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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
Evergood Products Corporation
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(Exact Name of Registrant as Specified in its Charter
Delaware 13-2640515
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
140 Lauman Lane, Hicksville, New York 11801
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (516) 822-1230
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Securities to be registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
------------------- ------------------------------
None
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Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
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(Title of Class)
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ITEM 1. BUSINESS
General
Evergood Products Corporation, together with its subsidiaries, related and
affiliated entities (collectively, "Evergood"), is a leading manufacturer,
franchisor, marketer, and retailer of a wide line of high quality, value priced,
branded and non-branded vitamins and nutritional supplements in the United
States, Canada, Europe and the Far East. Evergood currently manufactures,
markets and retails more than 1,500 different vitamin and nutritional
supplements including, vitamins, minerals, herbs, amino acids, sports nutrition
products, diet aids and other nutritional supplements. Evergood markets its
products primarily through the following channels of distribution:
. 143 franchised Great Earth vitamin stores located throughout the United
States and in Canada as of December 31, 1999;
. wholesale distribution through boutique vitamin and nutritional supplements
stores, chain vitamin and nutritional supplements stores and independent
health food stores;
. through Livingston Healthcare Services, Inc., or LHSI, a contract
warehousemen with facilities currently in Rancho Cucomonga, California; and
. Evergood's facility located in Hicksville, New York.
Through its wholly-owned subsidiary Phoenix Laboratories, Inc., Evergood
manufactures substantially all of the vitamins and nutritional supplements which
are sold and marketed under its Great Earth(R) and Bodyonics(R) brands. There
are currently more than 400 products marketed at retail under the Great Earth
brand in Great Earth's 143 franchise stores and through mail order. Evergood
markets and sells more than 20 products under its Bodyonics brand in various
retail outlets including at GNC stores, Great Earth stores, The Vitamin Shoppe
stores, Vitamin World stores, independent health stores, various gyms and
fitness centers and through direct response and mail order. Phoenix also
manufactures vitamin and nutritional supplements on a contract basis for several
well known vitamin and nutritional supplement companies.
Evergood's business strategy is:
. to continue to expand the Great Earth franchise systems through marketing
and advertising in order to increase the number of franchised stores and
locations;
. through in-store marketing, regional advertising, local advertising, cable
television advertising and internet sales, to increase retail sales by
franchisees of the Great Earth proprietary brand of vitamin and nutritional
supplements;
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. to continue to manufacture, market and sell, at wholesale and retail,
innovative vitamins and nutritional supplements under both the Great Earth
and the Bodyonics brands;
. through national advertising through newspapers, magazines, event
sponsorship, direct response advertising, radio advertising, endorsements
by well known fitness and bodybuilder personalities, to enhance Bodyonics
reputation as a premiere brand for sports nutrition, vitamin and
nutritional supplements;
. to continue to increase the amount of Phoenix's private label contract
manufacturing; and
. to build a new state of the art manufacturing and office facility on Long
Island to maximize manufacturing volume and efficiencies.
Evergood is a Delaware domestic corporation which was formed more than 30
years ago in June 1969.
Products
Phoenix maintains a state of the art laboratory where it currently employs
approximately 10 chemists who, under the supervision of Evergood's President,
formulate the products it manufactures for Great Earth, Bodyonics and other
contract manufacturers. Currently, Phoenix manufactures over 1,500 products
including minerals, herbs and amino acids. Phoenix manufactures products in
various potency levels, sizes, formulations, and delivery forms including
tablets, soft gel and hard shell capsules, chewables, powders and liquids.
Products are packaged in single vitamins and through multi-vitamin packets.
Great Earth(TM) products are sold only through the Great Earth vitamins
franchise chain in the United States and Canada. Bodyonics(TM) products are sold
through various distribution channels including, Great Earth, GNC, The Vitamin
Shoppe and Vitamin World stores, independent health stores, gyms and fitness
centers and through direct response advertising throughout the United States.
The contract manufacturing which Phoenix engages in permits Phoenix manufactured
products to be marketed through numerous other distribution channels as well.
Product Formulation
Evergood's products are formulated through the efforts of its staff of
professionals, several of whom hold doctorate degrees, with specialities in
biochemistry, nutrition, dietetics, pharmacy, food science, natural products
chemistry and naturopathy. The core strategy employed by Evergood in
formulating new products is to identify emerging markets and to develop
effective, science-based formulas and technologies for those markets. New
product ideas are generated from a variety of sources, including independent and
company-sponsored scientific and market research, affiliation with fully
accredited institutions of higher learning located in the United States, reports
in scientific and medical periodicals, and information and suggestions received
from vendors and others.
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In order to determine the feasibility of developing, producing and selling
a new product, under the supervision of Evergood's President, Mel Rich,
Evergood's personnel submit new product ideas to representatives of Evergood's
sales, marketing, purchasing, manufacturing and finance departments and to
members of senior management. As part of this overall feasibility analysis,
Evergood's quality control and regulatory departments also conduct a thorough
investigation of the safety and efficacy of each proposed new product as well as
an analysis of potential patent, trademark and other legal and regulatory
issues. Evergood's purchasing department then obtains the raw materials
necessary to produce the new product. After quality testing, Evergood begins
production of an initial pilot sample to determine various product
characteristics and ensure that the product will meet all applicable regulatory
and internal quality standards. Based on these tests, final labels and product
specifications, including any substantiated statements of nutritional support,
such as structure and function claims for the new product, are developed.
Evergood has typically been able to complete the cycle from product concept to
final production in a period ranging from several weeks to several months.
Manufacturing
Evergood believes it has a reputation for being a highly efficient
manufacturing facility that is registered as a drug establishment by the Food
and Drug Administration, or FDA. Its manufacturing facility has been operating
for more than 30 years and began as a manufacturer of pharmaceuticals. Evergood
continues to maintain the same high standards and quality controls that were
initially needed to obtain FDA registration in its manufacturing of vitamin and
nutritional supplements, as well as in its significantly smaller pharmaceutical
manufacturing business.
Evergood believes that because it is a full service manufacturer which
performs its own studies, testing and manufacturing, it has and maintains
efficient and cost effective production. Evergood believes that its FDA
registration is an indication of the quality of its manufacturing processes and
that such approval is a competitive advantage as most other vitamin and
nutritional supplements manufacturers are not FDA registered.
In addition to its science-based manufacturing, Evergood has a
manufacturing process which includes the following:
. effective and cost efficient purchase of high quality bulk raw materials;
. mix, blend and granulate measured ingredients into a mixture of a
homogenous consistency in state of the art machinery;
. encapsulate or tablet the blended mixture according to the most effective
dosage, in state of the art equipment; and
. coat the completed tablet.
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After the manufacturing process is completed and the product is ready for
bottling, Evergood's automated equipment and production line counts the tablets,
inserts them into specially designed recyclable product bottles, add a specially
designed tamper evident hinged cap with an inner safety seal and affixes a label
identifying the bottle contents. The Phoenix label is affixed to each bottle
which leaves its manufacturing facility and is designed to enable consumers to
readily identify the product name and the specific content of each product since
Evergood believes that the more information its customers have, the more likely
the customers are to buy Evergood's products.
Raw Materials
The principal raw materials used in the manufacturing process are natural
and synthetic vitamins, purchased from bulk manufacturers in the United States,
Japan and Europe. Evergood purchases its raw materials from multiple sources
including some of the largest pharmaceutical and chemical companies in the
world. Although Evergood's raw materials and packaging supplies are readily
available from multiple suppliers, one supplier currently provides approximately
19% of Evergood's purchases. Evergood believes that the loss of its largest
supplier would not have a significant adverse effect upon its operations as
Evergood would be able to replace such source of supply. No other supplier
accounts for 10% or more of Evergood's raw material purchases.
Quality Control
Evergood's manufacturing process places significant emphasis on quality
control. Raw materials used in production are initially held in quarantine
during which time Evergood's laboratory employees assay the product against the
manufacturer's certificate of analysis, when applicable. Once cleared, a lot
number is assigned, samples are retained and the material is processed by
formulating, mixing and granulating, compression and sometimes coating
operations. Such manufacturing operations are conducted in accordance with the
good manufacturing practices of the FDA and other applicable regulatory
standards. After the tablet is manufactured, laboratory employees test its
weight, purity, potency, dissolution and stability.
Customers
Evergood has numerous retail and wholesale customers. Except for Cytodyne
(23%) in fiscal 1999, Vitamin Shoppe (14%) and Cytodyne (11%) in fiscal 1998 and
GNC (13%) and Vitamin Shoppe (10%) in fiscal 1997, no one customer accounted for
more than 10% of Evergood's net sales.
Sales and Customer Service
Evergood has established customer relationships at retail and wholesale
levels, as well as through mail order and direct response and through a newly
launched science and education oriented website from Great Earth. Evergood
believes its long standing commitment to science and education has resulted in
an extremely high level of customer satisfaction.
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Retail
Through its wholly owned subsidiaries Great Earth Companies, Inc. and Great
Earth International Franchising Corp., Evergood has established a franchise
system in the United States and Canada. There were approximately 143 franchised
locations as of December 31, 1999. The average retail location is 800 to 1,200
square feet and maintains an inventory of more than 1,000 products designed to
satisfy customers' needs. Before a franchise location is permitted to open, the
prospective franchisee undergoes three to four weeks of rigorous training. Each
franchisee is required to set up and operate its Great Earth store in accordance
with the procedures and specifications set forth in the Great Earth Store
Operations Manual so that there is uniformity and consistency among Great Earth
stores. Franchisees are also responsible for recruiting and hiring store
personnel. Store personnel are generally compensated on a salary plus commission
basis and are required to wear the Great Earth uniform which includes a Great
Earth logo shirt. Great Earth seeks to have its franchisees accommodate the
specific needs of retail customers by interfacing with them and then providing
them with customized or tailored vitamin and nutritional supplement regimens.
Wholesale
Evergood manufactures vitamin and nutritional supplements for over 40
contract manufacturers worldwide. Evergood's staff of approximately 10 chemists
allows it to meet the needs of its contract manufacturing customers.
Customer Service
Evergood operates an in-house customer service and information department
which responds to information requests about products it manufactures, as well
as a toll-free customer service line for retail consumers.
Marketing
Evergood's marketing strategies are well supported by extensive print,
point of purchase, radio, newsletter and other advertising and promotional
programs which range from in-store sales promotions on the franchise level to
national advertising for the Bodyonics and Great Earth brands, as well as event
sponsorship by Bodyonics.
Evergood's marketing objective for Great Earth is to expand the size of the
franchise system and increase franchise revenue from increased sales by new and
existing franchisees. Evergood recently hired a second franchise sales director
to step up and increase the efforts to expand the Great Earth franchise system
with the goal of doubling the number of franchises in the next three years. To
augment the efforts of Great Earth's franchise sales directors, Evergood has
started an advertising campaign which includes franchise advertising in USA
Today, The Wall Street Journal, Success
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magazine, Entrepreneur magazine and others, as well as advertising with various
Internet sites dedicated to the sale of franchises.
Great Earth's retail outlets are generally supported through regional and
local advertising. The main objective in the retail advertising campaign is to
educate the consumer in an effort to build strong traffic and sales and to
increase brand awareness.
Evergood seeks to increase brand awareness for its Bodyonics brand among
consumers and to introduce and promote the use of new products within the brand.
Evergood has implemented a direct response program for Bodyonics which seeks to
attract new customers through direct response marketing. Bodyonics has also
been engaged in an advertising campaign on radio in the New York tri-state
metropolitan area.
Evergood's advertising campaign includes consumer print advertising in
nationally distributed magazines such as Muscle & Fitness, Flex, Let's Live,
Ironman, Power, Muscle Media 2000, Natural Food Merchandiser, among others, as
well as regionally distributed magazines and newsletters, in-store promotions,
point of purchase advertising, ad slicks, cable television and radio
advertising, much of which is produced by Evergood's in-house graphic arts
department, marketing department, and advertising department and the majority of
which is produced by Evergood's outside advertising agency. Evergood's use of
an in-house staff permits a hands on approach and provides rapid turn around
time for all of its marketing, merchandising, advertising and promotional needs.
Furthermore, Great Earth has developed an innovative website
(www.greatearthvitamins.com) to provide another source of sales of product and
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generation of sales of franchises. The objective of the website is not only to
sell product but, in keeping with Evergood's science and education philosophy,
to provide the consumer with extensive information regarding all types of
ailments and remedies and suggest to consumers what vitamin and nutritional
supplement categories might best assist them to achieve their goals.
Warehousing and Distribution
Evergood's Great Earth and Bodyonics products are distributed by LHSI,
contract warehousemen with facilities in Rancho Cucomonga, California, pursuant
to a contract with Great Earth Distribution, Inc., a wholly owned subsidiary of
Evergood. LHSI provides dedicated space in its warehouses for Great Earth and
Bodyonics products, as well as dedicated employees familiar with those products
who pick the product for distribution to its final destination. Evergood and
LHSI have jointly developed extensive procedures, systems and technology
designed to make the warehouse and distribution process more efficient and cost
effective.
Evergood also maintains a warehouse in its facility in Hicksville, New
York, for raw materials, work in process and finished inventory. By maintaining
finished inventory in Hicksville, as well as with LHSI in California, Evergood
is able to timely ship most mail orders and direct
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response requests. The distribution computer system enables orders to be
prepared, picked, packed and shipped continually throughout the day while all
necessary distribution and shipping documents are printed. Completed orders are
bar coded and scanned and the merchandise and shipping date are verified and
entered automatically into the customer order file prior to being shipped. A
system of conveyors automatically routs boxes carrying merchandise throughout
LHSI's California distribution center for the fulfillment of orders.
Trademarks and Patents
Evergood owns numerous trademarks and service marks, including marks in
design and word form. The rights for Great Earth and Bodyonics and certain other
trademarks are registered with the United States Patent and Trademark Office and
certain other countries. Evergood also has common law and other rights to use
other names material to its businesses. Federally registered trademarks have
perpetual life, as long as they are renewed on a timely basis and used properly
as trademarks. Evergood regards its trademarks and other proprietary rights as
valuable assets and believes they have significant value in the marketing of its
products. Evergood vigorously protects its trademarks against infringement.
Product Liability Insurance
Evergood, like other manufacturers, wholesalers, distributors and retailers
of products that are ingested, faces an inherent risk of exposure to product
liability claims if, among other things, the use of its products results in
injury. Evergood currently has product liability insurance for its operations in
amounts Evergood believes are adequate for its operations. There can be no
assurance, however, that such insurance will continue to be available at a
reasonable cost, or if available, will be adequate to cover liabilities.
Evergood requires that each of its suppliers certify that it carries adequate
product liability insurance covering Evergood.
Government Regulation
United States. The manufacturing, packaging, labeling, advertising,
distribution and sale of Evergood's products are subject to regulation by
Federal, state and local agencies, the most active of which is the U.S. Food and
Drug Administration, or FDA. The FDA regulates Evergood's dietary supplements,
principally under amendments to the Federal Food, Drug and Cosmetic Act embodied
in the Dietary Supplement Health and Education Act, or DSHEA. Under DSHEA,
dietary ingredients that were not used in dietary supplements marketed before
October 15, 1994 require premarket submission to the FDA of evidence of a
history of their safe use, or other evidence establishing that they are
reasonably expected to be safe. There can be no assurance that the FDA will
accept the evidence of safety for any new dietary ingredient that Evergood may
decide to use, and the FDA's refusal to accept such evidence could result in
regulation of such dietary ingredients as food additives, requiring the FDA pre-
approval based on newly conducted, costly safety testing. Also, while DSHEA
authorizes the use of statements of nutritional support in the labeling of
dietary supplements, the FDA is required to be notified of such statements, and
there can be no assurance
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that the FDA will not consider particular labeling statements used by Evergood
to be drug claims rather than acceptable statements of nutritional support,
necessitating approval of a costly new drug application, or relabeling to delete
such statements.
DSHEA also authorizes the FDA to promulgate good manufacturing practice, or
GMP, regulations for dietary supplements, which would require special quality
controls for the manufacture, packaging, storage and distribution of
supplements. There can be no assurance, if such GMP rules are issued, that
Evergood will be able to comply with them without incurring material expense to
do so. DSHEA further authorizes the FDA to promulgate regulations governing the
labeling of dietary supplements, including claims for supplements pursuant to
recommendations made by the Presidential Commission on Dietary Supplement
Labels. Such rules are expected to be issued, which will require relabeling of
Evergood's dietary supplements, and may require additional record keeping and
claim substantiation testing, and even reformulation, recall or discontinuance
of certain of Evergood's supplements, and there can be no assurance that such
requirements will not involve material expenses to Evergood. Moreover, there can
be no assurance that new laws or regulations imposing more stringent regulatory
requirements on the dietary supplement industry will not be enacted or issued.
Foreign. Evergood's products are also subject to regulation by foreign
countries where they are sold. Governmental regulations in Canada or in other
foreign countries where Evergood plans to expand or commence sales may prevent
or delay the introduction, or require the reformulation or relabeling, of
certain of Evergood's products or prevent or delay entry into a market.
Evergood is subject to regulation under various international, Federal,
state and local laws which include provisions regulating, among other things,
the operation of direct sales programs. In addition, many countries currently
have laws that would restrict or prohibit direct sales companies, such as
Evergood, from conducting business there.
In addition, Evergood cannot predict whether new domestic or foreign
legislation regulating its activities will be enacted. Such new legislation
could have a material adverse effect on Evergood.
Competition
The market for vitamins and other nutritional supplements is highly
competitive. Numerous companies compete with Evergood in the development,
manufacture and marketing of vitamins and nutritional supplements.
United States. In the U.S., Evergood's Great Earth and Bodyonics brands
compete for sales to consumers with heavily advertised national brands
manufactured by large companies, such as Sundown sold by Rexall, Nature Made
sold by Pharmavite Corp., Your Life sold by Leiner Health Products and Nature's
Bounty sold by NBTY. Evergood's Great Earth franchise stores compete on some
levels with specialty vitamin stores, such as GNC, the Vitamin Shoppe and
Vitamin World, as well as health food stores and other retail stores. Evergood
also competes with companies which
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distribute products through the Internet. Increased competition from companies
that distribute on the Internet and through the wholesale channels could have a
material adverse effect on Evergood as they may have greater financial and other
resources available to them and possess extensive manufacturing, distribution
and marketing capabilities far greater than those of Evergood.
Canada. The market for sales of vitamins, minerals and other nutritional
supplements in Canada is also highly competitive. Evergood's principal
competitors are large pharmacy chains, including GNC, the Vitamin Shoppe and
Vitamin World, as well as retail stores and major supermarket chains. There are
also approximately 1,300 independent retailers of health foods and nutritional
supplements in the Canadian market. Great Earth's master franchisee in Canada
has opened several free standing Great Earth Vitamin franchise stores and has
recently entered into a written agreement with The Bay Company, the oldest
department store chain in North America with over 150 locations in all of the
provinces of Canada. The contract with The Bay Company sets up a schedule to
open Great Earth franchised speciality stores within many of The Bay Company's
department stores.
Employees
As of December 31, 1999, Evergood employed more than 120 full-time
employees. Approximately, 85 of these employees are involved in manufacturing,
10-12 in product formulation, 9 in sales and marketing, and 16 in finance and
general administration. To date, Evergood believes it has been successful in
attracting and retaining skilled and motivated individuals. Competition for
qualified management and technical employees is intense. Evergood's success
will depend in large part upon its continued ability to attract and retain
qualified employees. Approximately 70% of Evergood's employees are covered by a
collective bargaining agreement which is scheduled to expire on May 14, 2000.
Evergood is in the process of negotiating a new agreement. Evergood has not
experienced a work stoppage in the past 9 years. Evergood believes that it has
good relations with its employees.
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ITEM 2. FINANCIAL INFORMATION
Selected Financial Data
The following selected consolidated financial data for the five fiscal
years ended December 31, 1995, 1996, 1997, 1998 and 1999 are derived from
Evergood's audited financial statements. This data should be read in conjunction
with management's discussion and analysis of financial condition, Evergood's
consolidated financial statements, related notes, and other financial
information included elsewhere herein.
<TABLE>
<CAPTION>
Years Ended December 31,
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1995 1996 1997 1998 1999
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<S> <C> <C> <C> <C> <C>
Statement of Operations Data(1)(2):
Net sales $18,350,135 $22,086,706 $30,868,804 $38,601,509 $44,599,133
Cost of sales 14,285,542 16,795,551 21,782,066 27,867,831 31,144,799
----------- ----------- ----------- ----------- -----------
Gross profit 4,064,593 5,291,155 9,086,738 10,733,678 13,454,334
Operating Costs:
Selling, general and
administrative costs 3,337,574 4,187,790 8,442,461 11,476,266 11,044,884
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Operating income (loss) 727,019 1,103,365 644,277 (742,588) 2,409,450
Other expense (income):
Interest expense 503,161 465,528 612,008 732,642 683,113
----------- ----------- ----------- ----------- -----------
Income (loss) from continuing
operations before income taxes 223,858 637,837 32,269 (1,475,230) 1,726,337
Provision (benefit) for
income taxes - (222,270) 23,000 4,000 (1,278,000)
----------- ----------- ----------- ----------- -----------
Income (loss) before minority interest
and extraordinary item 223,858 860,107 9,269 (1,479,230) 3,004,337
Minority interest - (25,665) 25,665 - -
----------- ----------- ----------- ----------- -----------
Income (loss) before extraordinary item 223,858 834,442 34,934 (1,479,230) 3,004,337
Extraordinary gain on debt forgiveness - - 98,000 - -
----------- ----------- ----------- ----------- -----------
Net income (loss) $ 223,858 $ 834,442 $ 132,934 $(1,479,230) $ 3,004,337
=========== =========== =========== =========== ===========
Net income (loss) per common share
Basic: $ .12 $ .34 $ .03 $ (.38) $ .77
Diluted: $ .12 $ .34 $ .03 $ (.38) $ .77
Weighted average number of
common shares outstanding: 1,934,105 2,422,420 3,887,368 3,887,368 3,887,368
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1995 1996 1997 1998 1999
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data(1)(2):
Cash and cash equivalents $ 35,444 $ 158,319 $ 219,489 $ 751,664 $ 482,259
Working capital 1,915,075 1,633,317 4,131,068 3,418,927 6,496,474
Total assets 8,405,798 9,833,116 13,906,934 14,531,322 18,555,451
Total liabilities 8,477,010 9,830,950 13,771,834 15,875,452 16,895,244
Stockholders equity (deficit) (71,212) 2,166 135,100 (1,344,130) 1,660,207
</TABLE>
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(1) Franchise operations are reflected from September 1996, the date of the
Great Earth Company acquisition.
(2) Brand development operations commenced in September 1996 with the formation
of Bodyonics.
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Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
Fiscal 1999 Compared to Fiscal 1998
Revenues:
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Revenue to outside customers for 1998 and 1999 is comprised as follows:
<TABLE>
<CAPTION>
1998 1999
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$ % of $ % of
Segment In Thousands Total Revenue In Thousands Total Revenue
- ------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Manufacturing $18,450 47.8% $24,705 55.4%
Franchising 14,738 38.2 14,577 32.7
Brand Development 5,414 14.0 5,317 11.9
------- ----- ------- -----
Consolidated $38,602 100.0% $44,599 100.0%
======= ===== ======= =====
</TABLE>
Consolidated revenue for 1999 rose by approximately $6 million, an increase
of 15.5% over 1998. Manufacturing segment sales increases of approximately $6.3
million reflect additional sales of approximately $6.1 million to a single
private label customer. This customer began purchasing from the company in
February 1998 at an average monthly rate of approximately $100,000 increasing to
approximately $700,000 by the end of 1998. Sales to this customer in 1999 have
averaged approximately $800,000 per month. There were no significant changes in
selling prices during this period.
The decrease in franchising segment revenue of approximately $161,000
primarily reflects a decrease in sales of products to franchisees.
Brand development sales decreased by approximately $100,000 primarily as
the result of a significant decrease in this segment's advertising and
promotional budget. This segment began operation in 1996, with the intention of
creating a recognizable national brand name. Since the inception of this
segment, management has attempted to balance the high cost of advertising and
promotion, required to establish a national brand, with available resources. In
1998, advertising and promotion for this segment approximated $3.4 million
whereas in 1999, advertising and promotion for the segment was reduced to $1.7
million.
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Operating Income:
- -----------------
Operating revenue for 1998 and 1999 is comprised as follows:
<TABLE>
<CAPTION>
1998 1999
------------------------------ ------------------------------
$ % of $ % of
Segment In Thousands Segment Revenue In Thousands Segment Revenue
- ------- ------------ --------------- ------------ ---------------
<S> <C> <C> <C> <C>
Manufacturing $ 1,797 9.7% $ 2,719 11.0%
Franchising 1,827 12.4% 778 5.3
Brand Development (4,370) (80.7)% (1,062) (19.9)
Corporate 3 - (26) -
------- -------
Consolidated $ (743) (1.9)% $ 2,409 5.5%
======= =======
</TABLE>
Consolidated operating income for 1999 rose by $3.2 million, increasing
from a loss of approximately $743,000 in 1998 to income of approximately
$2,409,000 in 1999. Manufacturing segment operating income increased by
approximately $900,000 in 1999 as compared to 1998. An increase in
manufacturing segment gross profits of approximately $1.8 million was reduced by
increases in manufacturing segment selling, general and administrative expenses
of approximately $.9 million.
The increase in gross profit was caused in part by increases in sales which
at the historical gross profit percent resulted in an increase in gross profit
of approximately $.8 million. Gross profit also increased as a result of
decreases in cost of raw materials which accounted for the remaining increase of
approximately $1.0 million in gross profits. Labor and overhead rates remained
constant from 1998 to 1999.
The $.9 million increase in manufacturing segment selling, general and
administrative expenses primarily reflect increases in selling and marketing
expenses including advertising, travel and entertainment. Legal and accounting
fees also increased in part in preparation for the filing of a registration
statement.
Franchising segment operating income decreased by approximately $1.0
million in 1999 as compared to 1998. This change is primarily the result of
increases in the following selling, general and administrative expense:
Charges from the outside warehouse used to
distribute product to the company's franchises $150,000
Bad debt 150,000
Marketing personnel and the related recruitment
cost and sales material 400,000
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Brand development operating loss decreased by approximately $3.3 million in
1999 as compared to 1998. The largest factor in this improvement was a decrease
in advertising and promotion expenses of approximately $1.8 million. This
resulted from management's efforts to balance such costs with available capital
as it attempts to establish this segments Bodyonics and Pinnacle products as
national brands. In addition, there was an increase in this segment's gross
profit of approximately $1.0 million which resulted from a decrease in price
concessions and sales returns compared to 1998. The decrease in concessions and
returns is attributed to managements decision in 1999 to focus the product lines
to those products which had sold more successfully and to control the size of
new product lines until market sources was determinable. The remaining $.5
million is primarily the result of reductions in sales, salaries and travel
expenses. Management believes that selling, general and administrative expenses
will continue to increase in 2000 largely due to increased efforts to advertise
the sale of franchises, business' advertising expenses and increased legal and
accounting fees.
Fiscal 1998 Compared to Fiscal 1997
Revenues:
- --------
Revenue to outside customers for 1997 and 1998 is comprised as follows:
<TABLE>
<CAPTION>
1997 1998
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$ % of $ % of
Segment In Thousands Total Revenue In Thousands Total Revenue
- ------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Manufacturing $10,246 33.2% $18,450 47.8%
Franchising 15,122 49.0 14,738 38.2
Brand Development 5,501 17.8 5,414 14.0
------- ----- ------- -----
Consolidated $30,869 100.0% $38,602 100.0%
======= ===== ======= =====
</TABLE>
Consolidated revenue for 1998 rose by approximately $7.7 million, an
increase of 25.1% over 1997.
Manufacturing segment sales increase of approximately $8.2 million reflects
sales to a new private label customer of approximately $4.3 million. This
customer began purchasing from the company in February 1998 at an average
monthly rate of approximately $100,000 increasing to approximately $700,000 by
the end of 1998. Sales to another major customer increased by approximately
$2.4 million, while sales increases to the remaining customers accounted for the
remaining $1.5 million increase.
The decrease in franchising segment revenue of approximately $384,000, is
the result of an increase of approximately $90,000 in royalties and $58,000 in
franchise fees and other income, combined with a decrease in sales volume of
product of approximately $532,000 or 4% to the franchisees.
14
<PAGE>
Brand development sales decreased by approximately $87,000 in 1998 compared
to 1997. This was the result of a decrease in sales from three (3) significant
customers of approximately $855,000 in total, combined with a new customers'
sales of approximately $280,000 and an increase of approximately $488,000 in
sales to other customers.
All of the changes in sales were volume related as there were no
significant price changes.
Operating Income
- ----------------
Operating revenue for 1997 and 1998 is comprised as follows:
<TABLE>
<CAPTION>
1997 1998
------------------------------ ------------------------------
$ % of $ % of
Segment In Thousands Segment Revenue In Thousands Segment Revenue
- ------- ------------ --------------- ------------ ----------------
<S> <C> <C> <C> <C>
Manufacturing $ 43 .4% $ 1,797 9.7%
Franchising 2,045 13.5% 1,827 12.4%
Brand Development (1,432) (26.0)% (4,370) (80.7)%
Corporate (12) - 3 -
------- -------
Consolidated $ 644 2.0% $ (743) (1.9)%
======= =======
</TABLE>
Consolidated operating income for 1998 declined by approximately $1.4
million, decreasing from income of approximately $644,000 in 1997 to a loss of
approximately $743,000 in 1998.
Manufacturing segment operating income increased by approximately $1.8
million in 1998 as compared to 1997. An increase in manufacturing segment gross
profits of approximately $2.2 million was reduced by increases in manufacturing
segment selling, general and administrative expenses of approximately $.4
million. The increase in gross profit was primarily due to significant
decreases in the cost of materials.
Franchising segment operating income decreased by approximately $.2 million
in 1998 as compared to 1997. The net decrease was attributed to a $.5 million
decrease in gross profit and a $.3 million decrease in franchising segment
selling, general and administrative expenses. The decrease in selling, general
and administrative expenses was primarily due to a reduction in charges from an
outside warehouse to distribute product to the company's franchises.
Brand development operating loss increased approximately $3.0 million due
to an increase in selling, general and administrative expenses. The increase in
selling, general and administrative expenses was primarily an increase of $2.6
million in its advertising and promotional budget as well as $.4 million for
charges from an outside warehouse to distribute product to the company's
franchises.
15
<PAGE>
Liquidity and Capital Resources
Evergood's balance sheet reflects working capital of $6.5 million at
December 31, 1999 compared to working capital of $3.4 million at December 31,
1998. The increase of $3.1 million is mainly comprised of an increase in net
inventory levels of $1.6 million to $8.6 million from $7.0 million, an increase
in net trade accounts receivable of $1.2 million to $5.6 million from $4.4
million and an increase in current deferred tax assets of $1.1 million to $1.5
million from $352,000. These increases in current assets are offset by an
aggregate increase in accounts payable and accrued expenses of $582,000 to $9.6
million from $9.0 million. Cash decreased by $306,000 to $446,000 from $752,000.
Cash flows utilized by operations were $216,000 during 1999, a small
decrease over the $140,000 cash deficit resulting from operations in 1998.
While net income for 1999 was $3.0 million, increased operating levels resulted
in increases to trade accounts receivable of $1.4 million and inventories of
$1.6 million. Additionally, 1999 net income reflects an increase of $1.4
million of recognized deferred tax assets. Evergood has total tax assets of
$2.0 million recorded at December 31, 1999 compared to $600,000 in 1998. The
increase results from management's decision to eliminate previously recorded
valuation allowances based on a determination that present conditions indicate
that it is more likely than not that the benefit of such assets will be realized
in the future. Fiscal 1999 cash flow from operations is also benefitted by an
increase of $582,000 in trade accounts payable and accrued expenses.
Future operating cash flows will be impacted by officers' salary
commitments entered into in March 2000. These contracts will increase executive
salaries by approximately $400,000 annually over historical levels. Other
factors that could effect future operating cash flows are management decisions
regarding levels of advertising and marketing for brand development. At this
time, Evergood is committed to, or has plans for marketing programs which are
estimated to require an increase in expenditures of approximately $500,000 over
1999 levels.
Investing activities consist mainly of fixed asset acquisitions.
Acquisitions during 1999 totaled $568,000 compared to $265,000 for 1998,
representing increased expenditures of $304,000. Capital expenditures are
principally connected with Evergood's manufacturing segment and generally
consist of equipment purchased to enhance productive capability or to replace
existing equipment. Management sees a continuing need for such expenditures,
and furthermore, anticipates a need to expand production capacity in the short
term to provide for continued growth. In this regard, Evergood entered into a
two year lease in April 2000 for 9,000 square feet of manufacturing space. Over
the coming year, Evergood anticipates expenditures of $250,000 to $500,000 to
outfit these premises for production capability. Evergood expects to finance
these expenditures, in part, through borrowing arrangements with its present
lender.
Evergood has historically funded its cash needs through borrowings on its
collateralized credit line and an associated term loan. The aggregate balance
outstanding on these loans was $6.8
16
<PAGE>
million at December 31, 1999 compared to $6.1 million outstanding at December
31, 1998. This increase of $638,000 is comprised of an increase of $878,000 of
borrowing on the credit line offset by $240,000 in payments on the term loan.
These loans have a combined limit of $7,500,000 and availability on the credit
line is dependent on levels of acceptable accounts receivable and inventory to
serve as collateral. At December 31, 1999 the excess availability under the line
was approximately $486,000. This credit line matures in August 2001, but has
historically been renewed upon maturity. Presently, management has not decided
whether a renewal will be sought at that time, or whether alternative sources of
financing will be considered. Overall, cash flows provided by financing
activities were $479,000 during 1999, a decrease of $458,000 from the amount
provided in 1998.
In March 2000, Evergood received $977,000 from a former supplier and agreed
to accept $318,000 from another former supplier in connection with the
settlement of its position in a class action litigation.
Market Risk
Evergood is exposed to market risk related to changes in interest rates
since its debt is at a variable rate of interest based on the prime rate. The
debt is not hedged by an interest rate swap. If market interest rates increase
by 10 percent from levels at December 31, 1999, the effect on Evergood's net
income would be a reduction of approximately $75,000. Although Evergood sells
products in foreign countries, it does so under dollar denominated letters of
credit. Accordingly, it is not exposed to market risk related to foreign
currency exchange rates.
Inflation
Inflation has not had a significant impact on the Company's operations.
ITEM 3. PROPERTIES
Evergood maintains approximately 65,000 square feet of space in Hicksville,
New York at a monthly rental of approximately $23,000 where Evergood's
manufacturing and corporate headquarters for administrative and financial
functions are currently located. Evergood believes that its present and
proposed facilities are adequate to meet its current business requirements and
that suitable facilities for expansion will be available, if necessary, to
accommodate further physical expansion of corporate operations and for
additional sales and support offices.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of Evergood's
common stock as of May 1, 2000 of (i) each person known by Evergood to
beneficially own 5% or more of Evergood's
17
<PAGE>
outstanding common stock, (ii) each of Evergood executive officers, directors
and director nominees, and (iii) all of Evergood's executive officers and
directors as a group. Except as otherwise indicated, all shares of common stock
are beneficially owned, and investment and voting power is held, by the persons
named as owners.
<TABLE>
<CAPTION>
Name and Address of Amount of Shares
Beneficial Owner Beneficially Owned Percentage Ownership
- -------------------- ------------------ ---------------------
<S> <C> <C>
Mel Rich 1,562,612 34.9%
Stephen R. Stern 594,061 13.3
Charlotte Rich 791,400 17.7
All directors and officers
as a group (3 persons) 2,948,073 65.9%
- ----------------------------
</TABLE>
* less than one percent (1%) unless otherwise indicated.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
Directors and Executive Officers
Evergood's directors and executive officers as of May 1, 2000 and their
ages are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Mel Rich 55 President and
Chief Executive Officer, Director
Stephen R. Stern 52 Executive Vice President, Treasurer, Assistant
Secretary, Chief Operating Officer, Chief
Financial Officer and Director
Charlotte Rich 78 Secretary and Director
- ----------------------------
</TABLE>
Mel Rich has been President and Chief Executive Officer of Evergood since 1997
and a director since 1969. Prior to becoming President and Chief Executive
Officer, Mr. Rich was Executive Vice President of Evergood from 1969.
Stephen R. Stern has been Executive Vice President, Treasurer, Assistant
Secretary, Chief Operating Officer, Chief Financial Officer and a director since
1994. Mr. Stern has been a practicing attorney in the State of New York since
1972 and is a partner at Hoffinger Friedland Dobrish & Stern, P.C.
18
<PAGE>
Charlotte Rich has been Secretary and a director since 1969.
Employment Agreements
Evergood currently is a party to employment agreements with each of Mel
Rich, Stephen R. Stern and Charlotte Rich. The agreements between Evergood and
each of Messrs. Rich and Stern provides for an initial term of ten years and
five automatic renewal terms of five years each. The agreement between Evergood
and Mrs. Rich provides for an initial term of five years and five automatic
renewal terms of five years each. Pursuant to these agreements:
. Mel Rich is employed as the President and Chief Executive Officer and
receives a base salary of $750,000, subject to annual cost of living
increases. The agreement also provides for an automobile allowance,
various health and life insurance benefits and for the continuation of
certain benefits following his disability.
. Mr. Stern is employed as the Executive Vice President, Treasurer, Assistant
Secretary, and Chief Operating Officer and receives a base salary $495,000
per annum, subject to annual cost of living increases. The agreement also
provides for an automobile allowance, various health and life insurance
benefits and for the continuation of certain benefits following his
disability.
. Mrs. Rich receives a base salary of $150,000 per annum, subject to annual
cost of living increases. The agreement also provides for an automobile
allowance, various health and life insurance benefits, for the continuation
of certain benefits following her disability and, upon any retirement
during the term, the execution and delivery of a Consulting Agreement which
provides for consulting fees of $120,000 per annum.
In the event that Evergood terminates any of these employment agreements
without cause, the terminated employee has the right to receive as a lump sum
payment in an amount equal to the greater of 2.49 times his or her base salary
as then in effect, on the then effective base salary factored over the remaining
term. The employment agreements also provide that in the event that there is a
change of control of Evergood, as defined therein, the employee has the right to
receive as a lump sum payment an amount equal to 2.99 times his or her base
salary as then in effect.
19
<PAGE>
ITEM 6. EXECUTIVE COMPENSATION
The following table sets forth the annual compensation with regard to the
Chief Executive Officer and the other two most highly compensated officers other
than the Chief Executive Officer for fiscal years ended December 31, 1999,
December 31, 1998 and December 31, 1997.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation
----------------------------------------
Name and Fiscal Other Annual
Principal Position Year Salary Compensation(1)
- ------------------ ------- -------- ------------
<S> <C> <C> <C>
Mel Rich....................... 1999 $509,000 $ 50,381 (2)
President and 1998 490,000 45,309 (2)
Chief Executive Officer 1997 440,303 40,050 (2)
Stephen R. Stern............... 1999 $434,000 -
Executive Vice President 1998 380,000 -
Assistant Secretary, Chief 1997 212,000 -
Operating Officer and Chief
Financial Officer
Charlotte Rich................. 1999 $123,000 -
Secretary 1998 127,500 -
1997 114,327 -
- -----------
</TABLE>
(1) Other annual compensation does not include amounts of certain perquisites
and other non-cash benefits which Evergood provides since those amounts do not
exceed the lesser of (a) $50,000 or (b) 10% of the total annual base salary and
bonus disclosed for the officer.
(2) Includes: life and disability insurance premiums of $4,328 for 1999, $4,273
for 1998 and $3,970 for 1997 and automobile allowance of $46,053 for 1999,
$41,036 for 1998 and $36,080 for 1997.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to a stock exchange agreement dated as of March 1, 2000, among
Evergood, Mel Rich and Stephen R. Stern, each of Messrs. Rich and Stern
exchanged certain shares of stock of Great Earth Companies, Inc. and Bodyonics,
Ltd. owned by them for shares of Evergood so that, after the exchange, each of
Great Earth Companies and Bodyonics became wholly-owned subsidiaries of
Evergood. Pursuant to the exchange agreement, Evergood issued an additional
140,993 shares of common stock to each of Mr. Rich and Mr. Stern.
During its last fiscal year, Evergood paid Hoffinger Friedland Dobrish &
Stern, P.C., a law firm in which Mr. Stern is a partner, an aggregate $517,786
in legal fees.
In August 1999, a corporation owned by Messrs. Rich and Stern acquired two
Great Earth Franchise stores located in Long Island, NY. At December 31, 1999,
this corporation owed Evergood a total of $247,658, $110,915 of which is
receivables for products sold since the acquisition date and the balance of
which is primarily receivables due as of the date of acquisition.
20
<PAGE>
ITEM 8. LEGAL PROCEEDINGS
Evergood is a defendant in two lawsuits instituted during 1999 in State
Court in California. Each suit arises from allegations by the respective
plaintiff that Evergood used his images in, among other things, advertisements
and product packaging without his authorization. Each suit claims damages for
invasion of privacy, invasion of the right to privacy, conversion and loss of
future earnings. Additionally, each suit seeks injunctive relief. Both suits are
currently in a discovery stage, accordingly, Evergood is currently unable to
predict the likely outcome. Although certain causes of action under these
lawsuits are not covered under Evergood's insurance policies, management
believes that any potential liability in excess of that which is covered by
insurance will not have a material financial impact on Evergood.
Except as described above, there are no material legal proceedings pending
against Evergood or any of its subsidiaries or to which any of their property is
the subject.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
There is no established public trading market for Evergood's common stock.
As of May 4, 2000, there were approximately 260 holders of record of the
common stock and 4,475,957 shares issued and outstanding, 4,028,361 of which are
freely tradeable pursuant to Rule 144 under the Securities Act.
Evergood has not paid any cash dividends on its common stock and does not
presently intend to do so. Future dividend policy will be determined by its
Board of Directors on the basis of Evergood's earnings, capital requirements,
financial condition and other factors deemed relevant. In addition, Evergood's
line of credit with CIT restricts the payment of dividends.
The transfer agent and registrar of Evergood's common stock is Registrar &
Transfer Company, 10 Commerce Drive, Cranford, New Jersey 07016.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
Evergood issued an additional 140,993 shares of common stock to each of Mr.
Rich and Mr. Stern pursuant to a stock exchange agreement dated as of March 1,
2000. The issuance of the shares was exempt from registration pursuant to
Section 4(2) of the Securities Act.
Evergood issued 447,596 shares pursuant to a consulting agreement dated as
of March 15, 2000 between Evergood and Aegis Capital Corp. The issuance of the
shares was exempt from registration pursuant to Section 4(2) of the Securities
Act.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
Evergood's authorized capital stock consists of 10,000,000 shares of common
stock, $0.01 par value per share.
Holders of the common stock do not have subscription, redemption,
conversion or preemptive rights. The shares of common stock when issued and
paid for, are fully paid and non-assessable. Each share of common stock is
entitled to participate pro rata in distribution upon liquidation and to one
vote on all matters submitted to a vote of shareholders. The holders of common
stock may receive cash dividends as declared by the Board of Directors out of
funds legally available therefor. Holders of the common stock are entitled to
elect all directors. At each annual meeting of the shareholders all of the
directors will be elected. The holders of the common stock
21
<PAGE>
do not have cumulative voting rights, which means that the holders of more than
half of the shares voting for the election of a class of directors can elect all
of the directors of such class and in such event the holders of the remaining
shares will not be able to elect any of such directors.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Evergood's certificate of incorporation and by-laws contain provisions
which reduce the potential personal liability of directors for certain monetary
damages and provide for indemnity of directors and other persons. Evergood is
unaware of any pending or threatened litigation against Evergood or its
directors that would result in any liability for which such director would seek
indemnification or similar protection.
Such indemnification provisions are intended to increase the protection
provided directors and, thus, increase Evergood's ability to attract and retain
qualified persons to serve as directors. Evergood has applied for a liability
insurance policy for the benefit of its directors. There can be no assurance
that Evergood will be able to obtain a liability policy on commercially
reasonable terms, if at all.
The provisions affecting personal liability do not abrogate a director's
fiduciary duty to Evergood and its shareholders, but eliminate personal
liability for monetary damages for breach of that duty. The provisions do not,
however, eliminate or limit the liability of a director for failing to act in
good faith, for engaging in intentional misconduct or knowingly violating a law,
for authorizing the illegal payment of a dividend or repurchase of stock, for
obtaining an improper personal benefit, for breaching a director's duty of
loyalty (which is generally described as the duty not to engage in any
transaction which involves a conflict between the interests of Evergood and
those of the director) or for violations of the federal securities laws. The
provisions also limit or indemnify against liability resulting from grossly
negligent decisions including grossly negligent business decisions relating to
attempts to change control of Evergood.
The provisions regarding indemnification provide, in essence, that Evergood
will indemnify its directors against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
in connection with any action, suit or proceeding arising out of the director's
status as a director of Evergood, including actions brought by or on behalf of
Evergood, (shareholder derivative actions). The provisions do not require a
showing of good faith. Moreover, they do not provide indemnification for
liability arising out of willful misconduct, fraud, or dishonesty, for "short-
swing" profits violations under the federal securities laws, or for the receipt
of illegal remuneration. The provisions also do not provide indemnification for
any liability to the extent such liability is covered by insurance. One purpose
of the provisions is to supplement the coverage provided by such insurance.
22
<PAGE>
These provisions diminish the potential rights of action which might
otherwise be available to shareholders by limiting the liability of officers and
directors to the maximum extent allowable under Delaware law and by affording
indemnification against most damages and settlement amounts paid by a director
of Evergood in connection with any shareholders derivative action. However, the
provisions do not have the effect of limiting the right of a shareholder to
enjoin a director from taking actions in breach of his fiduciary duty, or to
cause Evergood to rescind actions already taken, although as a practical matter
courts may be unwilling to grant such equitable remedies in circumstances in
which such actions have already been taken.
Evergood has also entered into indemnification agreements with its officers
and directors. The indemnification agreements provide for reimbursement for all
direct and indirect costs of any type or nature whatsoever (including attorneys'
fees and related disbursements) actually and reasonably incurred in connection
with either the investigation, defense or appeal of a proceeding, (as defined)
including amounts paid in settlement by or on behalf of an indemnitee
thereunder.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See attached statements.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a) See Index to Financial Statements at beginning of attached financial
statements.
(b) Exhibits
--------
3.1 Certificate of Incorporation, as amended.
3.2 By-Laws.
4.1 Specimen common stock certificate.
10.1 Employment Agreement between Evergood Corporation and Mel Rich dated
as of January 1, 2000.
10.2 Employment Agreement between Evergood Corporation and Stephen R.
Stern dated February 1, 2000.
10.3 Employment Agreement between Evergood Corporation and Charlotte Rich
dated January 1, 2000.
10.4 Form of Indemnification Agreement.
10.5 Agreement with Livingston Healthcare Services, Inc., as amended.
10.6 Credit Agreement with the CIT Group/Credit Finance, Inc.
23
<PAGE>
10.7 Voting Trust Agreement dated as of September 30, 1996 among Evergood
Corporation, Stephen R. Stern and Mel Rich.
10.8 Stock Exchange Agreement dated as of March 1, 2000
22 The following is a list of the Company's subsidiaries
Name State of Incorporation
---- ----------------------
Great Earth Distribution Inc. California
Phoenix Laboratories Inc. New York
Great Earth Companies Inc. Delaware
Bodyonics, Ltd. Delaware
27 Financial Data Schedule.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this amendment to registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized.
EVERGOOD PRODUCTS CORPORATION
/s/ Melvin Rich
By: ________________________________
Melvin Rich
President
Dated: May 23, 2000
25
<PAGE>
EVERGOOD PRODUCTS CORPORATION
AND SUBSIDIARIES
Table of Contents
================================================================================
Page
Independent Auditors' Report F-2
Audited Consolidated Financial Statements
Balance Sheets
December 31, 1998 and 1999 F-3 - F-4
Statements of Operations
For the Years Ended December 31, 1997, 1998 and 1999 F-5
Statements of Changes in Stockholders' Equity
For the Years Ended December 31, 1997, 1998 and 1999 F-6
Statements of Cash Flows
For the Years Ended December 31, 1997, 1998 and 1999 F-7 - F-8
Notes to Consolidated Financial Statements F-9 - F-23
F-1
<PAGE>
Independent Auditors' Report
To the Board of Directors
Evergood Products Corporation and Subsidiaries
Hicksville, New York
We have audited the accompanying consolidated balance sheets of Evergood
Products Corporation and Subsidiaries as of December 31, 1998 and 1999 and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the years ended December 31, 1997, 1998 and 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements 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 consolidated financial position of
Evergood Products Corporation and Subsidiaries as of December 31, 1998 and 1999
and the results of its operations and cash flows for the years ended December
31, 1997, 1998 and 1999, in conformity with generally accepted accounting
principles.
/s/ RAICH ENDE MALTER LERNER & CO.
RAICH ENDE MALTER LERNER & CO.
East Meadow, New York
March 4, 2000, except for Notes 17 and
19, for which the date is May 11, 2000
F-2
<PAGE>
<TABLE>
<CAPTION>
EVERGOOD PRODUCTS CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
====================================================================================
December 31,
------------------------
1998 1999
------------------------
<S> <C> <C>
Assets
Current Assets
Cash $ 751,664 $ 445,849
Restricted cash - 36,410
Accounts receivable - less allowance for doubtful
accounts of $244,000 and $334,000 for 1998
and 1999, respectively 4,355,069 5,330,484
Accounts receivable - related party - 247,658
Current maturities of notes receivable - less
allowance for doubtful accounts of $25,172 and
$75,000 for 1998 and 1999, respectively 105,955 124,910
Inventory - net of reserves of $520,000 and $542,000
for 1998 and 1999, respectively 7,034,644 8,618,944
Deferred tax asset 352,000 1,456,000
Deferred franchising costs 81,275 58,400
Prepaid taxes 44,562 -
Prepaid expenses and other current assets 471,671 443,565
----------- -----------
13,196,840 16,762,220
----------- -----------
Fixed Assets - net 883,419 1,224,699
----------- -----------
Other Assets
Notes receivable - net of current maturities 144,579 42,414
Deferred tax asset 248,000 510,000
Restricted cash 36,410 -
Other assets 22,074 16,118
----------- -----------
451,063 568,532
----------- -----------
$14,531,322 $18,555,451
=========== ===========
</TABLE>
See notes to consolidated financial statements. F-3
<PAGE>
<TABLE>
<CAPTION>
EVERGOOD PRODUCTS CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
=====================================================================================
December 31,
------------------------
1998 1999
------------------------
<S> <C> <C>
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 8,059,017 $ 8,744,554
Accrued expenses and sundry liabilities 916,786 812,930
Unearned franchise fees 316,250 240,000
Income taxes payable - 35,740
Current maturities of long-term debt 288,115 258,250
Current maturities of loans payable - officers 197,745 174,272
----------- -----------
9,777,913 10,265,746
----------- -----------
Other Liabilities
Loan payable 4,961,470 5,839,175
Long-term debt - net of current maturities 938,250 680,000
Loans payable - officers - net of current maturities 197,819 110,323
----------- -----------
6,097,539 6,629,498
----------- -----------
Commitments and Contingencies
Stockholders' Equity (Deficit)
Common stock - par value $.01 - authorized 10,000,000
shares; issued 3,816,564 shares and outstanding
3,746,375 shares for 1998 and 1999 38,166 38,166
Additional paid-in capital 6,980,138 6,980,138
Accumulated (deficit) (8,058,400) (5,054,063)
----------- -----------
(1,040,096) 1,964,241
Less: Treasury stock - 70,189 shares - at cost 304,034 304,034
----------- -----------
(1,344,130) 1,660,207
----------- -----------
$14,531,322 $18,555,451
=========== ===========
</TABLE>
See notes to consolidated financial statements. F-4
<PAGE>
<TABLE>
<CAPTION>
EVERGOOD PRODUCTS CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
==========================================================================================
For the Years Ended
December 31,
--------------------------------------
1997 1998 1999
--------------------------------------
<S> <C> <C> <C>
Net Sales $30,868,804 $38,601,509 $44,599,133
Cost of Sales 21,782,066 27,867,831 31,144,799
----------- ----------- -----------
9,086,738 10,733,678 13,454,334
Selling, General and Administrative Expenses 8,442,461 11,476,266 11,044,884
----------- ----------- -----------
Income (Loss) Before Other Expense 644,277 (742,588) 2,409,450
Other Expense - interest 612,008 732,642 683,113
----------- ----------- -----------
Income (Loss) Before Provision for Income Taxes 32,269 (1,475,230) 1,726,337
Provision (Benefit) for Income Taxes 23,000 4,000 (1,278,000)
----------- ----------- -----------
Income (Loss) Before Minority Interest and
Extraordinary Item 9,269 (1,479,230) 3,004,337
Minority Interest 25,665 - -
----------- ----------- -----------
Income (Loss) Before Extraordinary Item 34,934 (1,479,230) 3,004,337
Extraordinary Gain on Debt Forgiveness -
net of income taxes of $2,000 98,000 - -
----------- ----------- -----------
Net Income (Loss) $ 132,934 $(1,479,230) $ 3,004,337
=========== =========== ===========
Basic and Diluted Income (Loss) Per Share
Income (loss) before extraordinary item $ .01 $ (.38) $ .77
Extraordinary item .02 - -
----------- ----------- -----------
Net Income (Loss) Per Share $ .03 $ (.38) $ .77
=========== =========== ===========
Weighted Average Shares Outstanding 3,887,368 3,887,368 3,887,368
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements. F-5
<PAGE>
<TABLE>
<CAPTION>
EVERGOOD PRODUCTS CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
===========================================================================================
Treasury
Paid-In Accumulated Stock
Shares Amount Capital (Deficit) At Cost Total
=====================================================================
<S> <C> <C> <C> <C> <C> <C>
Balance -
January 1, 1997 3,816,564 $38,166 $6,980,138 $(6,712,104) $(304,034) $ 2,166
Net income - - - 132,934 - 132,934
--------- ------- ---------- ----------- --------- -----------
Balance -
December 31, 1997 3,816,564 38,166 6,980,138 (6,579,170) (304,034) 135,100
Net (loss) - - - (1,479,230) - (1,479,230)
--------- ------- ---------- ----------- --------- -----------
Balance -
December 31, 1998 3,816,564 38,166 6,980,138 (8,058,400) (304,034) (1,344,130)
Net income - - - 3,004,337 - 3,004,337
--------- ------- ---------- ----------- --------- -----------
Balance -
December 31, 1999 3,816,564 $38,166 $6,980,138 $(5,054,063) $(304,034) $ 1,660,207
========= ======= ========== =========== ========= ===========
</TABLE>
See notes to consolidated financial statements. F-6
<PAGE>
<TABLE>
<CAPTION>
EVERGOOD PRODUCTS CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows Page 1 of 2
==============================================================================================
For the Years Ended
December 31,
---------------------------------------
1997 1998 1999
=======================================
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income (loss) $ 132,934 $(1,479,230) $ 3,004,337
----------- ----------- -----------
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 403,229 307,210 227,322
Increase (decrease) in allowance for doubtful
accounts and notes receivable 56,533 (1,662) 139,828
Write-off of accounts receivable and notes
receivable 58,090 5,988 101,067
Increase in inventory obsolescence reserve 82,000 225,000 22,000
Loss on sale of machinery and equipment 1,316 - -
Cancellation of debt (100,000) (92,826) -
(Increase) decrease in:
Accounts receivable (956,880) (762,801) (1,152,028)
Accounts receivable - related party - - (247,658)
Inventory (2,761,276) 181,910 (1,606,300)
Deferred franchising costs (41,586) (11,352) 22,875
Prepaid taxes - (44,562) 44,562
Prepaid expenses and other current assets (495,991) 191,950 28,106
Notes receivable 121,034 57,696 18,928
Deferred tax asset - - (1,366,000)
Other assets (20,371) 22,995 5,956
Increase (decrease) in:
Accounts payable 1,580,887 1,326,773 685,537
Accrued expenses and sundry liabilities 41,031 (93,532) (103,856)
Unearned franchise fees 107,500 31,250 (76,250)
Income taxes payable (19,880) (4,865) 35,740
Minority interest (25,665) - -
----------- ----------- -----------
(1,970,029) 1,339,172 (3,220,171)
----------- ----------- -----------
(1,837,095) (140,058) (215,834)
----------- ----------- -----------
Cash Flows from Investing Activities
Purchase of fixed assets (282,339) (264,585) (568,602)
Restricted cash as security for equipment
acquired pursuant to capital lease (36,410) - -
----------- ----------- -----------
(318,749) (264,585) (568,602)
----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements. F-7
<PAGE>
EVERGOOD PRODUCTS CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows Page 2 of 2
================================================================================
For the Years Ended
December 31,
----------------------------------
1997 1998 1999
==================================
Cash Flows from Financing Activities
Increase in loan payable $2,445,571 $ 828,884 $ 877,705
Payment of notes payable - vendors (149,886) - -
Proceeds of notes payable 314,780 340,000 -
Payments of notes payable (251,803) (225,773) (288,115)
Payments of officers' loans (141,648) (6,293) (110,969)
---------- --------- ---------
2,217,014 936,818 478,621
---------- --------- ---------
Increase (Decrease) in Cash 61,170 532,175 (305,815)
Cash - beginning 158,319 219,489 751,664
---------- --------- ---------
Cash - end $ 219,489 $ 751,664 $ 445,849
========== ========= =========
Supplemental Disclosures
Cash paid:
Interest $ 612,009 $ 716,597 $ 669,333
========== ========= =========
Taxes $ 20,134 $ 53,430 $ 8,306
========== ========= =========
Non-cash investing and financing
activities:
Accounts receivable converted
to notes receivable $ 31,370 $ 197,260 $ 86,613
========== ========= =========
Acquisition of equipment
under capital lease $ 140,000 $ - $ -
========== ========= =========
See notes to consolidated financial statements. F-8
<PAGE>
EVERGOOD PRODUCTS CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements December 31, 1997, 1998 and 1999
================================================================================
1 - The Company
Evergood Products Corporation and Subsidiaries (the "Company") produce and
sell vitamins and mineral products and other nutritional supplements. The
Company sells its products under its customers' private labels, under a
brand developed by one of its subsidiaries and, pursuant to a license and
supply agreement, through the Great Earth franchise system under the Great
Earth label. The sales to the Great Earth franchisees constituted
approximately 42%, 31% and 28% of the Company's total sales volume for
1997, 1998 and 1999, respectively. Amounts receivable from these
franchisees amounted to approximately $1,573,000 and $1,704,000 at December
31, 1998 and 1999, respectively.
2 - Summary of Significant Accounting Policies
The summary of significant accounting policies is presented to assist the
reader in understanding and evaluating the consolidated financial
statements. These policies are in conformity with generally accepted
accounting principles and have been applied consistently in all material
respects.
a. Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of Evergood Products Corporation and
its subsidiaries. All significant intercompany items and transactions
have been eliminated.
b. Cash and Cash Equivalents - Cash and cash equivalents include liquid
investments with maturities of three months or less at the time of
purchase.
c. Inventories - Inventories are stated at the lower of cost (first-in,
first-out basis) or market.
d. Fixed Assets - Fixed assets are stated at cost. Depreciation is
provided for by use of the straight-line method over the estimated
useful lives of the assets, which range from two to ten years.
e. Fair Value of Financial Statements - The Company's debt instruments
payable to financial institutions bear floating interest rates
referenced to prevailing market rates. Accordingly, the carrying
amounts of such instruments approximate fair value at each reporting
date. Other debt instruments, consisting of loans due to officers,
approximate fair value at December 31, 1998 and 1999.
Continued F-9
<PAGE>
The carrying amount of notes receivable approximates fair value at both
December 31, 1998 and 1999 based on their yield and their relatively
short maturities, with fair value estimated by discounting cash flows
using current rates for similar loans.
f. Income Taxes - Federal and state income taxes have been provided in the
financial statements at statutory rates. In a prior year, the Company
adopted the provisions of Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes ("FASB 109"). FASB 109 requires a
company to recognize deferred tax assets and liabilities for the expected
future tax consequences of events that have been recognized in a
company's financial statements or tax returns. Under this method,
deferred tax assets and liabilities (adjusted for valuation allowances)
are determined based on the difference between the financial statement
carrying amounts and tax bases of assets and liabilities using enacted
tax rates in effect in the years in which the differences are expected to
reverse.
g. Earnings Per Share - The accompanying financial statements include
earnings per share calculated as required by Financial Accounting
Standards No. 128 Earnings Per Share which replaced the calculation of
primary and fully diluted earnings per share with basic and diluted
earnings per share. Basic earnings per share is calculated by dividing
net income (loss) by the weighted average number of shares of common
stock outstanding. Diluted earnings per share include the effects of
securities convertible into common stock to the extent such conversion
would be dilutive.
Weighted average shares presented in the accompanying financial
statements have been adjusted for all periods presented to give
retroactive effect to 140,993 shares issued in March, 2000 to the
Company's controlling stockholder in exchange for his minority ownership
interests in two of the Company's subsidiaries.
h. 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 disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
i. Revenue Recognition - The Company derives revenues from the sale of
product manufactured to customer orders, from distribution of product to
franchisee and third party retailers, from the sale of franchise rights
and from royalties on sales by franchisee retailers.
Revenue from the sale of product manufactured to customer orders, and
from the sale of product to franchisee and third party retailers, is
recognized when the product is shipped. Provision is made for returns as
needed.
Continued F-10
<PAGE>
Royalties on sales by franchisees are recognized when earned, as reported
to the Company by the franchisees.
Revenues from the sale of franchise rights are recognized when the
Company has fulfilled its obligations of assisting the franchisee in
opening a retail store. Such obligations are deemed fulfilled upon
opening of the store.
j. Advertising Costs - Advertising costs are expensed the first time the
advertisement takes place and amounted to approximately $2,459,000,
$3,724,000 and $2,542,000 in 1997, 1998 and 1999, respectively. Such
costs are included in Selling, General and Administrative Expenses.
Prepaid advertising included in the accompanying financial statements
totaled $243,859 and $241,308 at December 31, 1998 and 1999,
respectively.
k. Stock-Based Compensation - The Company accounts for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion ("APBO") No. 25, Accounting for Stock Issued to
Employees, and related interpretations. Accordingly, compensation cost
is measured as the excess, if any, of the quoted market price of the
Company's stock at the date of grant over the amount an employee must pay
to acquire the stock.
l. New Accounting Pronouncement - In June, 1998, the FASB issued SFAS No.
133 Accounting for Derivative Instruments and Hedging Activities, which
establishes accounting and reporting standards for derivative instruments
and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the balance sheet and
measure those instruments at fair value, with the potential effect on
operations dependent upon certain conditions being met. The statement is
effective for all fiscal quarters of fiscal years beginning after June
15, 2000. Management does not believe there will be a significant impact
on the Company upon adopting this standard.
3 - Inventory
Inventory is comprised of the following:
December 31,
======================
1998 1999
======================
Raw Materials $2,866,259 $4,078,344
Work-in-Process 673,231 1,180,092
Finished Goods 3,495,154 3,360,508
---------- ----------
$7,034,644 $8,618,944
========== ==========
Continued F-11
<PAGE>
4 - Notes Receivable
Notes receivable consist of trade notes bearing interest at 8%. The notes,
net of an allowance for doubtful accounts of $25,172 and $75,000 at
December 31, 1998 and 1999, respectively, mature through 2002:
December 31,
==================
1998 1999
==================
Total notes receivable $250,534 $167,324
Less: Current maturities 105,955 124,910
-------- --------
$144,579 $ 42,414
======== ========
The following is a schedule of maturities of notes receivable by year:
Year ending December 31, 2000 $199,910
2001 41,966
2002 448
--------
242,324
Less: Allowance for doubtful accounts 75,000
--------
$167,324
========
5 - Fixed Assets
Fixed assets is comprised of the following:
December 31, Estimated
---------------------- Useful Life
1998 1999 Range
-------------------------------------
Machinery and equipment $5,005,438 $5,525,638 2 to 10 years
Office equipment and fixtures 399,103 447,506 5 to 10 years
---------- ----------
5,404,541 5,973,144
Less: Accumulated depreciation
and amortization 4,521,122 4,748,445
---------- ----------
$ 883,419 $1,224,699
========== ==========
Depreciation expense totaled $163,236, $200,139 and $227,322 for 1997, 1998
and 1999, respectively.
Continued F-12
<PAGE>
6 - Loan Payable
The Company has an aggregate credit line of $7,500,000 with The CIT
Group/Credit Finance, Inc. ("CIT") which has been amended and extended
through August, 2001, with interest at 2% above the prime rate. The weighted
average effective rate was 13%, 11% and 11% for 1997, 1998 and 1999,
respectively. The aggregate credit line includes the amounts due as long-
term debt, as described in Note 7. Loan advances are provided under a
formula that is based on allowable inventory and accounts receivable. Such
advances are collateralized by accounts receivable, inventory and other
property of the Company and include various sublimits. Excess availability
under this line was approximately $486,000 at December 31, 1999. This debt
is partially guaranteed by the Company's president.
The loan agreement prohibits the Company from paying dividends and includes
certain restrictions on the repayment of officers' debt.
7 - Long-Term Debt
Long-term debt consists primarily of a note due to CIT. The note is secured
by substantially all machinery and equipment of the Company and cross-
collateralized by the assets securing the credit line. During August of
1998, this note was amended and restated to reflect an additional $340,000
of indebtedness incurred by the Company. The note is payable in monthly
installments of $20,000 plus interest through August, 2001, at which time
the final balance is due. This debt includes interest at prime plus 2%. The
weighted average effective rate was 13%, 11% and 11% for 1997, 1998 and
1999, respectively.
In addition, included within current maturities of long-term debt is a
capital lease obligation used to acquire equipment with a cost of
approximately $153,000 and a net book value of approximately $114,000 at
December 31, 1999. The balance of the obligation at December 31, 1999
consists of the final month's payment of $4,461 (inclusive of imputed
interest of $211) and the purchase obligation of $14,000 both of which were
paid in January, 2000. The balance at December 31, 1998 was $65,613. Cash
collateral held in a restricted certificate of deposit was released upon the
settlement.
At December 31, 1999, future maturities of long-term debt are as follows:
December 31, 2000 $258,250
2001 240,000
2002 240,000
2003 200,000
--------
$938,250
========
Continued F-13
<PAGE>
8 - Notes and Loan Payable - Officer
The Company has two notes payable to one officer. One note, in the amount of
$100,000, is payable on demand with 4% per annum interest payable monthly in
the amount of $333. The balance of this note includes accrued interest of
$5,328 and $10,323 at December 31, 1998 and 1999. The second note, which has
an unpaid principal balance of $168,374 and $52,410 at December 31, 1998 and
1999, respectively, matures in September, 2000 with principal and interest
of 6% per annum payable monthly in the amount of approximately $10,000.
Interest expense incurred on these two notes is $24,000, $18,587 and $6,636
for 1997, 1998 and 1999, respectively.
The Company has two loans payable to a second officer. The balance of these
loans is $121,862 for December 31, 1998 and 1999. These notes are non-
interest bearing and no repayment terms exist at this time.
9 - Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities recognized for
financial reporting and the amounts recognized for income tax purposes. The
significant components of deferred tax assets and liabilities are as
follows:
December 31,
=======================
1998 1999
=======================
Net operating loss carryforwards $1,634,000 $ 906,000
Amortization 303,000 269,000
Allowance for doubtful accounts 99,000 153,000
Inventory obsolescence reserve 203,000 212,000
Unearned franchise fees 117,000 91,000
Unicap (263A adjustment) 128,000 175,000
New York State investment tax credits 273,000 277,000
Accrued vacation pay 49,000 59,000
Federal AMT credits - 42,000
Miscellaneous (74,000) (64,000)
---------- ----------
2,732,000 2,120,000
Less: Valuation allowance 2,132,000 154,000
---------- ----------
$ 600,000 $1,966,000
========== ==========
Continued F-14
<PAGE>
At December 31, 1999, the Company has net operating loss carryforwards
available as follows:
Loss
Carryforward Expirations
============================
Federal $1,797,000 2008 to 2013
New York State 3,273,000* 2004 to 2013
California 376,000 2003
*Based on estimated allocated utilization.
Federal and New York State net operating losses can be carried forward for 15
years while California allows a 5 year carryforward. Net operating loss
carryforwards are subject to certain limitations on annual utilization in the
event of ownership changes or equity structure shifts.
Additionally, the Company has New York State investment tax credits which
will be available as a direct offset to tax after the New York State net
operating loss is exhausted. Such credits can be carried forward for 15
years and expire variously, from 2000 to 2014. The Company has provided a
valuation allowance in the amount of $154,000 against the portion of such
credits expiring in earlier years prior to when the Company expects to be
able to utilize them.
Management of the Company has determined that it is more likely than not that
the deferred tax assets, other than the investment credits mentioned above,
will be realized on the basis of a continuation of current operating
performance. Accordingly, no additional valuation allowance is deemed
necessary at December 31, 1999.
The provision (benefit) for income taxes is comprised of the following:
December 31,
----------------------------------
1997 1998 1999
==================================
Current
Federal $ 2,000 $ - $ 42,000
State 21,000 4,000 46,000
---------- --------- -----------
23,000 4,000 88,000
---------- --------- -----------
Deferred
Federal - - (95,000)
State - - (82,000)
---------- --------- -----------
- - (177,000)
---------- --------- -----------
Change in the beginning of the
year valuation allowance resulting
from a change in circumstances
affecting the estimated realization
of deferred tax assets - - (1,189,000)
---------- --------- -----------
$ 23,000 $ 4,000 $(1,278,000)
========== ========= ===========
Continued F-15
<PAGE>
The tax effect of net operating loss carryforwards not previously recognized
is a reduction of the current federal provision by $707,000 and the current
state provision by $82,000 in 1999 and the current federal provision by
$203,000 and the current state provision by $52,000 in 1997.
