funded Debt (Applicable Margin)" means, as to any Person, at
any date, any Debt of such Person and its Consolidated Subsidiaries which is (i)
indebtedness or liability for borrowed money having an original maturity of one
(1) year or more (including the current portion thereof) or which is extendable
at the option of the obligor to a date more than one year from the date of such
extension, including, in any event, all of the outstanding Revolving Credit
Loans; (ii) indebtedness or liability for borrowed money under lines of credit
extended to such Person or any of its Consolidated Subsidiaries; (iii) the
deferred purchase price of property (excluding trade obligations); and (iv)
obligations as a lessee under Capital Leases.
"Consolidated Fixed Charge Ratio" means, as to the Borrower and its
Consolidated Subsidiaries, the ratio of (i) the sum of net
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income plus interest expense plus income tax expense for the period measured
plus depreciation expense plus amortization of intangible assets minus
Consolidated Unfunded Capital Expenditures minus Permitted Dividends paid in
cash during such period minus Permitted Stock Repurchases to (ii) the sum of the
current portion of
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Consolidated Funded Debt (excluding the principal amount of Revolving Credit
Loans and excluding Debt described in clauses (ii), (v) and (vi) of the
definition of "Consolidated Funded Debt") plus twenty (20%) percent of the
outstanding principal amount of Revolving Credit Loans plus interest expense.
The Consolidated Fixed Charge Coverage Ratio shall be tested quarterly, measured
for the four (4) fiscal quarters then ended, except for the current portion of
Consolidated Funded Debt, which shall be measured for the next succeeding four
(4) fiscal quarters.
"Consolidated Interest Coverage Ratio" means, as to any Person, for any
period, the ratio of (i) Consolidated EBITDA minus Consolidated Capital
Expenditures to (ii) consolidated interest expense.
"Consolidated Leverage Ratio" means, as to the Borrower and its
Consolidated Subsidiaries, the ratio of (i) Consolidated Total Unsubordinated
Liabilities to (ii) Consolidated Tangible Net Worth plus Consolidated
Subordinated Debt.
"Consolidated Subordinated Debt" means, as to any Person, all of the
Subordinated Debt of such Person and its Consolidated Subsidiaries, computed and
consolidated in accordance with GAAP.
"Consolidated Subsidiaries" means, as to any Person, those Subsidiaries of
such Person which are consolidated with such Person in the financial statements
delivered pursuant to Section 5.01(b).
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"Consolidated Tangible Net Worth" means, as to any Person, the excess of
(i) such Person's Consolidated Total Assets, less all intangible assets properly
classified as such in accordance with GAAP, including, but without limitation,
patents, patent rights, trademarks, trade names, franchises, copyrights,
licenses, permits and goodwill, over (ii) such Person's Consolidated Total
Liabilities.
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"Consolidated Total Assets" means, as to any Person, at any date, the
aggregate net book value of the assets of such Person and its Consolidated
Subsidiaries at such date, after all appropriate adjustments in accordance with
GAAP (including without limitation, reserves for doubtful receivables,
obsolescence, depreciation and amortization and excluding the amount of any
write-up or revaluation of any asset, other than those permitted under standard
cost accounting procedures), computed and consolidated in accordance with GAAP.
"Consolidated Total Liabilities" means, as to any Person, at any date, all
of the liabilities of such Person and its Consolidated Subsidiaries at such
date, including all items which, in accordance with GAAP would be included on
the liability side of the balance sheet (other than capital stock, treasury
stock, capital surplus and retained earnings) computed and consolidated in
accordance with GAAP.
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"Consolidated Total Unsubordinated Liabilities" means, as to any Person,
the excess of (i) such Person's Consolidated Total Liabilities over (ii) such
Person's Consolidated Subordinated Debt.
"Consolidated Unfunded Capital Expenditures" means, as to any Person, the
aggregate amount of the Unfunded Capital Expenditures by such Person and its
Consolidated Subsidiaries, computed and consolidated in accordance with GAAP.
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"Debt" means, as to any Person, all (i) indebtedness or liability of such
Person for borrowed money; (ii) indebtedness of such Person for the deferred
purchase price of property or services (including trade obligations); (iii)
obligations of such Person as a lessee under Capital Leases; (iv) current
liabilities of such Person in respect of unfunded vested benefits under any
Plan; (v) obligations of such Person under letters of credit issued for the
account of such Person; (vi) obligations of such Person arising under acceptance
facilities; (vii) guaranties, endorsements (other than for collection or deposit
in the ordinary course of business) and other contingent obligations to
purchase, to provide funds for payment, to supply funds to invest in any other
Person, or otherwise to assure a creditor against loss; (viii) obligations
secured by any Lien on property owned by such Person whether or not the
obligations have been assumed; (ix) liabilities of such Person under any
preferred stock or other preferred equity instrument which, at the option of the
holder or upon the occurrence of one or more events, is redeemable by such
holder, or which, at the option of such holder is convertible into Debt; and (x)
all other liabilities recorded as such, or which should be recorded as such, on
such Person's financial statements in accordance with GAAP.
"Debt to EBITDA Ratio" means, as to the Borrower and its Consolidated
Subsidiaries for any period, the ratio of (i) Consolidated Funded Debt (as of
the last day of such period) to (ii) Consolidated EBITDA for such period. The
Debt to EBITDA Ratio
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shall be measured and tested at the end of each fiscal quarter and, in the case
of Consolidated EBITDA, for a period covering the four (4) fiscal quarters then
ended.
"Debt to EBITDA Ratio (Applicable Margin)" means, as to the Borrower and
its Consolidated Subsidiaries for any period, the ratio of (i) Consolidated
Funded Debt (Applicable Margin) (as of the last day of such period) to (ii)
Consolidated EBITDA for such period. The Debt to EBITDA Ratio
(Applicable Margin) shall be measured and tested at the end of each fiscal
quarter and, in the case of Consolidated EBITDA, for a period covering the four
(4) fiscal quarters then ended.
"Default" means any of the events specified in Section 6.01 of this
Agreement, whether or not any requirement for notice or lapse of time or any
other condition has been satisfied.
"Dollars" and the sign "$" mean lawful money of the United States of
America.
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"EBITDA" means, as to any Person, for any period, the sum of (i) net
income plus (ii) interest expense plus (iii) income tax expense plus (iv)
depreciation expense plus (v) amortization of intangible assets, all measured
and/or calculated for the four (4) fiscal quarters then ended.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, the regulations promulgated thereunder and the
published interpretations thereof as in effect from time to time.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) which together with any other Person would be treated, with such
Person, as a single employer under Section 4001 of ERISA.
"Eurodollar Loan" means a Loan bearing interest at a rate based on the
Adjusted LIBOR Rate in accordance with the provisions of Article II hereof.
"Event of Default" means any of the events specified in Section 6.01 of
this Agreement, provided that any requirement for notice or lapse of time or any
other condition has been satisfied.
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"Federal Funds Effective Rate" means, for any period, a fluctuating
interest rate per annum equal for each day during such period to the weighted
average of the rates on overnight federal funds transactions with members of the
Federal Reserve System arranged by federal funds brokers, as published for such
day (or, if such day is not a Business Day for the next preceding Business Day)
by the Federal Reserve Bank of New York, or, if such rate is not so published
for any day which is a Business Day, the average of the quotations for such day
on such transactions received by the Bank from three (3) federal funds brokers
of recognized standing selected by it.
"Foreign Subsidiaries" means, with respect to the Borrower, those
Subsidiaries of the Borrower which are incorporated, formed or organized outside
of the United States.
"GAAP" means Generally Accepted Accounting Principles.
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"Generally Accepted Accounting Principles" means those generally accepted
accounting principles and practices which are recognized as such by the American
Institute of Certified Public Accountants acting through the Financial
Accounting Standards Board ("FASB") or through other appropriate boards or
committees thereof and which are consistently applied for all periods so as to
properly reflect the financial condition, operations and cash flows of a Person,
except that any accounting principle or practice required to be changed by the
FASB (or other appropriate board or committee of the FASB) in order to continue
as a generally accepted accounting principle or practice may be so changed. Any
dispute or disagreement between the Borrower and the Bank relating to the
determination of Generally Accepted Accounting Principles shall, in the absence
of manifest error, be conclusively resolved for all purposes hereof by the
written opinion with respect thereto, delivered to the Bank, of the independent
accountants selected by the Borrower and reasonably satisfactory to the Bank for
the purpose of auditing the periodic financial statements of the Borrower.
"Guaranteeing Foreign Subsidiaries" means those Foreign Subsidiaries of
the Borrower required to become a Guarantor pursuant to Section 5.01(k) of this
Agreement.
"Guarantor" or Guarantors" means DPI, and any other Person required to
guarantee the obligations of the Borrower in accordance with Section 5.01(k) of
this Agreement.
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"Guaranty" or "Guaranties" means the guaranty or guaranties executed and
delivered by one or more Guarantors pursuant to Section 3.01(h) or Section 5.01
(k) of this Agreement.
"Hazardous Materials" includes, without limitation, any flammable
explosives, radioactive materials, hazardous materials, hazardous wastes,
hazardous or toxic substances, or related materials defined in the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended (42
U.S.C. Sections 9601, et seq.), the Hazardous Materials Transportation Act, as
amended (49 U.S.C. Section 1801 et seq.), the Resource Conservation and Recovery
Act, as amended (42 U.S.C. Sections 6901 et. seq.), and in the regulations
adopted and publications promulgated pursuant thereto, or any other federal,
state or local environmental law, ordinance, rule or regulation.
"Interest Determination Date" means the date on which an Alternate Base
Rate Loan is converted to a Eurodollar Loan and, in the case of a Eurodollar
Loan, the last day of the applicable Interest Period.
"Interest Payment Date" means (i) as to each Eurodollar Loan, the last
Business Day of each calendar quarter during the applicable Interest Period and
the last day of each Interest Period and (
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ii) as to each Alternate Base Rate Loan, the last Business Day of each
calendar quarter.
"Interest Period" means the period commencing on the date of any
Eurodollar Loan and ending on the numerically corresponding day in the calendar
month that is one, two, three, six or twelve months thereafter (subject to
availability), as the Borrower may elect (or, if there is no numerically
corresponding day, on the last Business Day of such month); provided, however,
(i) no Interest Period shall end later than the Maturity Date, (ii) if any
Interest Period would end on a day which shall not be a Business Day, such
Interest Period shall be extended to the next succeeding Business Day unless
such next succeeding Business Day would fall in the next calendar month, in
which case such Interest Period shall end on the next preceding Business Day,
(iii) interest shall accrue from and including the first day of such Interest
Period to but excluding the date of payment of such interest pursuant to Section
2.04 and (iv) no Interest Period of particular duration may be selected by the
Borrower if the Bank determines, in its sole discretion, that Eurodollar Loans
with such maturities are not generally available.
"Investment" means any stock, evidence of Debt or other security of any
Person, any loan, advance, contribution of capital, extension of credit or
commitment therefor, including without limitation the guaranty of loans made to
others (except for current trade and customer accounts receivable for services
rendered in the ordinary course of business and payable in accordance with
customary trade terms in the ordinary course of business) and any
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purchase of (i) any security of another Person or (ii) any business or
undertaking of any Person or any commitment or option to make any such purchase,
or any other investment.
"LIBOR Rate" means the rate (rounded upwards, if not already a whole
multiple of 1/16th of one (1%) percent, to the next higher of 1/16th of one (1%)
percent) at which dollar deposits approximately equal in principal amount to the
requested Eurodollar Loan and for a maturity equal to the requested Interest
Period are offered in immediately available funds to the London office of the
Bank by leading banks in the London interbank market for Eurodollars at
approximately 11:00 a.m., London time, two (2) Business Days prior to the
commencement of such Interest Period.
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"Lien" means any mortgage, deed of trust, pledge, security interest,
hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or
other), or preference, priority, or other security agreement or preferential
arrangement, charge, or encumbrance of any kind or nature whatsoever, including,
without limitation, any conditional sale or other title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing, and the filing of any financing statement under the Uniform
Commercial Code or comparable law of any jurisdiction to evidence any of the
foregoing.
"Loan" or Loans" means the Revolving Credit Loans or any or all of the
same as the context may require and includes Alternate Base Rate Loans and
Eurodollar Loans, as the context may require.
"Loan Documents" means this Agreement, the Note, the Guaranty and any
other document executed or delivered pursuant to this Agreement.
"Material Adverse Change" means, as to the Borrower alone, DPI alone, or
the Borrower and its Consolidated Subsidiaries taken as a whole, (i) a material
adverse change in the financial condition, business, operations, properties,
prospects or results of operations of the Borrower alone, DPI alone, or the
Borrower and its Consolidated Subsidiaries taken as a whole (provided that the
elimination of the inter-company payable between the Borrower and the Guarantor
shall not, by virtue of such elimination alone, be deemed a Material Adverse
Change in either the Borrower or the
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Guarantor) or (ii) any event or occurrence which could have a material adverse
effect on the ability of the Borrower alone, DPI alone, or the Borrower and its
Consolidated Subsidiaries taken as a whole to perform its or their obligations
under the Loan Documents.
"Maturity Date" means December 30, 2002.
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"Multiemployer Plan" means a Plan described in Section 4001(a)(3) of ERISA
which covers employees of the Borrower or any ERISA Affiliate.
"Note" means the Revolving Credit Note.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permitted Acquisition" means an acquisition of the stock or assets of
another Person (an "Acquisition") which meets the following criteria: (i) either
the Borrower, the Guarantor or a Subsidiary of the Borrower or the Guarantor is
the acquiror and the surviving entity, (ii) the proposed acquiree is in the same
general line of business as the Borrower, the Guarantor or such Subsidiary (or
the assets to be acquired are utilized in the same general line of business as
the Borrower, the Guarantor or such Subsidiary, including cosmetics, health and
beauty aids and over-the-counter pharmaceuticals), (iii) the Acquisition is to
be non-hostile in nature, (iv) prior to and immediately following the
Acquisition, there shall not have occurred a Default or an Event of Default,
including, without limitation, any breach of Section 5.02(r) of the Agreement
(v) all material third party consents and approvals necessary in connection with
the Acquisition shall have been obtained and copies of which shall have been
delivered to the Bank, (vi) evidence that such stock or assets are to be
purchased free and clear of any liens or encumbrances other than any liens or
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encumbrances permitted under this Agreement and, in the case of stock, free of
any restrictions other than those under federal and state securities laws; (vii)
if the proposed acquiree becomes a Subsidiary of either the Borrower or the
Guarantor (x) the Bank and its counsel shall be reasonably satisfied with all
issues relating to the validity and adequacy of consideration for such
Subsidiary to guaranty the obligations of the Borrower and (y) such Subsidiary
shall immediately execute and deliver its Guaranty of the Borrower's obligations
to the Bank in form and substances reasonably satisfactory to the Bank and its
counsel, (viii) evidence that the proposed acquiree is in compliance in all
material respects with all environmental, federal, state and local laws, rules
and regulations with respect to all real estate which is to be acquired by the
acquiror and (ix) the aggregate consideration to be paid by the acquiror
(including without limitation, cash, stock, transaction costs, guarantees and
other contingent obligations, assumed liabilities, compensation to be paid to
former shareholders of the acquiree pursuant to any employment agreements,
consulting agreements or non-compete agreements, fees, earn-out provisions, any
deferred portions of the purchase price or any other costs paid in connection
with the Acquisition, collectively, the "Consideration") does not exceed the
limits set forth in Section 5.02 (d) of this Agreement.
