<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
TO
1995 ANNUAL REPORT ON FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended Commission File Number
July 31, 1995 0-12862
DEP CORPORATION
A DELAWARE CORPORATION 95-2040819
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
2101 EAST VIA ARADO
RANCHO DOMINGUEZ, CALIFORNIA 90220
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, (310) 604-0777
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock ($.01 par value)
Class B Common Stock ($.01 par value)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- ------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in part III of this Form 10-K or any
amendment to this Form 10-K. / /
At October 13, 1995, the aggregate market value of common stock held by
non-affiliates of the registrant was approximately $3,539,945 for non-voting
Class A Common Stock and $4,069,017 for voting Class B Common Stock.
At October 13, 1995, the number of shares of common stock of the registrant
issued and outstanding were 3,117,059 of Class A Common Stock and 3,134,081 of
Class B Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive proxy statement, which the Registrant
anticipates mailing in November 1995, are incorporated by reference in Part III
of this Report.
Index to Exhibits appears on page 33.
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The undersigned registrant hereby amends items 5,7,8 and 14 of its
Annual Report on Form 10-K for the year ended July 31, 1995, to reflect
additional disclosure regarding the market for the Company's common equity and
the execution of the Fifth Amendment to the Revolving Credit and Term Loan
Agreement previously reported as an agreement in principle, as follows:
PART II
ITEM 5 MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Class A and Class B Common Stock of the Company was traded on the
Nasdaq National Market until November 2, 1995, and since such date has been
traded on the Nasdaq SmallCap Market under the symbols DEPCA and DEPCB,
respectively. The following table sets forth the high and low closing sale
prices of the Class A Common Stock and Class B Common Stock:
<TABLE>
<CAPTION>
1995 1994
----------------- -----------------
HIGH LOW HIGH LOW
----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
CLASS A First Quarter 3 7/8 2 5/8 7 1/2 5 1/4
Second Quarter 3 3/8 2 1/4 6 3/4 5
Third Quarter 2 3/8 1 1/2 5 3/4 2 1/4
Fourth Quarter 3 15/16 4 1/2 2 1/2
CLASS B First Quarter 4 1/4 2 3/4 7 1/4 5 1/2
Second Quarter 3 3/4 2 3/8 6 1/2 5 1/4
Third Quarter 2 7/8 1 5/8 5 3/4 2 9/16
Fourth Quarter 3 1/4 1 1/8 4 3/8 2 1/2
</TABLE>
The closing sales prices per share for the Class A Common Stock and
Class B Common Stock on October 13, 1995, were $1 3/4 and $1 7/8, respectively.
On October 13, 1995, there were a total of 140 and 161 record holders of Class
A Common Stock and Class B Common Stock, respectively.
Since its formation the Company has not paid cash dividends on its
common stock and it does not currently anticipate paying such dividends. The
Company's current policy is to retain earnings to provide funds for the
operation and expansion of the Company's business. In addition, the Company's
Bank Facility presently prohibits, among other things, the payment of any
dividend or other distribution of assets, properties or cash in respect of any
class of capital stock. (See "Note 6 of the Notes to Consolidated Financial
Statements.")
The Company's common stock was transferred from the Nasdaq National
Market to the Nasdaq SmallCap Market as a result of the Company's
non-compliance with the minimum net tangible assets requirement for continued
listing on the National Market. The Company is in the process of listing the
common stock on the Pacific Stock Exchange. While there can be no assurance
that its application will be accepted, the Company expects such listing to
become effective in late November 1995.
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On November 15, 1994, Continental Stock Transfer & Trust Company
became the Company's Registrar and Transfer Agent.
3
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ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
FISCAL 1995 COMPARED TO FISCAL 1994
Consolidated net sales for 1995 were $127,689,000 compared to
$138,331,000 in 1994. Consumer Products net sales in 1995 decreased by 9%
compared to 1994. Consumer Products accounted for 97% and 98% of the
consolidated net sales for 1995 and 1994, respectively.
Hair care net sales decreased 6% in 1995, principally due to lower
sales of Agree and Halsa. Aggregate net sales of Agree and Halsa were
approximately $26,800,000 in 1995, or 25% lower than the prior year. Hair care
net sales, excluding Agree and Halsa, increased 4% in 1995, compared to 1994,
primarily as a result of double digit domestic unit volume growth in both the
L.A. Looks styling and Dep gel product lines, offset in part by declines in
Lilt and hair care products which were discontinued in 1994.
Skin care net sales increased 17% in 1995 over the prior year
primarily as a result of unit growth in the Natures Family brand.
Oral care net sales for 1995 decreased by 38% compared to 1994.
Although net sales of all oral care brands declined, Lavoris mouthwash and
Jordan toothbrushes accounted for approximately 80% of such decline. Oral care
brands were adversely impacted by intense competition and new product
introductions by competitors. Crystal Fresh Lavoris and Jordan toothbrushes
are selling at minimal levels compared to the prior year and no longer
represent a significant component of oral care sales.
Domestic net sales of Consumer Products decreased 13% in 1995, again,
primarily as a result of the decline in the net sales of Agree and Halsa. In
1995, domestic net sales of Agree and Halsa were approximately $15,600,000, or
42% lower than 1994. Such decline was offset, in part, by sales growth of the
L.A. Looks styling and Dep gel products. Domestic net sales of hair care
products, excluding Agree and Halsa, increased 2% in 1995, compared to the
prior year. Also contributing to the decrease in domestic net sales of Consumer
Products was a 41% decline in oral care in 1995 as compared to 1994, for the
same reasons described in the preceding paragraph.
International net sales of Consumer Products in 1995 increased 29%
compared to 1994 primarily due to an increase in Agree sales in Japan and
Australia. From August 6, 1993 until December 31, 1993, Agree products in Japan
and Australia were distributed by licensees and the Company received only
royalty payments equal to a percentage of the licensees' net sales. During the
last seven months of fiscal 1994 and all twelve months of 1995, the Company
sold the Agree products through a distributor and agent, and recognized sales
and cost of sales on those products. In addition, the Company entered into a
joint venture in China, effective November 1993.
4
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Gross profits for 1995 were $80,194,000, compared to $87,646,000 in
1994. As a percentage of net sales, gross profit for both 1995 and 1994 was
63%. The gross profit percentage in the current period was somewhat lower than
historic rates due to a lower proportion of sales of higher margin products,
while in 1994 gross profit was adversely impacted by a provision for packaging
changeover costs. In dollar terms gross profit in 1995 declined as a result of
lower sales volume.
In 1995, selling, general and administrative expenses ("SG&A")
decreased to $78,728,000 or 62% of net sales from $88,525,000 or 64% in the
prior year. The decrease in SG&A, as a percentage of sales, was primarily due
to a decrease in advertising and consumer promotion expense. The dollar
decrease in SG&A relates to the impact of lower net sales on variable expenses
and lower advertising and consumer promotional expense.
For 1995, SG&A was also favorably impacted by the higher proportion of
international sales, as such sales typically incur lower SG&A expense than
domestic sales. International operations include export sales, where third
party distributors generally incur the advertising and promotional
expenditures, and royalty income where there are no related selling costs
recorded by the Company.
In February 1995, the Company initiated a plan to reduce operating
expenses. As part of that plan, the Company laid-off approximately 9% of its
non-production work force, reduced the annual base salary of four top executive
officers by 10%, and reduced the salary of its Chairman and President by 15%.
The estimated effect of these actions will be to reduce costs by approximately
$1,200,000 annually. The benefit of such work force and salary reductions in
1995, net of severance costs, approximated $360,000.
During the third quarter of fiscal 1995, the Company determined that
in light of the significant declines in the sales volume and profit
contribution of the Agree and Halsa products since their acquisition in August
1993, there had been an impairment in the carrying value of the Agree and Halsa
intangible assets. Based on the results of an independent valuation, the
Company concluded that the fair value of the intangible assets of Agree and
Halsa was approximately $12,500,000, requiring a write-down in the carrying
value of the intangibles of $24,718,000. Such write-down was included in
operations for 1995. In addition, due to the repackaging and restaging of such
products, the Company also wrote-off tools and molds of $448,000.
For 1995, net other expenses were $6,123,000 as compared to $4,494,000
in 1994. The increased expense was due to higher interest expense which
resulted from a higher effective interest rate during the current year.
The Company recorded a tax benefit of $2,865,000 for 1995 and
$1,790,000 for 1994. In accordance with generally accepted accounting
principles, the tax benefit of the write-down of the Agree and Halsa
intangibles in 1995 was limited to that currently realizable. The tax benefit
for 1994 was offset in part by the effect of intangible amortization expense
included in financial income, but not deductible for tax purposes. (See "Note
7 of the Notes to Consolidated Financial Statements.")
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For 1995, the Company recorded a net loss of $26,958,000 or $4.32 per
share, compared to a net loss of $3,583,000 or $.57 per share in 1994. The
loss in 1995 was primarily due to the $24,072,000 after-tax write-down of the
Agree and Halsa assets, lower net sales, higher interest expense and a lower
tax benefit. Excluding the write-down of the Agree and Halsa assets, the
Company's operations for 1995 resulted in a net loss of $2,886,000 or $.47 per
share.
FISCAL 1994 COMPARED TO FISCAL 1993
Consolidated net sales for 1994 increased to $138,331,000, compared to
$123,713,000 in 1993. In 1994 the Company's Consumer Products net sales grew
13% over 1993, entirely as a result of unit volume growth resulting from the
acquisition of the Agree and Halsa trademarks in August 1993, but this growth
was slightly offset by a decrease in net sales of Private Label products.
Consumer Products accounted for 98% and 96% of the consolidated net sales for
1994 and 1993, respectively.
In 1994, net sales of domestic Consumer Products increased 6% and net
sales of international Consumer Products increased 161%. The increase in
international net sales arose primarily from sales of Agree products in
Australia and Japan. From the acquisition date until December 31, 1993, such
products were distributed by licensees and the Company received royalty
payments equal to a percentage of the licensees' net sales. Thereafter, the
Company sold such products through a distributor and agent, and recognized the
related revenues. In addition, international net sales also benefitted from
sales in Canada of Agree and Halsa, and the commencement of a joint venture in
China, effective November 1993. International net sales for 1994 represented
approximately 11% of total consolidated net sales, compared to 5% for 1993.
In 1994, hair care represented 75% of total Consumer Products net
sales compared to 68% in 1993. Hair care sales in 1994 increased 25% to
$100,782,000 compared to $80,476,000 in 1993. The increase in hair care sales
was the result of unit volume growth arising from the acquisition of the Agree
and Halsa shampoo and conditioner trademarks, with such sales approximating $36
million. This increase was offset in part by declines of the Company's other
hair care brands, including approximately $7,500,000 of sales primarily
relating to the discontinuance of the Dep brand of shampoos and conditioners
and the domestic non-gel Dep styling products. Fiscal 1994 sales were further
adversely impacted due to the continued effects of stringent domestic retailer
inventory reductions, the highly competitive business environment, and the
substantial efforts devoted to integrating Agree and Halsa into the Company's
operations.
Net sales of oral care products in 1994 were $19,832,000, or 9% lower
than the $21,910,000 of 1993. The lower volume primarily resulted from the
absence in 1994 of the non-recurring sales of Crystal Fresh Lavoris introduced
in 1993. The oral care sales decrease was offset in part by sales of Jordan
Magic toothbrushes and TopolPLUS whitening toothpaste. In 1994, skin care net
sales were $13,974,000 compared to $15,680,000 for 1993. The lower skin care
sales in 1994 were the result of lower unit sales of the Company's three skin
care brands.
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Gross profits for 1994 were $87,646,000 as compared to $78,666,000 for
the prior year. As a percentage of net sales, gross profits were 63% and 64%
for the current and prior years, respectively. The decrease in gross profit
percentage in 1994 was principally the result of a provision for packaging
inventory obsolescence. Such additional cost was offset, in part, by sales of
new products, principally, Agree, Jordan Magic toothbrushes, and TopolPLUS,
whose individual gross profit margins were greater than the Company's average.