The provision (benefit) for income taxes differs from the amount using the
statutory federal income tax rate (34%) as follows:
December 31,
===================================
1997 1998 1999
-----------------------------------
At statutory rates $ 46,000 $(503,000) $ 587,000
Effect of state taxes 21,000 4,000 30,000
Effect of permanent differences 51,000 58,000 83,000
Loss for which no benefit was
recorded - 445,000 -
Current benefit of net operating loss
carryforward not previously
recognized (255,000) - (789,000)
Change in valuation allowance 155,000 - (1,189,000)
Other 7,000 - -
--------- --------- -----------
25,000 4,000 (1,278,000)
Less: Allocated to extraordinary
item 2,000 - -
--------- --------- -----------
$ 23,000 $ 4,000 $(1,278,000)
========= ========- ===========
10 - Major Customers and Foreign Sales
a. For the years ended December 31, 1997, 1998 and 1999, the Company had
significant sales and receivable balances from major customers in the
pharmaceutical and nutritional business as follows:
<TABLE>
<CAPTION>
For the Year Ended As of
December 31, 1997 December 31, 1997
------------------------------------- -------------------------------------
Approximate Approximate
Approximate Percentage of Approximate Percentage of
Year To-Date Sales Total Net Sales Trade Receivable Total Receivables
============================================================================
<S> <C> <C> <C> <C>
Customer A $4,076,000 13% $428,000 11%
Customer B 3,204,000 10 514,000 14
Customer C - - - -
---------- ---- -------- ----
$7,280,000 23% $942,000 25%
========== ==== ======== ====
</TABLE>
Continued F-16
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended As of
December 31, 1998 December 31, 1998
------------------------------------- -------------------------------------
Approximate Approximate
Approximate Percentage of Approximate Percentage of
Year To-Date Sales Total Net Sales Trade Receivable Total Receivables
============================================================================
<S> <C> <C> <C> <C>
Customer A $ 3,246,000 8% $216,000 5%
Customer B 5,555,000 14 879,000 20
Customer C 4,271,000 11 112,000 3
----------- ---------- ---------- --
$13,072,000 33% $1,207,000 28%
=========== ========== ========== ===
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended As of
December 31, 1999 December 31, 1999
------------------------------------- -------------------------------------
Approximate Approximate
Approximate Percentage of Approximate Percentage of
Year To-Date Sales Total Net Sales Trade Receivable Total Receivables
============================================================================
<S> <C> <C> <C> <C>
Customer A $ 2,436,000 6% $237,000 4%
Customer B 3,668,000 8 674,000 13
Customer C 10,441,000 23 435,000 8
----------- --- ---------- ---
$16,545,000 37% $1,346,000 25%
=========== === ========== ===
</TABLE>
The above amounts relate to the following segments:
Customer A - brand development segment.
Customer B - manufacturing segment.
Customer C - manufacturing segment.
b. Sales to customers located in Canada, Europe and the Far East totaled
approximately $1,190,000, $1,220,000 and $1,040,000 for the years 1997,
1998 and 1999, respectively. Substantially all of the Company's sales to
foreign customers are denominated in U.S. dollars.
11 - Employee Benefit Plans
a. Pension Plan - The Company participates in a multi-employer pension plan
for all union employees meeting certain age and length of service
requirements. Pension expense was $39,670, $45,760 and $50,215 for 1997,
1998 and 1999, respectively. The union plan is a defined contribution
plan.
b. 401(k) Plan - The Company maintains a 401(k) Plan covering all employees
who meet certain eligibility requirements. Employees may defer a
percentage of their salary, currently capped at $10,000. Commencing in
1998, the Company provides matching contributions equal to 50% of
employee contributions, up to a maximum benefit of $25 per employee, per
week. Such matching contributions totaled $26,286 in 1998 and $49,533 in
1999.
Continued F-17
<PAGE>
12 - Commitments and Contingencies
a. The Company has operated from the same location since 1978, however, it
has historically rented on a non-lease basis. Rent expense for the
premises was $237,028, $246,398 and $254,820 for 1997, 1998 and 1999,
respectively. In addition, the Company leases certain vehicles and
equipment under leases which expire on various dates through 2004. Rent
expense under such leases was $2,841, $1,415 and $39,319 for 1997, 1998
and 1999, respectively.
Future minimum lease payments to be made under these operating leases as
of December 31, 1999 are as follows:
December 31, 2000 $128,620
2001 85,519
2002 60,189
2003 24,576
2004 5,919
--------
$304,823
========
b. The Company is a defendant in two lawsuits instituted during 1999 in State
Court in California. Each suit arises from allegations by the respective
plaintiff that the Company used their images in, among other things,
advertisements and product packaging without their authorization. Each
suit claims damages for invasion of privacy, invasion of the right to
privacy, conversion and loss of future earnings. Additionally, each suit
seeks injunctive relief. The suits are currently in a discovery stage,
accordingly, the Company is unable to predict what the likely outcome will
be at this time. Certain causes of action under these lawsuits are not
covered under the Company's insurance policies, however, management
believes that any potential liability over and above that which is covered
by insurance will not have a material financial impact on the Company.
The Company is party to various other legal proceedings incident to the
ordinary course of its business. Management believes that the probable
resolution of any such matters will not materially affect the financial
position, results of operations or cash flows of the Company.
13 - Related Party Transactions
The Company obtains legal services from a firm having a partner who is an
officer, director and significant stockholder of the Company. Such legal
fees amounted to $409,991, $232,731 and $628,433 for the years ended 1997,
1998 and 1999, respectively. Payments were $396,504, $348,458 and $517,786,
respectively, for such years. Amounts due to this firm which are included in
accounts payable total $190,226 at December 31, 1998 and $300,873 at December
31, 1999.
Two Great Earth franchise stores located in Long Island, New York were
acquired in August, 1999 by a corporation owned by two individuals who serve
as officers and directors, one of whom is also the Company's controlling
stockholder. At December 31, 1999, amounts due from this corporation totaled
$247,658, consisting of $110,915 in receivables for sale of product since the
date of acquisition and $136,743 which consists primarily of receivables due
as of the date of acquisition. Sales to this corporation during the period
subsequent to the acquisition amounted to $110,915, with no collections on
receivables through December 31, 1999.
Continued F-18
<PAGE>
14 - Operating Segments
The Company follows SFAS No. 131, Disclosures About Segments of an Enterprise
and Related Information, in reporting information about its operating
segments.
The Company has three reportable segments determined primarily by the nature
of the revenue producing activity and the market to which it is directed:
manufacturing, franchising and brand development. The manufacturing segment
obtains revenues from the manufacture and sale of vitamins and nutritional
supplements to wholesalers who, in turn, distribute these products under
their own private labels. This segment also manufactures products for the
Company's Great Earth (franchising) and Bodyonics (brand development)
segments. The franchising segment obtains revenues from the franchising of
Great Earth vitamin stores, the collection of royalties and the sale of Great
Earth brand vitamins and nutritional supplements to Great Earth franchisees.
The brand development segment obtains revenues from the wholesale and retail
sale of vitamins and nutritional supplements under its own nationally
advertised brand name.
The accounting policies of the segments are the same as those for the Company
as a whole. The Company evaluates the financial performance of the segments
based on their respective operating income. Income taxes are not allocated
to segments, however, tax assets are included with segment assets to the
extent that the taxable entities giving rise to the assets are constituents
of such segments. The manufacturing segment produces product for both third
parties and for other segments. Intersegment sales are priced to provide
manufacturing with its normal rate of gross profit.
Revenues from the franchising segment are comprised of the following:
December 31,
-------------------------------------
1997 1998 1999
=====================================
Sale of product $13,012,920 $12,480,713 $12,261,051
Royalties 1,845,748 1,935,992 1,848,306
Sale of franchises 262,800 321,000 467,750
----------- ----------- -----------
$15,121,468 $14,737,705 $14,577,107
=========== =========== ===========
Number of franchise outlets
open at year end 118 131 143
=========== =========== ===========
Continued F-19
<PAGE>
Segment information for the years ended December 31, 1997, 1998 and 1999 was
as follows:
<TABLE>
<CAPTION>
Brand
Manufacturing Franchising Development Corporate Total
==============================================================================================
<S> <C> <C> <C> <C> <C>
1997
Net sales to external
customers $10,246,193 $15,121,468 $ 5,501,143 $ - $30,868,804
Intersegment net sales 14,005,242 60,358 1,173,199 - 15,238,799
Operating income (loss) 42,597 2,045,045 (1,431,587) (11,778) 644,277
Interest expense 409,929 146,906 55,000 173 612,008
Total assets 6,936,025 5,382,021 1,333,888 255,000 13,906,934
Capital expenditures 176,817 - 105,522 - 282,339
Depreciation and
amortization 160,707 232,000 10,522 - 403,229
1998
Net sales to external
customers $18,449,544 $14,737,705 $ 5,414,260 $ - $38,601,509
Intersegment net sales 13,587,992 71,397 - - 13,659,389
Operating income (loss) 1,797,149 1,826,779 (4,369,893) 3,377 (742,588)
Interest expense 484,911 152,403 90,000 5,328 732,642
Total assets 6,901,012 5,575,888 1,754,860 299,562 14,531,322
Capital expenditures 243,938 10,416 10,231 - 264,585
Depreciation and
amortization 147,635 123,425 36,150 - 307,210
1999
Net sales to external
customers $24,705,125 $14,577,107 $ 5,316,901 $ - $44,599,133
Intersegment net sales 11,769,984 67,608 - - 11,837,592
Operating income (loss) 2,719,225 778,780 (1,062,382) (26,173) 2,409,450
Interest expense (436,442) (156,671) (90,000) - (683,113)
Total assets 9,896,930 5,051,879 1,978,642 1,628,000 18,555,451
Capital expenditures 568,602 - - - 568,602
Depreciation and
amortization 176,426 12,889 38,007 - 227,322
</TABLE>
Continued F-20
<PAGE>
15 - Valuation and Qualifying Accounts
Valuation and qualifying accounts for the years ended December 31, 1997, 1998
and 1999 are as follows:
<TABLE>
<CAPTION>
Charged to
Balance at Costs and * Balance at
Beginning of Period Expenses Other Accounts Deductions End of Period
=========================================================================================
<S> <C> <C> <C> <C> <C>
1997
Allowance for bad debts $150,000 $ 94,000 $ - $ - $244,000
======== ======== ========== ========= ========
Reserve for doubtful notes
receivable $ 47,648 $ - $ - $ (7,467) $ 40,181
======== ======== ========== ========= ========
Reserve for excess and
slow-moving inventory $213,000 $ 82,000 $ - $ - $295,000
======== ======== ========== ========= ========
1998
Allowance for bad debts $244,000 $ - $ - $ - $244,000
======== ======== ========== ========= ========
Reserve for doubtful notes
receivable $ 40,181 $ - $ - $ (15,009) $ 25,172
======== ======== ========== ========= ========
Reserve for excess and
slow-moving inventory $295,000 $225,000 $ - $ - $520,000
======== ======== ========== ========= ========
1999
Allowance for bad debts $244,000 $276,000 $ - $(186,000) $334,000
======== ======== ========== ========= ========
Reserve for doubtful notes
receivable $ 25,172 $ 54,159 $ - $ (4,331) $ 75,000
======== ======== ========== ========= ========
Reserve for excess and
slow-moving inventory $520,000 $ 22,000 $ - $ - $542,000
======== ======== ========== ========= ========
</TABLE>
*Reserved amounts written off.
16 - Concentrations
a. The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash and trade accounts receivable. The
Company places its cash with high credit quality institutions. At times,
balances may be in excess of the FDIC insurance limit. The Company
routinely assesses the financial strength of its customers and, as a
consequence, believes that its trade accounts receivable credit risk
exposure is limited.
b. During 1999, the Company purchased approximately 19% of its raw materials
from a single vendor. However, management believes that the Company's
reliance on this source of supply is minimal as many alternative sources
for the material purchased exist.
Continued F-21
<PAGE>
17 - Collective Bargaining Agreement
Approximately 70% of the Company's labor force is subject to a collective
bargaining agreement which expires on May 14, 2000. The Company is in the
process of negotiating a new agreement.
18 - Extraordinary Gain on Debt Forgiveness
In October, 1997, the Company reached a settlement with a vendor pursuant to
which the Company recognized $100,000 of income on the forgiveness of a
portion of notes payable owed to this vendor.
19 - Subsequent Events
- In February, 2000, the Company elected to settle out of the plaintiff
class in a lawsuit claiming damages resulting from price-fixing actions
by a group of vitamin suppliers during the years 1990 through 1998.
Subsequently, the Company received a payment of $977,000 from one of the
defendant companies from whom it had purchased products over this period.
In March, 2000, the Company settled with a second defendant company for
approximately $318,000. These settlements will result in a pre-tax gain
that the Company will recognize in its first quarter 2000 financial
statements.
- In March, 2000, the Company consummated a share exchange agreement
whereby it acquired the 20% minority interests held in two of its
subsidiaries: GEC and Bodyonics. The minority interests were acquired
from two individuals, both of whom serve as officers and directors of the
Company, and one of whom is the Company's controlling stockholder and the
other being a significant stockholder. The individuals owned equal
interests in the subsidiaries and each were issued 140,993 shares of the
Company's common stock, with the exchange ratio determined through an
independent appraisal.
In accordance with generally accepted accounting principles, the
acquisition of the controlling stockholder's interest will be accounted
for in a manner similar to a pooling of interests because it represents a
transfer of ownership interests between companies under common control.
Accordingly, upon consummation, the transaction will be given retroactive
effect in the financial statements for all historical periods, and there
will be no adjustments to fair value for the interests exchanged.
Furthermore, in accordance with SEC accounting regulations, the shares
issued in the transaction are included in earnings per share for all
periods presented in the accompanying financial statements.
The restatement of historical financial statements to reflect this
transaction will have a minimal impact because the financial statement
value attributable to minority interests had been eliminated by the end
of fiscal 1997 as a result of subsidiary losses. The pro forma impact on
fiscal 1997 would be a reduction of approximately $12,000 in both income
before extraordinary item and net income, and no impact on per share
amounts presented.
Continued F-22
<PAGE>
The acquisition of the non-controlling stockholder's interest will be
accounted for under the purchase method based on the fair value of the
Company shares issued as consideration for the exchange. The fair value
of such shares is approximately $197,000.
- In January and February, 2000, the Company entered into employment
agreements with three individuals who are presently executive officers of
the Company.
The terms of the agreements for two of the individuals run from February,
2000 to January, 2010. Aggregate annual compensation under these
agreements will total $1,245,000, with such amounts increased annually at
the rate of 5% plus inflation related increases. Annual bonuses will be
at the discretion of the board of directors.
For the third individual, the agreement term runs from February, 2000 to
January, 2005. Annual compensation under this agreement will be $150,000,
with such amounts increased annually at the rate of 3%, plus inflation
related increases. Annual bonuses will be at the discretion of the board
of directors. The employment agreement states that if the employee
retires during the term of the agreement, at the discretion of the Board
of Directors, the Company will enter into a consulting agreement with the
employee. Under such consulting agreement, the employee will continue to
render services to the Company over the term that had been remaining on
the employment agreement, for annual compensation of $120,000.
Each of these employment agreements provide for an automobile allowance,
various health and life insurance benefits and for the continuation of
certain benefits following disability.
In the event that the Company terminates any of these employment
agreements without cause, the terminated employee has the right to
receive as a lump sum payment an amount equal to the greater of 2.49
times their then effective base salary (including most recent bonus) or,
the then effective base salary factored over the remaining term. The
employment agreements also provide that in the event that there is a
change of control of the Company, the employee has the right to receive
as a lump sum payment an amount equal to 2.99 times their then effective
base salary.
- In May, 2000, the Company entered into an agreement with a firm that will
provide strategic financial consulting and advisory services to the
Company. The agreement is effective for a term of one year commencing
March 1, 2000. Compensation for these services, if any, is to be
negotiated. At the same time the Company agreed to issue 447,596 shares
of common stock to this firm as compensation for services rendered to
date. The fair value of the shares issued is approximately $700,000. This
amount will be recorded as a compensation charge in the Company's
financial statements in the first quarter of fiscal year 2000.
F-23
<PAGE>
Exhibit 3.1
State of Delaware
Office of the Secretary of State
_______________________________
I, EDWARD J. FREEL, SECRETARY OF THE STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED ARE TRUE AND CORRECT COPIES OF ALL DOCUMENTS FILED
FROM AND INCLUDING THE RESTATED CERTIFICATE OF "EVERGOOD PRODUCTS CORPORATION"
AS RECEIVED AND FILED IN THIS OFFICE.
THE FOLLOWING DOCUMENTS HAVE BEEN CERTIFIED:
RESTATED CERTIFICATE, FILED THE NINTH DAY OF FEBRUARY, A.D. 1983, AT 9
O'CLOCK A.M.
CERTIFICATE OF OWNERSHIP, FILED THE EIGHTEENTH DAY OF AUGUST, A.D. 1989, AT
9 O'CLOCK A.M.
CERTIFICATE OF RENEWAL, FILED THE TWENTY-SIXTH DAY OF JULY, A.D. 1996, AT
9 O'CLOCK A.M.
/s/ Edward J. Freel
-------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 0336492
DATE: 03-24-00
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
EVERGOOD PRODUCTS CORPORATION
--------------------------------------------------
Adopted in accordance with the provisions of
Section 245 of the General Corporation Law of the
State of Delaware
--------------------------------------------------
We, Sidney Rich, President, and Seymour B. Jeffries, Secretary, of Evergood
Products Corporation, a corporation existing under the laws of the State of
Delaware, do hereby certify as follows:
FIRST: The name of the corporation is Evergood Products Corporation,
originally formed under the name Circus Corporation.
SECOND: The Certificate of Incorporation of the Corporation was filed by
the Secretary of State, Dover, Delaware, on June 16, 1969.
THIRD: The text of the Certificate of Incorporation of said Evergood
Products Corporation, as amended, is hereby restated, without further amendment
or change, to read as follows:
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
EVERGOOD PRODUCTS CORPORATION
--------------------------------------------------
Adopted in accordance with the provisions of
Section 245 of the General Corporation Law of the
State of Delaware
--------------------------------------------------
FIRST: The name of the corporation is:
EVERGOOD PRODUCTS CORPORATION
SECOND: The registered office of the Corporation is to be located at 306
South State Street, in the City of Dover, in the County of Kent, in the State of
Delaware. The name of its registered agent at that address is the United States
Corporation Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The Corporation is to have perpetual existence.
FIFTH: The total number of shares which the Corporation shall have the
authority to issue is 10,000,000 shares, with a par value of One Cent ($.01)
each, which shall be Common Stock.
The capital stock and the holders thereof, after the amount of the
subscription price has been paid in, shall not be subject to any assessment to
pay the debts of the Corporation or for any other purpose.
Except to the extent that any holder thereof may agree otherwise with the
Corporation, each share of Common Stock shall share and share alike, in any and
all dividends and distributions and shall be alike in all other respects.
Each holder of the Common Stock of the Corporation entitled to vote shall
have one vote for each share thereof held.
SIXTH: 6.1 The business affairs and property of the Corporation shall be
managed and controlled by a
<PAGE>
Board of Directors, which, except as otherwise provided by law or the
Certificate of Incorporation, shall exercise all powers of the Corporation.
6.1.1 The number of directors shall be seven.
6.1.2 The directors shall be classified with respect to the time
for which they shall severally hold office by dividing them into three classes,
the first class consisting of two directors who shall be elected for a term of
one year; the second class consisting of two directors who shall be elected for
a term of two years; and the third class consisting of three directors who shall
be elected for a term of three years, and at each annual election of directors,
the successors of the class of directors whose term shall expire in that year
shall be elected directors for a term of three years, so that the term of office
of one class of directors shall expire each year, but each director, of whatever
class, shall hold office until his successor shall have been elected and shall
qualify, or until his death, or until he shall resign, or shall have been
removed in the manner hereinafter provided. Except with respect to their
respective terms of office, all directors shall have equal power. This
classification of directors shall not be changed except by the vote of at least
sixty-six and two thirds (66.7%) percent in amount of the outstanding shares
entitled to vote thereon.
6.1.3 In case of any vacancy in the Board of Directors because
of death, resignation, disqualification or removal for cause, the Board shall
fill the vacancy by electing a person who shall serve for the unexpired term of
the predecessor director and until his successor has been elected and qualified.
6.1.4 A majority of the directors in office shall be required to
constitute a quorum of the Board, except that the number of directors
constituting such a quorum shall not be less than four; but less than a quorum
may from time to time, and from place to place, adjourn any scheduled Board
meeting.
6.1.5 No director need be a stockholder of the Corporation, nor
shall the place of domicile or residence be set up as a qualification for
election as a director of the corporation.
6.1.6 Each director shall serve during his respective term and
until his successor has been elected and
<PAGE>
qualified, and he shall not be subject to removal before the expiration of his
term, except for cause. In the event the Board shall undertake the removal of a
director prior to the expiration of his term, it shall, in the notice of its
regular or special meeting, include a statement to the effect that the Board
will, at such meeting, consider whether sufficient cause exists for the removal
of the specified person from the office of director of the Corporation, and if
the Board, after consideration of such question shall determine at such meeting
by an affirmative vote of two-thirds of the directors in office, but in no event
less than four of the total number of directors (seven), that sufficient cause
exists for the removal of such person from office, and that his removal is
desirable and for the best interest of the Corporation, and if such
determination shall thereafter be approved and ratified at a stockholder's
meeting duly called, and by the affirmative vote of the holders of two-thirds of
the outstanding stock of the Corporation, then such person shall immediately
cease to be a director of the Corporation, and the resulting vacancy in the
Board shall be filled as provided in the herein Certificate of Incorporation and
the By-laws pertaining thereto.
6.2 In furtherance, and not in limitation, of the powers conferred by the
laws of the State of Delaware, the Board of Directors is expressly authorized:
(a) To make, alter, amend and restate the By-laws, subject to the
powers of the stockholders to alter or repeal the By-laws made by
the Board of Directors.
(b) To set apart out of any of the funds of the Corporation for
dividends a reserve or reserves for any proper purpose and to
alter or abolish any such reserve; to authorize and cause to be
executed mortgages and liens upon the property and franchises of
the Corporation; and to fix the times for the declaration and
payment of dividends.
(c) To designate, by resolution passed by a majority of the whole
board, one or more committees, each to consist of two or more
directors, which committees, to the extent provided in such
resolution or in the By-laws of the Corporation, shall have and
may exercise any or all of the powers of the Board of Directors
in the management of the business
<PAGE>
and affairs of the Corporation. The Board way also provide, by
resolution passed by a majority of the whole Board, that
individuals who are not directors may be named to any committees,
provided they constitute less than a majority of such committees.
The Board shall, by majority vote, elect the members of such
committees.
(d) Subject to the applicable provisions of the By-laws then in
effect, to determine, from time to time, whether and to what
extent and at what times and places and under what conditions and
regulations the accounts and books of the Corporation, or any of
them, shall be open to the inspection of the stockholders, and no
stockholder shall have any right to inspect any account or book
or document of the Corporation, except as considered by the laws
of the State of Delaware, unless and until authorized so to do by
resolution of the Board of Directors or of the stockholders of
the Corporation.
(e) Without the assent or vote of the stockholders, to authorize and
issue obligations of the Corporation, secured or unsecured, to
include therein such provisions as to redeemability,
convertibility or otherwise, as the Board of Directors, in its
sole discretion, may determine, and to authorize the mortgaging
or pledging, as security therefor, of any property of the
Corporation, real or personal, including after-acquired property.
(f) To establish bonus, profit sharing, stock purchase or other types
of incentive or compensation plans for the employees (including
officers and directors) of the Corporation and to fix the amount
of profits to be distributed or shared and to determine the
persons to participate in any such plans and the amounts of their
respective participations.
(g) In their discretion to submit any contract or act for approval or
ratification at any annual meeting of the stockholders or at any
meeting of the stockholders called for the purpose of considering
any such act or contract, and any contract or act that shall be
approved or be ratified by the vote of the holders of a majority
of the stock of the Corporation which is represented in person or
by proxy at such meeting and entitled to vote thereat
<PAGE>
(provided that a lawful quorum of stockholders be there
represented in person or by proxy), shall be as valid and as
binding upon the Corporation and upon all the stockholders as
though it had been approved or ratified by every stockholder of
the Corporation, whether or not the contract or act would
otherwise be open to legal attack because of directors' interest,
or for any other reason.
In addition to the powers and authorities hereinbefore or by statute
expressly conferred upon it, the Board of Directors may exercise all such powers
and do all such acts and things as may be exercised or done by the Corporation,
subject, nevertheless, to the provisions of the laws of the State of Delaware,
of the Certificate of Incorporation, and of the By-laws of the Corporation.
SEVENTH: No holder of any of the shares of the stock of the Corporation,
whether now or hereafter authorized and issued, shall be entitled as of right to
purchase or subscribe for (1) any unissued stock of any class, or (2) any
additional shares of any class to be issued by reason of any increase of the
authorized capital stock of the Corporation of any class or (3) bonds,
certificates of indebtedness, debenture's or other securities convertible into
stock of the Corporation, or carrying any right to purchase stock of any class,
but any such unissued stock or such additional authorized issue of any stock or
of any other securities convertible into stock, or carrying any right to
purchase stock, may be issued and disposed of pursuant to resolution of the
Board of Directors to each persons, firms, corporations or associations, and
upon such terms as may be deemed advisable by the Board of Directors in the
exercise of its discretion.
EIGHTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation in the
manner now or hereafter prescribed by statute and all rights conferred on
officers, directors or stockholders are granted subject to this reservation.
NINTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them, and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on application in a summary way
of this Corporation or of any creditor or stock-
<PAGE>
holder thereof, or on the application of any receiver or receivers appointed for
the Corporation or of any creditor or stockholder thereof, or on the application
of any receiver or receivers appointed for this corporation under the provisions
of Section 291 of Title 8 of the Delaware Code, or on the application of
trustees in dissolution, or of any receiver or receivers appointed for the
Corporation under the provisions of Section 279 of Title 8 of the Delaware Code,
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be, to
be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
the Corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders of the Corporation, as the case may be, and also on the
Corporation.
TENTH: The Corporation, to the fullest extent permitted by Section 145 of
the General Corporation Law of the State of Delaware, as amended from time to
time, shall indemnify all persons it may indemnify pursuant thereto.
ELEVENTH: In the absence of fraud, no contract or other transaction between
the Corporation and any other corporation, and no act of the Corporation, shall
in any way be affected or invalidated by the fact that any of the directors of
the Corporation are pecuniarily or otherwise interested in, or are directors or
officers of, such other corporation; and, in the absence of fraud, any director,
individually, or any firm of which any director may be a member, may be a party
to, or may be pecuniarily or otherwise interested in, any contract or
transaction of the Corporation; provided, in any case, that the fact that he or
such firm is so interested shall be disclosed or shall have been known to the
Board of Directors or a majority thereof; and any director of the Corporation
who is also a director or officer of any such other corporation, or who is also
interested, may be counted in determining the existence of a quorum at any
meeting of the Board of Directors of the Corporation which shall authorize any
such contract, act or transaction, with like force and effect as if he were not
such director or officer of such other corporation, or not so interested.
<PAGE>
TWELFTH: The designations, preferences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions of the shares of Common Stock are as follows:
1. Except to the extent that any holder thereof may agree otherwise with
the Corporation, each share of Common Stock, shall share equally, share and
share alike, in any and all dividends and distributions and shall be alike in
all other respects.
2. Each holder of Common Stock of the Corporation entitled to vote shall
have one vote for each share thereof held, and there shall be no cumulative
voting.
THIRTEENTH: Whenever the vote of stockholders at a meeting thereof is
required or permitted to be taken for or in connection with any corporate
action, the meeting and vote of stockholders may be dispensed with, if the
written consent of stockholders having not less than the percentage of the total
number of votes, which would be required to approve such action if such meeting
were held, has been obtained, provided that prompt notice must be given to all
stockholders of the taking of corporate action without a meeting and by less
than unanimous written consent.
<PAGE>
FOURTH: That the foregoing Restatement of the Certificate of Incorporation
has been duly adopted by the Board of Directors in accordance with the
provisions of Section 245 of the General Corporation Law of the State of
Delaware and that the Restated Certificate only restates and integrates and does
not further amend the provisions of the Corporation's Certificate of
Incorporation, as theretofore amended or supplemented, and that there is no
discrepancy between those provisions and the provisions of this Restated
Certificate of Incorporation.
IN WITNESS WHEREOF, we have signed this certificate this 4/th/ day of
February, 1983.
/s/ Sidney Rich
---------------------------
Sidney Rich, President
ATTEST:
/s/ Seymour B. Jeffries
- --------------------------------
Seymour B. Jeffries, Secretary
<PAGE>
STATE OF NEW YORK )
ss.:
COUNTY OF NASSAU )
BE IT REMEMBERED on this 4/th/ day of February, 1983, personally came
before me /s/Evelyn Laskowski, a notary public in and for the County of Nassau
-------------------
and State of New York, Sidney Rich and Seymour B. Jeffries, parties to the
foregoing certificate, known to me personally to be such, and duly acknowledged
the said certificate to be their act and deed, and that the facts stated therein
are true.
GIVEN under my hand and seal of office the day and year aforesaid.
EVELYN LASKOWSKI
NOTARY PUBLIC State of New York /s/ Evelyn Laskowski
----------------------------------
No. 52-4521700 Notary Public
Qualified in Suffolk County
Commission Expires March 30, 1984
<PAGE>
CERTIFICATE OF OWNERSHIP AND MERGER
OF
PHOENIX LABORATORIES INTERNATIONAL, LTD.
AND
PHOENIX ACQUISITION CORP.
INTO
EVERGOOD PRODUCTS CORPORATION
------------------------------------------
Pursuant to Section 253 of the General
Corporation Law of the State of Delaware
------------------------------------------
EVERGOOD PRODUCTS CORPORATION, pursuant to the provisions of Section 253 of
the General Corporation Law of the State of Delaware, does hereby certify as
follows:
FIRST: EVERGOOD PRODUCTS CORPORATION is a corporation organized and
existing under the laws of the State of Delaware.
PHOENIX LABORATORIES INTERNATIONAL, LTD. is a corporation organized
and existing, under the laws of the Virgin Islands.
PHOENIX ACQUISITION CORP, is a corporation organized and existing
under the laws of the State a of California.
<PAGE>
SECOND: Evergood Products Corporation owns all of the issued and
outstanding shares of stock of each of Phoenix Laboratories International, Ltd.
and Phoenix Acquisition Corp.
THIRD: The Board of Directors of Evergood Products Corporation duly adopted
the following resolutions on July 3l, 1989:
RESOLVED, that Phoenix Laboratories International, Ltd., a Virgin
Islands corporation, and Phoenix Acquisition Corp., a California
corporation, both of which are wholly-owned subsidiaries of the
Corporation, shall each be merged with and into the Corporation, and
that the Corporation shall assume all of the obligations of each of
Phoenix Laboratories International, Ltd. and Phoenix Acquisition Corp.
RESOLVED, that the officers of the Corporation, and any one or more of
them, are authorized and directed to do or cause to be done any and
all acts and things and to execute any and all documents as they deem
necessary or proper to carry into effect the purpose and intent of the
foregoing resolution the necessity or propriety thereof to be
conclusively evidenced by each officers' execution, and delivery
thereof.
<PAGE>
IN WITNESS WHEREOF, Evergood Products Corporation has caused this
Certificate of Ownership and Merger to be executed by its officers thereunto
duly authorized this 31/st/ day of July, 1989.
EVERGOOD PRODUCTS CORPORATION
By: /s/ Sidney Rich
-------------------------------------
Sidney Rich, President
ATTEST:
/s/ Melvin Rich
- --------------------------
Melvin Rich, Secretary
<PAGE>
Certificate of Ownership of the "EVERGOOD PRODUCTS CORPORATION" a corporation
organized and existing under the laws of the State of Delaware merging "PHOENIX
LABORATORIES INTERNATIONAL, LTD." a corporation organized and existing under the
laws of the Virgin Islands and "PHOENIX ACQUISITION CORP." a corporation
organized and existing under the laws of the State of California pursuant to
Section 253 of the General Corporation Law of the State of Delaware, as received
and filed in this office the eighteenth day of August A.D. 1989, at 9 o'clock
A.M.
And I do hereby further certify that the aforesaid Corporations shall be
governed by the laws of the State of Delaware.
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 7/26/1996
960220943 - 716903
STATE OF DELAWARE
CERTIFICATE FOR RENEWAL
AND REVIVAL OF CHARTER
Evergood Products Corporation, a corporation organized under the laws of
Delaware, the charter of which was provided for non-payment of taxes, now
desires to procure a restoration, renewal and revival of its charter, and hereby
certifies as follows:
1. The name of this corporation is Evergood Products Corporation.
2. Its registered office in the State of Delaware is located at 1013
Centre Road Street, City of Wilmington Zip Code 19805 County of
Newcastle the name and address of its registered agent is United
States Corporation Company 1013 Centre Road, Wilmington Delaware
19805.
3. The date of filing of the original Certificate of Incorporation in
Delaware was June 16, 1969.
4. The date when restoration, renewal, and revival of the charter of this
company is to commence is the 28/th/ day of February same being prior
to the date of the expiration of the charter. This renewal and revival
of the charter of this corporation is to be perpetual.
5. This corporation was duly organized and carried on the business
authorized by its charter until the 1/st/ day of March A.D. 1993, at
which time its charter became inoperative and void for non-payment of
taxes and this certificate of renewal and revival is filed by
authority of the duly elected directors of the corporation in
accordance with the laws of the State of Delaware.
IN TESTIMONY WHEREOF, and in compliance with the provisions of Section 312
of the General Corporation Law of the State of Delaware, as amended, providing
for the renewal, extension and restoration of charters, Melvin Rich the last and
acting authorized officer hereunto set his/her hand to this certificate this
25/th/ day of July 1996.
By: Melvin Rich
----------------------------------------
Title of Officer: Vice President
--------------------------
<PAGE>
EXHIBIT 3.2
EVERGOOD PRODUCTS CORPORATION
* * * * * *
AMENDED AND RESTATED BY-LAWS
* * * * * *
ARTICLE I
---------
OFFICES
Section 1. The registered office shall be in the City of Wilmington,
County of New Castle, State of Delaware.
Section 2. The corporation may also have offices at such other places
both within and without the State of Delaware as the board of directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
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MEETING OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of
directors shall be held in the City of Wilmington, State of Delaware, at such
place as may be fixed from time to time by the board of directors, or at such
other place either within or without the State of Delaware as shall be
designated from time to time by the board of directors and stated in the notice
of the meeting. Meetings of stockholders for any other purpose may be held at
such time and place, within or without the State of Delaware, as shall be stated
in the notice of the meeting or in a duly executed waiver of notice thereof.
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Section 2. Annual meetings of stockholders shall be held on the second
Wednesday of October if not a legal holiday, and if a legal holiday, then on the
next secular day following, at 10:00 a.m., or at such other date and time as
shall be designated from time to time by the board of directors and stated in
the notice of the meeting, at which they shall elect by a plurality vote those
directors whose terms have expired pursuant to the provisions of the certificate
of incorporation, and transact such other business as may properly be brought
before the meeting.
Section 3. Written notice of the annual meeting stating the place, date
and hour of the meeting shall be given to each stockholder entitled to vote at
such meeting not less than ten nor more than sixty days before the date of the
meeting.
Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or the certificate of
incorporation, may be called by the president or secretary and shall be called
by the president or secretary at the written request of stockholders
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owning at least sixty-six and two-thirds (66-2/3%) percent of the entire capital
stock of the corporation issued and entitled to vote. Such request shall state
the purpose or purposes of the proposed meeting.
Section 6. Written notice of a special meeting stating the place, date
and hour of the meeting and the purpose for which the meeting is called, shall
be given not less than ten nor more than fifty days before the date of the
meeting, to each stockholder entitled to vote at such meeting.
Section 7. (A) (1) Nominations of persons for election to the board
of directors of the corporation and the proposal of business to be considered by
the stockholders may be made at an annual meeting of stockholders (a) pursuant
to the Corporation's notice of meeting, (b) by or at the direction of the board
of directors or (c) by any stockholder of the corporation who was a stockholder
of record at the time of giving of notice provided for in this By-law, who is
entitled to vote at the meeting and who complies with the notice procedures set
forth in this By-law.
(2) For nominations or other business to be properly
brought before an annual meeting by a stockholder pursuant to clause (c) of
paragraph (A) (1) of this by-law the stockholder must have given timely notice
thereof in writing to the Secretary of the corporation and such other business
must otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the corporation not later than the close of business on the
60th day nor earlier than the close of business on the 90th day prior to the
first anniversary of the preceding year's annual meeting; provided, however,
that in the event that the date of the annual meeting is more than 30
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days before or more than 60 days after such anniversary date, notice by the
stockholder to be timely must be so delivered not earlier than the close of
business on the 90th day prior to such annual meeting and not later than the
close of business on the later of the 60th day prior to such annual meeting or
the 10th day following the day on which public announcement of the date of such
meeting is first made by the Corporation. In no event shall the public
announcement of an adjournment of an annual meeting commence a new time period
for the giving of a stockholder's notice as described above. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or reelection as a director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors in an election contest, or is otherwise required, in each
case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and Rule 14a-11 thereunder (including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected); (b) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made (i) the name and
address of such stockholder, as they appear on the Corporation's books, and of
such beneficial owner and (ii) the class and number of shares of the corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner.
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(3) Notwithstanding anything in the second sentence of
paragraph (A) (2) of this by-law to the contrary, in the event that the number
of directors to be elected to the board of directors of the corporation is
increased and there is no public announcement by the corporation naming all of
the nominees for director or specifying the size of the increased board of
directors at least 70 days prior to the first anniversary of the preceding
year's annual meeting, a stockholder's notice required by this by-law shall also
be considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the 10th day following the day on which such public announcement is
first made by the Corporation.
(B) Only such business shall be conducted at a special meeting of
stockholders as shall have been brought before the meeting pursuant to the
Corporation's notice of meeting. Nominations of persons for election to the
board of directors may be made at a special meeting of stockholders at which
directors are to be elected pursuant to the corporation's notice of meeting (a)
by or at the direction of the board of directors or (b) provided that the board
of directors has determined that directors shall be elected at such meeting, by
any stockholder of the corporation who is a stockholder of record at the time of
giving of notice provided for in this by-law who shall be entitled to vote at
the meeting and who complies with the notice procedures set forth in this by-
law. In the event the corporation calls a special meeting of stockholders for
the purpose of electing one or more directors to the board of directors, any
such stockholder may nominate a person or persons (as the case may be), for
election to such position(s) as specified in the corporation's notice of
meeting, if the stockholder's notice required by paragraph (A) (2) of
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this by-law shall be delivered to the Secretary at the principal executive
offices of the corporation not earlier than the close of business on the 90th
day prior to such special meeting and not later than the close of business on
the later of the 60th day prior to such special meeting or the 10th day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the board of directors to be
elected at such meeting. In no event shall the public announcement of an
adjournment of a special meeting commence a new time period for the giving of a
stockholder's notice as described above.
(C) (1) Only such persons who are nominated in accordance with the
procedures set forth in this by-law shall be eligible to serve as directors and
only such business shall be conducted at a meeting of stockholders as shall have
been brought before the meeting in accordance with the procedures set forth in
this by-law. Except as otherwise provided by law, the certificate of
incorporation or these by-laws, the Chairman of the meeting shall have the power
and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made or proposed, as the case may be, in
accordance with the procedures set forth in this by-law and, if any proposed
nomination or business is not in compliance with this by-law, to declare that
such defective proposal or nomination shall be disregarded.
(2) For purposes of this by-law, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this by-law, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules
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and regulations thereunder with respect to the matters set forth in this by-law.
Nothing in this by-law shall be deemed to affect any rights (i) of stockholders
to request inclusion of proposals in the corporation's proxy statement pursuant
to Rule 14a-8 under the Exchange Act or (ii) of the holders of any series of
Preferred Stock to elect directors under specified circumstances.
Section 8. Except as otherwise provided by law or by the certificate of
incorporation, the holders of a majority of the outstanding shares of the
corporation entitled to vote generally in the election of directors (the "Voting
Stock"), represented in person or by proxy, shall constitute a quorum at a
meeting of stockholders, except that when specified business is to be voted on
by a class or series of stock voting as a class, the holders of a majority of
the shares of such class or series shall constitute a quorum of such class or
series for the transaction of such business. The Chairman of the meeting or a
majority of the shares so represented may adjourn the meeting from time to time,
whether or not there is such a quorum. No notice of the time and place of
adjourned meetings need by given except as required by law. The stockholders
present at a duly called meeting at which a quorum is present may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum. The Chairman of the meeting shall fix
and announce at the meeting the date and time of the opening and the closing of
the polls for each matter upon which the stockholders will vote at a meeting.
Section 9. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express
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provision of the statutes or of the certificate of incorporation, a different
vote is required in which case such express provision shall govern and control
the decision of such question.
Section 10. Unless otherwise provided in the certificate of
incorporation or certificates of designations, and preferences, each stockholder
shall at every meeting of the stockholders be entitled to one vote in person or
by proxy for each share of the capital stock having voting power held by such
stockholder, but no proxy shall be voted on after three years from its date,
unless the proxy provides for a longer period.
ARTICLE III
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DIRECTORS
Section 1. The number of directors which shall constitute the whole
board shall be not less than three nor more than twelve. No director need be a
stockholder of the corporation. Any director may be removed from office with
cause at any time by the affirmative vote of stockholders of record holding a
majority of the outstanding shares of stock of the corporation entitled to vote,
given at a meeting of the stockholders called for that purpose.
Section 2. The business of the corporation shall be managed by its
board of directors which may exercise all such powers of the corporation and do
all such lawful acts and things as are not by statute or by the certificate of
incorporation or by these by-laws directed or required to be exercised or done
by the stockholders.
Section 3. The board of directors shall choose a chairman of the board
of directors who shall preside at all meetings of stockholders and directors.
MEETINGS OF THE BOARD OF DIRECTORS
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Section 4. The board of directors of the corporation may hold meetings,
both regular and special, either within or without the State of Delaware.
Section 5. The first meeting of each newly elected board of directors
shall be held at such time and place as shall be fixed by the vote of
stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided that a quorum shall be present. In the event of the failure
of the stockholders to fix the time or place of the first meeting of the newly
elected board of directors, or in the event such meeting is not held at the time
and place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the board of directors, or as shall be specified in a
written waiver signed by all the directors.
Section 6. Regular meetings of the board of directors may be held
without notice at such time and at such place as shall from time to time be
determined by the board.
Section 7. Special meetings of the board may be called by the chairman
of the board or president on three days' notice to each director, either
personally or by mail or by telegram; special meetings shall be called by the
chairman of the board or the president or secretary in like manner and on like
notice on the written request of two directors.
Section 8. At all meetings of the board a majority of the board of
directors shall constitute a quorum for the transaction of business and the act
of a majority of the directors present at any meeting at which there is a quorum
shall be the act of the board of directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be present at any meeting of the board of directors, the
directors present
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thereat may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 9. Unless otherwise restricted by the certificate of
incorporation or these by-laws, any action required or permitted to be taken at
any meeting of the board of directors or of any committee thereof may be taken
without a meeting, if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
COMMITTEES OF DIRECTORS
Section 10. The board of directors, may, by resolution passed by a
majority of the whole board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member of any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another member of
the board of directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the board of directors, shall have and may exercise all the powers
and authority of the board of directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to amending the certificate of incorporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
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corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending the
by-laws of the corporation; and, unless the resolution or the certificate of
incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the board of directors.
Section 11. Each committee shall keep regular minutes of its meetings
and report the same to the board of directors when required.
COMPENSATION OF DIRECTORS
Section 12. Unless otherwise restricted by the certificate of
incorporation, the board of directors shall have the authority to fix the
compensation of directors. The directors may be paid their expenses, if any, of
attendance at each meeting of the board of directors and may be paid a fixed sum
for attendance at each meeting of the board of directors or a stated salary as
director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
ARTICLE IV
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NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
certificate of incorporation or of these by-laws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail addressed to such
director or stockholder, at his address as it appears on the records of the
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corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telegram.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
by-laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
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OFFICERS
Section 1. The officers of the corporation shall be chosen by the board
of directors and shall be a chairman of the board of directors, a president, one
or more vice-presidents, a secretary and a treasurer. The board of directors
may also choose additional vice-presidents, and one or more assistant
secretaries and assistant treasurers. Any number of offices may be held by the
same person, unless the certificate of incorporation or these by-laws otherwise
provide.
Section 2. The board of directors at its first meeting after each
annual meeting of stockholders shall choose a chairman of the board of
directors, a president, one or more vice-presidents, a secretary and a
treasurer.
Section 3. The board of directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
Section 4. The salaries of all officers and agents of the corporation
shall be fixed by the board of directors.
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Section 5. The officers of the corporation shall hold office until
their successors are chosen and qualify. Any officer elected or appointed by
the board of directors may be removed at any time by the affirmative vote of a
majority of the board of directors. Any vacancy occurring in any office of the
corporation shall be filled by the board of directors.
THE CHAIRMAN OF THE BOARD
Section 6. The chairman of the board of directors shall be the chief
executive officer of the corporation. He shall preside at all meetings of
stockholders and directors. Except where by law the signature of the president
is required, the chairman of the board of directors shall possess the same power
as the president to sign all certificates, contracts, and other instruments of
the corporation which may be authorized by the board of directors. During the
absence or disability of the president, he shall exercise all powers and
discharge all the duties of the president.
THE PRESIDENT
Section 7. The president shall be the chief financial officer of the
corporation. In the event that the board of directors shall not appoint an
executive vice president of the corporation, or in the event of his resignation
or inability to serve, the president shall be the chief operating officer of the
corporation. In the absence of the chairman of the board of directors, the
president shall preside at all meetings of the stockholders and the board of
directors, shall have general and active management of the business of the
corporation and shall see that all orders and resolutions of the board of
directors are carried into effect.
The president shall execute bonds, mortgages and other contracts requiring
a seal, under the seal of the corporation, except where required or permitted by
law to be otherwise signed and
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executed and except where the signing and execution thereof shall be expressly
delegated by the board of directors to some other officer or agent of the
corporation.
THE VICE PRESIDENTS
Section 8. The executive vice president, if any, shall be the chief
operating officer of the corporation. In the absence of the chairman of the
board of directors or the president or in the event of his inability or refusal
to act, the executive vice president shall perform the duties of the chairman of
the board of directors or the president, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the chairman of the board
of directors or the president. The executive vice president shall perform such
other duties and shall have other powers as the board of directors may from time
to time prescribe.
Section 9. In the absence of the chairman of the board of directors or
the president or the executive vice president or in the event of his inability
or refusal to act, the vice president (or in the event there be more than one
vice president, the vice presidents in the order designated, or in the absence
of any designation, then in the order of their election) shall perform the
duties of the chairman of the board of directors or the president, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the chairman of the board of directors or the president. The vice presidents
shall perform such other duties and shall have other powers as the board of
directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARIES
Section 10. The secretary shall attend all meetings of the board of
directors and all meetings of the stockholders and record all proceedings of the
meetings of the corporation and of the board of directors in a book to be kept
for that purpose and shall perform like duties for the
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standing committees when required. He shall give, or cause to be given, notice
of all meetings of the stockholders and special meetings of the board of
directors, and shall perform such other duties as may be prescribed by the board
of directors, the chairman of the board of directors or the president, under
whose supervision he shall be. He shall have custody of the corporate seal of
the corporation and he, or an assistant secretary, shall have authority to affix
the same to any instrument requiring it and when so affixed, it may be attested
by his signature or by the signature of such assistant secretary. The board of
directors may give general authority to any other officer to affix the seal of
the corporation and to attest the affixing by his signature.
Section 11. The assistant secretary, or if there be more than one, the
assistant secretaries, in the order determined by the board of directors (or if
there be no such determination, then in the order of their election), shall, in
the absence of the secretary or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the secretary and shall perform
such other duties and have such other powers as the board of directors may from
time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 12. The treasurer shall have the custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all monies
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the board of directors.
Section 13. He shall disburse the funds of the corporation as may be
ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render to the chairman of the board of directors and
the president and the board of directors, at its regular
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meetings, or when the board of directors so requires, an account of all his
transactions as treasurer and of the financial condition of the corporation.
Section 14. If required by the board of directors, he shall give the
corporation a bond (which shall be renewed every six years) in such sum and with
such surety or sureties as shall be satisfactory to the board of directors for
the faithful performance of the duties of his office and for the restoration to
the corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
Section 15. The assistant treasurer, or if there shall be more than one,
the assistant treasurers in the order determined by the board of directors (or
if there be no such determination, then in the order of their election), shall,
in the absence of the treasurer or in the event of his inability or refusal to
act, perform the duties and exercise the powers of the treasurer and shall
perform such other duties and have such other powers as the board of directors
may from time to time prescribe.
INDEMNIFICATION PROVISION
Section 16. The corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened pending or completed
action, suit or proceeding by reason of the fact that he is or was a director,
officer, employee or an agent of the corporation or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against all
expenses (including attorney's fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with the
defense or settlement of such action, suit or
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proceeding, to the fullest extent and in the manner set forth in and permitted
by the General Corporation Law of the State of Delaware, as from time to time in
effect, and any other applicable law, as from time to time in effect. Such right
of indemnification shall not be deemed exclusive of any other rights to which
such director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of each such person.
The foregoing provisions of this Article shall be deemed to be a contract
between the corporation and each director, officer, employee or agent who serves
in such capacity at any time while this Article, and the relevant provisions of
the General Corporation Law of the State of Delaware and other applicable law,
if any, are in effect, and any repeal or modification thereof shall not affect
any rights or obligations then existing with respect to any state of facts then
or theretofore existing or any action, suit or proceeding theretofore or
thereafter brought or threatened based in whole or in part upon any such state
of facts.
ARTICLE VI
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CERTIFICATES OF STOCK
Section 1. Every holder of stock in the corporation shall be entitled
to have a certificate, signed by, or in the name of the corporation by the
chairman of the board of directors, the president or a vice president and the
treasurer or an assistant treasurer, or the secretary or an assistant secretary
of the corporation, certifying the number of shares owned by him in the
corporation.
Certificates may be issued for partly paid shares and in such case upon the
face or back of the certificates issued to represent any such partly paid
shares, the total amount of the consideration to be paid therefor, and the
amount paid thereon shall be specified.
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If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in Section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate which the corporation shall issue to represent such class or
series or stock, provided that, except as otherwise provided in Section 202 of
the General Corporation Law of Delaware, in lieu of the foregoing requirements,
there may be set forth on the face or back of the certificate which the
corporation shall issue to represent such class or series of stock, a statement
that the corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
Section 2. Where a certificate is countersigned (1) by a transfer agent
other than the corporation or its employee, or (2) by a registrar other than the
corporation or its employee, any other signature on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
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LOST CERTIFICATES
Section 3. The board of directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the board of directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
and/or to give the corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
TRANSFERS OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent of
the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, it shall be
the duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
FIXING RECORD DATE
Section 5. In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any
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dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the board of directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting, provided, however, that the board of directors may fix a new record
date for the adjourned meeting.
REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII
-----------
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation, subject
to the provisions of the certificate of incorporation, if any, may be declared
by the board of directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the certificate of incorporation.
-20-
<PAGE>
Section 2. Before payment of any dividend, there may be set aside out
of any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining property of the corporation, or for such other purpose
as the directors shall think conducive to the interest of the corporation, and
the directors may modify or abolish any such reserve in the manner in which it
was created.
ANNUAL STATEMENT
Section 3. The board of directors shall present at each annual meeting,
and at any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
corporation.
CHECKS
Section 4. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the board of directors may from time to time designate.
FISCAL YEAR
Section 5. The fiscal year of the corporation shall end on December 31,
of each year, unless otherwise fixed by resolution of the board of directors.
SEAL
Section 6. The corporate seal shall have inscribed thereon the name of
the corporation, the year of its organization and the words, "Corporate Seal,
Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
-21-
<PAGE>
ARTICLE VIII
------------
AMENDMENTS
Section 1. These by-laws may be altered, amended, repealed, or new by-
laws may be adopted by the stockholders or by the board of directors, when such
power is conferred upon the board of directors by the certificate of
incorporation, at any regular meeting of the stockholders or of the board of
directors or at any special meeting of the stockholders or of the board of
directors if notice of such alteration, amendment, repeal or adoption of new by-
laws be contained in the notice of such special meeting provided, however, that
the provision set forth in Article III hereof may not be altered, amended or
repealed in any respect unless such alteration, amendment or repeal is approved
by the affirmative vote of the holders of not less than sixty-six and two-thirds
(66 2/3%) percent of the total voting power of all outstanding shares of capital
stock of the company.
-22-
<PAGE>
EXHIBIT 4.1
EVERGOOD PRODUCTS CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SEE REVERSE FOR
CERTAIN DEFINITIONS
This is to Certify that is the owner of
CUSIP 300146 10 7
FULL-PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $.01 PER SHARE OF THE
COMMON STOCK OF EVERGOOD PRODUCTS CORPORATION
transferable on the books of the corporation in person or by duly authorized
attorney upon surrender of this certificate properly endorsed. This certificate
and the shares represented hereby are issued and shall be held subject to all of
the provisions of the Certificate of Incorporation of the corporation and
amendments thereto, (copies of which are on file with the Transfer Agent), to
all of which the holder by acceptance hereof assents. This certificate is not
valid unless countersigned and registered by the Transfer Agent and Registrar.
Witness the seal of the corporation and the signatures of its duly authorized
officers.
Dated
SECRETARY PRESIDENT
COUNTERSIGNED AND REGISTERED:
REGISTRAR AND TRANSFER COMPANY
(NEW JERSEY)
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED OFFICER
Page 1
<PAGE>
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM
TEN ENT
JT TEN
as tenants in common
as tenants by the entireties
as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT..........................Custodian........................
(Cust)
(Minor)
under Uniform Gifts to Minors Act........................ ...............
(State)
Additional abbreviations may also be used though not in the above list.
For value received, hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
shares of the capital stock represented by the within Certificate, and do
hereby irrevocably constitute and appoint Attorney to transfer the said stock
on the books of the within named Corporation with full power of substitution in
the premises
Dated
NOTICE:
THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON
THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
THIS SPACE MUST NOT BE COVERED IN ANY WAY
Page 2
<PAGE>
Exhibit 10.1
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is dated as of this 1st day
of January, 2000, and is by and between Evergood Products Corporation, a
Delaware corporation with an office for purposes of this Agreement at 140 Lauman
Lane, Hicksville, New York 11801 and its subsidiaries, (hereinafter collectively
the "Company" or "Employer") and Mel Rich with an address at 15 Tuxedo Drive,
Melville, New York (hereafter the "Employee").
W I T N E S S E T H :
WHEREAS:
(a) Company wishes to engage the services of Employee to render
services for and on its behalf in accordance with the following terms,
conditions and provisions; and
(b) Employee wishes to perform such services for and on behalf of the
Company, in accordance with the following terms conditions and provisions.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
herein contained and the parties hereto intending to be
<PAGE>
legally bound hereby agree as follows:
1. EMPLOYMENT. Company hereby employs Employee and Employee accepts such
----------
employment and shall perform his duties and the responsibilities provided for
herein in accordance with the terms and conditions of this Agreement.
2. EMPLOYMENT STATUS. Employee shall at all times be Company's employee
-----------------
subject to the terms and conditions of this Agreement.
3. TERM. The term of this Agreement (the "Term") shall commence on February
----
1, 2000, and shall terminate on January 31, 2010 (the "Termination Date"), for a
total term of ten (10) years, unless earlier terminated pursuant to terms and
provisions of this Agreement; and, will be extended for an additional four (4)
consecutive five (5) year terms on terms mutually agreed to by the parties.
4. POSITION. During Employee's employment hereunder, Employee shall serve
--------
as President and Chairman of the Board of Directors of the Company. In such
position, Employee shall have the customary powers, responsibilities and
authorities of officers in such position of corporations of the size, type and
nature of the Company including being generally responsible for the overall
operations of Employer's business. Employee shall perform such duties and
exercise such powers commensurate with his position and responsibilities.
Neither Employee's title(s) nor any of his
2
<PAGE>
functions nor the manner in which he shall report shall be changed, diminished
or adversely affected during the Term, as it may be extended, without his
consent. Employee shall be provided with an office, staff and other working
facilities consistent with his positions and as required for the performance of
his duties. In addition, Company agrees to cause Employee to be nominated to
serve as a director of the Company and to use its best efforts to cause Employee
to be elected to the Board and be retained as a director and Chairman of the
Board of Directors of the Company during Employee's employment during the Term,
as it may be extended.
5. COMPENSATION.
------------
(a) For the performance of all of Employee's services to be rendered
pursuant to the terms of this Agreement, Company will pay and Employee will
accept the following compensation:
Base Salary. During the Term, Company shall pay the Employee an initial base
- -----------
annual salary of $750,000 (the "Base Salary") payable in regular installments in
accordance with the Company's usual payment practices (which currently is every
week) and such Base Salary shall not be decreased during the Term, as it may be
extended. Employee shall be entitled to such further increases, if any, in his
Base Salary as may be determined from time to time in the sole discretion of the
Board of Directors of the Company (the "Board"); but, in any event, Employee
shall be entitled to receive an annual increase equal to the increase in the CPI
for the New
3
<PAGE>
York Metropolitan Area on an annual basis plus five (5%) per cent. Employee's
Base Salary, as in effect from time to time, is hereinafter referred to as the
"Employee's Base Salary".
(b) Bonus Compensation. Company agrees to pay to Employee a bonus
during each year of the Term, as same may be extended, in an amount to be
determined by the sole and absolute discretion of the Board of Directors of the
Company.
Payment of the bonus compensation shall be made in a lump sum within
fifteen (15) days after the Company receives the certified annual year-end
financial statement of the Company's consolidated operations from the
independent accountants.
(c) Company shall deduct and withhold from Employee's compensation all
necessary or required taxes, including but not limited to Social Security,
withholding and otherwise, and any other applicable amounts required by law or
any taxing authority.
(d) Employee shall participate in any qualified or non-qualified stock
option plan the Company may initiate at anytime on the level of the most senior
management personnel.
6. EMPLOYEE BENEFITS.
-----------------
(a) During the Term, as it may be extended, and so long as Employee is
not terminated for cause Employee shall receive and be provided health and life
insurance benefits, and during Employee's employment hereunder, Employee shall
receive and be provided employee benefits (including without limitation, fringe
4
<PAGE>
benefits, vacation, automobile, retirement plan participation and life, health,
accident and disability insurance, etc., (collectively, "Employee Benefits")) on
the same basis as those benefits are generally made available to the most senior
executives of the Company and no executive or senior executive shall receive any
benefits in excess of Employee -- to the extent that the Board should conclude
that a senior executive will receive any benefit greater than Employee, Employee
shall be entitled to receive such greater benefit on the same basis as such
senior executive receives same. Employee shall be entitled to receive not less
than four weeks vacation per year and if such vacation time, is not taken by
Employee, in the then current year, Employee, at his option, may accrue vacation
or receive compensation at the then current level.
(b) Without limiting the generality of the foregoing, during
Employee's employment hereunder, Company shall use its reasonable efforts to
obtain, keep in effect, and pay premiums upon, insurance on the life of Employee
payable to such persons as Employee may, from time to time, designate in writing
to the Company or in the event Employee fails to provide such designation, to
the legal representative of Employee's estate. Such life insurance shall be in
the amount of $1,000,000. If and so long as the Company establishes and
maintains a group life insurance program for which Employee is eligible without
cost to Employee, benefits under such program shall offset the insurance
obligation
5
<PAGE>
otherwise provided for in this Section 6. Employee agrees to submit to any
physical examination required by any prospective insurer, and will otherwise
cooperate with the Company in connection with any life insurance on Employee's
life the Company may wish to obtain. If Employee is determined to be suffering
from a congenital defect or other illness or condition which would preclude the
Company from obtaining such insurance at a cost substantially equivalent to the
cost of obtaining such insurance for a healthy individual of Employee's age and
gender, Employee shall have the option to cause the Company to obtain such
insurance with Employee paying the excess premium above that which the Company
would have been responsible for had Employee not been suffering from such
defect, illness or condition, and if Employee does not exercise such option in a
timely fashion, the Company shall purchase the amount of insurance, if any, that
can be purchased at a cost substantially equivalent to the cost of obtaining
such insurance for a healthy individual of Employee's age and gender. In the
event that Employee does not qualify for any such life insurance, Company shall
pay directly to Employee an amount equal to such premiums that Company would
have paid to any insurance company to obtain such life insurance on an annual
basis.
(c) At the Company's sole expense, Employee's travel for the Company
on business shall be paid for by the Company, portal to portal, on at least a
business class level.
6
<PAGE>
(d) In addition to the benefits for which Employee shall be eligible
pursuant to paragraph (a) above, Company shall procure and maintain, at its
cost, catastrophic health insurance for the benefit of Employee; provided,
Employee shall be insurable for such health insurance at reasonable and
customary rates. Employee agrees to submit to any physical examination required
by any prospective insurer, and will otherwise cooperate with the Company in
connection with obtaining such health insurance. If Employee is determined to
be suffering from a congenital defect or other illness or condition which would
preclude the Company from obtaining such insurance at a cost substantially
equivalent to the cost of obtaining such insurance for a healthy individual of
Employee's age and gender Employee shall have the option to cause the Company to
obtain such insurance with Employee paying the excess premium above that which
the Company, would have been responsible for had Employee not been suffering
from such defect, illness or condition, and if Employee does not exercise such
option in a timely fashion, the Company shall purchase the amount of insurance,
if any, that can be purchased at a cost substantially equivalent to the cost of
obtaining such insurance for a healthy individual of Employee's age and gender.
7. BUSINESS EXPENSES AND PERQUISITES.
---------------------------------
(a) Reasonable travel, entertainment and other business expenses
incurred by Employee in the performance of his duties
7
<PAGE>
hereunder shall be reimbursed by the Company in accordance with Company policies
as in effect from time to time. In addition, Employee shall be entitled to use,
in connection with his performance of services hereunder, transportation
services of a car.
(b) Company shall provide to Employee a new automobile, including all
related maintenance, repairs, insurance, parking and other costs. The base
annual automobile rental expense shall not exceed $30,000 per annum.
8. TERMINATION.
-----------
(a) For Cause by the Company. (i) Employee's employment hereunder may
------------------------
be terminated by the Company for cause. For purposes of this Agreement, "cause"
shall mean (i) Employee's unjustified failure to perform his duties hereunder or
to follow reasonable directions of the Board within 20 business days after
receipt of written notice by Employee of such failure, (ii) willful misconduct
by Employee in connection with his employment, (iii) Employee's conviction of,
or plea of nolo contendere to, any crime constituting a felony under the laws of
the United States or any State thereof, or (iv) Employee's material breach of
any of the material provisions of this Agreement, which breach Employee has
failed to cure within 20 business days after receipt of written
8
<PAGE>
notice by Employee of such breach or which breach Employee has failed to begin
to attempt to cure during said 20 day period if the breach is not curable during
the 20 day period. Termination of Employee's employment pursuant to this Section
8(a) shall be made by delivery to Employee of a copy of a resolution duly
adopted by the affirmative vote of not less than a majority of the Board at an
actual meeting of the Board called and held for that purpose (after 30 days
prior written notice to Employee and a reasonable opportunity for Employee to be
heard before the Board prior to such vote) finding that in the good faith
judgment of the Board, Employee was guilty of conduct set forth in any of
clauses (i) through (iv) above and specifying the particulars thereof.
(ii) If Employee is terminated for cause, he shall be entitled to
receive Employee's Base Salary from Company for a period of one (1) year from
the date of termination. All other benefits, if any, due Employee following
Employee's termination of employment pursuant to this Subsection 8 (a) shall be
determined in accordance with the plans, policies and practices of the Company
for most senior executives.
(b) Disability or Death. (i) Employee's employment hereunder shall
-------------------
terminate upon his death or if Employee becomes physically or mentally
incapacitated and is therefore unable (or will as a result thereof, be unable)
for a period of six (6) consecutive months or for an aggregate of twelve (12)
months in any twenty-four (24)
9
<PAGE>
consecutive month period to perform his duties (such incapacity is hereinafter
referred to as "Disability"). If Company terminates Employee's employment under
the terms of this Agreement and Employee does not receive disability insurance
payments under the terms hereof in an amount, at least, of $25,000 per month
pursuant to a policy maintained and paid for by the Company, Company shall be
responsible to continue to pay Employee Base Salary during the Term. Any
question as to the existence of the Disability of Employee as to which Employee
and the Company cannot agree shall be determined in writing by a qualified
independent physician mutually acceptable to Employee and the Company. If
Employee and the Company cannot agree as to a qualified independent physician,
each shall appoint such a physician and those two physicians shall select a
third who shall make such determination in writing. The determination of
Disability made in writing to the Company and Employee shall be final and
conclusive for all purposes of the Agreement.
(ii) Upon termination of Employee's employment hereunder during the
Term for Disability, Employee shall receive from the Company 50% of Employee's
Base Salary through the end of the Term and that amount equivalent to 50% of the
last bonus received by Employee under the terms of this Agreement times the
number of years remaining in the Term. Employee shall be entitled to no further
payments of Employee's Base Salary under this
10
<PAGE>
Agreement, provided that any payment under this Section 8(b)(ii) shall be
reduced by the amount of any disability benefits paid to Employee under any
other disability plan, program or arrangement maintained and paid for by the
Company or its affiliates.
(iii) Upon termination of Employee's employment hereunder during the
Term, as it may be extended, as a result of death, Employee's estate or named
beneficiary(ies) shall receive from the Company (x) Employee's Base Salary at
the rate in effect at the time of Employee's death through the end of the sixth
month after the month in which his death occurs and pro rata bonus paid to
Employee during the immediately preceding year of the Term, and (y) the proceeds
of any life insurance policy maintained for his benefit by the Company pursuant
to Section 6(b) under this Agreement.
(iv) All other benefits, if any, due Employee following Employee's
termination of employment pursuant to this Subsection 8(b) shall be determined
in accordance with the plans, policies and practices of the Company and shall be
at least equal to those received by the most senior executives and no senior
executive shall receive any fringe benefit that Employee does not receive.
(c) Without Cause by the Company or For Good Reason.
-----------------------------------------------
(i) If Employee's employment is terminated by the Company without
cause (other than by reason of Disability or death) or Employee resigns for good
reason, in either case prior to a
11
<PAGE>
Change of Control, then Employee shall be entitled to a lump sum cash payment
from the Company, payable within 10 days after such termination of employment,
in an amount equal to the greater of 2.49 times the sum of Employee's Base
Salary and immediately prior year's bonus as in effect as of the date of such
termination of employment or Employee's Base Salary and immediately prior year's
bonus payable for the balance of the Term on the basis of Employee's most recent
year Employee's Base Salary and the bonus received. All other benefits, if any,
due Employee following Employee's termination of employment pursuant to this
Subsection 8(c)(i) shall be determined in accordance with the plans, policies
and practices of the Company and shall be at least equal to those received by
the most senior executives and no senior executive shall receive any fringe
benefit that Employee does not receive.
(ii) If there is a Change of Control within one (1) year of the
termination of this Agreement without cause by the Company, Employee shall be
entitled to receive the difference between those monies he actually received
upon such termination and 2.99 times Employee's base amount as defined in
Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended (the "Code")
(the "Employee Base Amount").
(iii) Subject to Section 8(f), if Employee's employment is terminated
by the Company without cause or by Employee for good reason during the Term and
coincident with or
12
<PAGE>
following a Change of Control, Employee shall be entitled to a lump sum payment,
payable within 10 days after such termination of employment, equal to the
product of (x) 2.99 times (y) the Employee Base Amount.
(iv) For purposes of this Agreement, "Good Reason" shall mean:
(a) Any breach by the Company of this Agreement; or
(b) The Company's failure to nominate and use its reasonable efforts
to cause Employee to be elected to the Board and/or be retained as a
director during Employee's employment hereunder,
provided that the foregoing events shall not be deemed to constitute Good Reason
- --------
unless Employee shall have notified the Board in writing of the occurrence of
such event(s) and the Board shall have failed to have cured or remedied such
event; and
(c) within 20 business days of its receipt of such written notice or
which breach Employer has failed to begin to attempt to cure during said 20 day
period if the breach is not curable during the 20 day period.
(d) Termination by Employee. If Employee terminates his(her)
-----------------------
employment with the Company for any reason (other than for Good Reason) during
the Term, Employee shall be entitled to the same payments he(she) would have
received if his(her) employment
13
<PAGE>
had been terminated by the Company for cause.
(e) Change of Control. For purposes of this Agreement, "Change of
-----------------
Control" shall mean (i) any transaction or series of transactions (including,
without limitation, a tender offer, merger or consolidation) the result of which
is that any "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), becomes the "beneficial" owners (as defined in Rule 13 (d) (3) under the
Securities Exchange Act of 1934) of more than 50 percent (50%) of the total
aggregate voting power of all classes of the voting stock of the Company and/or
warrants or options to acquire such voting stock, calculated on a fully diluted
basis, (ii) during any period of two consecutive calendar years, individuals who
at the beginning of such period constituted the Board (together with any new
directors whose election by the Board or whose nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the directors then in
office, or (iii) a sale of assets constituting all or substantially all of the
assets of the Company (determined on a consolidated basis). In the event of
such Change of Control, the new entity shall be obligated to assume the terms
and conditions of
14
<PAGE>
this Agreement.
(f) Limitation on Certain Payments.
------------------------------
(i) In the event it is determined pursuant to clause (ii) below,
that part or all of the consideration, compensation or benefits to be paid to
Employee under this Agreement in connection with Employee's termination of
employment following a Change of Control or under any other plan, arrangement or
agreement in connection therewith, constitutes a "parachute payment" (or
payments) under Section 28OG(b)(2) of the Code, then, if the aggregate present
value of such parachute payments (the "Parachute Amount") exceeds 2.99 times the
Employee Base Amount, the amounts constituting "parachute payments" which would
otherwise be payable to or for the benefit of Employee shall be reduced to the
extent necessary such that the Parachute Amount is equal to 2.99 times the
Employee Base Amount. Employee shall have the right to choose which amounts that
would otherwise be due him but for the limitations described in this paragraph
shall be subject to reduction. Notwithstanding the foregoing, if it is
determined that stockholder approval of the payment of such, compensation and
benefits will reduce the applicability of Section 280G of the Code to such
payment, promptly after request by Employee, Company will undertake reasonable
efforts to hold such a meeting to obtain such approval or to solicit such
approval by written consent, and to obtain such approval.