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In addition to all Permitted Acquisitions meeting the above criteria, the
Bank shall have received not less than ten (10) days prior to the closing of
said Permitted Acquisition, for its satisfactory review and approval, the
following: (i) draft and final copies of all documentation, including but not
limited to, purchase agreements, shareholder agreements, employment or
consulting agreements, non-compete agreements, related to the Permitted
Acquisition as may be reasonably required by the Bank (provided that if the
draft copies of such documentation are received at least ten (10) days prior to
the closing of the Permitted Acquisition, the final copies of such document
shall be submitted prior to such closing); (ii) financial statements of the
proposed acquiree for the prior three (3) fiscal years, if such financial
statements are available to the Borrower, the Guarantor or the Subsidiary making
such Permitted Acquisition; (iii) a pro-forma consolidated and consolidating
balance sheet (including contingent obligations) and income statement of the
Borrower and its Consolidated Subsidiaries (including the proposed acquiree)
which includes the effect of the Permitted Acquisition; (iv) a certificate of
notice, executed and delivered by the Borrower's chief financial officer, which
(a) confirms compliance in all respects with all of the terms and conditions set
forth in this definition of "Permitted Acquisitions", (b) includes the purchase
price and the types and amounts of other Consideration to be paid or incurred in
connection with the Permitted Acquisition and (c)
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calculates and demonstrates that based upon the most recent fiscal quarter
results of the Borrower and its Consolidated Subsidiaries, and after taking into
account on a pro forma basis the proposed Permitted Acquisition, the Borrower
shall remain in compliance with all of the covenants set forth in Article V of
this Agreement including, but without limitation, Section 5.03; evidence,
satisfactory to the Bank that all assets and/or stock acquired in connection
with the Permitted Acquisition have been acquired free and clear of all liens
and encumbrances and free and clear of any restrictions on transfer (other than
liens or encumbrances permitted under Section 5.02(a) of this Agreement; and (v)
(a) evidence that the Acquisition shall not double the Consolidated Total
Liabilities (including non-perpetual preferred stock) and shall not result in a
leverage ratio as measured by Consolidated Total Liabilities (including
preferred stock described in clause (ix) of the definition of "Debt") to
Consolidated Total Assets ( the "Leverage Ratio") higher than 50%; or (b)
evidence that the Acquisition shall not result in a Leverage Ratio higher than
75% and shall not cause 25% or more of the Consolidated Total Liabilities
(including preferred stock described in clause (ix) of the definition of "Debt")
after the Acquisition to be derived from past or present buyouts, acquisitions
or recapitalizations; and (vii) such other information, documentation,
information (financial or otherwise) or certificates as the Bank shall
reasonably request, all in form and substance reasonably satisfactory to the
Bank.
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"Permitted Dividends" means, with respect to the Borrower, the payment of
(i) any dividend payable in stock of the Borrower or (ii) cash dividends which,
in any fiscal year of the Borrower, do not exceed, in the aggregate, fifteen
(15%) percent of the Borrower's consolidated net income for such fiscal year.
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"Permitted Investments" means, (i) direct obligations of the United States
of America or any governmental agency thereof, or obligations guaranteed by the
United States of America, provided that such obligations mature within one year
from the date of acquisition thereof; (ii) time certificates of deposit having a
maturity of one year or less issued by any commercial bank organized and
existing under the laws of the United States or any state thereof and having
aggregate capital and surplus in excess of $500,000,000.00; (iii) money market
mutual funds having assets in excess of $2,500,000,000; (iv) commercial paper
rated not less than P-1 or A-1 or their equivalent by Moody's Investor Services,
Inc. or Standard & Poor's Corporation, respectively; (v) tax exempt securities
rated Prime 2 or better by Moody's Investor Services, Inc. or A-1 or better by
Standard & Poor's Corporation; (vi) loans or advances between the Borrower and a
Guarantor; (vii) deposits in, and other investments made available by, European
American Bank or The Merchants Bank of New York; (viii) investments in, or loans
or advances to, wholly owned domestic Subsidiaries, provided that any such
investment, loan or advance made after the date of this Agreement shall be made
only in a domestic Subsidiary which is a Guarantor; (ix) investments in, or
loans or advances to, Foreign Subsidiaries, provided any such single investment
(valued at cost), loan or advance shall not exceed $10,000,000.00 and all such
investments (valued at cost), loans and advances shall not exceed
$12,500,000.00; and (x) loans or advances to employees of
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the Borrower or a Guarantor which do not exceed $2,000,000.00 in the aggregate
at any time.
"Permitted Stock Repurchases" means, with respect to the Borrower, (i) the
repurchase, in open market transactions, and from sellers which are not
Affiliates of the Borrower, of the common stock of the Borrower, (ii) the
repurchase of common stock of the Borrower from employees, officers or directors
of the Borrower and (iii) the repurchase of common stock of the Borrower from
participants in the Del Laboratories, Inc. Employee Stock Ownership Trust (the
"ESOT") and from the ESOT, and from participants in the 1984 Stock Option Plan
or the 1994 Stock Plan.
"Person" means an individual, partnership, corporation (including a
business trust), limited liability company, joint stock company, trust,
unincorporated association, joint venture or other entity or a federal, state or
local government, or a political subdivision thereof or any agency of such
government or subdivision.
"Plan" means any employee benefit plan established, maintained, or to
which contributions have been made by the Borrower or any ERISA Affiliate.
"Prime Rate" means the rate per annum announced by the Bank from time to
time as its prime rate in effect at its principal office on a 360-day basis;
each change in the Prime Rate shall be effective on the date such change is
announced to become effective.
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"Prohibited Transaction" means any transaction set forth in Section 406 of
ERISA or Section 4975 of the Internal Revenue Code of 1986, as amended from time
to time.
"Regulation D" means Regulation D of the Board of Governors, as the same
may be amended and in effect from time to time.
"Regulation G" means Regulation G of the Board of Governors, as the same
may be amended and in effect from time to time.
"Regulation T" means Regulation T of the Board of Governors, as the same
may be amended and in effect from time to time.
"Regulation U" means Regulation U of the Board of Governors, as the same
may be amended and in effect from time to time.
"Regulation X" means Regulation X of the Board of Governors, as the same
may be amended and in effect from time to time.
"Reportable Event" means any of the events set forth in Section 4043 of
ERISA.
"Revolving Credit Loans" shall have the meaning assigned to such term in
Section 2.01 of this Agreement.
"Revolving Credit Note" means a promissory note of the Borrower payable to
the order of the Bank, in substantially the form of Exhibit A annexed hereto,
evidencing the aggregate indebtedness of the Borrower to the Bank resulting from
Revolving Credit Loans made by the Bank to the Borrower pursuant to this
Agreement.
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"Senior Notes" means those promissory notes, executed and delivered by the
Borrower and evidencing the loans made to the Borrower, in the original
principal amount of $40,000,000.00, pursuant to a loan agreement dated as of May
26, 1993, as amended through the date of this Agreement as the same or as such
loan agreement may be further amended, modified or extended from time to time.
"Statutory Reserves" means a fraction (expressed as a decimal), the
numerator of which is the number one and the denominator of which is the number
one minus the aggregate of the maximum reserve percentages (including, without
limitation, any marginal, special, emergency, or supplemental reserves)
expressed as a decimal established by the Board of Governors or any other
banking authority to which the Bank is subject with respect to the Adjusted
LIBOR Rate for Eurocurrency Liabilities (as defined in Regulation D). Such
reserve percentages shall include, without limitation, those imposed under such
Regulation D. Eurodollar Loans shall be deemed to constitute Eurocurrency
Liabilities and as such shall be deemed to be subject to such reserve
requirements without benefit of or credit for proration, exceptions or offsets
which may be available from time to time to the Bank under such Regulation D.
Statutory Reserves shall be adjusted automatically on and as of the effective
date of any change in any reserve percentage.
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"Subordinated Debt" means Debt of any Person, the repayment of which the
obligee has agreed in writing, on terms which have been approved by the Bank in
advance in writing, shall be subordinate and junior to the rights of the Bank
with respect to Debt owing from such Person to the Bank.
"Subsidiary" means, as to any Person, any corporation, partnership or
joint venture whether now existing or hereafter organized or acquired (i) in the
case of a corporation, of which a majority of the securities having ordinary
voting power for the election of directors (other than securities having such
power only by reason of the happening of a contingency) are at the time owned by
such Person and/or one or more Subsidiaries of such Person or (ii) in the case
of a partnership or joint venture, of which a majority of the partnership or
other ownership interests are at the time owned by such Person and/or one or
more Subsidiaries of such Person.
"Unfunded Capital Expenditures" means Capital Expenditures financed other
than by the incurrence of Debt.
"Year 2000 Issue" means the risk of failure of computer software, hardware
and firmware systems and equipment containing embedded computer chips to
properly receive, transmit, process, manipulate, store, retrieve, re-transmit or
in any other way utilize data and information due to the occurrence of the year
2000 or the inclusion of dates on or after January 1, 2000.
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SECTION 1.02. Computation of Time Periods. In this Agreement in the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
means "to and including".
SECTION 1.03. Accounting Terms. Except as otherwise herein specifically
provided, each accounting term used herein shall have the meaning given to it
under GAAP.
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ARTICLE II
AMOUNT AND TERMS OF THE LOANS
SECTION 2.01. The Revolving Credit Loans. (a) The Bank agrees, on the date
of this Agreement, on the terms and conditions of this Agreement and in reliance
upon the representations and warranties set forth in this Agreement, to lend to
the Borrower prior to the Maturity Date such amounts as the Borrower may request
from time to time (individually, a "Revolving Credit Loan" or collectively, the
"Revolving Credit Loans"), which amounts may be borrowed, repaid and reborrowed,
provided, however, that the aggregate amount of such Revolving Credit Loans
outstanding at any one time shall not exceed TWENTY MILLION ($20,000,000.00)
DOLLARS (the "Commitment"), or such lesser amount of the Commitment as may be
reduced pursuant to Section 2.08 hereof. On the date of this Agreement, all
loans outstanding under the line of credit made available by the Bank to the
Borrower which bear interest at a rate based on the Adjusted Libor Rate shall be
deemed to be Revolving Credit Loans made under this Agreement.
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(b) Each Revolving Credit Loan shall be an Alternate Base Rate Loan or a
Eurodollar Loan (or a combination thereof) as the Borrower may request subject
to and in accordance with Section 2.02. The Bank may at its option make any
Eurodollar Loan by causing a foreign branch or affiliate to make such Loan,
provided that any exercise of such option shall not affect the obligation of the
Borrower to repay such Loan in accordance with the terms of the Revolving Credit
Note. Subject to the other provisions of this Agreement, Revolving Credit Loans
of more than one type may be outstanding at the same time, provided not more
than seven (7) Eurodollar Loans may be outstanding at the same time.
SECTION 2.02. Revolving Credit Loans; Notice, Continuation and Conversion.
(a) Each Revolving Credit Loan shall be (i) in the case of each Alternate
Base Rate Loan in the minimum principal amount of $250,000.00 and (ii) in the
case of each Eurodollar Loan in the minimum principal amount of $500,000.00 and
in increased integral multiples of $100,000.00 (except that, if any such
Alternate Base Rate Loan so requested shall exhaust the remaining available
Commitment, such Alternate Base Rate Loan may be in an amount equal to the
amount of the remaining available Commitment).
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(b) The Borrower shall give the Bank irrevocable written, telex, telephonic
(immediately confirmed in writing) or facsimile notice (i) at least three (3)
Business Days prior to each Revolving Credit Loan comprised in whole or in part
of one or more Eurodollar Loans (subject to availability, including, without
limitation, the conditions set forth in (c) below) or (ii) prior to 11:00 a.m.
on the day of each Revolving Credit Loan consisting solely of an Alternate Base
Rate Loan. Such notice shall specify the date of such borrowing, the amount
thereof and whether such Loan is to be (or what portion or portions thereof are
to be) an Alternate Base Rate Loan or a Eurodollar Loan and, if such Loan or any
portion thereof is to consist of one or more Eurodollar Loans, the principal
amounts thereof and Interest Period or Interest Periods with respect thereto. If
no election as to the Interest Period is specified in such notice with respect
to any Eurodollar Loan, the Borrower shall be deemed to have selected an
Interest Period of one month's duration and if a Eurodollar Loan is requested
when such Loans are not available, the Borrower shall be deemed to have
requested an Alternate Base Rate Loan.
(c) The Borrower shall have the right, on such notice to the Bank as is
required pursuant to (b) above, (i) to continue any Eurodollar Loan or a portion
thereof into a subsequent Interest Period (subject to availability) or (ii) to
convert an Alternate Base Rate Loan into a Eurodollar Loan (subject to
availability) subject to the following:
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(1) if an Event of Default shall have occurred and be continuing at
the time of any proposed conversion or continuation only Alternate Base Rate
Loans shall be available;
(2) in the case of a continuation or conversion of fewer than all
Loans, the aggregate principal amount of each Eurodollar Loan continued or into
which a Loan is converted shall be in the minimum principal amount of
$500,000.00 and in increased integral multiples of $100,000.00;
(3) each continuation or conversion of a Eurodollar Loan shall be
effected by the new Loan replacing the Loan (or portion thereof) being continued
or converted;
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(4) if the new Loan made as a result of a continuation or conversion
shall be a Eurodollar Loan, the first Interest Period with respect thereto shall
commence on the date of continuation or conversion;
(5) each request for a Eurodollar Loan which shall fail to state an
applicable Interest Period shall be deemed to be a request for an Interest
Period of one month and each request for a Eurodollar Loan made when such Loans
are not available shall be deemed to be a request for an Alternate Base Rate
Loan; and
(6) in the event that the Borrower shall not give notice to continue
a Eurodollar Loan as provided above, such Loan shall automatically be converted
into an Alternate Base Rate Loan at the expiration of the then current Interest
Period.