In 1994, SG&A expenses increased to $88,525,000 or 64% of net sales,
compared to $74,388,000 or 60% in 1993. The higher SG&A percentage in the
current year was primarily due to increased advertising and promotional
expenses in response to the highly competitive business environment, and
increased amortization expenses due to the Agree and Halsa intangibles acquired
in 1994.
Fiscal 1993 also included a $1,003,000 charge against income relating
to the discontinuance and write-down of the DietAyds and Bantron intangibles,
the Company's two smallest brands. No similar charge occurred in 1994.
Net other expenses increased to $4,494,000 compared to $1,706,000 in
the prior year. The increase was primarily due to higher interest expense
resulting from the Agree and Halsa acquisition. In addition, 1993 included a
non-recurring charge of $365,000 related to the Company's reclassification of
its common stock.
In 1994, due to the loss before income taxes, the Company recorded a
tax credit utilizing an effective tax rate of 33%, compared to a tax expense in
1993 at an effective tax rate of 25%. The tax benefit for the current period
was offset in part by the effect of intangible amortization expense included in
financial income, but not deductible for tax purposes. The low effective tax
rate of 1993 resulted from the tax benefit arising from the write-down of the
DietAyds and Bantron trademarks and goodwill.
The Company recorded a net loss of $3,583,000 or $.57 per share in
1994, compared to net income of $1,170,000 or $.18 per share in the prior year.
The net loss was principally due to lower than anticipated sales of the Agree
and Halsa brands, higher interest and amortization expense related to the
acquisition and higher advertising and promotional expenses.
LIQUIDITY AND CAPITAL RESOURCES
By its terms, the Company's Revolving Credit and Term Loan Agreement
dated as of August 6, 1993, as amended (the "Bank Facility"), between the
Company and a group of seven banks (the "Bank Group") obliges the Company to
comply with certain financial covenants. As a result of the 1995 operating
loss, the Company would not have been in compliance with certain of such
covenants had the Bank Group not granted waivers of such technical defaults
through October 31, 1995.
On November 3, 1995, the Company and the Bank Group entered into the
Fifth Amendment to the Bank Facility effective as of October 30, 1995, (the
"Fifth Amendment") which provides, among other things, for the termination of
the Bank Facility on December 30,
7
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1996, a decrease in the working capital commitment to $25,000,000 from
$28,000,000, an increase in interest rates and lower quarterly scheduled term
loan payments through April 1, 1996. The $9,567,000 payment originally due on
December 29, 1995, has been reduced to $500,000 and a principal payment of
$8,300,000 will now be due on April 15, 1996. (See "Note 6 of the Notes to
Consolidated Financial Statements.") The interest rate under the Fifth
Amendment for the period October 1, 1995 through June 30, 1996 will be base
rate plus 3%; July 1, 1996 through September 30, 1996, base rate plus 4%; and
thereafter base rate plus 5%. As of July 31, 1995, the base rate was 8 3/4%.
Since the inception of the Bank Facility in August 1993, the Company
has consistently made timely payment to the Bank Group of all principal and
interest due under the Bank Facility. In light of the Company's current
projected earnings and cash flow, management believes the Company has the
financial resources to maintain its current level of operations until the April
15, 1996 principal payment is due. However, cash generated from operations
alone will not be sufficient to pay the $8,300,000 on April 15, 1996, or the
balance due on December 30, 1996. As a result, the Company is evaluating
alternatives which, if successful, would result in the payment, the
refinancing, or the restructuring of the Bank Facility. The Company has
retained legal counsel specializing in restructurings to render advice
regarding alternatives available to the Company. In addition, the Company has
retained Donaldson, Lufkin & Jenrette Securities Corporation to assist it in
exploring strategic alternatives which include, among other things, a business
combination, sale of assets, strategic investment in the Company or a
refinancing of the Bank Facility. There can be no assurance that the Company
will be successful in its attempt to consummate any of the strategic
alternatives or a refinancing of the Bank Facility.
All amounts due under the Bank Facility, including the balance due on
December 30, 1996, have been classified as current debt. Due to the
reclassification of $48,919,000 of the outstanding balance of the Bank Facility
as current debt, as of July 31, 1995, the Company had a working capital
deficiency of $35,682,000. Working capital was also impacted by decreases in
income taxes receivable and other assets offset, in part, by an increase in
accounts receivable. The decrease in income taxes receivable relates to a
lower pre-tax loss, excluding the write-off of assets in 1995, while the
decrease in other assets primarily relates to a reduction in prepaid
advertising and promotion costs at July 31, 1995. The increase in accounts
receivable primarily relates to an increased proportion of international sales,
which sales have longer payment terms than the domestic business.
Substantially all of the Company's assets not otherwise pledged as
collateral on existing mortgages are pledged as collateral under the Bank
Facility. Furthermore, the Company's ability to borrow additional funds from
third parties is significantly limited by the terms of the Bank Facility.
As of October 20, 1995, the Company had cash and cash equivalents
totalling approximately $5,300,000.
In 1995, purchases of property and equipment totalled $716,000
compared to $1,643,000 in 1994.
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ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORTS
Independent Auditors' report with respect to financial statements and
schedule.
FINANCIAL STATEMENTS
Consolidated Balance Sheets at July 31, 1995 and 1994
Consolidated Statements of Income for Years Ended
July 31, 1995, 1994 and 1993
Consolidated Statements of Stockholders' Equity for Years
Ended July 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for Years Ended
July 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
SCHEDULE
Schedule II - Valuation and Qualifying Accounts and Reserves
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
9
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PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements, Financial Schedules and Exhibits.
1. The financial statements listed in Item 8 above are
incorporated herein by this reference.
2. The financial schedule listed in Item 8 above is incorporated
herein by this reference. Schedule I is not listed because it
is not required.
<TABLE>
<CAPTION>
3. Exhibit
Number Title
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<S> <C>
3.1 Certificate of Incorporation (1)
3.2 Certificate of Amendment (2)
3.3 Bylaws (9)
3.4 Certificate of Amendment to the Certificate
of Incorporation (10)
3.5 Bylaws (10)
4.1 Form of Common Stock Certificates (6)
10.1 Profit Sharing Plan for Employees of
Dep Corporation as of August 1, 1989 (4)
10.2 1983 Stock Option Plan, as amended (3) *
10.3 1988 Director and Officer Stock Option
Plan, as amended (3) *
10.4 1992 Stock Option Plan (6) *
10.5 Stock Target Ownership Plan (9) *
10.6 Fiscal Year 1995 Bonus Arrangement for
Certain Executive Officers * **
10.7 Lease Agreement relating to the Company's
California warehouse (3)
</TABLE>
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<TABLE>
<CAPTION>
Exhibit
Number Title
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<S> <C>
10.8 Dep Corporation Executive Deferral Plan (3) *
10.9 401(k) Plan for Employees of Dep Corporation (6) *
10.10 Asset Purchase Agreement, dated as of July 9,
1993, between S.C. Johnson & Son, Inc.
and the Company (5)
10.11 Revolving Credit and Term Loan Agreement, dated
as of August 6, 1993, among the Company as
borrower, The First National Bank of Boston
and City National Bank, as co-agents and
Citicorp USA, Inc. as agent. (5)
10.12 Waiver and Amendment, dated as of March 17,
1994, of the Revolving Credit and Term Loan
Agreement, dated as of August 6, 1993. (7)
10.13 Waiver and Amendment, dated as of May 27,
1994, of the Revolving Credit and Term Loan
Agreement, dated as of August 6, 1993. (7)
10.14 Waiver and Amendment, dated as of August 26,
1994, of the Revolving Credit and Term Loan
Agreement, dated as of August 6, 1993. (8)
10.15 Fourth Amendment, dated as of September 9,
1994, of the Revolving Credit and Term Loan
Agreement, dated as of August 6, 1993. (8)
10.16 Form of Officers and Directors Indemnification
Agreement. (10)
10.17 Waiver, dated as of September 29, 1995, of the
Revolving Credit and Term Loan Agreement,
dated as of August 6, 1993.**
10.18 Dep Corporation Retention and Severance Plan* **
10.19 Form Change in Control Executive Severance Agreement* **
10.20 Form Change in Control Executive Retention
Bonus Agreement* **
10.21 Fifth Amendment, dated as of October 30,1995, of the
Revolving Credit and Term Loan Agreement dated as of
August 6,1993
11 Computation of Per Share Earnings **
</TABLE>
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<TABLE>
<CAPTION>
Exhibit
Number Title
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<S> <C>
21.1 Subsidiaries (9)
23.1 Consent of Independent Auditors**
27 Financial Data Schedule**
</TABLE>
(1) Incorporated by reference to Exhibit 3.1 to the Company's
Annual Report on Form 10-K for the year ended July 31, 1988.
(2) Incorporated by reference to Exhibit 4 to the Company's
Current Report on Form 8-K filed on December 15, 1992.
(3) Incorporated by reference to Exhibits 10.2, 10.3, 10.7 and
10.8 to the Company's Annual Report on Form 10-K for the year
ended July 31, 1992.
(4) Incorporated by reference to Exhibit 10.1 to the Company's
Annual Report on Form 10-K for the year ended July 31, 1990.
(5) Incorporated by reference to Exhibits 2.1 and 10.9 to the
Company's Current Report on Form 8-K filed on August 6, 1993.
(6) Incorporated by reference to Exhibits 4.1, 10.4 and 10.9 to
the Company's Annual Report on Form 10-K for the year ended
July 31, 1993.
(7) Incorporated by reference to Exhibits to the Company's Current
Report on Form 8-K filed on May 27, 1994.
(8) Incorporated by reference to Exhibits to the Company's Current
Report on Form 8-K filed on September 14, 1994.
(9) Incorporated by reference to Exhibits 3.3, 10.5 and 21.1 to
the Company's Annual Report on Form 10-K for the year ended
July 31, 1994.
(10) Incorporated by reference to Exhibits to the Company's Current
Report on Form 8-K filed on January 16, 1995.
* Management contract or compensatory plan.
** Previously filed under original Form 10-K filed on October
30, 1995.
(b) Reports on Form 8-K.
None.
12
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INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Dep Corporation
Rancho Dominguez, California
We have audited the accompanying consolidated balance sheets of Dep Corporation
and subsidiaries as of July 31, 1995 and 1994, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the years
in the three-year period ended July 31, 1995. In connection with our audits of
the consolidated financial statements, we have also audited the financial
statement schedule listed in Item 8. These consolidated financial statements
and financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Dep Corporation and
subsidiaries as of July 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the years in the three-year period ended July
31, 1995, in conformity with generally accepted accounting principles. Also in
our opinion, the related financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 6 to
the consolidated financial statements, the Company was in technical default of
certain financial covenants in connection with its bank facility which have
been waived by the lenders through October 31, 1995. As more fully discussed
in Note 6 to the consolidated financial statements, the Company and the lenders
who are a party to the bank facility have entered into an amendment (the "Fifth
Amendment") to modify the maturity dates of amounts outstanding under the bank
facility and to modify the financial covenants. In addition, as revised by the
Fifth Amendment, the Company has a mandatory payment of $8,300,000 due on April
15, 1996. Based on current estimates of available cash flow, management does
not believe it will have sufficient cash to make the mandatory payment.
Accordingly, the entire amount outstanding under the bank facility of
$60,969,000 has been classified as a current liability in the accompanying
consolidated financial statements. Management's plans in regard to these
matters are described in Note 16 to the consolidated financial statements.