15
<PAGE>
(ii) Any determination that a payment constitutes a parachute
payment and any calculation described in this Section 8 (f) ("Determination")
shall be made by the independent public accountants for the Company, and may, at
Company's election, be made prior to termination of Employee's employment where
Company determines that a Change in Control, as provided in this Section 8, is
imminent. Such Determination shall be furnished in writing no later than 30 days
following the date of the Change in Control by the accountants to Employee. If
Employee does not agree with such Determination, he(she) may give notice as
provided in Section 13(j) below within ten days of receipt of the Determination
from the accountants and, within 15 days thereafter, accountants of Employee's
choice must deliver to the Company their Determination that in their judgment
complies with the Code. If the two accountants cannot agree upon the amount to
be paid to Employee pursuant to this Section 8 within ten days of the delivery
of the statement of Employee's accountants to the Company, the two accountants
shall choose a third accountant who shall deliver their determination of the
appropriate amount to be paid to Employee pursuant to this Section 8(f), which
determination shall be final. If the final Determination provides for the
payment of a greater amount than that proposed by the accountants of the
Company, then the Company shall pay all of Employee's costs incurred in
contesting such Determination and all other costs incurred by the
16
<PAGE>
Company with respect to such Determination.
(iii) If the final Determination made pursuant to Clause (ii) of this
Section 8(f) results in a reduction of the payments that would otherwise be paid
to Employee except for the application of Clause (i) of this Section 8(f),
Employee may then elect, in his(her) sole discretion, which and how much of any
particular entitlement shall be eliminated or reduced and shall advise the
Company in writing of his(her) election within ten days of the final
Determination of the reduction in payments. If no such election is made by
Employee within such ten-day period, the Company may elect which and how much of
any entitlement shall be eliminated or reduced and shall notify Employee
promptly of such election. Within ten days following such Determination and the
elections hereunder, the Company shall pay to or distribute to or for the
benefit of Employee such amounts as are then due to Employee under this
Agreement and shall promptly pay to or distribute to or for the benefit of
Employee in the future such amounts as become due to Employee under this
Agreement.
(iv) As a result of the uncertainty in the application of Section
28O(G) of the Code at the time of a determination hereunder, it is possible that
payments will be made by the Company which should not have been made under
clause (i) of this Section 8(f) ("Overpayment") or that additional payments
which are not made by the Company pursuant to Clause (i) of this
17
<PAGE>
Section 8 (f) should have been made ("Underpayment"). In the event that there is
a final determination by the Internal Revenue Service, or a final determination
by a court of competent jurisdiction, that an overpayment has been made, any
such Overpayment shall be treated for all purposes as a loan to Employee which
Employee shall repay to the Company together with interest at the applicable
Federal rate provided for in Section 7872(f)(2) of the Code. In the event that
there is a final determination by the Internal Revenue Service, a final
determination by a court of competent jurisdiction or a change in the provisions
of the Code or regulations pursuant to which an Underpayment arises under this
Agreement, any such Underpayment shall be promptly paid by the Company to or for
the benefit of Employee, together with interest at the applicable Federal rate
provided for in Section 7872(f)(2) of the Code.
9. NON-DISCLOSURE OF INFORMATION. Employee acknowledges that by virtue of
-----------------------------
his position he will be privy to the Company's trade secrets including but not
limited to Company's customers list and private processes, as they may exist or,
as Company may determine from time to time, and that such secrets are valuable,
special, and unique assets of Company's business and constitute confidential
information and trade secrets of Employee (hereafter collectively "Confidential
Information") Employee shall not, during the Term and for a period of six (6)
months thereafter, intentionally disclose
18
<PAGE>
all or any part of the Confidential Information to any person, firm,
corporation, association or any other entity for any reason or purpose
whatsoever, nor shall Employee and any other person by, through or with
Employee, during the Term and for a period of six (6) months thereafter,
intentionally make use of any of the Confidential Information for any purpose or
for the benefit of any other person or entity, other than Company, under any
circumstances. For a period of six (6) months after the termination of this
Agreement, Employee shall not intentionally take any action which in any manner
shall be injurious to the Company. Company and Employee agree that a violation
of the foregoing covenants will cause irreparable injury to the Company, and
that in the event of a breach or threatened breach by Employee of the provisions
of this Section, Company shall be entitled to an injunction restraining Employee
from:
(a) Disclosing, in whole or in part, any Confidential Information, or
from rendering any services to any person, firm, corporation, association or
other entity to whom any such
information, in whole or in part, has been disclosed or is threatened to be
disclosed in violation of this Agreement.
(b) Continuing such injurious actions.
Nothing herein stated shall be construed as prohibiting the Company from
pursuing any other rights and remedies, at law or in
19
<PAGE>
equity, available to the Company for such breach or threatened breach, including
the recovery of damages from the Employee.
10. RESTRICTIVE COVENANT.
--------------------
(a) For a period of six (6) months after the termination of this
Agreement by Employer without cause and for a period of one (1) year after the
termination of this Agreement by Employer or Employee for any other reason, or
expiration of this Agreement, Employee covenants and agrees that, within a
radius of ten (10) miles from each of the then present place(s) of Company's
business or any other area in which Company is engaged in business, he shall not
own, manage, operate, control, be employed by, participate in, or be connected
in any manner with the ownership, management, operation, or control, whether
directly or indirectly, as an individual on his own account, or as a partner,
member, joint venturer, officer, director or shareholder of a corporation or
other entity, of any business similar to or competitive with the type of
business conducted by Company at the time of the termination or expiration of
this Agreement.
(b) For a period of six (6) months after the termination of this
Agreement by Employer without cause and for a period of one (1) year after the
termination of this Agreement by Employer or Employee for any other reason, or
expiration of this Agreement,
20
<PAGE>
Employee further covenants and agrees he shall not interfere with, solicit or
disrupt or attempt to interfere with, solicit or disrupt the relationship,
contractual or otherwise, between Company and any customer, supplier, lessee or
employee of Company, its parent or subsidiaries.
(c) Employee acknowledges that the restrictions contained in this
Paragraph 10 are reasonable. In that regard, it is the intention of the parties
to this Agreement that the provisions of this Paragraph 8 shall be enforced to
the fullest extent permissible under the law and public policy applied in each
Jurisdiction in which enforcement is sought. Accordingly, if any portion of
this Paragraph 10 shall be adjudicated or deemed to be invalid or unenforceable,
the remaining portions shall remain in full force and effect, and such invalid
or unenforceable portion shall be limited to the particular jurisdiction in
which such adjudication is made.
11. BREACH OR THREATENED BREACH OF COVENANTS. In the event of Employee's
----------------------------------------
actual or threatened breach of his obligations under either Paragraph 9 or 10,
or both, of this Agreement, or Company's breach or threatened breach of it's
obligations under this Agreement, in addition to any other remedies either party
may have, such party shall be entitled to obtain a temporary restraining order
and a preliminary and/or permanent injunction restraining the other from
violating these provisions. Nothing in this Agreement
21
<PAGE>
shall be construed to prohibit Company or Employee, as the case may be, from
pursuing and obtaining any other available remedies which Company or Employee,
as the case may be, may have for such breach or threatened breach, whether at
law or in equity, including the recovery of damages from the other.
12. REPRESENTATIONS AND WARRANTIES BY EMPLOYEE. Employee hereby warrants
------------------------------------------
and represents that he is not subject to or a party to any restrictive covenants
or other agreements that in any way preclude, restrict, restrain or limit him
(a) from being an Employee of Company, (b) from engaging in the business of
Company in any capacity, directly or indirectly, and from competing with any
other persons, companies, businesses or entities engaged in the business of
Company.
13. ARBITRATION. Any controversy or claim arising out of or relating to
-----------
this Agreement, the performance thereof or its breach or threatened breach shall
be settled by arbitration in the County, City and State of New York in
accordance with the then governing rules of the American Arbitration
Association. The finding of the arbitration panel or arbitrator shall be final
and binding upon the parties. Judgment upon any arbitration award rendered may
be entered and enforced in any court of competent jurisdiction. In no event may
the arbitration determination change Employee's compensation, title, duties or
responsibilities, the entity to whom Employee reports or the principal place
where Employee is to render
22
<PAGE>
his services.
14. NOTICES. Any notice required, permitted or desired to be given under
-------
this Agreement shall be sufficient if it is in writing and (a) personally
delivered to Employee or an authorized member of Company, (b) sent by overnight
delivery, or (c) sent by registered or certified mail, return receipt requested,
to Employer's or Employee's address as provided in this Agreement or to a
different address designated in writing by either party. Notice is deemed given
on the day it is delivered personally or by overnight delivery, or five (5)
business days after it is received, if transmitted by the United States Post
Office.
15. ASSIGNMENT. Employee acknowledges that his services are unique and
----------
personal. Accordingly, Employee may not assign his(her) rights or delegate
his(her) duties or obligations under this Agreement. Company's rights and
obligations under this Agreement shall inure to the benefit of and shall be
binding upon the Company's successors and assigns. Company has the absolute
right to assign it's rights and benefits under the terms of this Agreement.
16. WAIVER OF BREACH. Any waiver of a breach of a provision of this
----------------
Agreement, or any delay or failure to exercise a right under a provision of this
Agreement, by either party, shall not operate or be construed as a waiver of
that or any other subsequent breach or right.
17. ENTIRE AGREEMENT. This Agreement contains the entire
----------------
23
<PAGE>
agreement of the parties. It may not be changed orally but only by an agreement
in writing which is signed by the parties. The parties hereto agree that any
existing employment agreement between them shall terminate as of the date of
this Agreement.
18. GOVERNING LAW. This Agreement shall be construed in accordance with and
-------------
governed by the internal laws of the State of New York.
19. SEVERABILITY. The invalidity or non-enforceability of any provision of
------------
this Agreement or application thereof shall not affect the remaining valid and
enforceable provisions of this Agreement or application thereof.
20. CAPTIONS. Captions in this Agreement are inserted only as a matter of
--------
convenience and reference and shall not be used to interpret or construe any
provisions of this Agreement.
21. GRAMMATICAL USAGE. In construing or interpreting this Agreement,
-----------------
masculine usage shall be substituted for those feminine in form and vice versa,
and plural usage shall be substituted or singular and vice versa, in any place
in which the context so requires.
22. CAPACITY. Employee has read and is familiar with all of the terms and
--------
conditions of this Agreement and has the capacity to understand such terms
conditions hereof. By executing this Agreement, Employee agrees to be bound by
this Agreement and the terms and conditions hereof.
24
<PAGE>
23. COUNTERPARTS. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same Agreement.
24. LEGAL FEES. Company agrees to reimburse Employee for any and all legal
----------
expenses incurred by Employee in connection with the negotiation and execution
of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
as of the date first hereinabove written.
EVERGOOD PRODUCTS CORPORATION
By: /s/Stephen R. Stern
--------------------------
Employee:
/s/ Mel Rich
-----------------------------
Mel Rich
25
<PAGE>
Exhibit 10.2
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is dated as of this 1st day
of February, 2000, and is by and between Evergood Products Corporation, a
Delaware corporation with an office for purposes of this Agreement at 140 Lauman
Lane, Hicksville, New York 11801 and its subsidiaries, (hereinafter collectively
the "Company" or "Employer") and Stephen R. Stern with a current address at c/o
Hoffinger Friedland Dobrish & Stern, 110 East 59th Street, 33rd Floor, New
York, New York 10022 (hereafter the "Employee").
W I T N E S S E T H:
WHEREAS:
(a) Company wishes to engage the services of Employee to render
services for and on its behalf in accordance with the following terms,
conditions and provisions; and
(b) Employee wishes to perform such services for and on behalf of the
Company, in accordance with the following terms conditions and provisions.
<PAGE>
NOW, THEREFORE, in consideration of the mutual covenants and conditions
herein contained and the parties hereto intending to be legally bound hereby
agree as follows:
1. EMPLOYMENT. Company hereby employs Employee and Employee accepts such
----------
employment and shall perform his duties and the responsibilities provided for
herein in accordance with the terms and conditions of this Agreement.
2. EMPLOYMENT STATUS. Employee shall at all times be Company's employee
-----------------
subject to the terms and conditions of this Agreement.
3. TERM. The term of this Agreement (the "Term") shall commence on
----
February 1, 2000, and shall terminate on January 31, 2010 (the "Termination
Date"), for a total term of ten (10) years, unless earlier terminated pursuant
to terms and provisions of this Agreement; and, will be extended for an
additional four (4) consecutive five (5) year terms on terms mutually agreed to
by the parties.
4. POSITION. During Employee's employment hereunder, Employee shall serve
--------
as Executive Vice President, Treasurer, Assistant Secretary and Chief Operating
Officer of the Company. In such
2
<PAGE>
positions, Employee shall have the customary powers, responsibilities and
authorities of officers in such position of corporations of the size, type and
nature of the Company including being generally responsible for the overall
operations of Employer's business. Employee shall perform such duties and
exercise such powers commensurate with his position and responsibilities.
Neither Employee's title(s) nor any of his functions nor the manner in which he
shall report shall be changed, diminished or adversely affected during the Term,
as it may be extended, without his consent. Employee shall be provided with an
office, staff and other working facilities consistent with his positions and as
required for the performance of his duties. In addition, Company agrees to cause
Employee to be nominated to serve as a director of the Company and to use its
best efforts to cause Employee to be elected to the Board and be retained as a
director of the Company during Employee's employment during the Term, as it
may be extended.
Company acknowledges that Employee currently practices law at the above
address and therefore the services he is required to render to the Company on a
business and or legal basis are not exclusive.
5. COMPENSATION.
------------
(a) For the performance of all of Employee's services to
3
<PAGE>
be rendered pursuant to the terms of this Agreement, Company will pay and
Employee will accept the following compensation:
Base Salary. During the Term, Company shall pay the Employee an initial base
- -----------
annual salary of $495,000 (the "Base Salary") payable in regular installments in
accordance with the Company's usual payment practices (which currently is every
week) and such Base Salary shall not be decreased during the Term, as it may be
extended. Employee shall be entitled to such further increases, if any, in his
Base Salary as may be determined from time to time in the sole discretion of the
Board of Directors of the Company (the "Board"); but, in any event, Employee
shall be entitled to receive an annual increase equal to the increase in the CPI
for the New York Metropolitan Area on an annual basis plus five (5%) per cent.
Employee's Base Salary, as in effect from time to time, is hereinafter referred
to as the "Employee's Base Salary".
(b) Bonus Compensation. Company agrees to pay to Employee a bonus
during each year of the Term, as same may be extended. The bonus shall be
determined in the sole and absolute discretion of the Board and payment of the
bonus compensation shall be made in a lump sum within fifteen (15) days after
the Company receives the certified annual year-end financial statement of the
Company's consolidated operations from the independent accountants.
(c) Company shall deduct and withhold from Employee's compensation
all necessary or required taxes, including but not
4
<PAGE>
limited to Social Security, withholding and otherwise, and any other applicable
amounts required by law or any taxing authority.
(d) Participation in any qualified and or non-qualified stock option
plan the Company may initiate on the same basis as Mel Rich.
6. EMPLOYEE BENEFITS.
-----------------
(a) During the Term, as it may be extended, and so long as Employee
is not terminated for cause Employee shall receive and be provided health and
life insurance benefits, and during Employee's employment hereunder, Employee
shall receive and be provided employee benefits (including without limitation,
fringe benefits, vacation, automobile, retirement plan participation and life,
health, accident and disability insurance, etc., (collectively, "Employee
Benefits")) on the same basis as those benefits are generally made available to
the most senior executives of the Company and no executive or senior executive
shall receive any benefits in excess of Employee -- to the extent that the Board
should conclude that a senior executive will receive any benefit greater than
Employee, Employee shall be entitled to receive such greater benefit on the same
basis as such senior executive receives same. Employee shall be entitled to
receive not less than four
5
<PAGE>
weeks vacation per year and if such vacation time, is not taken by Employee, in
the then current year, Employee, at his option, may accrue vacation or receive
compensation at the then current level.
(b) Without limiting the generality of the foregoing, during
Employee's employment hereunder, Company shall use its reasonable efforts to
obtain, keep in effect, and pay premiums upon, insurance on the life of Employee
payable to such persons as Employee may, from time to time, designate in writing
to the Company or in the event Employee fails to provide such designation, to
the legal representative of Employee's estate. Such life insurance shall be in
the amount of $1,000,000. If and so long as the Company establishes and
maintains a group life insurance program for which Employee is eligible without
cost to Employee, benefits under such program shall offset the insurance
obligation otherwise provided for in this Section 6. Employee agrees to submit
to any physical examination required by any prospective insurer, and will
otherwise cooperate with the Company in connection with any life insurance on
Employee's life the Company may wish to obtain. If Employee is determined to be
suffering from a congenital defect or other illness or condition which would
preclude the Company from obtaining such insurance at a cost substantially
equivalent to the cost of obtaining such insurance for a healthy individual of
Employee's age and gender, Employee shall have the option to cause the Company
to obtain such insurance
6
<PAGE>
with Employee paying the excess premium above that which the Company would have
been responsible for had Employee not been suffering from such defect, illness
or condition, and if Employee does not exercise such option in a timely fashion,
the Company shall purchase the amount of insurance, if any, that can be
purchased at a cost substantially equivalent to the cost of obtaining such
insurance for a healthy individual of Employee's age and gender. In the event
that Employee does not qualify for any such life insurance, Company shall pay
directly to Employee an amount equal to such premiums that Company would have
paid to any insurance company to obtain such life insurance on an annual basis.
(c) At the Company's sole expense, Employee's travel for the Company
on business shall be paid for by the Company, portal to portal, on at least a
business class level, when available, and when not available on a first class
level.
(d) In addition to the benefits for which Employee shall be eligible
pursuant to paragraph (a) above, Company shall procure and maintain, at its
cost, catastrophic health insurance for the benefit of Employee; provided,
Employee shall be insurable for such health insurance at reasonable and
customary rates. Employee agrees to submit to any physical examination required
by any prospective insurer, and will otherwise cooperate with the Company in
connection with obtaining such health insurance. If Employee is determined to
be suffering from a congenital defect or other
7
<PAGE>
illness or condition which would preclude the Company from obtaining such
insurance at a cost substantially equivalent to the cost of obtaining such
insurance for a healthy individual of Employee's age and gender Employee shall
have the option to cause the Company to obtain such insurance with Employee
paying the excess premium above that which the Company, would have been
responsible for had Employee not been suffering from such defect, illness or
condition, and if Employee does not exercise such option in a timely fashion,
the Company shall purchase the amount of insurance, if any, that can be
purchased at a cost substantially equivalent to the cost of obtaining such
insurance for a healthy individual of Employee's age and gender.
7. BUSINESS EXPENSES AND PERQUISITES.
---------------------------------
(a) Reasonable travel, entertainment and other business expenses
incurred by Employee in the performance of his duties hereunder shall be
reimbursed by the Company in accordance with Company policies as in effect from
time to time. In addition, Employee shall be entitled to use, in connection
with his performance of services hereunder, transportation services of a car.
(b) Company shall provide to Employee a new automobile,
including all related maintenance, repairs, insurance, parking and other costs.
The base annual automobile rental expense shall not
8
<PAGE>
exceed $24,000 per annum.
8. TERMINATION.
-----------
(a) For Cause by the Company. (i) Employee's employment
------------------------
hereunder may be terminated by the Company for cause. For purposes of this
Agreement, "cause" shall mean (i) Employee's unjustified failure to perform his
duties hereunder or to follow reasonable directions of the Board within 20
business days after receipt of written notice by Employee of such failure, (ii)
willful misconduct by Employee in connection with his employment, (iii)
Employee's conviction of, or plea of nolo contendere to, any crime constituting
a felony under the laws of the United States or any State thereof, or (iv)
Employee's material breach of any of the material provisions of this Agreement,
which breach Employee has failed to cure within 20 business days after receipt
of written notice by Employee of such breach or which breach Employee has failed
to begin to attempt to cure during said 20 day period if the breach is not
curable during the 20 day period. Termination of Employee's employment pursuant
to this Section 8(a) shall be made by delivery to Employee of a copy of a
resolution duly adopted by the affirmative vote of not less than a majority of
the Board at an actual meeting of the Board called and held for that purpose
(after 30 days prior written notice to Employee and a reasonable opportunity for
Employee to be heard before the Board prior to such
9
<PAGE>
vote) finding that in the good faith judgment of the Board, Employee was guilty
of conduct set forth in any of clauses (i) through (iv) above and specifying the
particulars thereof.
(ii) If Employee is terminated for cause, he shall be entitled to
receive Employee's Base Salary from Company for a period of one (1) year from
the date of termination. All other benefits, if any, due Employee following
Employee's termination of employment pursuant to this Subsection 8 (a) shall be
determined in accordance with the plans, policies and practices of the Company
for most senior executives.
(b) Disability or Death. (i) Employee's employment hereunder shall
-------------------
terminate upon his death or if Employee becomes physically or mentally
incapacitated and is therefore unable (or will as a result thereof, be unable)
for a period of six (6) consecutive months or for an aggregate of twelve (12)
months in any twenty-four (24) consecutive month period to perform his duties
(such incapacity is hereinafter referred to as "Disability"). If Company
terminates Employee's employment under the terms of this Agreement and Employee
does not receive disability insurance payments under the terms hereof in an
amount, at least, of $25,000 per month pursuant to a policy maintained and paid
for by the Company, Company shall be responsible to continue to pay Employee
Base Salary during the Term. Any question as to the existence of the Disability
of
10
<PAGE>
Employee as to which Employee and the Company cannot agree shall be determined
in writing by a qualified independent physician mutually acceptable to Employee
and the Company. If Employee and the Company cannot agree as to a qualified
independent physician, each shall appoint such a physician and those two
physicians shall select a third who shall make such determination in writing.
The determination of Disability made in writing to the Company and Employee
shall be final and conclusive for all purposes of the Agreement.
(ii) Upon termination of Employee's employment hereunder during the
Term for Disability, Employee shall receive from the Company 50% of Employee's
Base Salary through the end of the Term and that amount equivalent to 50% of the
last bonus received by Employee under the terms of this Agreement times the
number of years remaining in the Term. Employee shall be entitled to no further
payments of Employee's Base Salary under this Agreement, provided that any
payment under this Section 8(b)(ii) shall be reduced by the amount of any
disability benefits paid to Employee under any other disability plan, program or
arrangement maintained and paid for by the Company or its affiliates.
(iii) Upon termination of Employee's employment hereunder during the
Term, as it may be extended, as a result of death, Employee's estate or named
beneficiary(ies) shall receive from the
11
<PAGE>
Company (x) Employee's Base Salary at the rate in effect at the time of
Employee's death through the end of the sixth month after the month in which his
death occurs and pro rata bonus paid to Employee during the immediately
preceding year of the Term, and (y) the proceeds of any life insurance policy
maintained for his benefit by the Company pursuant to Section 6(b) under this
Agreement.
(iv) All other benefits, if any, due Employee following Employee's
termination of employment pursuant to this Subsection 8(b) shall be determined
in accordance with the plans, policies and practices of the Company and shall be
at least equal to those received by the most senior executives and no senior
executive shall receive any fringe benefit that Employee does not receive.
(c) Without Cause by the Company or For Good Reason.
-----------------------------------------------
(i) If Employee's employment is terminated by the Company
without cause (other than by reason of Disability or death) or Employee resigns
for good reason, in either case prior to a Change of Control, then Employee
shall be entitled to a lump sum cash payment from the Company, payable within 10
days after such termination of employment, in an amount equal to the greater of
2.49 times the sum of Employee's Base Salary and immediately prior year's bonus
as in effect as of the date of such termination of employment or Employee's Base
Salary and immediately prior year's bonus payable for the balance of the Term on
the basis of
12
<PAGE>
Employee's most recent year Employee's Base Salary and the bonus received. All
other benefits, if any, due Employee following Employee's termination of
employment pursuant to this Subsection 8(c)(i) shall be determined in accordance
with the plans, policies and practices of the Company and shall be at least
equal to those received by the most senior executives and no senior executive
shall receive any fringe benefit that Employee does not receive.
(ii) If there is a Change of Control within one (1) year of
the termination of this Agreement without cause by the Company, Employee shall
be entitled to receive the difference between those monies he actually received
upon such termination and 2.99 times Employee's base amount as defined in
Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended (the "Code")
(the "Employee Base Amount").
(iii) Subject to Section 8(f), if Employee's employment is
terminated by the Company without cause or by Employee for good reason during
the Term and coincident with or following a Change of Control, Employee shall be
entitled to a lump sum payment, payable within 10 days after such termination of
employment, equal to the product of (x) 2.99 times (y) the Employee Base Amount.
(iv) For purposes of this Agreement, "Good Reason" shall
mean:
(a) Any breach by the Company of this Agreement; or
13
<PAGE>
(b) The Company's failure to nominate and use its reasonable efforts
to cause Employee to be elected to the Board and/or be retained as
a director during Employee's employment hereunder,
provided that the foregoing events shall not be deemed to constitute Good Reason
- --------
unless Employee shall have notified the Board in writing of the occurrence of
such event(s) and the Board shall have failed to have cured or remedied such
event; and
(c) within 20 business days of its receipt of such written notice or
which breach Employer has failed to begin to attempt to cure during said 20 day
period if the breach is not curable during the 20 day period.
(d) Termination by Employee. If Employee terminates his(her)
-----------------------
employment with the Company for any reason (other than for Good Reason) during
the Term, Employee shall be entitled to the same payments he(she) would have
received if his(her) employment had been terminated by the Company for cause.
(e) Change of Control. For purposes of this Agreement, "Change of
-----------------
Control" shall mean (i) any transaction or series of transactions (including,
without limitation, a tender offer, merger or consolidation) the result of which
is that any "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the
14
<PAGE>
Securities Exchange Act of 1934, as amended (the "Exchange Act"), becomes the
"beneficial" owners (as defined in Rule 13 (d) (3) under the Securities Exchange
Act of 1934) of more than 50 percent (50%) of the total aggregate voting power
of all classes of the voting stock of the Company and/or warrants or options to
acquire such voting stock, calculated on a fully diluted basis, (ii) during any
period of two consecutive calendar years, individuals who at the beginning of
such period constituted the Board (together with any new directors whose
election by the Board or whose nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds of the directors then
still in office who either were directors at the beginning of such period or
whose election or nomination for election was previously so approved) cease for
any reason to constitute a majority of the directors then in office, or (iii) a
sale of assets constituting all or substantially all of the assets of the
Company (determined on a consolidated basis). In the event of such Change of
Control, the new entity shall be obligated to assume the terms and conditions of
this Agreement.
(f) Limitation on Certain Payments.
------------------------------
(i) In the event it is determined pursuant to clause (ii) below,
that part or all of the consideration, compensation or benefits to be paid to
Employee under this Agreement in connection with Employee's termination of
employment
15
<PAGE>
following a Change of Control or under any other plan, arrangement or agreement
in connection therewith, constitutes a "parachute payment" (or payments) under
Section 28OG(b)(2) of the Code, then, of the aggregate present value of such
parachute payments (the "Parachute Amount") exceeds 2.99 times the Employee Base
Amount, the amounts constituting "parachute payments" which would otherwise be
payable to or for the benefit of Employee shall be reduced to the extent
necessary such that the Parachute Amount is equal to 2.99 times the Employee
Base Amount. Employee shall have the right to choose which amounts that would
otherwise be due him but for the limitations described in this paragraph shall
be subject to reduction. Notwithstanding the foregoing, if it is determined that
stockholder approval of the payment of such, compensation and benefits will
reduce the applicability of Section 280G of the Code to such payment, promptly
after request by Employee, Company will undertake reasonable efforts to hold
such a meeting to obtain such approval or to solicit such approval by written
consent, and to obtain such approval.
(ii) Any determination that a payment constitutes a parachute
payment and any calculation described in this Section 8 (f) ("Determination")
shall be made by the independent public accountants for the Company, and may, at
Company's election, be made prior to termination of Employee's employment where
Company determines that a Change in Control, as provided in this Section 8,
16
<PAGE>
is imminent. Such Determination shall be furnished in writing no later than 30
days following the date of the Change in Control by the accountants to Employee.
If Employee does not agree with such Determination, he(she) may give notice as
provided in Section 13(j) below within ten days of receipt of the Determination
from the accountants and, within 15 days thereafter, accountants of Employee's
choice must deliver to the Company their Determination that in their judgment
complies with the Code. If the two accountants cannot agree upon the amount to
be paid to Employee pursuant to this Section 8 within ten days of the delivery
of the statement of Employee's accountants to the Company, the two accountants
shall choose a third accountant who shall deliver their determination of the
appropriate amount to be paid to Employee pursuant to this Section 8(f), which
determination shall be final. If the final Determination provides for the
payment of a greater amount than that proposed by the accountants of the
Company, then the Company shall pay all of Employee's costs incurred in
contesting such Determination and all other costs incurred by the Company with
respect to such Determination.
(iii) If the final Determination made pursuant to Clause (ii) of
this Section 8(f) results in a reduction of the payments that would otherwise be
paid to Employee except for the application of Clause (i) of this Section 8(f),
Employee may then elect, in his sole discretion, which and how much of any
particular
17
<PAGE>
entitlement shall be eliminated or reduced and shall advise the Company in
writing of his(her) election within ten days of the final Determination of the
reduction in payments. If no such election is made by Employee within such ten-
day period, the Company may elect which and how much of any entitlement shall be
eliminated or reduced and shall notify Employee promptly of such election.
Within ten days following such Determination and the elections hereunder, the
Company shall pay to or distribute to or for the benefit of Employee such
amounts as are then due to Employee under this Agreement and shall promptly pay
to or distribute to or for the benefit of Employee in the future such amounts as
become due to Employee under this Agreement.
(iv) As a result of the uncertainty in the application of Section
28O(G) of the Code at the time of a determination hereunder, it is possible that
payments will be made by the Company which should not have been made under
clause (i) of this Section 8(f) ("Overpayment") or that additional payments
which are not made by the Company pursuant to Clause (i) of this Section 8 (f)
should have been made ("Underpayment"). In the event that there is a final
determination by the Internal Revenue Service, or a final determination by a
court of competent jurisdiction, that an overpayment has been made, any such
Overpayment shall be treated for all purposes as a loan to Employee which
Employee shall repay to the Company together with interest at
18
<PAGE>
the applicable Federal rate provided for in Section 7872(f)(2) of the Code. In
the event that there is a final determination by the Internal Revenue Service, a
final determination by a court of competent jurisdiction or a change in the
provisions of the Code or regulations pursuant to which an Underpayment arises
under this Agreement, any such Underpayment shall be promptly paid by the
Company to or for the benefit of Employee, together with interest at the
applicable Federal rate provided for in Section 7872(f)(2) of the Code.
9. NON-DISCLOSURE OF INFORMATION. Employee acknowledges that by virtue of
-----------------------------
his(her) position he(she) will be privy to the Company's trade secrets including
but not limited to Company's customers list and private processes, as they may
exist or, as Company may determine from time to time, and that such secrets are
valuable, special, and unique assets of Company's business and constitute
confidential information and trade secrets of Employee (hereafter collectively
"Confidential Information") Employee shall not, during the Term and for a period
of six (6) months thereafter, intentionally disclose all or any part of the
Confidential Information to any person, firm, corporation, association or any
other entity for any reason or purpose whatsoever, nor shall Employee and any
other person by, through or with Employee, during the Term and for a period of
six (6) months thereafter,
19
<PAGE>
intentionally make use of any of the Confidential Information for any purpose or
for the benefit of any other person or entity, other than Company, under any
circumstances. For a period of six (6) months after the termination of this
Agreement, Employee shall not intentionally take any action which in any manner
shall be injurious to the Company. Company and Employee agree that a violation
of the foregoing covenants will cause irreparable injury to the Company, and
that in the event of a breach or threatened breach by Employee of the provisions
of this Section, Company shall be entitled to an injunction restraining Employee
from:
(a) Disclosing, in whole or in part, any Confidential Information, or
from rendering any services to any person, firm, corporation, association or
other entity to whom any such information, in whole or in part, has been
disclosed or is threatened to be disclosed in violation of this Agreement.
(b) Continuing such injurious actions.
Nothing herein stated shall be construed as prohibiting the Company from
pursuing any other rights and remedies, at law or in equity, available to the
Company for such breach or threatened breach, including the recovery of damages
from the Employee.
10. RESTRICTIVE COVENANT.
--------------------
(a) For a period of six (6) months after the termination
20
<PAGE>
of this Agreement by Employer without cause and for a period of one (1) year
after the termination of this Agreement by Employer or Employee for any other
reason, or expiration of this Agreement, Employee covenants and agrees that,
within a radius of ten (10) miles from each of the then present place(s) of
Company's business or any other area in which Company is engaged in business, he
shall not own, manage, operate, control, be employed by, participate in, or be
connected in any manner with the ownership, management, operation, or control,
whether directly or indirectly, as an individual on his own account, or as a
partner, member, joint venturer, officer, director or shareholder of a
corporation or other entity, of any business similar to or competitive with the
type of business conducted by Company at the time of the termination or
expiration of this Agreement.
(b) For a period of six (6) months after the termination of this
Agreement by Employer without cause and for a period of one (1) year after the
termination of this Agreement by Employer or Employee for any other reason, or
expiration of this Agreement, Employee further covenants and agrees he(she)
shall not interfere with, solicit or disrupt or attempt to interfere with,
solicit or disrupt the relationship, contractual or otherwise, between Company
and any customer, supplier, lessee or employee of Company, its parent or
subsidiaries.
(c) Employee acknowledges that the restrictions contained
21
<PAGE>
in this Paragraph 10 are reasonable. In that regard, it is the intention of the
parties to this Agreement that the provisions of this Paragraph 8 shall be
enforced to the fullest extent permissible under the law and public policy
applied in each Jurisdiction in which enforcement is sought. Accordingly, if any
portion of this Paragraph 10 shall be adjudicated or deemed to be invalid or
unenforceable, the remaining portions shall remain in full force and effect, and
such invalid or unenforceable portion shall be limited to the particular
jurisdiction in which such adjudication is made.
11. BREACH OR THREATENED BREACH OF COVENANTS. In the event of Employee's
----------------------------------------
actual or threatened breach of his obligations under either Paragraph 9 or 10,
or both, of this Agreement, or Company's breach or threatened breach of it's
obligations under this Agreement, in addition to any other remedies either party
may have, such party shall be entitled to obtain a temporary restraining order
and a preliminary and/or permanent injunction restraining the other from
violating these provisions. Nothing in this Agreement shall be construed to
prohibit Company or Employee, as the case may be, from pursuing and obtaining
any other available remedies which Company or Employee, as the case may be, may
have for such breach or threatened breach, whether at law or in equity,
including the recovery of damages from the other.
22
<PAGE>
12. REPRESENTATIONS AND WARRANTIES BY EMPLOYEE. Employee hereby warrants
------------------------------------------
and represents that he is not subject to or a party to any restrictive covenants
or other agreements that in any way preclude, restrict, restrain or limit him
(a) from being an Employee of Company, (b) from engaging in the business of
Company in any capacity, directly or indirectly, and from competing with any
other persons, companies, businesses or entities engaged in the business of
Company.
13. ARBITRATION. Any controversy or claim arising out of or relating to
-----------
this Agreement, the performance thereof or its breach or threatened breach shall
be settled by arbitration in the State of New York, County of New York in
accordance with the then governing rules of the American Arbitration
Association. The finding of the arbitration panel or arbitrator shall be final
and binding upon the parties. Judgment upon any arbitration award rendered may
be entered and enforced in any court of competent jurisdiction. In no event may
the arbitration determination change Employee's compensation, title, duties or
responsibilities, the entity to whom Employee reports or the principal place
where Employee is to render his services.
14. NOTICES. Any notice required, permitted or desired to be
-------
23
<PAGE>
given under this Agreement shall be sufficient if it is in writing and (a)
personally delivered to Employee or an authorized member of Company, (b) sent by
overnight delivery, or (c) sent by registered or certified mail, return receipt
requested, to Employer's or Employee's address as provided in this Agreement or
to a different address designated in writing by either party. Notice is deemed
given on the day it is delivered personally or by overnight delivery, or five
(5) business days after it is received, if transmitted by the United States Post
Office.
15. ASSIGNMENT. Employee acknowledges that his services are unique and
----------
personal. Accordingly, Employee may not assign his rights or delegate his duties
or obligations under this Agreement. Company's rights and obligations under this
Agreement shall inure to the benefit of and shall be binding upon the Company's
successors and assigns. Company has the absolute right to assign it's rights and
benefits under the terms of this Agreement.
16. WAIVER OF BREACH. Any waiver of a breach of a provision of this
----------------
Agreement, or any delay or failure to exercise a right under a provision of this
Agreement, by either party, shall not operate or be construed as a waiver of
that or any other subsequent breach or right.
24
<PAGE>
17. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
----------------
parties. It may not be changed orally but only by an agreement in writing
which is signed by the parties. The parties hereto agree that any existing
employment agreement between them shall terminate as of the date of this
Agreement.
18. GOVERNING LAW. This Agreement shall be construed in accordance with and
-------------
governed by the internal laws of the State of New York.
19. SEVERABILITY. The invalidity or non-enforceability of any provision of
------------
this Agreement or application thereof shall not affect the remaining valid and
enforceable provisions of this Agreement or application thereof.
20. CAPTIONS. Captions in this Agreement are inserted only as a matter of
--------
convenience and reference and shall not be used to interpret or construe any
provisions of this Agreement.
21. GRAMMATICAL USAGE. In construing or interpreting this Agreement,
-----------------
masculine usage shall be substituted for those feminine in form and vice versa,
and plural usage shall be substituted or singular and vice versa, in any place
in which the context so requires.
25
<PAGE>
22. CAPACITY. Employee has read and is familiar with all of the terms and
--------
conditions of this Agreement and has the capacity to understand such terms
conditions hereof. By executing this Agreement, Employee agrees to be bound by
this Agreement and the terms and conditions hereof.
23. COUNTERPARTS. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same Agreement.
24. LEGAL FEES. Company agrees to reimburse Employee for any and all legal
----------
expenses incurred by Employee in connection with the negotiation and execution
of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
as of the date first hereinabove written.
EVERGOOD PRODUCTS CORPORATION
By: /s/ Mel Rich
-------------------------
Employee:
/s/ Stephen R. Stern
-----------------------------
Stephen R. Stern
26
<PAGE>
Exhibit 10.3
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is dated as of this 1st day of
January, 2000, and is by and between Evergood Products Corporation, a Delaware
corporation with an office for purposes of this Agreement at 140 Lauman Lane,
Hicksville, New York 11801 and its subsidiaries, (hereinafter collectively the
"Company" or "Employer") and Charlotte Rich (hereafter the "Employee").
W I T N E S S E T H :
WHEREAS:
(a) Company wishes to engage the services of Employee to render
services for and on its behalf in accordance with the following terms,
conditions and provisions; and
(b) Employee wishes to perform such services for and on behalf of the
Company, in accordance with the following terms conditions and provisions.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
herein contained and the parties hereto intending to be legally bound hereby
agree as follows:
<PAGE>
1. EMPLOYMENT. Company hereby employs Employee and Employee accepts such
----------
employment and shall perform her duties and the responsibilities provided for
herein in accordance with the terms and conditions of this Agreement.
2. EMPLOYMENT STATUS. Employee shall at all times be Company's employee
-----------------
subject to the terms and conditions of this Agreement.
3. TERM. The term of this Agreement (the "Term") shall commence on
----
February 1, 2000, and shall terminate on January 31, 2005 (the "Termination
Date"), for a total term of 5 years, unless earlier terminated pursuant to terms
and provisions of this Agreement; and, will be extended for additional five
consecutive (5) year terms on terms mutually agreed to by the parties.
4. POSITION. During Employee's employment hereunder, Employee shall serve
--------
as an officer and director of the Company. In such position, Employee shall
have the customary powers, responsibilities and authorities of officers in such
position of corporations of the size, type and nature of the Company including
being generally responsible for the operations of Employer's business and the
day-to-day and certain financial decisions of the Employer's business. Employee
shall perform such duties and exercise such powers commensurate with her
position and responsibilities. Neither Employee's title(s) nor any of her
functions nor the manner in which he shall report shall be changed,
2
<PAGE>
diminished or adversely affected during the Term, as it may be extended, without
her consent. Employee shall be provided with an office, staff and other working
facilities consistent with her positions and as required for the performance of
her duties. In addition, Company agrees to cause Employee to be nominated to
serve as a director of the Company and to use its best efforts to cause Employee
to be elected to the Board and be retained as a director of the Company during
Employee's employment during the Term, as it may be extended.
5. COMPENSATION.
------------
(a) For the performance of all of Employee's services to be rendered
pursuant to the terms of this Agreement, Company will pay and Employee will
accept the following compensation:
Base Salary. During the Term, Company shall pay the Employee an initial base
- -----------
annual salary of $150,000 (the "Base Salary") payable in regular installments in
accordance with the Company's usual payment practices (which currently is every
week) and such Base Salary shall not be decreased during the Term, as it may be
extended. Employee shall be entitled to such further increases, if any, in her
Base Salary as may be determined from time to time in the sole discretion of the
Board of Directors of the Company (the "Board"); but, in any event, Employee
shall be entitled to receive an annual increase equal to the increase in the CPI
for the New York Metropolitan Area on an annual basis plus three (3%) per cent.
3
<PAGE>
Employee's Base Salary, as in effect from time to time, is hereinafter referred
to as the "Employee's Base Salary".
(b) Company shall deduct and withhold from Employee's compensation all
necessary or required taxes, including but not limited to Social Security,
withholding and otherwise, and any other applicable amounts required by law or
any taxing authority.
(c) Employee shall be entitled to bonus compensation in the sole and
absolute discretion of the Board of Directors of the Company.
6. EMPLOYEE BENEFITS.
-----------------
(a) During the Term, as it may be extended, and so long as Employee is
not terminated for cause Employee shall receive and be provided health and life
insurance benefits, and during Employee's employment hereunder, Employee shall
receive and be provided employee benefits (including without limitation, fringe
benefits, vacation, automobile, retirement plan participation and life, health,
accident and disability insurance, etc., (collectively, "Employee Benefits")) on
the same basis as those benefits are generally made available to the most senior
executives of the Company. Employee shall be entitled to receive not less than
four weeks vacation per year and if such vacation time, is not taken by
Employee, in the then current year, Employee, at her option, may accrue vacation
or receive compensation at the then
4
<PAGE>
current level.
(b) Without limiting the generality of the foregoing, during
Employee's employment hereunder, Company shall use its reasonable efforts to
obtain, keep in effect, and pay premiums upon, insurance on the life of Employee
payable to such persons as Employee may, from time to time, designate in writing
to the Company or in the event Employee fails to provide such designation, to
the legal representative of Employee's estate. If and so long as the Company
establishes and maintains a group life insurance program for which Employee is
eligible without cost to Employee, benefits under such program shall offset the
insurance obligation otherwise provided for in this Section 6. Employee agrees
to submit to any physical examination required by any prospective insurer, and
will otherwise cooperate with the Company in connection with any life insurance
on Employee's life the Company may wish to obtain. If Employee is determined to
be suffering from a congenital defect or other illness or condition which would
preclude the Company from obtaining such insurance at a cost substantially
equivalent to the cost of obtaining such insurance for a healthy individual of
Employee's age and gender, Employee shall have the option to cause the Company
to obtain such insurance with Employee paying the excess premium above that
which the Company would have been responsible for had Employee not been
5
<PAGE>
suffering from such defect, illness or condition, and if Employee does not
exercise such option in a timely fashion, the Company shall purchase the amount
of insurance, if any, that can be purchased at a cost substantially equivalent
to the cost of obtaining such insurance for a healthy individual of Employee's
age and gender. In the event that Employee does not qualify for any such life
insurance, Company shall pay directly to Employee an amount equal to such
premiums that Company would have paid to any insurance company to obtain such
life insurance on an annual basis.
(c) At the Company's sole expense, Employee's travel for the Company
on business shall be paid for by the Company, portal to portal.
(d) In addition to the benefits for which Employee shall be eligible
pursuant to paragraph (a) above, Company shall procure and maintain, if
reasonably obtainable, at its cost, catastrophic health insurance for the
benefit of Employee; provided, Employee shall be insurable for such health
insurance at reasonable and customary rates. Employee agrees to submit to any
physical examination required by any prospective insurer, and will otherwise
cooperate with the Company in connection with obtaining such health insurance.
If Employee is determined to be suffering from a congenital defect or other
illness or condition which would preclude the Company from obtaining such
insurance at a cost substantially equivalent to the cost of obtaining such
insurance
6
<PAGE>
for a healthy individual of Employee's age and gender Employee shall have the
option to cause the Company to obtain such insurance with Employee paying the
excess premium above that which the Company, would have been responsible for had
Employee not been suffering from such defect, illness or condition, and if
Employee does not exercise such option in a timely fashion, the Company shall
purchase the amount of insurance, if any, that can be purchased at a cost
substantially equivalent to the cost of obtaining such insurance for a healthy
individual of Employee's age and gender.
7. BUSINESS EXPENSES AND PERQUISITES.
---------------------------------
(a) Reasonable travel, entertainment and other business expenses
incurred by Employee in the performance of his duties hereunder shall be
reimbursed by the Company in accordance with Company policies as in effect from
time to time. In addition, Employee shall be entitled to use, in connection with
his performance of services hereunder, transportation services of a car.
(b) Company shall provide to Employee a new automobile, including all
related maintenance, repairs, insurance, parking and other costs. The base
annual automobile rental expense shall not exceed $12,000 per annum.
8. TERMINATION.
-----------
(a) For Cause by the Company. (i) Employee's employment
------------------------
7
<PAGE>
hereunder may be terminated by the Company for cause. For purposes of this
Agreement, "cause" shall mean (i) Employee's unjustified failure to perform
his(her) duties hereunder or to follow reasonable directions of the Board within
20 business days after receipt of written notice by Employee of such failure,
(ii) willful misconduct by Employee in connection with his employment, (iii)
Employee's conviction of, or plea of nolo contendere to, any crime constituting
a felony under the laws of the United States or any State thereof, or (iv)
Employee's material breach of any of the material provisions of this Agreement,
which breach Employee has failed to cure within 20 business days after receipt
of written notice by Employee of such breach or which breach Employee has failed
to begin to attempt to cure during said 20 day period if the breach is not
curable during the 20 day period. Termination of Employee's employment pursuant
to this Section 8(a) shall be made by delivery to Employee of a copy of a
resolution duly adopted by the affirmative vote of not less than a majority of
the Board at an actual meeting of the Board called and held for that purpose
(after 30 days prior written notice to Employee and a reasonable opportunity for
Employee to be heard before the - Board prior to such vote) finding that in the
good faith judgment of the Board, Employee was guilty of conduct set forth in
any of clauses (i) through (iv) above and specifying the particulars thereof.
(ii) If Employee is terminated for cause, he(she) shall
8
<PAGE>
be entitled to receive Employee's Base Salary from Company for a period of one
(1) year from the date of termination. All other benefits, if any, due Employee
following Employee's termination of employment pursuant to this Subsection 8 (a)
shall be determined in accordance with the plans, policies and practices of the
Company for most senior executives.
(b) Disability or Death. (i) Employee's employment hereunder shall
-------------------
terminate upon his/her death or if Employee becomes physically or mentally
incapacitated and is therefore unable (or will as a result thereof, be unable)
for a period of six (6) consecutive months or for an aggregate of twelve (12)
months in any twenty-four (24) consecutive month period to perform his duties
(such incapacity is hereinafter referred to as "Disability"). If Company
terminates Employee's employment under the terms of this Agreement and Employee
does not receive disability insurance payments under the terms hereof in an
amount, at least, of $25,000 per month pursuant to a policy maintained and paid
for by the Company, Company shall be responsible to continue to pay Employee
Base Salary during the Term. Any question as to the existence of the Disability
of Employee as to which Employee and the Company cannot agree shall be
determined in writing by a qualified independent physician mutually acceptable
to Employee and the Company. If Employee and the Company cannot agree as to a
qualified independent physician, each shall appoint such a physician and
9
<PAGE>
those two physicians shall select a third who shall make such determination in
writing. The determination of Disability made in writing to the Company and
Employee shall be final and conclusive for all purposes of the Agreement.
(ii) Upon termination of Employee's employment hereunder during the
Term for Disability, Employee shall receive from the Company 50% of Employee's
Base Salary through the end of the Term and that amount equivalent to 50% of the
last bonus received by Employee under the terms of this Agreement times the
number of years remaining in the Term. Employee shall be entitled to no further
payments of Employee's Base Salary under this Agreement, provided that any
payment under this Section 8(b)(ii) shall be reduced by the amount of any
disability benefits paid to Employee under any other disability plan, program or
arrangement maintained and paid for by the Company or its affiliates.
(iii) Upon termination of Employee's employment hereunder during the
Term, as it may be extended, as a result of death, Employee's estate or named
beneficiary(ies) shall receive from the Company (x) Employee's Base Salary at
the rate in effect at the time of Employee's death through the end of the sixth
month after the month in which his death occurs and pro rata bonus paid to
Employee during the immediately preceding year of the Term, and (y) the proceeds
of any life insurance policy maintained for his benefit by the Company pursuant
to Section 6(b) under this
10
<PAGE>
Agreement.
(iv) All other benefits, if any, due Employee following Employee's
termination of employment pursuant to this Subsection 8(b) shall be determined
in accordance with the plans, policies and practices of the Company and shall be
at least equal to those received by the most senior executives and no senior
executive shall receive any fringe benefit that Employee does not receive.
(c) Without Cause by the Company or For Good Reason.
-----------------------------------------------
(i) If Employee's employment is terminated by the Company
without cause (other than by reason of Disability or death) or Employee resigns
for good reason, in either case prior to a Change of Control, then Employee
shall be entitled to a lump sum cash payment from the Company, payable within 10
days after such termination of employment, in an amount equal to the greater of
2.49 times the sum of Employee's Base Salary and immediately prior year's bonus
as in effect as of the date of such termination of employment or Employee's Base
Salary and immediately prior year's bonus payable for the balance of the Term on
the basis of Employee's most recent year Employee's Base Salary and the bonus
received. All other benefits, if any, due Employee following Employee's
termination of employment pursuant to this Subsection 8(c)(i) shall be
determined in accordance with the plans, policies and practices of the Company
and shall be at least equal to those received by the most senior executives and
no senior executive
11
<PAGE>
shall receive any fringe benefit that Employee does not receive.
(ii) If there is a Change of Control within one (1) year of the
termination of this Agreement without cause by the Company, Employee shall be
entitled to receive the difference between those monies he actually received
upon such termination and 2.99 times Employee's base amount as defined in
Section 280G(b) (3) of the Internal Revenue Code of 1986, as amended (the
"Code") (the "Employee Base Amount").
(iii) Subject to Section 8(f), if Employee's employment is
terminated by the Company without cause or by Employee for good reason during
the Term and coincident with or following a Change of Control, Employee shall be
entitled to a lump sum payment, payable within 10 days after such termination of
employment, equal to the product of (x) 2.99 times (y) the Employee Base Amount.
(iv) For purposes of this Agreement, "Good Reason" shall mean:
(a) Any breach by the Company of this Agreement; or
(b) The Company's failure to nominate and use its reasonable efforts
to cause Employee to be elected to the Board and/or be retained
as a director during Employee's employment hereunder,
provided that the foregoing events shall not be deemed to
- --------
12
<PAGE>
constitute Good Reason unless Employee shall have notified the Board in writing
of the occurrence of such event(s) and the Board shall have failed to have cured
or remedied such event; and
(c) within 20 business days of its receipt of such written notice or
which breach Employer has failed to begin to attempt to cure during said 20 day
period if the breach is not curable during the 20 day period.
(d) Termination by Employee. If Employee terminates his employment
-----------------------
with the Company for any reason (other than for Good Reason) during the Term,
Employee shall be entitled to the same payments he would have received if his
employment had been terminated by the Company for cause.
(e) Change of Control. For purposes of this Agreement, "Change of
-----------------
Control" shall mean (i) any transaction or series of transactions (including,
without limitation, a tender offer, merger or consolidation) the result of which
is that any "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), becomes the "beneficial" owners (as defined in Rule 13 (d) (3) under the
Securities Exchange Act of 1934) of more than 50 percent (50%) of the total
aggregate voting power of all classes of the voting stock of the Company and/or
warrants or options to acquire such voting stock, calculated on a fully diluted
basis, (ii) during any period of two consecutive calendar years, individuals who
at
13
<PAGE>
the beginning of such period constituted the Board (together with any new
directors whose election by the Board or whose nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the directors then in
office, or (iii) a sale of assets constituting all, or substantially all of the
assets of the Company (determined on a consolidated basis). In the event of such
Change of Control, the new entity shall be obligated to assume the terms and
conditions of this Agreement.
(f) Limitation on Certain Payments.
------------------------------
(i) In the event it is determined pursuant to clause (ii)
below, that part or all of the consideration, compensation or benefits to be
paid to Employee under this Agreement in connection with Employee's termination
of employment following a Change of Control or under any other plan, arrangement
or agreement in connection therewith, constitutes a "parachute payment" (or
payments) under Section 28OG(b)(2) of the Code, then, of the aggregate present
value of such parachute payments (the "Parachute Amount") exceeds 2.99 times the
Employee Base Amount,
14
<PAGE>
the amounts constituting "parachute payments" which would otherwise be payable
to or for the benefit of Employee shall be reduced to the extent necessary such
that the Parachute Amount is equal to 2.99 times the Employee Base Amount.
Employee shall have the right to choose which amounts that would otherwise be
due him but for the limitations described in this paragraph shall be subject to
reduction. Notwithstanding the foregoing, if it is determined that stockholder
approval of the payment of such, compensation and benefits will reduce the
applicability of Section 280G of the Code to such payment, promptly after
request by Employee, Company will undertake reasonable efforts to hold such a
meeting to obtain such approval or to solicit such approval by written consent,
and to obtain such approval.
(ii) Any determination that a payment constitutes a parachute
payment and any calculation described in this Section 8 (f) ("Determination")
shall be made by the independent public accountants for the Company, and may, at
Company's election, be made prior to termination of Employee's employment where
Company determines that a Change in Control, as provided in this Section 8, is
imminent. Such Determination shall be furnished in writing no later than 30 days
following the date of the Change in Control by the accountants to Employee. If
Employee does not agree with such
15
<PAGE>
Determination, he may give notice as provided in Section 13(j) below within ten
days of receipt of the Determination from the accountants and, within 15 days
thereafter, accountants of Employee's choice must deliver to the Company their
Determination that in their judgment complies with the Code. If the two
accountants cannot agree upon the amount to be paid to Employee pursuant to this
Section 8 within ten days of the delivery of the statement of Employee's
accountants to the Company, the two accountants shall choose a third accountant
who shall deliver their determination of the appropriate amount to be paid to
Employee pursuant to this Section 8(f), which determination shall be final. If
the final Determination provides for the payment of a greater amount than that
proposed by the accountants of the Company, then the Company shall pay all of
Employee's costs incurred in contesting such Determination and all other costs
incurred by the Company with respect to such Determination.
(iii) If the final Determination made pursuant to Clause (ii) of this
Section 8(f) results in a reduction of the payments that would otherwise be paid
to Employee except for the application of Clause (i) of this Section 8(f),
Employee may then elect, in his sole discretion, which and how much of any
particular entitlement shall be eliminated or reduced and shall advise the
Company in writing of his election within ten days of the final Determination of
the reduction in payments. If no such election is
16
<PAGE>
made by Employee within such ten-day period, the Company may elect which and how
much of any entitlement shall be eliminated or reduced and shall notify Employee
promptly of such election. Within ten days following such Determination and the
elections hereunder, the Company shall pay to or distribute to or for the
benefit of Employee such amounts as are then due to Employee under this
Agreement and shall promptly pay to or distribute to or for the benefit of
Employee in the future such amounts as become due to Employee under this
Agreement.
(iv) As a result of the uncertainty in the application of Section
28O(G) of the Code at the time of a determination hereunder, it is possible that
payments will be made by the Company which should not have been made under
clause (i) of this Section 8(f) ("Overpayment") or that additional payments
which are not made by the Company pursuant to Clause (i) of this Section 8 (f)
should have been made ("Underpayment"). In the event that there is a final
determination by the Internal Revenue Service, or a final determination by a
court of competent jurisdiction, that an overpayment has been made, any such
Overpayment shall be treated for all purposes as a loan to Employee which
Employee shall repay to the Company together with interest at the applicable
Federal rate provided for in Section 7872(f)(2) of the Code. In the event that
there is a final determination by the Internal Revenue Service, a final
determination by a court of
17
<PAGE>
competent jurisdiction or a change in the provisions of the Code or regulations
pursuant to which an Underpayment arises under this Agreement, any such
Underpayment shall be promptly paid by the Company to or for the benefit of
Employee, together with interest at the applicable Federal rate provided for in
Section 7872(f)(2) of the Code.
9. NON-DISCLOSURE OF INFORMATION. Employee acknowledges that by virtue of
-----------------------------
his position he will be privy to the Company's trade secrets including but not
limited to Company's customers list and private processes, as they may exist or,
as Company may determine from time to time, and that such secrets are valuable,
special, and unique assets of Company's business and constitute confidential
information and trade secrets of Employee (hereafter collectively "Confidential
Information") Employee shall not, during the Term and for a period of six (6)
months thereafter, intentionally disclose all or any part of the Confidential
Information to any person, firm, corporation, association or any other entity
for any reason or purpose whatsoever, nor shall Employee and any other person
by, through or with Employee, during the Term and for a period of six (6) months
thereafter, intentionally make use of any of the Confidential Information for
any purpose or for the benefit of any other person or entity, other than
Company, under any circumstances. For a period of six (6) months after the
termination of this Agreement, Employee shall not intentionally
18
<PAGE>
take any action which in any manner shall be injurious to the Company. Company
and Employee agree that a violation of the foregoing covenants will cause
irreparable injury to the Company, and that in the event of a breach or
threatened breach by Employee of the provisions of this Section, Company shall
be entitled to an injunction restraining Employee from:
(a) Disclosing, in whole or in part, any Confidential Information, or
from rendering any services to any person, firm, corporation, association or
other entity to whom any such information, in whole or in part, has been
disclosed or is threatened to be disclosed in violation of this Agreement.
(b) Continuing such injurious actions.
Nothing herein stated shall be construed as prohibiting the Company from
pursuing any other rights and remedies, at law or in equity, available to the
Company for such breach or threatened breach, including the recovery of damages
from the Employee.
10. RESTRICTIVE COVENANT.
--------------------
(a) For a period of six (6) months after the termination of this
Agreement by Employer without cause and for a period of one (1) year after the
termination of this Agreement by Employer or Employee for any other reason, or
expiration of this Agreement, Employee covenants and agrees that, within a
radius of ten (10) miles from each of the then present place(s) of Company's
business or any other area in which Company is engaged in business, he shall
19
<PAGE>
not own, manage, operate, control, be employed by, participate in, or be
connected in any manner with the ownership, management, operation, or control,
whether directly or indirectly, as an individual on his own account, or as a
partner, member, joint venturer, officer, director or shareholder of a
corporation or other entity, of any business similar to or competitive with the
type of business conducted by Company at the time of the termination or
expiration of this Agreement.
(b) For a period of six (6) months after the termination of this
Agreement by Employer without cause and for a period of one (1) year after the
termination of this Agreement by Employer or Employee for any other reason, or
expiration of this Agreement, Employee further covenants and agrees he shall not
interfere with, solicit or disrupt or attempt to interfere with, solicit or
disrupt the relationship, contractual or otherwise, between Company and any
customer, supplier, lessee or employee of Company, its parent or subsidiaries.
(c) Employee acknowledges that the restrictions contained in this
Paragraph 10 are reasonable. In that regard, it is the intention of the parties
to this Agreement that the provisions of this Paragraph 8 shall be enforced to
the fullest extent permissible under the law and public policy applied in each
Jurisdiction in which enforcement is sought. Accordingly, if any portion of this
Paragraph 10 shall be adjudicated or deemed to be
20
<PAGE>
invalid or unenforceable, the remaining portions shall remain in full force and
effect, and such invalid or unenforceable portion shall be limited to the
particular jurisdiction in which such adjudication is made.
11. BREACH OR THREATENED BREACH OF COVENANTS. In the event of Employee's
----------------------------------------
actual or threatened breach of his obligations under either Paragraph 9 or 10,
or both, of this Agreement, or Company's breach or threatened breach of it's
obligations under this Agreement, in addition to any other remedies either party
may have, such party shall be entitled to obtain a temporary restraining order
and a preliminary and/or permanent injunction restraining the other from
violating these provisions. Nothing in this Agreement shall be construed to
prohibit Company or Employee, as the case may be, from pursuing and obtaining
any other available remedies which Company or Employee, as the case may be, may
have for such breach or threatened breach, whether at law or in equity,
including the recovery of damages from the other.
12. REPRESENTATIONS AND WARRANTIES BY EMPLOYEE. Employee hereby warrants
------------------------------------------
and represents that he is not subject to or a party to any restrictive covenants
or other agreements that in any way preclude, restrict, restrain or limit him
(a) from being an Employee of Company, (b) from engaging in the business of
Company in any capacity, directly or indirectly, and from competing with any
other persons, companies, businesses or entities engaged in the
21
<PAGE>
business of Company.
13. ARBITRATION. Any controversy or claim arising out of or relating to
-----------
this Agreement, the performance thereof or its breach or threatened breach shall
be settled by arbitration in the State of New York, County of New York in
accordance with the then governing rules of the American Arbitration
Association. The finding of the arbitration panel or arbitrator shall be final
and binding upon the parties. Judgment upon any arbitration award rendered may
be entered and enforced in any court of competent jurisdiction. In no event may
the arbitration determination change Employee's compensation, title, duties or
responsibilities, the entity to whom Employee reports or the principal place
where Employee is to render his services.
14. NOTICES. Any notice required, permitted or desired to be given under
-------
this Agreement shall be sufficient if it is in writing and (a) personally
delivered to Employee or an authorized member of Company, (b) sent by overnight
delivery, or (c) sent by registered or certified mail, return receipt requested,
to Employer's or Employee's address as provided in this Agreement or to a
different address designated in writing by either party. Notice is deemed given
on the day it is delivered personally or by overnight delivery, or five (5)
business days after it is received, if transmitted by the United States Post
Office.
15. ASSIGNMENT. Employee acknowledges that his services are
----------
22
<PAGE>
unique and personal. Accordingly, Employee may not assign his(her) rights or
delegate his(her) duties or obligations under this Agreement. Company's rights
and obligations under this Agreement shall inure to the benefit of and shall be
binding upon the Company's successors and assigns. Company has the absolute
right to assign it's rights and benefits under the terms of this Agreement.
16. WAIVER OF BREACH. Any waiver of a breach of a provision of this
----------------
Agreement, or any delay or failure to exercise a right under a provision of this
Agreement, by either party, shall not operate or be construed as a waiver of
that or any other subsequent breach or right.
17. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
----------------
parties. It may not be changed orally but only by an agreement in writing which
is signed by the parties. The parties hereto agree that any existing employment
agreement between them shall terminate as of the date of this Agreement.
18. GOVERNING LAW. This Agreement shall be construed in accordance with and
-------------
governed by the internal laws of the State of New York.
19. SEVERABILITY. The invalidity or non-enforceability of any provision of
------------
this Agreement or application thereof shall not affect the remaining valid and
enforceable provisions of this Agreement or application thereof.
23
<PAGE>
20. CAPTIONS. Captions in this Agreement are inserted only as a matter of
--------
convenience and reference and shall not be used to interpret or construe any
provisions of this Agreement.
21. GRAMMATICAL USAGE. In construing or interpreting this Agreement,
-----------------
masculine usage shall be substituted for those feminine in form and vice versa,
and plural usage shall be substituted or singular and vice versa, in any place
in which the context so requires.
22. CAPACITY. Employee has read and is familiar with all of the terms and
--------
conditions of this Agreement and has the capacity to understand such terms
conditions hereof. By executing this Agreement, Employee agrees to be bound by
this Agreement and the terms and conditions hereof.
23. COUNTERPARTS. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same Agreement.
24. LEGAL FEES. Company agrees to reimburse Employee for any and all legal
----------
expenses incurred by Employee in connection with the negotiation and execution
of this Agreement.
24
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
as of the date first hereinabove written.
EVERGOOD PRODUCTS CORPORATION
By: /s/ Stepheph Stern
--------------------------
Employee:
/s/ Charlotte Rich
----------------------------------
Charlotte Rich
25
<PAGE>
EXHIBIT 10.4
DIRECTOR INDEMNIFICATION AGREEMENT
----------------------------------
THIS DIRECTOR INDEMNIFICATION AGREEMENT (the "Agreement") is made as of
this 1st day of January, 2000, and is by and between Evergood Products
Corporation, a corporation duly organized under the laws of the State of
Delaware with its principal offices located at 140 Lauman Lane, Hicksville, New
York 11801 (hereinafter referred to as the "Company") and ____________
(hereinafter referred to as the "Director").
RECITALS:
WHEREAS, Company is a corporation that was duly formed and is currently
subsisting under the laws of the State of Delaware;
WHEREAS, the Company appointed Director to serve on the Board
of Directors of the Company;
1
<PAGE>
WHEREAS, Director accepts the appointment and agrees to assume the
duties and responsibilities of a director of the Company as set forth in this
Agreement and in the Company's By-Laws; and
WHEREAS, the parties hereto are desirous of memorializing their
understanding and providing for their respective rights and responsibilities
relating to the indemnification of Director by Company,
NOW, THEREFORE, for good and valuable consideration each to the other
in hand paid, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto hereby agree as follows:
SECTION ONE
Services by Director
--------------------
1. Director hereby agrees to serve as a Director of the Company so long
as he is duly appointed or elected and qualified in accordance with the
applicable provisions of the Certificate of Incorporation and By-Laws of the
Company or any subsidiary of the Company and until such time as he resigns, is
terminated or fails to stand for election. Director may at any time and for
2
<PAGE>
any reason resign from his Directorship (subject to any other contractual
obligation or other obligation imposed upon him or the Company by operation of
law), and Company shall have no obligation under this Agreement or otherwise to
continue employ or associate with Director in any position with the Company or
as a Director of the Company except as may be set forth in some other written
agreement between the parties which is then in full force and effect, if any.
SECTION TWO
Indemnification
---------------
2. Company shall indemnify Director to the fullest extent permitted by
applicable law in effect on the date hereof as such law may from time to time be
amended (but, in the case of any such amendment, only to the extent such
amendment permits Company to provide broader indemnification rights and
protection than the law permitted Company to provide before such amendment).
Without in any way diminishing the scope of the indemnification provided by this
section, the Company will indemnify Director if and whenever such Director is or
was involved in any manner (including, without limitation, as a party or as a
witness) in any threatened, pending, or completed proceeding, including, without
limitation, any such proceeding
3
<PAGE>
brought by or in the right of Company, by reason of the fact that he is or was
an agent or by reason of anything done or not done by him in such capacity,
against expenses and liabilities actually incurred by Director or on his behalf
in connection with the investigation, defense, settlement, or appeal of any such
proceeding. No initial finding by the Board of Directors of the Company, its
counsel, independent counsel, arbitrators, or shareholders of the Company shall
be effective to deprive Director of the protection of this indemnity, nor shall
a court to which Director may apply for enforcement of this indemnity give any
weight to any such adverse finding in deciding any issue before it, as it is
intended Director shall be paid promptly by the Company all amounts necessary to
effectuate the foregoing indemnity in full.
SECTION THREE
Advancement of Expenses
-----------------------
3. All reasonable expenses incurred by or on behalf of Director shall
be advanced by the Company to Director within twenty (20) days after the receipt
by Company of a written request for an advance or advances of expenses from time
to time, whether prior to or after final disposition of a proceeding (unless
there has been a final determination that
4
<PAGE>
Director is not entitled to be indemnified for such expenses), including, but
not limited to, any proceeding brought by or in the right of the Company.
Director's entitlement to advancement of expenses shall include those incurred
in connection with any proceeding by Director seeking an adjudication or award
in arbitration pursuant to this Agreement. The requests shall reasonably
evidence the expenses incurred by Director in connection with any such
proceeding. If required by law at the time of any advance, Director hereby
undertakes to repay the amount advanced if it shall ultimately be determined
that Director is not entitled to be indemnified pursuant to the terms of this
Agreement.
SECTION FOUR
PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION
-------------------------------------------------------------
4.1 Whenever Director believes that he is entitled to
indemnification pursuant to this Agreement, Director shall submit a written
request (the "Request") for indemnification to Company to the attention of the
chairperson of the Board of Directors, with a copy to the secretary. The Request
shall include documentation or information that is necessary for the
determination of entitlement to indemnification (the "Determination") and that
is reasonably available to Director.
5
<PAGE>
The Determination shall be made not later than sixty (60) days after any
judgment, order, settlement, dismissal, arbitration award, conviction,
acceptance of a plea of nolo contendere or its equivalent, or other disposition
or partial disposition of any proceeding or any other event that could enable
Company to determine Director's entitlement to indemnification. The chairperson
of the Board of Directors, or the secretary shall, promptly on receipt of
Director's Request for indemnification, advise the Board of Directors in writing
that Director has made such Request for indemnification.
4.2 Company shall be entitled to select the forum (the "Forum") in
which Director's entitlement to indemnification will be heard unless a
triggering event (the "Triggering Event") has occurred, as defined in Section
20(g) herein, in which case Director shall be entitled to select the Forum.
Company or Director, as the case may be, shall notify the other party in writing
as to the Forum selected, which selection shall be from among the following:
(a) The stockholders of the Company;
(b) A quorum of the Board consisting of disinterested Directors;
(c) Independent counsel, which counsel shall make the
6
<PAGE>
Determination in a written opinion; or
(d) A panel of three (3) arbitrators, one of whom is selected by
the Company, another of whom is selected by Director, and the last of whom is
selected by the first two arbitrators so selected; or if for any reason three
(3) arbitrators are not selected within thirty (30) days after the appointment
of the first arbitrator, then the selection of additional arbitrators to
complete the three-person panel shall be made by the American Arbitration
Association tinder its commercial arbitration rules then in effect.