SECTION 2.03. Revolving Credit Note. Each Revolving Credit Loan shall be
evidenced by the Revolving Credit Note of the Borrower. The Revolving Credit
Note shall be dated the date hereof and be in the principal amount of
$20,000,000.00, and shall mature on the Maturity Date, at which time the entire
outstanding principal balance and all interest thereon shall be due and payable
and the Commitment shall be terminated. The Revolving Credit Note shall be
entitled to the benefits and subject to the provisions of this Agreement.
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<PAGE>
At the time of the making of each Revolving Credit Loan and at the time of
each payment of principal thereon, the holder of the Revolving Credit Note is
hereby authorized by the Borrower to make a notation on the schedule annexed to
the Revolving Credit Note of the date and amount, and the type and Interest
Period of the Revolving Credit Loan or payment, as the case may be. Failure to
make a notation with respect to any Revolving Credit Loan shall not limit or
otherwise affect the obligation of the Borrower hereunder or under the Revolving
Credit Note with respect to such Revolving Credit Loan, and any payment of
principal on the Revolving Credit Note by the Borrower shall not be affected by
the failure to make a notation thereof on said schedule.
SECTION 2.04. Payment of Interest on the Revolving Credit Note.
(a) In the case of an Alternate Base Rate Loan, interest shall be payable
at a rate per annum (computed on the basis of the actual number of days elapsed
over a year of 360 days) equal to the Alternate Base Rate. Such interest shall
be payable on each Interest Payment Date, commencing with the first Interest
Payment Date after the date of such Alternate Base Rate Loan, on each Interest
Determination Date and on the Maturity Date. Any change in the rate of interest
on the Revolving Credit Note due to a change in the Alternate Base Rate shall
take effect as of the date of such change in the Alternate Base Rate.
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<PAGE>
(b) In the case of a Eurodollar Loan, interest shall be payable at a rate
per annum (computed on the basis of the actual number of days elapsed over a
year of 360 days) equal to the Adjusted LIBOR Rate plus the Applicable Margin.
Such interest shall be payable on each Interest Payment Date, commencing with
the first Interest Payment Date after the date of such Eurodollar Loan, on each
Interest Determination Date and on the Maturity Date. In the event Eurodollar
Loans are available, the Bank shall determine the rate of interest applicable to
each requested Eurodollar Loan for each Interest Period at 11:00 a.m., New York
City time, or as soon as practicable thereafter, two (2) Business Days prior to
the commencement of such Interest Period and shall notify the Borrower of the
rate of interest so determined. Such determination shall be conclusive absent
manifest error.
SECTION 2.05. Applicable Margin The Applicable Margin for Revolving Credit
Loans shall be determined on the basis of the Borrower's Debt to EBITDA Ratio
(Applicable Margin), as calculated based on the Borrower's consolidated
financial statements for its most recent fiscal year or quarter. The Bank shall
determine the Applicable Margin within five (5) Business Days after it has
received the financial statements of the Borrower as required by Section
5.01(b)(i) or (ii), as applicable. The Bank shall promptly notify the Borrower
of such determination, which shall be conclusive, in the absence of manifest
error. The Applicable Margin shall be determined as follows:
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(i) The initial Applicable Margin shall be 85 basis points and shall be
applicable until five (5) Business Days after delivery of the Borrower's
consolidated financial statements for its fiscal year ending December 31, 1998
pursuant to Section 5.01(b) hereof.
Beginning five (5) Business Days after delivery of the Borrower's
consolidated financial statements for the fiscal year ending December 31, 1998,
and for each fiscal year or quarter thereafter:
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(ii) If the Borrower's Debt to EBITDA Ratio (Applicable Margin) as of the
end of such fiscal year or quarter is equal to or less than 1.50 to 1.00, the
Applicable Margin shall be 70 basis points.
(iii) If the Borrower's Debt to EBITDA Ratio (Applicable Margin) as of the
end of such fiscal year or quarter is greater than 1.50 to 1.00 but equal to or
less than 2.00 to 1.00, the Applicable Margin shall be 85 basis points.
(iv) If the Borrower's Debt to EBITDA Ratio (Applicable Margin) as of the
end of such fiscal year or quarter is greater than 2.00 to 1.00, but equal to or
less than 2.25 to 1.00, the Applicable Margin shall be 100 basis points.
(v) If the Borrower's Debt to EBITDA Ratio (Applicable Margin) as of the
end of such fiscal year or quarter is greater than 2.25 to 1.00, but equal to or
less than 2.50 to 1.00, the Applicable Margin shall be 125 basis points.
(vi) If the Borrower's Debt to EBITDA Ratio (Applicable Margin) as of the
end of such fiscal year or quarter is greater than 2.50 to 1.00, the Applicable
Margin shall be 150 basis points.
The Applicable Margin for any Eurodollar Loan shall change during the term
of such Eurodollar Loan as a result of this Section 2.05.
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<PAGE>
In the event that the Borrower fails to deliver any financial statements
and the related certificate on the due date therefor set forth in Section
5.01(b)(i) or (ii) hereof, unless an Event of Default is declared as a result of
such failure, the Applicable Margin shall be 150 basis points until the Borrower
delivers all required financial statements and certificates at which time the
Applicable Margin shall be redetermined as provided for in this Section 2.05.
Upon the occurrence and during the continuance of a Default or an Event of
Default the Applicable Margin may, as a result of changes in the Borrower's Debt
to EBITDA Ratio (Applicable Margin), increase but will not decrease.
SECTION 2.06 Use of Proceeds. The proceeds of the Revolving Credit Loans
shall be used by the Borrower (i) to refinance (subject to the last sentence of
Section 2.01(a) of this Agreement) existing Debt owing to the Bank, (ii) to
refinance Debt owing to European American Bank, (iii) for working capital, (iv)
to fund Capital Expenditures, (v) to finance Permitted Acquisitions or (vi) for
general corporate purposes, including the repurchase of the Borrower's common
stock. No part of the proceeds of any Loan may be used for any purpose that
directly or indirectly violates or is inconsistent with, the provisions or
Regulations G, T, U or X.
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<PAGE>
SECTION 2.07. Commitment Fee. (a) The Borrower agrees to pay to the Bank
from the date of this Agreement and for so long as the Commitment remains
outstanding, on the last Business Day of each calendar quarter, a commitment fee
computed at the rate set forth below, based on the Borrower's Debt to EBITDA
Ratio (Applicable Margin) (computed on the basis of the actual number of days
elapsed over 360 days) on the average daily unused amount of the Commitment,
such commitment fee being payable for the calendar quarter, or part thereof,
preceding the payment date.
(b) The commitment fee shall be determined on the basis of the Borrower's
Debt to EBITDA Ratio (Applicable Margin), as calculated based on the Borrower's
consolidated financial statements for its most recent fiscal year or quarter.
The Bank shall determine the commitment fee within five (5) Business Days after
it has received the financial statements of the Borrower as required by Section
5.01(b)(i) or (ii), as applicable. The Bank shall promptly notify the Borrower
of such determination, which shall be conclusive, in the absence of manifest
error. The commitment fee shall be determined as follows:
(i) The initial commitment fee shall be 12.5 basis points and shall be
applicable until five (5) Business Days after delivery of the Borrower's
consolidated financial statements for its fiscal year ending December 31, 1998
pursuant to Section 5.01(b) hereof.
Beginning five (5) Business Days after delivery of the Borrower's
consolidated financial statements for the fiscal year
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<PAGE>
ending December 31, 1998, and for each fiscal year or quarter thereafter:
(ii) If the Borrower's Debt to EBITDA Ratio (Applicable Margin) as of the
end of such fiscal year or quarter is equal to or less than 2.25 to 1.00, the
commitment fee shall be 12.5 basis points.
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<PAGE>
(iii) If the Borrower's Debt to EBITDA Ratio (Applicable Margin) as of the
end of such fiscal year or quarter is greater than 2.25 to 1.00, the commitment
fee shall be 25 basis points.
In the event that the Borrower fails to deliver any financial statements
and the related certificate on the due date therefor set forth in Section
5.01(b)(i) or (ii) hereof, the commitment fee shall be 25 basis points until the
Borrower delivers all required financial statements and certificates at which
time the commitment fee shall be redetermined as provided for in this Section
2.07.
Upon the occurrence and during the continuance of a Default or an Event of
Default the commitment fee may, as a result of changes in the Borrower's Debt to
EBITDA Ratio (Applicable Margin), increase but will not decrease.
SECTION 2.08. Reduction of Commitment. Upon at least three (3) Business
Days' written notice, the Borrower may irrevocably elect to have the unused
Commitment terminated in whole or reduced in part provided, however, that any
such partial reduction shall be in a minimum amount of $1,000,000.00, or whole
multiples thereof. The Commitment, once terminated or reduced, shall not be
reinstated without the express written approval of the Bank.
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<PAGE>
SECTION 2.09. Prepayment. (a) The Borrower shall have the right at any
time and from time to time to prepay any Alternate Base Rate Loan, in whole or
in part, without premium or penalty on the same day on which telephonic notice
is given to the Bank (immediately confirmed in writing) of such prepayment
provided, however, that each such prepayment shall be on a Business Day and
shall be in a minimum principal amount of $250,000.00
(b) The Borrower shall have the right at any time and from time to time,
subject to the provisions of this Agreement, to prepay any Eurodollar Loan, in
whole or in part, on three (3) Business Days' prior irrevocable written notice
to the Bank, provided, however, that (i) each such prepayment shall be on a
Business Day and shall be in a minimum principal amount of $500,000.00 and in
increased integral multiples of $100,000.00 and (ii) each such prepayment shall
be subject to the provisions of Section 2.10 of this Agreement.
(c) The notice of prepayment under this Section 2.09 shall set forth the
prepayment date and the principal amount of the Loan being prepaid and shall be
irrevocable and shall commit the Borrower to prepay such Loan by the amount and
on the date stated therein. All prepayments shall be accompanied by accrued
interest on the principal amount being prepaid to the date of prepayment. Each
prepayment under this Section 2.09 shall be applied first towards unpaid
interest on the amount being prepaid and then towards the principal in whole or
partial prepayment of Loans by the Borrower. In the absence of such
specification, amounts being
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prepaid shall be applied first to any Alternate Base Rate Loan then outstanding
and then to Eurodollar Loans in the order of the expiration of their respective
Interest Periods.
SECTION 2.10. Reimbursement by Borrower.
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The Borrower shall reimburse the Bank upon the Bank's demand for any loss,
cost or expense incurred or to be incurred by it (in the Bank's sole
determination) as a result of any prepayment or conversion (whether voluntarily
or by acceleration) of any Eurodollar Loan other than on the last day of the
Interest Period for such Loan, or if the Borrower fails to borrow the Eurodollar
Loan (or is not able to borrow because of a Default or an Event of Default or
for any other reason hereunder) after having given the irrevocable notice of
borrowing required by this Agreement. Such reimbursement shall include, but not
be limited to, any loss, cost or expense incurred by the Bank in obtaining,
liquidating or redeploying any funds used or to be used in making or maintaining
the Eurodollar Loan.
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SECTION 2.11. Statutory Reserves. It is understood that the cost to the
Bank of making or maintaining Eurodollar Loans may fluctuate as a result of the
applicability of, or change in, Statutory Reserves. The Borrower agrees to pay
to the Bank from time to time, as provided in Section 2.12 below, such amounts
as shall be necessary to compensate the Bank for the portion of the cost of
making or maintaining any Eurodollar Loans made by it resulting from any such
Statutory Reserves, or change therein, it being understood that the rates of
interest applicable to Eurodollar Loans hereunder have been determined on the
basis of Statutory Reserves in effect at the time of determination of the
Adjusted LIBOR Rate, and that such rate does not reflect costs imposed on the
Bank in connection with any change to such Statutory Reserves. It is agreed
that, for purposes of this paragraph, the Eurodollar Loans made hereunder shall
be deemed to constitute Eurocurrency Liabilities as defined in Regulation D and
to be subject to the reserve requirements of Regulation D without benefit or
credit of proration, exemptions or offsets which might otherwise be available to
the Bank from time to time under Regulation D.
SECTION 2.12. Increased Costs. If, after the date of this Agreement, the
adoption of, or any change in, any applicable law, regulation, rule or
directive, or any interpretation thereof by any authority charged with the
administration or interpretation thereof:
(i) subjects the Bank to any tax with respect to its Commitment, the
Loans, the Note or on any amount paid or to be paid
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under or pursuant to this Agreement, the Commitment, the Loans or the Note
(other than any tax measured by or based upon the overall net income of the
Bank);
(ii) changes the basis of taxation of payments to the Bank of any
amounts payable hereunder (other than any tax measured by or based upon the
overall net income of the Bank);
(iii) imposes, modifies or deems applicable any reserve, capital
adequacy or deposit requirements against any assets held by, deposits with or
for the account of, or loans made by, the Bank; or
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(iv) imposes on the Bank any other condition affecting its
Commitment, the Loans, the Note or this Agreement; and the result of any of the
foregoing is to increase the cost to the Bank of maintaining this Agreement or
the Commitment or making the Loans, or to reduce the amount of any payment
(whether of principal, interest or otherwise) receivable by the Bank or to
require the Bank to make any payment on or calculated by reference to the gross
amount of any sum received by it, in each case by an amount which the Bank in
its reasonable judgment deems material, then and in any such case:
(a) the Bank shall promptly advise the Borrower of such event,
together with the date thereof, the amount of such increased cost or
reduction or payment and the way in which such amount has been calculated;
and
(b) the Borrower shall pay to the Bank, within ten (10) days after
the advice referred to in subsection (a) hereinabove, such an amount or
amounts as will compensate the Bank for such additional cost, reduction or
payment for so long as the same shall remain in effect.
The determination of the Bank as to additional amounts payable
pursuant to this Section 2.12 shall be conclusive evidence of such amounts
absent manifest error.
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SECTION 2.13. Capital Adequacy. If the Bank shall have determined that the
applicability of any law, rule, regulation or guideline, or the adoption after
the date hereof of any other law, rule, regulation or guideline regarding
capital adequacy, or any change in any of the foregoing or in the interpretation
or administration of any of the foregoing by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by the Bank (or any lending office of the Bank) or the
Bank's holding company with any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on the Bank's capital or on the capital of the Bank's holding company, if any,
as a consequence of its obligations hereunder to a level below that which the
Bank or the Bank's holding company could have achieved but for such adoption,
change or compliance (taking into consideration the Bank's policies and the
policies of the Bank's holding company with respect to capital adequacy) by an
amount reasonably deemed by the Bank to be material, then and in any such case:
(a) the Bank shall promptly advise the Borrower of such event,
together with the date thereof, the amount of such reduction and the way
in which such amount has been calculated; and
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(b) the Borrower shall pay to the Bank, within ten (10) days after
the advice referred to in subsection (a) hereinabove, such an amount or
amounts as will compensate the Bank for such reduction for so long as the
same shall remain in effect.
