<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 30, 1995
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to
Commission file number 0-14669
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THE ARISTOTLE CORPORATION AND SUBSIDIARY
----------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 06-1165854
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
129 Church Street, Suite 717, New Haven, Connecticut 06510
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 867-4090
Securities registered pursuant to Section 12(b) of the Act: Not Applicable
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.01 per share
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
As of September 8, 1995, 1,105,204 shares of Common Stock were outstanding, and
the aggregate market value of the Common Stock outstanding of The Aristotle
Corporation held by nonaffiliates was approximately $4,175,852.
Documents Incorporated by Reference
Portions of the Registrant's 1995 definitive proxy statement to be filed
pursuant to Regulation 14A within 120 days after the end of the Registrant's
fiscal year are incorporated by reference to Part III.
<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL. The Aristotle Corporation ("Aristotle") is a holding company for
its subsidiary, Aristotle Sub, Inc. ("ASI"). ASI is a holding company for The
Strouse, Adler Company ("Strouse"). Strouse designs, manufactures and markets
women's intimate apparel. Unless the context indicates otherwise, all references
herein to the "Company" include Aristotle, ASI and Strouse.
PRODUCTS. The Company designs, manufactures and markets two specific
categories of women's intimate apparel: specialty brassieres and women's
shapewear. Specialty brassieres are specifically designed to provide support and
figure enhancement for women who are wearing apparel with backless, strapless or
halter features, such as strapless and/or low back line dresses and gowns,
halter tops and wedding gowns. The Company maintains a strong market position in
three particular categories of specialty brassieres: strapless, backless
strapless, and backless convertible/halter. Women's shapewear products provide
support and control for a woman's abdominal area in the same manner as the
traditional girdle. Such shapewear products include so-called "body briefers,"
medium control panties, and medium and heavy control bottoms that may extend
from the bottom of a woman's brassiere to just above her knee. For fiscal year
1995, approximately 41% of the Company's total net sales were attributable to
its lines of specialty brassieres, and the remaining 59% of total net sales were
attributable to its lines of women's shapewear.
The Company distributes its products under several brand names, including
Smoothie, Fleur de Lace, Smooth Advantage, Renaissance Rose, Sophistique, Waist
Eliminator and Does What Your Diet Doesn't. Its core brand names, Smoothie and
Fleur de Lace, are 40 and 18 years old, respectively. See the Consolidated
Financial Statements contained elsewhere in this report for financial
information relating to the Company's business.
BUSINESS STRATEGY. Aristotle's strategy is to acquire other companies,
including companies within the women's specialty intimate apparel field with
manufacturing processes and distribution channels which complement Strouse's
operations. Although Aristotle is not currently engaged in a search for an
acquisition, Aristotle intends to review any acquisition opportunities which
come to its attention. Strouse's strategy is to build on the strength of its
brand names with consumer-oriented marketing programs in its existing department
and specialty store channels of distribution and to expand its distribution on a
selective basis in the private label segment with specific product lines in
catalogs and national chains. Strouse attributes the strength of its private
label and brand names to the quality, price, fit and design of its products.
MARKETING AND DISTRIBUTION. The Company's products are marketed and
distributed throughout the United States to retailers. A network of 13 sales
executives, who are full-time employees of the Company, are responsible for
marketing the Company's products in the continental United States. These sales
executives are compensated by combinations of salary, commissions and other
incentives based upon net sales. Alfred A. Kniberg, President and Chief
Operating Officer of Strouse, oversees the sales executives and takes an active
role in supervising the marketing and distribution process.
The Company currently sells products under its brand names to the largest
department stores in the United States, including Macy's, May Company,
Dillard's, Bloomingdales, Dayton Hudson, Broadway, Nordstroms, Nieman Marcus and
Lord & Taylor, as well as to catalogs and other leading retailers such as
Spiegel. Since 1991, the Company has sold private label goods to accounts such
as Victoria's Secret, Dillard's and J.C. Penney. Two of the Company's customers
accounted for 24.6% of total net sales for fiscal 1995.