SECTION FIVE
PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS
----------------------------------------------
5. On making a Request for indemnification, Director shall be presumed
to be entitled to indemnification under this Agreement and Company shall have
the burden of proof to show that such indemnification is expressly prohibited by
applicable law in order to overcome that presumption in reaching any contrary
Determination. If the Forum so empowered to make the Determination shall have
failed to make the requested
7
<PAGE>
Determination within sixty (60) days after any judgment, order, settlement,
arbitration award, conviction, acceptance of a plea of nolo contendere or its
equivalent, or other disposition or partial disposition of any proceeding or any
other event that could enable the Company to determine Director's entitlement to
indemnification, the requisite Determination of entitlement to indemnification
shall be deemed to have been made and Director shall be absolutely entitled to
indemnification under this agreement, absent (a) misrepresentation or omission
by Director of a material fact in the request for indemnification or (b) a
specific finding that all or any part of such indemnification is expressly
prohibited by law. The termination of any proceeding by judgment, order,
settlement, arbitration award, or conviction, or on a plea of nolo contendere or
its equivalent, shall not of itself (a) adversely affect the rights of Director
to indemnification except as may be provided in this Agreement, (b) create a
presumption that Director did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Company, or (c) with respect to any criminal action or proceeding, create a
presumption that Director had reasonable cause to believe that his conduct was
unlawful.
8
<PAGE>
SECTION SIX
REMEDIES OF DIRECTOR IN CASES OF DETERMINATION
NOT TO INDEMNIFY OR TO ADVANCE EXPENSES
---------------------------------------
6.1 In the event that (a) an initial Determination is made that
Director is not entitled to indemnification, (b) advances are not made pursuant
to this Agreement, (c) payment has not been timely made following a
Determination of entitlement to indemnification pursuant to this Agreement, or
(d) Director otherwise seeks enforcement of this Agreement, Director shall be
entitled to a final adjudication in an appropriate court of the State of his
entitlement to such indemnification or advance. Alternatively, Director, at his
option, may seek an award in arbitration to be conducted by a single arbitrator
pursuant to the commercial arbitration rules of the American Arbitration
Association then in effect, which award is to be made within ninety (90) days
following the filing of the demand for arbitration (the "Demand"). The Company
shall not oppose Director's right to seek any such adjudication or arbitration
award. In any such proceeding or arbitration Director shall be presumed to be
entitled to indemnification under this Agreement and Company shall have the
burden of proof to overcome that presumption.
6.2 In the event an initial Determination has been made,
9
<PAGE>
in whole or in part, that Director is not entitled to indemnification, the
decision in the judicial proceeding or arbitration provided in Section 6.1 shall
be made de novo and Director shall not be prejudiced by reason of a
Determination that he is not entitled to indemnification.
6.3 If an initial Determination is made or deemed to have been made
pursuant to the terms of this Agreement that indemnification of Director is not
expressly prohibited by applicable law, Director shall be entitled to
indemnification and the Company shall be bound by such Determination in the
absence of (a) a misrepresentation or omission of a material fact by Director or
(b) a specific finding (which has become final) that all or any part of such
indemnification is expressly prohibited by law.
6.4 The Company shall be precluded from asserting that the procedures
and presumptions of this Agreement are not valid, binding, and enforceable. The
Company shall stipulate in any such court or before any such arbitrator that the
Company is bound by
10
<PAGE>
all the provisions of this Agreement and is precluded from making any assertion
to the contrary.
6.5 Expenses incurred by Director in connection with his Request for
indemnification under, seeking enforcement of, or to recover damages for breach
of, this Agreement shall be borne by the Company.
SECTION SEVEN
OTHER RIGHTS TO INDEMNIFICATION
-------------------------------
7. Director's rights of indemnification and advancement of expenses
provided by this Agreement shall not be deemed exclusive of any other rights to
which Director may now or in the future be entitled under applicable law, the
Company's Certificate of Incorporation or by-laws, agreement, vote of the
stockholders of the Company, resolution of Company's Directors, or otherwise.
SECTION EIGHT
LIMITATIONS ON INDEMNITY
------------------------
8. Company shall not be liable under this Agreement to
11
<PAGE>
make any payment to Director to the extent that Director has already been
reimbursed pursuant to such Directors' and Officers' insurance (hereinafter "D &
0 Insurance") as Company may maintain for Director's benefit. Notwithstanding
the availability of such D & O Insurance, Director may also claim
indemnification from the Company pursuant to this Agreement by assigning to the
Company any claims under such insurance to the extent Director is paid by
Company.
SECTION NINE
DURATION AND SCOPE OF AGREEMENT; BINDING EFFECT
-----------------------------------------------
9. This Agreement shall continue so long as Director shall be subject
to any possible proceeding by reason of the fact that Director is or was an
agent of the Company and shall be applicable to proceedings commenced or
continued after execution of this Agreement, whether arising from acts or
omissions occurring before or after such execution. This Agreement shall be
binding on the Company and its successors and assigns and shall inure to the
benefit of Director and Director's spouse, assigns, heirs, devisees, executors,
administrators, and other legal representatives.
12
<PAGE>
SECTION TEN
INTERPRETATION OF AGREEMENT
---------------------------
10. It is understood and agreed that the parties hereto intend this
agreement to be interpreted and enforced so as to provide indemnification to
Director to the fullest extent now or hereafter permitted by law.
SECTION ELEVEN
HEADINGS
--------
11. The headings of sections and subsections of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
agreement or to affect the construction thereof.
SECTION TWELVE
Severability
------------
12. If any provisions of this Agreement (or any portion thereof) shall
be held to be invalid, illegal, or unenforceable for any reason whatever: (a)
the validity, legality, and enforceability of the remaining provisions of this
Agreement shall not in any way be affected or impaired thereby; and (b) to the
fullest extent possible, the provisions of this Agreement shall be construed so
as to give effect to the intent manifested
13
<PAGE>
by the provision held invalid, illegal, or unenforceable.
SECTION THIRTEEN
Identical Counterparts
----------------------
13. This Agreement may be executed in one or more counterparts, each of
which shall for all purposes be deemed to be an original, but all of which shall
constituted one and the same agreement. Only one such counterpart signed by the
party against whom enforceability is sought shall be required to be produced to
evidence the existence of this Agreement.
SECTION FOURTEEN
Entire Agreement
----------------
14. This Agreement sets forth the entire understanding of the parties
relating to the subject matter herein, and supercedes all prior agreements,
arrangements and understandings, written, or oral, relating to the subject
matter herein. No representation, promise, or inducement has been made by either
party that is not embodied in this Agreement, and neither party shall be bound
or liable for any alleged representation, promise or inducement not set forth.
SECTION FIFTEEN
14
<PAGE>
Modification and Waiver
-----------------------
15. No supplement, modification, or amendment to this Agreement shall
be binding unless executed in writing by both of the parties to this Agreement.
No waiver of any provisions of this Agreement shall be deemed to constitute a
waiver of any other provisions hereof (whether or not similar) nor shall such
waiver constitute a continuing waiver.
SECTION SIXTEEN
Notice by Director And Defense Of Claims
----------------------------------------
16.1 Director agrees promptly to notify Company in writing on being
served with any summons, citation, subpoena, complaint, indictment, information,
or other document relating to any matter that may be subject to indemnification
hereunder, whether civil, criminal, administrative, or investigative; but the
omission so to notify Company will not relieve Company from any liability that
it may have to Director if such omission does not prejudice Company's rights and
if such omission does prejudice Company's rights, it will relieve Company from
liability only to the extent of such prejudice; nor will such omission relieve
Company from any liability that it may have to Director otherwise than under
this Agreement.
15
<PAGE>
16.2 With respect to any proceeding as to which Director notifies
Company of the commencement thereof:
(a) Company will be entitled to participate therein at its own
expense; and
(b) Except as otherwise provided below, to the extent that it may
wish, Company jointly with any other indemnifying party similarly notified will
be entitled to assume the defense thereof, with counsel reasonably satisfactory
to Director after notice front Company to Director of its election so to assume
the defense thereof, Company will not be liable to Director under this Agreement
for any expenses subsequently incurred by Director in connection with the
defense thereof other than reasonable costs of investigation or as otherwise
provided below. Director shall have the right to employ his own counsel in such
proceeding, but the fees and expenses of such counsel shall be at the expense of
Director unless (1) the employment of counsel by Director has been authorized by
Company, (2) Director shall have reasonably concluded that there may be a
conflict of interest between the Company and Director in the conduct of the
defense of such action or that counsel may not be adequately representing
Director, (3) a Triggering Event shall have occurred, or (4) Company shall not
in fact have employed counsel to assume the defense of such action, in each case
of which the
16
<PAGE>
fees and expenses of counsel employed by Director shall be at the expense of
Company. Company shall not be entitled to assume the defense of any proceeding
as to which Director shall have made the conclusion provided in (2) above or if
an event in (3) above shall have occurred.
(c) Company shall not be liable to indemnify Director under this
Agreement for any amounts paid in settlement of any action or claim effected
without its written consent. Company shall not settle any action or claim in any
manner that would impose any penalty or limitation on Director without
Director's written consent. Neither Company nor Director will unreasonably
withhold their consent to any proposed settlement.
SECTION SEVENTEEN
Notices
-------
17. All notices, requests, demands, and other communications hereunder
shall be in writing and shall be deemed to have been duly given if (a) delivered
by hand and receipted for by the party to whom such notice or other
communication shall have been directed, or (b) mailed by certified or registered
mail with postage prepaid, on the third business day after the date on which it
is mailed:
If to Director to the address first set forth above.
17
<PAGE>
If to Company to the address first set forth above with a copy
of such communication mailed by like means to Hoffinger, Friedland,
Dobrish & Stern, P.C., 110 East 59th Street, 33rd Floor, New York,
New York 10022.
Either party may furnish the other with written notice of a change of
address in the same manner as providing notice as specified above, in which case
notices must be sent to such new address.
SECTION EIGHTEEN
Governing Law
-------------
18. This Agreement shall be governed by, and construed and enforced in
accordance with the laws of the State of New York applicable to agreements made
and to be performed entirely in New York. The legal tribunals of the State of
New York shall be the sole forum for resolving any claim, action or demand
arising out of or pertaining to this Agreement.
18
<PAGE>
SECTION NINETEEN
Consent to Jurisdiction
-----------------------
19. Company and Director each irrevocably consent to the jurisdiction
of the Supreme Court of the State of New York in the County of Nassau for all
purposes in connection with any action or proceeding that arises out of or
relates to this Agreement and agree that any action instituted under this
Agreement shall be brought only in the state courts of the State of New York.
SECTION TWENTY
Definitions
-----------
1. For purposes of this Agreement:
(a) "Agent" shall mean any person who (1) is or was a
Director, officer, or employee of the Company or a subsidiary of the Company
whether serving in such capacity or as a Director, officer, employee, agent,
fiduciary, or other official of another entity at the request, for the
convenience, or to represent the interests of the Company or a subsidiary of the
Company or (2) was a Director, officer, or employee of a corporation that was a
predecessor corporation of the Company or a subsidiary of the Company whether
serving in such capacity or as a Director, officer, employee, agent, fiduciary,
or other
19
<PAGE>
official of another entity at the request, for the convenience, or to represent
the interests of such predecessor corporation.
(b) "Disinterested Director" shall mean a Director of the Company
who is not or was not a party to the proceeding in respect of which
indemnification is being sought by Director.
(c) "Expenses" shall include all direct and indirect costs
(including, without limitation, attorney fees, retainers, court costs,
transcripts, fees of experts, witness fees, travel expenses, duplicating costs,
printing and binding costs, telephone charges, postage, delivery service fees,
all other disbursements or out-of-pocket expenses and reasonable compensation
for time spent by Director for which Director is otherwise not compensated by
the Company or any third party) actually and reasonably incurred in connection
with either the investigation, defense, settlement, or appeal of a proceeding or
establishing or enforcing a right to indemnification under this Agreement,
applicable law, or otherwise; provided, however, that "expenses" shall not
include any judgments, fines, or ERISA excise taxes or penalties.
(d) For purposes of this Agreement any reference to the masculine
shall mean the feminine when the context requires.
20
<PAGE>
(e) "Independent counsel" shall mean a law firm that, or a member
of a law firm or a sole practitioner who neither is currently nor in the past
five (5) years has been retained to represent: (1) the Company or Director in
any matter material to either party, or (2) any other party to the proceeding
giving rise to a claim for indemnification hereunder. Notwithstanding the
foregoing, the term "independent counsel" shall not include any person who,
under the applicable standards of professional conduct then prevailing, would
have a conflict of interest in representing either the Company or Director in an
action to determine Director's right to indemnification under this Agreement.
(e) "Liabilities" shall mean liabilities of any type whatsoever,
including, but not limited to, judgments, fines, ERISA excise taxes and
penalties, and amounts paid in settlement.
(f) "Proceeding" shall mean any action, suit, arbitration,
alternate dispute resolution mechanism, investigation, administrative hearing,
or any other proceeding whether civil, criminal, administrative, or
investigative.
21
<PAGE>
(g) "Triggering event" shall mean the acquisition by any person
(other than the Company) of thirty percent (30%) or more of the outstanding
shares of common stock of the Company unless a majority of the entire Board
shall have earlier approved such acquisition.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first above written.
Evergood Products Corporation
By:
----------------------------
Its Authorized Officer
----------------------------
[Name of Director]
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<PAGE>
Exhibit 10.5
CONTRACT TO
GREAT EARTH DISTRIBUTION, INC.
PREPARED BY
LIVINGSTON PHARMACEUTICAL DISTRIBUTION, INC.
October 13, 1992
<PAGE>
AGREEMENT
Agreement made this 4th day of November, 1992, between Livingston
Pharmaceutical Distribution, Inc., a Delaware Corporation, having its principal
place of business at 11698 San Marino, Rancho Cucamonga, California, 91730,
hereinafter referred to as "LPDI," and GREAT EARTH DISTRIBUTION, INC., a
California corporation, having its principal place of business at 140 Lauman
Lane, Hicksville, New York, 11801, hereinafter referred to as "GEDI."
WITNESSETH
WHEREAS, LPDI is in the business of warehousing and shipping of
pharmaceutical products; and
WHEREAS, GEDI wishes to utilize the services of a third party warehouse for
certain of its warehousing requirements; and
WHEREAS, LPDI is willing to provide leased facilities adequate for the
needs of GEDI; and
WHEREAS, GEDI wishes to avail itself of LPDI's warehousing services and
wishes to utilize LPDI's leased facilities.
NOW, THEREFORE, in consideration of the premises and covenants hereinafter
contained, it is agreed as follows:
ARTICLE I. DEFINITIONS
1. "Territory" will include those states in Exhibit "A" which is attached
hereto and made a part hereof.
2. "Products" will mean, individually and collectively, products to be
marketed by GEDI.
3. "Leased Premises" will mean the warehouse facilities operated by LPDI
at 11698 San Marino, Rancho Cucamonga, California, 91730.
ARTICLE II. OBLIGATIONS OF LPDI
1. LPDI will receive and warehouse GEDI products in Leased Premises.
1.1 LPDI will maintain written documentation attesting to the proper
storage of GEDI Products.
2
<PAGE>
1.2 LPDI will provide adequate security and handling to avoid loss or
damage to GEDI Product while in the possession of LPDI.
1.3 LPDI will assure that it complies with all requirements of local,
state and federal government, and agencies having jurisdiction
over GEDI Products and their storage in LPDI's facility including
Good Manufacturing Practices requirements promulgated under the
federal Food Drug and Cosmetic Act; the Drug Enforcement Agency;
the Environmental Protection Agency the Occupational Safety and
Health Administration; and the Department of Transportation.
2. In response to orders received from or on behalf of GEDI, LPDI will
pick, pack and ship as specified below:
2.1 For each order received LPDI will pick, pack, and ship the order
within 24 to 48 hours.
2.2 LPDI will pick the quantity and type of GEDI Products ordered
utilizing stock rotation based on expiration dating (shortest
dated Products shipped first).
2.3 LPDI will package and ship GEDI Products in compliance with all
regulations of the Department of Transportation, Food and Drug
Administration, and any other applicable agencies.
2.4 Upon request, LPDI will include in each package a flyer or other
promotional material supplied by GEDI.
2.5 For each shipment, LPDI will prepare a multi-part shipping
invoice, one part of which will be a packing list enclosed with
the package, and two parts of which will be an invoice mailed in
a separate envelope to the customer's "bill to" address, two
copies will be sent to GEDI.
2.6 At the end of each work day, LPDI will prepare and forward to
GEDI reports summarizing orders received and shipments completed
during the day either via fax or electronically.
2.7 Non Great Earth bulk orders to be cross docked will be
periodically received and shipped or held for customer pick-up.
2.8 Invoices will be sent via Federal Express two times per week on
Mondays and Thursdays until this can be done electronically.
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2.9 Backorder shipments will be shipped with the next regular
customer order.
3. LPDI will maintain accurate current inventory records, provide GEDI
daily and monthly activity reports, and perform for the benefit of GEDI all
other duties commonly performed by a pharmaceutical industry warehouse.
3.1 LPDI will provide one physical inventory per year at no expense
to GEDI.
3.2 LPDI will provide a dedicated customer service clerk.
3.3 LPDI will provide warehouse and management personnel required to
service GEDI's distribution fulfillment needs.
4. Upon 24 hours advance notice, LPDI will allow GEDI personnel or its
lenders to perform physical inventory audits of GEDI Products in LPDI's
possession at any time during normal working hours.
5. LPDI will initiate the services specified above within 90 days from
signing of a formal contract.
6. LPDI will communicate with GEDI immediately upon knowledge that any
goods are in a form unacceptable for shipping out to customers.
7. Returned goods will be shipped to LPDI.
8. LPDI will, with the landlords approval and at GEDI's expense, provide
a sign reading "Great Earth Distribution".
9. LPDI shall visually inspect each inbound shipment of the Products and
make a quality control evaluation of each shipment. In the event that any
shipment, in whole or part, is defective or shall have been packaged or shipped
under conditions which do not comply with then applicable FDA requirements which
is evident from visual inspection, LPDI shall give prompt notice thereof to
GEDI, specifying the manner in which such shipment is defective. LPDI shall not
dispose of any nonconforming shipment of the Products without prior written
authorization and instructions from GEDI.
10. Inspection by government agencies: LPDI shall promptly notify GEDI of
any inspection by a federal, state, or local regulatory representative
concerning the Products and shall provide GEDI a summary of the results of such
inspections and of the actions, if any, taken to remedy conditions cited in such
inspections.
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ARTICLE III. OBLIGATIONS OF GEDI
1. GEDI will:
1.1 deliver quantities of Products to LPDI at the Leased Premises
during normal working hours;
1.2 endeavor to maintain a satisfactory supply of its Products with
LPDI at all times to meet the demands of GEDI's customers:
1.3 deliver Products for storage properly marked and packaged
including a manifest showing sizes or specific stock keeping
units;
1.4 be responsible for the procurement, marketing and sale of the
Products;
1.5 be fully and solely responsible for ensuring that the Products
comply with all federal, state, local and other laws and
regulations including, without limitation, those with respect to
safety, labeling and advertising;
1.6 be responsible to its customers for all warranties express or
implied with respect to the Products;
1.7 collect any and all amounts due on invoices for Products in
respect of which LPDI provides services hereunder; and
1.8 pay the fees and expenses enumerated in Exhibit I and perform all
of its other obligations under this Agreement.
2. Title to and ownership of the Products of GEDI in possession of LPDI
will always be vested in GEDI and subject to its discretion and control. Title
and ownership will pass directly to the purchaser of the Products and all
proceeds derived or credits arising therefrom will be the sole property of GEDI.
3. During the term of this Agreement, warehouse services to be performed
in the Territory will be performed solely by LPDI.
4. GEDI recognizes the rights of LPDI as a public warehouse.
ARTICLE IV. INSURANCE AND INDEMNIFICATION
1. GEDI will maintain in effect during the term of this Agreement,
adequate Products liability insurance on the Products and insuring GEDI's
contractual liability to indemnify LPDI hereunder, designating LPDI as an
additional named insured.
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2. GEDI will indemnify, defend, and hold harmless LPDI, its affiliates,
directors, officers, agents and employees from any and all claims, demands,
actions, causes of action, losses, judgements, damages, costs or expenses
(including, but not limited to, attorney's fees, court costs and costs of
settlement) whatsoever in connection with the Products, unless it resulted from
the negligence, willful misconduct or fraud by LPDI.
3. GEDI will maintain comprehensive insurance sufficient to cover the
replacement value of Products in the possession of LPDI.
4. LPDI will maintain the following insurance coverage:
4.1 Workmen's Compensation in an amount sufficient to comply with the
statutory requirements of the State of California.
4.2 Warehouse and legal liability in the aggregate amount of
$15,000,000. GEDI acknowledges that this insurance covers the
total contents of the Leased Premises including the Products and
the Products of persons other than GEDI to whom LPDI is also
providing warehouse services.
4.3 LPDI shall maintain, at its sole expense, and at all times during
the term of this agreement, a comprehensive general liability
policy for bodily injury or property damaged for any one
occurrence or series of occurrences arising out of one cause.
The policy shall also cover liabilities specifically assumed
under this Agreement.
5. LPDI will indemnify, defend, and hold harmless GEDI, and the
affiliates, directors, officers, agents and employees of either from any and all
claims, demands, actions, causes of action, losses, judgments, damages, costs or
expenses (including, but not limited to, attorney's fees, court costs and costs
of settlement) whatsoever in connection with the misconduct or fraud by LPDI.
6. LPDI will be liable for loss of or injury to all Products while under
its care, custody, and control when caused by its failure to exercise such care
in regard to them as a reasonably careful man would exercise under like
circumstances. LPDI will not be liable for damages which could not have been
avoided by the exercise of such care provided. It is agreed liability will be
limited to the manufactured cost of goods of GEDI.
7. In the event of any loss or damage to any of the Products, except as
otherwise provided in Article IV, paragraph 6, both parties will look solely to
the proceeds of any applicable insurance obtained by GEDI and LPDI unless such
loss or damage is caused by the willful misconduct of one of the parties.
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ARTICLE V. INVENTORY TAXES
1. GEDI will bear the expense of any inventory taxes that might be
assessed on its Products from time to time.
ARTICLE VI. RIGHT TO INSPECTION
1. GEDI may, upon reasonable prior written notice to LPDI and under the
supervision of LPDI, inspect the Leased Premises during normal working hours at
any time during the term of this Agreement provided that the inspection does not
disrupt normal warehouse operations.
ARTICLE VII. AMENDMENT AND ASSIGNMENT
1. This Agreement is the entire understanding of the parties and it
hereby supersedes any and all previous understandings, whether written or oral,
with respect to the subject matter hereof. The terms, conditions and provisions
of this Agreement will prevail over any inconsistent statements, terms,
conditions or provisions contained in any documents passing between the parties
hereto including, but not limited to, any acknowledgment, confirmation or
notice. This Agreement may not be amended, supplemented, or otherwise modified
except by an instrument in writing executed by the parties hereto.
2. This Agreement will inure to the benefit-of the parties and to the
successors and assigns of that part of the business of each of the parties to
which the subject matter of this Agreement is related. This Agreement, or any
rights thereunder, will not be otherwise sold, assigned, transferred or
encumbered by either party hereto without first obtaining the written consent of
the other party. Such consent will not be unreasonably withheld for any reason.
ARTICLE VIII. FORCE MAJEURE
1. Each party to this Agreement will be excused from the performance of
its obligations hereunder to the extent that such performance is prevented by
Force Majeure, and such excuse will continue for so long as the condition
constituting the Force Majeure continues. For the purposes of this Agreement,
"Force Majeure" means conditions beyond the control of a party, including but
not limited to, acts of war, regulations of government bodies, labor
difficulties, shortages of materials, riot, fire, flood, hurricane, windstorm,
and other acts defined as Force Majeure in the laws of the State of California.
However, if the Leased Premises at any time are subject to a condition
constituting Force Majeure such that LPDI is unable to fulfill its obligations
under this Agreement, LPDI will give immediate written notice thereof to GEDI
and will use its best efforts to promptly obtain and use other warehousing
facilities reasonably acceptable to GEDI. In the event that LPDI fails to find
warehouse facilities within 60 days from the date of receipt by
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GEDI of the notice, GEDI may, at its sole option, terminate this Agreement by
giving written notice of such cancellation or termination to LPDI.
ARTICLE IX. RECORDS AND ACCOUNTING
1. LPDI will keep full and true books of accounts and other records of
all inventory and shipments of Products under this Agreement so that the
correctness of the amount of, the payment previously made, or that due and owing
LPDI from GEDI can be properly ascertained. GEDI will, entirely at its own cost,
have the right to have said books and records examined by a Certified Public
Accountant or any authorized agent of GEDI, at any reasonable time during
business hours of LPDI after giving LPDI seven days written notice of its desire
to do so. Such examinations will not occur more than twice annually, and will be
only to such extent necessary to verify the payments previously made, or to be
made, by GEDI to LPDI, and only in respect to any period ending not more than
two years prior to the date of such requests. In addition, LPDI will cooperate
fully with respect to any internal control, evaluation or any other procedures
deemed necessary by GEDI's auditors.
ARTICLE X. TERMINATION
1. If either LPDI or GEDI should fail to discharge fully and promptly any
of its obligations under this Agreement, including the obligation to make
payments, and further fail to rectify such failure within a reasonable time not
to exceed 30 days (provided that such a failure can be cured) after written
notice thereof by the other party, the other party will have the right to
immediately terminate this Agreement upon giving the other written notice to
such effect.
Each party hereto will have the right to terminate this Agreement in
the event of any proceeding under a Bankruptcy Act or any insolvency,
receivership or dissolution proceeding involving the other party.
2. Upon notification of termination or expiration of this Agreement, LPDI
will promptly return to GEDI at GEDI's sole expense, all Products then in its
possession or control, and all customer and sales representatives lists provided
hereunder by GEDI to LPDI, and any information provided in order that LPDI may
obtain any government licenses and permits. LPDI will be compensated at the rate
of $18.00 per labor hour for handling and when a forklift is necessary, an
additional $6.50 per usage hour and $2.00 per square foot storage per month from
the last effective day of the contract.
ARTICLE XI. TERM OF AGREEMENT
1. This Agreement will commence as of the first day of December 1992, and
will extend for the period of Five years thereafter, to and including the 30th
day of November, 1997, and from year to year thereafter unless notice of
termination is given in writing by one party to the other not less than sixty
(60) days prior to date of termination of this Agreement. Failure to
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give such notice automatically renews this Agreement for another contract year,
with the exception that this Agreement may be amended by mutual consent of both
parties without such notice at any time.
2. The obligation of GEDI to pay fees and expenses earned or incurred by
LPDI prior to the effective date of termination and the obligations of GEDI
under paragraph 1 of Article III will survive the termination or expiration of
this Agreement.
ARTICLE XII. GENERAL
1. This Agreement will be interpreted in accordance with the laws of the
State of Delaware. The parties understand and agree that the provisions of
Article 7 of the Uniform Commercial Code as enacted by the State law governing
this Warehousing Agreement will apply to his Warehousing Agreement.
2. Save and except for any provision or covenant contained herein which
is fundamental to the subject matter of this Agreement (including without
limitation those that relate to the payment of monies), the invalidity or
unenforceability of any provision or covenant hereof or herein contained will
not affect the validity or enforceability of any other provision or covenant
hereof or herein contained and any such invalid or unenforceable provision or
covenant will be deemed to be severable.
3. Any notice or other communication required or permitted to be given
hereunder shall be in writing addressed to the parties at their respective
addresses set out above and, if mailed by prepaid first-class mail at any time
other than during a general discontinuance of postal service due to strike,
lockout or otherwise, shall be deemed to have been received two business days
after the post-marked date thereof, or if telexed, shall be deemed to have been
received on the next business day following dispatch and acknowledgment or
receipt by the recipient's telex machine, or if telecopied, shall be deemed to
have been received on the next business day following dispatch or if delivered
by hand shall be deemed to have been received at the time it is delivered.
Notice of change of address shall also be governed by this paragraph 3.
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IN WITNESS WHEREOF, the parties have executed this Agreement.
GREAT EARTH DISTRIBUTION, INC.
By: /s/ Sidney Rich 1/29/92
------------------------------- -------------------
Date
LIVINGSTON PHARMACEUTICAL DISTRIBUTION. INC.
By: /s/ M K Barnes Nov. 4, 92
------------------------------- -------------------
Mark K. Barnes Date
President
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EXHIBIT A
TERRITORY
---------
Territory shall include the 50 United States and territories and possessions of
the United States.
<PAGE>
EXHIBIT I
LIVINGSTON/ GREAT EARTH DISTRIBUTION, INC.
FEE SCHEDULE/COMMERCIAL TERMS
Great Earth Distribution, Inc. will pay monthly a distribution service charge
of:
Rate
----
. Year 1 - $400,000 billed at $33333.34 per month or 4% of invoice sales
whichever is greater. Years 2 to 5 - will be billed at 5% of invoice sales.
. Computer System Consulting - At a rate of $75 per hour door to door.
Reasonable travel expenses will be covered with prior approval of GEDI.
. Return Goods Processing - $18.50 per labor hour.
. Transportation - Reimburse transportation, transportation insurance (if
applicable) and detention charges (if applicable).
. Reasonable Expenses - Reimburse for packaging supplies, postage, telephone
calls and direct equipment rentals for GEDI and MIS communication lines.
Direct equipment rentals are not to exceed $150 per month.
. Accessorial Labor - Any services performed by LPDI which are mutually
agreed to by GEDI and which are not part of the normal services provided in
this proposal are at the rate of $18.50 per labor hour and when a forklift
is necessary, an additional $7.00 per usage hour. Approval must be in
writing.
. Overtime - All overtime charges authorized by GEDI at the rate of time and
a half on weekdays and Saturdays, double time on Sundays, and triple time
on holidays.
. Commercial Terms - Invoices to be paid within 30 days from date of invoice.
. A one time start-up fee of $10,000 to cover initial analysis of GEDI needs
and training of franchises (standard startup charge is normally $25,000).
Travel to and from training site and lodging, if needed, is the
responsibility of the franchise.
. GEDI will pay all charges directly related to movement of product to the
LPDI facility.
/s/ M K Barnes 4 Nov 92 /s/ Sidney Rich Pres 10/27/92
- -------------------------------------- ----------------------------------
Mark K. Barnes, President Date Name, Title Date
<PAGE>
EXHIBIT II
LIVINGSTON /GREAT EARTH DISTRIBUTION, INC.
LPDI will provide the following equipment to GEDI for order entry:
A. One MSI unit for each store ordering location.
B. LPDI agrees to hold 16 MSI units in reserve to serve as replacements for
units requiring maintenance.
C. Hardware and software necessary to allow the MSI units to communicate with
LPDIs order entry system.
D. MSI units for new franchises will be procured by LPDI and paid for by GEDI.
E. All shelf labels and bar coded catalogs required after initial training
will be purchased through LPDI.
<PAGE>
MEMORANDUM
To: Stephen Stern
CC: Peter Westermann, Tom Hill
From: Steven A. Dailey
Date: 04/06/99
Re: Great Earth Contract Pricing
________________________________________________________________________________
Stephen
As committed, I have reviewed the current contract between Livingston Healthcare
Services, Inc. and Great Earth Distribution Inc. This contract currently is
active until 12/31/99. Based on the current contract end date and the
opportunity of the Procure Web Based Ordering Application, LHSI has reexamined
the contract configuration and would like to propose the following set of
contract terms to enable our continued our long term relationship and have the
ability to introduce Procure as the new order management vehicle for "The Great
Earth Distribution."
Contract Terms:
01. Extend the existing contract from 12/31/99 for an additional 3 years ending
12/31/02
02. LHSI to reduce the current Distribution Rate Structure by 30 Basis Points
New Percent of Sale Structure "Distribution Fee's":
Minimum Monthly fee $15,000.
Monthly Sales Distribution Rate
$ 899,000 5.70%
$ 900,000 - $ 999,999 5.45%
$1,000,000 - $1,099,000 5.20%
$1,100,000 - $1,199,000 4.95%
$1,200,000 - $1,299,999 4.70%
$1,300,000 - $1,399,999 4.45%
$1,400,000 - $1,499,999 4.20%
$1,500.000 - $1,599.999 3.95%
$1,600.000 - $1,699,999 3.70%
$1,700,000 - $1,799,999 3.50%
$1,800,000 3.30%
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To truly relate the current pricing between LHSI and Great Earth Distribution
for a percent of sale perspective, I've compiled the following data to truly
note the impact of Procure to the overall current and revised contacts.
Today, Great Earth Distribution are charged the following:
Distribution Percentage of Sales 5% (Based on your current Sales Volume)
Labor (Overtime)
Supplies
Communications
Transportation
Based on the current run rate for the last 6 months, Great Earth Distribution
are operating at an average of 6% gross distribution per month. The CCS
Environment currently is a part of the Supplies and all of the communication
expense.
Based on Great Earth Distribution request not to increase their operating costs
associated to distribution, Livingston examined the Procure costing models
presented at our March 9, 1999 meeting. To have zero impact to the overall
distribution expense to Great Earth Distribution, Pete Westermann (President)
and I created the following costing model (Page one) based on the new 3 year
operating percentage rates. The model shows zero impact if today, we were
migrated 100% from CCS to Procure. Knowing that LHSI and Great Earth
Distribution could not migrate 100% day one, we developed a third costing model
(Mix) to reflect a migration from CCS to Procure. The increase of 11 (Basis
Points) or $1,374 (monthly expense) overall would be the assumed if (30%) of the
remaining stores have not move over to Procure within the first year. This would
be the responsibility of Great Earth Distribution, Management to work with the
CCS stores and either accept that they stay on CCS with the associated costs or
force them to migrate.
Procure Standard Service Level Agreement for Great Earth: LHSI must maintain
the following:
01. 7X24 Availability, with selected scheduled maintenance down time
02. Average Response Time to between 2 and 5 seconds per screen
03. QTR Reporting on activity (# of Hits)
If LHSI fails to deliver consistence access over a 90 day period and/or
consistence response time over a 90 day period and LHSI is unable to resolve the
issue within a reasonable time frame, Great Earth Distribution may terminate the
3 year contract on a 90 day notice.
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Great Earth Current/All Procure/Migration Model's
GREAT EARTH
Today All Procure Mix
Sales $1,244,872 $1,244,872 $1,244,872
% today $ 0 $ 0 $ 0
fees today $ 62,244 $ 58,509 $ 58,509
communications $ 6,269 $ 4,200
supplies $ 4,988 $ 4,988 $ 4,988
misc $ 1,150 $ 1,150 $ 1,150
total $ 12,407 $ 6,138 $ 10,338
% to sale 1.00% 0.49% 0.83%
Procure Proposed
Standard fee $ 4,500 $ 4,500
Transaction fee $ 3,687 $ 1,250
Order fee $ 0 $ 8,775 $ 5,949
Total all fees $ 74,651 $ 73,422 $ 74,796
Standard fee $ 4,500 $ 4,500
Misc fees $ 12,407
% to sales 6.00% 5.9% 6.01%
Net cost 5.00% 4.70% 4.70%
Activities $ 12,407 $ 14,913 $ 16,287
Net cost 5.00% 4.70% 4.70%
Not factored into this model would be additional savings in the following areas:
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01. Dial America - Now automate using Procure and remove the three person
manual review process.
02. Year 2000 - Vehicle to the Stores to move to PC's and Automation.
03. Remove the manual mail order system and automate either direct to customer
or enable Great Earth Management the ability to key direct orders into
system. Also removes all Y2K. issues and future maintenance.
04. Identify low performing Stores and allow consolidation, direct to consumer
(National Great Earth Mail order Store concept) or allow Great Earth sales
persons to assist stores and from their business.
05. Provides direct to consumer for new or existing product lines.
06. Improved Inventory Utilization and Inventory Scheduling.
07. Interface to the existing Point of Sale System - Pricing not determined
08. Allows Reach worldwide at no new communication costing (800 services).
09. Complete accounting for requested, shipped and received. Reduces the errors
or credits requested.
10. Reduce the CCS PDK. handheld replacement fees (each unit to replace today
costs approx. $1,500) or increase maintenance (1998 - $6,300 and 1999 -
$8,505).
11. For each store that either has or acquires a PC, Great Earth Distribution
can then implement their POS system for tracing sales and provide inventory
control.
PROCURE Break down:
LHSI would implement Procure Web Based Order Management Solution for replacement
of the current CCS batch order management environment.
Pricing Assumptions
The following is our understanding of the pricing components used to prepare
this proposal:
. Contractual term is 3 years
. Bank Card Processing
. ProCure links to Great Earth web site or Base Web Site
. Client look and feel
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. Estimated customers
. Estimated orders per month
. Estimated lines per order
. Estimated catalog items
. Estimated catalog updates per day
. On line history in months
. Customer service reports
One Time Fees: (Separate from new pricing structure)
Design Work Shop $10,000 (Fix Price)
This workshop includes the following:
Web Design
Web Development
Web Implementation
Web Documentation
Training (Kathy Woodward and the initial Stores)
* Web Process to enable a secured order entry, product selection web based
ordering form.
Travel & Expenses - $6,000 (Estimate Only, Actual will be billed)
Key Assumption:
01. Great Earth Distribution are responsible for the selection and store
migrations from CCS to Procure. LHSI would perform the migrations and
support of the Procure Products to Great Earth Distribution.
02. LHSI will continue to retain the CCS environment and continue to rebill all
expenses directly to Great Earth Distribution.
03. Billing would not change. We would continue on the same billing process per
your request.
04. Based on the "All Procure" we assumed all 1998 order volume to be processed
via Procure. The "Mix" model assumes 70% of all transactions processed via
Procure.
05. LHSI to provide Y2K certification of Procure and LMS 2000.
To proceed with your Internet Solution, please signify your acceptance by
signing below and returning an original signed copy of this proposal along with
a check covering the Design Workshop fees defined. We note that said Design
Workshop fee covers project definition,
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business processes and deliverables as per the project scope defined herein. The
actual site development costs will be subject to change if there is change in
the project scope or our understanding. Once we receive your signed copy of the
agreement, we will schedule our Design Work Shop for mid-April and
implementation between July/August 1999. All rates quoted are in US dollars and
may be subject to applicable taxes. We will follow up with a formal Internet
Solution Services Contract between LHSI and The Great Earth Company to be
executed by all parties by 5/31/99. This proposal will remain in effect for 120
days.
LHSI looks forward to working with you to provide a total solution for you. Once
again, if there is anything further we can provide you to assist in the decision
making process, please do not hesitate to call.
Sincerely,
/s/ Steven A. Dailey
Steven A. Dailey
Vice President and Chief Information Officer
Livingston Healthcare Services, Inc.
Organization: Great Earth Distribution
-----------------------------
Accepted and Agreed: /s/ Stephen R. Stern
-----------------------------
Name: Stephen Stern
-----------------------------
Title: President, COO
-----------------------------
Date: 4/9/99
-----------------------------
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Exhibit 10.6
SECURITY AGREEMENT
[Accounts, Contract Rights, Instruments, and Goods pertaining thereto] between
PHOENIX LABORATORIES, INC. and GREAT EARTH DISTRIBUTION, INC.
(each hereafter sometimes referred to individually as "Debtor"
and collectively as "Debtors")
and
FIDELCOR BUSINESS CREDIT CORPORATION (hereafter referred to as "Trefoil")
TREFOIL AGREES:
1. That it will from time to time make advances to Debtor upon the
security of accounts receivable, accounts, contract rights, general intangibles
and other choses in action (all of which, whether secured or unsecured and
whether or not evidenced by instruments or other writings, together with the
proceeds thereof and the merchandise pertaining thereto, are designated
collectively as "Collateral").*
2. That it will advance to Phoenix Laboratories, Inc. up to 80%, and to
Great Earth Distribution, Inc. up to 40% of the net amounts of acceptable
Collateral, as Trefoil in its sole discretion may determine, and will pay the
remainder (less the compensation specified in paragraph 6, plus any overpayments
by account debtors, and less deductions by account debtors and any unpaid
compensation, charges or expenses), after actual receipt of payment upon such
Collateral and at such times as Trefoil may determine; however, no payment of
such remainder need be made by Trefoil if Debtor shall have breached any
provision hereof or shall be otherwise indebted to Trefoil, in either of which
events Trefoil may retain and apply such remainder upon any indebtedness then as
thereafter due from Debtor.
3. That, subject to the provisions of paragraph 5, Debtor shall be
privileged to collect the proceeds of Collateral for Trefoil at Debtor's
expense, but such privilege may be terminated by Trefoil at any time in its
discretion, and shall automatically terminate upon the happening of an event of
default as hereinafter defined.
DEBTOR WARRANTS, COVENANTS AND AGREES:
4. That all Collateral will arise from the bona fide sale and delivery of
goods or the due performance of services by Debtor, and will be for a liquidated
amount subject to no offset, deduction, counterclaim, discount, condition, or
conflicting security interest. Debtor shall deliver to Trefoil such invoices,
shipping or other receipts, and other papers and instruments as Trefoil may
require.
5. That Debtor will receive in trust and deliver to Trefoil, in original
form and on the day of receipt, all checks, drafts, notes, acceptances, cash and
other evidences of payment, applicable to any Collateral. Trefoil shall not be
required to take any affirmative steps to collect Collateral or to preserve
rights against prior parties to any instruments or chattel paper.
6. That Debtor will pay Trefoil for its advances made hereunder a charge
of ---3 1/2%--- per annum plus the prime rate announced by the Fidelity Bank,
Philadelphia, Pennsylvania, whether or not said rate is the best rate available
at said bank.
In the event of a change in the prime rate charged at the Fidelity Bank,
Philadelphia, Pennsylvania, adjustments hereunder shall be made on the day of
such change in the prime rate. The prime rate as of the date of this agreement
is 8 1/2% per annum. All charges shall be computed upon the average daily cash
balances outstanding and charged to Debtor's account or paid monthly.
7. That with respect to all Collateral now existing or hereafter created,
Debtor will execute and deliver all papers and instruments, and do all things
necessary to effectuate Trefoil's prime security interest therein. Trefoil shall
be vested with all Debtor's rights, security interests, insurance, and
guarantees with respect to all Collateral, its proceeds, and the goods
represented thereby, including the rights of stoppage in transit, seller's lien,
and resale.
8. That Debtor is solvent and will so remain and induces Trefoil to make
advances hereunder upon Debtor's written representations concerning its
financial condition, which it agrees to deliver to Trefoil upon reasonable
request from time to time. Debtor will make due and timely payment or deposit of
all Federal, State and local taxes, assessments or contributions required by
law, including employee FICA and withholding taxes, and will execute and deliver
to Trefoil, on demand, proof satisfactory to Trefoil of the payment or deposit
thereof, and in the event that the Debtor shall be in default in payment or
deposit above described, Trefoil shall have the right to make said payments or
contributions and to charge Debtor's account under this agreement or any other
agreement.
9. That all Collateral, and any evidence of debt received thereon, will be
paid in full at maturity. If any Collateral should not be so paid in whole or in
part, Debtor will, upon demand, pay Trefoil the full amount remaining unpaid
thereon or, at Trefoil's option, such amount may be charged against and deducted
from any payment then or thereafter due from Trefoil to Debtor. Notwithstanding
such payment or deduction, Trefoil may retain the Collateral as security for the
obligations of Debtor to Trefoil.
10. That if any account debtor shall reject or return any of the goods
represented by Collateral, Debtor will forthwith deliver the same to Trefoil, or
notify Trefoil and hold the same segregated in trust for and subject to the
order of Trefoil, and Trefoil may take and sell the same, Debtor to remain
liable for any difference between the original invoice price and the net
proceeds of re-sale, after expenses. At Trefoil's option, Debtor will pay to
Trefoil the original invoice price of such goods. In case any such goods should
be resold, the Collateral thereby created shall be Trefoil's property and shall
be deemed pledged hereunder.
11. Until Trefoil shall have been paid in full for all loans, obligations,
debts or indebtedness owing to it by the Debtor, Trefoil shall have a continuing
Security Interest in all of Debtor's present and future Collateral, whether or
not specifically assigned or pledged to Trefoil, the proceeds thereof and all
books and records pertaining to the Collateral and equipment containing said
records; none thereof will be sold or subjected to any security interest in
favor of any person other than Trefoil, and Debtor's merchandise inventory shall
not be or become subject to any purchase money or other lien or security
interest except in favor of Trefoil.
12. Any money now or hereafter due or owing from Trefoil to the Debtor
hereunder shall at all times be security for each and every debt, liability,
obligation or indebtedness of the Debtor to Trefoil due or owing under this or
any other agreement, arrangement or transaction of any kind, nature or
description, including, but not limited to, any bond, mortgage, chattel
mortgage, pledge, factor's lien, trust receipt, guarantee, sale, purchase note,
bill draft, loan, discount or credit. Trefoil shall have the right to apply any
sums otherwise due or owing to the Debtor hereunder, in whole or in part, to the
payment of any such debt, liability, obligation or indebtedness, at such times
and in such order of application as Trefoil, in its sole discretion, may
determine. Any money which may at any time be due or owing from Trefoil to the
Debtor by reason of any such other agreement, arrangement or transaction between
them, as aforesaid, shall be security for any and all sums at any time due or
owing from the Debtor to Trefoil hereunder and may be applied by Trefoil to the
payment of any such sums, at such times and in such order of application as
Trefoil in its sole discretion may determine.
* Whenever the term "Collateral" appears in paragraphs 1 through 36 of this
Agreement, the term "Accounts Collateral" shall be substituted therefor.
<PAGE>
13. That Trefoil's auditors shall have the right at any time during
business hours to inspect Debtor's premises and to audit, check and make
extracts from Debtor's books, accounts, records, order, correspondence and all
other papers.
14. That Trefoil is authorized and empowered to compromise or extend the
time for payment of any Collateral, for such amounts and upon such terms as
Trefoil may determine, and to accept the return of goods represented by any
Collateral, all without notice to or consent by Debtor and without discharging
or affecting Debtor's obligations hereunder.
15. That Debtor hereby constitutes Trefoil and each of Trefoil's officers
and agents as Debtor's attorney-in-fact, with power to receive, open and dispose
of all mail addressed to Debtor; to notify the Post Office authorities to change
the address for delivery of mail addressed to Debtor; to endorse the name of
Debtor upon any instruments or other media of payment or evidences of security
interest that may come into Trefoil's possession; to sign Debtor's name on any
invoice or bill of lading relating to Collateral, on drafts against account
debtors, assignments and verifications of Collateral, and notices to account
debtors; to send verification requests to any account debtor; to execute and
file financing statements and other instruments or documents; and to do all
other acts and things necessary to carry out this Agreement and to perfect and
protect Trefoil's security interest. All acts of said attorneys are hereby
satisfied and approved, and they shall not be liable for any acts of commission
or omission, nor for any error of judgment or mistake of fact or law. This
power, being coupled with an interest, is irrevocable while any Collateral shall
remain uncollected and Debtor shall remain indebted to Trefoil.
16. If any representation or warranty made by the Debtor, either in
connection with this agreement or any assignment hereunder shall be false, or if
the debtor shall default in the performance of any term, covenant or condition
hereof; or if the Debtor shall suspend its business, or call any meeting of its
creditors, or make a general assignment for the benefit of its creditors; or if
any petition shall be filed by or against the Debtor under any provision of the
Bankruptcy Code, or if any receiver or trustee shall be appointed for the Debtor
or for its assets; or if any judgment shall be entered against the debtor which
shall not be paid or bonded on appeal within 5 days thereafter, then and in any
such event Trefoil shall have the right to retain counsel to represent it and
protect its rights and interest hereunder, and the Debtor shall and hereby
covenants that it will pay to Trefoil the fees of such counsel, the amount of
which fees is hereby expressly fixed at a sum which shall be equal to 15% of
Trefoil's cash advances to the Debtor, which may be outstanding at the time of
the first of the aforesaid events which may occur. The Debtor shall also pay any
and all disbursements incurred by Trefoil in connection with any of such events,
including, but not limited to, all court costs and expenses, stenographers
minutes, fees of public officers, printing expenses and premiums on bonds or
undertakings. The entire amount of such counsel fees and disbursements shall be
a lien upon and charge against and shall be deducted from any money which
otherwise become due to the Debtor hereunder. The foregoing counsel fees and
disbursements shall be exclusive of and in addition to the fees and expenses of
any attorney, Trefoil's collection department or collection agencies that are
employed in collection of any assigned Accounts not paid when due, which the
Debtor shall pay at the rate of 15% of the amount collected. All rights and
remedies of Trefoil hereunder are cumulative.
17. That Debtor waives presentment, demand, protest and notice thereof as
to any instrument, as well as all other notices to which it might otherwise be
entitled. The foregoing waiver applies to notices which may be waived by
operation of law. Where Trefoil is required to give reasonable notice the
parties agree that the same shall be deemed to mean written notice by certified
mail, return receipt requested, addressed to the Debtor at the address below set
forth which notice shall be deemed effective upon posting two days prior to the
time of any act requiring such notice. No check, note, draft or other instrument
for the payment of money which may be received shall be considered to be payment
thereon for any purpose hereunder, unless and until the same has actually been
collected by Trefoil's bank and credited as collected to Trefoil's account. In
order to avoid the necessity for separate computation of the time of clearance
of each collection item, clearance time of five business days shall be allowed
upon every check and such note or draft or other instrument for the payment of
money before the same shall be deemed so collected.
18. That Trefoil's express or implied waiver of a particular breach by
Debtor of any covenant or warranty herein contained, or Trefoil's failure at any
particular time to exercise a right or remedy available to it, shall not be or
constitute or be deemed to be a waiver of any subsequent breach or of such or
any other right or remedy.
19. Debtor represents and covenants that its chief place of business, and
the office where its records concerning accounts and contract rights are kept,
is that below set forth and that Debtor has no other place of business except if
such other place of business exists, then as set forth below such chief place of
business and that Trefoil may rely upon the foregoing until it has received
written notice to the contrary. Debtor authorizes Trefoil to file a financing
statement or any other document or instrument that may be required by law in any
jurisdiction, and said financing statement shall not require the signature of
the Debtor.
20. Debtor will provide Trefoil with: monthly ageings of its accounts
receivable not later than the 10th day of each month; financial statements
certified by an officer of the debtor not less frequently than quarter-annually;
financial statements certified by an independent certified public accountant not
less frequently than annually.
21. Any documents, schedules, invoices or other paper delivered to Trefoil
by Debtor, may be destroyed or otherwise disposed of by Trefoil six (6) months
after they are delivered to or received by Trefoil, unless Debtor requests, in
writing, the return of said documents, schedules, invoices or other paper and
makes arrangements, at Debtor's expense, for their delivery or destruction.
23. That Debtor's obligations to Trefoil hereunder shall be payable on
demand, and Trefoil's prior recourse to Collateral shall not constitute a
condition of such demand. All rights and remedies of Trefoil shall be cumulative
and may be exercised concurrently or seriatim.
BOTH PARTIES AGREE:
24. That Trefoil will render Debtor monthly or other periodic statements,
each of which shall be binding upon Debtor unless written objection is given by
Debtor to Trefoil within 15 days after rendition.
25. That no party hereto shall be bound by anything not expressed herein
or in other writings between them, nor shall this Agreement be modified orally.
26. That this Agreement shall remain in effect for a period of two (2)
years from the date hereof, and shall be deemed automatically renewed for
successive periods of one year. Either party may terminate as of the end of the
contract term or any renewal year upon at least 60 days' written notice of
termination by certified mail, return receipt requested. Termination shall not
affect transactions having their inception prior to the effective date of
termination. Upon date of termination unpaid principal and interest shall be
paid to Trefoil.
27. That inasmuch as the transactions hereunder will take place at
Trefoil's office in New York, this Agreement and all transactions, assignments
and transfers hereunder, and all rights of the parties, shall be governed as to
validity, construction, enforcement and in all other respects by the laws of the
State of New York.
28. In addition to any other events of default herein specified, Trefoil
may, at its option declare the following to be events of default:
a. Prospect of Debtor's payment or performance is unsecure, unsafe
or at risk;
b. The collateral is unsecure, unsafe or at risk;
c. An adverse change has occurred in the financial condition of the
debtor;
d. Any guarantor has cancelled, revoked or terminated his guaranty
agreement; or
29. In the event of any default under this Security Agreement, or any
Amendment thereto, all actions or proceedings arising directly or indirectly
from this Security Agreement, including any Amendment or Supplement thereto,
shall be litigated only in Courts having situs within the State of New York and
the Debtor hereby consents to the jurisdiction of any Local, State or federal
Court located within the State of New York and waives personal service of any
and all process upon Debtor and consents that all such service of process shall
be made by certified mail, return receipt
<PAGE>
requested, directed to Debtor at the address listed above or at which Debtor
advises Trefoil, in writing, and service so made shall be deemed complete three
days after the same shall have been posted.
30. Debtor may, on five days' notice, prior to the end of any calendar
month, prepay and terminate this Security Agreement by paying to Trefoil in cash
or certified check, the entire unpaid principal balance plus accrued charges,
together with a sum equal to 50% of the average monthly charges for the
immediately proceeding six months or from the date of the agreement whichever is
less, multiplied by the number of months of the unexpired balance of the term of
this agreement but in no event less than $150.00 per month for each month of the
unexpired term occurs during the second year of the term of this Agreement the
aforesaid percentage shall be 25%. In the event of a breach or default by the
debtor hereunder, the parties agree that damages sustained by Trefoil shall be
computed as provided in this paragraph. Prior to actual receipt of moneys due
under this paragraph, Trefoil may at its option exercise all of its rights under
the Security Agreement.
31. In no event shall interest charges provided for in any agreement
between the parties hereto exceed the legal rate that may be charged
corporations in the State of New York.
32. That in the event of logistics between the parties over any matter
connected with this Agreement or resulting from transactions hereunder, the
right to a trial by jury is hereby waived, and that Debtor, in any action or
proceeding which Trefoil may institute, will not impose any counterclaim of any
nature.
33. That this Agreement shall inure to the benefit of and be binding upon
the parties and their successors and assigns.
34. That this Agreement shall not become effective until accepted by
Trefoil at its office in New York.
35. As used herein the term "Trefoil" shall mean Fidelcor Business Credit
Corporation, its parent and all of its subsidiaries, affiliates and
participants.
36. See Rider attached hereto and made a part hereof for additional
provisions.
Dated: February 17, 1988 PHOENIX LABORATORIES, INC., Debtor
175 Lauman Lane
Hicksville, New York 11801
and
ATTEST: 140 Lauman Lane
Hicksville, New York 11801
By: /s/ MELVIN RICH By: /s/ SIDNEY RICH
- ------------------------------- -------------------------------------
Melvin Rich, Secretary Sidney Rich, President
ATTEST: GREAT EARTH DISTRIBUTION, INC., Debtor
14211 Gannet Street
La Mirada, California 90638
By: /s/ SIDNEY RICH By: /s/ MELVIN RICH
- ------------------------------- -------------------------------------
Sidney Rich, Secretary Melvin Rich, President
ACCEPTED:
FIDELCOR BUSINESS CREDIT CORPORATION, Secured Party
810 Seventh Avenue
New York, New York 10019
By: /s/ [illegible]
---------------------------------------------
Title: VP
---------------------------------------------
<PAGE>
RIDER TO SECURITY AGREEMENT
(Accounts, Contract Rights, Instruments
and Goods Pertaining Thereto)
between
Debtors: PHOENIX LABORATORIES, INC. ("Phoenix")
GREAT EARTH DISTRIBUTION, INC. ("GED")
(each hereafter referred to individually as "Debtor"
and collectively as "Debtors")
and
Secured Party: FIDELCOR BUSINESS CREDIT CORPORATION
(hereafter referred to as "Trefoil")
In addition to and not in limitation of any and all rights granted to
Trefoil and obligations incurred by Debtor in the printed portion of this
Agreement, Debtor further warrants, covenants and agrees as follows:
A. Each of the Debtors shall be jointly and severally liable for the
Obligations (as hereafter defined) of all of the Debtors.
B. The term "Financing Agreements" shall mean and include, without
limitation, this Agreement, the Security Agreement (Inventory), the Security
Agreement (Equipment), and any other agreements, documents and guaranties
granting collateral security or creating or evidencing indebtedness, each
executed by Debtor or related parties in favor of Trefoil and all other present
and future related agreements or instruments, as now existing or as hereafter
renewed, extended, amended, modified or supplemented.
C. The term "Obligations" or obligations shall mean and include,
without limitation, any and all of Debtor's indebtedness and/or liabilities to
Trefoil of every kind, nature and description, direct or indirect, secured or
unsecured, joint and/or several, absolute or contingent, due or to become due,
now existing or hereafter arising, related or unrelated, regardless of how they
arise or by what agreement or instrument they may be evidenced or whether
evidenced by any agreement or instrument, including, but not limited to all
amounts owing by Debtor to Trefoil under this Agreement, the other Financing
Agreements, or any other security agreement, guaranty or note and all
obligations to perform acts or refrain from taking any action.
D. The term "Collateral" or "collateral" shall mean and include,
without limitation, that which is set forth in Paragraph I of the printed
portion of this Agreement and any and all other items of real or personal
property in which
<PAGE>
Debtor has granted or may in the future grant a security interest to Trefoil
under the Financing Agreements, or any supplement or supplements thereto, and/or
under any other security agreement, or other agreement, all of Debtor's right,
title and interest in and to the goods of other property represented by or
securing any of the foregoing, all of Debtor's rights as an unpaid vendor or
lienor, including stoppage in transit, replevin or reclamation, all additional
amounts due to Debtor from any account debtor irrespective of whether such
additional amounts have been specifically assigned to Trefoil, all other
agreements on property securing or relating to any of the items referred to
above or acquired for the purposes of securing or enforcing any of such items,
all present and future chattel paper, motor vehicles, licenses patents,
trademarks, copyrights, license agreements, tax and duty claims and refunds,
computer software, goodwill, customer lists, all documents, monies, deposits,
securities, instruments, credits, and other property now or hereafter held by
Trefoil or any entity which at any time participates in Trefoil's financing
transactions with Debtor, and all products, proceeds and accessions of all of
the foregoing in whatever form. Debtor hereby grants Trefoil a continuing first
priority security interest in and general lien upon all of the Collateral to
secure payment and performance of all of the Obligations, except for prior
security interests set forth on Schedule A attached hereto.
E. In addition to any other security interest granted in the Financing
Agreements and not in limitation of any of the foregoing, and to secure the
payment and performance of all of the Obligations, Debtor hereby pledges and
assigns to Trefoil and grants to Trefoil a continuing general security interest
in all of the Debtor's ledger sheets, files, records and documents relating to
the Collateral, which shall, until delivered to or removed by Trefoil, be kept
by Debtor in trust for Trefoil and without cost to Trefoil in appropriate
containers in safe places, bearing suitable legends disclosing Trefoil's
security interest. Each confirmatory assignment schedule or other form of
Assignment hereafter executed by Debtor, shall be deemed to include the
foregoing, whether or not same appears therein.
F. The Debtor will pay all costs and expenses and all taxes, recording
and filing fees (including Uniform Commercial Code Financing Statements) in
connection with the preparation, execution, delivery, administration (including
wire transfer charges in amounts that Trefoil may from time to time establish if
Debtor requests wire transfers) and enforcement of this Agreement and all other
documents contemplated herein or related hereto, including any amendments,
supplements or consents which may be hereafter made or entered into in
-2-
<PAGE>
respect hereof, including appraisal fees, and lien searches in connection
herewith and fees and disbursements of in-house and outside counsel to Trefoil.
Debtor will pay all out-of-pocket costs of field examinations to be conducted by
Trefoil as provided in Paragraph 13 of the printed portion of the Agreement plus
$450 per man per day. Trefoil is hereby authorized to charge any amounts payable
hereunder (including principal, interest, fees, charges and expenses) directly
to any account of the Debtor maintained with Trefoil.
G. Trefoil agrees that in addition to the advances made with reference
to the formula set forth in Paragraph 2 of the printed portion of this agreement
("Accounts Advances"), Trefoil shall make additional advances to Debtor, in such
amounts from time to time determined by Trefoil in its sole discretion, of up to
twenty-five (25%) percent of the value of Phoenix's acceptable and eligible raw
material inventory and of up to twenty-five (25%) percent of the value of GED's
acceptable and eligible finished goods inventory (collectively the "Inventory
Advances"). As used herein, "value" shall mean the lower of cost or market, as
determined by Trefoil. Except in Trefoil's sole discretion, (1) the aggregate
principal amount of Accounts Advances to GED shall not exceed, at any time
outstanding, the lesser of (a) $500,000, or (b) an amount equal to (i)
twenty-five (25%) percent of the value of Phoenix's acceptable and eligible raw
material inventory, plus (ii) twenty-five (25%) percent of the value of GED's
acceptable and eligible finished good's inventory, and (2) the aggregate
principal amount of the Inventory Advances to Debtors shall not exceed
$1,000,000 at any time outstanding.
H. Except in Trefoil's sole discretion the aggregate principal amount
of the advances made by Trefoil to Debtors under the Financing Agreements,
including the Accounts Advances and the Inventory Advances, shall not exceed the
principal amount of $3,000,000 at any time outstanding (the "Credit Line").
I. In consideration of Trefoil entering into this Agreement and
allocating funds to have available to advance to Debtors, Debtor shall pay to
Trefoil, upon the execution of this Agreement, in immediately available funds, a
facility fee of $15,000 (1/2 of 1% of the Credit Line).
J. In consideration of Trefoil entering into this Agreement and
incurring accounting, operating and management expenses, Debtors shall pay to
Trefoil each calendar month a minimum charge equal to the amount of interest
Debtors would pay Trefoil if they at all times had an aggregate average daily
cash balance outstanding of $500,000 bearing interest at the rate provided for
in Paragraph 6 of the printed portion of this Agreement. Trefoil shall reduce
such minimum charge by
-3-
<PAGE>
the amounts actually paid by Debtors to Trefoil as interest pursuant to said
Paragraph 6, so that for each calendar month Debtors shall pay Trefoil Interest
as provided for in said Paragraph 6, plus the amount, if any, by which the
minimum charge provided for in this paragraph exceeds the amount of interest
payable pursuant to said Paragraph 6 for such month. If this Agreement shall be
terminated, such minimum charge shall continue and be paid by the Debtor for any
unexpired term of this Agreement, except if such termination is made pursuant to
Paragraph 26 or 30 of the printed portion of this Agreement or by mutual
agreement of Trefoil and the Debtor.
K. All advances by Trefoil pursuant to this Agreement shall bear
interest at the variable rate provided for in Paragraph 6 of the printed portion
of this Agreement and shall be calculated on the basis of a 360-day year for
actual days elapsed.
L. Should Trefoil commence a proceeding to take possession of any of
the Collateral under this Agreement or any of the Financing Agreements, Debtor
waives the requirement, if any, that Trefoil post a bond or any other type of
security.
M. In addition to all of the covenants set forth in the Financing
Agreements and without limiting any of the terms or provisions thereof, Debtor
hereby covenants and agrees as follows:
(1) Debtor will pay all Obligations when due and will perform all
of the terms, conditions, covenants and agreements of Debtor
to be per-formed under the Financing Agreements, and will make
punctual payment of all monies and will perform all of the
terms, conditions, covenants and agreements on its part to be
paid, kept or performed under the terms of any lease or
mortgage of the premises where any of the Collateral is now or
hereafter located, wherein Debtor is lessee or mortgagor, and
will promptly notify Trefoil in the event of any default by
Debtor or receipt by Debtor of any notice or alleged default
under any such lease or mortgage.
(2) Debtor will pay and discharge at or before maturity, all
taxes, assessments, rents, claims, debts and charges except
where the same are being contested in good faith and Debtor is
maintaining, in accordance with generally accepted accounting
principles and practice, appropriate reserves for accrual
thereof.
-4-
<PAGE>
(3) Debtor will promptly give notice in writing to Trefoil of the
occurrence of any event which constitutes or which with notice
or lapse of time, or both, would constitute a default under
any of the Financing Agreements. As used in the Paragraph (3),
the word "promptly" shall be determined in relation to the
point in time at which Debtor, exercising sound management
practices, has actual knowledge or should have discovered the
occurrence of such event.
(4) Debtor will provide Trefoil with such other information
concerning the financial or business affairs of Debtor as
Trefoil, in its sole discretion, requests from time to time.
(5) Debtor will not without the prior written consent of Trefoil,
declare or pay any dividend, return any capital to any of its
stockholders, loan any sum to any of its stockholders,
employees, officers or directors redeem, repurchase or
otherwise acquire any of its outstanding capital stock.
(6) Notwithstanding Paragraph 3 of the printed portion of this
Agreement, Debtor shall direct that all proceeds of accounts
receivable, letters of credit, banker's acceptances and other
proceeds of Collateral shall be payable to a post office box
or a lock box designated by and in control of Trefoil and in
connection therewith shall execute such agreements as Trefoil
in its sole discretion shall specify.
(7) Debtor will duly execute and deliver, or will cause to be
executed and delivered, such further instruments and
documents, including, without limitation, additional security
agreements, collateral assignments, Uniform Commercial Code
financing statements or amendments, or continuations thereof,
landlord's or mortgagee's waivers of liens, and consents to
the exercise by Trefoil of all of its rights and remedies
under the Financing Agreements with respect to the Collateral
and will do such further acts as may be necessary or proper in
Trefoil's opinion to effectuate the provisions or purposes of
the Financing Agreements.
(8) Debtor will not, without the prior written consent of Trefoil,
directly or indirectly
-5-
<PAGE>
sell, lease, abandon or otherwise dispose of all or any
substantial portion of its property or assets or consolidate
with or merge with or into any other entity, or permit any
other entity to consolidate with or merge with or into it.
(9) Debtor will at all times preserve and keep in full force and
effect its corporate existence, licenses, permits, rights and
franchises.
(10) Debtor will comply with the requirements of all applicable
laws, rules, regulations, orders of any governmental
authority, and all agreements to which Debtor is a party, the
non-compliance with which laws, rules, regulations, orders and
agreements would materially adversely affect its business,
properties or credit.
N. Any default by Debtor under the Financing Agreements or under any
other present or future agreements with Trefoil, or instruments hereunder or
thereunder (as this Agreement or any other such Agreements or instruments now
exist or may hereafter be supplemented or amended) or any default under any
material obligation for the payment of money to any person, firm or corporation
shall constitute and be deemed a default by the Debtor and shall be a default
under all such other agreements and instruments.
0. Debtor hereby further represents and warrants to Trefoil the
following:
(1) Debtor has the corporate power to borrow and to execute,
deliver and carry out the terms and provisions of the
Financing Agreements, and all other instruments and documents
delivered by it pursuant hereto and thereto, and Debtor has
taken or caused to be taken all necessary corporate action to
authorize the execution, delivery and performance of the
Financing Agreements, and such other agreements, the
borrowings hereunder and the execution, delivery and
performance of the instruments and documents delivered and to
be delivered by it pursuant hereto and thereto, and the
Financing Agreements constitute and will constitute legal,
valid and binding obligations of Debtor, enforceable in
accordance with their respective terms.
(2) Debtor is not in default in any material respect under any
indenture, mortgage, deed of trust, lease agreement, or other
instrument to which
-6-
<PAGE>
it is a party or by which it or its properties may be bound.
Neither the execution nor delivery of the Financing
Agreements, nor any of the instruments or documents to be
delivered pursuant hereto or thereto, nor the consummation of
the transactions herein or therein contemplated nor compliance
with the provisions hereof or thereof, will violate any law or
regulation, or any order or decree of any court or
governmental instrumentality in any respect, or will conflict
with, or result in the breach of, or constitute a default in
any material respect under, any mortgage, deed of trust,
agreement or other instrument to which Debtor is party or by
which it or its properties may be bound, or result in the
creation or imposition of any lien, charge or encumbrance upon
any of the property of Debtor (except as contemplated
hereunder or under any of the other Financing Agreements) or
violate any provision of Certificate of Incorporation or
By-Laws of Debtor.
(3) No action of, or filing with, any governmental or public body
or authority (other than the filing or recording of Uniform
Commercial Code financing statements) is required in
connection with the execution, delivery and performance of the
Financing Agreements or any of the instruments or documents to
be delivered pursuant hereto or thereto.
(4) Debtor has obtained all necessary licenses and approvals and
is in compliance in all material respects with all applicable
state and Federal laws and regulations relating to the conduct
of its business as presently conducted or contemplated.
(5) There are no strikes or other labor disputes against Debtor,
pending, or to Debtor's knowledge, threatened.
(6) None of the information contained in the representations and
warranties made by Debtor set forth in the Financing
Agreements, or in any other instruments, documents, lists,
certificate, statement, schedule or exhibit heretofore
delivered or to be delivered to Trefoil on the date hereof, as
contemplated in the Financing Agreements, contains or will
contain any untrue statement of a material fact or omit or
will
-7-
<PAGE>
omit to state a fact necessary in order to make the statements
contained herein or therein not misleading.
P. Trefoil shall have the right, in its discretion, to withhold and
reserve from the amount of its advances under this Agreement such amount as
Trefoil shall establish as a reasonable reserve upon the occurrence of any
breach of any warranty, covenant, or agreement under the Financing Agreements or
for any default under the Financing Agreements.
Dated: February 17, 1988
ATTEST: PHOENIX LABORATORIES, INC.
/s/ Melvin Rich By: /s/ Sidney Rich,
- --------------------------- ---------------------------------------
Melvin Rich, Secretary Sidney Rich, President
ATTEST: GREAT EARTH DISTRIBUTION, INC.
/s/ Sidney Rich By: /s/ Melvin Rich,
- --------------------------- ---------------------------------------
Sidney Rich, Secretary Melvin Rich, President
ACCEPTED:
FIDELCOR BUSINESS CREDIT CORP.