These matters raise substantial doubt about the Company's ability to continue
as a going concern. The consolidated financial statements and financial
statement schedule do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ KPMG Peat Marwick LLP
Long Beach, California
September 21, 1995, except for Notes 6
and 16, which date is November 6, 1995
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DEP CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
July 31,
----------------------------
Assets 1995 1994
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<S> <C> <C>
Current assets:
Cash and cash equivalents.......................................... $ 4,611,000 $ 947,000
Accounts receivable, less allowance for doubtful accounts
of $478,000 in 1995 and $262,000 in 1994...................... 18,811,000 16,769,000
Inventories ....................................................... 13,071,000 13,956,000
Income taxes receivable............................................ 1,779,000 3,180,000
Deferred income taxes.............................................. 188,000 539,000
Other current assets .............................................. 2,275,000 3,606,000
----------- ------------
Total current assets............................................. 40,735,000 38,997,000
Property and equipment, net.......................................... 15,423,000 17,211,000
Intangibles, net..................................................... 34,156,000 62,015,000
Other assets......................................................... 3,590,000 3,872,000
----------- ------------
$93,904,000 $122,095,000
=========== ============
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt.................................. $61,100,000 $ 3,828,000
Accrued expenses................................................... 7,920,000 7,719,000
Accounts payable .................................................. 7,397,000 7,034,000
----------- ------------
Total current liabilities........................................ 76,417,000 18,581,000
Long-term debt, net of current portion............................... 3,744,000 60,974,000
Deferred income taxes................................................ - 1,252,000
Other non-current liabilities........................................ 2,516,000 3,133,000
----------- ------------
Total liabilities................................................ 82,677,000 83,940,000
Stockholders' equity:
Preferred stock, par value $.01; authorized
3,000,000 shares; none outstanding............................ - -
Class A common stock, par value $.01; authorized 14,000,000
shares; issued and outstanding 3,232,559 at July 31, 1995
and 3,231,203 at July 31, 1994............................... 32,000 32,000
Class B common stock, par value $.01; authorized 7,000,000
shares; issued and outstanding 3,243,340 at July 31, 1995
and 3,231,201 at July 31, 1994............................... 32,000 32,000
Additional paid-in capital......................................... 12,126,000 12,137,000
Retained earnings.................................................. 215,000 27,173,000
Foreign currency translation adjustment............................ (173,000) (214,000)
----------- ------------
12,232,000 39,160,000
Less treasury stock, at cost, 115,500 shares each of Class A
and Class B common stock......................................... (1,005,000) (1,005,000)
----------- ------------
Total stockholders' equity....................................... 11,227,000 38,155,000
----------- ------------
$93,904,000 $122,095,000
=========== ============
</TABLE>
The accompanying notes are an integral part of the
Consolidated Financial Statements.
14
<PAGE> 15
DEP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended July 31,
----------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Net sales..................................... $127,689,000 $138,331,000 $123,713,000
Cost of sales................................. 47,495,000 50,685,000 45,047,000
------------ ------------ ------------
Gross profit.................................. 80,194,000 87,646,000 78,666,000
Selling, general and administrative........... 78,728,000 88,525,000 74,388,000
Write-down in value of assets................. 25,166,000 - 1,003,000
------------ ------------ ------------
Income (loss) from operations................. (23,700,000) (879,000) 3,275,000
Other expenses (income):
Interest expense, net....................... 6,177,000 4,578,000 1,268,000
Other....................................... (54,000) (84,000) 438,000
------------ ------------ ------------
6,123,000 4,494,000 1,706,000
------------ ------------ ------------
Income (loss) before income taxes (credit).... (29,823,000) (5,373,000) 1,569,000
Income taxes (credit)......................... (2,865,000) (1,790,000) 399,000
------------ ------------ ------------
Net income (loss) ............................ $(26,958,000) $ (3,583,000) $ 1,170,000
============ ============ ============
Net income (loss) per share.................. $ (4.32) $ (.57) $ .18
============ ============ ============
Weighted average shares outstanding.......... 6,244,106 6,250,239 6,367,082
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the
Consolidated Financial Statements.
15
<PAGE> 16
DEP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JULY 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
FOREIGN
CLASS A CLASS B ADDITIONAL CURRENCY TREASURY
COMMON COMMON COMMON PAID-IN RETAINED TRANSLATION STOCK, AT COST
STOCK STOCK STOCK CAPITAL EARNINGS ADJUSTMENT (CLASS A &B)
-------- ------- ------- ----------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at July 31, 1992 $ 65,000 $ - $ - $12,046,000 $ 29,586,000 $ (38,000) $(1,005,000)
Cumulative translation adjustment (184,000)
Reclassification (65,000) 32,000 32,000 1,000
Net income for the year 1,170,000
-------- ------- ------- ----------- ------------ --------- -----------
Balance at July 31, 1993 - 32,000 32,000 12,047,000 30,756,000 (260,000) (1,005,000)
Cumulative translation adjustment 8,000
Issuance of stock 90,000
Net loss for the year (3,583,000)
-------- ------- ------- ----------- ------------ --------- -----------
Balance at July 31, 1994 - 32,000 32,000 12,137,000 27,173,000 (214,000) (1,005,000)
Cumulative translation adjustment 41,000
Adjustment to stock issuance (11,000)
Net loss for the year (26,958,000)
-------- ------- ------- ----------- ------------ --------- -----------
Balance at July 31, 1995 $ - $32,000 $32,000 $12,126,000 $ 215,000 $(173,000) $(1,005,000)
-------- ------- ------- ----------- ------------ --------- -----------
</TABLE>
The accompanying notes are an integral part of the
Consolidated Financial Statements.
16
<PAGE> 17
DEP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended July 31,
-----------------------------------------------
1995 1994 1993
------------ ------------ -----------
<S> <C> <C> <C>
Operating Activities:
Net income (loss)........................................... $(26,958,000) $ (3,583,000) $ 1,170,000
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization........................... 5,507,000 5,571,000 3,216,000
Write-down in value of assets........................... 25,166,000 - 1,003,000
Provision for losses on accounts receivable............. 504,000 31,000 75,000
Deferred income taxes .................................. (1,783,000) 342,000 1,025,000
Loss on sale of assets.................................. 90,000 89,000 205,000
Changes in operating assets and liabilities, net of
effects from the acquisition:
Accounts receivable .................................... (2,540,000) 395,000 (2,345,000)
Inventories ............................................ 894,000 521,000 2,153,000
Income taxes receivable................................. 1,401,000 (818,000) (2,364,000)
Other assets............................................ 1,331,000 (1,523,000) (680,000)
Accrued expenses........................................ 701,000 (1,260,000) (943,000)
Accounts payable........................................ 370,000 1,397,000 378,000
Income taxes payable.................................... - - (334,000)
------------ ------------ -----------
Net cash provided by operating activities................... 4,683,000 1,162,000 2,559,000
Investing Activities:
Purchases of property and equipment..................... (716,000) (1,643,000) (3,643,000)
Acquisition of trademarks............................... (200,000) (45,746,000) -
Proceeds from sale of property and equipment............ - 21,000 62,000
Proceeds from sale of trademarks........................ 435,000 1,642,000 -
Other .................................................. (112,000) (658,000) (740,000)
------------ ------------ -----------
Net cash used in investing activities....................... (593,000) (46,384,000) (4,321,000)
Financing Activities:
Proceeds from lines of credit and long-term debt........ 42,000 45,120,000 1,326,000
Other................................................... (487,000) - -
------------ ------------ -----------
Net cash provided by (used in) financing activities......... (445,000) 45,120,000 1,326,000
------------ ------------ -----------
Increase (decrease) in cash and cash equivalents............ 3,645,000 (102,000) (436,000)
Effect of exchange rate changes on cash..................... 19,000 (13,000) (56,000)
Cash and cash equivalents at beginning of year.............. 947,000 1,062,000 1,554,000
------------ ------------ -----------
Cash and cash equivalents at end of year.................... $ 4,611,000 $ 947,000 $ 1,062,000
============ ============ ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest, net........................................... $ 6,357,000 $ 4,446,000 $ 1,226,000
============ ============ ===========
Income taxes (refunds).................................. $ (2,546,000) $(1,189,000) $ 1,996,000
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of the
Consolidated Financial Statements.
17
<PAGE> 18
DEP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995, 1994 AND 1993
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Company
The Company develops, manufactures, distributes and markets hair,
skin, oral and other personal care products. The Company's
products are primarily sold by drug, food and mass merchandise
stores.
Principles of consolidation
The consolidated financial statements include the accounts of Dep
Corporation, its wholly-owned subsidiaries and joint venture. All
significant intercompany balances and transactions have been
eliminated.
Foreign currency translation
All assets and liabilities in the balance sheets of foreign
subsidiaries whose functional currency is other than the U.S.
dollar are translated at year-end exchange rates. Translation
gains and losses are not included in determining net income but
are accumulated in a separate component of stockholders' equity.
Foreign currency transaction gains and losses generally are
included in determining net income.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined on the first-in, first-out method.
Property and equipment
Property and equipment is stated at cost. Depreciation is
provided by the use of the straight-line method for financial
accounting purposes, while accelerated methods are used for income
tax purposes.
Recognition of revenues and expenses
Revenues from the sale of the Company's products are recognized at
the time of shipment. Related promotional allowances granted to
retailers are recognized at the time of sale. Certain trade and
consumer promotion costs included in selling, general and
administrative expenses in the consolidated statements of income
are accrued monthly.
18
<PAGE> 19
DEP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995, 1994 AND 1993
Impairment Accounting
In fiscal 1995 the Company adopted the provisions of Statement of
Financial Accounting Standards No. 121, "Accounting For The
Impairment Of Long-Lived Assets And For Long-Lived Assets To Be
Disposed Of" ("FASB 121"). The adoption of FASB 121 had no
material impact on the impairment write-down of the Agree and
Halsa assets described herein.
Intangibles
Intangible assets consist primarily of goodwill, trademarks,
non-compete agreements and customer lists and are carried at cost
less accumulated amortization. The Company assesses the
recoverability of these intangible assets by determining whether
the amortization of the balance over their remaining life can be
recovered through undiscounted future operating cash flows of the
acquired assets. Costs are amortized over the estimated useful
lives of the related assets (5 - 40 years). Amortization expense
charged to operations for fiscal years ended July 31, 1995, 1994
and 1993 was $2,430,000, $2,669,000, and $1,275,000, respectively.
Since the acquisition of the Agree and Halsa product lines in
August 1993 from S.C. Johnson & Son, Inc., there has been a
significant decline in the sales volume and profit contribution of
such products. Accordingly in fiscal 1995, the Company revised
its future forecasts which resulted in a significant reduction in
projected future cash flows of the product lines. The Company
determined that its projected results for Agree and Halsa would
not support the future amortization of the remaining intangible
assets related to Agree and Halsa. As part of its analysis, the
Company engaged the services of an independent valuation
consultant to assist the Company in the determination of the fair
market value of the Agree and Halsa intangible assets. Based on
the results of the valuation, management concluded that the fair
value of the intangible assets of Agree and Halsa was
approximately $12,500,000, and wrote down the carrying value of
such intangibles in April 1995 by $24,718,000. (See "Note 15 of
the Notes to Consolidated Financial Statements.")
In 1993 the Company wrote-off the DietAyds and Bantron trademarks
and goodwill, which resulted in a charge against income of
$1,003,000. Bantron, the larger of the two, was discontinued due
to the action of the United States Food & Drug Administration in
1993 declaring that its active ingredient was ineffective and
accordingly, after December 1993, could no longer be sold in its
current form. DietAyds was discontinued in 1993 due to the
Company's inability to obtain future product manufactured at
economical terms.
19
<PAGE> 20
DEP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995, 1994 AND 1993
Research and development costs
Research and development costs are charged to operations when
incurred. The amounts charged for years ended July 31, 1995, 1994
and 1993 were $750,000, $935,000, and $899,000, respectively.
Net income (loss) per share
Net income (loss) per share amounts are computed based on the
weighted average number of shares outstanding plus the shares that
would be outstanding assuming exercise of stock options, when
dilutive, which are considered common stock equivalents. The
number of shares that would be issued upon exercise of stock
options has been reduced by the number of shares that could have
been purchased from the proceeds using the average of the market
price of the Company's common stock.