The determination of the Bank as to additional amounts payable
pursuant to this Section 2.13 shall be conclusive evidence of such amounts
absent manifest error.
SECTION 2.14. Change in Legality. (a) Notwithstanding anything to the
contrary contained elsewhere in this Agreement, if any change after the date
hereof in law, rule, regulation, guideline or order, or in the interpretation
thereof by any governmental authority charged with the administration thereof,
shall make it unlawful for the Bank to make or maintain any Eurodollar Loan or
to give effect to its obligations as contemplated hereby with respect to a
Eurodollar Loan, then, by written notice to the Borrower, the Bank may:
(i) declare that Eurodollar Loans will not thereafter be made
hereunder, whereupon the Borrower shall be prohibited from requesting such
Eurodollar Loans hereunder unless such declaration is subsequently
withdrawn; and
(ii) require that, subject to the provisions of Section 2.10, all
outstanding Eurodollar Loans made by it be converted to an Alternate Base
Rate Loan, whereupon all of such Eurodollar Loans shall be automatically
converted to an
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Alternate Base Rate Loan as of the effective date of such notice as
provided in paragraph (b) below.
(b) For purposes of this Section 2.14, a notice to the Borrower by
the Bank pursuant to paragraph (a) above shall be effective, for the purposes of
paragraph (a) above, if lawful, and if any Eurodollar Loans shall then be
outstanding, on the last day of the then current Interest Period; otherwise,
such notice shall be effective on the date of receipt by the Borrower.
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SECTION 2.15. Indemnity. The Borrower will indemnify the Bank against any
loss or expense which the Bank may sustain or incur as a consequence of any
default in payment or prepayment of the principal amount of any Eurodollar Loan
or any part thereof or interest accrued thereon, as and when due and payable (at
the due date thereof, by notice of prepayment or otherwise), or the occurrence
of any Event of Default, including but not limited to any loss or expense
sustained or incurred in liquidating or employing deposits from third parties
acquired to affect or maintain such Eurodollar Loan or any part thereof. When
claiming under this Section 2.15, the Bank shall provide to the Borrower a
statement, signed by an officer of the Bank, explaining the amount of any such
loss or expense (including the calculation of such amount), which statement
shall, in the absence of manifest error, be conclusive with respect to the
parties hereto.
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SECTION 2.16. Change in LIBOR; Availability of Rates. In the event, and on
each occasion, that, on the day the interest rate for any Eurodollar Loan is to
be determined, the Bank shall have reasonably determined (which determination,
absent manifest error, shall be conclusive and binding upon the Borrower) that
dollar deposits in the amount of the principal amount of the requested
Eurodollar Loan are not generally available in the London interbank market, or
that the rate at which such dollar deposits are being offered will not
adequately and fairly reflect the cost to the Bank of making or maintaining the
principal amount of such Eurodollar Loan during such Interest Period, such
Eurodollar Loan shall be unavailable. The Bank shall, as soon as practicable
thereafter, given written, telex or telephonic notice of such determination of
unavailability to the Borrower. Any request by the Borrower for an unavailable
Eurodollar Loan shall be deemed to have been a request for an Alternate Base
Rate Loan. After such notice shall have been given and until the Bank shall have
notified the Borrower that the circumstances giving rise to such notice no
longer exist, each subsequent request for an unavailable Eurodollar Loan shall
be deemed to be a request for an Alternate Base Rate Loan.
SECTION 2.17. Authorization to Debit Borrower's Account. The Bank is
hereby authorized to debit the Borrower's account maintained with the Bank for
(i) all scheduled payments of principal and/or interest under the Note, and (ii)
the commitment fee and all other amounts due hereunder; all such debits to be
made
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on the days such payments are due in accordance with the terms hereof.
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SECTION 2.18. Late Charges, Default Interest. (a) If the Borrower shall
default in the payment of any principal installment of or interest on any Loan
or any other amount becoming due hereunder, the Borrower shall pay interest, to
the extent permitted by law, on such defaulted amount up to the date of actual
payment (after as well as before judgment) at a rate per annum (computed on the
basis of the actual number of days elapsed over a year of 360 days) equal to (i)
the amount of principal, interest, fees and/or other amounts due (the "Past Due
Amount") times (ii) two (2%) percent in excess of the interest rate otherwise in
effect with respect to the type of Loan in connection with which the required
payments have not been made, or, if no such interest rate is in effect, two (2%)
percent in excess of the Alternate Base Rate, times (ii) the number of days the
Past Due Amount is delinquent.
(b) Upon the occurrence and during the continuation of an Event of
Default, the Borrower shall pay interest on all amounts owing under the Note and
this Agreement (after as well as before judgment) at a rate per annum (computed
on the basis of the actual number of days elapsed over a year of 360 days) equal
to two (2%) percent in excess of the interest rate otherwise in effect
hereunder.
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SECTION 2.19. Payments. All payments by the Borrower hereunder or under
the Note shall be made in Dollars in immediately available funds at the office
of the Bank by 12:00 noon, New York City time on the date on which such payment
shall be due. Interest on the Note shall accrue from and including the date of
each Loan to but excluding the date on which such Loan is paid in full or
refinanced with a Loan of a different type.
SECTION 2.20. Interest Adjustments. (a) If the provisions of this
Agreement or the Note would at any time otherwise require payment by the
Borrower to the Bank of any amount of interest in excess of the maximum amount
then permitted by applicable law the interest payments shall be reduced to the
extent necessary so that the Bank shall not receive interest in excess of such
maximum amount. To the extent that, pursuant to the foregoing sentence, the Bank
shall receive interest payments hereunder or under the Note in an amount less
than the amount otherwise provided, such deficit (hereinafter called the
"Interest Deficit") will cumulate and will be carried forward (without interest)
until the termination of this Agreement. Interest otherwise payable to the Bank
hereunder and under the Note for any subsequent period shall be increased by
such maximum amount of the Interest Deficit that may be so added without causing
the Bank to receive interest in excess of the maximum amount then permitted by
applicable law.
(b) The amount of the Interest Deficit on the Maturity Date shall be
cancelled and not paid.
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SECTION 2.21. Participations, Etc. The Bank shall have the right at any
time, to sell, assign, transfer or negotiate all or any part of the Note or the
Commitment or grant participations therein to one or more banks (foreign or
domestic, including an affiliate of the Bank), insurance companies or other
financial institutions, pension funds or mutual funds, provided that (i) any
such sale, assignment, transfer or negotiation shall be with the consent of the
Borrower, such consent not to be unreasonably withheld or delayed and provided
further that the Borrower's consent shall not be required if any Default or
Event of Default has occurred and is continuing and (ii) as long as no Default
or Event of Default has occurred and is continuing, the Bank agrees to retain at
least fifty one (51%) percent of the Commitment and outstanding Loans. The
Borrower and the Guarantor agree and consent to the Bank providing financial and
other information regarding their business and operations to prospective
purchasers or participants (provided that such prospective purchasers or
participants shall agree in writing to be bound by the provisions of Section
7.09 hereof prior to receiving any information regarding the Borrower or any of
its Subsidiaries) and further agree that to the extent that the Bank should
sell, assign, transfer or negotiate all or any part of the Note or the
Commitment, the Bank shall be forever released and discharged from its
obligations under the
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Note, the Commitment and this Agreement to the extent same is sold,
assigned, transferred or negotiated. Nothing herein shall be read or construed
as prohibiting or otherwise limiting the ability or right of the Bank to pledge
any Note to a Federal Reserve Bank.
ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. Conditions Precedent to the Making of the Initial Revolving
Credit Loan. The obligation of the Bank to make the initial Revolving Credit
Loan contemplated by this Agreement is subject to the condition precedent that
the Bank shall have received from the Borrower and the Guarantor the following,
in form and substance satisfactory to the Bank and its counsel:
(a) The Revolving Credit Note duly executed and payable to the order of
the Bank.
(b) Certified (as of the date of this Agreement) copies of the resolutions
of the Board of Directors of the Borrower authorizing the Loans and authorizing
and approving this Agreement and the other Loan Documents and the execution,
delivery and performance thereof and certified copies of all documents
evidencing other necessary corporate action and governmental approvals, if any,
with respect to this Agreement and the other Loan Documents.
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(c) Certified (as of the date of this Agreement) copies of the resolutions
of the Board of Directors and the shareholders of the Guarantor, authorizing and
approving this Agreement, its Guaranty and any other Loan Document applicable to
the Guarantor, and the execution, delivery and performance thereof and certified
copies of all documents evidencing other necessary corporate action and
governmental approvals, if any, with respect to this Agreement, its Guaranty and
the other Loan Documents.
(d) A certificate of the Secretary or an Assistant Secretary (attested to
by another officer) of the Borrower certifying: (i) the names and true
signatures of the officer or officers of the Borrower authorized to sign this
Agreement, the Revolving Credit Note and the other Loan Documents to be
delivered hereunder on behalf of the Borrower; and (ii) a copy of the Borrower's
by-laws as complete and correct on the date of this Agreement.
(e) A Certificate of the Secretary or an Assistant Secretary (attested to
by another officer) of the Guarantor certifying (i) the names and true
signatures of the officer or officers of the Guarantor authorized to sign this
Agreement, its Guaranty and any other Loan Documents to be delivered hereunder
on behalf of the Guarantor; (ii) a copy of the Guarantor's by-laws as complete
and correct on the date of this Agreement; and (iii) the stock ownership of the
Guarantor.
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(f) Copies of the certificate of incorporation and all amendments thereto
of the Borrower and the Guarantor, certified in each case by the Secretary of
State (or equivalent officer) of the state of incorporation of the Borrower and
the Guarantor and a certificate of existence and good standing with respect to
the Borrower and the Guarantor from the Secretary of State (or equivalent
officer) of the state of incorporation of the Borrower and the Guarantor and
from the Secretary of State (or equivalent officer) of any state in which the
Borrower or the Guarantor is authorized to do business.
(g) An opinion of O'Sullivan, Graev and Karabell, LLP, counsel for the
Borrower and the Guarantor as to certain matters referred to in Article IV
hereof and as to such other matters as the Bank or its counsel may reasonably
request.
(h) From the Guarantor, an executed Guaranty.
(i) Evidence that the Borrower and the Guarantor maintain adequate
casualty and liability insurance, with financially sound and reputable insurance
companies or associations, in such amounts and covering such risks as are
usually carried by companies engaged in similar businesses and owning properties
and doing business in the same general areas in which the Borrower and the
Guarantor operate.
(j) Receipt and satisfactory review by the Bank of all credit agreements
and other similar agreements described in Section 4.01(t) of this Agreement.
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(k) Receipt and satisfactory review by the Bank of an amendment,
modification or waiver of applicable provisions of the agreements relating to
the Senior Notes which allow for this Agreement and the transactions
contemplated hereby.
(l) Reduction of the line of credit from the Bank to the Borrower from
$15,000,000.00 of availability to $10,000,000.00 of availability.
(m) Receipt and satisfactory review by the Bank of the management prepared
consolidating financial statements of the Borrower and its Consolidated
Subsidiaries for the nine month period ended September 30, 1998.
(n) Receipt and satisfactory review by the Bank of the management letter
issued in connection with the audit of the Borrower's consolidated financial
statements for the year ended December 31, 1997.
(o) The following statements shall be true and the Bank shall have
received a certificate signed by the President or the Chief Financial Officer of
the Borrower dated the date hereof, stating that:
(i) The representations and warranties contained in Article IV of
this Agreement and in the Loan Documents are true and correct in all material
respects on and as of such date, except for those relating to an earlier date,
which shall remain true and correct as of such earlier date; and
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(ii) No Default or Event of Default has occurred and is continuing,
or would result from the making of the initial Revolving Credit Loan.
(p) Receipt by the Bank of the remaining balance ($50,000.00) of its
facility fee.
(q) All schedules, documents, certificates and other information provided
to the Bank pursuant to or in connection with this Agreement shall be reasonably
satisfactory to the Bank and its counsel in all respects.
(r) All legal matters incident to this Agreement and the transactions
contemplated hereby shall be satisfactory to Cullen and Dykman, counsel to the
Bank.
(s) Receipt by the Bank of such other approvals, opinions or documents as
the Bank or its counsel may reasonably request.
(t) Payment by the Borrower of the reasonable fees and expenses of counsel
to the Bank.
SECTION 3.02. Conditions Precedent to All Revolving Credit Loans. The
obligation of the Bank to make each Revolving Credit Loan (including the initial
Revolving Credit Loan) shall be subject to the further condition precedent that
on the date of such Revolving Credit Loan:
(a) The following statements shall be true and the Bank shall have
received a certificate signed by the President or the Chief Financial Officer of
the Borrower dated the date of such Revolving Credit Loan, stating that:
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(i) The representations and warranties contained in Article IV of
this Agreement and in the Loan Documents are true and correct in all material
respects on and as of such date as though made on and as of such date except for
those that relate to an earlier date which shall remain true and correct as of
such earlier date; and
(ii) No Default or Event of Default has occurred and is continuing,
or would result from such Revolving Credit Loan.
(b) The Bank shall have received such other approvals, opinions or
documents as the Bank may reasonably request.
SECTION 3.03. Conditions Precedent to Revolving Credit Loans Used to Fund
Permitted Acquisitions. The obligation of the Bank to make each Revolving Credit
Loan the proceeds of which are to be used, in whole or in part, to fund a
Permitted Acquisition, shall be subject to the further condition precedent that
on the date of such Revolving Credit Loan;
(a) The Bank shall have received evidence, satisfactory to the Bank, that
all conditions and qualifications set forth in the definition of "Permitted
Acquisition" shall have been met, provided, however, for any Permitted
Acquisition, the Consideration for which does not exceed $5,000,000.00, the
Borrower shall not be required to deliver the documents referred to in the
second paragraph of the definition of "Permitted Acquisition" but shall instead
deliver to the Bank a summary of such Permitted Acquisition
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with calculations evidencing continued compliance with the provisions of Section
5.03 of this Agreement.
(b) Subject to the provisions of Section 5.01 (k) of this Agreement, the
Bank shall have received the Guaranty of any new Subsidiary formed and/or
acquired as a result of the Permitted Acquisition.
(c) The Bank shall have received and satisfactorily reviewed evidence that
no Default or Event of Default shall occur as a result of the Permitted
Acquisition, including, without limitation, evidence of compliance with Section
5.02(r) of this Agreement.