By: [illegible]
------------------------
Title: VP
---------------------
-8-
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE A Page 1 of 2
Unterminated Security Interests
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Amendments
(Releases,
Debtor Secured Party Jurisdiction UCC # Filing Date Collateral Assignments, etc.)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Phoenix Laboratories, Inc. Hoffman-La Roche, Inc. N.Y. S/S 390298 12/24/88 All Equipment (now
P.O. Box 388 340 Kingsland Street owned, hereafter
809 Ibsen Street Nutley, N.J. 07110 acquired)
Woodmere, New York 11598
- ----------------------------------------------------------------------------------------------------------------------------------
Phoenix Laboratories, Inc. Long Island Trust Co. N.Y. S/S 348550 11/10/86 2 Machines
175 Lauman Lane Industrial Finance Dept.
Hicksville, New York 11801 11 Broadway Debtor has no power
Hicksville, NY 11801 to sell or dispose of
collateral
- ----------------------------------------------------------------------------------------------------------------------------------
Phoenix Laboratories, Inc. Hoffman-La Roche, Inc. Nassau 87-001408 1/16/87 All equipment (now
P.O. Box 388 340 Kingsland Street County owned & hereafter
809 Ibsen Street Nutley, N.J. 07110 Clerk acquired.)
Woodmere, New York 11598
- ----------------------------------------------------------------------------------------------------------------------------------
Phoenix Laboratories, Inc. Hoffman-La Roche, Inc. Nassau 87-027548 11/25/87 All equipment (now
P.O. Box 388 340 Kingsland Street County owned & hereafter
809 Ibsen Street Nutley, N.J. 07110 Clerk acquired.)
Woodmere, New York 11598
- ----------------------------------------------------------------------------------------------------------------------------------
Phoenix Laboratories, Inc. Equilease Corporation Nassau 86-030440 12/19/86 Field for Info. Only. Assigned to:
175 Lauman Lane 750 Third Avenue County Property (not describ- Textron Capitol Corp.
Hicksville, New York 11801 New York, NY 10017 Clerk ed) subject to Lease 1410 Hospital Trust
Tower Providence,
Rhode Island
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE A
Page 2 of 2
(Cont'd)
- ------------------------------------------------------------------------------------------------------------------------------------
Amendments
(Releases,
Debtor Secured Party Jurisdiction UCC # Filing Date Collateral Assignments, etc.)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Phoenix Laboratories, Inc. WASCO Funding Corp. Nassau 86-021181 8/25/86 Machines (3) leased to Assigned to:
175 Lauman Lane 150 E. 58th Street County debtor who has no right Tilden Financial
Hicksville, New York 11801 New York, New York 10155 Clerk to sell or dispose. Corp.
2 Lambert Street
Roslyn Heights,
NY 11577
- ------------------------------------------------------------------------------------------------------------------------------------
Phoenix Laboratories, Inc. L.I. Trust Co., N.A. Nassau 86-027280 11/18/86 2 Machines
175 Lauman Lane Industrial Finance Dept. County
Hicksville, New York 11801 11 Broadway Clerk
Hicksville, N.Y. 11801
- ------------------------------------------------------------------------------------------------------------------------------------
Great Earth Distribution, The Lease Factor, Inc. S/S 87-128909 5/28/87 Equipment Lease
Inc. The Beaumont Building Calif.
14211 Ganett Street P.O. Box 71
La Mirada, CA 90638 South Station
Framingham, Mass. 01701
- ------------------------------------------------------------------------------------------------------------------------------------
Great Earth Distribution, Pitney Bowes Credit S/S 86-146811 6/11/86 Lease - re: Postal
Corporation Corporation Calif. Equipment
14211 Ganett Street 21515 Hawthorne Blvd.
La Mirada, CA 90638 Suite 690
Torrance, CA 90503
- ------------------------------------------------------------------------------------------------------------------------------------
Great Earth Distribution, Pitney Bowes Credit S/S 86-146812 6/11/86 Lease - re: Postal
Inc. Corporation Calif. Equipment
14211 Ganett Street 21515 Hawthorne Blvd.
La Mirada, CA 90638 Suite 690
Torrance, CA 90503
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
[INVENTORY]
Fidelcor Business Credit Corporation February 17, 1988
810 Seventh Avenue
New York, NY 10019
Gentlemen:
This Letter, when accepted by you, will become a security agreement
supplementing and forming part of the Security Agreement [Accounts, Contract
Rights, etc.] between us dated February 12, 1988:
1.* We hereby grant a continuing Security Interest in your favor upon all
of our present and hereafter-acquired Inventory, and the products and proceeds
thereof. The term "Inventory" includes all our present raw materials,
components, work in process, finished merchandise, and packing and shipping
materials, wherever located; and all such chattels hereafter acquired by us by
way of substitution, replacement, return, repossession or otherwise: and all
additions and accessions thereto, and the resulting product or mass: and any
documents of title representing any thereof. Your Security Interest shall attach
to all of the foregoing without further act on your or our part. Upon your
request, we will from time to time at our expense pledge and deliver such
Inventory to you or to a third party as your bailee; or hold the same in trust
for your account; or store the same in warehouse in your name: or deliver to you
documents of title representing the same; or evidence your Security Interest in
some other acceptable manner. The advances made and to be made hereunder are
primarily to enable us to purchase raw materials and defray the cost of labor
and similar manufacturing expenses which add to the value and marketability of
the finished product manufactured, processed, or otherwise dealt in by us; and
since such advances will be used for the foregoing purposes, your Security
Interest shall be deemed to be a Purchase Money Security Interest.
2. Your said Security Interest shall secure (a) any advances which you may
make hereunder, and (b) any other indebtedness which we may from time to time
owe to you, fixed or contingent, whether arising under the aforesaid Security
Agreement or after the termination thereof, or otherwise arising or acquired by
you, and (c) all interest, charges, commissions, expenses (including attorneys'
fees and legal expenses) and other items chargeable against us by reason of any
of the foregoing. The term "advances" means moneys paid to us or to others for
our account, or obligations to third parties incurred by you at our request.
3. We agree that the making of Inventory advances is always wholly
discretionary on your part, and that you shall be the sole judge of the amount
of such advances and of the total of such advances to be outstanding at any
particular time. All such advances shall be repayable on demand, and shall bear
interest at the same rate as specified in the aforesaid Security Agreement.
4. We warrant, covenant, and agree that:
(a) All Inventory is and shall remain free from all purchase-money or
other liens or encumbrances except such as are held by you.
(b) You shall have the right at all times to immediate possession of
all Inventory and its products and proceeds, and to inspect the Inventory and
our records pertaining thereto.
(c) We shall insure and keep insured all Inventory for full value, with
such coverage and in such companies as you may approve, at our expense, and the
policies shall be duly endorsed in your favor and delivered to you. If we
default in this regard, you shall have the right to insure and charge the cost
to us. You assume no risk or responsibility in connection with the payment or
non-payment of losses, your only responsibility being to credit us with any
insurance payments received on account of losses.
(d) All excise, floor, sales and any other taxes that may be assessed
upon or paid by you with respect to any of the Inventory shall be charged to and
paid by us, and we agree to indemnify you against loss by reason of any such
taxes. We will make due and timely payment or deposit of all Federal, State, and
local taxes, assessments or contributions required of us by law, and will
execute and deliver to you, on demand, appropriate Certificates attesting to the
payment or deposit thereof.
(e) None of the Inventory shall be removed or disposed of without your
written consent, except to bona fide purchasers thereof in the ordinary course
of our business and on orders approved by you in writing. All our sales shall be
promptly reported to you, and the accounts or other proceeds thereof shall be
subject to you security interest in accordance with the aforesaid Security
Agreement.
(f) You shall not be liable or responsible in any way for the
safekeeping of any of the Inventory, or for any loss or damage thereto, or for
any diminution in the value thereof, or for any act or default of warehousemen
or of any carrier, forwarding agency, or other person whomsoever, of for the
collection of any process, but the same shall be at our sole risk at all times.
(g) You shall have the right (but shall not be obliged) to pay and to
charge as an advance to us hereunder any dyeing, finishing, processing, or
warehousing charges, landlord's bills, or other claims against or liens upon the
Inventory.
5. Our default in the payment or performance of any obligation or
undertaking on our part hereunder, or the happening of any even specified as an
event of default in the aforesaid Security Agreement, shall be an event of
default hereunder. Upon the happening of such or any other event of default, you
shall have, in addition to all rights and remedies of a Secured Party under the
Uniform Commercial Code or other applicable statute or rule, the following
rights and remedies:
(a) You may peaceably by your own means or with judicial assistance
enter our or any other premises and take possession of the Inventory, and remove
or dispose of it on our premises, and we will not resist or interfere with such
action.
(b) You may require us to assemble all or any part of the Inventory and
make it available to you at any place designated by you and reasonably
convenient to both parties.
(c) We agree that a notice sent to us at least 5 days before the date
of any intended public sale or the date after which any private sale or other
intended disposition of the Inventory is to be made, shall be deemed to be
reasonable notice of such sale or other disposition. All notice is waived if the
Inventory is perishable or threatens to decline speedily in value or is of a
type customarily sold on a recognized market.
(d) In the event of any such public or private sale or other
disposition, we will pay to you on demand any deficiency remaining after
crediting the net proceeds of sale, less all expenses of taking, handling, and
sale including reasonable counsel fee. All rights of redemption are waived. You
shall account to us for any surplus.
6. Until we shall notify you in writing to the contrary, you shall be
justified in assuming that our Inventory is and will continue to be principally
kept at our address specified in the aforesaid Security Agreement.
ATTEST: PHOENIX LABORATORIES, INC.
By: By: /s/ SIDNEY RICH
------------------------------ ---------------------------------
Melvin Rich, Secretary Sidney Rich, President
ATTEST: GREAT EARTH DISTRIBUTION, INC.
By: /s/ SIDNEY RICH By:
------------------------------ ---------------------------------
Sidney Rich, Secretary Melvin Rich, President
ACCEPTED:
FIDELCOR BUSINESS CREDIT CORPORATION
Secured Party
By:
---------------------------------------
Title:
------------------------------------
<PAGE>
PHOENIX LABORATORIES, INC. AND GREAT EARTH
DISTRIBUTION, INC. were individually called
and "Debtor and collectively "Debtors")
FIDELCORE BUSINESS CREDIT CORPORATION herein called "Secured
Party" hereby agrees as follows:
1. Debtor grants to Secured Party a security interest in the following
Equipment (herein called "Collateral"):
A. All of Debtor's present machinery, equipment furniture, tools,
dies, figs and attachments (including, but not limited to, the items
listed and described on the Schedule of Equipment annexed); and
B. All of the Debtor's additional Equipment, of like or unlike
nature, to be acquired hereafter pursuant to this Security Agreement or
otherwise, and all replacements, accessions, and improvements to any of
the foregoing.
2. Said security interest shall secure the Obligations of Debtor as
defined in the Security Agreement (Accounts, etc.) between Debtor and
Secured Party of even date herewith.
(2) a other existing debts and liabilities of Debtor to Secured Party; (3) all
future advances made by Secured Party to or for the account of Debtor, including
advances for insurance, repairs to and maintenance of the Collateral, taxes and
discharge of any other lien, security interest or encumbrance; (4) other
indebtedness, however created, arising or acquired by Secured Party which debtor
may now or hereafter owe to a Secured Party; and (5)all costs and expenses
incurred in the collection of any of the foregoing, including reasonable
attorney's fees.
3. Until default hereunder, Debtor shall be entitled to possession of
the Collateral, which shall be kept only at Debtor's address specified in said
Security Agreement (Accounts, etc.)
4. Debtor warrants, covenants and agrees that: (1) Debtor is the sole
owner of the Collateral free from any lien, security interest or encumberance,
has the right to grant Secured Party a security interest therein, and will
defend the Collateral against the claims and demands of all persons; (2) Debtor
shall not sell, lease, encumber, remove, conceal or grant or permit any further
security interest in the Collateral, nor part with possession of any thereof,
not permit the same to be used for hire nor in violation of any law or
ordinance; (3) Debtor shall maintain the Collateral in good condition and repair
at Debtor's sole expense; Debtor will pay all taxes levied on the Collateral,
and will make due and timely payment or deposit of all Federal, State and local
assessments or contributions required by law and will execute and deliver to
Secured Party, on demand, appropriate _____________ attesting to the payment
or deposit thereof; (5) No financing statement covering the collateral, or any
part thereof, on file in any public office, and Debtor's present or hereafter-
acquired Collateral is and shall not be or become subject to any purchase -money
or other lien or security interest except in favor of Secured Party; (6) Debtor
shall procure and maintain insurance on the Collateral for the full term of this
security agreement, against the risks of fire, theft and such other risks as
Secured Party may require (including the risk of collision in case any part of
the Collateral is a motor vehicle) by insurers satisfactory to Secured Party,
and shall deliver to secured Party a fully paid policy or policies of insurance
property endorsed in favor of Secured Party; (7) Debtor will permit Secured
Party to inspect the Collateral at any time: (8) Loss, theft, damage,
destruction or seizure of the Collateral shall not relieve the Debtor for the
payment of any indebtedness secured hereby: (9) The collateral is not now and
will not hereafter be affixed to realty as to become a part thereof or a
fixture; (10) The execution and delivery hereof, if Debtor is a corporation, has
been duly authorized by all necessary action of Debtor's directors and
shareholders; (11) Secured Party is authorized to execute and file, at Debtor's
cost, such financing statements and other instruments or documents as may be
necessary to perfect and protect Secured Party's security interest; and (12) In
case of Debtor's default in performing any warranty covenant, or undertaking
hereunder, Secured Party may (but shall not be obliged to) procure the
performance thereof and add the cost thereof, with interest, to the indebtedness
secured hereby.
5. The occurrence of any of the following events or conditions shall,
at the option of Secured Party and without notices or demand, constitute an
event of default hereunder: (1) Default in the due payment of any indebtedness
secured hereby: or (2) Failure of Debtor to perform any covenant or undertaking
on Debtor's part herein; or (3) Breach of any warranty or falsity of any
representation made by Debtor to Secured Party; or (4) Attachment or seizure of
or levy upon the Collateral; (5) Institution of any proceeding by or against
Debtor or Debtor's business under any bankruptcy or insolvency statute, or
Debtors's assignment for benefit of creditors, or the appointment of a receiver
for Debtor or the Collateral or the filing of a tax lien notice against Debtor
by any taxing authority; or (6) Reasonable insecurity of Secured Party: or (7)
Loss, theft, substantial damage, destruction, sale, encumbrance, concealment
removal, or forfeiture of the Collateral or any material portion thereof.
6. Upon the occurrence of any event of default, Secured Party may
declare all Debtor's indebtedness secured hereby immediately due and payable,
and thereupon Secured Party shall have the right to take possession of the
Collateral and shall have all other rights and remedies of a Secured Party under
the Uniform Commercial Code. Unless the Collateral is perishable or threatens to
decline speedily in value or is of a type customarily sold on a recognized
market, Secured party shall give or threatens to decline speedily in value or is
of a type customarily sold on a recognized market, Secured Party shall give
Debtor reasonable notice of the time and place of any public sale thereof or of
the time after which any private sale or other intended disposition thereof is
to be made. Debtor agrees that the requirements of reasonable notice shall be
met if notice is mailed to Debtor at the address of the Debtor shown below not
less than (5) days prior to the sale or other disposition. Expenses or retaking,
holding, preparing for sale, selling, or the like shall include Secured Party's
reasonable attorneys' fees and legal expenses. Secured Party may require Debtor
to assemble the Collateral and make it available to Secured Party at a place to
be designated by Secured Party which is reasonably convenient to both parties.
Secured Party is authorized to maintain, sell or dispose of the Collateral on
the premises of the Debtor. Secured Party's rights and remedies shall be
cumulative and alternative.
7. This Security Agreement shall be constructed and enforced according
to the laws of the State of New York. Waiver of any default shall not constitute
waiver of any subsequent or other default. All rights of Secured Party shall
inure to the benefit of its successors and assigns, and all obligations of
Debtor shall bind his or its heirs, executors, personal representatives,
successors and assigns.
ATTEST: PHOENIX LABORATORIES, INC.
By: By: /s/ SIDNEY RICH
------------------------------ ---------------------------------
Melvin Rich, Secretary Sidney Rich, President
ATTEST: GREAT EARTH DISTRIBUTION, INC.
By: /s/ SIDNEY RICH By:
------------------------------ ---------------------------------
Sidney Rich, Secretary Melvin Rich, President
ACCEPTED:
FIDELCOR BUSINESS CREDIT CORPORATION
By:
---------------------------------------
Title:
------------------------------------
<PAGE>
PROMISSORY NOTE
$800,000.00 February 17, 1988
New York, New York
For Value Received, PHOENIX LABORATORIES, INC. and GREAT EARTH
DISTRIBUTION, INC. (individually and collectively, the "Maker") jointly and
severally promise to pay to the order of FIDELCOR BUSINESS CREDIT CORPORATION
("Fidelcor") the principal sum of EIGHT HUNDRED THOUSAND ($800,000.00) DOLLARS
payable in eighteen (18) consecutive monthly installments as follows: seventeen
(17) installments in the amount of $13,333.33 each commencing September 1, 1988
and continuing on the first day of each month thereafter, through and including
January 1, 1990 and a final eighteenth (18th) installment in the amount of
$573,333.39 being due and payable on February l7, 1990. Interest on the
outstanding principal balance shall be paid by Maker at the rate of three and
one-half (3 1/2%) percent per annum plus the prime rate so announced from time
to time (effective as of the date of each change, so announced) by Fidelity
Bank, N.A., Philadelphia, Pennsylvania, whether or not said rate is the best
rate available by said bank, payable monthly on the first day of every month
commencing March 1, 1988 and at maturity of this Note, whether by acceleration
or otherwise. Interest shall be calculated on the basis of a 360-day year and
actual days elapsed. In no event shall the interest charged hereunder exceed the
maximum permitted by law.
Payments shall be made to the office of Fidelcor 810 Seventh Avenue,
New York, New York 10019, or at such other place as the holder of this Note may
designate. At the option of Fidelcor, principal and interest may be charged to
the Maker's account with Fidelcor. This Note may not be prepaid in whole or in
part without the prior written consent of Fidelcor or any holder, except upon
full compliance with the provisions of the Security Agreement (Accounts,
Contract Rights, Instruments and Goods pertaining thereto) referred to below
governing termination of all, but not less than all, financing arrangements
between Maker and Fidelcor.
Reference is made to the Security Agreement (Accounts, Contract
Rights, Instruments and Goods pertaining thereto), the Security Agreement
(Inventory) and Security Agreement (Equipment), and other agreements, guaranties
and mortgages granting collateral security and creating or evidencing
indebtedness, all of even date herewith between Maker or related parties and
Fidelcor and to all present and future supplements and amendments relating
thereto ("Collateral
<PAGE>
Agreements"). As security for payment of this Note and any other present or
future obligations or liability of the Maker to Fidelcor of any kind, nature of
description, the Maker has granted Fidelcor a security interest in the
collateral described in the Collateral Agreements.
Upon the occurrence of one or more of the following events:
A. Maker's failure to pay when due any amounts required to be paid
hereunder; or
B. Any other event of default under the terms and provisions of
the Collateral Agreements; or
C. The termination or non-renewal of the Security Agreement
(Accounts, Contract Rights, Instruments and Goods pertaining
thereto);
then, and in any such event, it is agreed that the entire unpaid principal
balance of this Note shall, without notice or demand, at Fidelcor's or any
holder's option, become immediately due and payable, together with interest
accrued and accruing at the rate set forth above until this Note is fully paid,
plus all costs and expenses of the collection and enforcement of this Note
including reasonable attorneys' fees, all of which shall be added to the amount
due under this Note.
In addition to the foregoing, upon the occurrence of any of the
events set forth above, Fidelcor or any holder shall have the right, immediately
and without notice or further action by it, to set off against this Note and/or
all other obligations of the Maker, all money owed to Maker by Fidelcor (or any
person or entity which may participate with Fidelcor in the advances to the
Maker pursuant to the Collateral Agreements) or such holder whether or not due,
and Fidelcor or such holder shall be deemed to have exercised such right of
set-off and to have made a charge against any such money immediately upon the
occurrence of any of the foregoing events even though such charge is made or
entered on the books of Fidelcor or such holder subsequent thereto. Further,
Fidelcor or such holder may proceed to enforce payment of all obligations of the
Maker and exercise any of or all of the rights and remedies afforded to Fidelcor
or such holder by the Uniform Commercial Code or the Collateral Agreements. All
rights and remedies afforded to Fidelcor or such holder pursuant to the terms
hereof, the Collateral Agreements or by law shall be cumulative and may be
exercised in any manner Fidelcor or such holder may determine without limiting
or restricting Fidelcor's or such holder's rights to subsequently exercise any
of its other rights or remedies.
-2-
<PAGE>
The Maker hereby agrees not to deduct, set off or seek to
counterclaim for or recoup any amounts which are or may be owed to Maker by
Fidelcor (or any person or entity which may participate with Fidelcor in the
advances to Maker pursuant to the Collateral Agreements) or any holder. The
books and records of Fidelcor or any holder showing the account between Maker
and Fidelcor or any holder shall be admissible in evidence in any action or
proceeding as PRIMA FACIE proof of the items therein set forth.
The provisions of this Note shall be construed and interpreted, and
all rights and obligations hereunder determined, in accordance with the laws of
the State of New York. The Maker hereby irrevocably consents to the jurisdiction
of the Supreme Court of New York, County of New York, and of the United States
District Court for the Southern District of New York in any actions or
proceedings with respect to this Note. Maker hereby waives trial by jury in any
action and/or proceeding arising on, out of or by reason of this Note.
No modification or waiver of any of the provisions of this Note
shall be effective unless in writing, signed by Fidelcor or other holder hereof
and only to the extent set forth in said writing, nor shall any such waiver be
applicable except in the specific instance for which it is given. The Maker of
this Note hereby waives presentment for payment, demand, notice of non-payment
and dishonor, protest and notice of protest.
ATTEST: PHOENIX LABORATORIES, INC.
By: /s/ By: /s/
--------------------------- -----------------------------
Melvin Rich, Secretary Sidney Rich, President
ATTEST: GREAT EARTH DISTRIBUTION, INC.
By: /s/ By: /s/
--------------------------- -----------------------------
Sidney Rich, Secretary Melvin Rich, President
-3-
<PAGE>
GUARANTY
In order to induce to now or hereafter make advances, loans, extend its
credit to or enter into security agreement with EVERGOOD PRODUCTS CORPORATION,
PHOENIX LABORATORIES, INC. and GREAT EARTH DISTRIBUTION INC. (individually and
collectively "Debtor") and knowing that Trefoil will rely upon this guaranty,
the undersigned and each of them jointly and severally guarantee the due payment
and performance by said Debtor described in said financing agreement, or in any
supplement thereto, or any other transaction or agreement, as well as the due
payment of all other obligations which said Debtor may at any time owe to
Trefoil, however created; and the undersigned hereby indemnify Trefoil, and
covenant to hold it harmless against all obligations, demands, losses or
liabilities, by whomsoever asserted, suffered, incurred or paid by Trefoil as a
result of, or in any way arising out of, or following, or consequential to
transactions under the aforesaid security agreement or any other agreement. This
guaranty shall be absolute, continuing, unconditional, and unlimited. Trefoil
shall be under no obligation to proceed first against the Debtor, or against any
collateral security which Trefoil may hold, before proceeding against the
undersigned hereunder. The undersigned agree that any collateral held as
security by Trefoil, whether under an agreement with the Debtor, or pursuant to
this guaranty, may be sold at public or private sale, and the undersigned
further agree that Trefoil shall have the right to bid at such sale. The
undersigned agree to indemnify and save Trefoil harmless for any costs and
expenses that Trefoil shall have the right to bid at such sale. The undersigned
agree to indemnify and save Trefoil whether under agreement with the Debtor or
the undersigned, and they further agree to pay all attorneys fees agreed to by
the Debtor, and the reasonable attorneys fees incurred in connection with
enforcement of this guaranty agreement, which the parties shall be a sum equal
to 15% of the moneys due Trefoil upon placement of the claim with such attorney.
The undersigned agree: that this guaranty shall not be impaired by any
modification to which the parties to said security agreement may hereafter
agree, nor by any modification, release or other alteration of any of the
obligations hereby guaranteed, or of any security therefor, or failure to
perfect and security interest, to all of which the undersigned hereby consent;
that their liability hereunder is direct and unconditional and may be enforced
without requiring Trefoil first to any other right, remedy or security; and that
this guaranty shall continue in force until Secured Party shall receive 30 days
prior written notice by registered mail revoking it only as to future
transactions.
The undersigned waive: notice of acceptance hereof, notice of adverse
change in Debtor's financial condition; the right to a jury trial in any action
hereunder; presentment and protest of any instrument and notice thereof; notice
of default; and all other notices to which they might otherwise be entitled. As
security, they hereby assign to Trefoil all claims of any nature which they, or
any of them, may now or hereafter have against Debtor.
All actions or proceedings arising directly or indirectly on account of
this guaranty agreement shall be litigated only in courts having situs within
the State of New York and each guarantor for himself hereby consents to the
jurisdiction of any Local, State or Federal Court located within the State of
New York and each guarantor for himself waives personal service of any and all
process upon him and consents that all such service of process be made by
certified mail, return receipt requested directed to such guarantor at the
address set forth below or the home address of such guarantor, if different, and
service so made shall be deemed complete three days after the same shall be
posted.
This guaranty, all acts and transactions hereunder, and the rights and
obligations of the parties hereto, shall be governed, construed and interpreted
according to the laws of the State of New York. This guaranty cannot be changed
or discharged orally, nor shall the same be terminated by death of any
guarantor, in which event deceased guarantor's estate shall be bound by the
obligations hereunder. Release of any guarantor, or the Debtor herein, shall not
affect the obligations hereunder of the remaining guarantors.
IN WITNESS WHEREOF, we have signed and sealed these presents this 17th
day of February 1988.
ATTEST: SEE RIDER ATTACHED HERETO AND EVERGOOD PRODUCTS CORPORATION
MADE A PART HEREOF
By: /s/ SEYMOUR JEFFRIES By: /s/ SIDNEY RICH
---------------------------- -----------------------------
Seymour Jeffries, Secretary Sidney Rich, President
ATTEST: PHOENIX LABORATORIES
By: /s/ MELVIN RICH By: /s/ SIDNEY RICH
------------------------------- ----------------------------
Melvin Rich, Secretary Sidney Rich, President
ATTEST: GREAT EARTH DISTRIBUTION, INC.
By: /s/ SIDNEY RICH By: /s/ MELVIN RICH
------------------------------- ----------------------------
Sidney Rich, Secretary Melvin Rich, President
<PAGE>
RIDER TO GUARANTY
by
EVERGOOD PRODUCTS CORPORATION,
PHOENIX LABORATORIES, INC. and
GREAT EARTH DISTRIBUTION, INC.
of
THE OBLIGATIONS OF EACH OF THE OTHER OF THEM
to
FIDELCOR BUSINESS CREDIT CORPORATION
To secure all of its obligations to Trefoil under this guaranty, Evergood
Products Corporation hereby grants to Trefoil a continuing security interest in
the following property:
(i) all present and future accounts, contract rights, chattel paper and general
intangibles (including, but not limited to all of Debtor's now existing or
hereafter arising tax and duty claims and refunds, franchises, permits, customer
lists, goodwill and artwork, all now owned or hereafter acquired patents,
trademarks, copyrights, tradestyles, licenses or license agreements relative to
the rendering of services of the manufacture of goods and all Debtor's now
existing or hereafter arising interest in real and personal property),
documents, instruments, monies, deposits, securities, credits and letters of
credit, whether now owned or hereafter acquired by Debtor; Debtor's interest in
the goods represented by all accounts and all returned, reclaimed or repossessed
goods with respect thereto; all rights and remedies of Debtor under or in
connection with such collateral;
(ii) all present and future goods, including, without limitation:
(a) all inventory, wherever located, whether now owned or hereafter
acquired by Debtor, including, without limitation, raw materials, materials used
or consumed in the Debtor's business, work in process and finished goods of
whatever kind, nature and description and whether in the possession of Control
of a third party and all right, title and interest of Debtor therein and
thereto, all Debtor's rights as a seller of goods, and all inventory which may
be returned to Debtor by its customers, stopped in transit by Debtor or
repossessed by Debtor;
(b) all machinery, equipment, tools, furniture, fixtures and all
accessions and attachments thereto, wherever located whether now owned or
hereafter acquired by Debtor, all Debtor's rights to acquire any of the
foregoing, whether by exercise of purchase options or otherwise;
(iii) all Debtor's books and records, equipment and computer software relating
to any of the above; and
1 of 2
<PAGE>
(iv) any and all products and proceeds of the foregoing in any form, including,
without limitation, any claims by Debtor, against third parties for loss of or
damage to or destruction of any or all of the foregoing, and all insurance
proceeds relating to all of the above.
All terms used above which are defined in the Uniform Commercial Code shall have
the meanings therein stated.
EVERGOOD PRODUCTS CORPORATION
By: /s/ Sidney Rich
------------------------------------------
Sidney Rich, President
2 of 2
<PAGE>
Resolutions of the Board of Directors of
EVERGOOD PRODUCTS CORPORATION
Dated February 8, 1988
The undersigned being the members of the Board of Directors of
Evergood Products Corporation (the "Company") hereby consent to the following
actions to be taken in lieu of a special meeting of its Board of Directors.
WHEREAS, Evergood Products Corporation ("Company") is parent of
Phoenix Laboratories, Inc. and Great Earth Distribution, Inc. (collectively the
"Debtors") and it is in the business interest of the Company that Debtors obtain
financing; and
WHEREAS, said Debtors are desirous of obtaining funds, credit or
other financial assistance from Fidelcor Business Credit Corporation (herein
referred to as "Trefoil") and Trefoil is unwilling to extend credit or to render
such assistance to the Debtors unless the Company shall enter into a guaranty
agreement with Trefoil substantially in the form of the draft of said agreement
submitted to the undersigned and attached to this consent; and
WHEREAS, in view of the premises aforesaid and because of the
inter-corporate relations between this Company and said Debtors it is deemed to
be to the direct
<PAGE>
interests and advantage of this Company that it enter into said agreement with
Trefoil. NOW, THEREFORE, be it
RESOLVED, that the President, any Vice
President, Secretary, Treasurer or other officer or any
agent of this corporation, or any one or more of them, be
and they are hereby authorized, empowered and directed to
enter into and execute on behalf of the Company an
agreement with Trefoil substantially in the form of a
draft of said agreement submitted to the undersigned and
attached to this consent, and to do and perform all such
acts and things deemed by any such officer or agent
necessary, convenient or proper to carry out or modify
any such agreement, hereby ratifying, approving and
confirming all that any said officers or agents have done
or may do or cause to be done in the premises and said
agreement may contain such terms, conditions, provisions
and undertakings as the officer executing the same deems
necessary and proper.
/s/ SIDNEY RICH
-----------------------------------
Sidney Rich
-----------------------------------
Keith Jampolis
/s/ SEYMOUR B. JEFFRIES
-----------------------------------
Seymour B. Jeffries
/s/ CHARLOTTE RICH
-----------------------------------
Charlotte Rich
-----------------------------------
Melvin Rich
-----------------------------------
Irving Zimmerman
/s/ Marjorie Goldner
-----------------------------------
Marjorie Goldner
2
<PAGE>
interests and advantage of this Company that it enter into said
agreement with Trefoil. NOW, THEREFORE, be it
RESOLVED, that the President, any Vice
President, Secretary, Treasurer or other officer or any
agent of this corporation, or any one or more of them, be
and they are hereby authorized, empowered and directed to
enter into and execute on behalf of the Company an
agreement with Trefoil substantially in the form of a
draft of said agreement submitted to the undersigned and
attached to this consent, and to do and perform all such
acts and things deemed by any such officer or agent
necessary, convenient or proper to carry out or modify
any such agreement, hereby ratifying, approving and
confirming all that any said officers or agents have done
or may do or cause to be done in the premises and said
agreement may contain such terms, conditions, provisions
and undertakings as the officer executing the same deems
necessary and proper.
-----------------------------------
Sidney Rich
/s/ KEITH JAMPOLIS
-----------------------------------
Keith Jampolis
/s/ SEYMOUR B. JEFFRIES
-----------------------------------
Seymour B. Jeffries
-----------------------------------
Charlotte Rich
-----------------------------------
Melvin Rich
-----------------------------------
Irving Zimmerman
-----------------------------------
Marjorie Goldner
2
<PAGE>
interests and advantage of this Company that it enter into said
agreement with Trefoil. NOW, THEREFORE, be it
RESOLVED, that the President, any Vice
President, Secretary, Treasurer or other officer or any
agent of this corporation, or any one or more of them, be
and they are hereby authorized, empowered and directed to
enter into and execute on behalf of the Company an
agreement with Trefoil substantially in the form of a
draft of said agreement submitted to the undersigned and
attached to this consent, and to do and perform all such
acts and things deemed by any such officer or agent
necessary, convenient or proper to carry out or modify
any such agreement, hereby ratifying, approving and
confirming all that any said officers or agents have done
or may do or cause to be done in the premises and said
agreement may contain such terms, conditions, provisions
and undertakings as the officer executing the same deems
necessary and proper.
-----------------------------------
Sidney Rich
-----------------------------------
Keith Jampolis
/s/ SEYMOUR B. JEFFRIES
-----------------------------------
Seymour B. Jeffries
-----------------------------------
Charlotte Rich
-----------------------------------
Melvin Rich
/s/ IRVING ZIMMERMAN
-----------------------------------
Irving Zimmerman
-----------------------------------
Marjorie Goldner
2
<PAGE>
GUARANTY
In order to induce FIDELCOR BUSINESS CREDIT CORPORATION (hereinafter
referred to as "Trefoil") to now or hereafter make advances, loans, extend its
credit to, or enter into security agreements with EVERGOOD PRODUCTS CORPORATION,
PHOENIX LABORATORIES, INC. and GREAT EARTH DISTRIBUTION INC. (individually and
collectively "Debtor") and knowing that Trefoil will rely upon this guaranty,
the undersigned and each of them jointly and severally guarantee the due payment
and performance by said Debtor described in said financing agreement of all
moneys to be paid, and all things to be done, pursuant to each and every
condition and covenant contained in said agreement, or in any supplement
thereto, or any other transaction or agreement, as well as the due payment of
all other obligations which said Debtor may at any time owe to Trefoil, however
created; and the undersigned hereby indemnify Trefoil, and covenant to hold it
harmless against all obligations, demands, losses or liabilities, by whomsoever
asserted, suffered, incurred or paid by Trefoil as a result of, or in any way
arising out of, or following, or consequential to transactions under the
aforesaid security agreement or any other agreement. This guaranty shall be
absolute, continuing, unconditional and unlimited. Trefoil shall be under no
obligation to proceed first against the Debtor, or against any collateral
security which Trefoil may hold, before proceeding against the undersigned
hereunder. The undersigned agree that any collateral held as security by
Trefoil, whether under an agreement with the Debtor, or pursuant to this
guaranty, may be sold at public or private sale, and the undersigned further
agree that Trefoil shall have the right to bid at such sale. The undersigned
agree to indemnify and save Trefoil harmless for any costs and expenses that
Trefoil may incur in connection with the liquidation of collateral held by
Trefoil whether under agreement with the Debtor or the undersigned, and they
further agree to pay all attorneys fees agreed to by the Debtor, and the
reasonable attorneys fees incurred in connection with enforcement of this
guaranty agreement, which the parties agree shall be a sum equal to 15% of the
moneys due Trefoil upon placement of the claim with such attorney.
The undersigned agree: that this guaranty shall not be impaired by any
modification to which the parties to said security agreement may hereafter
agree, nor by any modification, release or other alteration of any of the
obligations hereby guaranteed, or of any security therefor or failure to perfect
any security interest, to all of which the undersigned hereby consent; that
their liability hereunder is direct and unconditional and may be enforced
without requiring Trefoil first to resort to any other right, remedy or
security; and that this guaranty shall continue in force until Secured Party
shall receive 30 days prior written notice by registered mail revoking it only
as to future transactions.
The undersigned waive: notice of acceptance hereof, notice of adverse
change in Debtor's financial condition; the right to a jury trial in any action
hereunder; presentment and protest of any instrument and notice thereof; notice
of default; and all other notices to which they might otherwise be entitled. As
security, they hereby assign to Trefoil all claims of any nature which they, or
any of them, may now or hereafter have against Debtor.
All actions or proceedings arising directly or indirectly on account of
this guaranty agreement shall be litigated only in courts having situs within
the State of New York and each guarantor for himself hereby consents to the
jurisdiction of any Local State or Federal Court located within the State of New
York and each guarantor for himself waives personal service of any and all
process upon him and consents that all such service of process be made by
certified mail, return receipt requested directed to such guarantor at the
address set forth below or the home address of such guarantor, if different, and
service so made shall be deemed complete three days after the same shall be
posted.
This guaranty, all acts and transactions hereunder, and the rights and
obligations of the parties hereto, shall be governed, construed and interpreted
according to the laws of the State of New York. This guaranty cannot be changed
or discharged orally, nor shall the same be terminated by death of any
guarantor, in which event deceased guarantor's estate shall be bound by the
obligations hereunder. Release of any guarantor, or the Debtor herein, shall not
affect the obligations hereunder of the remaining guarantors.
IN WITNESS WHEREOF, we have signed and sealed these presents this
__________ day of ____________ 1988.
ATTEST: SEE RIDER ATTACHED EVERGOOD PRODUCTS CORPORATION
HERETO AND MADE A
PART HEREOF
By: /s/ SEYMOUR JEFFRIES By:
------------------------------ ---------------------------------
Seymour Jeffries, Secretary Sidney Rich, President
ATTEST: PHOENIX LABORATORIES, INC.
By:
------------------------------ ---------------------------------
Melvin Rich, Secretary Sidney Rich, President
ATTEST: GREAT EARTH DISTRIBUTION, INC.
By: By:
------------------------------ ---------------------------------
Sidney Rich, Secretary Melvin Rich, President
<PAGE>
RIDER TO GUARANTY
by
EVERGOOD PRODUCTS CORPORATION,
PHOENIX LABORATORIES, INC. and
GREAT EARTH DISTRIBUTION, INC.
of
THE OBLIGATIONS OF EACH OF THE OTHER OF THEM
to
FIDELCOR BUSINESS CREDIT CORPORATION
To secure all of its obligations to Trefoil under this guaranty, Evergood
Products Corporation hereby grants to Trefoil a continuing security interest in
the following property:
(i) all present and future accounts, contract rights, chattel paper and general
intangibles (including, but not limited to, all of Debtor's now existing or
hereafter arising tax and duty claims and refunds, franchises, permits, customer
lists, goodwill and artwork, all now owned or hereafter acquired patents,
trademarks, copyrights, tradestyles, licenses or license agreements relative to
the rendering of services of the manufacture of goods and all Debtor's now
existing or hereafter arising interest in real and personal property),
documents, instruments, monies, deposits, securities, credits and letters of
credit, whether now owned or hereafter acquired by Debtor; Debtor's interest in
the goods represented by all accounts and all returned, reclaimed or repossessed
goods with respect thereto; all rights and remedies of Debtor under or in
connection with such collateral;
(ii) all present and future goods, including without limitation:
(a) all inventory, wherever located, whether now owned or hereafter
acquired by Debtor, including, without limitation, raw materials, materials used
or consumed in the Debtor's business, work in process and finished goods of
whatever kind, nature and description and whether in the possession or control
of a third party and all right, title and interest of Debtor therein and
thereto, all Debtor's rights as a seller of goods, and all inventory which may
be returned to Debtor by its customers, stopped in transit by Debtor or
repossessed by Debtor;
(b) all machinery, equipment, tools, furniture, fixtures and all
accessions and attachments thereto, wherever located whether now owned or
hereafter acquired by Debtor, all Debtor's rights to acquire any of the
foregoing, whether by exercise of purchase options or otherwise;
(iii) all Debtor's books and records, equipment and computer software relating
to any of the above; and
(iv) any and all products and proceeds of the foregoing in any form, including,
without limitation, any claims by Debtor against third parties for loss of or
damage to or destruction of any or all of the foregoing, and all insurance
proceeds relating to all of the above.
All terms used above which are defined in the Uniform Commercial Code shall have
the meanings therein stated.
<PAGE>
RESOLUTION
WHEREAS PHOENIX LABORATORIES, INC. and GREAT EARTH DISTRIBUTION, INC.
(individually "Debtor") is engaged (a) in business as a corporate affiliate of
this corporation or (b) in the business of selling, marketing, using or
otherwise dealing in merchandise, supplies, equipment, products or other
articles sold to it or bought from it by that corporation or it is in the
businesses interest of this corporation that "Debtor" obtain financing.
WHEREAS, said Debtor is desirous of obtaining funds, credit or other
financial assistance from FIDELCOR BUSINESS CREDIT CORPORATION herein referred
to as Trefoil and Trefoil is unwilling to extend credit or to render such
assistance to the Debtor unless this corporation shall enter into a guaranty
agreement with Trefoil substantially in the form of the draft of said agreement
submitted to this meeting; and
WHEREAS, in view of the provisions aforesaid and because of the inter-
corporate or business relations between this corporation and said Debtor it is
deemed to be to the direct interests and advantage of this corporation that it
enter into said agreement with Trefoil.
RESOLVED, that the President, any Vice-President, Secretary, Treasurer or
other officer or any agent of this corporation, or any one or more of them, be
and they are hereby authorized, empowered and directed to enter into and execute
on behalf of the corporation an agreement with Trefoil substantially in the form
of a draft of said agreement submitted to the meeting, and to do and perform all
such acts and things deemed by any such officer or agent necessary, convenient
or proper to carry out or modify any such agreement, hereby ratifying, approving
and confirming all that any said officers or agents have done or may do or cause
to be done is the premises and said agreement may contain such terms,
conditions, provisions and undertakings as the officer executing the same deems
necessary and proper.
The undersigned does hereby certify that I am Secretary and the keeper of
the corporate records and the seal of each of the corporation listed below that
the foregoing is a true and correct copy of resolutions duly and unanimously
adopted and ratified at a special meeting of the Board of Directors of said
corporation duly convened and held in accordance with its by-laws at the office
of said corporations on the date hereof as taken and transcribed by me from the
minutes of said meeting and compared by me with the original of said resolutions
recorded in said minutes and that the same has not in any way been modified,
repealed or rescinded but is in full force and effect; that the within and
foregoing agreement was duly executed pursuant thereto.
Witness any hand and seal of said corporation this 8th day of February,
1988.
PHOENIX LABORATORIES, INC.
By: /s/ MELVIN RICH
-----------------------------------
Melvin Rich, Secretary
GREAT EARTH DISTRIBUTION, INC.
By: /s/ SIDNEY RICH
--------------------------
Sidney Rich, Secretary
We consent to the above resolution and the guaranty executed pursuant
thereto and represent that we are the holders of all of the outstanding shares
of stock of PHOENIX LABORATORIES INC. and GREAT EARTH DISTRIBUTION, INC.
EVERGOOD PRODUCTS CORPORATION
By: /s/ SEYMOUR B. JEFFRIES
-----------------------------------------
Seymour B. Jeffries, Secretary
<PAGE>
GUARANTY
In order to induce FIDELCOR BUSINESS CREDIT CORPORATION (hereafter
"Trefoil") to now or hereafter make advances, loans, extend its credit to, or
enter into security agreements with PHOENIX LABORATORIES, INC. and GREAT EARTH
DISTRIBUTION, INC. (hereafter individually and collectively, "Debtor") and
knowing that Trefoil will rely upon this guaranty, the undersigned and each of
them jointly and severally guarantee the due payment and performance by said
Debtor described in said financing agreement of all moneys to be paid, and all
things to be done, pursuant to each and every condition and covenant contained
in said agreement, or in any supplement thereto, or any other transaction or
agreement, as well as the due payment of all other obligations which said Debtor
may at any time owe to Trefoil, however created; and the undersigned hereby
indemnify Trefoil, and covenant to hold it harmless against all obligations,
demands, losses or liabilities, by whomsoever asserted, suffered, incurred or
paid by Trefoil as a result of, or in any way arising out of, or following, or
consequential to transactions under the aforesaid security agreement or any
other agreement. This guaranty shall be absolute, continuing, unconditional and
unlimited. Trefoil shall be under no obligation to proceed first against the
Debtor, or against any collateral security which Trefoil may hold, before
proceeding against the undersigned hereunder. The undersigned agree that any
collateral held as security by Trefoil, whether under an agreement with the
Debtor, or pursuant to this guaranty, may be sold at public or private sale, and
the undersigned further agree that Trefoil shall have the right to bid at such
sale. The undersigned agree to indemnify and save Trefoil harmless for any costs
and expenses that Trefoil may incur in connection with the liquidation of
collateral held by Trefoil whether under agreement with the Debtor or the
undersigned, and they further agree to pay all attorneys fees agreed to by the
Debtor, and the reasonable attorneys fees incurred in connection with
enforcement of this guaranty agreement, which the parties agree shall be a sum
equal to 15% of the moneys due Trefoil upon placement of the claim with such
attorney.
The undersigned agree: that this guaranty shall not be impaired by any
modification to which the parties to said security agreement may hereafter
agree, nor by any modification, release or other alteration of any of the
obligations hereby guaranteed, or of any security therefor or failure to perfect
any security interest, to all of which the undersigned hereby consent; that
their liability hereunder is direct and unconditional and may be enforced
without requiring Trefoil first to resort to any other right, remedy or
security; and that this guaranty shall continue in force until Secured Party
shall receive 30 days prior written notice by registered mail revoking it only
as to future transactions.
The undersigned waive: notice of acceptance hereof, notice of adverse
change in Debtor's financial condition; the right to a jury trial in any action
hereunder; presentment and protest of any instrument and notice thereof; notice
of default; and all other notices to which they might otherwise be entitled. As
security, they hereby assign to Trefoil all claims of any nature which they, or
any of them, may now or hereafter have against Debtor.
All actions or proceedings arising directly or indirectly on account of
this guaranty agreement shall be litigated only in courts having situs within
the State of New York and each guarantor for himself hereby consents to the
jurisdiction of any Local State or Federal Court located within the State of New
York and each guarantor for himself waives personal service of any and all
process upon him and consents that all such service of process be made by
certified mail, return receipt requested directed to such guarantor at the
address set forth below or the home address of such guarantor, if different, and
service so made shall be deemed complete three days after the same shall be
posted.
This guaranty, all acts and transactions hereunder, and the rights and
obligations of the parties hereto, shall be governed, construed and interpreted
according to the laws of the State of New York. This guaranty cannot be changed
or discharged orally, nor shall the same be terminated by death of any
guarantor, in which event deceased guarantor's estate shall be bound by the
obligations hereunder. Release of any guarantor, or the Debtor herein, shall not
affect the obligations hereunder of the remaining guarantors.
Notwithstanding anything to the contrary contained in this guaranty, (1)
the joint and several liability of the guarantors hereunder shall in no event
exceed $150,000, plus the costs and expenses of collection, including attorneys
fees, as provided for herein. Such limitation on the liability of the guarantors
shall not be deemed to be a limitation on the amount of credit which may be
extended to the Debtor and (2) Trefoil shall not commence any action against any
guarantor to enforce this guaranty until six months after Trefoil makes demand
upon such guarantor for payment under this guaranty.
IN WITNESS WHEREOF, we have signed and sealed these presents this 19th day
of February 1988.
/s/ CHARLES RAICH /s/ SIDNEY RICH
- ---------------------------------- --------------------------------------
Witness SIDNEY RICH
70 Redwood Drive
Roslyn, New York 11576
--------------------------------------
Address
/s/ CHARLES RAICH /s/ MELVIN RICH
- ---------------------------------- --------------------------------------
Witness MELVIN RICH
15 Tuxedo Drive
Melville, New York 11747
--------------------------------------
Address
<PAGE>
FIDELCOR BUSINESS CREDIT CORPORATION
810 Seventh Avenue
New York, New York 10019
February 16, 1988
Hoffman - La Roche, Inc.
340 Kingsland Street
Nutley, New Jersey 07110
Re: PHOENIX LABORATORIES, INC. ("Borrower")
Gentlemen:
Reference is made to certain agreements entered into between
Borrower and Hoffman - La Roche, Inc. ("Roche") pursuant to which Borrower has
granted to Roche a security interest in all of Borrower's now owned and
hereafter acquired Equipment and the Proceeds thereof as collateral security for
certain obligations of Borrower to Roche (said agreements, together with all
agreements and instruments related thereto or delivered in connection therewith,
as the same may now exist or hereafter be amended or supplemented, are
hereinafter collectively referred to as the "Roche Agreements" and all
obligations of Borrower to Roche arising under or in connection with the Roche
Agreements are hereinafter collectively referred to as the "Roche Obligations").
Reference is also made to certain financing agreements entered or
about to be entered into between Borrower and Fidelcor Business Credit
Corporation ("Fidelcor"), including, without limitation, the Security Agreement
[Accounts, Contract Rights, Instruments and Goods pertaining thereto], the
Inventory Security Agreement, the Equipment Security Agreement, and all other
agreements creating or evidencing indebtedness or granting collateral security
or guarantees with respect thereto (all of the foregoing, together with all
agreements and instruments related thereto or delivered in connection therewith,
as the same may now exist or hereafter be amended or supplemented, are
hereinafter collectively referred to as the "Fidelcor Agreements").
This letter sets forth our agreement concerning the respective
interests of Roche and Fidelcor notwithstanding the terms and provisions of any
agreements or arrangements heretofore, now or hereafter entered into with
Borrower and irrespective of any rule of law.
<PAGE>
1. FIDELCOR SECURITY INTEREST.
(a) Roche hereby acknowledges that Fidelcor, pursuant to the
Fidelcor Agreements, has been or is about to be granted by Borrower a security
interest in and lien upon, among other things, all of Borrower's Equipment and
the Proceeds thereof (collectively, the "Collateral") to secure all present and
future obligations of Borrower to Fidelcor (hereinafter, the "Fidelcor
Obligations").
(b) Fidelcor hereby acknowledges that Roche, pursuant to the Roche
Agreements, has been granted by Borrower a security interest in a lien upon the
Collateral to secure the Roche Obligations.
2. PRIORITIES
Notwithstanding any provision to the contrary contained in the Roche
Agreements or the Fidelcor Agreements or any other agreement granting a security
interest to Roche or Fidelcor, and notwithstanding the time, date, order or
method of attachment or perfection of the security interests granted thereby,
and notwithstanding anything contained in any filing or agreement to which Roche
or Fidelcor may now or hereafter be a party and notwithstanding any provisions
of the Uniform Commercial Code or other applicable law, all perfected security
interests and liens of Fidelcor in and upon the Collateral, are and shall be
prior in right and interest to the security interests and liens of Roche in and
upon the Collateral and the security interests and liens of Roche in and upon
the Collateral are and shall be, in all respects, subject and subordinate to the
security interests and liens of Fidelcor in and upon the Collateral to the full
extent of the Fidelcor Obligations outstanding at any time and from time to
time.
3. STANDSTILL AND RELEASE.
Roche agrees that unless and until all of the Fidelcor Obligations
have been fully and indefeasibly paid and satisfied, Roche shall not, without
the prior written consent of Fidelcor, exercise any rights or assert any claims
with respect to any Collateral, nor seek to foreclose on its security interest
therein, nor take any action, directly or indirectly, that would interfere with
the rights of Fidelcor with respect to the Collateral. Roche agrees to release
or otherwise terminate its security interest in and lien upon the Collateral,
but not the Proceeds thereof, which may be sole or otherwise disposed of either
by Fidelcor, its agents, or Borrower with Fidelcor's consent, whether in the
ordinary course of business or after the declaration of any event of default
pursuant to the Fidelcor Agreements, immediately upon
-2-
<PAGE>
Fidelcor's request, and to immediately deliver Uniform Commercial Code financing
or termination statements and such other documents as Fidelcor may reasonably
require in connection therewith. In connection with any such sale or
disposition, Fidelcor shall proceed in a commercially reasonable manner and
shall give Roche written notice of any such sale or disposition (ATTN:
Treasurer) at the same time Fidelcor gives Borrower such notice.
4. FURTHER ASSURANCES.
The parties hereto shall execute and deliver such additional
documents and take such additional action as shall be reasonably necessary to
effectuate the provisions and purposes of this Agreement.
5. SUCCESSORS AND ASSIGNS.
All terms covenants and conditions herein contained shall inure to
the benefit of, and be binding upon, the parties hereto, their successor and
assigns.
6. ENTIRE AGREEMENT.
This Agreement sets forth the entire agreement of the parties hereto
with respect to the subject matter hereof, neither this Agreement nor any term
hereof may be modified, altered, waived, discharged or terminated orally, but
only by an instrument in writing executed by the parties hereto.
7. UNIFORM COMMERCIAL CODE DEFINITIONS.
All capitalized terms used herein which are defined in the Uniform
Commercial Code in effect in the State of New York shall have the meanings set
forth therein unless otherwise defined herein.
8. GOVERNING LAW.
This Agreement shall be governed by, and construed in accordance
with, the laws of the State of New York.
-3-
<PAGE>
If the foregoing correctly states our understanding and agreement,
kindly sign the counterpart of this letter in the space provided below.
Very truly your,
FIDELCOR BUSINESS CREDIT
CORPORATION
By: /s/ STUART NECTOW
--------------------------------
Stuart Nectow
Title: VP
--------------------------------
Approved As To Form
____ DEPT.
By: RAG
READ AND ACCEPTED:
HOFFMAN-LA ROCHE INC.
By: /s/ WILLIAM L. HENNRICH
-------------------------------
William L. Hennrich
Title: Treasurer
----------------------------
-4-
<PAGE>
[LOGO]
FIDELCOR BUSINESS 810 Seventh Avenue
CREDIT CORPORATION New York, NY 10019
(212) 333-7445
- --------------------------------------------------------------------------------
June 29, 1988
Phoenix Laboratories, Inc.
175 Lauman Lane
Hicksville, New York 11801
Great Earth Distribution, Inc.
14211 Gannet Street
La Mirada, California 90638
RE: Security Agreement (Accounts, etc.) executed
February 17, 1988, by and between Phoenix
Laboratories, Inc., and Great Earth Distribution,
Inc. (collectively, "Debtors"), on the one hand, and
Fidelcor Business Credit Corporation, on the other
hand (the "Agreement")
------------------------------------------------------
Gentlemen:
We have agreed to temporarily increase our outstanding advances to
you under the Agreement to an amount which is Three Hundred Thousand Dollars
($300,000.00) in excess of the maximum amount allowable pursuant to the formulas
set forth in paragraph 2 of the Agreement and paragraph G of the rider thereto.
In consideration of the foregoing, you hereby agree to pay us a fee
in the amount of Three Thousand Dollars ($3,000.00).
All other terms and conditions of the Agreement shall remain in full
force and effect.
<PAGE>
Please evidence your agreement to the terms of this letter by
signing in the space provided below and returning this letter to us at the above
address. A Copy of this letter is enclosed for your records.
Very truly yours,
FIDELCOR BUSINESS CREDIT
CORPORATION
By: /s/ NANCY A. KAGAN
----------------------------------
Nancy A. Kagan
Its: VP
------------------------------
Read and Agreed to:
PHOENIX LABORATORIES, INC.
By: /s/ SEYMOUR RICH
-------------------------------
Its President
-------------------------
GREAT EARTH DISTRIBUTION, INC.
By: /s/ MEL RICH
-------------------------------
Its President
-------------------------
<PAGE>
[LOGO]
FIDELCOR BUSINESS 810 Seventh Avenue
CREDIT CORPORATION New York, NY 10019
(212) 333-7445
- --------------------------------------------------------------------------------
October 4, 1989
Phoenix Laboratories, Inc.
175 Lauman Lane
Hicksville, New York 11801
Great Earth Distribution, Inc.
14211 Gannet Street
La Mirada, California 90638
RE: Security Agreement (Accounts, etc.) executed
February 17, 1988, by and between Phoenix
Laboratories, Inc. and Great Earth Distribution,
Inc. on the one hand, and Fidelcor Business Credit
Corporation, on the other hand (the "Agreement")
-----------------------------------------------------
Gentlemen:
This will confirm the following amendments to the referenced
agreement:
1. Effective on February 17, 1990, the interest rate will be
reduced from 3 1/2% plus the announced Fidelity Bank, N.A.
prime rate to 3 1/4% plus the announced Fidelity Bank, N.A.
prime rate. Accordingly, the first sentence of paragraph 6
of the printed portion of the Agreement is amended to read:
"That Debtor will pay Trefoil for its advances made hereunder
a charge 3 1/4% per annum plus the prime rate announced by
Fidelity Bank, N.A., Philadelphia, Pennsylvania, whether or
not said rate is the best rate available at said bank."
2. Effective as of the date hereof, the initial contract term is
extended to February 17, 1991. Accordingly, the first
sentence of Paragraph 26 of the printed portion of the
Agreement is amended to read:
"That this Agreement shall remain in effect until February
17, 1991 and shall be deemed automatically renewed for
successive periods of one year."
3. Effective as of the date hereof the prepayment premium set
forth in Paragraph 30 of the printed portion of the Agreement
is amended so that the first sentence of said paragraph shall
read:
<PAGE>
Phoenix Laboratories, Inc.
Great Earth Distribution, Inc.
October 4, 1989
Page Two
"Debtor may on five days notice, prior to the end of any
calendar month, prepay and terminate this Security Agreement
by paying to Trefoil in cash or certified check, the entire
unpaid principal balance plus accrued charges, together with
a sum equal to 25% of the average monthly charges for the
immediately preceding six months or from the date of the
agreement whichever is less, multiplied by the number of
months of the unexpired balance of the term of this agreement
(the "prepayment premium"). However, if the prepayment occurs
between February 17, 1990 and August 17, 1990, then the
prepayment premium shall be the lesser of the amount computed
in the preceding sentence or the fixed sum of $62,500,000.00,
and if the prepayment occurs between August 18, 1990 and
February 17, 1991, then the prepayment premium shall be the
lesser of the amount computed in the preceding sentence or
the fixed sum of $37,000.00."
4. Effective as of the date hereof the inventory advance rate
for the Phoenix Laboratories, Inc. inventory shall be
increased to 30% and the sublimit on Accounts Advances to
Great Earth Distribution, Inc. shall be increased to
$600,000.00. Accordingly, paragraph G of the Rider to the
Agreement shall be amended to read:
"G. Trefoil agrees that in addition to the advances made
with reference to the formula set forth in Paragraph 2
of the printed portion of this agreement ("Accounts
Advances"), Trefoil shall make additional advances to
Debtor, in such amounts from time to time determined by
Trefoil in it sole discretion, of up to thirty percent
(30%) of the value of Phoenix's acceptable and eligible
raw material inventory and of up to twenty-five percent
(25%) of the value of GED's acceptable and eligible
finished goods inventory (collectively the "Inventory
Advances"). As used herein, "value" shall mean the
lower of cost or market, as determined by Trefoil.
Except in Trefoil's sole discretion, (1) the aggregate
principal amount of Accounts Advances to GED shall not
exceed, at any time outstanding, the lesser of (a)
$600,000, or (b) an amount equal to (i) thirty percent
(30%) of the value of Phoenix's acceptable and eligible
raw material inventory, plus (ii) twenty-five percent
(25%) of the value of GED's
<PAGE>
Phoenix Laboratories, Inc.
Great Earth Distribution, Inc.
October 4, 1989
Page Three
acceptable finished goods inventory, and (2) the
aggregate principal amount of the Inventory Advances to
Debtors shall not exceed $1,000,000 at any time
outstanding."
All other terms and conditions of the Agreement shall remain in full
force and effect. Please evidence your agreement to the foregoing by signing in
the space provided below and returning this letter to us. A copy is enclosed for
your records.
Very truly yours,
FIDELCOR BUSINESS CREDIT
CORPORATION
By: /s/ John [illegible]
--------------------------------
Its: AVP
--------------------------------
Read and Agreed to:
PHOENIX LABORATORIES, INC.
By: /s/ MEL RICH
-------------------------------
Its: Vice President
------------------------------
GREAT EARTH DISTRIBUTION, INC.
By: /s/ MEL RICH
-------------------------------
Its: President
------------------------------
<PAGE>
THE CIT GROUP/CREDIT FINANCE
810 Seventh Avenue
New York, NY 10019
212 974-7400
FAX: 212 974-7688
THE
CIT
GROUP
August 13, 1991
Phoenix Laboratories, Inc.
175 Lauman Lane
Hicksville, New York 11801
Great Earth Distribution, Inc.
14211 Gannet Street
La Mirada, California 90638
RE: Security Agreement (Accounts, etc.) executed
February 17, 1988, by and between Phoenix
Laboratories, Inc. ("Phoenix") and Great Earth
Distribution, Inc. ("GED") on the one hand, and The
CIT Group/Credit Finance, Inc., assignee of Fidelcor
Business Credit Corporation, on the other hand (the
"Accounts Agreement") Promissory Note in the
original principal balance of $800,000.00 and all
related agreements, documents, and instruments
(collectively the "Financing Agreements")
------------------------------------------------------
Gentlemen:
As you are aware, The CIT Group/Credit Finance, Inc. ("CIT")
purchased substantially all of the assets of Fidelcor Business Credit
Corporation on February 4, 1991, including its loans to Phoenix and GED. In
connection therewith, you consent to the assignment to CIT and agree that all
rights and privileges under the Financing Agreements have been transferred and
assigned to CIT.
As additional collateral to secure your Obligations to CIT, as that
term is defined in the Rider to the Accounts Agreement, we have been granted a
security interest in among other things, all of the personal property, including
but not limited to service marks and trademarks of Great Earth International,
Inc., Great Earth International Franchising Corp., Great Earth Stores, Inc., and
Great Earth International Licensing Corp. (the "Great Earth Companies"). The
Great Earth Companies are presently wholly owned subsidiaries of Evergood
Products Corporation ("Evergood"), the sole shareholder of Phoenix and GED, and
a guarantor of CIT's loans to GED and Phoenix. You have requested that we
consent to the sale by Evergood of the stock of the Great Earth Companies to
Great Earth Vitamins, Ltd. ("GEV") release our
<PAGE>
Phoenix Laboratories, Inc.
Great Earth Distribution, Inc.
August 13, 1991
Page 2
liens on the assets of the Great Earth Companies and grant you a three month
moratorium on payments due on your term loan from CIT. As partial consideration
for the sale of the stock of the Great Earth Companies to GEV, Evergood will
receive two notes in the aggregate amount of $1,200,000.00. The obligations
under the GEV notes will be secured by a grant of a security interest in and
pledge of the stock of the Great Earth Companies, a security interest in all of
the general intangibles, including but not limited to service marks and
trademarks of the Great Earth Companies and GEV, and a security interest and
assignment of all royalty payments due to any of the Great Earth Companies or
GEV from any stores operating under the Great Earth franchise system. CIT has
agreed to release its liens on the assets of the Great Earth Companies, provided
that: (a) it receives an assignment from Evergood of the foregoing security
interests it obtains from GEV and/or any of the Great Earth Companies which will
further secure Evergood's guaranty of the obligations of Phoenix and GED to CIT,
(b) CIT's accounts receivable advance to GED decreases at the rate of $25,000.00
per mouth until the entire advance is zero, (c) GEV and the Great Earth
Companies agree that CIT shall have the right to use any of the trademarks or
service marks of the Great Earth Companies to sell any of the GED or Phoenix
inventory as provided in the Financing Agreements and letter dated even date
herewith between GEV and the Great Earth Companies and (d) the other amendments
set forth below are implemented:
Accordingly, this will confirm our agreement to amend the Financing
Agreements as follows:
(1) All references to Fidelcor Business Credit Corporation or
Trefoil shall mean The CIT Group/Credit Finance, Inc.
(2) Paragraph 6 of the printed portion of the accounts Agreement
is hereby deleted in its entirety and the following is
substituted therefor:
"6. That Debtor will pay Trefoil for its advances made
hereunder a charge of three and one-quarter percent (3 1/4%)
plus the rate of interest publicly announced by Manufacturers
Hanover Trust Company in New York, New York or its successors
from time to time as its reference rate (the reference rate
is not intended to be the lowest rate of interest charged by
Manufacturers Hanover Trust Company to its borrowers),
computed on a 360 day year. In the event of a change in the
reference rate charged at the Manufacturers Hanover Trust
Company, adjustment hereunder shall be made on the day of
such change in the reference rate. All charges shall be
computed upon the average daily balances outstanding and
charged to Debtor's account or paid monthly."
<PAGE>
Phoenix Laboratories, Inc.
Great Earth Distribution, Inc.
August 13, 1991
Page 3
(3) Paragraph G. of the Rider to the Accounts Agreement is
amended to read:
"G. Trefoil agrees that in addition to the advances made
with reference to the formula set forth in Paragraph
of the printed portion of this agreement ("Accounts
Advances"), Trefoil shall make additional advances to
Debtor, in such amounts from time to time determined
by Trefoil in its sole discretion, of up to thirty
percent (30%) of the value of Phoenix's acceptable and
eligible raw material inventory and of up to
twenty-five percent (25%) of the value of GED's
acceptable and eligible finished goods inventory
(collectively, the "Inventory Advances"). As used
herein, "value" shall mean the lower of cost or
market, as determined by Trefoil. Except in Trefoil's
sole discretion, (1) the aggregate principal amount of
Accounts Advances to GED shall not exceed, at any time
outstanding, the lesser of (a) $465,000.00 (the "GED
Accounts Sublimit"), or (b) an amount equal to (i)
thirty percent (30%) of the value of Phoenix's
acceptable and eligible raw material inventory, plus
(ii) twenty-five percent (25%) of the value of GED's
acceptable and eligible finished foods inventory, and
(2) the aggregate principal amount of the Inventory
Advances to Debtors shall not exceed $1,000,000.00 at
any time outstanding. The GED Accounts Sublimit shall
decrease by the amount of $25,000.00 on the first day
of each month, commencing on September 1, 1991 until
the GED Accounts Sublimit is zero."
(4) On February 17, 1988, you executed a Promissory Note (the
"Note") in the original principal balance of $800,000.00 to
evidence a term loan advance against your machinery and
equipment. This will confirm that the Note is amended to
provide that interest will be paid at the rate of 3 1/4% plus
the announced reference rate of Manufacturers Hanover Trust
Company, or its successors, that the consecutive monthly
installments of principal shall be in the amount of
$14,166.66, that there will be a three month moratorium on
the principal amortization of the Note commencing September
1, 1991 (for the principal payments due on September 1, 1991,
October 1, 1991 and November 1, 1991) with the next principal
payment due on December 1, 1991, and that the entire
outstanding balance of the Note will be due and payable on
February 17, 1992.
(5) In consideration of our agreement to release our liens
against the Great Earth Companies, you have agreed to
<PAGE>
Phoenix Laboratories, Inc.
Great Earth Distribution, Inc.
August 13, 1991
Page 4
pay us a facility fee equal to $5,000.00, which shall be
charged into your loan on the date hereof.
All other terms and conditions of the Financing Agreements shall
remain in full force and effect.
Please evidence your agreement to the foregoing by signing below and
returning this letter to us.
Very truly your,
CIT GROUP/CREDIT FINANCE, INC.
By: /s/
--------------------------------
Title: VP
--------------------------------
Agreed and Acknowledged:
PHOENIX LABORATORIES, INC. GREAT EARTH DISTRIBUTION, INC.
By: /s/ MEL RICH By: /s/ MEL RICH
---------------------------- --------------------------------
Title: Vice President Title: President
---------------------------- --------------------------------
Each of the undersigned acknowledges the above amendments and the
assignment to CIT and confirms and agrees that all rights and privileges under
the guaranty dated February 17, 1998 executed by each will inure to the benefit
of CIT.
Confirmed
/s/ SIDNEY RICH /s/ MEL RICH /s/ SIDNEY RICH
- ------------------------ ------------------ ---------------------
SIDNEY RICH MELVIN RICH SIDNEY RICH 10/7/
by Mel Rich as attorney-in-fact
The undersigned acknowledges the above amendments and the assignment to
CIT and confirms and agrees that all rights and privileges under its guaranty
dated February 17, 1988, of the obligations of Phoenix Laboratories, Inc. and
Great Earth Distribution, Inc. executed by the undersigned and its grant of a
security interest to secure the guaranty will inure to the benefit of CIT. As
further security to secure the undersigned's obligations to CIT under its
guaranty, the undersigned specifically grants a security interest to CIT in all
of the security interests granted to the undersigned by Great Earth
International, Inc., Great Earth International Franchising Corp., Great Earth
Stores, Inc. and Great Earth International Licensing Corp. (the "Great Earth
Vitamins Subsidiaries") and assigns to CIT all of the notes due to the
undersigned from Great Earth Vitamins, Ltd. in connection with that certain
Stock Purchase Agreement dated June 8, 1991 and all collateral which secures
said notes including the stock of the Great Earth Vitamins Subsidiaries.
EVERGOOD PRODUCTS CORPORATION
By: /s/ MEL RICH
----------------------------
Title: V.P.
----------------------------
<PAGE>
THE CIT GROUP/CREDIT FINANCE
810 Seventh Avenue
New York, NY 10019
212 974-7400
FAX: 212 974-7668
THE
CIT
GROUP
December 16, 1991
Phoenix Laboratories, Inc.
175 Lauman Lane
Hicksville, New York 11801
Great Earth Distribution, Inc.
14211 Gannet Street
La Mirada, California 90638
RE: Security Agreement (Accounts, etc.) executed
February 17, 1988, by and between Phoenix
Laboratories, Inc., ("Phoenix") and Great Earth
Distribution, Inc. ("GED") and The CIT Group/Credit
Finance, Inc., ("CIT"), assignee of Fidelcor
Business Credit Corporation (the "Account
Agreement") Promissory Note in the original
principal balance of $800,000.00 (the "Note") and
all related agreements, documents, and instruments
(collectively the "Financing Agreements")
------------------------------------------------------
Gentlemen:
The present term of your Financing Agreements with CIT expires on
February 17, 1992. We have now agreed to an extension of the Financing
Agreements and modifications of the Note as reflected by the Amended and
Restated Promissory Note to be executed on the date hereof in the form annexed
hereto under the terms and conditions set forth below.