Cash equivalents
Cash equivalents consist of highly liquid investments with a
maturity of three months or less when purchased.
Reclassifications
Certain reclassifications have been made to the 1994 and 1993
amounts to conform to the 1995 presentation.
NOTE 2. INVENTORIES:
The components of inventories were:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Raw materials $ 4,233,000 $ 3,688,000
Finished goods 8,838,000 10,268,000
----------- -----------
$13,071,000 $13,956,000
=========== ===========
</TABLE>
20
<PAGE> 21
DEP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995, 1994 AND 1993
NOTE 3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Land $ 1,290,000 $ 1,290,000
Building and improvements 7,908,000 7,906,000
Machinery and equipment 13,558,000 13,775,000
Office furniture and equipment 7,091,000 6,612,000
Construction in process 88,000 118,000
Other 248,000 237,000
----------- -----------
30,183,000 29,938,000
Less accumulated depreciation 14,760,000 12,727,000
----------- -----------
$15,423,000 $17,211,000
=========== ===========
</TABLE>
NOTE 4. INTANGIBLES:
Intangibles consisted of the following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Goodwill $23,365,000 $47,058,000
Trademarks 16,593,000 18,164,000
Other 5,067,000 5,314,000
----------- -----------
45,025,000 70,536,000
Less accumulated amortization 10,869,000 8,521,000
----------- -----------
$34,156,000 $62,015,000
=========== ===========
</TABLE>
NOTE 5. ACCRUED EXPENSES:
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Advertising and promotional expenses $3,377,000 $3,629,000
Compensation related 1,019,000 977,000
Freight 604,000 588,000
Other 2,920,000 2,525,000
---------- ----------
$7,920,000 $7,719,000
========== ==========
</TABLE>
21
<PAGE> 22
DEP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995, 1994 AND 1993
NOTE 6. LONG-TERM DEBT:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Term loan $35,969,000 $39,778,000
Working capital advances 25,000,000 21,019,000
Mortgages, 9 1/4%, due in monthly
installments of $36,635 including interest
due through 2012, collateralized by first
trust deeds on land and building 3,780,000 3,867,000
Other 95,000 138,000
----------- -----------
64,844,000 64,802,000
Less current portion 61,100,000 3,828,000
----------- -----------
$ 3,744,000 $60,974,000
=========== ===========
</TABLE>
The bank loans relate to the Revolving Credit and Term Loan Agreement,
as amended, (the "Bank Facility") that the Company entered into on
August 6, 1993, with a group of seven banks (the "Bank Group"), in
conjunction with the acquisition of the Agree and Halsa brands.
Pursuant to the terms of the Bank Facility in effect July 31, 1995,
the Term Loan was payable in quarterly installments through June 30,
1998, and the Working Capital Advances were repayable in full on August
6, 1998, the Bank Facility's termination date.
During 1995, borrowings under the Bank Facility were subject to
interest at the Agent bank's base rate (8 3/4% at July 31, 1995) plus
1 5/8% payable monthly.
The terms of the Bank Facility provide for the maintenance of
consolidated net worth and certain other financial covenants. Because
of the operating loss reported by the Company for the year ended July
31, 1995, the Company would not have been in compliance with such
covenants had the Bank Group not granted waivers of such technical
defaults extending through October 31, 1995.
On November 3, 1995, the Company and the Bank Group entered into a
Fifth Amendment to the Bank Facility effective as of October 30, 1995
(the "Fifth Amendment") which provides, among other things, for the
termination of the Bank Facility on December 30, 1996, a decrease in
working capital commitment to $25,000,000 from $28,000,000, an increase
in interest rates, and lower quarterly scheduled term loan payments
through April 1, 1996. The $9,567,000 payment originally due on
December 29, 1995, has been reduced to $500,000 and a principal payment
of $8,300,000 will now be due April 15, 1996. However, based on
current estimates of cash flow, management does not believe it will
have sufficient cash
22
<PAGE> 23
DEP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995, 1994 AND 1993
to pay the $8,300,000 due on April 15, 1996. Accordingly, the entire
amount outstanding under the Bank Facility has been classified as a
current liability. The interest rate under the Fifth Amendment for
the period October 1, 1995 through June 30, 1996 will be base rate
plus 3%; July 1, 1996 through September 30, 1996, base rate plus 4%;
and thereafter base rate plus 5%. In addition, the financial
covenants have been revised with the first reporting period of January
31, 1995. (See "Note 16 of the Notes to Consolidated Financial
Statements.")
Substantially all of the Company's assets not otherwise pledged as
collateral on existing mortgages are pledged as collateral under the
Bank Facility. The terms of the Bank Facility limit the Company from
borrowing funds from sources other than the Bank Facility.
Interest expense charged to operations for fiscal years ended July 31,
1995, 1994 and 1993 was $6,255,000, $4,622,000, and $1,295,000,
respectively.
Maturities of long-term debt for years ended July 31, are as follows:
<TABLE>
<S> <C>
1996 $61,100,000
1997 145,000
1998 129,000
1999 123,000
2000 135,000
Thereafter 3,212,000
-----------
$64,844,000
===========
</TABLE>
NOTE 7. INCOME TAXES:
The summary of the provision (credit) for federal and state income
taxes follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ------------ --------
<S> <C> <C> <C>
Current
Federal $(1,807,000) $(2,027,000) $101,000
State 31,000 (67,000) 114,000
----------- ------------ --------
(1,776,000) (2,094,000) 215,000
------------ ----------- --------
Deferred
Federal (1,209,000) 406,000 185,000
State 120,000 (102,000) (1,000)
----------- ----------- ----------
(1,089,000) 304,000 184,000
------------ ----------- --------
Income taxes (credit) $(2,865,000) $(1,790,000) $399,000
============ ============ ========
</TABLE>
23
<PAGE> 24
DEP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995, 1994 AND 1993
The following is a reconciliation of the statutory U.S. federal income
tax rate to the effective tax rate based upon income (loss) before
income taxes (credit) as reported in the financial statements:
<TABLE>
<CAPTION>
1995 1994 1993
------ ----- ------
<S> <C> <C> <C>
U.S. federal statutory tax rate (35.0)% (35.0)% 34.0%
U.S. federal rate reduction 1.0 1.0 -
State taxes, net of federal
income tax benefit (4.5) (3.1) 4.7
Earnings of foreign sales
corporation not taxable (.5) (1.6) (6.2)
Intangibles amortization .7 4.1 36.6
Write-down of intangibles - - (43.3)
Increase in valuation
allowance 28.6 - -
Other .1 1.3 (0.4)
----- ----- -----
Effective tax rate (9.6)% (33.3)% 25.4%
===== ===== =====
</TABLE>
The components of the deferred tax provision (credit) resulting from
temporary differences between the recognition of income for financial
and tax reporting purposes were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- --------- ---------
<S> <C> <C> <C>
Depreciation and amortization $(9,344,000) $ 786,000 $ 145,000
Valuation allowance 8,517,000 - -
California franchise tax 10,000 11,000 185,000
Charitable contributions (156,000) (130,000) (77,000)
Coupon redemption 127,000 (67,000) 46,000
Deferred charges 351,000 (102,000) (155,000)
Net operating loss, capital loss
and tax credit carryforwards (379,000) - -
Inventory valuation 113,000 (165,000) 29,000
Other (328,000) (29,000) 11,000
------------ --------- ---------
$(1,089,000) $ 304,000 $ 184,000
============ ========= =========
</TABLE>
24
<PAGE> 25
DEP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995, 1994 AND 1993
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
July 31, 1995 and 1994, are as follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Deferred tax assets:
Accounts receivable $ 118,000 $ 108,000
Inventory 308,000 401,000
Intangibles 9,310,000 54,000
Contribution carryforwards 422,000 270,000
Net operating loss, capital loss and
tax credit carryforwards 823,000 -
Accrued liabilities 437,000 880,000
----------- -----------
Total gross deferred tax assets 11,418,000 1,713,000
Valuation allowance (8,517,000) -
----------- -----------
2,901,000 1,713,000
Deferred tax liabilities:
Property and equipment, net (2,447,000) (2,426,000)
----------- -----------
Net deferred tax asset (liability) $ 454,000 $ (713,000)
=========== ===========
</TABLE>
The net operating loss, capital loss and tax credit carryforwards
expire between 1998 and 2010.
NOTE 8. INCENTIVE PLANS:
Stock option plans
The 1992 Stock Option Plan (the "1992 Plan") was adopted by the
Board of Directors in October 1992, and approved by the
stockholders in December 1992. The 1992 Plan, which expires in
October 2002, provides for the grant of options to purchase the
Company's common stock to officers, directors, consultants and
other key employees. The maximum number of shares issuable under
the 1992 Plan will be the lesser of ten percent (10%) of the total
number of shares of common stock outstanding at the date of grant
or 2,000,000 shares. The Company also has a 1983 Stock Option Plan
(the "1983 Plan"); however, no further options may be issued under
such plan.
25
<PAGE> 26
DEP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995, 1994 AND 1993
As of July 31, 1995, there were 572,300 and 264,430 stock options
outstanding under the 1992 Plan and 1983 Plan, respectively. The
options outstanding entitle the holders to purchase 619,018 shares
of Class A Common Stock and 217,712 shares of Class B Common
Stock. Substantially all of the options outstanding are
exercisable in full three years after the date of grant.
A summary of activity in the Company's stock option plans is
presented below:
<TABLE>
<CAPTION>
Shares Price
------- -------------
<S> <C> <C>
Outstanding at July 31, 1992 335,477 $2.75 - 12.38
Granted 271,100 4.00 - 9.90
Canceled or expired (8,731) 2.75 - 9.88
------- -------------
Outstanding at July 31, 1993 597,846 2.75 - 12.38
Granted 130,100 2.75 - 5.50
Exercised (8,275) 2.75
Canceled or expired (43,250) 2.75 - 9.88
------- -------------
Outstanding at July 31, 1994 676,421 2.75 - 12.38
Granted 233,500 1.13 - 2.23
Canceled or expired (73,191) 2.75 - 12.38
------- -------------
Outstanding at July 31, 1995 836,730 $2.75 - 12.38
======= =============
</TABLE>
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Exercisable 249,430 200,471
======= =======
Available to be granted 52,190 268,540
======= =======
</TABLE>
The options exercisable at July 31, 1995 and 1994 were exercisable
at price ranges per share of $2.75 to $12.38 and $2.75 to $9.88,
respectively.
Management incentive plans
In January 1988, the stockholders approved the 1988 Directors and
Officers Stock Option Plan which allows directors and officers to
elect to receive stock options in
26
<PAGE> 27
DEP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995, 1994 AND 1993
lieu of compensation. Directors may elect to defer all of their
compensation whereas officers may defer a maximum of 15% of their
compensation. The number of shares subject to options has been
determined with reference to the fair market value of the
Company's common stock at least six months after date of election
to defer. At July 31, 1995 and 1994, there were outstanding
options to acquire 3,286 and 6,000 shares of common stock,
respectively.
In December 1993, stockholders approved the Stock Target Ownership
Plan (the "1993 Plan") under which the Company makes common stock
performance awards to certain employees in lieu of a percentage of
their cash bonuses and may provide other incentives to encourage
participants in the 1993 Plan to accumulate ownership of the
Company's common stock. The maximum number of shares issuable
under the 1993 Plan will be the lesser of ten percent (10%) of the
total number of shares of common stock outstanding at the date of
grant or 2,000,000 shares. The 1993 Plan expires October 27,
2003. At July 31, 1995 and 1994, three and four executives,
respectively, were entitled to receive an aggregate of 6,241 and
10,783 shares of Class B Common Stock under the 1993 Plan.
Deferred compensation plan
The Company provides its officers and directors with the
opportunity to participate in an unfunded, deferred compensation
program, which also provides for death and disability benefits.