The Company believes that there has been a consolidation of retailers into
larger entities during the past few years. In addition, retailers have attempted
to consolidate the purchases of their products by reducing their number of
suppliers. The Company cannot predict what effect, if any, these trends will
have on its business.
The Company's sales are not substantially affected by seasonal consumption.
However, the Company generally experiences reduced sales during the months of
December and January.
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MANUFACTURING AND RAW MATERIALS. The Company conducts some manufacturing
operations consisting primarily of cutting, sewing (approximately 11% of sewing)
and packaging, at its facility located in New Haven, Connecticut. All other
manufacturing of the Company's products is subcontracted to manufacturers in the
Caribbean (primarily the Dominican Republic and Jamaica) and the continental
United States. Approximately 85% of the Company's products are manufactured and
sewn in the Caribbean, with approximately 60% of the Company's products
manufactured and sewn in the Dominican Republic. Accordingly, the Company's
operations may be adversely affected by political instability or other factors
which may occur from time to time in the Dominican Republic or elsewhere in the
Caribbean. This concentration of subcontractors in the Caribbean can also expose
Strouse to abnormal production cost increases. Strouse continues to seek to
develop multiple sources of manufacturing.
On December 22, 1994, Strouse signed an agreement with its Jamaica
subcontractor, Maggie Manufacturing Company, Ltd., which began January 1, 1995
and provides for a three year lease of its manufacturing facility in Jamaica and
an option to purchase the facility during the lease period. Management believes
that the lease agreement will help provide the capacity needed to support future
growth. Approximately 20% of the Company's products are manufactured and sewn in
Jamaica.
The design and manufacture of specialty brassieres and women's shapewear
are complex, requiring specialized and sophisticated machinery and tools. The
complex design and manufacturing process results in a higher per unit cost and a
lower volume of units being produced, as compared to the design and manufacture
of simpler garments.
The Company uses various synthetic fibers and natural materials, such as
cotton, in the manufacture of its products. These raw materials are generally
available from multiple sources; the Company purchases the majority of its raw
materials from sources within the United States.
COMPETITION. The women's intimate apparel industry is highly competitive.
The Company's products compete for customers with numerous manufacturers of
well-known brands of women's intimate apparel. With respect to specialty
brassieres, the Company's primary competition is from the Trueform, Warners,
Maidenform, Playtex and Vanity Fair lines of specialty brassieres; with
respect to shapewear, the Company competes primarily with the Olga, Vanity
Fair, Trueform, Playtex and Bali lines of shapewear.
The principal competitive factors in the intimate apparel market are
quality, price, fit and design of products, engineering, customer and brand
loyalty, and customer service (including maintenance of sufficient inventories
for timely delivery). Many of the Company's competitors have greater financial
and other resources and are, therefore, able to expend more resources and effort
than the Company in areas such as marketing and product development.
EMPLOYEES. As of September 15, 1995, the Company employed 184 full time
personnel. None of the Company's employees are members of a union.
BANK FINANCING. On November 9, 1994, Strouse and Fleet Bank, National
Association (the "Bank") entered into a credit agreement (the "Credit
Agreement") that provides for a line-of-credit facility and two term loan
facilities (the "Credit Facilities"). The line-of-credit facility provides for
maximum borrowing of $8,500,000 through October 1995, $11,000,000 thereafter
through October 1996, and $13,000,000 thereafter through October 1997. The
principal amounts of the term loans are $2,500,000 and $225,000, respectively.
The Credit Agreement matures on October 31, 1997. Strouse uses the Credit
Facilities for working capital and other general corporate purposes.
Within the minimum limits set forth above, borrowing under the line-of-
credit (the "Borrowing Base") is limited to 80% of eligible accounts receivable,
plus the lesser of (i) the sum of 50% of eligible raw materials, 50% of eligible
finished goods, and 20% of eligible work-in-process, or (ii) the inventory cap
of $5,000,000 through October 1995, $6,000,000 thereafter through October 1996,
and $7,000,000 thereafter through October 1997. In addition, the Credit
Agreement permits advances to exceed the Borrowing Base amount ("Overadvances")
by up to $500,000 through June 1995, $1,000,000 thereafter through June 1996,
and $1,500,000 thereafter through October 1997 (so long as the total line-of-
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credit is not more than the maximum borrowing allowed and Strouse reduces any
Overadvance to zero for a thirty day period in each July).