(d) The Bank shall have received and satisfactorily reviewed all consents
and approvals from third parties necessary for the Permitted Acquisition.
(e) The following statements shall be true and the Bank shall have
received a certificate signed by the President or the Chief Financial Officer of
the Borrower dated the date of such Revolving Credit Loan, stating that (i) the
representations and warranties contained in Article IV of this Agreement and in
the Loan Documents are true and correct in all material respects on and as of
such date as though made on and as of such date except for those that relate to
an earlier date, which shall remain true and correct as of such earlier date;
(ii) no Default or Event of Default has occurred and is continuing, or would
result from such Revolving Credit Loan or such Permitted Acquisition; and (iii)
all of the covenants set forth in Section 5.03 of this Agreement shall be
complied with immediately before and following the Permitted Acquisition, with
calculations evidencing such compliance.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties. On the date hereof and, on
each date that the Borrower requests a Revolving Credit Loan, the Borrower and
the Guarantor each represent and warrant as follows:
(a) Subsidiaries. On the date hereof, the only Subsidiaries of the
Borrower or the Guarantor are those set forth on Schedule 4.01(a) annexed
hereto, which Schedule accurately sets forth with respect to each such
Subsidiary, its name and address, any other addresses at which it conducts
business, its state of incorporation and each other jurisdiction in which it is
qualified to do business and the identity and share holdings of its
stockholders. Except as set forth on Schedule 4.01(a), all of the issued and
outstanding shares of each Subsidiary which are owned by the Borrower or the
Guarantor are owned by the Borrower or the Guarantor free and clear of any
mortgage, pledge, lien or encumbrance, other than Liens permitted by Section
5.02(a) of this Agreement. Except as set forth on Schedule 4.01(a) and except
for options granted under the 1984 Stock Option Plan or the 1994 Stock Plan,
there are no outstanding warrants, options, contracts or commitments of any kind
entitling any Person to purchase or otherwise acquire any shares of common or
capital stock or other equity interest of the Borrower, the
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Guarantor or any Subsidiary of the Borrower or the Guarantor, nor are there
outstanding any securities which are convertible into or exchangeable for any
shares of the common or capital stock of the Borrower, the Guarantor or any
Subsidiary of the Borrower or the Guarantor.
(b) Organization; Good Standing. The Borrower, the Guarantor and each
Subsidiary of the Borrower or the Guarantor are each a corporation duly
incorporated, validly existing and in good standing under the laws of their
respective jurisdictions of incorporation and each has the corporate power to
own its assets and to transact the business in which it is presently engaged and
is duly qualified and is in good standing in all other jurisdictions where the
failure to so qualify would be reasonably likely to result in a Material Adverse
Change.
(c) Loan Documents; No Consents or Violations. The execution, delivery and
performance by the Borrower and the Guarantor of the Loan Documents to which
they are a party are within the Borrower's and the Guarantor's corporate power
and have been duly authorized by all necessary corporate action and do not and
will not (i) require any consent or approval of the stockholders of the Borrower
or the Guarantor (other than those previously obtained and appropriate evidence
of which has been delivered to the Bank); (ii) do not contravene the Borrower's
or the Guarantor's certificate of incorporation, charter or by-laws; (iii)
violate any provision of or any law, rule, regulation, contractual restriction,
order, writ, judgment, injunction, or decree, determination or award binding on
or affecting the Borrower or the Guarantor; (iv) result in a breach
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of or constitute a default under any indenture or loan or credit agreement, or
any other material agreement, lease or instrument to which the Borrower or the
Guarantor is a party or by which it or its properties may be bound or affected;
and (v) result in, or require, the creation or imposition of any Lien upon or
with respect to any of the properties now owned or hereafter acquired by the
Borrower or the Guarantor.
(d) Authorization. No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body is
required for the due execution, delivery and performance by the Borrower or the
Guarantor of any Loan Document to which it is a party, except authorizations,
approvals, actions, notices or filings which have been obtained, taken or made,
as the case may be.
(e) Validity and Enforceability. The Loan Documents, when delivered
hereunder, will have been duly executed and delivered on behalf of the Borrower
and the Guarantor, as the case may be, and will be legal, valid and binding
obligations of the Borrower and the Guarantor, as the case may be, enforceable
against the Borrower or the Guarantor in accordance with their respective terms.
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(f) Financial Statements. The consolidated financial statements of the
Borrower and its Consolidated Subsidiaries for the fiscal year ended December
31, 1997, and for the nine (9) month period ended September 30, 1998 copies of
each of which have been furnished to the Bank, (i) fairly present in all
material respects the financial condition of the Borrower and its Consolidated
Subsidiaries as at such dates and the results of operations of the Borrower and
its Consolidated Subsidiaries for the periods ended on such dates, all in
accordance with GAAP, subject, in the case of the interim financial statements,
to year end adjustments and the absence of footnotes, (ii) between December 31,
1997 and the date of this Agreement there has been (x) no material increase in
the consolidated liabilities of the Borrower and its Consolidated Subsidiaries,
other than increases in liabilities resulting solely from increased borrowings
under the Borrower's existing lines of credit and (y) no Material Adverse Change
and (iii) except as disclosed on such financial statements or the notes thereto,
there are no undisclosed liabilities of the Borrower or any of its Consolidated
Subsidiaries, contingent or otherwise required to be disclosed therein.
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(g) Litigation. There is no pending or to the Borrower's or the
Guarantor's knowledge, threatened action, proceeding or investigation affecting
the Borrower, the Guarantor or any Subsidiary of the Borrower or the Guarantor,
before any court, governmental agency or arbitrator, which would either in one
case or in the aggregate, be reasonably likely to result in a Material Adverse
Change.
(h) Taxes. The Borrower, the Guarantor and each Subsidiary of the Borrower
or the Guarantor have filed all federal, state and local tax returns required to
be filed and have paid all taxes, assessments and governmental charges and
levies thereon to be due, including interest and penalties, unless and only to
the extent that (i) such taxes are being contested in good faith and by
appropriate proceedings by the Borrower, the Guarantor or any such Subsidiary,
as the case may be; (ii) there are adequate reserves therefor in accordance with
GAAP entered on the books of the Borrower, the Guarantor or any such Subsidiary;
and (iii) no enforcement proceedings against the Borrower, the Guarantor or any
such Subsidiary have been commenced.
(i) Licenses, etc. The Borrower, the Guarantor and each Subsidiary of the
Borrower or the Guarantor possess, or has the right to use, all material
licenses, permits, franchises, patents, copyrights, trademarks and trade names,
or rights thereto, to conduct their respective businesses substantially as now
conducted and as presently proposed to be conducted, and neither the Borrower,
the Guarantor nor any such Subsidiary are in violation of any similar rights of
others.
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(j) No Adverse Agreements. Neither the Borrower, nor the Guarantor nor any
Subsidiary of the Borrower or the Guarantor is a party to any indenture, loan or
credit agreement or any other agreement, lease or instrument or subject to any
charter or corporate restriction, the default or breach of which would be
reasonably likely to result in a Material Adverse Change. All material
agreements to which the Borrower, the Guarantor, or any Subsidiary of the
Borrower or the Guarantor is a party are in full force and effect and neither
the Borrower, the Guarantor nor any such Subsidiary are in default of any such
agreement.
(k) Margin Stock. The Borrower is not engaged in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulation G, T, U or X), and no proceeds of any Loan 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 other way which will cause
the Borrower to violate the provisions of Regulations G, T, U or X.
(l) Compliance with Laws. The Borrower, the Guarantor and each Subsidiary
of the Borrower or the Guarantor are in all material respects in compliance with
all federal and state laws and regulations in all jurisdictions where the
failure to comply with such laws or regulations would be reasonably likely to
result in a Material Adverse Change.
(m) ERISA. The Borrower, the Guarantor, each Subsidiary of the Borrower or
the Guarantor and each ERISA Affiliate are in compliance in all material
respects with all applicable provisions of ERISA. Neither a Reportable Event nor
a Prohibited Transaction
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has occurred and is continuing with respect to any Plan; no notice of intent to
terminate a Plan has been filed nor has any Plan been terminated; no
circumstances exist which constitute grounds under Section 4042 of ERISA
entitling the PBGC to institute proceedings to terminate, or appoint a trustee
to administrate, a Plan, nor has the PBGC instituted any such proceedings;
neither the Borrower, the Guarantor, any Subsidiary of the Borrower or the
Guarantor, nor any ERISA Affiliate has completely or partially withdrawn under
Sections 4201 or 4204 of ERISA from a Multiemployer Plan; the Borrower, the
Guarantor, each Subsidiary of the Borrower or the Guarantor and each ERISA
Affiliate have met their minimum funding requirements under ERISA with respect
to all of their Plans and the present fair market value of all Plan assets
exceeds the present value of all vested benefits under each Plan, as determined
on the most recent valuation date of the Plan in accordance with the provisions
of ERISA for calculating the potential liability of the Borrower, the Guarantor,
any such Subsidiary or any ERISA Affiliate to PBGC or the Plan under Title IV of
ERISA; and neither the Borrower, the Guarantor, any such Subsidiary nor any
ERISA Affiliate has incurred any liability to the PBGC under ERISA.
(n) Hazardous Materials. The Borrower, the Guarantor and each Subsidiary
of the Borrower or the Guarantor are in compliance in all material respects with
all federal, state or local laws, ordinances, rules, regulations or policies
governing Hazardous Materials and neither the Borrower, the Guarantor nor any
such Subsidiary has used Hazardous Materials on, from, or affecting any property
now owned or occupied or hereafter owned or occupied by
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the Borrower, the Guarantor or any such Subsidiary in any manner which violates
federal, state or local laws, ordinances, rules, regulations or policies
governing the use, storage, treatment, transportation, manufacture, refinement,
handling, production or disposal of Hazardous Materials, and, to the Borrower's,
the Guarantor's and such Subsidiaries' knowledge, no prior owner of any such
property or any tenant, subtenant, prior tenant or prior subtenant have used
Hazardous Materials on, from or affecting such property in any manner which
violates federal, state or local laws, ordinances, rules, regulations, or
policies governing the use, storage, treatment, transportation, manufacture,
refinement, handling, production or disposal of Hazardous Materials.
(o) Use of Proceeds. The proceeds of the Revolving Credit Loans shall be
used exclusively for the purposes set forth in Sections 2.06 hereof.
(p) Title to Assets; No Liens. The Borrower and the Guarantor have good
and marketable title to all of their properties and assets, subject only to the
Liens permitted by Section 5.02(a) of this Agreement.
(q) Casualties, etc. Neither the business nor the properties of the
Borrower, the Guarantor nor any Subsidiary of the Borrower or the Guarantor are
affected by any fire, explosion, accident, strike, hail, earthquake, embargo,
act of God or of the public enemy, or other casualty (whether or not covered by
insurance), which would be reasonably likely to result, in any one case or in
the aggregate, in a Material Adverse Change.
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(r) Solvency. (i) The fair value of the assets of (x) the Borrower and its
Consolidated Subsidiaries, on a consolidated basis and (y) DPI alone, exceeds,
in each case, their debts and liabilities (subordinated, contingent or
otherwise); (ii) the present fair saleable value of the property of (x) the
Borrower and its Consolidated Subsidiaries, on a consolidated basis and (y) DPI
alone, is, in each case, greater than the amount required to pay the probable
liability of their debts and other liabilities (subordinated, contingent or
otherwise) as such debts and other liabilities mature; (iii) (x) the Borrower
and its Consolidated Subsidiaries, on a consolidated basis, (y) the Borrower
alone and (z) DPI alone, are, in each case, able to pay their debts and
liabilities (subordinated, contingent or otherwise) as such debts and
liabilities mature; and (iv) (x) the Borrower and its Consolidated Subsidiaries,
on a consolidated basis, (y) the Borrower alone and (z) DPI alone, do not have,
in each case, unreasonably small capital to conduct the businesses in which they
are engaged; and (v) DPI has a positive net worth.
(s) Financial Advantage. The Guarantor acknowledges it has derived or
expects to derive a financial or other advantage from the Loans obtained by the
Borrower from the Bank.
(t) Credit Agreements, etc. Schedule 4.01(t) is a complete and correct
list of all credit agreements, indentures, purchase agreements, guaranties,
Capital Leases, and other agreements and arrangements presently in effect
providing for or relating to
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extensions of credit (including agreements and arrangements for the issuance of
letters of credit or for acceptance financing) in the principal amount of
$50,000.00 or more and in respect of which the Borrower or the Guarantor are in
any manner directly or contingently obligated, and the maximum principal or face
amounts of the credit in question, outstanding or to be outstanding, are
correctly stated, and all Liens of any nature given or agreed to be given as
security therefor are correctly described or indicated in such Schedule.
(u) Year 2000 Issue. Any reprogramming required to permit the proper
functioning, in and following the year 2000, of (i) the Borrower's and the
Guarantor's computer systems or of the computer systems of any Subsidiary of the
Borrower or the Guarantor and (ii) equipment containing embedded microchips
(including systems and equipment supplied by others or with which the
Borrower's, the Guarantor's or any such Subsidiary's systems interface) and the
testing of all such systems and equipment, as so reprogrammed, will be
substantially completed by June 30,1999. The cost to the Borrower, the Guarantor
and any such Subsidiary of such reprogramming and testing and of the reasonably
foreseeable consequences of year 2000 to the Borrower and the Guarantor
(including, without limitation, reprogramming errors and the failure of others'
systems or equipment) will not result in a Default or be reasonably likely to
result in a Material Adverse Change in the Borrower or the Guarantor or any such
Subsidiary.
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Except for such of the reprogramming referred to in the preceding sentence as
may be necessary, the computer and management information systems of the
Borrower, the Guarantor and each Subsidiary of the Borrower or the Guarantor are
and, with ordinary course upgrading and maintenance, will be reasonably likely
to continue for the term of this Agreement to be, sufficient to permit the
Borrower, the Guarantor and each such Subsidiary to conduct its business without
Material Adverse Change.
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ARTICLE V
COVENANTS OF THE BORROWER AND THE GUARANTOR
SECTION 5.01. Affirmative Covenants. So long as any amount shall remain
outstanding under the Revolving Credit Note, or so long as the Commitment shall
remain in effect, the Borrower and the Guarantor will, unless the Bank shall
otherwise consent in writing:
(a) Compliance with Laws, Etc. Comply, and cause each Subsidiary of the
Borrower or the Guarantor to comply, in all material respects with all
applicable laws, rules, regulations and orders, where the failure to so comply
would be reasonably likely to result in a Material Adverse Change.