At July 31, 1995 and 1994, there were four and six participants,
respectively, in the program. Under the program, participants may
defer up to 75% of their yearly total cash compensation. The
amounts deferred remain the sole property of the Company, which
uses them, together with additional corporate funds, to purchase
either insurance policies on the lives of the participants or
other investments. The insurance policies, which remain the sole
property of the Company, are payable to the Company upon the death
or permanent disability of the participant. The Company
separately contracts with the participant to pay stated benefits
substantially equivalent to those received or available under the
insurance policies or other investments upon the earlier of 10
years after date of first participation, retirement, death, or
permanent disability. The program is not qualified under Section
401 of the Internal Revenue Code. At July 31, 1995 and 1994, the
amounts payable under the plan approximated the value of the
assets owned by the Company.
27
<PAGE> 28
DEP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995, 1994 AND 1993
NOTE 9. STOCKHOLDERS' EQUITY:
At the December 1992 annual meeting, stockholders approved a
reclassification whereby each share of the Company's outstanding
common stock was reclassified into one-half share of non-voting Class
A Common Stock and one-half share of voting Class B Common Stock.
Costs associated with the reclassification were charged against income
for the year ended July 31, 1993.
NOTE 10. RETIREMENT PLAN:
The Company maintains a profit sharing plan which covers employees who
are twenty and one-half years of age or older and have completed six
months of employment. The Company's Board of Directors approves the
amount of each year's contribution to such plan. The Company made no
contribution to the plan for the year ended July 31, 1995. The
Company's contributions for the years ended July 31, 1994 and 1993
were $100,000 and $135,000, respectively.
In June 1993, the Company's Board of Directors adopted a 401(k) plan
which became effective on August 1, 1993. The 401(k) plan covers
substantially all employees and gives them the option to make
contributions up to 15% of their annual compensation, subject to
certain statutory limitations, and permits the Company, in its
discretion, to match such contributions. The Company's contributions
for the years ended July 31, 1995 and 1994 were $53,000 and $61,000,
respectively.
NOTE 11. COMMITMENTS:
At July 31, 1995, future minimum lease payments that have noncancelable
lease terms in excess of one year were as follows:
<TABLE>
<CAPTION>
Operating
Years ending July 31, Leases
--------------------- ----------
<S> <C>
1996 $ 837,000
1997 783,000
1998 697,000
1999 677,000
2000 52,000
Thereafter 166,000
----------
Total minimum lease payments $3,212,000
==========
</TABLE>
Rent expense for the years ended July 31, 1995, 1994 and 1993 was
$919,000, $880,000, and $875,000, respectively.
28
<PAGE> 29
DEP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995, 1994 AND 1993
NOTE 12. RELATED-PARTY TRANSACTIONS:
Selling, general and administrative expenses for the years ended July
31, 1994 and 1993 included $476,000, and $357,000, respectively, paid
or accrued to a legal firm affiliated with an individual who served as
a director of the Company. For the year ended July 31, 1995, such
individual was no longer a member of the Board of Directors.
NOTE 13. REPORTING BY GEOGRAPHICAL AREAS OF THE BUSINESS:
The Company operates in two principal geographical areas: (l) U.S.,
excluding Puerto Rico, and (2) all other countries (including export
sales and royalties).
In computing income before taxes, certain administrative and general
expenses and other income and expense have been allocated to the
geographical areas based on their relative sales ratios, which varies
from year to year. Identifiable assets used jointly by the two areas
have also been allocated to the geographical areas based on relative
sales ratios.
The following is a summary of information by area:
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Net Sales:
U.S. $108,016,000 $123,056,000 $117,853,000
Foreign 19,673,000 15,275,000 5,860,000
------------ ------------ ------------
Total $127,689,000 $138,331,000 $123,713,000
============ ============ ============
Income (loss) before
income taxes
(credit):
U.S. $(19,908,000) $(7,531,000) $ 485,000
Foreign (9,915,000) 2,158,000 1,084,000
------------ ----------- ----------
Total $(29,823,000) $(5,373,000) $1,569,000
============ =========== ==========
Identifiable assets:
U.S. $78,740,000 $ 97,417,000 $72,915,000
Foreign 15,164,000 24,678,000 5,714,000
----------- ------------ -----------
Total $93,904,000 $122,095,000 78,629,000
=========== ============ ===========
</TABLE>
During 1995 and 1994, sales to Wal-Mart Stores, Inc. were 16% and 19%,
respectively, of consolidated net sales. No other customer accounted
for more than 10% of consolidated net sales for the periods presented.
29
<PAGE> 30
DEP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995, 1994 AND 1993
NOTE 14. ACQUISITION:
On August 6, 1993, the Company acquired the Agree and Halsa shampoo
and conditioner trademarks for $45,000,000 in cash. As part of the
transaction the Company acquired certain related assets, primarily
inventories, machinery and equipment and a covenant not to compete.
At the time of the acquisition, the excess of the purchase price over
what the Company believed was the fair value of the assets acquired
(goodwill) was approximately $34,000,000. The acquisition was
accounted for as a purchase. (See "Note 1 - Intangibles of the Notes
to Consolidated Financial Statements.") The acquisition was financed
with borrowings from the Bank Facility. (See "Note 6 of the Notes to
Consolidated Financial Statements.")
NOTE 15. LEGAL:
On March 2, 1994, the Company filed a complaint against S.C. Johnson &
Son, Inc. ("S.C. Johnson") alleging, among other things, that, in
violation of its Purchase Agreement with the Company, S.C. Johnson
wrongfully altered its North American marketing and sales practices
prior to the closing of its sale of the Agree and Halsa trademarks and
certain related assets to the Company in August 1993. The complaint
was filed in the United States District Court in Los Angeles County
and seeks rescission of the transaction, monetary damages in an amount
to be determined, and other relief. The case is currently scheduled
to go to trial on February 23, 1996. In April 1994, S.C. Johnson and
a subsidiary filed related lawsuits in Wisconsin and Ontario, Canada,
respectively.
In the opinion of management there are no pending legal proceedings,
including the S.C. Johnson matter discussed above, which will have a
material adverse effect on the Company's financial position or results
of operations.
NOTE 16 LIQUIDITY:
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. As discussed
in "Note 6 of the Notes to Consolidated Financial Statements," the
Company and the Bank Group entered into the Fifth Amendment which
provides, among other things, for an $8,300,000 principal payment on
April 15, 1996. In light of the Company's current projected earnings
and cash flow, management believes the Company has the financial
resources to maintain its current level of operations until the April
15, 1996 principal payment is due. However, cash generated from
operations alone will not be sufficient to pay the $8,300,000 on April
15, 1996, without proceeds from the sale of assets or a refinancing
or restructuring of the Bank Facility prior to such date. As a
result, the Company has retained legal
30
<PAGE> 31
DEP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995, 1994 AND 1993
counsel specializing in restructurings to render advice regarding
various alternatives available to the Company. In addition, the
Company has retained Donaldson, Lufkin & Jenrette Securities
Corporation to assist it in exploring strategic alternatives which
include, among other things, a business combination, sale of assets,
strategic investment in the Company or a refinancing of the Bank
Facility. There can be no assurance that the Company will be
successful in its attempt to consummate one of the strategic
alternatives or a refinancing of the Bank Facility.
If the Company does not make either the April 15, 1996 principal
payment or the balance due December 31, 1996, it may be unable to
continue its normal operations, except to the extent permitted by the
Bank Group. Substantially all of the Company's assets not otherwise
pledged as collateral on existing mortgages are pledged as collateral
under the Bank Facility. As of October 20, 1995, the Company has
cash and cash equivalents totalling approximately $5,300,000
(unaudited).
31
<PAGE> 32
Dep Corporation and Subsidiaries
Notes to Consolidated FInancial Statements
Years ended July 31, 1995, 1994 and 1993
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant, in the capacities and on the dates indicated.
Date: November 6, 1995 DEP CORPORATION
/s/Robert Berglass
-----------------------------------
Robert Berglass
Chairman of the Board and President
(Principal Executive Officer)
Date: November 6, 1995 /s/Grant W. Johnson
-----------------------------------
Grant W. Johnson
Senior Vice President and
Chief Financial Officer and
Director, (Principal Financial
and Accounting Officer)
32
<PAGE> 33
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequential
Description Page Number
----------- -----------
<S> <C> <C>
Exhibit 10.21 Fifth Amendment, dated as of October 30, 1995, of the Revolving 34-48
Credit and Term Loan Agreement dated as of August 6, 1993
</TABLE>
33
<PAGE> 1
EXHIBIT 10.21
FIFTH AMENDMENT
DATED AS OF OCTOBER 30, 1995
This FIFTH AMENDMENT (this "Amendment") is among DEP CORPORATION, a
Delaware corporation (the "Borrower"), the lenders party to the Credit Agreement
referred to below (the "Lenders"), and CITICORP USA, INC., as agent (the
"Agent") for the Lenders thereunder.
PRELIMINARY STATEMENTS:
(1) The Borrower, the Lenders and the Agent and The First National Bank
of Boston and City National Bank, as Co-Agents, have entered into a Revolving
Credit and Term Loan Agreement dated as of August 6, 1993 (as amended to date,
the "Credit Agreement"; the terms defined therein being used herein as therein
defined unless otherwise defined herein).
(2) Pursuant to the Waiver and Amendment dated as of March 17, 1994 (the
"First Amendment"), the Waiver and Amendment dated as of May 27, 1994 (the
"Second Amendment"), the Waiver and Amendment dated as of August 26, 1994 (the
"Third Amendment"), the Fourth Amendment dated as of September 9, 1994 (the
"Fourth Amendment"), the Conditional Waiver dated as of April 14, 1995 (the
"Conditional Waiver") and the Waiver dated as of September 29, 1995 (the
"Current Waiver"), the Lenders, among other things, have waived any Defaults
arising under certain financial covenants contained in Section 5.04 of the
Credit Agreement, modified the scheduled amortization of the Term Advances under
the Credit Agreement, and made certain other changes to the provisions of the
Credit Agreement. The Borrower has requested additional modifications to the
financial covenants contained in Section 5.04 and to such scheduled
amortization.
(3) The Lenders are, on the terms and conditions stated below, willing
to grant the requests of the Borrower in consideration for the other amendments
to the Credit Agreement set forth below.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
SECTION 1. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement
is, effective as of the date hereof and subject to the satisfaction of the
conditions precedent set forth in Section 4 hereof, hereby amended as follows:
(a) Section 1.01 of the Credit Agreement is hereby amended by
amending and restating in their entirety the following defined terms to
read as follows:
"'Applicable Lending Office' means, with respect to each
Lender, such Lender's Domestic Lending Office."
"'Applicable Margin' means at any time of determination,
the rate per annum for Base Rate Advances equal to the then
applicable Base Rate Margin."
34
<PAGE> 2
"'Base Rate Margin' means (i) from and including October
1, 1995 to and including June 30, 1996, 3% per annum, (ii) from
and including July 1, 1996 to and including September 30, 1996,
4% per annum and (iii) at all times thereafter, 5% per annum."
"'Business Day' means a day of the year on which banks are
not required or authorized to close in New York City."
"'Change of Control' means the occurrence of (i) any
Person or two or more Persons acting in concert shall have
acquired (by an acquisition approved by the board of directors of
the Borrower) after the date of the Fifth Amendment beneficial
ownership (within the meaning of Rule 13d-3 of the Securities and
Exchange Commission under the Securities and Exchange Act of
1934), directly or indirectly, of Common Stock of the Borrower
(or other securities convertible into such Common Stock)
representing 26% or more of the combined voting power of all
Common Stock of the Borrower, (ii) at any time after the date of
the Fifth Amendment, Robert Berglass shall own beneficially
(including having the right to vote) less than 26% of the
combined voting power of all Common Stock of the Borrower or
(iii) at any time after the date of the Fifth Amendment, the
majority of the board of directors of the Borrower is not
comprised of 'Continuing Directors', which term shall mean those
individuals who on such date were directors of the Borrower and
those individuals subsequently elected or appointed whose
election or appointment was recommended or approved by a majority
of the Continuing Directors."