The line-of-credit bears interest at a rate per annum equal to either .25%
over the Bank's prime rate, the Bank's fixed rate, or 2.0% over LIBOR (London
Interbank Offer Rate), at the option of Strouse. The term loans bear interest at
a rate per annum equal to either .25% over the Bank's prime rate, the Bank's
fixed rate, or 2.5% over LIBOR, at the option of Strouse. Currently and through
October 1998, the interest rate on the line-of-credit is fixed at 8.3% per annum
for the first $3,500,000 and varies at .25% over the Bank's prime rate for the
remaining balance. The per annum interest rates on the $2,500,000 and $225,000
term loans were fixed until October 1998 at 8.55% and 7.25%, respectively.
The Credit Facilities are secured by a lien on all assets of Strouse. In
addition, ASI has guaranteed the Credit Facilities. To secure ASI's guarantee of
the Credit Facilities, ASI has pledged and recourse under the ASI guaranty is
limited to, all of the capital stock of Strouse that is owned by ASI.
Strouse must maintain certain financial ratios and satisfy various other
covenants in connection with the Credit Facilities (See Note 4 of Notes to
Consolidated Financial Statements). At June 30, 1995, Strouse was not in
compliance with certain of the covenants. On October 6, 1995, the Company and
the Bank executed a Letter of Intent (the "Letter of Intent") pursuant to which:
(i) they agreed in principle to a modification of certain terms of the Credit
Agreement; and (ii) the Bank waived Strouse's non-compliance with such covenants
through September 30, 1995.
Pursuant to such Letter of Intent, which is conditioned on a closing taking
place on or before October 31, 1995, the Bank and the Company have agreed: (i)
to modify the maturity date of the Credit Agreement to October 31, 1996; (ii) to
modify the maximum borrowing under the line-of-credit facility to $8,750,000
through October 31, 1996; (iii) to reduce the maximum amounts that the Bank will
advance against inventory to $5,000,000 through October 31, 1996; (iv) to reduce
the amount of Overadvances that are available to $1,000,000 through December
1995, and to $500,000 at all times thereafter; (v) that the interest rate on the
line-of-credit will be increased to 1.0% over the Bank's prime rate, or 3.0%
over LIBOR; (vi) that Aristotle and ASI will unconditionally guarantee the
$2,500,000 term loan; (vii) that the Company will make a prepayment on the Term
Loans of a portion of the amount, if any, of the tax refund received and
retained by the Company after the resolution of the Federal Deposit Insurance
Corporation's ("FDIC") claim that it is entitled to such tax refund. See "Legal
Proceedings-FDIC Tax Claim."
As of September 25, 1995, the balances outstanding on the line-of-credit
was $6,717,000 and the amounts outstanding under the term loans were $2,347,000
and $150,000, respectively. As of September 25, 1995, subject to the granting of
the Bank waiver, the additional borrowing available on the line-of-credit was
$448,000.
BACKGROUND REGARDING ARISTOTLE. Aristotle is the former holding company of
First Constitution Bank (the "Bank"), which was Aristotle's only subsidiary and
which, on October 2, 1992, was seized by the FDIC. On April 11, 1994, Aristotle
acquired (the "Acquisition") Strouse pursuant to the terms of a Capital
Contribution Agreement and certain other agreements (collectively, the
"Acquisition Agreements"). As a result of the Acquisition, Aristotle currently
owns approximately 97% of the issued and outstanding common stock of ASI, which
in turn owns all of the outstanding capital stock of Strouse. Aristotle
therefore currently indirectly owns 97% of the issued and outstanding capital
stock of Strouse and Aristotle's business is the business of Strouse. In May
1994, the Company effectuated a one for ten reverse stock split.
Aristotle was organized in 1986 and is chartered in the State of Delaware.