(b) Reporting Requirements. Furnish to the Bank: (i) Annual Financial
Statements. As soon as available and in any event within one hundred and five
(105) days after the end of each fiscal year of the Borrower, a copy of the
audited consolidated and unaudited consolidating (such consolidating statements
to be prepared by management of the Borrower) financial statements of the
Borrower and its Consolidated Subsidiaries for such year, including balance
sheets with related statements of income and retained earnings and statements of
cash flows, all in reasonable detail and setting forth in comparative form the
figures for the previous fiscal year, together with an unqualified opinion,
prepared by independent certified public accountants selected by the Borrower
and reasonably satisfactory to the Bank, all such financial statements to be
prepared in accordance with GAAP.
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(ii) Quarterly Financial Statements. As soon as available and in any event
within sixty (60) days after the end of each of the first three fiscal quarters
of each fiscal year of the Borrower, a copy of the consolidated and
consolidating financial statements of the Borrower and its Consolidated
Subsidiaries for such quarter, including balance sheets with related statements
of income and retained earnings and statements of cash flows, all in reasonable
detail and setting forth in comparative form the figures for the comparable
quarter for the previous fiscal year, all such financial statements to be
prepared by management of the Borrower in accordance with GAAP.
(iii) Management Letters. Promptly upon receipt thereof, copies of any
reports submitted to the Borrower or the Guarantor by independent certified
public accountants in connection with the examination of the financial
statements of the Borrower and the Guarantor made by such accountants.
(iv) Certificate of No Default. Simultaneously with the delivery of the
financial statements referred to in Section 5.01(b)(i) and (ii), a certificate
of the President or the Chief Financial Officer of the Borrower, (1) certifying
that no Default or Event of Default has occurred and is continuing, or if a
Default or Event of Default has occurred and is continuing, a statement as to
the nature thereof and the action which is proposed to be taken with respect
thereto; and (2) with computations demonstrating compliance with the covenants
contained in Section 5.03.
(v) Accountants' Report. Simultaneously with the delivery of the annual
financial statements referred to in Section 5.01(b)(i),
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a certificate of the independent certified public accountants who audited such
statements to the effect that, in making the examination necessary for the audit
of such statements, they have obtained no knowledge of any condition or event
which constitutes a Default or Event of Default, or if such accountants shall
have obtained knowledge of any such condition or event, specify in such
certificate each such condition or event of which they have knowledge and the
nature and status thereof.
(vi) Notice of Litigation. Promptly after the commencement thereof, notice
of all actions, suits and proceedings before any court or governmental
department, commission, board, bureau, agency, or instrumentality, domestic or
foreign, affecting the Borrower, the Guarantor or any Subsidiary of the Borrower
or the Guarantor which, if determined adversely to the Borrower, the Guarantor
or any such Subsidiary would be reasonably likely to result in a Material
Adverse Change.
(vii) Notice of Defaults and Events of Default. As soon as possible and in
any event within five (5) days after the occurrence of each Default or Event of
Default, a written notice setting forth the details of such Default or Event of
Default and the action which is proposed to be taken by the Borrower with
respect thereto.
(viii) ERISA Reports. Promptly after the filing or receiving thereof,
copies of all reports, including annual reports, and notices which the Borrower,
or any Subsidiary of the Borrower or the Guarantor, files with or receives from
the PBGC, the Internal Revenue Service or the U.S. Department of Labor under
ERISA; and as soon as possible after the Borrower, the Guarantor or any such
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Subsidiary knows or has reason to know that any Reportable Event or Prohibited
Transaction has occurred with respect to any Plan or that the PBGC or the
Borrower, the Guarantor or any such Subsidiary has instituted or will institute
proceedings under Title IV of ERISA to terminate any Plan, the Borrower or the
Guarantor will deliver to the Bank a certificate of the President or the Chief
Financial Officer of the Borrower or the Guarantor setting forth details as to
such Reportable Event or Prohibited Transaction or Plan termination and the
action the Borrower or the Guarantor proposes to take with respect thereto;
(ix) Environmental Notices. Promptly after the receipt thereof, a copy of
any claim, summons, charge or other notice to the Borrower, the Guarantor or any
Subsidiary of the Borrower or the Guarantor regarding compliance (or failure to
comply) with any federal, state or local laws governing Hazardous Materials.
(x) Material Adverse Change. Promptly, upon the occurrence thereof, notice
of a Material Adverse Change.
(xi) Reports to Other Creditors. Promptly after the furnishing thereof,
copies of any statement or report furnished to any other party pursuant to the
terms of any indenture, loan, or credit or similar agreement and not otherwise
required to be furnished to the Bank pursuant to any other clause of this
Section 5.01(b).
(xii) Proxy Statements, Etc. Promptly after the sending or filing thereof,
copies of all proxy statements, financial statements and reports which the
Borrower, the Guarantor or any
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Subsidiary of the Borrower or the Guarantor sends to its stockholders, and
copies of all regular, periodic, and special reports, and all registration
statements which the Borrower or the Guarantor or any such Subsidiary files with
the Securities and Exchange Commission or any governmental authority which may
be substituted therefor, or with any national securities exchange.
(xiii) Notice of Affiliates. Promptly after any Person becomes an
Affiliate of the Borrower or the Guarantor (other than if such Person becomes an
Affiliate solely by virtue of a member of management of the Borrower making an
investment in such Person), notice to the Bank of such Affiliate, provided that
this clause (xiii) shall not require the Borrower to advise the Bank of any
changes in officers or directors of the Borrower.
(xiv) General Information. Such other information respecting the condition
or operations, financial or otherwise, of the Borrower, the Guarantor or any
Subsidiary of the Borrower or the Guarantor as the Bank may from time to time
reasonably request.
(c) Taxes. Pay and discharge, and cause each Subsidiary of the
Borrower or the Guarantor to pay and discharge, all taxes, assessments and
governmental charges upon it or them, its or their income and its or their
properties prior to the dates on which penalties are attached thereto, unless
and only to the extent that (i) such taxes shall be contested in good faith and
by appropriate proceedings by the Borrower, the Guarantor or any such
Subsidiary, as the case may be; (ii) there be adequate reserves therefor in
accordance with GAAP entered on the books of the Borrower, the
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Guarantor or any such Subsidiary; and (iii) no enforcement proceedings against
the Borrower, the Guarantor or any such Subsidiary have been commenced.
(d) Corporate Existence. Preserve and maintain, and cause each Subsidiary
of the Borrower or the Guarantor to preserve and maintain, their corporate
existence and good standing in the jurisdiction of their incorporation and the
rights, privileges and franchises of the Borrower, the Guarantor and each such
Subsidiary in each case where failure to so preserve or maintain would be
reasonably likely to result in a Material Adverse Change.
(e) Maintenance of Properties and Insurance. (i) Keep, and cause each
Subsidiary of the Borrower and the Guarantor to keep, the respective properties
and assets (tangible or intangible) that are useful and necessary in its
business, in good working order and condition, reasonable wear and tear
excepted; and (ii) maintain, and cause any such Subsidiary to maintain,
insurance with financially sound and reputable insurance companies or
associations in such amounts and covering such risks as are usually carried by
companies engaged in similar businesses and owning properties and doing business
in the same general areas in which the Borrower, the Guarantor and any such
Subsidiary may operate.
(f) Books of Record and Account. Keep, and cause each Subsidiary of the
Borrower and the Guarantor to keep, adequate records and proper books of record
and account in which complete entries will be made in a manner to enable the
preparation of financial statements in accordance with GAAP, reflecting all
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financial transactions of the Borrower, the Guarantor, and any such Subsidiary.
(g) Visitation. At any reasonable time, and from time to time, and upon
prior notice, and, provided no Default or Event of Default then exists, not more
often than once during any calendar year, permit the Bank or any agents or
representatives thereof, to examine and make copies of and abstracts from the
financial and accounting books and records of, and visit the properties of, the
Borrower, the Guarantor or any Subsidiary of the Borrower or the Guarantor to
discuss the affairs, finances and accounts of the Borrower, the Guarantor or any
such Subsidiary with any of the respective officers or directors of the
Borrower, the Guarantor or any such Subsidiary or the Borrower's, the
Guarantor's or such Subsidiary's independent accountants.
(h) Performance and Compliance with Other Agreements. Perform and comply
in all material respects, and cause each Subsidiary of the Borrower or the
Guarantor to perform and comply in all material respects, with each of the
provisions of each and every agreement the failure to perform or comply with
which would be reasonably likely to result in a Material Adverse Change.
(i) Pension Funding. Comply in all material respects, and cause each
Subsidiary of the Borrower or the Guarantor to comply in all material respects,
with the following and cause each ERISA Affiliate of the Borrower, the Guarantor
or any such Subsidiary to comply with the following:
(i) engage solely in transactions which would not subject any of such
entities to either a civil penalty assessed
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pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of
the Internal Revenue Code in either case in an amount in excess of
$25,000.00;
(ii) make full payment when due of all amounts which, under the
provisions of any Plan or ERISA, the Borrower, the Guarantor, any such
Subsidiary or any ERISA Affiliate of any of same is required to pay as
contributions thereto;
(iii) all applicable provisions of the Internal Revenue Code and the
regulations promulgated thereunder, including but not limited to Section
412 thereof, and all applicable rules, regulations and interpretations of
the Accounting Principles Board and the Financial Accounting Standards
Board;
(iv) not fail to make any payments in an aggregate amount greater
than $25,000.00 to any Multiemployer Plan that the Borrower, the
Guarantor, any such Subsidiary or any ERISA Affiliate may be required to
make under any agreement relating to such Multiemployer Plan, or any law
pertaining thereto; or
(v) not take any action regarding any Plan which could result in the
occurrence of a Prohibited Transaction.
(j) Licenses. Maintain at all times, and cause each Subsidiary of the
Borrower or the Guarantor to maintain at all times, all licenses or permits
necessary to the conduct of its business or as may be required by any
governmental agency or instrumentality thereof.
(k) New Subsidiaries. (a) Cause any Subsidiary (other than a Foreign
Subsidiary) of the Borrower or the Guarantor formed after
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the date of this Agreement to become a Guarantor and to become a party to this
Agreement as a Guarantor.
(b) Cause any Foreign Subsidiary which, in the reasonable
determination of the Borrower and its professional advisors, if it became a
Guaranteeing Foreign Subsidiary would not result in adverse tax consequences to
the Borrower, to become a Guarantor and to become a party to this Agreement as a
Guarantor.
(l) Existing Subsidiaries. Not later than March 31, 1999, the Borrower
shall advise the Bank whether it shall dissolve one or more of the domestic
Subsidiaries (other than DPI) listed on Schedule 4.01(a); and (i) as to those
Subsidiaries it elects to dissolve, it shall dissolve such Subsidiaries, and
give notice to the Bank of such dissolution, not later than April 30, 1999; or
(ii) as to those Subsidiaries it elects not to dissolve, it shall deliver to the
Bank, in form and substance reasonably satisfactory to the Bank and its counsel,
the following with respect to each such Subsidiary:
(1) an agreement pursuant to which such Subsidiary becomes a party to, and bound
by, this Agreement as a Guarantor;
(2) a Guaranty substantially in the form of the Guaranty delivered by DPI;
(3) a Secretary's certificate complying in form and substance, together with all
exhibits, similar to the Secretary's Certificate being delivered by DPI on the
date of this Agreement; and
(4) an opinion of counsel (which may be in house counsel to the Borrower) to
each such Subsidiary substantially similar to the
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opinion being delivered with respect to DPI on the date of this Agreement.
(m) Additional Covenant. Not later than March 15, 1999 the Borrower will
deliver to the Bank the documentation required by Section 3.01(k) of this
Agreement.
SECTION 5.02. Negative Covenants. So long as any amount shall remain
outstanding under the Revolving Credit Note or so long as the Commitment shall
remain in effect, neither the Borrower nor the Guarantor will, without the
written consent of the Bank:
(a) Liens, Etc. Create, incur, assume or suffer to exist, any Lien, upon
or with respect to any of its properties, now owned or hereafter acquired,
except:
(i) Liens in favor of the Bank;
(ii) Liens for taxes or assessments or other government charges or
levies if not yet due and payable or if due and payable if they are being
contested in good faith by appropriate proceedings and for which appropriate
reserves are maintained;
(iii) Liens imposed by law, such as mechanics', materialmen's,
landlords', warehousemen's, and carriers' Liens, and other similar Liens,
securing obligations incurred in the ordinary course of business which are not
past due or which are being contested in good faith by appropriate proceedings
and for which appropriate reserves have been established;
(iv) Liens under workers' compensation, unemployment insurance,
Social Security, or similar legislation;
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(v) Liens, deposits, or pledges to secure the performance of bids,
tenders, contracts (other than contracts for the payment of money), leases
(permitted under the terms of this Agreement), public or statutory obligations,
surety, stay, appeal, indemnity, performance or other similar bonds, or other
similar obligations arising in the ordinary course of business;
(vi) Liens described in Schedule 5.02(a), provided that no such Liens
shall be renewed, extended or refinanced;
(vii) Judgment and other similar Liens arising in connection with
court proceedings (other than those described in Section 6.01(f)), provided the
execution or other enforcement of such Liens is effectively stayed and the
claims secured thereby are being actively contested in good faith and by
appropriate proceedings;
(viii) Easements, rights-of-way, restrictions, and other similar
encumbrances which, in the aggregate, do not materially interfere with the
Borrower's or the Guarantor's occupation, use and enjoyment of the property or
assets encumbered thereby in the normal course of its business or materially
impair the value of the property subject thereto;
(ix) Purchase money Liens on any property hereafter acquired or the
assumption of any Lien on property existing at the time of such acquisition, or
a Lien incurred in connection with any conditional sale or other title retention
agreement or a Capital Lease, provided that:
(1) Any property subject to any of the foregoing is acquired
by the Borrower or the Guarantor in the ordinary course
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of its respective business (or in connection with a Permitted Acquisition and
the Lien is otherwise permitted hereunder) and the Lien on any such property is
created contemporaneously with such acquisition;
(2) The obligation secured by any Lien so created, assumed, or
existing shall not exceed one hundred (100%) percent of lesser of cost or fair
market value of the property acquired as of the time of the Borrower or the
Guarantor acquiring the same;
(3) Each such Lien shall attach only to the property so
acquired and fixed improvements thereon; and
(4) The obligation secured by such Lien is permitted by the
provisions of Section 5.02(b) and the related expenditure is permitted by the
provisions of Section 5.03(c).