"'Current Assets' of any Person means all assets of such
Person that would, in accordance with GAAP, be classified as
current assets of a company conducting a business the same as or
similar to that of such Person, after deducting adequate reserves
in each case in which a reserve is proper in accordance with
GAAP, and, excluding all Cash and Cash Equivalents of such
Person."
"'Current Liabilities' of any person means all items
(including taxes accrued as estimated) that in accordance with
GAAP would be classified as current liabilities of such Person,
excluding, however, all amounts of Funded Debt of such Person
required to be paid or prepaid within one year after the date of
determination and all other amounts of Debt of such Person that
would be classified as short-term liabilities in accordance with
GAAP."
"'Termination Date' means the earlier of (i) December 31,
1996 and (ii) the date of termination in whole of the Lenders'
Total Commitments pursuant to Section 2.04, 2.05 or 6.01."
(b) Section 1.01 of the Credit Agreement is hereby further
amended by deleting in their entirety the defined terms "Conversion",
"Eurocurrency Liabilities", "Eurodollar Lending Office," "Eurodollar
Rate," "Eurodollar Rate Advance," "Eurodollar Rate Reserve Percentage,"
"Interest Period," "Eurodollar Rate Margin," "Eurodollar Rate
Reinstatement Date," "Principal Reduction Date," "Tier 1 Reduction
Event," and "Tier 2 Reduction Event."
(c) Section 1.01 of the Credit Agreement is hereby further
amended by adding thereto, in appropriate alphabetical order, the
following defined term:
35
<PAGE> 3
"'Adjusted Net Sales' means, as of any date, the amount
equal to net sales of the Borrower and its Subsidiaries less
off-invoice discounts, in each case as reported in the financial
statements for the respective period of the Borrower and
determined in a manner consistent with financial statements of
the Borrower theretofore delivered to the Lenders."
"'Fifth Amendment' means the Fifth Amendment dated as of
October 30, 1995 among the Borrower, the Lenders and the Agent."
"'Inventory' means, as of any date, the inventory of the
Borrower and its Subsidiaries as reported in the financial
statements for the respective period of the Borrower and
determined in a manner consistent with financial statements of
the Borrower theretofore delivered to the Lenders."
"'Inventory Turnover' means, on a Consolidated basis for
the Borrower and its Subsidiaries, the ratio equal to (i) the
cost of goods sold for the twelve-month period ending on the
last day of the respective quarter divided by (ii) the quotient
of (A) the sum of (I) the quotient of (a) the sum of (q) the
dollar amount of Inventory at the beginning of the first fiscal
quarter in such twelve-month period and (r) the dollar amount of
Inventory at the end of such first fiscal quarter divided by (b)
two plus (II) the quotient of (c) the sum of (s) the dollar
amount of Inventory at the beginning of the second fiscal quarter
in such twelve-month period and (t) the dollar amount of
Inventory at the end of such second fiscal quarter divided by (d)
two plus (III) the quotient of (e) the sum of (u) the dollar
amount of Inventory at the beginning of the third fiscal quarter
in such twelve-month period and (v) the dollar amount of
Inventory at the end of such third fiscal quarter divided by (f)
two plus (IV) the quotient of (g) the sum of (w) the dollar
amount of Inventory at the beginning of the fourth fiscal quarter
in such twelve-month period and (x) the dollar amount of
Inventory at the end of such fourth fiscal quarter divided by (h)
two divided by (B) four."
"Receivables Days Outstanding' means, on a Consolidated
basis for the Borrower and its Subsidiaries, the number of days
equal to the product of 360 times the quotient of (i) the
quotient of (a) the sum of (I) the quotient of (A) the sum of (m)
the dollar amount of Receivables at the beginning of the first
fiscal quarter in the respective twelve-month period and (n) the
dollar amount of Receivables at the end of such first fiscal
quarter divided by (B) two plus (II) the quotient of (C) the sum
of (o) the dollar amount of Receivables at the beginning of the
second fiscal quarter in the respective twelve-month period and
(p) the dollar amount of Receivables at the end of such second
fiscal quarter divided by (D) two plus (III) the quotient of (E)
the sum of (q) the dollar amount of Receivables at the beginning
of the third fiscal quarter in the respective twelve-month period
and (r) the dollar amount of Receivables at the end of such third
fiscal quarter divided by (F) two plus (IV) the quotient of (G)
the sum of (s) the dollar amount of Receivables at the beginning
of the fourth fiscal quarter in the respective twelve-month
period and (t) the dollar amount of Receivables at the end of
such fourth fiscal quarter divided by (H) two divided by (b) four
divided by (ii) the net sales for the twelve-month period ending
on the last day of the respective quarter.
"'Receivables' means, as of any date, the accounts
receivable of the Borrower and its Subsidiaries as reported in
the financial statements for the respective period of the
Borrower and determined in a manner consistent with financial
statements of the Borrower theretofore delivered to the Lenders."
36
<PAGE> 4
(d) Section 2.01(b) of the Credit Agreement is hereby amended by
adding to the end thereof the following sentence:
"Notwithstanding any provision of this Agreement or any other
Loan Document to the contrary, the aggregate principal amount
of Working Capital Borrowings outstanding at any one time on
and after October 1, 1995 shall not exceed $25,000,000 and
the Working Capital Commitments shall be reduced to
$25,000,000 on and after such date."
(e) Section 2.03(a) of the Credit Agreement is hereby amended and
restated in its entirety to read as follows:
"SECTION 2.03. Repayment. (a) Term Advances. The Borrower
shall repay to the Agent for the ratable account of the Lenders
the aggregate outstanding principal amount of the Term Advances
(as of the date of the Fifth Amendment) in consecutive quarterly
installments on the dates set forth below, the amount payable on
each such installment being the amount set forth opposite such
installment below:
<TABLE>
<CAPTION>
Installment Amount
----------- -------------
<S> <C>
December 29, 1995 $ 500,000
April 1, 1996 500,000
April 15, 1996 8,300,000
July 1, 1996 1,375,000
September 30, 1996 1,875,000
December 30, 1996 22,044,316
</TABLE>
provided, however, that the last such installment shall be in an
amount necessary to repay in full the unpaid aggregate principal
amount of the Term Advances."
(f) Section 2.04(b) of the Credit Agreement is hereby amended by
deleting subclause (y) therein, deleting the last sentence of such
Section and replacing such sentence with the following:
"Each such prepayment of any Term Advances shall be applied to
the installments thereof in inverse order of maturity."
(g) Section 2.05(a) of the Credit Agreement is hereby amended by
deleting the last sentence of such Section and replacing such sentence
with the following:
"Each such prepayment of Term Advances shall be applied to the
installments of the Term Advances in the inverse order of
maturity."
(h) Section 2.05(b) of the Credit Agreement is hereby amended by
deleting the last sentence of such Section and replacing such sentence
with the following:
"Each such prepayment under this Section 2.05(b) shall be applied
first to the installment of the Term Advances due on April 15,
1996 and after such amount is paid in full or after such date,
each such prepayment shall thereafter be applied ratably to the
unpaid installments of the Term Advances."
37
<PAGE> 5
(i) Section 2.05(e) of the Credit Agreement is hereby amended by
deleting the second sentence of such Section and replacing such sentence
with the following:
"Each such prepayment under this Section 2.05(e) shall be applied
to the installments of the Term Advances in the inverse order of
maturity."
(j) Section 2.05(f) of the Credit Agreement is hereby amended and
restated in its entirety to read as follows:
"(f) Tax Refund Proceeds. On the Business Day following
the later of the effective date of the Fifth Amendment or the
date of receipt by the Borrower or any of its Subsidiaries of
each refund of federal or state income taxes, the Borrower shall
prepay the Term Advances in an amount equal to one-half of such
proceeds, and such prepayment shall be applied to the
installments of the Term Advances in the inverse order of
maturity."
(k) Section 5.01(m) of the Credit Agreement is hereby amended by
adding to the end thereof the following sentence:
"To the extent not otherwise provided in the preceding sentence,
maintain all deposit accounts or investment accounts (including
all investment accounts permitted under Section 5.02(f)(iii)
hereof) with City National Bank, with such accounts and the
monies therein to be part of the Collateral for the Obligations
of the Borrower under the Loan Documents, provided that the
Borrower's access to such accounts shall not be restricted by the
Lenders except in the event that any payment to the Lenders has
not been made when due; and provided further, that such
requirement shall not be applicable to accounts in the United
Kingdom and Canada in the respective aggregate maximum amounts of
$100,000 and $500,000 (or their equivalent in the respective
currency), the lockbox account of the Borrower maintained at
Pittsburgh National Bank and the payroll account of the Borrower
maintained at Bank of America, N.T. & S.A. in Carson,
California."
(l) Sections 5.03(b) and (c) of the Credit Agreement are hereby
amended and restated in their entirety to read as follows:
"(b) Monthly/Year-to-Date Financials. As soon as available
and in any event within 20 days after the end of each month,
other than January, April, July, August and October, (A) a
Consolidated balance sheet of the Borrower and its Subsidiaries
as of the end of such month, (B) Consolidated statements of
income (which will include detailed expense disclosure) of the
Borrower and its Subsidiaries (including a breakdown of sales by
product line) for such month and the period commencing on the
first day of the fiscal year in which such month occurs and
ending on the last day of such month, and (C) Consolidated cash
flows of the Borrower and its Subsidiaries for such month,
setting forth in the case of subclause (B) above in comparative
form the corresponding figures for the corresponding period of
the preceding fiscal year and the corresponding figures from the
most recent business plan or forecasts, whichever is most recent,
delivered to the Lenders pursuant to Section 5.02 (e) hereof, in
the case of subclause (A) above in comparative form the
corresponding figures as of the end of the preceding fiscal year
and in the case of subclause (C) above in comparative form the
corresponding figures from the prior month's forecast for such
month delivered to the Lenders, all in reasonable detail and duly
certified by the chief financial officer of the Borrower that, to
the best of the knowledge of such financial officer, subject to
year-end adjustments, the financial information contained therein
fairly presents the financial condition of the Borrower and its
Subsidiaries. In addition, for all calendar months the Borrower
shall furnish to the
38
<PAGE> 6
Lenders (i) as soon as available and in any event no later than
the first Business Day of each month, a report (in form and
detail acceptable to the Agent) of estimated cash flow (estimated
receipts and estimated disbursements) and (ii) on the twentieth
Business Day of each month, the Consolidated Net Sales for the
Borrower and its Subsidiaries for the first nineteen Business
Days of such month and with such Net Sales compared to the most
recent business plan or forecast for such month, whichever is
most recent, delivered to the Lenders.
(c) Quarterly Financials. As soon as available and in any
event within 30 days after the end of each fiscal quarter of the
Borrower, (A) a Consolidated balance sheet of the Borrower and
its Subsidiaries as of the end of such quarter, (B) Consolidated
statements of income (which will include detailed expense
disclosure) of the Borrower and its Subsidiaries (including a
breakdown of sales by product line for the following regions:
Domestic, Canada, Europe, Latin America, China, Australia, Japan
and Pacific Rim (to the extent not otherwise covered)) for such
quarter and the period commencing on the first day of the fiscal
year in which such quarter occurs and ending on the last day of
such quarter, and (C) Consolidated statements of cash flows of
the Borrower and its Subsidiaries for such quarter and the period
commencing on the first day of the fiscal year in which such
quarter occurs and ending on the last day of such quarter,
setting forth in the case of subclause (B) above in comparative
form (excluding comparisons of products by geographic region) the
corresponding figures for the prior quarter, the corresponding
figures for the corresponding period of the preceding fiscal year
and the corresponding figures from the most recent business plan
or most recent forecasts, whichever is most recent, delivered to
the Lenders pursuant to Section 5.02(e) hereof and in the case of
subclause (A) and (C) above in comparative form the corresponding
figures from the most recent plan or most recent forecasts,
whichever is most recent, delivered to the Lenders pursuant to
Section 5.02(e) hereof, all in reasonable detail and duly
certified (subject to year-end audit adjustments) by the chief
financial officer of the Borrower as having been prepared in
accordance with GAAP, together with (i) a certificate of said
officer stating that no Default has occurred and is continuing
or, if a Default has occurred and is continuing, a statement as
to the nature thereof and the action that the Borrower has taken
and proposes to take with respect thereto and (ii) a completed
compliance certificate, in substantially the form of Exhibit A to
the Fifth Amendment, duly executed by the chief financial officer
or chief executive officer of the Borrower."