Accordingly, this will confirm our agreement to amend the Financing
Agreements as follows:
(1) Paragraph 6 of the printed portion of the Accounts Agreement
is hereby deleted in its entirety and the following is
substituted therefor:
"6. That Debtor will pay Trefoil for its advances made
hereunder a charge of three and one-half percent (3 1/2%) per
annum plus the rate of interest publicly announced by
Manufacturers Hanover Trust Company in New York, New York, or
its successor, from time to time as its reference rate (the
reference rate is not intended to be the lowest rate of
interest charged by
A company of
Dai-ichi Kangyo Bank and
Manufacturer's Hanover
<PAGE>
Phoenix Laboratories, Inc.
Great Earth Distribution, Inc.
December 16, 1991
Page 2
Manufacturers Hanover Trust Company to its borrowers),
computed on a 360 day year. In the event of a change in the
reference rate charged at the Manufacturers Hanover Trust
Company, or its successor, adjustment hereunder shall be made
on the day of such change in the reference rate. All charges
shall be computed upon the average daily balances outstanding
and charged to Debtor's account or paid monthly."
(2) Paragraph G. of the Rider to the Accounts Agreement is
amended to read:
"G. Trefoil agrees that in addition to the advances made
with reference to the formula set forth in Paragraph
2 of the printed portion of this agreement ("Accounts
Advances"), Trefoil shall make additional advances to
Debtor, in such amounts from time to time determined
by Trefoil in its sole discretion, of up to thirty
percent (30%) of the value of Phoenix's acceptable
and eligible raw material inventory and of up to
twenty-five percent (25%) of the value of GED's
acceptable and eligible unfinished goods inventory
(collectively, the "Inventory Advances"). As used
herein, "value" shall mean the lower of cost or
market price, as determined by Trefoil. Except in
Trefoil's sole discretion, (1) the aggregate
principal amount of Accounts Advances to GED shall
not exceed, at any time outstanding, the lesser of
(a) $365,000.00 (the "GED Accounts Sublimit"), or (b)
an amount equal to (i) thirty percent (30%) of the
value of Phoenix's acceptable and eligible raw
material inventory, plus (ii) twenty-five percent
(25%) of the value of GED's acceptable and eligible
finished goods inventory, and (2) the aggregate
principal amount of the Inventory Advances to Debtors
shall not exceed $500,000.00 at any time
outstanding. The GED Accounts Sublimit shall
decrease by the amount of $25,000.00 on the first day
of each month, commencing on January 1, 1992 until
the GED Accounts Sublimit is zero."
(3) The second sentence of paragraph F. of the Rider to the
Accounts Agreement is amended to read:
"Debtor will pay all out-of-pocket costs of field
examinations to be conducted by Trefoil as provided in
paragraph 13 of the printed portion of the agreement plus
$550.00 per person per day."
(4) Paragraph H. of the Rider to the Accounts Agreement is
amended to read:
<PAGE>
Phoenix Laboratories, Inc.
Great Earth Distribution, Inc.
December 16, 1991
Page 3
"Except in Trefoil's sole discretion, the aggregate principal
amount of the advances made by Trefoil to Debtors under the
Financing Agreements, including the Accounts Advances and the
Inventory Advances shall not exceed the principal amount of
$2,500,000.00 at any time outstanding (the "Credit Line")."
(5) The first sentence of paragraph 26 of the printed portion of
the Accounts Agreement is amended to read:
"That this Agreement shall remain in effect until February
17, 1994 and shall be deemed automatically renewed for
successive periods of one year."
In addition to all other fees at any time payable by Debtors to CIT,
Debtors shall pay CIT on the date hereof and subsequently on each anniversary
date of the Accounts Agreement, commencing with the February 17, 1993
anniversary date, a Facility Fee in the amount of $18,750.00, which fee is fully
earned as of the date hereof and may be charged by CIT to any account of the
Debtors maintained by CIT.
All other terms and conditions of the Financing Agreements shall
remain in full force and effect.
Please evidence your agreement to the foregoing by signing below and
returning this letter to us.
Very truly your,
THE CIT GROUP/CREDIT
FINANCE, INC.
By: /s/
--------------------------------
Title: VP
--------------------------------
Agreed and Acknowledged:
PHOENIX LABORATORIES, INC. GREAT EARTH DISTRIBUTION, INC.
By: /s/ By: /s/ MEL RICH
---------------------------- --------------------------------
Title: Pres Title: President
---------------------------- --------------------------------
Confirmed:
- ---------------------------------- /s/ MELVIN RICH
Sidney Rich ---------------------------------------
Melvin Rich
EVERGOOD PRODUCTS CORPORATION
By: /s/
----------------------------
Title: Pres
<PAGE>
THE CIT GROUP/CREDIT FINANCE
810 Seventh Avenue
New York, NY 10019
212 974-7400
FAX: 212 974-7668
THE
CIT
GROUP
June 19, 1992
Phoenix Laboratories, Inc.
175 Lauman Lane
Hicksville, New York 11801
Great Earth Distribution, Inc.
14211 Gannet Street
La Mirada, California 90638
RE: Security Agreement (Accounts, etc.) executed
February 17, 1988, by and between Phoenix
Laboratories, Inc. ("Phoenix") and Great Earth
Distribution, Inc. ("GED") and The CIT Group/Credit
Finance, Inc., ("CIT"), assignee of Fidelcor
Business Credit Corporation, (the "Accounts
Agreement") Second Amended and Restated Promissory
Note in the original principal balance of
$740,000.00 (the "Note") and all related agreements,
documents, and instruments (collectively the
"Financing Agreements")
------------------------------------------------------
Gentlemen:
You have requested that we grant you a $250,000.00 advance in excess
of the contractual formulas set forth in the Financing Agreements. We have
agreed to do so based on the amended terms and conditions set forth below and in
the Second Amended and Restated Promissory Note which you have executed even
date herewith:
(1) Paragraph G. of the Rider to the Accounts Agreement is
amended to read:
"G. Trefoil agrees that in addition to the advances made
with reference to the formula set forth in Paragraph
2 of the printed portion of this agreement
("Accounts Advances"), Trefoil shall make additional
advances to Debtor, in such amounts from time to
time determined by Trefoil in its sole discretion,
of up to thirty percent (30%) of the value of
Phoenix's acceptable and eligible raw material
inventory and of up to twenty-five percent (25%) of
the value GED's acceptable and eligible finished
goods inventory (collectively,
<PAGE>
Phoenix Laboratories, Inc.
Great Earth Distribution, Inc.
June 19, 1992
Page 2
the "Inventory Advances"). As used herein, "value"
shall mean the lower of cost or market price, as
determined by Trefoil. Except in Trefoil's sole
discretion, (1) the aggregate principal amount of
Accounts Advances to GED shall not exceed, at any time
outstanding, the lesser of (a) $365,000.00 (the "GED
Accounts Sublimit"), or (b) an amount equal to (i)
thirty percent (30%) of the value of Phoenix's
acceptable and eligible raw material inventory, plus
(ii) twenty-five percent (25%) of the value of GED's
acceptable and eligible finished goods inventory, and
(2) the aggregate principal amount of the Inventory
Advances to Debtors shall not exceed $500,000.00 at
any time outstanding."
In addition to all other fees at any time payable by you to CIT, you
shall pay CIT on the date hereof a facility fee in the amount of $2,000.00 which
fee is fully earned as of the date hereof and may be charged by CIT to any
account of yours maintained by CIT.
All other terms and conditions of the Financing Agreements shall
remain in full force and effect.
Please evidence your agreement to the foregoing by signing below and
returning this letter to us.
Very truly your,
THE CIT GROUP/CREDIT
FINANCE, INC.
By: /s/
--------------------------------
Title: VP
--------------------------------
Agreed and Acknowledged:
PHOENIX LABORATORIES, INC. GREAT EARTH DISTRIBUTION, INC.
By: /s/ SIDNEY RICH By: /s/ MEL RICH
---------------------------- --------------------------------
Title: President Title: President
-------------------------- -------------------------------
EVERGOOD PRODUCTS CORPORATION
By: /s/
------------------------------
Title: President
----------------------------
<PAGE>
-1-
SECOND AMENDED AND RESTATED PROMISSORY NOTE
$740,000.00 New York, New York
June ___, 1992
FOR VALUE RECEIVED, PHOENIX LABORATORIES, INC. and GREAT EARTH
DISTRIBUTION, INC. (individually and collectively the "Payor"), jointly and
severally hereby promise to pay to the order of THE CIT GROUP/CREDIT FINANCE,
INC., a Delaware corporation ("Payee"), at its offices located at 810 Seventh
Avenue, New York, New York 10019, or at such other place as Payee or any holder
hereof may from time to time designate, the principal sum of SEVEN HUNDRED FORTY
THOUSAND DOLLARS ($740,000.00) in lawful money of the United States, in twenty
one (21) installments, with the first three monthly installments in the amount
of SIX THOUSAND ONE HUNDRED SIXTY SIX AND SIXTY SEVEN ONE HUNDREDTHS DOLLARS
($6,166.67) and thereafter the next seventeen consecutive monthly installments
in the amount of TWELVE THOUSAND THREE HUNDRED THIRTY THREE AND THIRTY FOUR ONE
HUNDREDTHS DOLLARS ($12,333.34) each payable on the first (1st) day of each
consecutive month, commencing July 1, 1992, and one (1) final installment in the
amount of the entire unpaid principal balance of this Note, payable February 17,
1994. Payor hereby further promises to pay interest to Payee in like money at
said office or place on the unpaid principal balance hereof, computed at the
rate of three and one-half percent (3 1/2%) per annum plus the reference rate as
announced by Manufacturers Hanover Trust Company or its successor, in New York,
New York from time to time as its reference rate (the reference rate is not
intended to be the lowest rate of interest charged by Manufacturers Hanover
Trust Company to its borrowers) and such interest shall be payable monthly on
the first (1st) day of each month, commencing July 1, 1992. Interest shall be
calculated on the basis of a 360-day year and actual days elapsed. In no
<PAGE>
-2-
event shall the interest charged hereunder exceed the maximum permitted under
the laws of the State of New York.
This Note is secured by (i) the collateral described in the Security
Agreement (Accounts, Contract Rights, Instruments and Goods pertaining thereto),
the Inventory Security Agreement and the Equipment Security Agreement, each
executed February 17, 1988 by and between Payor and Fidelcor Business Credit
Corporation ("Fidelcor"), assignor of Payee, and all related agreements,
instruments (including but not limited to this Note) and documents granting
collateral security to Payee or evidencing or creating indebtedness of Payor to
Payee, all guaranties executed by third parties guaranteeing Payor's obligations
to Payee, including those executed by: Sidney Rich, Melvin Rich and Evergood
Products Corporation (the "Guarantors") (the foregoing, as the same may now
exist and have been and may hereafter be amended, modified, replaced or
supplemented, are hereafter collectively referred to as the "Financing
Agreements").
This Note supercedes and replaces but does not extinguish any of the
unpaid liabilities and obligations under the Amended and Restated Promissory
Note dated December 16, 1991, as amended, in the original principal amount of
$740,000.00 by Payor in favor of Payee (the "Existing Note"). The indebtedness
of Payor to Payee evidenced hereby shall be deemed to include the unpaid balance
of the indebtedness including unpaid interest heretofore evidenced by the
Existing Note and shall be repayable together with interest accrued and accruing
and other sums in accordance with the terms hereof. Payor hereby acknowledges
that Payor is as of the date hereof indebted to Payee, in the principal amount
hereof, together with interest accrued and accruing through and after the date
hereof, without offset, defense or counterclaim of any kind, nature or
description whatsoever. The amendment and restatement contained herein shall
not, in any manner be construed to constitute payment of, or impair, limit,
cancel or extinguish the indebtedness evidenced by the Existing Note and the
liens and security interests securing such indebtedness shall not in any manner
be impaired, limited, terminated, waived or released hereby.
At the time any payment is due hereunder, Payee may, at its option, charge
the amount thereof to any account of Payor maintained by Payee.
If an event of default shall occur for any reason under any of the
Financing Agreements, or if any of the Financing Agreements shall be terminated
or not be renewed for any reason whatsoever, then and in any such event, in
addition to all rights and remedies of Payee under the Financing Agreements,
applicable law or otherwise (all such rights and remedies being cumulative, not
exclusive and enforceable alternatively, successively and concurrently) Payee
may, at its option, declare any or all of Payor's obligations under the
Financing Agreements, including, but not limited to, all amounts owing under
this Note, to be due
<PAGE>
-3-
and payable, whereupon the then unpaid balance hereof together with all interest
accrued thereon, shall forthwith become due and payable, together with costs and
expenses of collection, including reasonable attorney's fees.
Payee shall not be required to resort to any of the aforementioned
collateral for payment, but may proceed against Payor and/or the Guarantors in
such order and manner as Payee may choose. None of the rights of Payee shall be
waived or diminished by any failure or delay in the exercise thereof. Payor
hereby waives diligence, demand, presentment, protest and notice of any kind and
assents to extensions of time of payment, release, surrender or substitution of
collateral security, or forbearance or other indulgence, without notice.
In the event of any litigation with respect to any of the Financing
Agreements, Payor waives the right to a trial by jury, all rights of set-off,
and any right to interpose permissive counterclaims and cross-claims, and Payor
consents to the jurisdiction of the courts of the State of New York and of any
federal court locate din such State. Payor further waives personal service of
any and all process upon Payor and consents that all such service of process may
be made by certified mail, return receipt requested, directed to Payor at the
address listed above or of which Payor advises Payee, in writing, and service so
made shall be deemed complete three days after the same shall have been posted.
This Note shall be governed by and construed, and all rights and obligations
hereunder determined, in accordance with the laws of the State of New York, and
shall be binding upon the successors and assigns of Payor and inure to the
benefit of Payee, its successors, endorsees and assigns.
If any term or provision of this Note shall be held invalid, illegal or
unenforceable, the validity of all other terms and provisions hereof shall in no
way be affected thereby.
The execution and delivery of this Note has been authorized by the
board of directors of Payor.
PHOENIX LABORATORIES, INC.
By:
------------------------------------
Title:
------------------------------------
GREAT EARTH DISTRIBUTION, INC.
By:
------------------------------------
Title:
------------------------------------
<PAGE>
EVERGOOD PRODUCTS CORPORATION
175 LAUMAN LANE
HICKSVILLE, NEW YORK 11801
June _, 1992
Great Earth Vitamins, Ltd.
c/o Mitchell Feinglas
44 Old Aspetang Road
Katonah, New York 10536
Re: $675,000.00 Secured Promissory Note dated July 12, 1991
$500,000.00 Secured Promissory Note Dated July 12, 1991
-------------------------------------------------------
Gentlemen:
We have assigned all of our rights under the above notes to The CIT
Group/Credit Finance, Inc. ("CIT"). Accordingly, until you receive written
notice from CIT directing you otherwise, all payments due on the above notes
shall be made directly to CIT at its office at 810 Seventh Avenue, New York, New
York 10019, attention 19th floor.
Very truly yours,
EVERGOOD PRODUCTS CORPORATION
By:
------------------------------------
Title:
------------------------------------
<PAGE>
The CIT Group/Credit Finance
810 Seventh Avenue
New York, NY 10019 212-974-7400 FAX: 212-974-7688
THE
CIT
GROUP
June 19, 1992
Phoenix Laboratories, Inc.
175 Lauman Lane
Hicksville, New York 11801
Re: $50,000.00 Merchandise Guaranty (in the form annexed hereto) in
Favor of Hoffman LaRoche, Inc. (the "Merchandise Guaranty")
-----------------------------------------------------------
Gentlemen:
You have requested that we open the Merchandise Guaranty and we have agreed to
do so. In consideration of our opening the Merchandise Guaranty it is agreed
that:
1. You shall pay us a charge equal to three and one-half percent (3 1/2%)
of the face amount of the Merchandise Guaranty from the date of
issuance thereof to the date we are released from any obligation
therefor.
2. We shall have the right to charge your account, maintained with us,
for any amount that we are called upon to pay under the Merchandise
Guaranty.
3. We shall have the right to reserve from your accounts receivable
availability an amount which we may determine, in our sole discretion,
to be sufficient to pay for' the Merchandise Guaranty.
4. We shall not be responsible to you for the accuracy or propriety of
any claim made or any payment made by us and our sole responsibility
to you shall be for willful misconduct.
5. In order to induce us to open the Merchandise Guaranty now or in the
future, you hereby agree to indemnify us and hold us harmless against
<PAGE>
all claims, actions, demands, loss, damages and expenses (including
attorney's fees), which may be made against us or which we may incur
in connection with the Merchandise Guaranty.
6. We shall be entitled to make payment under the Merchandise Guaranty to
your supplier upon its demand, and all such payments shall be
conclusive upon you according to the terms of the Merchandise
Guaranty. Your sole recourse, in the event that we make payment under
the Merchandise Guaranty, shall be against your supplier to whom the
Merchandise Guaranty was extended.
7. We shall have no responsibility to you for the quality or quantity of
merchandise you have ordered and/or received, and your sole recourse
with respect thereto shall be against your supplier.
8. Our opening of the Merchandise Guaranty shall be secured by the
security interest you have heretofore granted to us in your accounts
receivable, inventory, equipment, real estate and any other
collateral, as evidenced by the financing agreements executed between
us on February 17, 1988 and any and all amendments thereto
(collectively, the "Agreements").
All other terms and conditions of the Agreements shall continue in full force
and effect.
Very truly yours,
THE CIT GROUP/CREDIT
FINANCE, INC.
By: /s/
------------------------------------
Title: VP
------------------------------------
Agreed to:
PHOENIX LABORATORIES, INC.
By:
------------------------------------
Title:
------------------------------------
<PAGE>
CASH COLLATERAL AGREEMENT
June 24, 1992
The CIT Group/Credit Finance, Inc.
810 Seventh Avenue
New York, New York 10019
Gentlemen:
Reference is made to certain financing agreements between you and
Phoenix Laboratories, Inc. and Great Earth Distribution, Inc. (individually and
collectively the "Debtor"), including, but not limited to, that certain Security
Agreement (Accounts, Contract Rights, Instruments and Goods pertaining thereto)
dated February 17, 1988 as amended (the foregoing, together with all other
related agreements, documents or instruments, as the same may now exist or may
hereafter be created, amended or supplemented, are collectively referred to
herein as the "Financing Agreements").
Reference is also made to the undersigned's guaranty of the obligations
of the Debtor under the Financing Agreements (the "Guaranty").
As an inducement for and in consideration of your extending financial
accommodations to the Debtor and to secure the undersigned's guaranty, the
undersigned hereby agrees as follows:
(1) The undersigned hereby pledges to you, as cash collateral securing
the Guaranty, the sum of $100,000.00 (the "Cash Collateral");
(2) Your rights to the Cash Collateral shall be governed by the
Guaranty and you shall have all rights and remedies afforded by
law, including, but not limited to, all rights of a secured party
under the Uniform Commercial Code.
<PAGE>
Page Two
CIT agrees that provided that no event of default has occurred under
the Financing Agreements or the Guaranty, CIT shall pay interest on the first
day of each month (commencing July 1, 1992) to the undersigned based on the rate
of interest paid for thirty day certificates of deposit by Chemical Bank, in New
York, New York on the last day of the preceding month.
This Agreement shall be governed and construed by the laws of the State
of New York and shall be binding upon and inure to the benefit of the successors
and assigns of CIT and the undersigned.
Very truly yours,
/s/ MELVIN RICH
------------------------------
MELVIN RICH
Agreed and accepted:
THE CIT GROUP/CREDIT
FINANCE, INC.
By: /s/
--------------------------------
Title: Vice President
--------------------------------
<PAGE>
The CIT Group/Credit Finance
810 Seventh Avenue
New York, NY 10019 212-974-7400 FAX: 212-974-7688
THE
CIT
GROUP
August 27, 1993
Phoenix Laboratories, Inc.
Great Earth Distribution, Inc.
175 Lauman Lane
Hicksville, New York l180l
Re: Security Agreement (Accounts, etc.) executed February 17,1988, by and
between Phoenix Laboratories, Inc. ("Phoenix") and Great Earth
Distribution, Inc. ("GED") and The CIT Group/Credit Finance, Inc.
("CIT'"), assignee of Fidelcor Business Credit Corporation (the
"Accounts Agreement"), Second Amended and Restated Promissory Note in
the original principal balance of $740,000 (the "Note"), as amended,
and all related agreements, amendments, documents and instruments
collectively, the "Financing Agreements")
---------------------------------------------------------------------
Gentlemen:
The present term of your Financing Agreements with CIT expires February
17, 1994. We have now agreed to an extension of the Financing Agreements and
modifications of the Note as reflected by the Third Amended and Restated
Promissory Note to be executed on the date hereof in the form annexed hereto
under the terms and conditions set forth below.
Accordingly, this will confirm our agreement to amend the Financing
Agreements as follows:
1. Paragraph 6 of the printed portion of the Accounts Agreement is hereby
deleted in its- entirety and the following is substituted therefor:
"6. That Debtor will pay Trefoil for its advances made hereunder a
charge of three and one-half percent (3 1/2%) per annum plus the rate
of interest publicly announced by Chemical Bank, New York, New York
from time to time as it prime rate (the prime rate is not intended to
be the lowest rate of interest charged by Chemical Bank to its
borrowers), computed on a 360 day year. In the event of a change in the
prime rate charged at Chemical Bank, adjustment hereunder
<PAGE>
Phoenix Laboratories, Inc.
Great Earth Distribution, Inc.
August 27, 1993
Page 2
shall be made on the day of such change in the prime rate. All charges
shall be computed upon the average daily balances outstanding and
charged to Debtor' s account or paid monthly."
2. Paragraph G. of the Rider to the Accounts Agreement is amended to read:
"G. Trefoil agrees that in addition to the advances made with reference
to the formula set forth in Paragraph 2 of the printed portion of this
agreement ("Accounts Advances"), Trefoil shall make additional advances
to Debtor, in such its sole discretion, of up to thirty percent (30%)
of the value of Phoenix's acceptable and eligible raw material
inventory and of up to thirty-five percent (35%) of the value of GED's
acceptable and eligible finished goods inventory (collectively, the
"Inventory Advances"). As used herein, "value" shall mean the lower of
cost or market price, as determined by Trefoil. Except in Trefoil's
sole discretion,(1) the aggregate principal amount of Accounts Advances
to GED shall not exceed, at any time outstanding, the lesser of (a)
$365,000 the "GED Accounts Sublimit"), or (b) an amount equal to (i)
thirty percent (30%) of the value of Phoenix's acceptable and eligible
raw material inventory, plus (ii) thirty-five percent (35%) of the
value of GED's acceptable and eligible finished goods inventory, and
(2) the aggregate principal amount of the Inventory Advances to Debtors
shall not exceed $750,000 at any time outstanding with a further
sublimit at any time outstanding of $460,000 against the GED acceptable
and eligible finished goods inventory. The GED Accounts sublimit shall
reduce by $10,000 per month commencing December 1, 1993."
3. Paragraph H. of the Rider to the Accounts Agreement is amended to read:
"Except in Trefoil's sole discretion, the aggregate principal amount of
the advances made by Trefoil to Debtors under the Financing Agreements,
including the Accounts Advances and the Inventory Advances shall not
exceed the principal amount of $3,500,000 at any time outstanding (the
"Credit Line")."
4. The first sentence of paragraph J. of the Rider to the Accounts
Agreement is amended to read:
"In consideration of Trefoil entering into this Agreement and incurring
accounting, operating and management expenses. Debtors shall pay to
Trefoil each calendar month a minimum charge equal to the amount of
interest Debtors would pay
<PAGE>
Phoenix Laboratories, Inc.
Great Earth Distribution, Inc.
August 27, 1993
Page 3
Trefoil if they at all times had an aggregate average daily cash
balance outstanding of $1,500,000 bearing interest at the rate
provided for in Paragraph 6 of the printed portion of this
Agreement."
5. The first sentence of paragraph 26 of the printed portion of the
Accounts Agreement is amended to read:
"That this Agreement shall remain in effect until February 17, 1995
and shall be deemed automatically renewed for successive terms of one
year."
6. After the first sentence of paragraph P. of the Rider to the Accounts
Agreement the following sentence is hereby added:
"Without in any way limiting Trefoil's rights to withhold and set up
reserves, in its sole discretion, Trefoil shall have the right to
establish a reserve from Debtor's availability upon a default by GED
pursuant to its lease agreement with Livingston Pharmaceutical
Distribution, Inc. for any amount in excess of $100,000 at any time
outstanding."
7. Paragraph Q. is hereby added after Paragraph P. of the Rider to the
Accounts Agreement:
"Q. Trefoil agrees that in addition to the Accounts Advances and
Inventory Advances, Trefoil shall make additional advances to Debtor
of up to 100% against any cash collateral pledged by any guarantor of
the obligations to secure his guaranty. Such advances shall not
exceed $200,000 in the aggregate at any time outstanding."
8. You agree to execute a cash collateral agreement on the date hereof
in the form annexed hereto, in connection with monies pledged by
Melvin Rich to CIT in the amount of $200,000 which monies are and
shall continue to be placed in certificates of deposit in the name of
CIT.
9. Phoenix and GED agree to execute on or about the date hereof a Letter
of Credit Agreement (the "L/C Agreement") in the form annexed hereto
by which Phoenix and GED can open letters of credit, banker's
acceptances and/or merchandise guaranties in accordance with the
terms of said L/C Agreement in the aggregate amount of $150,000.
10. Phoenix and GED to direct Livingston Pharmaceutical Distribution,
Inc. ("LPD") to execute a warehouse agreement, including but not
limited to a provision, in which LPD agrees
<PAGE>
Phoenix Laboratories, Inc.
Great Earth Distribution, Inc.
August 27, 1993
Page 4
to give CIT a monthly report of all distribution service charges and
other fees which are owed by GED (the "LPD charges") and LPD's
agreement that it shall subordinate all of its rights in and to GED's
inventory, located at LPD's warehouse until all advances against the
GED inventory have been repaid. After CIT's advances against the GED
inventory are repaid in full, LPD's claim (including any statutory
lien) against the GED inventory shall be limited to $100,000.
In addition to all other fees at any time payable by Debtors to CIT,
Debtors shall pay CIT on each anniversary date of the Accounts Agreement,
commencing with the February 17, 1994 anniversary date, a Facility Fee in the
amount of $35,000, which fee is fully earned as of the date hereof and may be
charged by CIT to any account of the Debtors maintained by CIT.
All other terms and conditions of the Financing Agreements shall
remain in full force and effect.
Please evidence your agreement to the foregoing by signing in the
space provided below and returning this letter to us.
Very truly yours,
THE CIT GROUP/CREDIT
FINANCE, INC.
By: /s/
-----------------------------------
Title: VP
--------------------------------
Agreed to:
PHOENIX LABORATORIES, INC. GREAT EARTH DISTRIBUTION, INC.
By: /s/ By: /s/
-------------------------------- --------------------------------
Title: Pres Title: V. Pres.
-------------------------------- --------------------------------
Confirmed:
/s/ SIDNEY RICH
- --------------------------------- ------------------------------------
SIDNEY RICH MELVIN RICH
EVERGOOD PRODUCTS CORPORATION
By: /s/
-----------------------------
Title: Pres
---------------------------
<PAGE>
The CIT Group/Credit Finance
135 West 50th Street
New York, NY 10020
Tel: 212-408-6000
Fax: 212-408-6100
LETTER OF CREDIT AGREEMENT
August __, 1993
THE
CIT
GROUP
Phoenix Laboratories, Inc.
Great Earth Distribution, Inc.
175 Lauman Lane
Hicksville, NY 11801
Gentlemen:
This Agreement shall supplement the Security Agreement (Accounts, etc.)
dated February 17, 1988 (the "Loan Agreement") and the other security and/or
financing agreements, each executed by you and/or related parties in our favor
(all of the foregoing, including, but not limited to, this Agreement, together
with all related documents, instruments, notes, guaranties and agreements as the
same now exist or may hereafter be amended, modified, supplemented, extended,
renewed or replaced, are collectively referred to herein as the "Agreements").
We may, from time to time, in our sole discretion, at your request and for
your account: (i) issue or open letters of credit and/or merchandise purchase
guaranties for the purchase of goods and services in the ordinary course of your
business or for any other purpose approved by us, (ii) assist you in
establishing or opening letters of credit for such purposes by indemnifying the
issuer thereof or guaranteeing your payment and performance to such issuer in
connection therewith, and/or (iii) issue or guarantee drafts and acceptances
relating to the foregoing or otherwise. All such letters of credit, merchandise
purchase or other guaranties and other such financial accommodations are
referred to herein individually as a "Credit" and collectively as "Credits".
These arrangements shall be handled by us subject to the following terms and
conditions:
1. The opening or issuance of any Credit shall at all times and in all
respects be in our sole discretion. The amount and extent of any
Credits and the terms and conditions thereof, shall in all respects
be determined solely by us and shall be subject to change,
modification and revision by us, at any time and from time to time.
2. Any indebtedness, liability or obligation of any sort whatsoever
however arising, whether present or future,
<PAGE>
fixed or contingent, secured or unsecured, due or to become due,
paid or incurred, arising or incurred in connection with any Credit,
or otherwise (herein the "Obligations") shall be incurred solely as
an accommodation to you and for your account. Obligations shall
include, without limitation, (a) all amounts due or which may become
due under any Credit: (b) all amounts charged or chargeable to you
or to us by any bank, other financial institution or correspondent
bank which opens, issues or is involved with such Credits; (c) any
other charges of an issuer of any Credit; (d) our fees and
commissions and all fees and commissions of an issuer of any Credit;
(e) duties, freight, taxes, costs, insurance and all such other
charges and expenses which may pertain directly or indirectly to any
Obligations or Credits or to the goods or documents relating
thereto: and (f) our charges as herein provided. We shall have the
right, at any time and without notice to you, to charge your account
on our books with the amount of any and all such Obligations. All
Obligations are to be repaid to us solely in United States currency.
3. As additional security for the prompt and indefeasible payment in
full of all of your present and future obligations, liabilities and
indebtedness, whether under the Agreements, any other agreement
between us or otherwise, as well as to secure the payment in full of
all of the Obligations, you hereby pledge and grant to us a
continuing security interest in and general lien upon the following
property acquired by you in connection with any Credits, whether now
owned or hereafter acquired by you, wherever located, whether in
transit or not (collectively, the "Collateral"): (a) all raw
materials, work-in-process, finished goods and all other inventory
and goods of whatsoever kind or nature, wherever located, including
inventory or goods in transit; (b) documents of payment, transport
and title or the equivalents thereof, including, without limitation,
all warehouse receipts, bills of lading, shipping documents, chattel
paper and instruments, all whether negotiable or not; and (c) all
cash and non-cash proceeds thereof of whatever sort and however
arising. All collateral granted to us under the Agreements shall
also secure all Obligations hereunder.
4. You warrant and represent that we have and shall have at all times a
valid and effective first and paramount lien on and security
interest in all said Collateral and that your title to said
Collateral is unencumbered by any other liens except as permitted
under the Agreements. You also warrant and represent that all sales
of any goods or inventory covered hereby shall be made by you in the
ordinary course of business and the
<PAGE>
Page 3
accounts arising from such sales and proceeds thereof shall be
transferred and assigned to us pursuant to the Agreements; and you
confirm that our lien and security interest extends and attaches to
those accounts and proceeds. Further, you warrant and represent
that, except as you otherwise advise us in writing at the time of
your request for such accommodations, all Credits are being opened
to cover actual purchase of goods and inventory solely for your
account, and said goods will not be sold or transferred, other than
as herein provided without our specific, prior written consent. You
agree to comply with the requirements of any and all laws in order
to grant to us and maintain in our favor, a valid first lien upon
and security interest in the Collateral and to do whatever we may
request from time to time in order to effect the purposes of this
Agreement, including, but without limitation, filing financing
statements, keeping records and making reports on the Collateral to
us, advising us of the location of all Collateral, marking,
labeling, and segregating such Collateral and obtaining any
necessary agreements or waivers with regard to the Collateral.
5. You unconditionally agree to indemnify us and hold us harmless from
any and all loss, claim or liability arising from any transactions
or occurrences relating to any Credit established or opened for your
account, the Collateral relating thereto and any drafts or
acceptances thereunder, and all Obligations hereunder, including any
such loss or claim due to any action taken by an issuer of any
Credit. You further agree to hold us harmless for any errors or
omissions, whether caused by us, by the issuer of a Credit or
otherwise. Your unconditional obligation to us hereunder shall not
be modified or diminished for any reason or in any manner
whatsoever. You agree that any charges made to us for your account
by an issuer of any Credit shall be conclusive on us and may be
charged to your account.
6. We shall not be responsible for: the existence, character, quality,
condition, packing, value or delivery of the goods purporting to be
represented by any documents; any difference or variation in the
character, quality, quantity, condition, packing, value or delivery
of the goods from that expressed in the documents; the validity,
sufficiency or genuineness of any documents or of any endorsements
thereon, even if such documents should in fact prove to be in any or
all respects invalid, insufficient, fraudulent or forged; the time,
place, manner or order in which shipment is made; partial or
incomplete shipment, or failure or omission to ship any or all of
the goods referred to in the Credits or documents; any deviation
from
<PAGE>
Page 4
instructions; delay, default, or fraud by the shipper and/or anyone
else in connection with the Collateral or the shipping thereof; or
any breach of contract between the shipper or vendors and
yourselves. Furthermore, without being limited by the foregoing, we
shall not be responsible for any act or omission with respect to or
in connection with any Collateral.
7. You agree that any action taken by us, if taken in good faith, or
any action taken by an issuer of any Credit, under or in connection
with any Credit or the Collateral, shall be binding on you and shall
not create any resulting liability to us. In furtherance thereof, we
shall have the full right and authority to clear and resolve any
questions of non-compliance of documents; to give any instructions
as to acceptance or rejection of any documents or goods; to execute
any and all applications for steamship or airways guarantees,
indemnities or delivery orders: to grant any extensions of the
maturity of, time of payment for, or time of presentation of, any
drafts, acceptances, or documents; and to agree to any amendments,
renewals, extensions, modifications, changes or cancellations of any
of the terms or conditions of any of the applications or Credits; or
all in our sole name, and the issuer thereof shall be entitled to
comply with and honor any and all such documents or instruments
executed by or received solely from us, all without any notice to or
any consent from you.
8. Without our express consent and endorsement in writing, you agree
not to clear and resolve any questions of non-compliance of
documents; to give any instructions as to acceptance or rejection of
any documents or goods; to execute any and all applications for
steamship or airways guarantees, indemnities or delivery orders; to
grant any extensions of the maturity of, time of payment for, or
time of presentation of, any drafts, acceptances or documents; or to
agree to any amendments, renewals, extensions, modifications,
changes or cancellations of any of the terms or conditions of any of
the applications or Credits.
9. You warrant and represent that all shipments made under any Credit
are in accordance with the governmental laws and regulations of the
countries in which the shipments originate and terminate, and are
not prohibited by any such laws and regulations. You assume all
risk, liability and responsibility for, and agree to pay and
discharge, all present and future local, state, federal or foreign
taxes, duties, or levies. Any embargo, restriction, laws, customs or
regulations of any country, state, city, or other political
subdivision,
<PAGE>
Page 5
where the Collateral is or may be located, or wherein payments are
to be made, or wherein drafts may be drawn, negotiated, accepted, or
paid, shall be solely your risk, liability and responsibility.
10. Any rights, remedies, duties or obligations granted or undertaken by
you to any issuer of a Credit in any application for a Credit, or
any standing agreement relating to the Credits or otherwise, shall
be deemed to have been granted to us and apply in all respects to us
and shall be in addition to any rights, remedies, duties or
obligations contained herein.
11. You hereby agree that prior to your repayment of the Obligations, we
may be deemed to be the absolute owner of, with unqualified rights
to possession and disposition of, all Collateral, all of which may
be held by us as security as herein provided. Should possession of
any such Collateral be transferred to you, it shall continue to
serve as security as herein provided, and any goods or inventory
covered hereby may be sold, transferred or disposed of only as
herein above provided.
12. You agree to maintain insurance on the Collateral and we shall have
rights with respect thereto as provided in the Loan Agreement.
13. On breach by you of any of the terms or provisions of this
Agreement, or the occurrence of an event of default under the other
Agreements or any other agreement now or hereafter entered into
between us, or on the nonpayment when due of any Obligations or
other indebtedness owing to us, whether or not the Agreements shall
continue, or upon your calling a meeting of your creditors, making a
general assignment for the benefit of creditors or if there is filed
by or against you a petition in bankruptcy or for the appointment of
a receiver or there is commenced under any bankruptcy or insolvency
law proceedings for your relief or for the composition, extension,
arrangement or adjustment of any of your obligations, or your
business is discontinued as a going concern, we shall have the
right, with or without notice to you, to foreclose the lien and
security interest created herein by any available judicial
procedure, or to take possession of the Collateral without judicial
process, and to enter any premises where the Collateral may be
located for the purpose of taking possession of or removing the
Collateral. In the event we or any issuer of a Credit institute an
action to recover any of the Collateral or seek recovery of the
Collateral by way of prejudgment remedy, you hereby waive the
posting of any bond which might otherwise by required. We shall have
the right
<PAGE>
Page 6
to sell, lease. or otherwise dispose of all or any part of the
Collateral, whether the goods have arrived or are to arrive, in its
then condition or after further preparation or processing, in your
name or in ours, or in the name of such party as we may designate,
either at public or private sale or at any broker's board, in lots
or in bulk, for cash or for credit, with or without warranties or
representations, and upon such other terms and conditions as we in
our sole discretion may deem advisable, and we shall have the right
to purchase at any such sale. You agree, at our request, to assemble
the Collateral and to make it available to us at places which we
shall select, whether your premises or elsewhere, and to make it
available to us all of your premises and facilities for the purpose
of our taking possession of, removing or putting the Collateral in
saleable form. The proceeds of any such sale, lease or other
disposition of the Collateral shall be applied first to the expenses
of retaking, holding, storing, processing and preparing for sale,
selling, and the like, and then to the satisfaction of the
Obligations or other indebtedness to us, application as to
particular Obligations or as to principal or interest to be in our
absolute and sole discretion. You shall be liable to us for, and
shall pay to us on demand, any deficiency which may remain after
such sale, lease or other disposition, and we in turn agree to remit
to you any surplus resulting therefrom. We shall have all rights of
a secured party under the Uniform Commercial Code. The enumeration
of the foregoing rights is not intended to be exhaustive and the
exercise of any right shall not preclude the exercise of any other
rights, all of which shall be cumulative.
14. In addition to any charges, fees or expenses charged to us for your
account by an issuer of any Credit in connection with these
transactions (all of which will be charged to your account and when
made by the issuer shall be conclusive on us) we shall be entitled
to charge your account monthly with the following commissions for
our services hereunder: (a) a charge of three and one-half percent
(3 1/2%) per annum on all amounts available under any Credits
(except the fee shall be four percent (4%) per annum for any standby
letters of credit). The principal amount of Credits outstanding at
any time shall not exceed $150,000 subject to your availability
under the Loan Agreement.
15. This Agreement, which is subject to modification only in writing, is
supplementary to, and is to be considered as a part of the
Agreements and shall take effect when dated, accepted and signed in
the State of New York by one of our officers.
<PAGE>
Page 7
If the foregoing is in accordance with your understanding, please so
indicate by signing and returning the enclosed copies of this letter, after
which we will return a fully executed copy to you for your files.
Very truly yours,
THE CIT GROUP/CREDIT
FINANCE, INC.
By: /s/
---------------------------------------
Title: VP
---------------------------------------
Read and Agreed to:
PHOENIX LABORATORIES, INC.
By: /s/
----------------------------------
Title: Pres.
-------------------------------
GREAT EARTH DISTRIBUTION, INC.
By: /s/
----------------------------------
Title: V. Pres.
-------------------------------
<PAGE>
THIRD AMENDED AND RESTATED PROMISSORY NOTE
$740,000 New York, New York
August __, 1993
FOR VALUE RECEIVED, PHOENIX LABORATORIES, INC. and GREAT EARTH
DISTRIBUTION, INC. (individually and collectively the "Payor"), jointly and
severally hereby promise to pay to the order of THE CIT GROUP/CREDIT FINANCE,
INC., a Delaware corporation ("Payee"), at its offices located at 135 West 50th
Street, New York, New York 10020, or at such other place as Payee or any holder
hereof may from time to time designate, the principal sum of SEVEN HUNDRED FORTY
THOUSAND DOLLARS ($740,000.00) in lawful money of the United States, in nineteen
(19) installments, with the first six monthly installments in the amount of SIX
THOUSAND ONE HUNDRED SIXTY SIX AND SIXTY SEVEN ONE HUNDREDTHS DOLLARS
($6,166.67) and thereafter the next twelve consecutive monthly installments in
the amount of TWELVE THOUSAND THREE HUNDRED THIRTY THREE AND THIRTY FOUR ONE
HUNDREDTHS DOLLARS ($12,333.34) each payable on the first (1st) day of each
consecutive month, commencing September 1, 1993, and one (1) final installment
in the amount of the entire unpaid principal balance of this Note, payable
February 17, 1995. Payor hereby further promises to pay interest to Payee in
like money at said office or place on the unpaid principal balance hereof,
computed at the rate of three and one-half percent (3 1/2%) per annum plus the
prime rate as announced by Chemical Bank or its successor, in New York, New York
from time to time as its prime rate (the prime rate is not intended to be the
lowest rate of interest charged by Chemical Bank to its borrowers) and such
interest shall be payable monthly on the first (1st) day of each month,
commencing September 1, 1993. Interest shall be calculated on the basis of a
360-day year and actual days elapsed. In no event shall the interest charged
hereunder exceed the maximum permitted under the laws of the State of New York.
This Note is secured by (i) the collateral described in the Security
Agreement (Accounts, Contract Rights, Instruments and Goods pertaining thereto),
the Inventory Security Agreement and the Equipment Security Agreement, each
executed February 17, 1988 by and between Payor and Fidelcor Business Credit
Corporation ("Fidelcor"), assignor of payee, and all related agreements,
<PAGE>
instruments (including but not limited to this Note) and documents granting
collateral security to Payee or evidencing or creating indebtedness of Payor to
Payee, all guaranties executed by third parties guaranteeing Payor's obligations
to Payee, including those executed by: Sidney Rich, Melvin Rich and Evergood
Products Corporation (the "Guarantors") (the foregoing, as the same may now
exist and have been and may hereafter be amended, modified, replaced or
supplemented, are hereafter collectively referred to as the "Financing
Agreements").
This Note supercedes and replaces but does not extinguish any of the
unpaid liabilities and obligations under the Second Amended and Restated
Promissory Note dated June 19, 1992, in the original principal. amount of
$740,000.00 by Payor in favor of Payee (the "Existing Note"). The indebtedness
of Payor to Payee evidenced hereby shall be deemed to include the unpaid balance
of the indebtedness including unpaid interest heretofore evidenced by the
Existing Note and shall be repayable together with interest accrued and accruing
and other sums in accordance with the terms hereof. Payor hereby acknowledges
that Payor is as of the date hereof indebted to Payee, in the principal amount
hereof, together with interest accrued and accruing through and after the date
hereof, without offset, defense or counterclaim of any kind, nature or
description whatsoever. The amendment and restatement contained herein shall
not, in any manner be construed to constitute payment of, or impair, limit,
cancel or extinguish the indebtedness evidenced by the Existing Note and the
liens and security interests securing such indebtedness shall not in any manner
be impaired, limited, terminated, waived or released hereby.
At the time any payment is due hereunder, Payee may, at its option, charge
the amount thereof to any account of Payor maintained by Payee.
If an event of default shall occur for any reason under any of the
Financing Agreements, or if any of the Financing Agreements shall be terminated
or not be renewed for any reason whatsoever, then and in any such event, in
addition to all rights and remedies of Payee under the Financing Agreements,
applicable law or otherwise (all such rights and remedies being cumulative, not
exclusive and enforceable alternatively, successively and concurrently) Payee
may, at its option, declare any or all of Payor's obligations under the
Financing Agreements, including, but not limited to, all amounts owing under
this Note, to be due and payable, whereupon the then unpaid balance hereof
together with all interest accrued thereon, shall forthwith become due and
payable, together with costs and expenses of collection, including reasonable
attorney's fees.
Payee shall not be required to resort to any of the aforementioned
collateral for payment, but may proceed against Payor and/or the Guarantors in
such order and manner as Payee may choose. None of the rights of Payee shall be
waived or diminished by any failure or delay in the exercise thereof. Payor
hereby
<PAGE>
waives diligence, demand, presentment, protest and notice of any kind and
assents to extensions of time of payment, release, surrender or substitution of
collateral security, or forbearance or other indulgence, without notice.
In the event of any litigation with respect to any of the Financing
Agreements, Payor waives the right to a trial by jury, all rights of set-off,
and any right to interpose permissive counterclaims and cross-claims, and Payor
consents to the jurisdiction of the courts of the State of New York and of any
federal court located in such State. Payor further waives personal service of
any and all process upon Payor and consents that all such service of process may
be made by certified mail, return receipt requested, directed to Payor at the
address listed above or of which Payor advises Payee, in writing, and service so
made shall be deemed complete three days after the same shall have been posted.
This Note shall be governed by and construed, and all rights and obligations
hereunder determined, in accordance with the laws of the State of New York, and
shall be binding upon the successors and assigns of Payor and inure to the
benefit of Payee, its successors, endorsees and assigns.
If any term or provision of this Note shall be held invalid, illegal or
unenforceable, the validity of all other terms and provisions hereof shall in no
way be affected thereby.
The execution and delivery of this Note has been authorized by the board
of directors of Payor.
PHOENIX LABORATORIES, INC.
By: /s/
-----------------------------
Title: Pres.
---------------------------
GREAT EARTH DISTRIBUTION, INC.
By: /s/
-----------------------------
Title: V. Pres.
---------------------------
<PAGE>
CASH COLLATERAL AGREEMENT
August __, 1993
The CIT Group/Credit Finance, Inc.
135 West 50th Street
New York, New York 10020
Gentlemen:
Reference is made to certain financing agreements between you and Phoenix
Laboratories, Inc. and Great Earth Distribution, Inc. (individually and
collectively the "Debtor"), including, but not limited to, that certain Security
Agreement (Accounts, Contract Rights, Instruments and Goods pertaining thereto)
dated February 17, 1988 as amended (the foregoing, together with all other
related agreements, documents or instruments, as the same may now exist or may
hereafter be created, amended or supplemented, are collectively referred to
herein as the "Financing Agreements").
Reference is also made to the undersigned's replacement guaranty of the
obligations of the Debtor under the Financing Agreements executed on or about
June 1992 (the "Guaranty").
As an inducement for and in consideration of your extending financial
accommodations to the Debtor and to secure the undersigned's guaranty, the
undersigned hereby agrees as follows:
1. The undersigned has pledged to you, as cash collateral securing the
Guaranty, the sum of $200,000 (the "Cash Collateral");
2. Your rights to the Cash Collateral shall be governed by the Guaranty
and you shall have all rights and remedies afforded by law,
including, but not limited to, all rights of a secured party under
the Uniform Commercial Code.
3. The Cash Collateral shall be invested in a thirty day certificate of
deposit in CIT's name at Chemical Bank, New York, New York.
<PAGE>
The CIT Group/Credit Finance, Inc.,
August __, 1993
Page Two
CIT agrees that provided that no event of default has occurred under the
Financing Agreements or the Guaranty, CIT shall pay interest on the first day of
each month (commencing September 1, 1993) to the undersigned based on the rate
of interest paid for thirty day certificates of deposit by Chemical Bank, in New
York, New York on the last day of the preceding month.
This Agreement shall be governed and construed by the laws of the State of
New York and shall be binding upon and inure to the benefit of the successors
and assigns of CIT and the undersigned
Very truly yours,
/s/ MELVIN RICH
--------------------------------
MELVIN RICH
Agreed and Accepted:
THE CIT GROUP/CREDIT
FINANCE, INC.
By: /s/
------------------------------
Title: VP
---------------------------
<PAGE>
[LETTERHEAD OF RAICH ENDE MALTER LERNER & CO.
CERTIFIED PUBLIC ACCOUNTANTS
MEMORANDUM
TO: MARK BARNES
From: CHARLES D. RAICH
Date: SEPTEMBER 9, 1993
Re: AGREEMENT WITH CIT
- --------------------------------------------------------------------------------
I would suggest that you add the following language at the bottom of page two
(2) of the CIT agreement entitled Notification of security Interest:
It is mutually agreed that all charges due LFDI from the date of
notification of LFDI by CIT of default by the borrower will be paid to
LPDI by CIT in accordance with the terms of the contract then in effect
between GED and LPDI.
If this language is satisfactory please have it added to the copy of the CIT
agreement you now have and fax the same to me at (516) 228-9122 so that we can
expedite our closing at which time CIT will wire to you on GED's behalf,
$100,000.
BY FAX
/jam
<PAGE>
THE CIT GROUP/CREDIT FINANCE
135 West 50th Street
New York, NY 10020
Tel: 212-408-6000
Fax: 212-408-6100
THE
CIT
GROUP
August __, 1993
Livingston Pharmaceutical Distribution, Inc.
111 Continental Drive, Ste. 211
Newark, Delaware 19713
Re: NOTIFICATION OF SECURITY INTEREST
Gentlemen:
Please be advised that Great Earth Distribution, Inc. ("GED") has granted to us
a security interest in all of its inventory and goods stored at any time at your
warehouse, as part of our secured financing arrangements.
You are to abide solely by our written instructions regarding the release of any
of said goods and inventory.
For the present, we instruct you to continue to release cases of inventory and
goods daily, pursuant to directions given to you by GED. The foregoing shall
remain subject to our right to change such instructions at any time by giving
you written notice of any such change.
You hereby acknowledge receipt of the foregoing notice and agree to abide by all
written instructions that The CIT Group/Credit Finance, Inc. ("CIT") may from
time to time hereafter give to the undersigned with respect to goods and
inventory which are at any time stored by GED in the undersigned's warehouse.
The undersigned certifies: that it does not now know of any security interest or
claim with respect to said goods other than the security interest which is the
subject of this agreement; that no negotiable warehouse receipts have been or
will be issued by the undersigned with respect to said goods; and that no
non-negotiable warehouse receipts have been or will be issued by the undersigned
with respect to such goods, except non-negotiable warehouse receipts in the name
of GED or in the name of CIT.
You subordinate your warehouseman's lien in favor of CIT. You have agreed that
you will not assert any claim (including any
A company of
Dai-Ichi Kangyo Bank and
Chemical Banking Corporation
<PAGE>
warehouseman's lien) against the inventory until the advance by CIT to GED
against the GED inventory (in a maximum amount of $460,000) has been repaid in
full. You agree on a monthly basis to provide CIT with an accounting of all
charges owed to you by GED.
After the QED inventory loan has been repaid in full, you may assert a claim
against any inventory remaining in your warehouse for up to $100,000. Any
inventory remaining after satisfaction of your $100, 000 claim shall be subject
to CIT's first priority security interest and any further claims you have shall
be subordinate to CIT.
Please sign your agreement to all of the terms of this letter in the space
provided below and return this letter to us at the address set forth above. A
copy is enclosed for your records.
Very truly yours,
THE CIT GROUP CREDIT
FINANCE, INC.
By: /s/
-----------------------------------
Title: VP
--------------------------------
Agreed to and accepted:
LIVINGSTON PHARMACEUTICAL GREAT EARTH DISTRIBUTION, INC.
DISTRIBUTION, INC.
By: By:
------------------------------ ---------------------------------
Title: Title:
------------------------------ ---------------------------------
<PAGE>
warehouseman's lien) against the inventory until the advance by CIT to GED
against the GED inventory (in a maximum amount of $460,000) has been repaid in
full. You agree on a monthly basis to provide CIT with an accounting of all
charges owed to you by GED.
After the GED inventory loan has been repaid in full, you may assert a claim
against any inventory remaining in your warehouse for up to $1000,000. Any
inventory remaining after satisfaction of your $100,000 claim shall be subject
to CIT's first priority security interest and any further claims you have shall
be subordinate to CIT.
Please sign your agreement to all of the terms of this letter in the space
provided below and return this letter to us at the address set forth above. A
copy is enclosed for your records.
Very truly yours,
THE CIT GROUP CREDIT
FINANCE, INC.
By: /s/
-----------------------------------
Title: VP
--------------------------------
Agreed to and accepted:
LIVINGSTON PHARMACEUTICAL GREAT EARTH DISTRIBUTION, INC.
DISTRIBUTION, INC.
By: /s/ By:
---------------------------- --------------------------------
Title: President Title:
------------------------- --------------------------------
B9EVERGOOD
It is mutually agreed that all charges which arise after the date of
notification of LPDI by CIT of default by the borrower will be paid to LPDI by
CIT in accordance with the terms of the contract then in effect between GED and
LPDI.
THE CIT GROUP CREDIT GREAT EARTH DISTRIBUTION, INC.
FINANCE, INC.
By: By:
---------------------------- --------------------------------
Title: Title:
------------------------- --------------------------------
LIVINGSTON PHARMACEUTICAL DISTRIBUTION, INC.
By: /s/
-------------------------
Title: President
-------------------------
<PAGE>
THE CIT GROUP/CREDIT FINANCE
135 West 50th Street
New York, NY 10020
Tel: 212-408-6000
Fax: 212-408-6100
THE
CIT
GROUP
December 23, 1994
Phoenix Laboratories, Inc.
Great Earth Distribution, Inc.
175 Lauman Lane
Hicksville, New York 11801
Re: Security Agreement (Accounts, etc.) executed February 17, 1988, by and
between Phoenix Laboratories, Inc. ("Phoenix") and Great Earth
Distribution, Inc. ( "GED") and The CIT Group/Credit Finance, Inc. ("CIT),
assignee of Fidelcor Business Credit Corporation (the "Accounts
Agreement"), Second Amended and Restated Promissory Note in the original
principal balance of $740,000 (the "Note"), as amended, and all related
agreements, amendments, documents and instruments collectively, the
"Financing Agreements")
--------------------------------------------------------------------------
Gentlemen:
As you are aware, your present contract term expires on February 17, 1995.
Pursuant to paragraph 26 of the Accounts Agreement and our December 15, 1994
letter agreement, in order to give you notice of termination of the contract
effective February 17, 1995, CIT must notify you on or before December 28, 1994.
We are discussing an amendment and extension to the financing agreements. Please
confirm our agreement to extend the time period in which we have to give you
notice of termination to January 6, 1995. This will give us time to finalize the
amendment to the financing agreements and avoid our having to send you notice of
termination today.
Please evidence your agreement to the foregoing by signing in the space
provided below and returning this letter to us.
Very truly yours,
THE CIT GROUP/CREDIT FINANCE, INC.
By: /s/ Angela Santi
-----------------------------------------
Title: AVP
--------------------------------------
Agreed to and accepted:
PHOENIX LABORATORIES, INC. GREAT EARTH DISTRIBUTION, INC.
By: /s/ By: /s/ MEL RICH
---------------------------- -----------------------------------------
Title: Pres. Title: Pres.
------------------------- --------------------------------------
A company of
Dai-Ichi Kangyo Bank and
Chemical Banking Corporation
<PAGE>
THE CIT GROUP/CREDIT FINANCE
135 West 50th Street
New York, NY 10020
Tel: 212-408-6000
Fax: 212-408-6100
THE
CIT
GROUP
January 4, 1995
Phoenix Laboratories, Inc.
Great Earth Distribution, Inc.
175 Lauman Lane
Hicksville, New York 11801
Re: Security Agreement (Accounts, etc.) executed February 17, 1988, by and
between Phoenix Laboratories, Inc. ("Phoenix") and Great Earth
Distribution, Inc. ("GED") and The CIT Group/Credit Finance, Inc. ("CIT),
assignee of Fidelcor Business Credit Corporation (the "Accounts
Agreement"), Third Amended and Restated Promissory Note in the original
principal balance of $740,000 (the "Note"), as amended, and all related
agreements, amendments, documents and instruments, collectively, the
"Financing Agreements") GED and Phoenix may be hereinafter referred to as
the "Debtors"
--------------------------------------------------------------------------
Gentlemen:
The present term of your Financing Agreements with CIT expires February
17, 1995. We have now agreed to an extension of the Financing Agreements and
modifications of the Note as reflected by the Fourth Amended and Restated
Promissory Note to be executed on the date hereof in the form annexed hereto
under the terms and conditions set forth below.
Accordingly, this will confirm our agreement to amend the Financing
Agreements as follows:
1. The second sentence of paragraph F. of the rider to the Accounts Agreement
is amended to read:
"Debtor will pay all out-of-pocket costs of field examinations to be
conducted by Trefoil as provided in paragraph 13 of the printed portion of
the agreement plus $650.00 per person per day."
2. Paragraph G. of the Rider to the Accounts Agreement is amended to read:
A company of
Dai-Ichi Kangyo Bank and
Chemical Banking Corporation
<PAGE>
Phoenix Laboratories, Inc.
Great Earth Distribution, Inc.
January 4, 1995
Page 2
"G. Trefoil agrees that in addition to the advances made with reference to
the formula set forth in Paragraph 2 of the printed portion of this
agreement ("Accounts Advances"), Trefoil shall make additional advances to
Debtor, in its sole discretion, of up to thirty percent (30%) of the value
of Phoenix's acceptable and eligible raw material inventory and of up to
thirty-five percent (35%) of the value of GED's acceptable and eligible
finished goods inventory (collectively, the "Inventory Advances"). As used
herein, "value" shall mean the lower of cost or market price, as
determined by Trefoil. Except in Trefoils sole discretion, (1) the
aggregate principal amount of Accounts Advances to GED shall not exceed,
at any time outstanding, the lesser of (a) $450,000 (the "GED Accounts
Sublimit"), or (b) an amount equal to (i) thirty percent (30%) of the
value of Phoenix's acceptable and eligible raw material inventory, plus
(ii) thirty-five percent (35%) of the value of GED's acceptable and
eligible finished goods inventory, and (2) the aggregate principal amount
of the Inventory Advances to Debtors shall not exceed $750,000 at any time
outstanding with a further sublimit at any time outstanding of $460,000
against the GED acceptable and eligible finished goods inventory. In the
event that Borrower has negative Cash Flow (defined below) in excess of
$25,000 for any quarter of its fiscal year calculated commencing with the
quarter ending December 31, 1994, then the GED Accounts Sublimit shall be
reduced by $100,000, with subsequent reductions of $100,000 for each
subsequent quarter in which there is negative Cash Flow in excess of
$25,000. Cash Flow is defined as: Net income plus depreciation and
amortization less capital expenditures and debt service."
3. The first sentence of paragraph J. of the Rider to the Accounts Agreement
is amended to read:
"In consideration of Trefoil entering into this Agreement and incurring
accounting, operating and management expenses, Debtors shall pay to
Trefoil each calendar month a minimum charge equal to the amount of
interest Debtors would pay Trefoil if they at all times had an aggregate
average daily cash balance outstanding of $2,000,000 bearing interest at
the rate provided for in Paragraph 6 of the printed portion of this
Agreement."
4. Paragraph 20 of the printed portion of the Accounts Agreement is amended
to provide that you will provide CIT with quarterly financial statements
compiled by an independent certified public accountant and annual
financial statements reviewed by
<PAGE>
Phoenix Laboratories, Inc.
Great Earth Distribution, Inc.
January 4, 1995
Page 3
a certified public accountant and accompanied by a certified opinion on
the fiscal year end accounts receivable and inventory balances.
5. The first sentence of paragraph 26 of the printed portion of the Accounts
Agreement is amended to read:
"That this Agreement shall remain in effect until February 17, 1997 and
shall be deemed automatically renewed for successive terms of one year."
6. [DELETED AND INITIALED BY /s/ SR; MR and AS
7. Within 30 days of the date hereof, GED to obtain a termination of the UCC
financing statements filed by Pharmachem Laboratories, Inc. ("Pharmachem")
in March, 1992 in New York State, Nassau County and California or a
subordination agreement executed by Pharmachem in which it acknowledges
that its security interest in any property of GED is subordinate to the
security interest of CIT and that it will not enforce its rights against
the property until all of GED's obligations to CIT are repaid in full.
This will confirm that in addition to all other fees at any time payable
by Debtors to CIT, Debtors shall pay CIT on each anniversary date of the
Accounts Agreement, a Facility Fee in the amount of $35,000, which Facility Fees
that are due to be paid on February 17, 1995 and February 17, 1996 (aggregating
$70,000) are fully earned as of the date hereof and shall become immediately
payable upon termination of the Financing Agreements. Each Facility Fee may be
charged by CIT to any account of the Debtors maintained by CIT.
All other terms and conditions of the Financing Agreements shall remain in
full force and effect.
<PAGE>
Phoenix Laboratories, Inc.
Great Earth Distribution, Inc.
January 4, 1995
Page 4
Please evidence your agreement to the foregoing by signing in the space
provided below and returning this letter to us.
Very truly yours,
THE CIT GROUP./CREDIT
FINANCE, INC.
By: /s/ Angela Santi
-----------------------------------------
Title: AVP
--------------------------------------
Agreed to and accepted:
PHOENIX LABORATORIES, INC. GREAT EARTH DISTRIBUTION, INC.
By: /s/ SIDNEY RICH By: /s/ MEL RICH
---------------------------- -----------------------------------------
Title: Pres. Title: Pres.
------------------------- --------------------------------------
Confirmed:
/s/ SIDNEY RICH /s/ MELVIN RICH
- -------------------------------- -----------------------------------------
SIDNEY RICH MELVIN RICH
EVERGOOD PRODUCTS CORPORATION
By: /s/ SIDNEY RICH
----------------------------
Title: President
-------------------------
<PAGE>
The CIT Group/Credit Finance
135 West 50th Street
New York, NY 10020
Tel: 212-408-6000
Fax: 212-408-6100
THE
CIT
GROUP
January 6, 1995
Phoenix Laboratories, Inc.
Great Earth Distribution, Inc.
175 Lauman Lane
Hicksville, NY 11801
Re: Security Agreement (Accounts, etc.) executed February 17, 1988,
by and between Phoenix Laboratories, Inc. ("Phoenix") and Great
Earth Distribution, Inc. ("GED") and The CIT Group/Credit Finance,
Inc. ("CIT"), assignee of Fidelcor Business Credit Corporation
(the "Accounts Agreement"), Second Amended and Restated Promissory
Note in the original principal balance of $740,000 (the "Note"),
as amended, and all related agreements, amendments, documents and
instruments collectively, the "Financing Agreements")
-----------------------------------------------------------------
Gentlemen:
As you are aware, your present contract term expires on February 17, 1995.
Pursuant to paragraph 26 of the Accounts Agreement and our December 15, 1994 and
December 23, 1994 letter agreement, in order to give you notice of termination
of the contract effective February 17, 1995, CIT must notify you on or before
January 6, 1995. We are discussing an amendment and extension to the financing
agreements. Please confirm our agreement to extend the time period in which we
have to give you notice of termination to January 11, 1995. This will give us
time to finalize the amendment to the financing agreements and avoid our having
to send you notice of termination today.
Please evidence your agreement to the foregoing by signing in the space
provided below and returning this letter to us.
Very truly yours,
THE CIT GROUP/CREDIT FINANCE, INC.
By: /s/ ANGELA SANTI
---------------------------------
Title: AVP
-------------------------------
Agreed to:
PHOENIX LABORATORIES, INC. GREAT EARTH DISTRIBUTION, INC.
By: /s/ By: /s/ Mel Rich
--------------------------------- ---------------------------------
Title: PRES. Title: PRES.
------------------------------- -------------------------------
<PAGE>
The CIT Group/Credit Finance
135 West 50th Street
New York, NY 10020
Tel: 212-408-6000
Fax: 212-408-6100
THE
CIT
GROUP
June 21, 1996
Phoenix Laboratories, Inc.
Great Earth Distribution, Inc.
175 Lauman Lane
Hicksville NY 11801
RE: Security Agreement (Accounts, Etc.) dated February 17, 1988 (the "Accounts
Agreement"), between Phoenix Laboratories, Inc. ("Phoenix") and Great Earth
Distribution, Inc. ("GED"), and The CIT Group/Credit Finance, Inc. ("CIT"),
assignee of Fidelcor Business Credit Corporation, and all related
agreements, amendments, documents and instruments (collectively, the
"Financing Agreements")
Gentlemen:
You have requested and we have agreed to grant you a $314,000 "reload" to the
machinery term loan, which advance of $314,000 shall be repayable in accordance
with the terms of the Fifth Amended and Restated Promissory Note, in the
original principal amount of $945,000 (the "New Note"), which shall be executed
by both Phoenix and GED.
The principal balance of the New Note shall be made up of a $314,000 advance to
repay the amount presently outstanding to you in excess of the contractual
formulas in your Financing Agreements and the sum of approximately $631,000,
representing the currently unpaid principal balance of the Fourth Amended and
Restated Promissory Note, in the original principal amount of $825,000, dated
January 11, 1995 (the "Old Note") on which both of you are liable as co-makers.
As an inducement to us to make the advance set forth above, you agree to pay to
us a facility fee in the amount of $3,000, which shall be charged to your
account on the date hereof.
Except as hereinabove set forth, the Financing Agreements shall remain
unmodified and in full force and effect.
<PAGE>
Please indicate your agreement with the foregoing by signing and returning to us
the enclosed copy of this letter.
Very truly yours,
THE CIT GROUP/CREDIT FINANCE, INC.
By: /s/
---------------------------------
Title: VICE PRESIDENT
------------------------------
AGREED:
PHOENIX LABORATORIES, INC.
By: /s/ Mel Rich
---------------------------------
Title: VP
------------------------------
GREAT EARTH DISTRIBUTION, INC.
By: /s/ Mel Rich
---------------------------------
Title: PRES.
------------------------------
CONFIRMED:
/s/ Sidney Rich
- -------------------------------------
Sidney Rich
/s/ Melvin Rich
- -------------------------------------
Melvin Rich
EVERGOOD PRODUCTS CORPORATION
By: /s/ Mel Rich
---------------------------------
Title: VP
------------------------------
<PAGE>
FIFTH AMENDED AND RESTATED PROMISSORY NOTE
$945,000 New York, New York
June ____, 1996
FOR VALUE RECEIVED, PHOENIX LABORATORIES, INC. and GREAT EARTH
DISTRIBUTION, INC. (individually and collectively the "Payor"), jointly and
severally hereby promise to pay to the order of THE CIT GROUP/CREDIT FINANCE,
INC., a Delaware corporation ("Payee"), at its offices located at 135 West 50th
Street, New York, New York 10020, or at such other place as Payee or any holder
hereof may from time to time designate, the principal sum of NINE HUNDRED AND
FORTY-FIVE THOUSAND DOLLARS ($945,000.00) in lawful money of the United States,
in eight installments of FIFTEEN THOUSAND DOLLARS ($15,000) each payable on the
first (1st) day of each consecutive month, commencing July 1, 1996, and one (1)
final installment in the amount of the entire unpaid principal balance of this
Note, payable February 17, 1997. Payor hereby further promises to pay interest
to Payee in like money at said office or place on the unpaid principal balance
hereof, computed at the rate of three and one-half percent (3 1/2%) per annum
plus the prime rate as announced by Chemical Bank or its successor, in New York,
New York from time to time as its prime rate (the prime rate is not intended to
be the lowest rate of interest charged by Chemical Bank to its borrowers) and
such interest shall be payable monthly on the first (1st) day of each month,
commencing July 1, 1996. Interest shall be calculated on the basis of a 360-day
year and actual days elapsed. In no event shall the interest charged hereunder
exceed the maximum permitted under the laws of the State of New York.
This Note is secured by (i) the collateral described in the Security
Agreement (Accounts, Contract Rights, Instruments and Goods pertaining thereto),
the Inventory Security Agreement and the Equipment Security Agreement, each
executed February 17, 1988 by and between Payor and Fidelcor Business Credit
Corporation ("Fidelcor"), assignor of Payee, and all related agreements,
instruments (including but not limited to this Note) and documents granting
collateral security to Payee or evidencing or creating indebtedness of Payor to
Payee, all guaranties executed by third parties guaranteeing Payor's obligations
to Payee, including those executed by: Sidney Rich, Melvin Rich and Evergood
Products
<PAGE>
Corporation (the "Guarantors") (the foregoing, as the same may now
exist and have been and may hereafter be amended, modified, replaced or
supplemented, are hereafter collectively referred to as the "Financing
Agreements").
This Note supersedes and replaces but does not extinguish any of the
unpaid liabilities and obligations under the Fourth Amended and Restated
Promissory Note dated January 11, 1995, in the original principal amount of
$825,000.00 by Payor in favor of Payee (the "Existing Note"). The indebtedness
of Payor to Payee evidenced hereby includes (i) the unpaid balance of the
indebtedness including unpaid interest heretofore evidenced by the Existing
Note; and (ii) an indebtedness of $314,000 representing an advance made by Payee
to Payor on the date hereof, all of which shall be repayable together with
interest accrued and accruing and other sums in accordance with the terms
hereof. Payor hereby acknowledges that Payor is as of the date hereof indebted
to Payee, in the principal amount hereof, together with interest accrued and
accruing through and after the date hereof, without offset, defense or
counterclaim of any kind, nature or description whatsoever. The amendment and
restatement contained herein shall not, in any manner be construed to constitute
payment of, or impair, limit, cancel or extinguish the indebtedness evidenced by
the Existing Note and the liens and security interests securing such
indebtedness shall not in any manner be impaired, limited, terminated, waived or
released hereby.
At the time any payment is due hereunder, Payee may, at its option, charge
the amount thereof to any account of Payor maintained by Payee.
If an event of default shall occur for any reason under any of the
Financing Agreements, or if any of the Financing Agreements shall be terminated
or not be renewed for any reason whatsoever, then and in any such event, in
addition to all rights and remedies of Payee under the Financing Agreements,
applicable law or otherwise (all such rights and remedies being cumulative, not
exclusive and enforceable alternatively, successively and concurrently) Payee
may, at its option, declare any or all of Payor's obligations under the
Financing Agreements, including, but not limited to, all amounts owing under
this Note, to be due and payable, whereupon the then unpaid balance hereof
together with all interest accrued thereon, shall forthwith become due and
payable, together with costs and expenses of collection, including reasonable
attorney's fees.