On April 14, 1993, the Company changed its name from First Constitution
Financial Corporation to The Aristotle Corporation.
ITEM 2. PROPERTIES.
Strouse's principal facility is located in New Haven, Connecticut (the "New
Haven Facility"). Such facility is leased from New England Resources Limited
Partnership ("NERLP"), consists of approximately 117,500 square feet, and houses
Strouse's general administrative offices. In addition, the New Haven Facility is
used for manufacturing, packaging, storage, quality control, receiving and
distribution. The leases for the New Haven Facility expire on December 31, 1999
and provide for annual rent of approximately $3.83 per square foot in fiscal
1995. One of such leases, involving 11,650 square
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feet, may be canceled upon six months prior notice from either party. NERLP is
affiliated with David S. Howell, a former director of the Company and the former
Chairman and Chief Executive Officer of Strouse, and Ann-Marie Howell, a former
Vice President and the former Secretary of Strouse.
On December 22, 1994, Strouse signed an agreement with its Jamaica
subcontractor, Maggie Manufacturing Company, Ltd., which began January 1, 1995
and provides for a three year lease of its manufacturing facility in Jamaica and
an option to purchase the facility during the lease period for $700,000. Under
the terms of the lease, Strouse makes quarterly payments of $81,250, $87,500,
and $93,750, for calendar years 1995, 1996 and 1997, respectively. Management
believes that the lease agreement will help provide the capacity needed to
support future growth. Approximately 20% of the Company's products are
manufactured and sewn in Jamaica.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a party to the following material legal proceedings:
The Stockholders Litigation. During 1990, two separate purported
stockholder class actions were commenced in the United States District Court for
the District of Connecticut and a consolidated complaint, captioned In Re: First
Constitution Stockholders Litigation, was filed on August 3, 1990 (the
"Stockholder Litigation"). The consolidated complaint alleges, among other
things, that during the purported class period (January 25, 1989 to April 5,
1990), the Company, a former director and certain former officers acted to
inflate the price of Common Stock of Aristotle (the "Common Stock") by issuing
materially false and misleading statements or omissions. The consolidated
complaint also alleges claims based on common law fraud and misrepresentation,
and seeks unspecified damages, as well as recovery of attorneys' fees. On
October 14, 1992, the court issued a stay of all proceedings in the Stockholder
Litigation as a result of the receivership proceedings concerning the Bank. On
November 15, 1993, the plaintiffs filed a motion with the court to vacate any
existing stay of proceedings. The Company filed a response on December 9, 1993,
opposing this request pending a decision on a motion for a reconsideration of
the denial of an earlier filed motion to dismiss. On January 13, 1994, the court
denied the plaintiffs' motion to vacate any existing stay of proceedings and
granted the Company's motion for reconsideration of the denial of an earlier
motion to dismiss. On November 2, 1994 defendants' renewed motion for
reconsideration was denied. The plaintiffs in the Stockholder Litigation have
not alleged a specific amount of damages in their claim. The Company is not able
to determine at this time what the outcome of such litigation will be or what
effect it may have upon the Company. Although the Company believes any liability
arising out of the Stockholder Litigation would be covered in whole or in part
by directors' and officers' insurance policies, the magnitude of any amount
which may be awarded or agreed to be paid in connection therewith could exceed
such insurance.
FDIC Tax Claim. On April 19, 1995, the FDIC filed a complaint related to
this matter captioned Federal Deposit Insurance Corporation vs. The Aristotle
Corporation, in the United States District Court for the District of Connecticut
(Civil No. 395CV00684TFGD). The FDIC is claiming entitlement to income tax
refunds previously received and yet to be received by Aristotle. Although
Aristotle believes that the FDIC is not entitled to the entire amount of the
refunds or to damages for Aristotle's refusal to pay the refunds to the Bank or
to the FDIC, Aristotle established a reserve of $3,982,000 for this potential
claim as of June 30, 1993. Currently, amounts equal to the refunds that have
been received by Aristotle, $3,982,000, have been deposited in a special escrow
account. Aristotle and the FDIC have agreed that certain future refunds,
including a refund of approximately $1,300,000, will also be deposited in a
separate escrow account. At this time, the Company is unable to predict the
outcome of this litigation. See Note 5 of the Notes to Consolidated Financial
Statements.