(m) Section 5.03 (d) is amended by deleting the phrase "Exhibit
K" therein and substituting therefor the phrase "Exhibit A to the Fifth
Amendment."
(n) Section 5.03 of the Credit Agreement is hereby amended by
adding thereto new subsections (q) and (r) to read as follows:
"(q) Tax Refunds. Not more than five Business Days after
receipt of each notice thereof by the Borrower, notice that the
respective governmental entity has paid, approved, failed to
approve, challenged or taken any other action with respect to any
outstanding tax refund claim of the Borrower or any of its
Subsidiaries.
"(r) Donaldson, Lufkin, Jenrette. Periodically, at the
request of the Agent, but in any event not more than bi-weekly,
cause Donaldson, Lufkin & Jenrette to provide information (which
can be done by telephone conference call) on the progress of its
efforts to identify one or more prospective purchasers of the
Borrower or portions thereof and to consummate any such purchase,
provided that, until the Borrower has entered into a letter of
intent or other agreement with respect to any such purchase, such
information need not
39
<PAGE> 7
include the specific identity of such proposed purchasers or the
specific proposed purchase price (and whether such proposed
purchase is for the Borrower or specified portions thereof)."
(o) Section 5.04 of the Credit Agreement is hereby amended and
restated in its entirety to read as follows:
"SECTION 5.04. Financial Covenants. So long as any Advance
shall remain unpaid or any Lender shall have any Commitment
hereunder, the Borrower will, unless the Required Lenders
otherwise consent in writing:
(a) Working Capital. Maintain a ratio of Consolidated Current
Assets to Consolidated Current Liabilities of not less than 1.5
to 1.0.
(b) Fixed Charge Coverage Ratio. Maintain, for each period of
twelve consecutive months set forth below, a ratio of (i)
Consolidated EBITDA of the Borrower and its Subsidiaries for such
period minus the sum of (A) cash Capital Expenditures of the
Borrower and its Subsidiaries during such period, and (B)
Consolidated cash income taxes paid (net of any cash income tax
refunds received) by the Borrower and its Subsidiaries during
such period, to (ii) the sum of (A) interest payable on, and
amortization of debt discount in respect of, all Debt of the
Borrower and its Subsidiaries during such period and (B)
principal amounts of all Funded Debt payable by the Borrower and
its Subsidiaries during such period (but excluding from Funded
Debt, in the case of the fiscal quarter of the Borrower which
includes April 15, 1996, $8,300,000 of the installment stated to
be due on such date in respect of the Term Advances), of not less
than the ratio set forth below for the respective period:
<TABLE>
<CAPTION>
Twelve Months
Ending Ratio
---------------- ----------
<S> <C>
January 31, 1996 0.6 to 1.0
April 30, 1996 0.7 to 1.0
July 31, 1996 0.7 to 1.0
October 31, 1996 0.7 to 1.0
</TABLE>
(c) Capital Expenditures. Not make, or permit any of its
Subsidiaries to make, any Capital Expenditures that would cause
the aggregate of all such Capital Expenditures made by the
Borrower and its Subsidiaries in any period of 12 consecutive
months to exceed an aggregate amount of $1,500,000.
(d) Adjusted Net Sales. Maintain Consolidated Adjusted Net
Sales, calculated on a fiscal year to date through and including
July 31, 1996 and thereafter on a rolling 12 month basis, as the
case may be, of the Borrower and its Subsidiaries in amounts not
less than those set forth below for the respective period:
<TABLE>
<CAPTION>
Fiscal Year to Adjusted
Date Ending Net Sales
---------------- -----------
<S> <C>
January 31, 1996 $45,500,000
April 30, 1996 69,500,000
July 31, 1996 94,500,000
</TABLE>
40
<PAGE> 8
<TABLE>
<CAPTION>
Twelve Months
Ending
------------------
<S> <C>
August 31, 1996 $95,300,000
September 30, 1996 95,300,000
October 31, 1996 95,300,000
</TABLE>
(e) Inventory Turnover. Maintain Inventory Turnover not less
than the ratio set forth below at the end of the respective
fiscal quarter:
<TABLE>
<CAPTION>
Minimum
Quarter Ending Inventory Turnover
---------------- ------------------
<S> <C>
January 31, 1996 2.7 to 1.0
April 30, 1996 2.7 to 1.0
July 31, 1996 2.7 to 1.0
October 31, 1996 2.7 to 1.0
</TABLE>
(f) Receivables Days Outstanding. Maintain Receivables Days
Outstanding not more than 52 days as of the end of each of the
quarters ending January 31, 1996, April 30, 1996, July 31, 1996
and October 31, 1996.
(g) Leverage Ratio. Maintain a ratio of Consolidated Total
Liabilities to Consolidated Net Worth of not greater than 8.5 to
1.0 as of the end of the quarter ending January 31, 1996 and not
greater than 7.4 to 1.0 as of the end of each quarter thereafter.
(p) (i) On and after October 1, 1995, all Advances will bear
interest as Base Rate Advances and all references in the Credit
Agreement to "Eurodollar Rate Advances" and related references will be
null and void and of no effect. In connection therewith and without
limitation thereof the following Sections are deleted from the Credit
Agreement: Section 2.06 (ii), Section 2.08, Sections 2.09(a), (c), (d)
and (e) and Section 8.04(c).
(ii) During the period from October 1, 1995 through the date this
Amendment becomes effective, interest will not accrue as provided in
Section 2.06(b) of the Credit Agreement as a result of any Specified
Default (as defined in the Current Waiver) but such limitation is not
effective with respect to any other Defaults or any other periods. The
Lenders hereby waive all such Specified Defaults during the period from
July 31, 1995 through the date of this Agreement.
SECTION 2. AMENDMENT TO TERM NOTES. Each Term Note is, effective
as of the date hereof and subject to the satisfaction of the conditions
precedent set forth in Section 5 hereof, hereby amended so that each principal
installment due under such Term Note after the date hereof shall be in such
amount as represents the ratable share of the Lender holding such Term Note of
the amount due in respect of the Term Advances on such date under Section
2.03(a) of the Credit Agreement as amended by this Amendment. Upon the
effectiveness of this Section 2 pursuant to Section 5 hereof, each Lender shall
endorse on the Term Note held by it the following legend:
"The respective amounts of the principal installments due under
this Note have been amended pursuant to the Fifth Amendment dated
as of October 30, 1995 among Dep Corporation, the Lenders party
to the Credit Agreement referred to in this Note, and the Agent
referred to in this Note."
41
<PAGE> 9
SECTION 3. ADDITIONAL REPRESENTATIONS. As additional
consideration for the amendments to the Loan Documents as set forth herein, the
Borrower hereby represents and warrants to the Agent and the Lenders that:
(i) Except as set forth in Schedule 1 hereto, all the Equipment
and Inventory, in each case as defined in the Security Agreement, of the
Borrower and its Subsidiaries are located at the places specified in Schedule IV
to the Security Agreement, except for Inventory in transit;
(ii) To the extent required by Section 5.01(m) of the Credit
Agreement, all deposit accounts and investment accounts are maintained with City
National Bank, 22400 Hawthorne Boulevard, Torrance, CA 90505;
(iii) Each Loan Party (A) is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation; (B) is duly qualified and in good standing as a foreign
corporation in each other jurisdiction in which it owns or leases property or in
which the conduct of its business requires it to so qualify or be licensed
except where the failure to so qualify or be licensed would not have a Material
Adverse Effect; and (C) has all requisite corporate power and authority to own
or lease and operate its properties and to carry on its business as now
conducted and as proposed to be conducted, to execute and deliver, and to
perform its obligations under the Credit Agreement as amended by this Amendment;
(iv) The execution, delivery and performance by the Borrower of
this Amendment and each Guarantor of the Consent hereto and the consummation of
the transactions contemplated hereby and thereby, are within such Loan party's
corporate powers, have been duly authorized by all necessary corporate action,
and do not (A) contravene such Loan Party's charter or by-laws, (B) violate any
law, rule, regulation, order, writ, judgment, injunction, decree, determination
or award, (C) conflict with or result in the breach of, or constitute a default
under, any contract, loan agreement, instrument binding on or affecting any Loan
Party or any of their properties, or (D) result in or require the creation or
imposition of any Lien upon or with respect to any of the properties of any Loan
Party. No Loan Party is in violation of any such law, rule, regulation, order,
writ, judgment, injunction, decree, determination or award or in breach of any
such contract, loan agreement, indenture, mortgage, deed of trust, lease or
other instrument, the violation or breach of which would have a Material Adverse
Effect;
(v) No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body or any
other third party is required for the due execution, delivery, recordation,
filing or performance by the Borrower of this Amendment or any Guarantor of the
Consent hereto or for the consummation of the transactions contemplated hereby
and thereby;
(vi) This Amendment and the Consent hereto has been duly
executed and delivered by each Loan Party party thereto and this Amendment, the
Credit Agreement as amended by this Amendment and the Consent is the legal,
valid and binding obligation of each Loan Party party thereto, enforceable
against such Loan Party in accordance with its terms; and
(vii) There is no action, suit, investigation, litigation or
proceeding affecting any Loan Party, pending or threatened before any court,
governmental agency or arbitrator that (A) would have a Material Adverse Effect
or (B) purports to affect the legality, validity or enforceability of this
Amendment, the Credit Agreement or the Consent hereto or the transactions
contemplated hereby and thereby.
SECTION 4. ADDITIONAL COVENANTS. In consideration for the
amendments to the Loan Documents as set forth herein, the Borrower agrees (i) to
use its best efforts to deliver as soon as possible after the date hereof an
agreement from OMA University Properties in form and substance satisfactory
42
<PAGE> 10
to the Agent as to, among other things, the right of the Agent to have access to
Collateral at premises leased by the Borrower from such entity and (ii) that the
amounts deposited in the Miscellaneous Accounts (as defined in Section 5(c)(vi)
hereof) will not at any time exceed $10,000 in any one account and that such
Accounts will be maintained for the same purposes as such Accounts are
maintained on the date hereof.