Payee shall not be required to resort to any of the aforementioned
collateral for payment, but may proceed against Payor and/or the Guarantors in
such order and manner as Payee may choose. None of the rights of Payee shall be
waived or diminished by any failure or delay in the exercise thereof. Payor
hereby waives diligence, demand, presentment, protest and notice of any kind and
assents to extensions of time of payment, release, surrender or substitution of
collateral security, or forbearance or
<PAGE>
other indulgence, without notice.
In the event of any litigation with respect to any of the Financing
Agreements, Payor waives the right to a trial by jury, all rights of set-off,
and any right to interpose permissive counterclaims and cross-claims, and Payor
consents to the jurisdiction of the courts of the State of New York and of any
federal court located in such State. Payor further waives personal service of
any and all process upon Payor and consents that all such service of process may
be made by certified mail, return receipt requested, directed to Payor at the
address listed above or of which Payor advises Payee, in writing, and. service
so made shall be deemed complete three days after the same shall have been
posted. This Note shall be governed by and construed, and all rights and
obligations hereunder determined, in accordance with the laws of the State of
New York, and shall be binding upon the successors and assigns of Payor and
inure to the benefit of Payee, its successors, endorsees and assigns.
If any term or provision of this Note shall be held invalid, illegal or
unenforceable, the validity of all other terms and provisions hereof shall in no
way be affected thereby.
The execution and delivery of this Note has been authorized by the board
of directors of Payor.
PHOENIX LABORATORIES, INC.
By: /s/ Mel Rich
----------------------------
Title: Vice Pres.
----------------------------
GREAT EARTH DISTRIBUTION, INC.
By: /s/ Mel Rich
----------------------------
Title: Pres.
----------------------------
<PAGE>
The CIT Group/Credit Finance
135 West 50th Street
New York, NY 10020
Tel: 212-408-6000
Fax: 212-408-6100
THE
CIT
GROUP
November 18, 1996
Phoenix Laboratories, Inc.
Great Earth Distribution, Inc.
175 Lauman Lane
Hicksville NY 11801
RE: Security Agreement (Accounts, Etc.) dated February 17, 1988 (the "Accounts
Agreement"), between Phoenix Laboratories, Inc. ("Phoenix") and Great
Earth Distribution, Inc. ("GED"), and The CIT Group/Credit Finance, Inc.
("CIT"), assignee of Fidelcor Business Credit Corporation, and all related
agreements, amendments, documents and instruments (collectively, the
"Financing Agreements").
Gentlemen:
The Financing Agreements are hereby amended as follows, effective as of the date
hereof, unless a different effective date is specified below. Capitalized terms
appearing below shall have the meanings given in the Accounts Agreement, and the
Rider thereto, unless otherwise defined in this letter.
1. Bodyonics, Ltd., a Delaware corporation, with an office at 140 Lauman
Lane, Hicksville, New York 11801 ("Bodyonics") shall be (a) added as a
Debtor to the Accounts Agreement as fully as if Bodyonics had executed the
Accounts Agreement on the date hereof, and shall be jointly and severally
liable with Phoenix and GED for all Obligations arising thereunder; and
(b) shall be deemed a party, as Debtor, borrower or grantor, as the case
may be, to the other Financing Agreements executed by Phoenix and GED in
our favor, as fully as if such other Financing Agreements had been
executed by Bodyonics.
Accordingly, Bodyonics hereby grants to us all security interests in its
assets that Phoenix and GED have granted to us under the Financing
Agreements, including but not limited to a security interest in all of its
accounts, instruments, documents, chattel paper and general intangibles
and all inventory and equipment, wherever located and whenever acquired or
arising to secure all of its obligations to CIT.
2. The undersigned Evergood Products Corporation and Melvin Rich and Sidney
Rich, as well as Phoenix and GED, hereby affirm that Bodyonics shall be
deemed a guaranteed entity under the guaranties heretofore executed by
them in our favor and accordingly their liabilities under
<PAGE>
such guaranties shall include liability for the Obligations of Bodyonics
to CIT.
3. Bodyonics hereby guaranties and agrees to be fully liable for all
Obligations of GED and Phoenix to us, whenever and however arising.
4. We may in our discretion make advances to Bodyonics under the Financing
Agreements but in no event shall any advance be made if an event of
default has occurred under the Financing Agreements or if, after the
making of any such advance, the aggregate outstanding Obligations of
Bodyonics to us exceeds the lesser of (a) 80% of the net amount
of outstanding acceptable and eligible accounts receivable of Bodyonics;
or (b) $1,250,000.
5. Section H of the Rider to the Accounts Agreement shall be amended so as to
increase the Line of Credit from $3,500,000 to $5,000,000.
6. This will confirm that CIT will not charge an additional facility fee
in consideration of this amendment.
Except as hereinabove set forth, the Financing Agreements shall remain
unmodified and in full force and effect.
Please indicate your agreement with the foregoing by signing and returning to us
the enclosed copy of this letter.
Very truly yours,
THE CIT GROUP/CREDIT FINANCE, INC.
By: /s/
----------------------------------
Title: Assistant Secretary
------------------------------
AGREED:
BODYONICS, LTD.
By: /s/ Mel Rich
----------------------------------
Title: Pres.
------------------------------
PHOENIX LABORATORIES, INC.
By: /s/ Mel Rich
----------------------------------
Title: Pres.
------------------------------
<PAGE>
GREAT EARTH DISTRIBUTION, INC.
By: /s/ Mel Rich
----------------------------------
Title: Pres.
------------------------------
EVERGOOD PRODUCTS CORPORATION
By: /s/ Mel Rich
----------------------------------
Title: Pres.
------------------------------
/s/ Melvin Rich
- --------------------------------------
Melvin Rich
/s/ Sidney Rich
- --------------------------------------
Sidney Rich
<PAGE>
The CIT Group/Credit Finance
135 West 50th Street
New York, NY 10020
Tel: 212-408-6000
Fax: 212-408-6100
THE
CIT
GROUP
February 11, 1997
Phoenix Laboratories, Inc.
Great Earth Distribution, Inc.
Bodyonics, Ltd.
140 Lauman Lane
Hicksville, New York 11801
Re: Security Agreement (Accounts, etc.) executed February 17, 1988, by
and between Phoenix Laboratories, Inc. ("Phoenix") and Great Earth
Distribution, Inc. ("GED") and The CIT Group/Credit Finance, Inc.
("CIT"), assignee of Fidelcor Business Credit Corporation (the
"Accounts Agreement") to which Bodyonics, Ltd. became a party, as
Debtor, borrower or grantor, as the case may be by letter agreement
dated November 18, 1996, the Fifth Amended and Restated Promissory
Note in the original principal balance of $945,000 (the "Note"), as
amended, and all related agreements, amendments, documents and
instruments (collectively, the "Financing Agreements"). GED, Phoenix
and Bodyonics may be hereinafter referred to as the "Debtors".
Gentlemen:
The present term of the Financing Agreements expires February 17, 1997. We
have agreed to an extension of the Financing Agreements and modifications of the
Note as reflected by the Sixth Amended and Restated Promissory Note to be
executed on the date hereof in the form annexed hereto under the terms and
conditions set forth below.
Accordingly, this will confirm our agreement to amend the
<PAGE>
Phoenix Laboratories, Inc.
Great Earth Distribution, Inc.
Bodyonics, Ltd.
February 11, 1997
Page 2
Financing Agreements as follows:
1. In each place in the Financing Agreements where the word "Trefoil"
appears, the word "CIT" is substituted therefor.
2. Paragraph 6 of the printed portion of the Accounts Agreement is hereby
deleted, in its entirety and the following is substituted therefor:
"6. That Debtor will pay CIT for its advances made hereunder a charge of
two and one-half percent (2 1/2%) per annum plus the rate of interest
publicly announced by The Chase Manhattan Bank, New York, New York from
time to time as its prime rate (the prime rate is not intended to be the
lowest rate of interest charged by The Chase Manhattan Bank to its
borrowers), computed on a 360-day year. In the event of a change in the
prime rate charged at The Chase Manhattan Bank, adjustment hereunder shall
be made on the day of such change in the prime rate. All charges shall be
computed upon the average daily balances outstanding and charged to
Debtor's account or paid monthly."
3. Paragraph 2 of the printed portion of the Accounts Agreement is amended to
read:
"2. That it will advance to Phoenix Laboratories, Inc. and Bodyonics,
Ltd. up to 80%, and to Great Earth Distribution, Inc. up to 67.50%
of the net amounts of acceptable Collateral, as CIT in its sole
discretion may determine, and will pay the remainder (less the
compensation specified in paragraph 6, plus any overpayments by
account debtors, and less deductions by account debtors and any
unpaid compensation, charges or expenses), after actual receipt of
payment upon such Collateral and at such times as CIT may
determine; however, no payment of such remainder need be made by CIT
if Debtor shall have breached any provision hereof or
<PAGE>
Phoenix Laboratories, Inc.
Great Earth Distribution, Inc.
Bodyonics, Ltd.
February 11, 1997
Page 3
shall be otherwise indebted to CIT, in either of which events CIT
may retain and apply such remainder upon any indebtedness then or
thereafter due from Debtor.
4. The first sentence of Paragraph 30 of the printed portion of the Accounts
Agreement is amended to read:
"Debtor may, on thirty days prior written notice, prepay and terminate
this Security Agreement by paying to CIT in cash or certified check, the
entire then unpaid principal balance plus accrued charges, together with a
sum equal to 25% of the average monthly charges for the immediately
preceding six months or from the date of the agreement whichever is less,
multiplied by the number of months of the unexpired balance of the term of
this agreement (the "early termination fee"). However, in no event shall
the early termination fee be less than $100,000."
5. Paragraph G. of the Rider to the Accounts Agreement is amended to read:
"G. CIT agrees that in addition to the advances made with reference to the
formula set forth in Paragraph 2 of the printed portion of this agreement
("Accounts Advances"), CIT shall make additional advances to Debtor, in
its sole discretion, of up to thirty percent (30%) of the value of
Phoenix's acceptable and eligible raw material inventory and of up to
thirty-five percent (35%) of the value of GED's and Bodyonics' acceptable
and eligible finished goods inventory (collectively, the "Inventory
Advances"). As used herein, "value" shall mean the lower of cost or market
price, as determined by CIT. Except in CIT's sole discretion, (1) the
aggregate principal amount of Accounts Advances to GED shall not exceed,
at any time outstanding, the lesser of (a) $1,750,000 (the "GED Accounts
Sublimit"), or (b) an amount equal to one hundred and twenty-five (125%)
percent of the Phoenix Accounts Advances and (2) the aggregate principal
<PAGE>
Phoenix Laboratories, Inc.
Great Earth Distribution, Inc.
Bodyonics, Ltd.
February 11, 1997
Page 4
amount of the Inventory Advances to Debtors shall not exceed $1,250,000 at
any time outstanding. In the event that Borrower has negative Cash Flow
(defined below) to be calculated commencing with the six months ended June
30, 1997 and semi-annually thereafter, then the GED Accounts sublimit
shall be reduced to the lesser of $1,000,000 or 100% of Phoenix's eligible
accounts receivable and the advance rate percentage for GED set forth in
Paragraph 2 of the printed portion of the Accounts Agreement shall be
reduced from 67.5% to 50%. Cash Flow is defined as: Net income plus
depreciation and amortization less capital expenditures and principal
repayments of term debt on a consolidated basis. Except in CIT's sole
discretion, the aggregate principal amount of Accounts Advances to
Bodyonics shall not exceed an amount equal to the sum of one hundred
(100%) percent of the Phoenix Accounts Advances and one hundred (100%)
percent of the GED Accounts Advances."
6. The first sentence of paragraph J. of the Rider to the Accounts
Agreement is amended to read:
"In consideration of CIT entering into this Agreement and incurring
accounting, operating and management expenses, Debtors shall pay to CIT
each calendar month a minimum charge equal to the amount of interest
Debtors would pay CIT if they at all times had an aggregate average daily
loan balance outstanding of $2,500,000 bearing interest at the rate
provided for in Paragraph 6 of the printed portion of this Agreement."
7. The first sentence of paragraph 26 of the printed portion of the
Accounts Agreement is amended to read:
"That this Agreement shall remain in effect until February 17, 1999 and
shall be deemed automatically renewed for successive terms of two years
unless Debtor provides CIT with written notice of termination no later
than sixty (60) days before the
<PAGE>
Phoenix Laboratories, Inc.
Great Earth Distribution, Inc.
Bodyonics, Ltd.
February 11, 1997
Page 5
end of any term."
8. CIT has agreed to grant you an increase in the equipment term loan in the
amount of $314,800 which shall be repayable in accordance with the terms
of the Sixth Amended and Restated Promissory Note in the original
principal amount of $1,150,000.
9. In addition to the advance reflected by the Sixth Amended and Restated
Promissory Note, CIT, shall make additional advances to Debtors of up to
$200,000 per each year of each term for new purchases of equipment. The
new advances shall be limited to eighty percent (80%) of the cost of the
new equipment. All such advances shall amortize at an amortization
schedule to be determined by CIT.
10. Within 30 days of the date hereof, Debtors shall:
a. execute any assignment documents which are in addition to the
beneficiary loss endorsement already executed by the Debtors in
connection with a $750,000 credit insurance policy which was
obtained by the Borrowers as a condition of this extension.
b. obtain a letter in form attached herein as Exhibit A or B from
Bernie Bubman.
c. request Livingston Pharmaceutical Distribution, Inc. ("LPD") in
Delaware to execute a warehouse agreement which shall include a
provision in which LPD agrees (1) to give CIT a monthly report of
all distribution service charges and other fees which are owed by
GED (the "LPD charges") and (2) to advise CIT of any default or
amendment to its agreement between GED and LPD. GED to supply CIT
with a copy of its current agreement with LPD for storage of
inventory. CIT to reserve against GED's loan availability for all
amounts owed LPD.
<PAGE>
Phoenix Laboratories, Inc.
Great Earth Distribution, Inc.
Bodyonics, Ltd.
February 11, 1997
Page 6
11. Sidney Rich is released from his obligations under the Guaranty dated
July 1, 1992.
12. Melvin Rich, by his signature acknowledges the above amendments and the
release of Sidney Rich under the Guaranty dated July 1, 1992. Melvin Rich,
by his signature confirms and ratifies all of his obligations to The CIT
Group/Credit Finance, Inc. under the Guaranty dated July 1, 1992 (the
"Guaranty") which is a guaranty of all of the obligations of GED, Phoenix
and Bodyonics to The CIT Group/Credit Finance, Inc. Melvin Rich further
confirms that he has pledged $200,000 to CIT as cash collateral pursuant
to a Cash Collateral Agreement dated August 31, 1993 to secure all of his
obligations under the Guaranty.
13. This will confirm that in addition to all other fees at any time payable
by Debtors to CIT, Debtors shall pay CIT on each anniversary date of the
Accounts Agreement, a Facility Fee in the amount of $35,000, which
Facility Fee that is due to be paid on each of February 17, 1997 and
February 17, 1998 (aggregating $70,000) is fully earned as of the date
hereof and shall become immediately payable upon termination of the
Financing Agreements. Facility Fees due during any renewal term shall be
earned on the first day of such renewal term. Each Facility Fee may be
charged by CIT to any account of the Debtors maintained by CIT.
All other terms and conditions of the Financing Agreements shall remain in
full force and effect.
<PAGE>
Phoenix Laboratories, Inc.
Great Earth Distribution, Inc.
Bodyonics, Ltd.
February 11, 1997
Page 7
Please evidence your agreement to the foregoing by signing in the space
provided below and returning this letter to us.
Very truly yours,
THE CIT GROUP/CREDIT FINANCE, INC.
By: /s/
------------------------------
Title: Vice President
---------------------------
Agreed to:
PHOENIX LABORATORIES, INC. GREAT EARTH DISTRIBUTION, INC.
By: /s/ By: /s/
------------------------- -------------------------
Title: Asst Secty Title: Asst Secty
------------------------- -------------------------
BODYONICS, LTD.
By: /s/
-------------------------
Title: VP
-------------------------
Confirmed:
/s/ MELVIN RICH
- --------------------------------
MELVIN RICH
EVERGOOD PRODUCTS CORPORATION
By: /s/
-------------------------
Title: Asst Secty
-------------------------
<PAGE>
SIXTH AMENDED AND RESTATED PROMISSORY NOTE
$1,150,000 New York, New York
February 12, 1997
FOR VALUE RECEIVED, PHOENIX LABORATORIES, INC., GREAT EARTH DISTRIBUTION,
INC. and BODYONICS, LTD. (individually and collectively the "Payor"), jointly
and severally hereby promise to pay to the order of THE CIT GROUP/CREDIT
FINANCE, INC., a Delaware corporation ("Payee"), at its offices located at 135
West 50th Street, New York, New York 10020, or at such other place as Payee or
any holder hereof may from time to time designate, the principal sum of ONE
MILLION ONE HUNDRED FIFTY THOUSAND DOLLARS ($1,150,000.00) in lawful money of
the United States, in twenty-three installments of FIFTEEN THOUSAND DOLLARS
($15, 000) each payable on the first (1st) day of each consecutive month,
commencing March 1, 1997 and one (1) final installment in the amount of the
entire unpaid principal balance of this Note, payable February 17, 1999. Payor
hereby further promises to pay interest to Payee in like money at said off ice
or place on the unpaid principal balance hereof, computed at the rate of two and
one-half percent (2 1/2%) per annum plus the prime rate as announced by The
Chase Manhattan Bank or its successor, in New York, New York from time to time
as its prime rate (the prime rate is not intended to be the lowest rate of
interest charged by The Chase Manhattan Bank to its borrowers) and such interest
shall be payable monthly on the first (lst) day of each month, commencing March
1, 1997. Interest shall be calculated on the basis of a 360-day year and actual
days elapsed. In no event shall the interest charged hereunder exceed the
maximum permitted under the laws of the State of New York.
<PAGE>
This Note is secured by the collateral described in the Security Agreement
(Accounts, Contract Rights, Instruments and Goods pertaining thereto), the
Inventory Security Agreement and the Equipment Security Agreement, each executed
February 17, 1988 by and between Payor and Fidelcor Business Credit Corporation
("Fidelcor"), assignor of Payee, and all related agreements, instruments
(including but not limited to this Note) and documents granting collateral
security to Payee or evidencing or creating indebtedness of Payor to Payee, all
guaranties executed by third parties guaranteeing Payor's obligations to Payee,
including those executed by: Melvin Rich and Evergood Products Corporation (the
"Guarantors") (the foregoing, as the same may now exist and have been and may
hereafter be amended, modified, replaced or supplemented, are hereafter
collectively referred to as the "Financing Agreements").
This Note supersedes and replaces but does not extinguish any of the
unpaid liabilities and obligations under the Fifth Amended and Restated
Promissory Note dated January 11, 1995, in the original principal amount of
$945,000 executed by Payor in favor of Payee (the "Existing Note"). The
indebtedness of Payor to Payee evidenced hereby includes (i) the unpaid balance
of the indebtedness including unpaid interest heretofore evidenced by the
Existing Note; and (ii) an indebtedness of $835,200 representing an advance made
by Payee to Payor on the date hereof, all of which shall be repayable together
with interest accrued and accruing and other sums in accordance with the terms
hereof. Payor hereby acknowledges that Payor is as of the date hereof indebted
to Payee, in the principal amount hereof, together with interest accrued and
accruing through and after the date hereof, without offset, defense or
counterclaim of any kind, nature or description whatsoever. The amendment and
restatement contained herein shall not, in any manner be construed to constitute
payment of, or impair, limit, cancel or extinguish the indebtedness evidenced by
the Existing Note and the liens and security interests securing such
indebtedness shall not in any manner be impaired, limited, terminated, waived or
released hereby.
At the time any payment is due hereunder, Payee may, at its option, charge
the amount thereof to any account of Payor maintained by Payee.
2
<PAGE>
If an event of default shall occur for any reason under any of the
Financing Agreements, or if any of the Financing Agreements shall be terminated
or not be renewed for any reason whatsoever, then and in any such event, in
addition to all rights and remedies of Payee under the Financing Agreements,
applicable law or otherwise (all such rights and remedies being cumulative, not
exclusive and enforceable alternatively, successively and concurrently) Payee
may, at its option, declare any or all of Payor's obligations under the
Financing Agreements, including, but not limited to, all amounts owing under
this Note, to be due and payable, whereupon the then unpaid balance hereof
together with all interest accrued thereon, shall, forthwith become due and
payable, together with costs and expenses of collection, including reasonable
attorney's fees.
Payee shall not be required to resort to any of the aforementioned
collateral for payment, but may proceed against Payor and/or the Guarantors in
such order and manner as Payee may choose. None of the rights of Payee shall be
waived or diminished by any failure or delay in the exercise thereof. Payor
hereby waives diligence, demand, presentment, protest and notice of any kind and
assents to extensions of time of payment, release, surrender or substitution of
collateral security, or forbearance or other indulgence, without notice.
In the event of any litigation with respect to any of the Financing
Agreements, Payor waives the right to a trial by jury, all rights of set-off,
and any right to interpose permissive counterclaims and cross-claims, and Payor
consents to the jurisdiction of the courts of the State of New York and of any
federal court located in either New York or Nassau County in such State. Payor
further waives personal service of any and all process upon Payor and consents
that all such service of process may be made by certified mail, return receipt
requested, directed to Payor at the address listed above or of which Payor
advises Payee, in writing, and service so made shall be deemed complete three
days after the same shall have been posted. This Note shall be governed by and
construed, and all rights and obligations hereunder determined, in accordance
with the laws of the State of New York, and shall be binding upon the successors
and assigns of Payor and inure to the benefit of Payee, its successors,
endorsees and assigns.
3
<PAGE>
If any term or provision of this Note shall be held invalid, illegal or
unenforceable, the validity of all other terms and provisions hereof shall in no
way be affected thereby.
The execution and delivery of this Note has been authorized by the board
of directors of Payor.
PHOENIX LABORATORIES, INC. BODYONICS, LTD.
By: /s/ By: /s/
----------------------------- -----------------------------
Title: Asst Secty Title: VP
----------------------------- -----------------------------
GREAT EARTH DISTRIBUTION, INC.
By: /s/
-----------------------------
Title: Asst Secty
-----------------------------
4
<PAGE>
GREAT EARTH DISTRIBUTION, INC.
Gentlemen:
From time to time we at the Great Earth family review our various
relationships including our financing relationships. As a result of that review
we have determined it would benefit the System and the Companies to enter into a
modification of our existing relationship with the CIT Group ("CIT"). They have
advised that our files require updating and have asked us to obtain this
"no-offset" letter with regard to the security interest they are to be granted
with respect to certain of our assets.
We have assigned our accounts to CIT and CIT shall make loans to us from
time to time on the security of the accounts. CIT will rely on this letter in
making loans.
Your signature at the foot of this letter confirms that you will not
assert any offset, claim, counterclaim or deduction against any account
receivable including any claim that the payment of any invoice is contingent on
fulfillment of any contract or condition whatsoever.
Nothing contained herein shall in any way limit your right to proceed
against us by independent action for any claim of any kind that you may now or
hereafter have.
Therefore, this letter simply asks that you continue to honor all of your
G.E.D. invoices without offset or asserting any counterclaim.
It is accordingly requested by CIT that this agreement be binding upon you
and your respective successors and assigns. So, please confirm your agreement to
the foregoing by signing below.
Very truly yours,
GREAT EARTH DISTRIBUTION, INC.
By: _________________________________
Its
The foregoing is accepted and agreed to this ____ day of _______, 1997.
By: __________________________________
<PAGE>
(GREAT EARTH DISTRIBUTION, INC. STATIONERY)
__________________, 1997
_____________________________
_____________________________
_____________________________
Gentlemen:
From time to time we at the Great Earth family review our various
relationships including our financing relationships. As a result of that review
we have determined it would benefit the System and the Companies to enter into a
modification of our existing relationship with the CIT Group ("CIT"). They have
advised that our files require updating and have asked us to obtain this letter
with regard to the security interest they are to be granted with respect to
certain of our assets.
Therefore, this letter simply asks that you continue to honor all of your
G.E.D. invoices without offset or asserting any counterclaim.
In legal vernacular, your agreement not to assert any defense or claims
which you might have or which might accrue in the future against either of the
undersigned companies is needed as well as your agreement to honor all demands
for payment of your accounts owed to the Company without offset or counterclaim.
It is accordingly requested by CIT that this agreement be binding upon you
and your respective successors and assigns. So, please confirm your agreement to
the foregoing by signing below.
Very truly yours,
GREAT EARTH DISTRIBUTION, INC.
By: _________________________________
Its
The foregoing is accepted
and agreed to this _____ day
of _______________ 1997.
By: _________________________
<PAGE>
SIXTH AMENDED AND RESTATED PROMISSORY NOTE
$1,150,000 New York, New York
February 12, 1997
FOR VALUE RECEIVED, PHOENIX LABORATORIES, INC., GREAT EARTH DISTRIBUTION,
INC. and BODYONICS, LTD. (individually and collectively the "Payor"), jointly
and severally hereby promise to pay to the order of THE CIT GROUP/CREDIT
FINANCE, INC., a Delaware corporation ("Payee"), at its offices located at 135
West 50th Street, New York, New York 10020, or at such other place as Payee or
any holder hereof may from time to time designate, the principal sum of ONE
MILLION ONE HUNDRED FIFTY THOUSAND DOLLARS ($1,150,000.00) in lawful money of
the United States, in twenty-three installments of FIFTEEN THOUSAND DOLLARS
($15,000) each payable on the first (1st) day of each consecutive month,
commencing March 1, 1997 and one (1) final installment in the amount of the
entire unpaid principal balance of this Note, payable February 17, 1999. Payor
hereby further promises to pay interest to Payee in like money at said office or
place on the unpaid principal balance hereof, computed at the rate of two and
one-half percent (2 1/2%) per annum plus the prime rate as announced by The
Chase Manhattan Bank or its successor, in New York, New York from time to time
as its prime rate (the prime rate is not intended to be the lowest rate of
interest charged by The Chase Manhattan Bank to its borrowers) and such interest
shall be payable monthly on the first (lst) day of each month, commencing March
1, 1997. Interest shall be calculated on the basis of a 360-day year and actual
days elapsed. In no event shall the interest charged hereunder exceed the
maximum permitted under the laws of the State of New York.
<PAGE>
This Note is secured by the collateral described in the Security Agreement
(Accounts, Contract Rights, Instruments and Goods pertaining thereto), the
Inventory Security Agreement and the Equipment Security Agreement, each executed
February 17, 1988 by and between Payor and Fidelcor Business Credit Corporation
("Fidelcor"), assignor of Payee, and all related agreements, instruments
(including but not limited to this Note) and documents granting collateral
security to Payee or evidencing or creating indebtedness of Payor to Payee, all
guaranties executed by third parties guaranteeing Payor's obligations to Payee,
including those executed by: Melvin Rich and Evergood Products Corporation (the
"Guarantors") (the foregoing, as the same may now exist and have been and may
hereafter be amended, modified, replaced or supplemented, are hereafter
collectively referred to as the "Financing Agreements").
This Note supersedes and replaces but does not extinguish any of the
unpaid liabilities and obligations under the Fifth Amended and Restated
Promissory Note dated January 11, 1995, in the original principal amount of
$945,000 executed by Payor in favor of Payee (the "Existing Note"). The
indebtedness of Payor to Payee evidenced hereby includes (i) the unpaid balance
of the indebtedness including unpaid interest heretofore evidenced by the
Existing Note; and (ii) an indebtedness of $835,200 representing an advance made
by Payee to Payor on the date hereof, all of which shall be repayable together
with interest accrued and accruing and other sums in accordance with the terms
hereof. Payor hereby acknowledges that Payor is as of the date hereof indebted
to Payee, in the principal amount hereof, together with interest accrued and
accruing through and after the date hereof, without offset, defense or
counterclaim of any kind, nature or description whatsoever. The amendment and
restatement contained herein shall not, in any manner be construed to constitute
payment of, or impair, limit, cancel or extinguish the indebtedness evidenced by
the Existing Note and the liens and security interests securing such
indebtedness shall not in any manner be impaired, limited, terminated, waived or
released hereby.
At the time any payment is due hereunder, Payee may, at its option, charge
the amount thereof to any account of Payor maintained by Payee.
2
<PAGE>
If an event of default shall occur for any reason under any of the
Financing Agreements, or if any of the Financing Agreements shall be terminated
or not be renewed for any reason whatsoever then and in any such event, in
addition to all rights and remedies of Payee under the Financing Agreements,
applicable law or otherwise (all such rights and remedies being cumulative, not
exclusive and enforceable alternatively, successively and concurrently) Payee
may, at its option, declare any or all of Payor's obligations under the
Financing Agreements, including, but not limited to, all amounts owing under
this Note, to be due and payable, whereupon the then unpaid balance hereof
together with all interest accrued thereon, shall forthwith become due and
payable, together with costs and expenses of collection, including reasonable
attorney's fees.
Payee shall not be required to resort to any of the aforementioned
collateral for payment, but may proceed against Payor and/or the Guarantors in
such order and manner as Payee may choose. None of the rights of Payee shall be
waived or diminished by any failure or delay in the exercise thereof. Payor
hereby waives diligence, demand, presentment, protest and notice of any kind and
assents to extensions of time of payment, release, surrender or substitution of
collateral security, or forbearance or other indulgence, without notice.
In the event of any litigation with respect to any of the Financing
Agreements, Payor waives the right to a trial by jury, all rights of set-off,
and any right to interpose permissive counterclaims and cross-claims, and Payor
consents to the jurisdiction of the courts of the State of New York and of any
federal court located in either New York or Nassau County in such State. Payor
further waives personal service of any and all process upon Payor and consents
that all such service of process may be made by certified mail, return receipt
requested, directed to Payor at the address listed above or of which Payor
advises Payee, in writing, and service so made shall be deemed complete three
days after the same shall have been posted. This Note shall be governed by and
construed, and all rights and obligations hereunder determined, in accordance
with the laws of the State of New York, and shall be binding upon the successors
and assigns of Payor and inure to the benefit of Payee, its successors,
endorsees and assigns.
3
<PAGE>
If any term or provision of this Note shall be held invalid, illegal or
unenforceable, the validity of all other terms and provisions hereof shall in no
way be affected thereby.
The execution and delivery of this Note has been authorized by the board
of directors of Payor.
PHOENIX LABORATORIES, INC. BODYONICS, LTD.
By: /s/ By: /s/ Mel Rich
----------------------------- -----------------------------
Title: Title: VP
----------------------------- -----------------------------
GREAT EARTH DISTRIBUTION, INC.
By: /s/
-----------------------------
Title:
-----------------------------
<PAGE>
THE CIT GROUP
Credit Finance
1211 Avenue of the Americas
New York, NY 10036
Tel: 212-790-9100
Fax: 212-790-9123
THE
CIT
GROUP
January 21, 1998
Phoenix Laboratories, Inc.
Great Earth Distribution, Inc.
Bodyonics, Ltd.
140 Lauman Lane
Hicksville, New York 11801
Re: Security Agreement (Accounts, etc.) executed February 17, 1988 (the
"Accounts Agreement), by and between Phoenix Laboratories, Inc.
("Phoenix") and Great Earth Distribution, Inc. ("GED") and The CIT
Group/Credit Finance, Inc. ("CIT") assignee of Fidelcor Business
Credit Corporation ("Fidelcor"), and the Security Agreement
(Inventory) and Security Agreement (Equipment), executed February
17, 1988 by Phoenix and GED in favor of Fidelcor, to which Security
Agreements Bodyonics, Ltd. ("Bodyonics") became a party, as Debtor,
by letter agreement dated November 18, 1996; the Sixth Amended and
Restated Promissory Note in the original principal amount of
$1,150,000, dated February 12, 1997 and made by Phoenix, GED and
Bodyonics (the "Note"), and all related agreements, amendments,
documents and instruments (collectively, the "Financing Agreements").
---------------------------------------------------------------------
Gentlemen:
The present term of your Financing Agreements with CIT expires February
17, 1999. We propose to amend the Financing Agreements and the Note as set forth
below, effective as of December 1, 1997. Capitalized terms appearing below that
are not defined herein shall have the meanings given in the Rider to the
Accounts Agreement, as amended and restated as of the date hereof.
1. Paragraph 6 of the printed portion of the Accounts Agreement
is hereby deleted in its entirety and the following is
substituted therefor:
"6. That Debtor will pay CIT for its advances made hereunder a charge of
two percent (2%) per annum plus the rate of interest publicly announced by
The Chase Manhattan Bank, New York, New York from time to time as its
prime rate (the prime rate is not intended to be the lowest rate of
interest charged by The Chase Manhattan Bank to its borrowers),
<PAGE>
computed on a 360-day year. In the event of a change in the prime rate
charged at The Chase Manhattan Bank, adjustment hereunder shall be made on
the day of such change in the prime rate. All charges shall be computed
upon the average daily balances outstanding and charged to Debtor's
account or paid monthly."
2. The following is a restatement, in its entirety, of Paragraph
30 of the printed portion of the Accounts Agreement, as
heretofore amended:
"Debtor may, on thirty days prior written notice, prepay and terminate
this Security Agreement by paying to CIT, in cash, the entire unpaid
principal balance plus accrued charges, together with a sum equal to 25%
of the average monthly charges for the immediately preceding six months,
multiplied by the number of months of the unexpired balance of the term of
this agreement (the "early termination fee"). However, in no event shall
the early termination fee be less than $100,000. In the event of a default
or breach by Debtor hereunder, the parties agree that damages sustained by
CIT shall be computed, as provided in this paragraph. Prior to actual
receipt of moneys due under this paragraph, CIT may at its option exercise
all of its rights under the Security Agreement."
3. The last sentence of Paragraph 17 of the printed portion of
the Accounts Agreement is amended to read as follows:
"In order to avoid the necessity for separate computation of the time
of clearance of each collection item, clearance time of two business
days shall be allowed upon every check and such note or draft or
other instrument for the payment of money before the same shall be
deemed so collected."
4. The first sentence of paragraph 26 of the printed portion of
the Accounts Agreement is amended to read as follows:
"That this Agreement shall remain in effect until August 17, 2000 and
shall be deemed automatically renewed for successive terms of two
years."
5. The Debtors affirm that the unpaid principal balance of the
Note as of the date hereof is $1,000,000.
The Note shall be amended to provide that (i) the final installment
thereof in the amount of the entire unpaid principal balance shall be
payable on August 17, 2000 rather than on February 17, 1999; and (ii)
interest on the unpaid principal balance of the Note shall be payable at
the rate per annum of two (2%) percent plus the prime rate announced by
The Chase Manhattan Bank or its successor rather than two and one-half
(2.5%) percent plus such prime rate.
6. In consideration of the amendment of the Financing Agreements as provided
herein, the Debtors shall pay to CIT a Transaction Fee in the amount of
$10,000 which shall be payable on the date hereof and may be charged by
CIT on the date hereof to any account of the
<PAGE>
Debtors maintained with CIT. In consideration of the payment of such
Transaction Fee, and notwithstanding the terms of Section F of the Rider
to the Accounts Agreement, Debtors shall not be obligated to pay the fees
of CIT's in-house or outside counsel incurred in connection with the
preparation of this Agreement, the amended and restated Rider to the
Accounts Agreement or the documents required pursuant to Paragraph 8 of
this Agreement.
7. This will confirm that in addition to all other fees at any time payable
by Debtors to CIT, Debtors shall pay a Facility Fee to CIT on each
anniversary date of the Accounts Agreement in the amounts hereinafter set
forth. The Facility Fee payable during the term of the Financing
Agreements ending on August 17, 2000 shall be fully earned on the date
hereof and the Facility Fee payable during any renewal term shall be fully
earned on the first day of such renewal term. The Facility Fee payable on
February 17, 1998 shall be $35,000, the Facility Fee payable on February
17, 1999 shall be $25,000 and the Facility Fee payable on February 17,
2000 and on each subsequent anniversary of the date of the Accounts
Agreement, commencing February 17, 2001, shall be $12,500. Upon the
occurrence of a default under the Financing Agreements or upon the
effective date of termination of the Financing Agreements for any reason
prior to the end of the then current term, all Facility Fees payable at
any time during such term shall become immediately due and payable in
full. Each Facility Fee may be charged by CIT to any account of the
Debtors maintained by CIT.
8. Debtors agree and acknowledge that it is a material condition of the
financing to be provided by CIT that CIT receive the following documents
or instruments and that accordingly, the failure to provide such documents
or instruments to CIT within 30 days of the date hereof (or, in the case
of documents that have not yet been submitted to Debtors by CIT and whose
form and content have not been approved by Debtors, as noted below, within
30 days after the date that the form and content of such document is
approved by Debtors) or the failure of Debtors and CIT to agree on the
form and content of a document within 30 days after such document has been
submitted to Debtors, shall constitute a default under the Financing
Agreements (but nothing contained herein shall limit the generality of the
terms of the Financing Agreements or constitute a waiver of any of the
terms thereof):
a. Acknowledgment by Lightning Pack, Inc., Paterson, New Jersey, of
CIT's security interest in inventory stored by Debtors with such
entity (document has been approved by Debtors but Debtors shall have
45 days from the date hereof to have such document executed by
Lightning Pack, Inc. and delivered to CIT);
b. Guaranties by Great Earth Companies, Inc. and Great Earth
International Franchising Corp. in favor of CIT of all indebtedness
due to CIT from Phoenix, GED and Bodyonics, secured by a security
interest in all assets of such entities, including a collateral
assignment of such entities, trademarks and rights under franchise
agreements (guaranties and/or security agreements identical to any
such instruments already executed by any of Debtors in favor of CIT
shall be deemed approved by Debtors; form of collateral assignment of
trademarks and rights under franchise agreements has not yet been
approved by Debtors);
<PAGE>
c. Collateral assignment by Phoenix, securing its obligations to CIT, of
all patents, formulas and other trade secrets (document not yet
approved by Debtors); and
d. Notification (signed by GED, Bodyonics and Phoenix) to General
Nutritional Corp. ("GNC"), in the form attached, of CIT's security
interest in accounts receivable due from GNC to GED, Bodyonics and
Phoenix (document has been approved by Debtors); and
e. Evidence that Debtors have obtained a policy of credit insurance on
their accounts receivable in an amount no less than $750,000,
satisfactory to CIT as to form and issuer, with an endorsement naming
CIT as beneficiary or loss payee (approval of form and content of
documents by Debtors is not applicable to this subsection and is not
required).
9. In lieu of an agreement from the landlord of Debtors' premises at 140
Lauman Lane, Hicksville, New York (the "Hicksville Premises"), agreeing
that CIT may have access to such premises for the purpose of removing its
collateral in the event of a default, it is agreed that:
a. CIT may hold a reserve from amounts otherwise due to the Debtors
under the Financing Agreements, an amount equal to three (3) months
rent payable under the lease of the Premises (the "Lease'). The
monthly rent under the Lease is now $18,450; and
b. Debtors shall provide to CIT each month evidence of its payment of
the monthly rent due under the Lease and shall provide to CIT copies
of any amendments of the Lease changing the amount of such rent; and
c. Debtors' failure to pay any amount due under the Lease within 30 days
of its due date shall constitute a default under the Financing
Agreements.
By his execution below, Melvin Rich confirms that his Guaranty (which is limited
to $450,000 in principal indebtedness and under which the estate of Sidney Rich
shall no longer be liable) in favor of CIT, dated July 1, 1992, with respect to
the obligations of Phoenix, GED and Bodyonics, and the Cash Collateral
Agreement, dated August 31, 1993 executed by him in favor of CIT, securing such
Guaranty, remain in full force and effect.
The undersigned GED, Phoenix, Bodyonics and Evergood Products Corporation
confirm that the Guaranty, dated February 17, 1988, pursuant to which they have
each guaranteed each others obligations to CIT, remains in full force and
effect.
All other terms and conditions of the Financing Agreements shall remain in full
force and effect. The undersigned agree to execute such further documents and
instruments as shall be necessary to carry out the purposes of the amendment of
the Financing Agreements set forth above.
<PAGE>
Please sign and return this letter to us to evidence your agreement to the
amendments of the Financing Agreements set forth above.
The offer to amend the Financing Agreements as provided in this letter shall be
deemed revoked if this letter is not signed and returned by you on or before
January 30, 1998.
Very truly yours,
THE CIT GROUP/CREDIT FINANCE, INC.
By: /s/
----------------------------------
Title: Vice President
-------------------------------
Agreed to:
PHOENIX LABORATORIES, INC.
By: /s/
----------------------------------
Title: Vice President
-------------------------------
GREAT EARTH DISTRIBUTION, INC.
By: /s/
----------------------------------
Title: Vice President
-------------------------------
BODYONICS, LTD.
By: /s/
----------------------------------
Title: Vice President
-------------------------------
Confirmed:
/s/ MELVIN RICH
- -------------------------------------
MELVIN RICH
EVERGOOD PRODUCTS CORPORATION
By: /s/
----------------------------------
Title: Vice President
-------------------------------
<PAGE>
AMENDED AND RESTATED RIDER TO SECURITY AGREEMENT
(Accounts, Contract Rights, Instruments
and Goods Pertaining Thereto)
between
Debtors: PHOENIX LABORATORIES, INC. ("Phoenix")
GREAT EARTH DISTRIBUTION, INC. ("GED")
BODYONICS, LTD. ("Bodyonics")
(each hereafter refined to individually as "Debtor" and
collectively as "Debtors")
and
Secured Party: THE CIT GROUP/CREDIT FINANCE, INC.
(hereafter referred to as "CIT")
This is an Amendment and Restatement, effective as of December 1, 1997, of the
Rider to the Security Agreement (Accounts, Contract Rights, Instruments and
Goods Pertaining Thereto), dated February 17, 1988 (this "Agreement", between
Debtor and Fidelcor Business Credit Corporation ("Fidelcor"), to whose rights
CIT has succeeded, pursuant to which, in addition to and not in limitation of
any and all rights granted to CIT and obligations incurred by Debtor in the
printed portion of this Agreement, Debtor further warrants, covenants and agrees
as follows:
A. Each of the Debtors shall be jointly and severally liable for the
Obligations (as hereafter defined) of all of the Debtors.
B. The term "Financing Agreements" shall mean and include, without
limitation, this Agreement, the Security Agreement (Inventory), the Security
Agreement (Equipment), and the agreements, documents and instruments listed on
the attached Schedule A, as now existing or as hereafter renewed, extended,
amended, modified or supplemented and any agreements, documents and guaranties
that (i) are executed in the future; and (ii) are executed by any Debtors or
Affiliates of any Debtors in favor of CIT or are between CIT and any Debtors or
Affiliates of theirs or grant collateral security for or create or evidence
indebtedness of any Debtors or Affiliates of theirs to CIT; and (iii) do not by
their terms expressly recite that they shall not be deemed "Financing
Agreements" hereunder. Affiliate means any entity having common ownership with a
Debtor or controlled by or under common control with any Debtor.
C. The term "Obligations" or obligations shall mean and include,
without limitation, any and all of Debtor's indebtedness and/or liabilities to
CIT of every kind, nature and description, direct or indirect, secured or
unsecured, joint and/or several, absolute or contingent, due or to become due,
now existing or hereafter arising, related or unrelated, regardless of how they
arise or by what agreement or instrument they may be evidenced or whether
evidenced by any agreement or instrument, including, but not limited to all
amounts owing by Debtor to CIT under this Agreement, the other Financing
Agreements, or any other security agreement, guaranty or note and all
obligations to perform acts or refrain from taking any action.
<PAGE>
D. The term Collateral or collateral shall mean and include, without
limitation, that which is set forth in Paragraph I of the printed portion of
this Agreement and any and all other items of real or personal property in which
Debtor has granted or may in the future grant a security interest to CIT under
the Financing Agreements, or any supplement or supplements thereto, and/or under
any other security agreement, or other agreement, all of Debtor's right, title
and interest in and to the goods or other property represented by or securing
any of the foregoing, all of Debtors rights as an unpaid vendor or lien or,
including stoppage in transit, replevin or reclamation, all additional amounts
due to Debtor from any account debtor irrespective of whether such additional
amounts have been specifically assigned to CIT, all other agreements on property
securing or relating, to any of the items referred to above or acquired for the
purposes of securing or enforcing any of such items, 0 present and future
chattel paper, motor vehicles, licenses, patents, trademarks, copyrights,
license agreements, tax and duty claims and refunds, computer software,
goodwill, customer lists, all documents, monies, deposits, securities,
instruments, credits, and other property now or hereafter held by CIT or any
entity which at any time participates in CIT's financing transactions with
Debtor, and all products, proceeds and accessions of all of the foregoing in
whatever form. Debtor hereby grants CIT a continuing first priority security
interest in and general lien upon all of the Collateral to secure payment and
performance of all of the Obligations, except for prior security interests set
forth on Schedule B attached hereto.
E. In addition to any other security interest granted in the
Financing Agreements and not in limitation of any of the foregoing, and to
secure the payment and performance of all of the Obligations. Debtor hereby
pledges and assigns to CIT and grants to CIT a continuing general security
interest in all of the Debtor's ledger sheets, files, records and documents
relating to the Collateral. which shall, until delivered to or removed by CIT,
be kept by Debtor in trust for CIT and without cost to CIT in appropriate
containers in safe places, bearing suitable legends disclosing CIT's security
interest. Each confirmatory assignment schedule or other form of Assignment
hereafter executed by Debtor, shall be deemed to include the foregoing, whether
or not same appears therein.
F. The Debtor will pay all costs and expenses and all taxes,
recording and filing fees (including Uniform Commercial Code Financing
Statements) in connection with the preparation. execution, delivery,
administration (including wire transfer charges in amounts that CIT may from
time to time establish if Debtor requests wire transfers) and enforcement of
this Agreement and all other documents Contemplated herein or related hereto,
including any amendments, supplements or consents which may he hereafter made or
entered into in respect thereof, including appraisal fees, and lien searches in
connection herewith and fees and disbursements of in-house and outside counsel
to CIT. Debtor will pay all out-of-pocket costs of field examinations to be
conducted by CIT as provided in Paragraph 13 of the printed portion of the AP
cement plus $650.00 per person per day. CIT is hereby authorized to charge any
amounts payable hereunder (including principal, interest, fees, charges and
expenses) directly to any account of the Debtor maintained with CIT.
G. CIT agrees that in addition to the advances made with reference to
the formula set forth in Paragraph 2 of the printed portion of this agreement
("Accounts Advances"),
<PAGE>
CIT shall make additional advances to Debtor, in its sole discretion, of thirty
percent (30%) of the value of Phoenix's acceptable and eligible raw material
inventory and of thirty-five (35%) percent of the value of GED's and Bodyonics'
acceptable and eligible finished goods inventory (collectively the "Inventory
Advances"). As used herein, "value" shall mean the lower of cost or market
price, as determined by CIT. Except in CIT's sole discretion, (1) the aggregate
principal amount of Accounts Advances to GED shall not exceed, at any time
outstanding, the lesser of (a) $1,750,000 (the "GED Accounts Sublimit") or (b)
an amount equal to one hundred and twenty-five (125%) percent of the Phoenix
Accounts Advances and (2) the aggregate principal amount of the Inventory
Advances to Debtors shall not exceed $2,000,000 at any time outstanding. Except
in CIT's sole discretion, the aggregate principal amount of Accounts Advances to
Bodyonics shall not exceed an amount equal to the sum of one hundred (100%)
percent of the Phoenix Accounts Advances and one hundred (I 00%) percent of the
GED Accounts Advances.
H. Except in CIT's sole discretion the aggregate principal amount of
the advances made by CIT to Debtors under the Financing Agreements, including
the Accounts Advances and the Inventory Advances, shall not exceed the principal
amount of $6,500,000 at any time outstanding.
I. [Intentionally omitted]
J. In consideration of CIT entering into this Agreement and incurring
accounting, operating and Management expenses, Debtors shall pay to CIT each
calendar month a minimum charge equal to the amount of interest Debtors would
pay CIT if they at all times had an aggregate average daily loan balance
outstanding of S2,500,000 bearing interest at the rate provided for in Paragraph
6 of the printed portion of this Agreement. CIT shall reduce such minimum charge
by the amounts actually paid by Debtors to CIT as interest pursuant to said
Paragraph 6, so that for each calendar month Debtors shall pay CIT interest as
provided for in said Paragraph 6, plus the amount, if any, by which the minimum
charge provided for in this paragraph exceeds the amount of interest payable
pursuant to said Paragraph 6 for such month. If this Amendment shall be
terminated. such minimum charge shall continue and be paid by the Debtor for any
unexpired term of this Agreement, except if such termination is made pursuant to
Paragraph 26 or 30 of the printed portion of this Agreement or by mutual
agreement of CIT and the Debtor.
K. All advances by CIT pursuant to this Agreement shall bear interest
at the variable rate provided for in Paragraph 6 of the printed portion of this
Agreement and shall be calculated on the basis of a 360-day year for actual days
elapsed.
L. Should CIT commence a proceeding to take possession of any of the
Collateral under this Agreement or any of the Financing Agreements, Debtor
waives the requirement, if any, that CIT post a bond or any other type of
security.
M. In addition to all of the covenants set forth in the
Financing Agreements and without limiting any of the terms or
provisions thereof, Debtor hereby covenants and agrees as follows:
<PAGE>
1. Debtor will pay all obligations when due and will perform all of the
terms, conditions, covenants and agreements of Debtor to be performed
under the Financing Agreements, and will make punctual payment of all
monies and will perform all of the terms, conditions, covenants and
agreements on its part to be paid, kept or performed under the terms of
any lease or mortgage of the premises where any of the Collateral is now
or hereafter located, wherein Debtor is lessee or mortgagor, and will
promptly notify CIT in the event of any default by Debtor or receipt by
Debtor of any notice or alleged default under any such lease or mortgage.
2. Debtor will pay and discharge at or before maturity, all taxes,
assessments, rents, claims, debts and charges except where the same are
being contested in good faith and Debtor is maintaining, in accordance
with generally accepted accounting principles and practice, appropriate
reserves for accrual thereof
3. Debtor will promptly give notice in writing to CIT of the occurrence of
any event which constitutes or which with notice or lapse of time, or
both, would constitute a default under any of the Financing Agreements. As
used in the Paragraph (3), the word "promptly" shall be determined in
relation to the point in time at which Debtor, exercising sound management
practices, has actual knowledge or should have discovered the occurrence
of such event.
4. Debtor will provide CIT with such other information concerning the
financial or business affairs of Debtor as CIT, in its sole discretion,
requests from time to time.
5. Debtor will not, without the prior written consent of CIT, declare or pay
any dividend, return any capital to any of its stockholders, loan any sum
to any of its stockholders, employees, officers or directors, or redeem,
repurchase or otherwise acquire any of its outstanding capital stock
except that Debtor may continue to repay an indebtedness due to its
shareholder, Charlotte Rich, in the outstanding principal amount of
$378,623.08, provided that the amount of such repayment does not exceed
$140,000 per year, inclusive of both principal and interest.
6. Notwithstanding Paragraph 3 of the printed portion of this Agreement,
Debtor shall direct that all proceeds of accounts receivable, letters of
credit, banker's acceptances and other proceeds of Collateral shall be
payable to a post office box or a lock box designated by and in control of
CIT and in connection therewith shall execute such agreements as CIT in
its sole discretion shall specify. So long as no default has occurred
under the Financing Agreements, Debtor's deposit of all proceeds of
Collateral
<PAGE>
to an account at Chase Manhattan Bank which is blocked to CIT shall
constitute compliance with this subsection.
7. Debtor will duly execute and deliver, or will cause to be executed and
delivered, such further instruments and documents, including, without
limitation, additional security agreements, collateral assignments,
Uniform Commercial Code financing statements or amendments, or
continuations thereof, landlord's or mortgagee's waivers of liens, and
consents to the exercise by CIT of 0 of its rights and remedies under the
Financing Agreements with respect to the Collateral and will do such
further acts as may be necessary or proper in CIT's opinion to effectuate
the provisions or purposes of the Financing Agreements.
8. Debtor will not, without the prior written consent of CIT, directly or
indirectly sell, lease, abandon or otherwise dispose of all or any
substantial portion of its property or assets or consolidate with or merge
with or into any other entity, or permit any other entity to consolidate
with or merge with or into it.
9. Debtor will at all times preserve and keep in full force and effect its
corporate existence, licenses, permits, rights and franchises.
10. Debtor will comply with the requirements of all applicable laws, rules,
regulations, orders of any governmental authority, and all agreements to
which Debtor is a party. the noncompliance with which laws, rules,
regulations, orders and agreements would materially adversely affect its
business, properties or credit.
N. Any default by Debtor under the Financing Agreements or any
default under any material obligation for the payment of money to any person,
firm or corporation shall constitute and be deemed a default by the Debtor and
shall be a default under all such other agreements and instruments.
O. Debtor hereby further represents and warrants to CIT
the following:
1. Debtor has the corporate power to borrow and to execute, deliver and carry
out the terms and provisions of the financing Agreements, and a other
instruments and documents delivered by it pursuant hereto and thereto, and
Debtor has taken or caused to be taken all necessary corporate action to
authorize the execution, delivery and performance of the Financing
Agreements. and such other agreements, the borrowings hereunder and the
execution, delivery and performance of the instruments and documents
delivered and to be delivered by it pursuant hereto and thereto, and the
Financing Agreements constitute and will constitute legal, valid and
<PAGE>
binding obligations of Debtor, enforceable in accordance with their
respective terms.
2. Debtor is not aware of, has knowledge of, or has received notice of, a
default in any material respect under any indenture, mortgage, deed of
trust, lease agreement, or other instrument to which it is a party or by
which it or its properties may be bound. Neither the execution nor
delivery of the Financing Agreements, nor any of the instruments
or documents to be delivered pursuant hereto or thereto, nor the
consummation of the transactions herein or therein contemplated nor
compliance with the provisions hereof or thereof, will violate any law or
regulation or any order or decree of any court or governmental
instrumentality in any respect, or will conflict with, or result in the
breach of, or constitute a default in any material respect under, any
mortgage, deed of trust, agreement or other instrument to which Debtor is
party or by which it or its properties may be bound, or result in the
creation or imposition of any lien, charge or encumbrance upon any of the
property of Debtor (except as contemplated hereunder or under any of the
other Financing Agreements) or violate any provision of Certificate of
Incorporation or By-Laws of Debtor.
3. No action of, or filing with, any governmental or public body or
authority (other than the filing or recording of Uniform Commercial Code
financing statements) is required in connection with the execution,
delivery and performance of the Financing Agreements or any of the
instruments or documents to be delivered pursuant hereto or thereto.
4. Debtor has obtained all necessary licenses and approvals and is in
compliance in all material respects with all applicable state and Federal
laws and regulations relating to the conduct of its business as presently
conducted or contemplated.
5. There are no strikes or other labor disputes against Debtor, pending, or
to Debtor's knowledge, threatened.
6. None of the information contained in the representations and warranties
made by Debtor in the Financing Agreements, or contained in any
certificate, statement, schedule or exhibit to or under any of the
Financing Agreements, contains or will contain any untrue statement of a
material fact or omit or will omit to state a fact necessary in order to
make the statements contained herein or therein not misleading.
<PAGE>
PHOENIX LABORATORIES, INC.
By: /s/
-----------------------------
Title: VP
--------------------------
GREAT EARTH DISTRIBUTION, INC.
By: /s/
-----------------------------
Title: VP
--------------------------
BODYONICS, LTD.
By: /s/
-----------------------------
Title: VP
--------------------------
THE CIT GROUP/CREDIT FINANCE, INC.
By: /s/
-----------------------------
Title: VP
--------------------------
<PAGE>
Schedule A
1. Security Agreement (Accounts, etc.) between Phoenix Laboratories, Inc.
("Phoenix"), Great Earth Distribution, Inc. ("GED"), and Fidelcor Business
Credit Corporation ("Fidelcor") dated February 17, 1988.
2. Rider to Security Agreement (Accounts, etc.) between Phoenix, GED and
Fidelcor.
3. Amendments to Security Agreement
a. Amendment dated June 29. 1988 among GED, Phoenix and
Fidelcor;
b. Amendment dated October 4, 1989 among GED, Phoenix and
Fidelcor;
c. Amendment dated August 13, 1991 among GED, Phoenix and
The CIT Group/Credit Finance, Inc. ("CIT");
d. Amendment dated August 13, 1991 among Great Earth
International, Inc., Great Earth International Licensing
Corp., Great Earth Stores, Inc., Great Earth
International Franchising Corp., Great Earth Vitamins
Ltd. and CIT;
e. Amendment dated December 16, 1991 among Phoenix, GED,
Evergood Products Corporation ("Evergood") and CIT;
f. Amendment dated June 19, 1992 among Phoenix, GED, Evergood and CIT;
g. Amendment dated August 27, 1993 among Phoenix, GED,
Evergood and CIT;
h. Amendment dated December 23, 1994 among Phoenix, GED and CIT;
i. Amendment dated January 4, 1995 among Phoenix, GED and
CIT;
j. Amendment dated January 6,1995 among Phoenix, GED and CIT;
k. Amendment dated June 21, 19,96 among Phoenix. GED.
Evergood and CIT;
l. Amendment dated November 18,1996 among Phoenix,
Bodyonics, Ltd. ("Bodyonics') and CIT;
m. Amendment dated November 18, 1996 among Phoenix,
Bodyonics and CIT;
n. Amendment dated February II, 1997 among Phoenix, GED,
Bodyonics, Evergood and CIT.
4. Security Agreement (Inventory) among Phoenix, GED and Fidelcor
dated February 17,1988
5. Security Agreement (Equipment) among Phoenix, GED and Fidelcor
dated February 17,1988
6. Sixth Amended and Restated Promissory Note in the original principal
amount of $1,150,000.00 made by Phoenix, GED and Bodyonics and payable to
CIT dated February12,1997.
<PAGE>
7. Secretary's Certificates
a. Secretary's Certificate of Evergood dated February 9,
1988;
b. Secretary's Certificate of Phoenix dated February 9, 1988;
c. Secretary's Certificate of GED dated February 9, 1988.
8. Replacement Guaranty by Melvin Rich in favor of CIT with
respect to Phoenix and GED dated July 1, 1992
9. Cash Collateral Agreement executed by Melvin Rich, dated
August 31, 1993.
10. Guaranty by Evergood, Phoenix and GED in favor of Fidelcor
with respect to Evergood Products Corporation, Phoenix
Laboratories, Inc. and Great Earth Distribution, Inc., dated
February 17, 1988
11. Intercreditor Agreement between Fidelcor and Hoffmann - La
Roche Inc. dated February16, 1988
12. Guaranty in favor of Fidelcor by Great Earth International,
Inc. ("GED), dated April 26, 1988, with respect to Phoenix and
GED.
13. Trademark Collateral Assignment and Security Agreement, dated
April 26, 1988,executed by GEI in favor of Fidelcor.
<PAGE>
<TABLE>
<CAPTION>
Schedule B
Page 1 of 2
Unterminated Security Interests
- -------------------------------------------------------------------------------------------------------
Amendments
Juris- Filing (Releases,
Debtor Secured Party diction UCC # Date Collateral Assignments, etc.)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Phoenix Hoffman-La N.Y. 390298 12/24/88 All Equipment
Laboratories, Inc. Roche, Inc. S/S (now owned,
P.O. Box 368 340 Kingsland hereafter
809 Ibsen Street Street acquired)
Woodmere, New York Nutley, N.J.
11598 07110
- -------------------------------------------------------------------------------------------------------
Phoenix Long Island N.Y. 348550 11/10/86 2 Machines
Laboratories, Inc. Trust Co. S/S
175 Lauman Lane Industrial Debtor has no
Hicksville, New York Finance Dept. power to sell
11801 11 Broadway or dispose of
Hicksville, collateral
NY 11801
- -------------------------------------------------------------------------------------------------------
Phoenix Hoffman-La Nassau 87-001408 1/16/87 All equipment
Laboratories, Inc. Roche, Inc. County (now owned &
P.O. Box 388 340 Kingsland Clerk hereafter
809 Ibsen Street Street acquired.)
Woodmere, New York Nutley, N.J.
11598 07110
- -------------------------------------------------------------------------------------------------------
Phoenix Hoffman-La Nassau 87-027548 11/25/87 All equipment
Laboratories, Inc. Roche, Inc. County (now owned &
P.O. Box 388 340 Kingsland Clerk hereafter
809 Ibsen Street Street acquired.)
Woodmere, New York Nutley, N.J.
11598 07110
- -------------------------------------------------------------------------------------------------------
Phoenix Equilease Nassau 86-03044 12/19/86 Feild for Info. ASSIGNED TO:
Laboratories, Inc. Corporation County Only. Textron Capital
175 Lauman Lane 750 Third Clerk Property (not Corporation
Hicksville, New York Avenue described) 1410 Hospital Trust Tower
11801 New York, NY Subject to Providence, Rhode Island
10017 LEASE
- -------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Schedule B
Page 2 of 2
(Cont'd)
- -------------------------------------------------------------------------------------------------------
Amendments
Juris- Filing (Releases,
Debtor Secured Party diction UCC # Date Collateral Assignments, etc.)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Phoenix WASCO Funding Nassau 86-021181 8/25/86 MACHINE (3) ASSIGNED TO:
Laboratories, Inc. Corporation County leased to Tilden
175 Lauman Lane 150 East 58th Clerk debtor who has Financial Corporation
Hicksville, New Street no right to 2 Lambert Street
York 11801 New York, New sell or Roslyn Heights, NY 11577
York 10155 dispose.
- --------------------------------------------------------------------------------------------------------
Phoenix L.I. Trust Co., Nassau 86-027280 11/18/86 2 MACHINE
Laboratories, Inc. N.A. County
175 Lauman Lane Industrial Clerk
Hicksville, New Finance Dept.
York 11801 11 Broadway
Hicksville, NY
11801
- --------------------------------------------------------------------------------------------------------
Great Earth The Lease Factor, S/S 87-128909 5/28/87 Equipment Lease
Distribution, Inc. Inc. Calif.
14211 Gannett Street The Beaumont
La Mirada, CA 90638 Building
P.O. Box 71
South Station
Framinghman,
Mass. 01701
- --------------------------------------------------------------------------------------------------------
Great Earth Pitney Bowes S/S 86-146811 6/11/86 Lease - re:
Distribution, Inc. Credit Calif. Postal
14211 Gannett Street Corporation Equipment
La Mirada, CA 90638 21515 Hawthorne
Blvd.
Suite 690
Torrance, CA
90503
- --------------------------------------------------------------------------------------------------------
Great Earth Pitney Bowes S/S 86146812 6/11/86 Lease - re:
Distribution, Inc. Credit Calif. Postal
14211 Gannett Street Corporation Equipment
La Mirada, CA 90638 21515 Hawthorne
Blvd.
Suite 690
Torrance, CA
90503
- --------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
P. CIT shall have the right, in its discretion, to withhold and
reserve from the amount of its advances under this Agreement such amount as CIT
shall establish as a reasonable reserve upon the occurrence of any breach of any
warranty, covenant, or agreement under the Financing Agreements or for any
default under the Financing Agreements. Without in any way limiting CIT's rights
to withhold and set up reserves, in its sole discretion, CIT shall have the
right to establish a reserve from Debtor's availability for amounts due from GED
to Livingston Healthcare Services, Inc.
Q. CIT agrees that in addition to the Accounts Advances
and Inventory Advances, CIT shall make additional advances to
Debtor of up to
(i) whichever is less,
(x) $200,000; or
(y) 100% of the amount of any cash collateral pledged by
any guarantor of the Obligations to secure his or her
guaranty; and
(ii) whichever is less,
(x) S250,000; or
(y) five (5%) of the sum of
(a) the combined Accounts and Inventory Availability
of the Debtors, as hereinafter defined. and
(b) the unpaid principal balance from time to time of the Sixth
Amended and Restated Promissory Note, in the original principal
amount of $1,150,000, dated February 12, 1997, made by Phoenix,
GED and Bodyonics.
Accounts Availability means for each Debtor, the advance percentage
applicable to accounts receivable of such Debtor as specified in Paragraph
2 of the printed portion of this Agreement, multiplied by the amount of
eligible and acceptable accounts receivable of such Debtor, but not
exceeding any limitation on the amount of Accounts Advances to such Debtor
specified in such Paragraph 2 or in Section G of this Rider.
Inventory Availability means for each Debtor, the advance percentages
applicable to raw material and finished goods inventory of such Debtor as
specified in Section G of this Rider, multiplied by the lower of cost or
market value of eligible and acceptable raw material and finished goods
inventory of such Debtor, but not exceeding in the aggregate for all
Debtors the limitation on the amount of Inventory Advances to all Debtors
as specified in Section G of this Rider.
<PAGE>
THE CIT GROUP
Credit Finance
1211 Avenue of the Americas
New York, NY 10036
Tel: 212-790-9100
Fax: 212-790-9123
THE
CIT
GROUP
August 27, 1998
Phoenix Laboratories, Inc.
Great Earth Distribution, Inc.
Bodyonics, Ltd.
140 Lauman Lane
Hicksville, New York 11801
Re: Security Agreement (Accounts, etc.) executed February 17, 1988 (the
"Accounts Agreement'), by and between Phoenix Laboratories, Inc.
("Phoenix") and Great Earth Distribution, Inc. ("GED") and The CIT
Group/Credit Finance, Inc. ("CIT"), assignee of Fidelcor Business
Credit Corporation (`Fidelcor'), and the Security Agreement
(Inventory) and Security Agreement (Equipment), executed February17,
1988 by Phoenix and GED in favor of Fidelcor, to which Security
Agreements Bodyonics, Ltd. ("Bodyonics') became a party, as Debtor,
by letter agreement dated November 18, 1996; the Sixth Amended and
Restated Promissory Note in the original principal amount of
$1,150,000, dated February 12, 1997 and made by Phoenix, GED and
Bodyonics, as amended by letter agreement dated January21, 1998 (the
"Note"), and all related agreements, amendments, documents and
instruments (collectively, the "Financing Agreements"). GED, Phoenix
and Bodyonics may be hereinafter referred to individually as "Debtor'
and collectively as "Debtors".
---------------------------------------------------------------------
Gentlemen:
The present term of your Financing Agreements with CIT expires August 17,
2000. We propose to amend the Financing Agreements as set forth below, effective
as of the date hereof. Capitalized terms appearing below that are not defined
herein shall have the meanings given in the Rider to the Accounts Agreement, as
amended and restated as of the date hereof.
1. The first sentence of paragraph 26 of the printed portion of the
Accounts Agreement is amended to read as follows:
"That this Agreement shall remain in effect until August 17, 2001
and shall be deemed automatically renewed for successive terms of
two years."
2. The Debtors affirm that the unpaid principal balance of the Note as of the
date hereof is
<PAGE>
$880,000 (the "Existing Term Debt") and that the unpaid balance of the
loans made to the Debtors pursuant to paragraph 9 of the February 11, 1997
amendment of the Financing Agreements for the purpose of allowing the
Debtors to purchase new equipment, is $95,000 (the "Capital Expenditure
Loans").
Concurrently herewith, CIT is making an advance to the Debtors in the
amount of$245,000, which together with the Existing Term Debt and the
Capital Expenditure Loans shall be repayable in accordance with the terms
of the Seventh Amended and Restated Promissory Note, in the original
principal amount of $1,220,000, executed on the date hereof, which shall
replace the Note but not extinguish the indebtedness evidenced by the Note
or the indebtedness represented, by the Capital Expenditure Loans.
3. This will confirm that in addition to all other fees at any time payable
by Debtors to CIT, Debtors shall pay a Facility Fee to CIT on each
anniversary date of the Accounts Agreement in the amounts hereinafter set
forth. The Facility Fee payable during the term of the Financing
Agreements ending on August 17, 2001 shall be fully earned on the date
hereof and the Facility Fee payable during any renewal term shall be fully
earned on the first day of such renewal term. The Facility Fee payable on
February 17, 1999 shall be$25,000 and the Facility Fee payable on February
17, 2000 and on each subsequent anniversary of the date of the Accounts
Agreement, commencing February 17, 2001,shall be $17,500. Upon the
occurrence of a default under the Financing Agreements or upon the
effective date of termination of the Financing Agreements for any reason
prior to the end of the then current term, all Facility Fees payable at
any time during such term shall become immediately due and payable in
full. Each Facility Fee may be charged by CIT to any account of the
Debtors maintained by CIT. This paragraph supersedes the provisions of
paragraph 7 of the amendment of the Financing Agreements dated January21,
1998 except with respect to any Facility Fee already paid by Debtors
pursuant to the terms of such paragraph.
All other terms and conditions of the Financing Agreements (including the Rider
to the Security Agreement (Accounts, etc.), as amended and restated effective as
of the date hereof) shall remain in full force and effect and nothing contained
herein is intended to modify or impair CIT's entitlement to the documentation
described in paragraph 8 of the January 21, 1998 amendment of the Financing
Agreements. The undersigned agree to execute such further documents and
instruments as shall be necessary to carry out the purposes of the amendment of
the Financing Agreements set forth above.
<PAGE>
Please sign and return this letter to us to evidence your agreement to the
amendments of the Financing Agreements set forth above.
The offer to amend the Financing Agreements as provided in this letter shall be
deemed revoked if this letter is not signed and returned by you on or before
August 31, 1998.
Very truly yours,
THE CIT GROUP/CREDIT FINANCE, INC.
By: /s/
-----------------------------
Title: VICE PRESIDENT
--------------------------
PHOENIX LABORATORIES, INC.
By: /s/
-----------------------------
Title: ExVP
--------------------------
GREAT EARTH DISTRIBUTION, INC.
By: /s/
-----------------------------
Title: EVP
--------------------------
BODYONICS, LTD.
By: /s/
-----------------------------
Title: ExVP
--------------------------
Confirmed:
/s/ MELVIN RICH
- --------------------------------
MELVIN RICH, individually as guarantor
EVERGOOD PRODUCTS CORPORATION
By: /s/
-----------------------------
Title: ExVP
--------------------------
<PAGE>
AMENDED AND RESTATED RIDER TO SECURITY AGREEMENT
(Accounts, Contract Rights, Instruments
and Goods Pertaining Thereto)
between
Debtors: PHOENIX LABORATORIES, INC. ("Phoenix")
GREAT EARTH DISTRIBUTION, INC. ("GED")
BODYONICS, LTD. ("Bodyonics")
(each hereafter referred to individually as "Debtor" and
collectively as "Debtors")
and
Secured Party: THE CIT GROUP/CREDIT FINANCE, INC.