(b) Debt. Create, incur, assume, or suffer to exist, any Debt, except:
(i) Debt of the Borrower under this Agreement or the Note or any
other Debt of the Borrower or the Guarantor owing to the Bank;
(ii) Debt described in Schedule 5.02(b), provided that no such Debt
shall be renewed, extended or refinanced;
(iii) Subordinated Debt;
(iv) Accounts payable to trade creditors for goods or services and
current operating liabilities (other than for borrowed money), in each case
incurred and paid in the ordinary course of business;
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(v) Debt in respect of letters of credit issued for the account of
the Borrower or the Guarantor in an aggregate outstanding face amount at any
time of up to $5,000,000.00;
(vi) Debt of the Borrower or any Corporate Guarantor secured by
purchase money Liens permitted by Section 5.02(a)(ix);
(vii) Debt evidenced by the Senior Notes; and
(viii) Any other Debt not described in clauses (i) through (vii)
above which is incurred under one or more unsecured lines of credit in an
aggregate principal amount of not more than $18,000,000.00, provided that the
Borrower has no such Debt outstanding for at least thirty (30) consecutive days
during each rolling twelve (12) month period, measured from the date of this
Agreement.
(c) Intentionally Omitted.
(d) Merger. Merge into, or consolidate with or into, or have merged into
it, any Person; and, for the purpose of this subsection (d), the acquisition or
sale by the Borrower or the Guarantor by lease, purchase or otherwise, of all,
or substantially all, of the common stock or the assets of any Person or of it
shall be deemed a merger of such Person with the Borrower or the Guarantor,
provided that (i) the Borrower and the Guarantor may make Permitted
Acquisitions, but further provided that the Consideration (as defined in the
definition of "Permitted Acquisition") does not exceed (x) $25,000,000.00 for
any Permitted Acquisition or (y) $50,000,000.00 for all Permitted Acquisitions
made during the term of this Agreement, (ii) the Borrower may merge with the
Guarantor,
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provided the Borrower is the surviving entity and (iii) any Guarantor may merge
with any other Guarantor.
(e) Sale of Assets, Etc. Sell, assign, transfer, lease or otherwise
dispose of any of its assets, (including a saleleaseback transaction) with or
without recourse, except for (i) inventory disposed of in the ordinary course of
business; (ii) the sale or other disposition of assets no longer used or useful
in the conduct of its business; (iii) the sale of the Borrower's facility in
Plainview, New York; (iv) sales or other dispositions of any other assets which
do not exceed, in any fiscal year, $3,000,000.00 (valued at the sales price of
such assets); and (iv) sales of assets between the Borrower and a Guarantor or
between Guarantors.
(f) Investments, Etc. Make any Investment other than Permitted
Investments.
(g) Transactions With Affiliates. Except for transactions with the current
Chief Executive Officer of the Borrower, and except as otherwise expressly
permitted by this Agreement or except in the ordinary course of business and
pursuant to the reasonable requirements of the Borrower's, the Guarantor's or a
Subsidiary's business and upon fair and reasonable terms no less favorable to
the Borrower or the Guarantor or the Subsidiary than would be obtained in a
comparable arm's length transaction with a Person not an Affiliate, enter into
any transaction, including, without limitation, the purchase, sale, or exchange
of property or the rendering of any service, with any Affiliate.
(h) Prepayment of Outstanding Debt. Pay, in whole or in part, any
outstanding Debt (other than (i) Debt owing to the Bank, (ii)
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scheduled payments of principal and/or interest on any other Debt including,
without limitation, the Senior Notes and (iii) accounts payable and other trade
payables) of the Borrower or the Guarantor, which by its terms is not then due
and payable.
(i) Guarantees. Guaranty, or in any other way become directly or
contingently obligated for any Debt of any other Person (including any
agreements relating to working capital maintenance, take or pay contracts or
similar arrangements) other than (i) the endorsement of negotiable instruments
for deposit in the ordinary course of business; (ii) guarantees existing on the
date hereof and set forth in Schedule 5.02(i) annexed hereto; or (iii)
guarantees of any Debt permitted under Section 5.02(b) of this Agreement.
(j) Change of Business. Materially alter the nature of its business.
(k) Fiscal Year. Change the ending date of its fiscal year from December
31.
(l) Losses. Incur a net loss for any fiscal year.
(m) Accounting Policies. Change any accounting policies, except as
permitted by GAAP.
(n) Dividends, Etc. Declare or pay any dividends, purchase, redeem, retire
or otherwise acquire for value any of its capital stock now or hereafter
outstanding, or make any distribution of assets to its stockholders as such,
whether in cash, assets, or in obligations of the Borrower or the Guarantor; or
allocate or otherwise set apart any sum for the payment of any dividend or
distribution on, or for the purchase, redemption or retirement of any shares of
its capital stock; or make any other distribution by
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reduction of capital or otherwise in respect of any share of its capital stock,
except, provided no Default or Event of Default has occurred and is continuing
(i) Permitted Dividends or (ii) Permitted Stock Repurchases funded in cash and
which do not exceed $10,000,000.00 in the aggregate in any fiscal year.
(o) Change in Control. (a) Permit any Person or "group" (within the
meaning of Section 13(d)-3 under the Securities Exchange Act of 1934 and the
rules of the Securities and Exchange Commission as in effect on the date
hereof), other than the current management of the Borrower, to own more than
fifty (50%) percent of the outstanding voting securities of the Borrower. (b)
Permit any nominees other than nominees nominated by the existing board of
directors of the Borrower to hold a majority of the seats on the board of
directors of the Borrower.
(p) Intentionally Omitted.
(q) Hazardous Material. The Borrower, the Guarantor and each Subsidiary of
the Borrower or the Guarantor shall not cause or permit any property owned or
occupied by the Borrower, the Guarantor or any such Subsidiary to be used to
generate, manufacture, refine, transport, treat, store, handle, dispose,
transfer, produce or process Hazardous Materials, except in compliance with all
applicable federal, state and local laws or regulations; nor shall the Borrower,
the Guarantor or any such Subsidiary cause or permit, as a result of any
intentional or unintentional act or omission on the part of the Borrower, the
Guarantor or any such Subsidiary or any tenant or subtenant, a release of
Hazardous Materials onto any property owned or occupied
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by the Borrower, the Guarantor or any such Subsidiary or onto any other
property; nor shall the Borrower, the Guarantor and each such Subsidiary fail to
comply with all applicable federal, state and local laws, ordinances, rules and
regulations, whenever and by whomever triggered, nor fail to obtain and comply
with, any and all approvals, registrations or permits required thereunder. The
Borrower and the Guarantor shall execute any documentation required by the Bank
in connection with the representations, warranties and covenants contained in
this paragraph and Section 4.01 of this Agreement.
(r) Limitations on Consolidated Foreign Assets and Revenues. (a) Have more
than fifteen (15%) percent of the consolidated assets or revenues of the
Borrower and its Consolidated Subsidiaries be located in, or derived from,
locations other than the United States.
(b) Have more than ten (10%) percent of the consolidated assets or
revenues of the Borrower and its Consolidated Subsidiaries be held by, or
produced by, any Foreign Subsidiary.
SECTION 5.03. Financial Requirements. So long as any amount shall remain
outstanding under the Revolving Credit Note or so long as the Commitment shall
remain in effect:
(a) Minimum Consolidated Tangible Net Worth. The Borrower will maintain at
all times Consolidated Tangible Net Worth of not less than (i) $35,000,000.00
from the date of this Agreement until December 30, 1999; and (ii) beginning on
December 31, 1999 until December 30, 2000 and on each succeeding December 31
through the
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succeeding December 30, the sum of (x) thirty (30%) of the consolidated net
income of the Borrower for the fiscal year ending such December 31 plus (y) the
required (in accordance with this Section 5.03(a)) level of Consolidated
Tangible Net Worth as of the preceding December 31.
(b) Consolidated Capital Expenditures. The Borrower will not make
Consolidated Capital Expenditures in excess of $15,000,000.00 in the aggregate
during any fiscal year of the Borrower.
(c) Consolidated Leverage Ratio. The Borrower will maintain at all times a
Consolidated Leverage Ratio (tested quarterly) of not greater than 3.00 to 1.00.
(d) Consolidated Interest Coverage Ratio. The Borrower will maintain at
all times a Consolidated Interest Coverage Ratio of not less than 3.00 to 1.00.
(e) Consolidated Fixed Charge Ratio. The Borrower will maintain at all
times a Consolidated Fixed Charge Ratio of not less than 1.25 to 1.00.
(f) Debt to EBITDA Ratio. The Borrower will maintain at all times a Debt
to EBITDA Ratio of not greater than 2.75 to 1.00.
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ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default. If any of the following events ("Events
of Default") shall occur and be continuing:
(a) The Borrower shall fail to pay (i) any installment of principal
of the Revolving Credit Note when due or (ii) any interest, fees or other
amounts owed in connection with this Agreement within five (5) days of when such
payment is due; or
(b) Any representation or warranty made by the Borrower or the
Guarantor herein or in the Loan Documents or which is contained in any
certificate, document, opinion, or financial or other statement furnished at any
time under or in connection with any Loan Document shall prove to have been
incorrect in any material respect when made; or
(c) The Borrower or the Guarantor shall (i) fail to perform or
observe any term, covenant or agreement contained in Sections 5.01(a), (c), (e),
(f), (h), (i) or (j) of this Agreement for twenty (20) days after such
performance or observation is required, or (ii) fail to perform or observe any
other term, covenant, or agreement contained in this Agreement in any other Loan
Document (other than the Note) on its part to be performed or observed; or
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(d) The Borrower, the Guarantor, or any Subsidiary of the Borrower
or the Guarantor shall fail to pay any Debt or Debts, or principal installments
thereon, which Debt or Debts are in the aggregate principal amount of
$500,000.00 or more (excluding Debt evidenced by the Note) of the Borrower, the
Guarantor or any such Subsidiary (as the case may be), or any interest or
premium thereon, when due (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise) and such failure shall continue after the
applicable grace period, if any, specified in the agreement or instrument
relating to such Debt; or any other default under any agreement or instrument
relating to any such Debt, or any other event shall occur and shall continue
after the applicable grace period, if any, specified in such agreement or
instrument, if the effect of such default or event is to accelerate, or to
permit the acceleration of, the maturity of such Debt; or any such Debt shall be
declared to be due and payable, or required to be prepaid (other than by a
regularly scheduled required prepayment), prior to the stated maturity thereof;
or
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(e) The Borrower, the Guarantor or any Subsidiary of the Borrower or
the Guarantor shall generally not pay its Debts as such Debts become due, or
shall admit in writing its inability to pay its Debts generally, or shall make a
general assignment for the benefit of creditors; or any proceeding shall be
instituted by or against the Borrower, the Guarantor or any such Subsidiary
seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation,
winding up, reorganization, arrangement, adjustment, protection, relief, or
composition of it or its Debts under any law relating to bankruptcy, insolvency
or reorganization or relief of debtors, or seeking the entry of an order for
relief or the appointment of a receiver, trustee, or other similar official for
it or for any substantial part of its property and if instituted against the
Borrower, the Guarantor or any such Subsidiary shall remain undismissed for a
period of 60 days; or the Borrower, the Guarantor or any such Subsidiary shall
take any action to authorize any of the actions set forth above in this
subsection (e); or
(f) Any judgment or order or combination of judgments or orders for
the payment of money, in excess of $500,000.00 in the aggregate, which sum shall
not be subject to full, complete and effective insurance coverage (subject to
deductibles), shall be rendered against the Borrower, the Guarantor or any
Subsidiary of the Borrower or the Guarantor and either (i) enforcement
proceedings shall have been commenced by any creditor upon such judgment or
order or (ii) there shall be any period of 30 consecutive days during which a
stay of enforcement of such
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judgment or order, by reason of a pending appeal or otherwise, shall not be in
effect; or
(g) The Guarantor shall fail to perform or observe any term or
provision of its Guaranty or any representation or warranty made by the
Guarantor (or any of its officers) in connection with the Guarantor's Guaranty
shall prove to have been incorrect in any material respect when made; or
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(h) Any of the following events occur or exist with respect to the
Borrower, the Guarantor, any Subsidiary of the Borrower or the Guarantor, or any
ERISA Affiliate: (i) any Prohibited Transaction involving any Plan; (ii) any
Reportable Event with respect to any Plan; (iii) the filing under Section 4041
of ERISA of a notice of intent to terminate any Plan or the termination of any
Plan; (iv) any event or circumstance that might constitute grounds entitling the
PBGC to institute proceedings under Section 4042 of ERISA for the termination
of, or for the appointment of a trustee to administer, any Plan, or the
institution of the PBGC of any such proceedings; (v) complete or partial
withdrawal under Section 4201 or 4204 of ERISA from a Multiemployer Plan or the
reorganization insolvency, or termination of any Multiemployer Plan; and in each
case above, such event or condition, together with all other events or
conditions, if any, could in the opinion of the Bank subject the Borrower, the
Guarantor, any such Subsidiary or any ERISA Affiliate to any tax, penalty, or
other liability to a Plan, a Multiemployer Plan, the PBGC, or otherwise (or any
combination thereof) which in the aggregate exceeds or may exceed $250,000.00;
or
(i) This Agreement or any other Loan Document, at any time after its
execution and delivery and for any reason, ceases to be in full force and effect
or shall be declared to be null and void, or the validity or enforceability of
any document or instrument delivered pursuant to this Agreement shall be
contested by the Borrower, the Guarantor or any party to such document or
instrument or the Borrower, the Guarantor or any party to such
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document or instrument shall deny that it has any or further liability or
obligation under any such document or instrument; or
(j) An event of default specified in any Loan Document other than
this Agreement shall have occurred and be continuing.
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SECTION 6.02. Remedies on Default. Upon the occurrence and
continuance of an Event of Default the Bank may by notice to the Borrower, (i)
terminate the Commitment, (ii) declare the Revolving Credit Note, all interest
thereon and all other amounts payable under this Agreement to be forthwith due
and payable, whereupon the Commitment shall be terminated, the Revolving Credit
Note, all such interest and all such amounts shall become and be forthwith due
and payable, without presentment, demand, protest or further notice of any kind,
all of which are hereby expressly waived by the Borrower and (ii) proceed to
enforce its rights whether by suit in equity or by action at law, whether for
specific performance of any covenant or agreement contained in this Agreement or
any Loan Document, or in aid of the exercise of any power granted in either this
Agreement or any Loan Document or proceed to obtain judgment or any other relief
whatsoever appropriate to the enforcement of its rights, or proceed to enforce
any other legal or equitable right which the Bank may have by reason of the
occurrence of any Event of Default hereunder or under any Loan Document,
provided, however, upon the occurrence of an Event of Default referred to in
Section 6.01(e), the Commitment shall be immediately terminated, the Revolving
Credit Note, all interest thereon and all other amounts payable under this
Agreement shall be immediately due and payable without presentment, demand,
protest or further notice of any kind, all of which are hereby expressly waived
by the Borrower. Any amounts collected pursuant to action taken under this
Section 6.02 shall be applied to the
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payment of, first, any costs incurred by the Bank in taking such action,
including, but without limitation, reasonable attorneys fees and expenses,
second, to payment of the accrued but unpaid interest on the Revolving Credit
Note, and third, to payment of the unpaid principal of the Revolving Credit
Note.