SECTION 5. CONDITIONS TO EFFECTIVENESS. This Amendment shall
become effective when:
(a) the Agent has executed this Amendment and has received
counterparts of this Amendment executed by the Borrower and each Lender
or, as to any of the Lenders, advice satisfactory to the Agent that such
Lender has executed this Amendment;
(b) the Agent has received counterparts of the Consent appended
hereto executed by the Guarantors and Grantors listed therein (such
Guarantors and Grantors, together with the Borrower, collectively the
"Loan Parties");
(c) the Agent has received all of the following documents, each
such document being in form and substance satisfactory to the Agent:
(i) certified copies of the resolutions of the Board of
Directors of each Loan Party approving this Amendment or the
Consent hereto, as applicable;
(ii) a certificate of the Borrower and each other Loan
Party, signed on behalf of the Borrower and such other Loan Party
by its President and its Secretary or an Assistant Secretary,
certifying as to (A) the due incorporation and good standing of
the Borrower, and such other Loan Party, as a corporation
organized under the laws of the state of its incorporation, and
the absence of any proceeding for the dissolution or liquidation
of the Borrower or such other Loan Party and (B) the absence of
any event occurring and continuing that constitutes a Default;
(iii) a certificate of the Secretary or an Assistant
Secretary of each of the Borrower and each other Loan Party
certifying the names and true signatures of the officers of the
Borrower or such other Loan Party authorized to sign this
Amendment or the consent hereto, as applicable;
(iv) a favorable opinion (addressed to the Agent and the
Lenders) of Kinsella, Boesch, Fujikawa & Towle, counsel to the
Loan Parties, as to (A) the due incorporation, good standing and
corporate authority of each Loan Party, (B) the due
authorization, execution and delivery of this Amendment or the
Consent appended hereto, as the case may be, by each Loan Party,
(C) the execution, delivery and performance of this Amendment or
the Consent hereto, as the case may be, by each Loan Party not
contravening such Loan Party's charter or by-laws, not violating
any law, rule or regulation of the State of California or under
the Delaware General Corporation Law, and not conflicting with or
resulting in a breach of, or constituting a default under, any
agreement or instrument binding on or affecting such Loan Party
or any of its properties, and (D) such other matters as the Agent
or the Required Lenders may reasonably request;
(v) a favorable opinion (addressed to the Agent and the
Lenders) of Kavanagh, Peters, Powell & Osnato, New York counsel
to the Loan Parties, as to (A) the execution, delivery and
performance of this Amendment or the Consent hereto, as the case
may be, by each Loan Party not violating any law, rule or
regulation of the State of New York,
43
<PAGE> 11
(B) the valid, binding and enforceable nature of this Amendment
and the Credit Agreement, and the Notes, as amended hereby, and
(C) such other matters as the Agent or the Required Lenders may
reasonably request; and
(vi) to the extent not previously delivered to the Agent,
executed copies of notices to each bank in which the Borrower or
any Subsidiary maintains a deposit account with respect to the
security interest of the Agent therein, except in respect of
miscellaneous operating accounts (the "Miscellaneous Accounts")
in which the amounts therein do not exceed $10,000 in any such
Account;
(d) all fees and expenses of counsel for the Agent and any Lender
then due and payable shall be paid in full.
SECTION 6. GENERAL RELEASE OF CLAIMS. As additional consideration
for the amendments to the Loan Documents as set forth herein, the Borrower (by
its execution hereof) and each other Loan Party (by its execution of the Consent
appended hereto) and each of their respective agents, employees, directors,
officers, attorneys, affiliates, subsidiaries, successors and assigns
(individually, a "Releasing Party", and collectively, the "Releasing Parties")
each hereby release and forever discharge the Agent and each Lender and all of
their respective agents, direct and indirect shareholders, employees, directors,
officers, attorneys, branches, affiliates, subsidiaries, successors and assigns
(individually, a "Released Party", and collectively, the "Released Parties") of
and from all damage, loss, claims, demands, liabilities, obligations (except for
any such obligations pursuant to the terms of the Loan Documents, as amended
hereby), actions and causes of action whatsoever (collectively "Claims") the
Releasing Parties and each of them may, as of the date hereof, have or claim to
have against each of the Released Parties, in each case whether presently known
or unknown and of every nature and extent whatsoever on account of or in any way
relating to, arising out of or based upon the First Amendment, the Second
Amendment, the Third Amendment, the Fourth Amendment, the Conditional Waiver,
the Current Waiver or this Amendment (collectively, the "Restructuring
Amendments") or the negotiation or documentation thereof or the amendments to
the Loan Documents effected by the Restructuring Amendments or the transactions
contemplated thereby, including, without limitation, all such loss or damage of
any kind heretofore sustained, or that may arise as a consequence of the
dealings between the parties up to the date hereof in connection with or in any
way related to the Restructuring Amendments. Each Releasing Party further
covenants and agrees that it has not assigned heretofore, and will not hereafter
sue any Released Party upon, any Claim released or purported to be released
under this Section 6, and the Borrower will indemnify and hold harmless said
Released Parties against any loss or liability on account of any actions brought
by any Releasing Party or its assigns or prosecuted on behalf of any Releasing
Party and relating to any Claim released or purported to be released under this
Section 6. This agreement and covenant on the part of the Releasing Parties,
respectively, is contractual, and not a mere recital, and the parties hereto
acknowledge and agree that no liability whatsoever is admitted on the part of
any party with respect to any Claim released or purported to be released under
this Section 6. It is further understood and agreed that any and all rights
under the provisions of Section 1542 of the California Civil Code are expressly
waived by each of the Releasing Parties. Section 1542 provides as follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR."
Each of the Releasing Parties acknowledges that the foregoing
release (including the foregoing waiver of the provisions of Section 1542 of the
California Civil Code) was separately bargained for.
44
<PAGE> 12
Each Released Party acknowledges (without admission as to the
existence of any specific fact) that the foregoing release shall not prevent any
Releasing Party from making evidentiary references, in connection with any Claim
not released or purported to be released hereby, to the negotiation or
documentation of the Restructuring Amendments or the amendments to the Loan
Documents effected by the Restructuring Amendments or the transactions
contemplated by the Restructuring Amendments or the dealings between the parties
in connection with or in any way related to the Restructuring Amendments.
The Borrower represents to each Released Party that, as of the
date hereof, neither Robert Berglass nor Grant Johnson has actual knowledge of
facts which would cause the Borrower to prevail on any Claim not released under
this Section 6.
SECTION 7. REFERENCE TO AND EFFECT ON THE LOAN DOCUMENTS. (a)
Upon the effectiveness of this Amendment, on and after the date hereof each
reference in the Credit Agreement or in any Term Note to "this Agreement" or
this "Note", "hereunder", "hereof" or words of like import referring to the
Credit Agreement or such Term Note, and each reference in the other Loan
Documents to "the Credit Agreement" or the "Term Notes" "thereunder", "thereof"
or words of like import referring to the Credit Agreement or the Term Notes,
shall mean and be a reference to the Credit Agreement or the Term Notes, as the
case may be, as modified and amended hereby.
(b) Except as specifically amended above, the Credit Agreement
and all other Loan Documents, are and shall continue to be in full force and
effect and are hereby in all respects ratified and confirmed. Without limiting
the generality of the foregoing, the Collateral Documents and all of the
Collateral described therein do and shall continue to secure the payment of all
Secured Obligations under and as defined therein, in each case as amended
hereby.
(c) The execution, delivery and effectiveness of this Amendment
shall not, except as expressly provided herein, operate as a waiver of any
right, power or remedy of any Lender or the Agent under any of the Loan
Documents, nor constitute a waiver of any provision of any of the Loan
Documents.
(d) The Agent, each Lender party hereto, the Borrower and, by
execution of the Consent appended hereto, each Guarantor specifically
acknowledges and agrees that (i) none of the Company, any Guarantor, the Agent
or any Lender has agreed to any other or future waiver of or amendments to the
Loan Documents, (ii) neither the agreement to the amendments described herein
nor the granting of any prior waivers and amendments under the Loan Documents
creates any obligation whatsoever on the part of the Company, any Guarantor, the
Agent or any Lender to grant any other or future waiver or amendment under the
Loan Documents, and (iii) except as specifically set forth herein, each of the
Company, each Guarantor, the Agent and the Lenders have reserved all rights and
remedies under Loan Documents.
SECTION 8. COSTS, EXPENSES AND TAXES. The Borrower agrees to pay
on demand (i) to the Agent, all reasonable costs and expenses of the Agent in
connection with the preparation, execution, delivery and administration of this
Amendment and the other instruments and documents to be delivered hereunder,
including, without limitation, the reasonable fees and out-of-pocket expenses of
counsel for the Agent with respect thereto and with respect to advising the
Agent as to its rights and responsibilities hereunder and thereunder, and (ii)
to each Lender, the reasonable fees and out-of-pocket expenses of counsel for
such Lender (including allocated costs of in-house counsel for such Lender) with
respect to this Amendment in an amount not in excess of $2,500 for each Lender.
The Borrower further agrees to pay on demand all reasonable costs and expenses,
if any (including, without limitation, reasonable counsel fees and expenses), in
connection with the enforcement (whether through negotiations, legal proceedings
or otherwise) of this Amendment and the other instruments and documents to be
delivered hereunder, including, without limitation, reasonable counsel fees and
expenses in connection
45
<PAGE> 13
with the enforcement of rights under this Section 8. In addition, the Borrower
shall pay any and all stamp and other taxes, and fees, payable or determined to
be payable in connection with the execution, delivery and filing of this
Amendment and the other instruments and documents, if any, to be delivered
hereunder, and agrees to save the Agent and each Lender harmless from and
against any and all liabilities with respect to or resulting from any delay in
paying or omission to pay such taxes or fees.
SECTION 9. EXECUTION IN COUNTERPARTS. This Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute but
one and the same agreement. Delivery of an executed counterpart of a signature
page to this Amendment or the Consent hereto by telefacsimile shall be effective
as delivery of a manually executed counterpart of this Amendment or such
Consent.
SECTION 10. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE AGENT
AND THE LENDERS HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR
OTHERWISE) ARISING OUT OF OR RELATING TO THIS AMENDMENT OR THE ACTIONS OF THE
AGENT OR ANY LENDER IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR
ENFORCEMENT HEREOF.
SECTION 11. GOVERNING LAW. This Amendment shall be governed by,
and construed in accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be executed by their respective officers thereunto duly authorized, as of the
date first above written.
DEP CORPORATION
By /s/Grant Johnson
-------------------------------------------
Title: Senior Vice President
CITICORP USA, INC., individually and as Agent
By /s/Ruth E. Ford
-------------------------------------------
Title: Vice President
THE FIRST NATIONAL BANK OF BOSTON,
individually and as a Co-Agent
By /s/Monty Lutton
-------------------------------------------
Title: Vice President
46
<PAGE> 14
CITY NATIONAL BANK,
individually and as a Co-Agent
By /s/Rick Sawyer
-------------------------------------------
Title: Vice President
PNC BANK, NATIONAL ASSOCIATION
By: /s/Thomas McCool
-------------------------------------------
Title: Senior Vice President
ABN AMRO BANK N.V.
By: /s/Ronald Drake
-------------------------------------------
Title: Vice Pressident
By: /s/William Fitzgerald
-------------------------------------------
Title: Authorized Signatory
THE DAIWA BANK, LTD.
By: /s/Judith M. Bresnen
-------------------------------------------
Title: Vice President
By: /s/David M. Lawrence
-------------------------------------------
Title: Vice President & Manager
BANK HAPOALIM, B.M.
By: /s/Shmuel Shakked
-------------------------------------------
Title: Senior Vice President
By: /s/David Ruggeri
-------------------------------------------
Title: Vice President
47
<PAGE> 15
CONSENT
DATED AS OF OCTOBER 30, 1995
The undersigned, Lavoris-Dep Corporation, Topol-Dep Corporation
and Cuticura-Dep Corporation, as Guarantors under the "Guaranty" and as Grantors
under the "Security Agreements" executed by them, respectively, as defined in
and under the Credit Agreement referred to in the foregoing Fifth Amendment,
each hereby consents and agrees to the said Fifth Amendment and hereby confirms
and agrees that (i) the Guaranty and such Security Agreements are, and shall
continue to be, in full force and effect and are hereby ratified and confirmed
in all respects except that, upon the effectiveness of, and on and after the
date of, the said Fifth Amendment, each reference in the Guaranty and such
Security Agreements to the Credit Agreement or the Term Notes, "thereunder",
"thereof" or words of like import referring to the Credit Agreement or such Term
Notes, shall mean and be a reference to the Credit Agreement or the Term Notes,
as the case may be, as amended by the said Fifth Amendment and (ii) such
Security Agreements and all of the Collateral described therein do, and shall
continue to, secure the payment of all of the Secured Obligations as defined
therein.
LAVORIS-DEP CORPORATION
By /s/Grant Johnson
--------------------------------
Title: Senior Vice President
TOPOL-DEP CORPORATION
By /s/Grant Johnson
--------------------------------
Title: Senior Vice President
CUTICURA-DEP CORPORATION
By /s/Grant Johnson
--------------------------------
Title: Senior Vice President
48