(hereafter referred to as "CIT")
This is an Amendment and Restatement, effective as of August 27, 1998 of the
Rider to the Security Agreement (Accounts, Contract Rights, Instruments and
Goods Pertaining Thereto), dated February 17, 1988 (this "Agreement"), between
Debtor and Fidelcor Business Credit Corporation (`Fidelcor'), to whose rights
CIT has succeeded, pursuant to which, in addition to and not in limitation of
any and all rights granted to CIT and obligations incurred by Debtor in
the printed portion of this Agreement, Debtor further warrants, covenants and
agrees as follows:
A. Each of the Debtors shall be jointly and severally liable for the
Obligations (as hereafter defined) of all of the Debtors.
B. The term "Financing Agreements" shall mean and include, without
limitation, this Agreement, the Security Agreement (Inventory), the Security
Agreement (Equipment), and the agreements, documents and instruments listed on
the attached Schedule A, as now existing or as hereafter renewed, extended,
amended, modified or supplemented and any agreements, documents and guaranties
that (i) are executed in the future; and (ii) are executed by any Debtors or
Affiliates of any Debtors in favor of CIT or are between CIT and any Debtors or
Affiliates of theirs or grant collateral security for or create or evidence
indebtedness of any Debtors or Affiliates of theirs to CIT; and (iii) do not by
their terms expressly recite that they shall not be deemed "Financing
Agreements" hereunder. Affiliate means any entity having common ownership with a
Debtor or controlled by or under common control with any Debtor.
C. The term "Obligations" or obligations shall mean and include,
without limitation, any and all of Debtor's indebtedness and/or liabilities to
CIT of every kind, nature and description, direct or indirect, secured or
unsecured, joint and/or several, absolute or contingent, due or to become due,
now existing or hereafter arising, related or unrelated, regardless of how they
arise or by what agreement or instrument they may be evidenced or whether
evidenced by any agreement or instrument, including, but not limited to all
amounts owing by Debtor to CIT under this Agreement, the other Financing
Agreements, or any other security agreement, guaranty or note and all
obligations to perform acts or refrain from taking any action.
<PAGE>
D. The term Collateral or collateral shall mean and include, without
limitation, that which is set forth in Paragraph I of the printed portion of
this Agreement and any and all other items of real or personal property in which
Debtor has granted or may in the future grant a security interest to CIT under
the Financing Agreements, or any supplement or supplements thereto, and/or under
any other security agreement, or other agreement, all of Debtor's right, title
and interest in and to the goods or other property represented by or securing
any of the foregoing, all of Debtors rights as an unpaid vendor or lien or,
including stoppage in transit, replevin or reclamation, 0 additional amounts due
to Debtor from any account debtor irrespective of whether such additional
amounts have been specifically assigned to CIT, all other agreements on property
securing or relating to any of the items referred to above or acquired for the
purposes of securing or enforcing any of such items, all present and future
chattel paper, motor vehicles, licenses, patents, trademarks, copyrights,
license agreements, tax and duty claims and refunds, computer software,
goodwill, customer lists, all documents, monies, deposits, securities,
instruments, credits, and other property now or hereafter held by CIT or any
entity which at any time participates in CIT's financing transactions with
Debtor, and all products, proceeds and accessions of all of the foregoing in
whatever form. Debtor hereby grants CIT a continuing first priority security
interest in and general lien upon all of the Collateral to secure payment and
performance of 0 of the Obligations, except for prior security interests set
forth on Schedule E attached hereto.
E. In addition to any other security interest granted in the
Financing Agreements and not in limitation of any of the foregoing, and to
secure the payment and performance of all of the Obligations, Debtor hereby
pledges and assigns to CIT and grants to CIT a continuing general security
interest in 0 of the Debtor's ledger sheets, files, records and documents
relating to the Collateral, which shall, until delivered to or removed by CIT,
be kept by Debtor in trust for CIT and without cost to CIT in appropriate
containers in safe places, bearing suitable legends disclosing CIT's security
interest. Each confirmatory assignment schedule or other form of Assignment
hereafter executed by Debtor, shall be deemed to include the foregoing, whether
or not same appears therein.
F. The Debtor will pay all costs and expenses and all taxes,
recording and filing fees (including Uniform Commercial Code Financing
Statements) in connection with the preparation, execution, delivery,
administration (including wire transfer charges in amounts that CIT may from
time to time establish if Debtor requests wire transfers) and enforcement of
this Agreement and all other documents contemplated herein or related hereto,
including any amendments, supplements or consents which may he hereafter made or
entered into in respect thereof, including appraisal fees, and lien searches in
connection herewith and fees and disbursements of in-house and outside counsel
to CIT. Debtor will pay all out-of-pocket costs of field examinations to be
conducted by CIT as provided in Paragraph 13 of the printed portion of the
Agreement plus $650.00 per person per day. CIT is hereby authorized to charge
any amounts payable hereunder (including principal, interest, fees, charges and
expenses) directly to any account of the Debtor maintained with CIT.
G. CIT agrees that in addition to the advances made with reference
to the formula set forth in Paragraph 2 of the printed portion of this Agreement
("Accounts Advances"),
<PAGE>
CIT shall make additional advances to Debtor, in its sole discretion, of thirty
percent (30%) of the value of Phoenix's acceptable and eligible raw material
inventory, forty percent (40%) of the value of GED's and Bodyonics' acceptable
and eligible furnished goods inventory located at the warehouses of Livingston
Healthcare Services, Inc. in Newark, Delaware and Rancho Cucamonga, California
(such percentage being hereinafter referred to as the `Livingston Inventory
Advance Rate') and thirty-five (35%) percent of the value of all other
acceptable and eligible finished goods inventory of GED and Bodyonics
(collectively the "Inventory Advances"). As used herein, "value" shall mean the
lower of cost or market price, as determined by CIT. Except in CIT's sole
discretion, (1) the aggregate principal amount of Accounts Advances to GED shall
not exceed, at any time outstanding, the lesser of (a) $1,750,000 (the "GED
Accounts Sublimit") or (b) an amount equal to one hundred and twenty-five
(125%)percent of the Phoenix Accounts Advances and (2) the aggregate principal
amount of the Inventory Advances to Debtors shall not exceed $2,500,000 at any
time outstanding. In the event that Debtor at any time has negative Cash Flow
(defined below) to be calculated commencing with the nine month period ending
September 3O, l998 and quarterly thereafter, then the Livingston Inventory
Advance Rate shall be reduced from 40% to 35%. Cash Flow is defined as: Net
income plus depreciation and amortization less capital expenditures and
principal repayments of term debt on a consolidated basis. Except in CIT's sole
discretion, the aggregate principal amount of Accounts Advances to Bodyonics
shall not exceed an amount equal to the sum of one hundred (I 000/o) percent of
the Phoenix Accounts Advances and one hundred (I 00%)percent of the GED Accounts
Advances.
H. Except in CIT's sole discretion the aggregate principal amount of
the advances. made by CIT to Debtors under the Financing Agreements, including
the Accounts Advances and the Inventory Advances, shall not exceed the principal
amount of $7,500,000 at any time outstanding.
I. [Intentionally omitted]
J. In consideration of CIT entering into this Agreement and
incurring accounting, operating and management expenses, Debtors shall pay to
CIT each calendar month a minimum charge equal to the amount of interest Debtors
would pay CIT if they at all times had an aggregate average daily loan balance
outstanding of $2,500,000 bearing interest at the rate provided for in Paragraph
6 of the printed portion of this Agreement. CIT shall reduce such minimum charge
by the amounts actually paid by Debtors to CIT as interest pursuant to said
Paragraph 6, so that for each calendar month Debtors shall pay CIT interest as
provided for in said Paragraph 6, plus the amount, if any, by which the minimum
charge provided for in this paragraph exceeds the amount of interest payable
pursuant to said Paragraph 6 for such month. If this Agreement shall be
terminated, such minimum charge shall continue and be paid by the Debtor for any
unexpired term of this Agreement, except if such termination is made pursuant to
Paragraph 26 or 30 of the printed portion of this Agreement or by mutual
agreement of CIT and the Debtor.
K. All advances by CIT pursuant to this Agreement shall bear
interest at the variable rate provided for in Paragraph 6 of the printed portion
of this Agreement and shall be
<PAGE>
calculated on the basis of a 360-day year for actual days elapsed.
L. Should CIT commence a proceeding to take possession of any of the
Collateral under this Agreement or any of the Financing Agreements, Debtor
waives the requirement, if any, that CIT post a bond or any other type of
security.
M. In addition to all of the covenants set forth in the Financing
Agreements and without limiting any of the terms or provisions thereof, Debtor
hereby covenants and agrees as follows:
1. Debtor will pay all obligations when due and will perform all
of the terms, conditions, covenants and agreements of Debtor
to be performed under the Financing Agreements, and will make
punctual payment of all monies and will perform all of the
terms, conditions, covenants and agreements on its part to be
paid, kept or performed under the terms of any lease or
mortgage of the premises where any of the Collateral is now or
hereafter located, wherein Debtor is lessee or mortgagor, and
will promptly notify CIT in the event of any default by Debtor
or receipt by Debtor of any notice or alleged default under
any such lease or mortgage.
2. Debtor will pay and discharge at or before maturity, all
taxes, assessments, rents, claims, debts and charges except
where the same are being contested in good faith and Debtor is
maintaining, in accordance with generally accepted accounting
principles and practice, appropriate reserves for accrual
thereof.
3. Debtor will promptly give notice in writing to CIT of the
occurrence of any event which constitutes or which with notice
or lapse of time, or both, would constitute a default under
any of the Financing Agreements. As used in the Paragraph (3),
the word "promptly' shall be determined in relation to the
point in time at which Debtor, exercising sound management
practices, has actual knowledge or should have discovered the
occurrence of such event.
4. Debtor will provide CIT with such other information concerning
the financial or business affairs of Debtor as CIT, in its
sole discretion, requests from time to time.
5. Debtor will not, without the prior written consent of CIT,
declare or pay any dividend, return any capital to any of its
stockholders, loan any sum to any of its stockholders,
employees, officers or directors, or redeem, repurchase or
otherwise acquire any of its outstanding capital stock except
that Debtor may continue to repay an indebtedness due to its
shareholder, Charlotte Rich, in the outstanding principal
amount of $378,623.08,provided that the amount of such
repayment does not exceed $140,000 per
<PAGE>
year, inclusive of both principal and interest.
6. Notwithstanding Paragraph 3 of the printed portion of this
Agreement, Debtor shall direct that all proceeds of accounts
receivable, letters of credit, banker s acceptances and other
proceeds of Collateral shall be payable to a post office box
or a lock box designated by and in control of CIT and in
connection therewith shall execute such agreements as CIT in
its sole discretion shall specify. So long as no default has
occurred under the Financing Agreements, Debtor's deposit of
all proceeds of Collateral to an account at Chase Manhattan
Bank which is blocked to CIT shall constitute compliance with
this subsection.
7. Debtor will duly execute and deliver, or will cause to be
executed and delivered, such further instruments and
documents, including, without limitation, additional security
agreements, collateral assignments, Uniform Commercial Code
financing statements or amendments, or continuations thereof,
landlords or mortgagee's waivers of liens, and consents to the
exercise by CIT of all of its rights and remedies under the
Financing Agreements with respect to the Collateral and will
do such further acts as may be necessary or proper in CIT's
opinion to effectuate the provisions or purposes of the
Financing Agreements.
8. Debtor will not, without the prior written consent of CIT,
directly or indirectly sell, lease, abandon or otherwise
dispose of all or any substantial portion of its property or
assets or consolidate with or merge with or into any other
entity, or permit any other entity to consolidate with or
merge with or into it.
9. Debtor will at all times preserve and keep in full force and
effect its corporate existence, licenses, permits, rights and
franchises.
10. Debtor will comply with the requirements of all applicable
laws, rules, regulations, orders of any governmental
authority, and all agreements to which Debtor is a party, the
noncompliance with which laws'. rules, regulations, orders and
agreements would materially adversely affect its business,
properties or credit.
N. Any default by Debtor under the Financing Agreements or any
default under any material obligation for the payment of money to any person,
firm or corporation shall constitute and be deemed a default by the Debtor and
shall be a default under all such other agreements and instruments.
O. Debtor hereby further represents and warrants to CIT the
following:
1. Debtor has the corporate power to borrow and to execute,
deliver and carryout the terms and provisions of the Financing
Agreements, and all other
<PAGE>
instruments and documents delivered by it pursuant hereto and
thereto, and Debtor has taken or caused to be taken 0
necessary corporate action to authorize the execution,
delivery and performance of the Financing Agreements, and such
other agreements, the borrowings hereunder and the execution,
delivery and performance of the instruments and documents
delivered and to be delivered by it pursuant hereto and
thereto, and the Financing Agreements constitute and will
constitute legal, valid and binding obligations of Debtor,
enforceable in accordance with the irrespective terms.
2. Debtor is not aware of, has knowledge of, or has received
notice of, a default in any material respect under any
indenture, mortgage, deed of trust, lease agreement, or other
instrument to which it is a party or by which it or its
properties may be bound. Neither the execution nor delivery of
the Financing Agreements, nor any of the instruments or
documents to be delivered pursuant hereto or thereto, nor the
consummation of the transactions herein or therein
contemplated nor compliance with the provisions hereof or
thereof, will violate any law or regulation, or any order or
decree of any court or governmental instrumentality in any
respect, or will conflict with, or result in the breach of, or
constitute a default in any material respect under, any
mortgage, deed of trust, agreement or other instrument to
which Debtor is party or by which it or its properties may be
bound, or result in the creation or imposition of any lien,
charge or encumbrance upon any of the property of Debtor
(except as contemplated hereunder or under any of the other
Financing Agreements) or violate any provision of Certificate
of Incorporation or By-Laws. of Debtor.
3. No action of, or filing with, any governmental or public body
or authority(other than the filing or recording of Uniform
Commercial Code financing statements) is required in
connection with the execution, delivery and performance of the
Financing Agreements or any of the instruments or documents to
be delivered pursuant hereto or thereto.
4. Debtor has obtained all necessary licenses and approvals and
is in compliance in all material respects with all applicable
state and Federal laws and regulations relating to the conduct
of its business as presently conducted or contemplated.
5. There are no strikes or other labor disputes against Debtor,
pending, or to Debtor's knowledge, threatened.
6. None of the information contained in the representations and
warranties made by Debtor in the Financing Agreements, or
contained in any certificate, statement, schedule or exhibit
to or under any of the Financing
<PAGE>
Agreements, contains or will contain any untrue statement of a
material fact or omit or will omit to state a fact necessary
in order to make the statements contained herein or therein
not misleading.
P. CIT shall have the right, in its discretion, to withhold and
reserve from the amount of its advances under this Agreement such amount as CIT
shall establish as a reasonable reserve upon the occurrence of any breach of any
warranty, covenant, or agreement under the Financing Agreements or for any
default under the Financing Agreements. Without in any way limiting CIT's rights
to withhold and set up reserves, in its sole discretion, CIT shall have the
right to establish a reserve from Debtor's availability for amounts due from GED
to Livingston Healthcare Services, Inc.
Q. CIT agrees that in addition to the Accounts Advances and
Inventory Advances, CIT shall make additional advances to Debtor of up to
(i) whichever is less,
(x) $200,000; or
(y) I 00% of the amount of any cash collateral pledged by any
guarantor of the Obligations to secure his or her guaranty; and
(ii) whichever is less,
(x) $250,000; or
(y) five (5%) of the sum of
(a) the combined Accounts and Inventory Availability of the
Debtors, as hereinafter defined; and
(b) the unpaid principal balance from time to time of the
Seventh Amended and Restated Promissory Note, in the original
principal amount of $1,220,000, dated August 27, 1998, made by
Phoenix, GED and Bodyonics.
Accounts Availability means for each Debtor, the advance percentage
applicable to accounts receivable of such Debtor as specified in Paragraph
2 of the printed portion of this Agreement, multiplied by the amount of
eligible and acceptable accounts receivable of such Debtor, but not
exceeding any limitation on the amount of Accounts Advances to such Debtor
specified in such Paragraph 2 or in Section G of this Rider.
Inventory Availability means for each Debtor, the advance percentages
applicable to raw material and finished goods inventory of such Debtor as
specified in Section G of this Rider, multiplied by the lower of cost or
market value of eligible and acceptable raw
<PAGE>
material and finished goods inventory of such Debtor, but not exceeding in
the aggregate for all Debtors the limitation on the amount of Inventory
Advances to all Debtors as specified in Section G of this Rider.
PHOENIX LABORATORIES, INC.
By: /s/
------------------------------
Title: ExVP
---------------------------
GREAT EARTH DISTRIBUTION, INC.
By: /s/
------------------------------
Title: ExVP
---------------------------
BODYONICS, LTD.
By: /s/
------------------------------
Title: ExVP
---------------------------
THE CIT GROUP/CREDIT FINANCE, INC.
By: /s/
------------------------------
Title: VICE PRESIDENT
---------------------------
<PAGE>
Schedule A
1. Security Agreement (Accounts, etc.) between Phoenix Laboratories, Inc.
("Phoenix"), Great Earth Distribution, Inc. ("GED"), and Fidelcor Business
Credit Corporation ("Fidelcor") dated February 17, 1988.
2. Rider to Security Agreement (Accounts, etc.) between Phoenix, GED and
Fidelcor.
3. Amendments to Security Agreement
a. Amendment dated June 29, 1988 among GED, Phoenix and Fidelcor;
b. Amendment dated October 4, 1989 among GED, Phoenix and Fidelcor;
c. Amendment dated August 13, 1991 among GED, Phoenix and The CIT
Group/ Credit Finance, Inc. ("CIT");
d. Amendment dated August 13, 1991 among Great Earth International,
Inc., Great Earth International Licensing Corp., Great Earth Stores,
Inc., Great Earth International Franchising Corp., Great Earth
Vitamins Ltd. and CIT;
e. Amendment dated December 16, 1991 among Phoenix, GED, Evergood
Products Corporation ("Evergood") and CIT;
f. Amendment dated June 19, 1992 among Phoenix, GED, Evergood and CIT;
g. Amendment dated August 27, 1993 among Phoenix, GED, Evergood and
CIT.
h. Amendment dated December 23, 1994 among Phoenix, GED and CIT;
i. Amendment dated January 4, 1995 among Phoenix, GED and CIT;
j. Amendment dated January 6, 1995 among Phoenix, GED and CIT;
k. Amendment dated June 21, 1996 among Phoenix, GED, Evergood and CIT;
l. Amendment dated November 18, 1996 among Phoenix, Bodyonics, Ltd.
("Bodyonics") and CIT;
m. Amendment dated November 18, 1996 among Phoenix, Bodyonics and CIT;
n. Amendment dated February 11, 1997 among Phoenix, GED, Bodyonics,
Evergood and CIT.
o. Amendment dated January 21, 1998 among Phoenix, Bodyonics, GED,
Melvin Rich and Evergood
4. Security Agreement (Inventory) among Phoenix, GED and Fidelcor dated
February 17,1988
5. Security Agreement (Equipment) among Phoenix, GED and Fidelcor dated
February 17,1988
6. Seventh Amended and Restated Promissory Note in the original principal
amount of$1,220,000 made by Phoenix, GED and Bodyonics and payable to CIT
dated August 27,1998
<PAGE>
7. Secretary's Certificates
a. Secretary's Certificate of Evergood dated February 9, 1988;
b. Secretary's Certificate of Phoenix dated February 9, 1988;
c. Secretary's Certificate of GED dated February 9, 1988.
8. Replacement Guaranty by Melvin Rich in favor of CIT with respect to
Phoenix and GED dated July 1, 1992
9. Cash Collateral Agreement executed by Melvin Rich, dated August 31, 1993.
10. Guaranty by Evergood, Phoenix and GED in favor of Fidelcor with respect to
Evergood Products Corporation, Phoenix Laboratories, Inc. and Great Earth
Distribution, Inc., dated February 17, 1988
11. Intercreditor Agreement between Fidelcor and Hoffmann - La Roche Inc.
dated February16, 1988
12. Guaranty in favor of Fidelcor by Great Earth International, Inc. ("GED),
dated April 26, 1988, with respect to Phoenix and GED.
13. Trademark Collateral Assignment and Security Agreement, dated April 26,
1988, executed by GED in favor of Fidelcor.
<PAGE>
Schedule B
Page 1 of 2
Unterminated Security Interests
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Juris- Filing Amendments
Debtor Secured Party diction UCC # Date Collateral (Releases, Assignments, etc.)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Phoenix Laboratories, Inc. Hoffman-La Roche, N.Y. S/S 390298 12/24/88 All Equipment (now
P.O. Box 388 Inc. owned, hereafter
809 Ibsen Street 340 Kingsland Street acquired)
Woodmere, New York 11598 Nutley, N.J. 07110
- ------------------------------------------------------------------------------------------------------------------------------------
Phoenix Laboratories, Inc. Long Island Trust Co. N.Y. S/S 348550 11/10/86 2 Machines
175 Lauman Lane Industrial Finance
Hicksville, New York 11801 Dept. Debtor has no power
11 Broadway to sell or dispose
Hicksville, NY 11801 of collateral
- ------------------------------------------------------------------------------------------------------------------------------------
Phoenix Laboratories, Inc. Hoffman-La Roche, Nassau 87-001408 1/16/87 All equipment (now
P.O. Box 388 Inc. County owned & hereafter
809 Ibsen Street 340 Kingsland Street Clerk acquired.)
Woodmere, New York 11598 Nutley, N.J. 07110
- ------------------------------------------------------------------------------------------------------------------------------------
Phoenix Laboratories, Inc. Hoffman-La Roche, Nassau 87-027548 11/25/87 All equipment (now
P.O. Box 388 Inc. County owned & hereafter
809 Ibsen Street 340 Kingsland Street Clerk acquired.)
Woodmere, New York 11598 Nutley, N.J. 07110
- ------------------------------------------------------------------------------------------------------------------------------------
Phoenix Laboratories, Inc. Equilease Corporation Nassau 86-030440 12/19/86 Feild for Info. Assigned to:
175 Lauman Lane 750 Third Avenue County Only. Property Textron Capital
Hicksville, New York 11801 New York, NY 10017 Clerk (not described) Corporation
Subject to Lease 1410 Hospital Trust Tower
Providence, Rhode Island
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Schedule B
Page 2 of 2
(Cont'd)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Juris- Filing Amendments
Debtor Secured Party diction UCC # Date Collateral (Releases, Assignments, etc.)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Phoenix Laboratories, Inc. WASCO Funding Corporation Nassau 86-021181 8/25/86 Machine (3) leased Assigned To:
175 Lauman Lane 150 East 58th Street County to debtor who has Tilden Financial
Hicksville, New York 11801 New York, New York 10155 Clerk no right to sell or Corporation
dispose. 2 Lambert Street
Roslyn Heights, NY 11577
- ------------------------------------------------------------------------------------------------------------------------------------
Phoenix Laboratories, Inc. L.I. Trust Co., N.A. Nassau 86-027280 11/18/86 2 Machines
175 Lauman Lane Industrial Finance Dept. County
Hicksville, New York 11801 11 Broadway Clerk
Hicksville, NY 11801
- ------------------------------------------------------------------------------------------------------------------------------------
Great Earth Distribution, The Lease Factor, Inc. S/S 87-128909 5/28/87 Equipment Lease
Inc. The Beaumont Building Calif.
14211 Gannett Street P.O. Box 71
La Mirada, CA 90638 South Station
Framingman, Mass. 01701
- ------------------------------------------------------------------------------------------------------------------------------------
Great Earth Distribution, Pitney Bowes Credit S/S 86-146811 6/11/86 Lease - re: Postal
14211 Gannett Corporation Corporation Calif. Equipment
La Mirada, CA 90638 21515 Hawthorne Blvd.
Suite 690
Torrance, CA 90503
- ------------------------------------------------------------------------------------------------------------------------------------
Great Earth Distribution, Pitney Bowes Credit S/S 86146812 6/11/86 Lease - re: Postal
Inc. Corporation Calif. Equipment
14211 Gannett Street 21515 Hawthorne Blvd.
La Mirada, CA 90638 Suite 690
Torrance, CA 90503
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SEVENTH AMENDED AND RESTATED PROMISSORY NOTE
$1,220,000
New York, New York
August 27, 1998
FOR VALUE, RECEIVED, PHOENIX LABORATORIES, INC., GREAT EARTH DISTRIBUTION,
INC. and BODYONICS, LTD. (individually and collectively the "Payor"), jointly
and severally hereby promise to pay to the order of THE CIT GROUP/CREDIT
FINANCE, INC., a Delaware corporation ("Payee"), at its offices located at 1211
Avenue of the Americas, New York, New York 10036, or at such other place as
Payee or any holder hereof may from time to time designate, the principal sum of
ONE NHLL16N TWO HUNDRED TWENTY THOUSAND DOLLARS ($1,220,000) in lawful money of
the United States, in thirty-five installments of TWENTY THOUSAND DOLLARS
($20,000) each payable on the first (1st) day of each consecutive month,
commencing October 1, 1998 and one (1) final installment in the amount of the
entire unpaid principal balance of this Note, payable August 17, 2001. Payor
hereby further promises to pay interest to Payee in like money at said office or
place on the unpaid principal balance hereof, computed at the rate of two
percent (2%) per annum plus the prime rate as announced by The Chase Manhattan
Bank or its successor, in New York, New York from time to time as its prime rate
(the prime rate is not intended to be the lowest rate of interest charged by The
Chase Manhattan Bank to its borrowers) and such interest shall be payable
monthly on the first (1st) day of each month, commencing September 1, 1998.
Interest shall be calculated on the basis of a 360-day year and actual days
elapsed. In no event shall the interest charged hereunder exceed the maximum
permitted under the laws of the State of New York.
This Note is secured by the collateral described in the Security Agreement
(Accounts, Contract Rights, Instruments and Goods pertaining thereto), the
Inventory Security Agreement and the Equipment Security Agreement, each executed
February 17, 1988 by and between Payor and Fidelcor Business Credit Corporation
("Fidelcor"), assignor of Payee, and all related agreements, instruments
(including but not limited to this Note) and documents granting collateral
security to Payee or evidencing or creating indebtedness of Payor to Payee, all
guaranties executed by third parties guaranteeing Payor's obligations to Payee,
including those executed by: Melvin Rich and Evergood Products Corporation (the
"Guarantors") (the foregoing, as the same may now exist and have been and may
hereafter be amended, modified, replaced or supplemented, are hereafter
collectively referred to as the "Financing Agreements").
This Note supersedes and replaces but does not extinguish any of the unpaid
liabilities and obligations under the Sixth Amended and Restated Promissory Note
dated February 12, 1997, in the original principal amount of $1,150,000 executed
by Payor in favor of Payee (the "`Existing Note"). The indebtedness of Payor to
Payee evidenced hereby includes (i) an indebtedness of$880,000 representing the
unpaid principal balance of the Existing Note; (ii) an indebtedness of$95,000
representing advances made by Payee to Payor for the purchase of new equipment;
and (iii) an indebtedness of $245,000 representing an advance made by Payee to
Payor on the date hereof, all of which shall be repayable together with interest
accrued and accruing and other sums in accordance with the terms hereof. Payor
hereby acknowledges that Payor is as of the
<PAGE>
date hereof indebted to Payee, in the principal amount hereof, together with
interest accrued and accruing through and after the date hereof, without offset,
defense or counterclaim of any kind, nature or description whatsoever. The
amendment and restatement contained herein shall not, in any manner be construed
to constitute payment of, or impair, limit, cancel or extinguish the
indebtedness evidenced by the Existing Note and the liens and security interests
securing such indebtedness shall not in any manner be impaired, limited,
terminated, waived or released hereby.
At the time any payment is due hereunder, Payee may, at its option, charge the
amount thereof to any account of Payor maintained by Payee.
If an event of default shall occur for any reason under any of the Financing
Agreements, or if any of the Financing Agreements shall be terminated or not be
renewed for any reason whatsoever, then and in any such event, in addition to
all rights and remedies of Payee under the Financing Agreements, applicable law
or otherwise (all such rights and remedies being cumulative, not exclusive and
enforceable alternatively, successively and concurrently) Payee may, at its
option, declare any or all of Payor's obligations under the Financing
Agreements, including, but not limited to, all amounts owing under this Note, to
be due and payable, whereupon the then unpaid balance hereof together with all
interest accrued thereon, shall forthwith become due and payable, together with
costs and expenses of collection, including reasonable attorney's fees.
Payee shall not be required to resort to any of the aforementioned collateral
for payment, but may proceed against Payor and/or the Guarantors in such order
and manner as Payee may choose.
None of the rights of Payee shall be waived or diminished by any failure or
delay in the exercise thereof. Payor hereby waives diligence, demand,
presentment, protest and notice of any kind and assents to extensions of time of
payment, release, surrender or substitution of collateral security, or
forbearance or other indulgence, without notice.
In the event of any litigation with respect to any of the Financing Agreements,
Payor waives the right to a trial by jury, 0 rights of set-off, and any right to
interpose permissive counterclaims and cross-claims, and Payor consents to the
jurisdiction of the courts of the State of New York and of any federal court
located in either New York or Nassau County in such State. Payor further waives
personal service of any and all process upon Payor and consents that all such
service of process may be made by certified mail, return receipt requested,
directed to Payor at the address listed above or of which Payor advises Payee,
in writing, and service so made shall be deemed complete three days after the
same shall have been posted. This Note shall be governed by and construed, and
all rights and obligations hereunder determined, in accordance with the laws of
the State of New York, and shall be binding upon the successors and assigns of
Payor and inure to the benefit of Payee, its successors, endorsees and assigns.
If any term or provision of this Note shall be held invalid, illegal or
unenforceable, the validity of all other terms and provisions hereof shall in no
way be affected thereby.
The execution and delivery of this Note has been authorized by the board of
directors of Payor.
<PAGE>
PHOENIX LABORATORIES, INC.
By: /s/
------------------------------
Title: ExVP
---------------------------
GREAT EARTH DISTRIBUTION, INC.
By: /s/
------------------------------
Title: ExVP
---------------------------
BODYONICS, LTD.
By: /s/
------------------------------
Title: ExVP
---------------------------
<PAGE>
EXHIBIT 10.7
VOTING TRUST AGREEMENT
----------------------
THIS VOTING TRUST AGREEMENT (the "Trust Agreement") is made as of this 30th
day of September, 1996, by, between and among Evergood Products Corporation (the
"Company"), Stephen R. Stern (the "Stockholder"), and Mel Rich (the "Trustee").
W I T N E S S E T H :
WHEREAS, in order to secure the continuity and stability of the Company's
policy and management, the Stockholder deems it advisable to deposit all of his
stock in the Company with the Trustee under the terms and conditions hereinafter
set forth, and
WHEREAS, the Trustee has consented to act under this Trust Agreement for
the purposes herein provided,
NOW, THEREFORE, in consideration of the premises herein set forth, the
parties hereto hereby agree as follows:
1. Trust Agreement. Copies of this Trust Agreement, and of every
---------------
supplemental or amendatory agreement, shall be filed in
<PAGE>
the Company's offices located at Hicksville, New York. All such copies shall be
open to the inspection of the Company's stockholders daily during business
hours. All voting trust certificates issued as hereinafter provided shall be
issued, received, and held subject to all the terms of this Trust Agreement.
Every person, firm, or corporation entitled to receive voting trust certificates
representing shares of capital stock, and their transferees and assigns, upon
accepting the voting trust certificates issued hereunder, shall be bound by the
provisions of this Trust Agreement.
2. Transfer of Stock to Trustee. (a) The Stockholder shall deposit with
----------------------------
the Trustee a certificate or certificate(s) for his Company stock as set forth
after his signature to this Trust Agreement. The Stockholder may at any time
deposit additional certificate for the Company's stock with the Trustee, and
shall be required to deposit certificates for all of his stock. No stock shall
be deposited hereunder except stock having general voting powers, as provided in
the Certificate of Incorporation. All such stock certificates shall be endorsed,
or accompanied by such instruments of transfer as to enable the Trustee to cause
such certificates to be transferred into the name of the Trustee for the purpose
of voting the shares
2
<PAGE>
represented by the stock certificates, as hereinafter provided. On receipt by
the Trustee of the certificates for any such shares and their transfer into the
name of the Trustee, the Trustee shall hold them subject to the terms of this
Trust Agreement, and shall thereupon issue and deliver to the Stockholder voting
trust certificates for the shares so deposited.
(b) All certificates for stock of the Company transferred and
delivered to the Trustee pursuant to this Trust Agreement shall be surrendered
by the Trustee to the Company and cancelled, and new certificates therefor shall
be issued to and held by the Trustee in the name of "Mel Rich as Voting
Trustee".
3. Voting Trust Certificates. The voting trust certificates shall be in
-------------------------
the following form:
No. ________________ ______ Shares
Evergood Products Corporation
A Delaware Corporation
Voting Trust Certificate for Capital Stock
This certifies that Stephen R. Stern or registered assigns is entitled
to all the benefits arising from the deposit with the Trustee under the
Voting Trust Agreement
3
<PAGE>
hereinafter mentioned, of certificates for ______ shares of the capital
stock of Evergood Products Corporation, a Delaware corporation (the
"Company"), as provided in such Trust Agreement and subject to the terms
thereof. The registered holder hereof, or assigns, is entitled to receive
payment equal to the amount of cash dividends, if any, received by the
Trustee upon the number of shares of capital stock of the Company in
respect of which this certificate is issued. Dividends received by the
Trustee in the Company's common or other stock having general voting powers
shall be payable in voting trust certificates, in form similar hereto.
Until the Trustee has delivered the stock held under such Trust Agreement
to the holders of the trust certificates, or to the Company, as specified
in such Trust Agreement, the Trustee shall possess and be entitled to
exercise all rights and powers of an absolute owner of such stock,
including the right to vote thereon for every purpose, and to execute
consents in respect thereof for every purpose, it being expressly
stipulated that no voting right passes to the owner hereof, or his assigns,
under this certificate or any agreement, expressed or implied.
This certificate is issued, received, and held under,
4
<PAGE>
and the rights of the owner hereof are subject to, the terms of a Voting
Trust Agreement dated ___________ __, 1996, by, between and among the
Company, Stephen R. Stern and Mel Rich and their successors in trust, and
various holders of similar certificates. (Copies of the Voting Trust
Agreement, and of every agreement amending or supplementing it, are on file
in the Company's principal office in Hicksville, New York and shall be open
to the inspection of the Company's stockholders daily during business
hours.) The holder of this certificate, by acceptance hereof, assents and
is bound to all the provisions of the Voting Trust Agreement as if he had
signed it in person.
In the event of the dissolution or total or partial liquidation of the
Company, the moneys, securities, or
5
<PAGE>
property received by the Trustee in respect of the stock deposited under
such Trust Agreement shall be distributed among the registered holders of
trust certificates in proportion to their interests as shown by the books
of the Trustee.
In the event that the Trustee receives any dividend or distribution
other than in cash or Company stock having general voting powers, the
Trustee shall distribute the same to the registered holders of voting trust
certificates, on the date of such distribution, or to the registered
certificate holders at the close of business on the date fixed by the
Trustee for taking a record to determine the certificate holders entitled
to such distribution, pursuant to the provisions of paragraph 6 of the
Trust Agreement. Such distribution shall be made to the certificate holders
ratably in accordance with the number of shares represented by their
respective voting trust certificates.
Stock certificates for the number of shares of capital stock then
represented by this certificate, or the net proceeds in cash or property of
such shares, shall be due and deliverable hereunder upon the termination of
such Trust Agreement as provided therein.
6
<PAGE>
This certificate is transferable on the books of the Trustee at his
office in Hicksville, New York (or elsewhere as designated by the Trustee),
by the holder hereof, either in person or by attorney duly authorized, in
accordance with the rules established for that purpose by the Trustee, and
on surrender of this certificate properly endorsed. Title to this
certificate when duly endorsed shall, to the extent permitted by law, be
transferable with the same effect as in the case of a negotiable
instrument. Each holder hereof agrees that delivery of this certificate,
duly endorsed by any holder hereof, shall vest title hereto and all rights
hereunder in the transferee; provided, however, that the Trustee may treat
the registered holder hereof, or when presented duly endorsed in blank the
bearer hereof, as the absolute owner hereof, and of all rights and
interests represented hereby, for all purposes. The Trustee shall not be
bound or affected by any notice to the contrary, or by any notice of any
trust, whether express or implied, or constructive, or of any charge or
equity respecting the title or ownership of this certificate, or the share
of stock represented hereby; provided, however, that no delivery of stock
certificates hereunder, or the proceeds thereof, shall be made without
surrender hereof
7
<PAGE>
properly endorsed.
This certificate shall not be valid for any purpose until duly signed
by the Trustee.
The word "Trustee" as used in this certificate means the Trustee
acting under such Voting Trust Agreement.
IN WITNESS WHEREOF the Trustee has signed this certificate on
____________ __, 1996.
______________________________
Trustee
(Form of Assignment)
For value received Stephen R. Stern hereby assigns the within
certificate, and all rights and interests represented thereby, to Mel Rich
and appoints Mel Rich attorney to transfer this certificate on the books of
the Trustee mentioned therein, with full power of substitution.
8
<PAGE>
Dated:
______________________________(SEAL)
In presence of:
_______________________
Note: The signature to this assignment must correspond with the name
as written upon the face of this certificate in every particular, without
alteration, enlargement, or any change whatever. All endorsements, in the
discretion of the Trustee, shall be guaranteed by a bank or trust Company
satisfactory to the Trustee.
4. Transfer of Certificates. (a) The voting trust certificates shall be
------------------------
transferable at the Trustee's principal office in Hicksville, New York (and at
such other office as the Trustee may designate by an instrument signed by him
and sent by mail to the registered holders of voting trust certificates), on the
books of the Trustee, by the registered owner thereof, either in person or by
attorney thereto duly authorized, upon
9
<PAGE>
surrender thereof, according to the rules established for that purpose by the
Trustee. The Trustee may treat the registered holder as owner thereof for all
purposes, but he shall not be required to deliver stock certificates hereunder
without the surrender of such voting trust certificates.
(b) If a voting trust certificate is lost, stolen, mutilated, or
destroyed, the Trustee, in his discretion, may issue a duplicate of such
certificate upon receipt of: (1) evidence of such fact satisfactory to him; (2)
indemnity satisfactory to him; (3) the existing certificate, if mutilated; and
(4) his reasonable fees and expenses in connection with the issuance of a new
trust certificate. The Trustee shall not be required to recognize any transfer
of a voting trust certificate not made in accordance with the provisions hereof,
unless the person claiming such ownership has produced indicia of title
satisfactory to the Trustee, and has in addition deposited with the Trustee
indemnity satisfactory to him.
5. Termination Procedure. (a) Upon the termination of this Trust
---------------------
Agreement at any time, as hereinafter provided, the Trustee, at such time as he
may choose during the period commencing 20 days before and ending 20 days after
such termination, shall mail written notice of such termination to
10
<PAGE>
the registered owners of the voting trust certificates, at the addresses
appearing on the Trustee's transfer books. After the date specified in any such
notice (which date shall be fixed by the Trustee), the voting trust certificates
shall cease to have any effect, and their holders shall have no further rights
under this Trust Agreement other than to receive certificates for shares of the
Company's stock or other property distributable under the terms hereof and upon
the surrender of such voting trust certificates.
(b) Within 30 days after the termination of this Trust Agreement, the
Trustee shall deliver, to the registered holders of all voting trust
certificates, certificates for the number of shares of the Company's capital
stock represented thereby, upon the surrender thereof properly endorsed, such
delivery to be made in each case at the Trustee's office.
(c) At any time subsequent to 30 days after the termination of this
Trust Agreement, the Trustee may deposit with the Company stock certificates
representing the number of shares of capital stock represented by the voting
trust certificates then outstanding, with authority in writing to the Company to
deliver such stock certificates in exchange for voting trust certificates
representing a like number of shares of the capital stock of the Company. Upon
such deposit all
11
<PAGE>
further liability of the Trustee for the delivery of such stock certificates and
the delivery or payment of dividends upon surrender of the voting trust
certificates shall cease, and the Trustee shall not be required to take any
further action hereunder.
6. Dividends. (a) Prior to the termination of this Trust Agreement,
---------
the holder of the voting trust certificate shall be entitled to receive payments
equal to the cash dividends, if any, received by the Trustee upon a like number
and class of shares of the Company's capital stock as is called for by each such
voting trust certificate. If any dividend in respect of the stock deposited with
the Trustee is paid, in whole or in part, in the Company's stock having general
voting powers, the Trustee shall likewise hold, subject to the terms of this
Trust Agreement, the certificates for stock which are received by him on account
of such dividend. The holder of the voting trust certificate representing stock
on which such stock
12
<PAGE>
dividend has been paid shall be entitled to receive a voting trust certificate
issued under this Trust Agreement for the number of shares and class of stock
received as such dividend with respect to the shares represented by such voting
trust certificate. The holder entitled to receive the dividends described above
shall be those registered as such on the Trustee's transfer books at the close
of business on the day fixed by the Company for the taking of a record to
determine those holders of its stock entitled to receive such dividends, or if
the Trustee has fixed a date, as hereinafter in this paragraph provided, for the
purpose of determining the holders of voting trust certificates entitled to
receive such payment or distribution, then registered as such at the close of
business on the date so fixed by the Trustee.
(b) If any dividend in respect of the stock deposited with the Trustee
is paid other than in cash or in capital stock having general voting powers,
then the Trustee shall distribute the same among the holder of the voting trust
certificate registered as such at the close of business on the day fixed by the
Trustee for taking a record to determine the holders of voting trust
certificates entitled to receive such distribution. Such distribution shall be
made to such holders of voting trust certificates ratably, in accordance with
the number of shares
13
<PAGE>
represented by their respective voting trust certificates.
(c) The Trustee may temporarily close its transfer books for a period
not exceeding 20 days preceding the date fixed for the payment or distribution
of dividends or the distribution of assets or rights, or at any other time in
the Trustee's discretion. In lieu of providing for the closing of the books
against the transfer of voting trust certificates, the Trustee may fix a date
not exceeding 20 days preceding any date fixed by the Company for the payment or
distribution of dividends, or for the distribution of assets or rights, as a
record date for the determination of the holders of voting trust certificates
entitled to receive such payment or distribution. The holder of voting trust
certificate of record at the close of business on such date shall exclusively be
entitled to participate in such payments or distribution.
(d) In lieu of receiving cash dividends upon the capital stock of the
Company and paying the same to the holders of voting trust certificates pursuant
to the provisions of this Trust Agreement, the Trustee may instruct the Company
in writing to pay such dividends to the holders of the voting trust
certificates. Upon receipt of such written instructions, the Company shall pay
such dividends directly to the holders of the voting trust certificates. Upon
such instructions being given
14
<PAGE>
by the Trustee to the Company, and until revoked by the Trustee, all liability
of the Trustee with respect to such dividends shall cease. The Trustee may at
any time revoke such instructions and by written notice to the Company direct it
to make dividend payments to the Trustee.
7. Subscription Rights. If any stock or other securities of the Company
-------------------
are offered for subscription to the holders of its capital stock deposited
hereunder, the Trustee, promptly upon receipt of notice of such offer, shall
mail a copy thereof to each holder of the voting trust certificates. Upon
receipt by the Trustee, at least five days prior to the last day fixed by the
Company for subscription and payment, of a request from any such registered
holder of voting trust certificates to subscribe in his behalf, accompanied with
the sum of money required to pay for such stock or securities (not in excess of
the amount subject to subscription in respect of the shares represented by the
voting trust certificate held by such certificate holder), the Trustee shall
make such subscription and payment. Upon receiving from the Company the
certificates for shares or securities so subscribed for, the Trustee shall issue
to such holder a voting trust certificate in respect thereof if the shares or
securities do not have general voting
15
<PAGE>
powers, the Trustee shall mail or deliver such securities to the certificate
holder in whose behalf the subscription was made, or may instruct the Company to
make delivery directly to the certificate holder entitled thereto.
8. Dissolution of Company. In the event of the dissolution or total or
----------------------
partial liquidation of the Company, whether voluntary or involuntary, the
Trustee shall receive the moneys, securities, rights, or property to which the
holders of the Company's capital stock deposited hereunder are entitled, and
shall distribute the same among the registered holders of voting trust
certificates in proportion to their interests, as shown by the books of the
Trustee. Alternatively, the Trustee may in his discretion deposit such moneys,
securities, rights, or property with any federally insured bank or trust company
doing business in New York, New York, with authority nd instructions to
distribute the same as above provided, and upon such deposit all further
obligations or liabilities of the Trustee in respect of such moneys, securities,
rights, or property so deposited shall cease.
9. Reorganization of Company. If the Company is merged into or
-------------------------
consolidated with another corporation, or all or
16
<PAGE>
substantially all of its assets are transferred to another corporation, then in
connection with such transfer the term "Company" for all purposes of this Trust
Agreement shall be deemed to include such successor corporation, and the Trustee
shall receive and hold under this Trust Agreement any stock of such successor
corporation received on account of the ownership, as Trustee hereunder, of the
stock held hereunder prior to such merger, consolidation, and transfer. Voting
trust certificates issued and outstanding under this Trust Agreement at the time
of such merger, consolidation, or transfer may remain outstanding, or the
Trustee may, in his discretion, substitute for such voting trust certificates
new voting trust certificates in appropriate form, and the terms "stock" and
"capital stock" as used herein shall be taken to include any stock which may be
received by the trustee in lieu of all or any part of the Company's capital
stock.
10. Rights of Trustee. (a) Until the actual delivery to the holder of
-----------------
the voting trust certificate issued hereunder of stock certificates in exchange
therefor, and until the surrender of the voting trust certificates for
cancellation, the Trustee shall have the rights, subject to the provisions of
this paragraph hereinafter set forth, to exercise, in person or by
17
<PAGE>
his nominees or proxies, all stockholders' voting rights and powers in respect
of all stock deposited hereunder, and to take part in or consent to any
corporate or stockholders' action of any kind whatsoever. The right to vote
shall include the right to vote for the election of directors, and in favor of
or against any resolution or proposed action of any character whatsoever, which
may be presented at any meeting or require the consent of the Company's
stockholders. Without limiting such general right, it is understood that such
action or proceeding may include, upon terms satisfactory to the Trustee or to
his nominees or proxies thereto appointed by him, mortgaging, creating a
security interest in, and pledging of all or any part of the Company's property,
the lease or sale of all or any part of its property, for cash, securities, or
other property, and the dissolution of the Company, or its consolidation,
merger, reorganization, or recapitalization.
(b) In voting the stock held by him hereunder either in person or by
his nominees or proxies, the Trustee shall exercise his best judgment to select
suitable directors of the Company, and shall otherwise, insofar as he may as a
stockholder of the Company, and shall otherwise, insofar as he may as a
stockholder of the Company, take such part or action in respect to the
management of its affairs as he may deem necessary so as
18
<PAGE>
to be kept advised on the affairs of the Company and its management. In voting
upon any matter that may come before him at any stockholders' meeting, the
Trustee shall exercise like judgment. The Trustee, however, shall not be
personally liable for any action taken pursuant to his vote or any act committed
or omitted to be done under this Trust Agreement, provided that such commission
or omission does not amount to willful misconduct on his part and that he at all
times exercises good faith in such matters.
11. Trustee. Mel Rich may resign as Trustee. In the event of his death,
-------
this Trust Agreement shall terminate.
12. Term. This Trust Agreement shall continue in effect until the
----
death of the Trustee and may also terminate at any time if any of the following
event occur: (a) the execution and
19
<PAGE>
acknowledgment (as deeds for the conveyance of real estate are required to be
acknowledged under the laws of New York then in effect) by the Trustee hereunder
of a deed of termination, duly filed in the Company's office in Hicksville, New
York; or (2) the execution and acknowledgement (as deeds for the conveyance of
real estate are required to be acknowledged under the laws of New York then in
effect) of a deed of termination by the registered holders of all the voting
trust certificates outstanding under this Trust Agreement, duly filed in the
Company's principal office in Hicksville, New York; or (c) the removal of
Stockholder from the Board of Directors of Company or its successor for any
reason other than malfeasance or negligence.
13. Compensation and Reimbursement of Trustee. The Trustee shall serve
-----------------------------------------
without compensation. The Trustee shall have the right to incur and pay such
reasonable expenses and charges, to employ and pay such agents, attorneys, and
counsel as he may deem necessary and proper to effectuate this Trust Agreement.
Nothing herein contained shall disqualify the Trustee or successor Trustees, or
incapacitate him or them from serving the
20
<PAGE>
Company or any of its subsidiaries as officer or director, or in any capacity,
and in any such capacity receiving compensation.
14. Notice. (a) Unless otherwise specifically provided herein, any
------
notice to or communication with the holders of the voting trust certificate
hereunder shall be deemed to be sufficiently given or made if enclosed in
postpaid envelopes (regular not registered mail) addressed to such holders at
their respective addresses appearing on the Trustee's transfer books, and
deposited in any post office or post office box. The addresses of the holders
of voting trust certificates, as shown on the Trustee's transfer books, shall in
all cases be deemed to be the addresses of voting trust certificate holders for
all purposes under this Trust Agreement, without regard to what other or
different addresses the Trustee may have for any voting trust certificate holder
or any other books or records of the Trustee. Every notice so given shall be
effective, whether or not received, and the date of mailing shall be the date
such notice is deemed given for all purposes.
(b) Any notice to the Company hereunder shall be sufficient if
enclosed in a postpaid envelope and sent by registered mail to the Company
addressed as follows: Evergood Products Corporation, 140 Lauman Lane,
Hicksville, New York
21
<PAGE>
11801 or to such other address as the Company may designate by notice in writing
to the Trustee.
(c) Any notice to the Trustee hereunder may be enclosed in a postpaid
envelope and sent by registered mail to the Trustee, addressed to him at such
addresses as he may from time to time furnish in writing to the Company, and if
no such address has been so furnished by the Trustee, then to him in care of the
Company.
(d) All distributions of cash, securities, or other property hereunder
by the Trustee to the holders of voting trust certificates may be made, in the
Trustee's discretion, by mail (regular or registered mail, as the Trustee may
deem advisable), in the same manner as hereinabove provided for the giving of
notices to the holders of voting trust certificates.
15. Entire Trust Agreement. This Trust Agreement supersedes all prior
----------------------
agreements between the parties relating to its subject matter. There are no
other understandings or agreements between them concerning the subject matter.
16. Non-Waiver. No delay or failure by a party to exercise any right
----------
under this Trust Agreement, and no partial or single exercise of that right,
shall constitute a waiver of that or any
22
<PAGE>
other right, unless otherwise expressly provided herein.
17. Headings. Headings in this Trust Agreement are for convenience only
--------
and shall not be used to interpret or construe its provisions.
18. Governing Law. This Trust Agreement shall be construed in accordance
-------------
with the laws of the State of New York.
19. Binding Effect. The provisions of this Trust Agreement shall be
--------------
binding upon and inure to the benefit of each of the parties and their
respective legal representatives, successors and assigns.
IN WITNESS WHEREOF the Company and the Trustee have signed and sealed this
Trust Agreement, and the Stockholder has signed this Trust Agreement and have
stated the number of shares of capital stock of the Company deposited
respectively by them.
Corporate Seal Evergood Products
Corporation
Attest:
23
<PAGE>
By: __________________________ By: ____________________________
Secretary Its
Mel Rich
_____________________________
Trustee
Number of Shares Shareholder:
__________________________ _____________________________
Stephen R. Stern
24
<PAGE>
EXHIBIT 10.8
STOCK EXCHANGE AGREEMENT
------------------------
THIS STOCK EXCHANGE AGREEMENT (the "Agreement"), is dated as of the 1st day
of March 2000, by, between, and among Evergood Products Corporation (the
"Company"), a Delaware corporation, whose principal corporate address for
purposes hereof is 140 Lauman Lane, Hicksville, New York 11801, and Mel Rich
("Rich") and Stephen R. Stern ("Stern")(collectively Rich and Stern are
sometimes called the "Stockholders") whose address for purposes hereof is c/o
Hoffinger Friedland Dobrish & Stern, P.C., 110 East 59th Street, New York, New
York 10022.
R E C I T A L S:
---------------
A. Company having originally been incorporated as Circus Corporation
under the laws of the State of Delaware on July 16,
<PAGE>
1969 by a Certificate of Incorporation filed with the Secretary of State of
Delaware; a Certificate of Merger having been filed on November 9, 1970 which
merged Phoenix Laboratories, Inc. with and into Corporation under the name
Circus Corporation; the Certificate of Incorporation having been amended on
November 13, 1970 whereby Circus Corporation changed its name from Circus
Corporation to Evergood Products Corporation; such Certificate of Incorporation
having been amended on November 23, 1970 to increase the number of shares the
Company shall have the authority to issue to 2,020,000 of common and preferred
stock; the Certificate of Incorporation again having been amended on April 9,
1974 by reducing the number of shares the Company shall have the authority to
issue to 1,000,000; the Certificate of Incorporation having been amended on June
4, 1981 by increasing the number of shares the Company shall have the authority
to issue to 10,000,000; the Certificate of Incorporation having been amended on
December 30, 1982 whereby the business and affairs of the Corporation shall be
managed and controlled by a Board of Directors which shall consist of seven (7)
directors and setting forth other relevant information pertaining to the Board
of Directors; the Company having filed a Restated Certificate of Incorporation
on February 9, 1983; the Company having filed a Certificate of Ownership August
18, 1989 which
-2-
<PAGE>
merged Phoenix Acquisition Corp, a California corporation and Phoenix
Laboratories International, Ltd., a United States Corporation with and into the
Company; the Company having filed a Certificate of Renewal on July 26, 1996; the
Company having entered into a certain Stock Exchange Agreement dated as of
September 30, 1999; and the Company currently being a corporation duly
organized, existing and in good standing under the laws of the State of
Delaware;
B. Company, at the date of this Agreement, has an authorized
capitalization consisting of 10,000,000 shares of common stock, $.01 par value
per share of which ___________ are currently issued and outstanding:
C. GEC is a corporation duly organized and existing under the laws of the
State of Delaware, having been originally incorporated under the name Great
Earth International, Inc. on April 11, 1991; the Certificate of Incorporation
having been amended on May 1, 1991 whereby Great Earth International, Inc.
changed its name to Great Earth Vitamins Ltd.; Great Earth Vitamins Ltd. having
filed a Certificate of Amendment on August 19, 1991 by changing the number of
shares which it shall have the authority to issue; a Certificate of Merger
having been
-3-
<PAGE>
filed on August 19, 1991 which merged GEFC Georgia, Inc. a New York corporation,
GEFC N.J. Corp., a New York corporation, S & B Bayshore Ltd., a New York
corporation, S & B Centereach Ltd., a New York corporation, S & B Lake Success
Ltd., a New York Corporation with and into Great Earth Vitamins Ltd. a
corporation organized and existing under the laws of the State of Delaware under
the name Great Earth Vitamins Ltd.; the filing of a Certificate of Amendment on
October 25, 1991 whereby Great Earth Vitamins Ltd. changed its name from Great
Earth Vitamins Ltd. to Great Earth Companies Inc.; GEC having filed a
Certificate of Designation on April 22, 1992 authorizing the issuance of a
series of preferred stock from time to time; such Certificate of Incorporation
having been amended on August 3, 1992 thereby authorizing GEC to issue 5,000,000
shares of common stock; and such Certificate of Incorporation having been
amended on May 25, 1995 whereby reducing the total amount of shares of common
stock GEC is authorized to issue to 3000 shares of common stock; GEC is
currently a corporation duly organized, existing and in good standing under the
laws of the State of Delaware and currently maintains a place of business at 140
Lauman Lane, Hicksville, New York 11801;
D. As of the date of this Agreement, GEC has an authorized
-4-
<PAGE>
capitalization consisting of 3000 shares of common stock, $.01 par value, 100
shares of which are currently validly issued and outstanding;
E. Company's Board of Directors has determined is desirable, upon the
terms and conditions set forth herein, to acquire from Stockholders the twenty
(20%) percent of all of the issued and outstanding stock of GEC owned by the
Stockholders (the "GEC Stock");
F. Bodyonics, Ltd., ("Bodyonics") is a corporation duly organized and
existing under the laws of the State of Delaware having been incorporated on
_____________________ and is in good standing in that State and currently
maintains a place of business at 140 Lauman Lane, Hicksville, New York 11801;
G. As of the date of this Agreement, Bodyonics has an authorized
capitalization consisting of ______ shares of common stock, ___ par value, _____
shares of which are currently validly issued and outstanding and _____ shares of
which are owned by the Stockholders equally (the "Bodyonics Stock");
-5-
<PAGE>
H. Company's Board of Directors has determined it is desirable, upon the
terms and conditions set forth herein, to acquire from the Stockholders the
Bodyonics Stock; and
I. Company has determined to acquire the GEC Stock and Bodyonics,
respectively, by exchanging common stock of the Company in the amounts set forth
next to the named Stockholder, as set forth in Schedule A attached hereto, for
Stock of the Company such Stock (the "Stock Exchange"):
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, and other good and valuable consideration, each to the other
in hand paid, the receipt and sufficiency of which is hereby acknowledged, it is
hereby agreed that Company shall exchange shares of its common stock for the GEC
and Bodyonics Stock, and that the terms and conditions of the Stock Exchange,
the mode of carrying same into effect, the manner and basis of converting
shares, and such other provisions as are deemed necessary or desirable to be
effected by the Stock Exchange shall be as follows:
ARTICLE I
---------
STOCK EXCHANGE
--------------
-6-
<PAGE>
1.1 Stock Exchange. At the Effective Time (defined in Section 1.2
--------------
hereof), Stockholders shall exchange the GEC and Bodyonics Stock for shares of
the Company's common stock and, as a consequence thereof, the Company shall own
the GEC and Bodyonics Stock.
1.2 Closing and Effective Time. Consummation of the Stock Exchange (the
--------------------------
"Closing") shall take place:
(a) at the offices of Hoffinger, Friedland, Dobrish, Bernfeld and
Stern, P.C., 110 East 59th Street, 33rd Floor, New York, New York, 10022, at
10:30 A.M., on the first business day following the date after which (i) the
meeting of the shareholders of the Company entitled to vote thereon has been
held, at which such entitled shareholders shall have duly approved this
Agreement and all of its terms and provisions or the Company's Board of
Directors has determined that a vote of the stockholders is not required and the
Board of Directors has duly approved this Agreement and all of its terms and
provisions, and (ii) all conditions set forth in this Agreement have been
satisfied, or
(b) at such other place, date and time as may be
-7-
<PAGE>
agreed upon in writing unanimously by the Company and the Stockholders.
The date upon which the Closing shall take place shall be hereinafter
referred to as the "Closing Date." Simultaneously with the consummation of the
Closing, this Agreement, as appropriate, and all other instruments or documents
required to make the Stock Exchange effective or complete the transaction as
contemplated by the terms of this Agreement shall be filed with the appropriate
governmental agencies or authorities in accordance with the provisions hereof or
thereof.
The date upon which the Stock Exchange shall become effective shall be the
Closing Date.
1.3 Effect of Stock Exchange. At the Effective Time, the effects of the
------------------------
consummation of the Stock Exchange on the Company, Rich and Stern and the
Company shall be as provided herein.
1.4 Other Action; Further Assurances. Upon and after the Effective Time,
--------------------------------
the Stockholder shall take all such action as
-8-
<PAGE>
shall be deemed necessary or appropriate by any of the parties to this Agreement
to give full effect to the Stock Exchange. If at any time after the Effective
Time, the Company or the Stockholders shall consider or be advised any further
deeds, assignments, conveyances, or instruments are necessary or desirable to
carry out the provisions of this Agreement, they shall execute and deliver any
and all proper deeds, assignments, conveyances, instruments and assurances at
law, and do all things necessary or appropriate and proper to carry out the
provisions or the terms of this Agreement.
ARTICLE II
----------
TERMS OF THE TRANSACTION AND MANNER AND BASIS
OF THE STOCK EXCHANGE
---------------------
2.1 Delivery and Exchange of Share Certificates. On the Closing Date,
-------------------------------------------
Stockholders will deliver to Company their certificates for the GEC and
Bodyonics Stock, respectively, representing twenty (20%) percent of the issued
and outstanding shares of stock in GEC and Bodyonics, duly endorsed and with any
requisite documentary stamps affixed at the Stockholder's expense so as to make
the Company the sole owner thereof, free and clear of all claims and
encumbrances; and on such Closing
-9-
<PAGE>
Date delivery of the Company's stock, on which documentary stamp taxes will have
been paid by the Company, will be made to Stockholders in the amounts to each
Stockholder as set forth in Schedule A attached hereto.
2.2 Authorized but Unissued Shares of Common Stock of Company. All
---------------------------------------------------------
authorized but unissued shares of Company's common stock shall continue as
authorized but unissued shares of Company, as appropriate, after the Effective
Time.
ARTICLE III
-----------
STOCKHOLDER APPROVAL, SUPPLEMENTARY ACTION AND
EFFECTIVENESS FOR TAX AND ACCOUNTING PURPOSES
----------------------------------------------
3.1 Stockholder Approval. This Agreement is approved by the Stockholders
--------------------
and each of them.
3.2 Supplementary Action. At any time, or from time to time, after the
--------------------
Effective Time, the Stockholders may execute and deliver all such proper deeds,
assignments and other instruments and take or cause to be taken all such further
or other action as Company may deem necessary or desirable in order to vest,
perfect or confirm in Company, all right, title and interest in
-10-
<PAGE>
and to possession of the GEC and Bodyonics Stock and their rights, privileges,
immunities, powers and purposes, and otherwise carry out the purposes and intent
of this Agreement.
3.3 Effectiveness for Tax and Accounting Purposes. Notwithstanding
---------------------------------------------
the provisions of Section 1.2 of Article I above, the Stock Exchange shall be
considered to be effective for tax and accounting purposes as of the close of
business on March 1, 2000, regardless of the actual Effective Time under Section
1.2 of Article I.
ARTICLE IV
----------
REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS
----------------------------------------------
Representations of Stockholders. Stockholders, jointly and severally,
-------------------------------
represent and warrant to Company as follows:
(a) As of the Closing Date they will be the sole owners of the shares
appearing next to their names as set forth in Schedule A; such shares will be
free from claims, liens, or other encumbrances; and they will have the
unqualified right to
-11-
<PAGE>
transfer such shares; and
(b) such shares constitute validly issued shares of each of GEC and
Bodyonics, as appropriate, fully paid and nonassessable.
ARTICLE V
---------
CONDITIONS PRECEDENT TO OBLIGATIONS OF ALL PARTIES
--------------------------------------------------
The obligations of Company and Stockholders to consummate the Stock
Exchange are subject to the fulfillment prior to or at the Closing of each of
the following conditions, except as such parties may legally waive such
conditions in writing:
5.1 Company Shareholder Approval. Either the stockholders or Board of
----------------------------
Directors of the Company entitled to vote on this Agreement shall have duly
approved this Agreement at a meeting called for such purpose or by unanimous
consent in accordance with the provisions of the Articles of Incorporation or
Certificate of Incorporation and by-laws of the Company.
-12-
<PAGE>
5.2 Litigation. On the Closing Date, there shall not be pending or
----------
threatened any claim, action, suit or proceeding against any of the parties
hereto or any of their affiliates which, if adversely determined, might prevent
or materially hinder consummation of the Stock Exchange contemplated by this
Agreement, result in the payment of substantial damages as a result of such
Stock Exchange and the transactions contemplated hereby or otherwise materially
impair the benefits to any party or parties contemplated hereby and no
investigation by any governmental agency shall be pending or threatened which
might eventually result in any such suit, action or other proceeding.
5.3 Representations and Warranties. The representations and warranties of
------------------------------
Stockholders contained in this Agreement or on any schedule, list, certificate
or document delivered pursuant to the provisions hereof shall be true in all
material respects on and as of the Closing Date as if such representations and
warranties were made on and as of such date (except to reflect changes permitted
or contemplated by this Agreement).
-13-
<PAGE>
ARTICLE VI
----------
TERMINATION
-----------
6.1 Procedure for Termination. Notwithstanding any other section or
-------------------------
provision of this Agreement, this Agreement may be terminated by written notice
of termination at any time before the Closing Date only as follows:
(a) by the mutual consent of the Boards of Directors of the Company
and the Stockholders; or
(b) by the Board of Directors of the Company, upon two days' written
notice to the Stockholders given at any time.
6.2 Effect of Termination. In the event this Agreement is terminated,
---------------------
this Agreement shall forthwith become void and of no further force and effect
and there shall be no obligation on the part of Company or the Stockholders.
-14-
<PAGE>
ARTICLE VII
MISCELLANEOUS
-------------
7.1 Amendments. Notwithstanding anything to the contrary in this
----------
Agreement, to the extent permitted by law, this Agreement may only be amended,
supplemented or modified by a written instrument duly executed by each of the
parties hereto which shall have been authorized by appropriate action taken by
the board of directors of the parties hereto and, in the case of an
interpretation, the actions of such board of directors shall be binding.
7.2 Governing Law. The terms of this Agreement shall be governed by, and
-------------
interpreted and construed in accordance with, the provisions of the laws of the
State of New York applicable to agreements to be fully performed within the
State of New York.
7.3 Section Headings and Gender. The section headings herein have been
---------------------------
inserted for convenience of reference only and shall in no way modify or
restrict any of the terms or provisions hereof. The use of the masculine or any
other pronoun herein when referring to any party has been for
-15-
<PAGE>
convenience only and shall be deemed to refer to the particular party intended
regardless of the actual gender of such party.
7.4 Entire Agreement. This Agreement and the documents referred to herein
----------------
constitute the entire, full and complete agreement concerning the subject matter
hereof and supersede all prior agreements. No other representations have induced
any party to execute this Agreement. any and all other undertakings and
agreements are merged herein.
7.5 Survival of Covenants. The covenants contained in this Agreement
---------------------
which by their terms require performance by the parties after the expiration or
termination of this Agreement shall be enforceable notwithstanding the
expiration or other termination of this Agreement for any reason whatsoever.
7.6 Incorporation of Recitals. The recitals set forth at the head of this
-------------------------
Agreement are incorporated herein as if fully set forth.
7.7 Waiver. Each of the parties hereby agrees that the other party shall
------
not by act, delay, omission or otherwise be
-16-
<PAGE>
deemed to have waived any of its right or remedies hereunder nor in any other
instrument given hereunder, unless such waiver is given in writing, and the same
shall be binding only to the extent therein provided and only upon the parties
signing the same. A waiver on one occasion shall not be construed as a waiver
for any prior or future occasion.
7.8 Notices and Communications.
--------------------------
(a) Notices and communications required or permitted to be given
shall be sent by facsimile; United States certified mail, postage prepaid; or
Federal Express (or any other reputable overnight mail service), at such address
as may be designated in writing. Notice shall be deemed given three business
days after deposit in the United States mail, the next business day after
deposit with overnight delivery service, or when actually delivered in person.
(b) Any party may from time to time change the mailing address or
telephone facsimile machine for payments, notices or communications by notice in
writing pursuant to the provisions of this Section.
-17-
<PAGE>
7.9 Successors and Assigns. This Agreement shall inure to the benefit of,
----------------------
and be binding upon, the parties hereto and the subscribers hereof and their
successors, representatives, assigns and transferee, where the same is not
prohibited by the provisions hereof.
7.10 Severability. If any term or provision of this Agreement shall be
------------
finally held invalid or unenforceable by a court of competent jurisdiction, the
same shall not affect the validity of any other term or provision of this
Agreement, and the remainder hereof shall continue in full force and effect.
7.11 Counterparts. This Agreement may be executed in counterparts, all of
------------
which together shall constitute this Agreement.
7.12 Compliance With Applicable Law. To the extent that any provisions of
------------------------------
this Agreement provide for periods of notice less than those required by
applicable law, or provide for termination, cancellation, non-renewal or the
like other than in accordance with applicable law, such provisions shall, to the
extent such are not in accordance with applicable law, not be effective, and the
parties shall comply with applicable law in
-18-
<PAGE>
connection with each of these matters.
IN WITNESS WHEREOF, Company, GEC and each of Stockholders have each caused
this Agreement to be executed all as of the date and year first above written.
EVERGOOD PRODUCTS CORPORATION
By: /s/
---------------------------
Name:
/s/ Mel Rich
------------------------------
MEL RICH
/s/ Stephen R. Stern
------------------------------
STEPHEN R. STERN
-19-
<PAGE>
SCHEDULE A
----------
<TABLE>
<CAPTION>
Shares of EXCHANGED Shares of
Stockholder GEC Owned FOR.... Evergood
- ----------- --------- --------
<S> <C> <C> <C>
Mel Rich 10 50,758
Stephen R. Stern 10 50,758
</TABLE>
<TABLE>
<CAPTION>
Shares of EXCHANGED Shares of
Stockholder Bodyonics Owned FOR.... Evergood
- ----------- --------------- --------
<S> <C> <C> <C>
Mel Rich 10 90,235
Stephen R. Stern 10 90,235
</TABLE>
-20-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 482,259
<SECURITIES> 0
<RECEIVABLES> 5,906,808
<ALLOWANCES> 409,000
<INVENTORY> 8,618,944
<CURRENT-ASSETS> 16,762,220
<PP&E> 5,973,144
<DEPRECIATION> 4,748,445
<TOTAL-ASSETS> 18,555,451
<CURRENT-LIABILITIES> 10,265,746
<BONDS> 6,519,175
0
0
<COMMON> 38,166
<OTHER-SE> 1,622,041
<TOTAL-LIABILITY-AND-EQUITY> 18,555,451
<SALES> 42,283,077
<TOTAL-REVENUES> 44,599,133
<CGS> 31,144,799
<TOTAL-COSTS> 31,144,799
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 330,159
<INTEREST-EXPENSE> 683,113
<INCOME-PRETAX> 1,726,337
<INCOME-TAX> (1,278,000)
<INCOME-CONTINUING> 3,004,337
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,004,337
<EPS-BASIC> .77
<EPS-DILUTED> .77
</TABLE>