SECTION 6.03. Remedies Cumulative. No remedy conferred upon or reserved to
the Bank hereunder or in any Loan Document is intended to be exclusive of any
other available remedy, but each and every such remedy shall be cumulative and
in addition to every other remedy given under this Agreement or any Loan
Document or now or hereafter existing at law or in equity. No delay or omission
to exercise any right or power accruing upon any Event of Default shall impair
any such right or power or shall be construed to be a waiver thereof, but any
such right and power may be exercised from time to time and as often as may be
deemed expedient. In order to entitle the Bank to exercise any remedy reserved
to it in this Article VI, it shall not be necessary to give any notice, other
than such notice as may be herein expressly required in this Agreement or in any
Loan Document.
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ARTICLE VII
MISCELLANEOUS
SECTION 7.01. Amendments, Etc. No amendment, modification, termination or
waiver of any provision of any Loan Document to which the Borrower or the
Guarantor is a party, nor consent to any departure by the Borrower or the
Guarantor from any provision of any Loan Document to which it is a party, shall
in any event be effective unless the same shall be in writing and signed by the
Bank and the Borrower, and then such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given.
SECTION 7.02. Notices, Etc. All notices and other communications provided
for hereunder shall be in writing (including telegraphic communication) and
mailed, telegraphed, sent by facsimile or delivered, if to the Borrower or the
Guarantor, at the address of the Borrower or Guarantor, as the case may be, set
forth at the beginning of this Agreement and if to the Bank, at the address of
the Bank set forth at the beginning of this Agreement to the attention of Del
Laboratories, Inc. Account Officer, or, as to each party, at such other address
as shall be designated by such party in a written notice complying as to
delivery with the terms of this Section 7.02 to the other parties. All such
notices and communications shall be effective upon the earlier of (i) actual
receipt or (ii) (a) three Business Days after deposit in the United States Mail,
(b) upon transmission when sent by telecopy or other
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similar facsimile transmission (with such telecopy or facsimile promptly
confirmed by delivery of a copy as otherwise provided herein), (c) one Business
Day after deposit with a reputable overnight courier or (d) when delivered, by
hand delivery.
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SECTION 7.03. No Waiver, Remedies. No failure on the part of the Bank to
exercise, and no delay in exercising, any right, power or remedy under any Loan
Document, shall operate as a waiver thereof; nor shall any single or partial
exercise of any right under any Loan Document preclude any other or further
exercise thereof or the exercise of any other right. The remedies provided in
the Loan Documents are cumulative and not exclusive of any remedies provided by
law.
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SECTION 7.04. Costs, Expenses and Taxes. The Borrower agrees to pay on
demand all reasonable costs and expenses of the Bank in connection with the
preparation, execution, delivery and administration of this Agreement, the
Revolving Credit Note and any other Loan Documents, including, without
limitation, the reasonable fees and expenses of counsel for the Bank with
respect thereto (provided that such fees (excluding expenses) of counsel to the
Bank shall not exceed, absent unanticipated delays and unforeseeable issues,
$15,000.00) and with respect to advising the Bank as to its rights and
responsibilities under this Agreement, and all costs and expenses, if any
(including reasonable counsel fees and expenses), in connection with the
enforcement of this Agreement, the Revolving Credit Note and any other Loan
Documents. The Borrower and the Guarantor shall, jointly and severally, at all
times, protect, indemnify, defend and save harmless the Bank from and against
any and all claims, actions, suits and other legal proceedings, and liabilities,
obligations, losses, damages, penalties, judgments, costs, expenses or
disbursements which the Bank may, at any time, sustain or incur by reason of or
in consequence of or arising out of the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby except as
hereinafter provided. The Borrower and the Guarantor acknowledge that it is the
intention of the parties hereto that this Agreement shall be construed and
applied to protect and indemnify the Bank against any and all risks involved in
the execution and delivery of this Agreement and the
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consummation of the transactions contemplated hereby, all of which risks are
hereby assumed by the Borrower and the Guarantor, including, without limitation,
any and all risks of the acts or omissions, whether rightful or wrongful, of any
present or future de jure or de facto government or governmental authority,
provided that neither the Borrower nor the Guarantor shall be liable for any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from the Bank's
gross negligence or willful misconduct. The provisions of this Section 7.04
shall survive the payment of the Note and the termination of this Agreement.
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SECTION 7.05. Right of Set-off. Upon the occurrence and during the
continuance of any Event of Default, the Bank is hereby authorized at any time
and from time to time, to the fullest extent permitted by law, to set off and
apply any and all deposits (general or special, time or demand, provisional or
final) at any time held and other indebtedness at any time owing by the Bank,
Chase Securities, Inc. or any other affiliate of the Bank to or for the credit
or the account of the Borrower or the Guarantor against any and all of the
obligations of the Borrower or the Guarantor now or hereafter existing under
this Agreement, the Revolving Credit Note and the other Loan Documents,
irrespective of whether or not the Bank shall have made any demand under this
Agreement, the Revolving Credit Note or such other Loan Documents and although
such obligations may be unmatured. The rights of the Bank under this Section are
in addition to all other rights and remedies (including, without limitation,
other rights of set-off) which the Bank may have.
SECTION 7.06. Binding Effect. This Agreement shall become effective when
it shall have been executed by the Borrower, the Guarantor and the Bank and
thereafter it shall be binding upon and inure to the benefit of the Borrower,
the Guarantor and the Bank and their respective successors and assigns, except
that neither the Borrower nor the Guarantor shall have any right to assign its
rights hereunder or any interest herein without the prior written consent of the
Bank.
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SECTION 7.07. Further Assurances. The Borrower and the Guarantor agree at
any time and from time to time at its expense, upon the reasonable request of
the Bank or its counsel, to promptly execute, deliver, or obtain or cause to be
executed, delivered or obtained any and all further instruments and documents
and to take or cause to be taken all such other action the Bank may deem
desirable in obtaining the full benefits of, this Agreement or any other Loan
Document.
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SECTION 7.08. Section Headings, Severability, Entire Agreement. Section
and subsection headings have been inserted herein for convenience only and shall
not be construed as part of this Agreement. Every provision of this Agreement
and each Loan Document is intended to be severable; if any term or provision of
this Agreement, any Loan Document, or any other document delivered in connection
herewith shall be invalid, illegal or unenforceable for any reason whatsoever,
the validity, legality and enforceability of the remaining provisions hereof or
thereof shall not in any way be affected or impaired thereby. All exhibits and
schedules to this Agreement shall be annexed hereto and shall be deemed to be
part of this Agreement. This Agreement and the exhibits and schedules attached
hereto embody the entire Agreement and understanding between the Borrower, the
Guarantor and the Bank and supersede all prior agreements and understandings
relating to the subject matter hereof.
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SECTION 7.09. Confidentiality. The Bank and each of its assignees and
participants agree to use commercially reasonable efforts (reasonably equivalent
to the efforts the Bank or such assignee or participant applies to maintaining
the confidentiality of its own confidential information) to maintain as
confidential all confidential information provided to them by the Borrower or
any of its Subsidiaries, except that the Bank and any assignee or participant
may disclose such information (a) to Persons employed or engaged by the Bank or
such assignee or participant in evaluating, approving, structuring or
administering this Agreement, the Loans or the Commitment; (b) to any bona fide
assignee or participant or potential assignee or participant that has agreed to
comply with the covenant contained in this Section 7.09 (and any such bona fide
assignee or participant or potential assignee or participant may disclose such
information to Persons employed or engaged by them as described in clause (a)
above); (c) as required or requested by any governmental authority or reasonably
believed by the Bank or such assignee or participant to be compelled by any
court decree, subpoena or legal or administrative order or process; (d) as, in
the opinion of the Bank's or such assignee's or participant's counsel, required
by law; (e) in connection with the exercise of any right or remedy under the
Loan Documents or in connection with any litigation to which the Bank or such
assignee or participant is a party arising in connection with any Loan Document;
or (f) which ceases to be confidential through no fault of Bank or such assignee
or participant.
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<PAGE>
SECTION 7.10. Governing Law. This Agreement, the Revolving Credit
Note and all other Loan Documents shall be governed by, and construed in
accordance with, the laws of the State of New York.
SECTION 7.11. Waiver of Jury Trial. The Borrower, the Guarantor and the
Bank waive all rights to trial by jury on any cause of action directly or
indirectly involving the terms, covenants or conditions of this Agreement or any
Loan Document.
SECTION 7.12. Execution in Counterparts. This Agreement may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
DEL LABORATORIES, INC.
By________________________________
Name: Enzo Vialardi
Title: Executive Vice President
and Chief Financial
Officer
DEL PHARMACEUTICALS, INC.
By________________________________
Name: Enzo Vialardi
Title: Executive Vice President
and Chief Financial
Officer
THE CHASE MANHATTAN BANK
By________________________________
Name: Christopher G. Zimmermann
Title: Vice President
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SCHEDULE 4.01(a)
Subsidiaries
STATE OF INCORPORATION IDENTITY AND
AND EACH STATE IN WHICH PERCENTAGE OF
SUBSIDIARY'S NAME IT IS QUALIFIED TO DO OWNERSHIP OF
AND ADDRESS BUSINESS EACH SHAREHOLDER
- ----------------- ----------------------- ----------------
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SCHEDULE 4.01 (t)
Credit Agreements
Nature of Amount of Liens Securing
Creditor Agreement Credit Credit
- -------- --------- ------ ------
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<PAGE>
SCHEDULE 5.02(a)
Liens
Creditor Amount Property Subject to Lien
- -------- ------ ------------------------
See Schedule 4.01(t)
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<PAGE>
SCHEDULE 5.02(b)
Debt
Creditor Amount
-------- ------
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<PAGE>
SCHEDULE 5.02(i)
Guaranties
Description of All Guaranties:
None
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<PAGE>
EXHIBIT A
REVOLVING CREDIT NOTE
$20,000,000.00 Garden City, New York
December 30, 1998
FOR VALUE RECEIVED, on the Maturity Date, DEL LABORATORIES, INC., a
Delaware corporation, having its principal place of business at 178 EAB Plaza,
Uniondale, New York 11556 (the "Borrower"), promises to pay to the order of THE
CHASE MANHATTAN BANK (the "Bank") at its office located at 395 North Service
Road, Suite 302, Melville, New York 11747, the principal sum of the lesser of:
(a) TWENTY MILLION ($20,000,000.00) DOLLARS; or (b) the aggregate unpaid
principal amount of all Revolving Credit Loans made by Bank to Borrower pursuant
to the Agreement (as defined below).
Borrower shall pay interest on the unpaid principal balance of this Note
from time to time outstanding, at said office, at the rates of interest, at the
times and for the periods set forth in the Agreement.
All payments including prepayments on this Note shall be made in lawful
money of the United States of America in immediately available funds. Except as
otherwise provided in the Agreement, if a payment becomes due and payable on a
day other than a Business Day, the maturity thereof shall be extended to the
next succeeding Business Day, and interest shall be payable thereon at the rate
herein specified during such extension.
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<PAGE>
Borrower hereby authorizes Bank to enter from time to time the amount of
each Loan to Borrower and the amount of each payment on a Loan on the schedule
annexed hereto and made a part hereof. Failure of Bank to record such
information on such schedule shall not in any way effect the obligation of
Borrower to pay any amount due under this Note.
This Note is the Revolving Credit Note referred to in that certain Loan
Agreement among Borrower, Del Pharmaceuticals, Inc., and Bank of even date
herewith (the "Agreement"), as such Agreement may be amended from time to time,
and is subject to prepayment and its maturity is subject to acceleration upon
the terms contained in said Agreement. All capitalized terms used in this Note
and not defined herein shall have the meanings given them in the Agreement.
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<PAGE>
If any action or proceeding be commenced to collect this Note or enforce
any of its provisions, Borrower further agrees to pay all reasonable costs and
expenses of such action or proceeding and attorneys' fees and expenses and
further expressly waives any and every right to interpose any counterclaim in
any such action or proceeding. Borrower hereby submits to the jurisdiction of
the Supreme Court of the State of New York and agrees with Bank that personal
jurisdiction over Borrower shall rest with the Supreme Court of the State of New
York for purposes of any action on or related to this Note, the liabilities
hereunder, or the enforcement of either or all of the same. Borrower hereby
waives personal service by manual delivery and agrees that service of process
may be made by pre-paid certified mail directed to the Borrower at the
Borrower's address set forth above or at such other address as may be designated
in writing by the Borrower to Bank in accordance with Section 7.02 of the
Agreement, and that upon mailing of such process such service be effective with
the same effect as though personally served. Borrower hereby expressly waives
any and every right to a trial by jury in any action on or related to this Note,
the liabilities hereunder or the enforcement of either or all of the same.
Subject to the provisions of the Agreement, Bank may transfer this Note to
the permitted transferee or transferees, who shall thereupon become vested with
all the powers and rights above given to Bank in respect thereto, and Bank shall
thereafter be forever relieved and fully discharged from any liability or
responsibility in the matter. The failure of any holder of this Note to insist
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<PAGE>
upon strict performance of each and/or all of the terms and conditions hereof
shall not be construed or deemed to be a waiver of any such term or condition.
Borrower and all endorsers and guarantors hereof waive presentment and
demand for payment, notice of non-payment, protest, and notice of protest.
This Note shall be construed in accordance with and governed by the laws
of the State of New York.
DEL LABORATORIES, INC.
By:______________________________________
Name: Enzo Vialardi
Title: Executive Vice President
and Chief Financial
Officer
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<PAGE>
Schedule of Revolving Credit Loans
Amount of
Principal Unpaid Name of
Amount of Paid or Principal Person Making
Date Loan Prepaid Balance Notation
- ------ --------- --------- --------- -------------
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
____________________________________________________
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<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors and Shareholders
Del Laboratories, Inc.:
We consent to incorporate by reference in the Registration Statement (No.
33-27777) on Form S-8 and Registration Statement (No. 33-64777) on Form S-8
of Del Laboratories, Inc. of our report dated February 19, 1999, relating to
the consolidated balance sheets of Del Laboratories, Inc. and subsidiaries as
of December 31, 1998 and 1997 and the related consolidated statements of
earnings, shareholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1998, and the related schedule which
report appears in the December 31, 1998 annual report on Form 10-K of Del
Laboratories, Inc.
KPMG LLP
Melville, New York
March 26, 1999