Caldrello Claim. On November 4, 1994, the Company received an amended
complaint (the "Amended Complaint") relating to a legal proceeding first filed
in 1993 and entitled Joseph M. Caldrello vs. Federal Deposit Insurance
Corporation, United States Federal District Court, District of Connecticut,
Civil No. 3:93CV-1560(AHN). In the Amended Complaint, the plaintiffs alleged,
among other things, that the Bank breached a contractual obligation to the
plaintiffs, breached a deposit account contract with the plaintiffs, acted in
bad faith and negligently mismanaged the plaintiffs' deposit accounts. Robert
Carney and John Crawford, as the former Chairman of the Board and President of
the Bank, respectively, were named as defendants for the first time in the
Amended Complaint. Mr. Crawford is currently the Chief Executive Officer and a
Director of Aristotle. Pursuant to the Company's Bylaws, Aristotle could have
been required to indemnify Mr. Carney and Mr. Crawford against expenses,
judgments and amounts paid in settlement of the claim. The
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plaintiffs sought in excess of $38,000,000 in damages. On March 8, 1995, the
court dismissed this matter as barred by the statute of limitations.
FDIC Investigation Re: Certain Bank Loan Losses. The Company is aware that
the FDIC is preparing claims against certain former officers and directors of
the Bank based on alleged negligence in approving certain loans that the Bank
made and subsequently lost money on when the borrowers defaulted. Under Delaware
law and under Aristotle's bylaws, Aristotle may have an obligation to indemnify
these officers and directors for expenses and liabilities incurred by them in
connection with any action the FDIC may bring to enforce its claims. Due to the
fact that the FDIC has not yet defined its claims with precision, and given the
uncertainties of litigation, the Company is unable to determine what the outcome
of these claims will be or what effect, if any, these FDIC claims will have on
the financial condition of the Company.
If an amount awarded or paid in connection with any of the legal
proceedings described above (or any other event or circumstance) caused the net
worth of Aristotle to fall below $1,000,000 on or before April 11, 1999, then,
under certain circumstances, certain holders of the preferred stock of ASI have
the right to compel a partial unwinding of the Acquisition. See Note 1 of the
Notes to Consolidated Financial Statements.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The table below sets forth the high and low prices per share of Common
Stock for the periods indicated, adjusted to reflect a 1 for 10 reverse stock
split that was effective on May 11, 1994.
<TABLE>
<CAPTION>
Market Price
--------------------------------
<S> <C> <C>
FISCAL YEAR ENDED JUNE 30, 1995: High Low
June 30 5 3/4 3
March 31 5 1/2 4
December 31 6 1/4 4
September 30 7 4 1/2
FISCAL YEAR ENDED JUNE 30, 1994:
June 30 6 4 1/2
March 31 6 7/8 4 3/8
December 31 8 3/4 3 1/8
September 30 9 1/16 4 3/8
</TABLE>
The Common Stock is listed for trading on the Nasdaq SmallCap Market under
the symbol "ARTL." As of September 8, 1995, there were approximately 4,300
stockholders of record and 3,000 additional beneficial stockholders
(stockholders holding Common Stock in brokerage accounts). As of September 8,
1995, the last reported sale price per share of Common Stock was $4. It is
unlikely that the Company will pay any dividends with respect to its Common
Stock in the foreseeable future.
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ITEM 6. SELECTED FINANCIAL DATA.
SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following are selected consolidated financial data for the Company for
the fiscal years ended December 31, 1990, 1991 and 1992, the six-month periods
ended June 30, 1992 and 1993, and for the fiscal years ended June 30, 1994 and
1995. The selected consolidated financial data presented below should be read in
conjunction with the Consolidated Financial Statements of the Company, together
with the Notes to Consolidated Financial Statements and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this report.
<TABLE>
<CAPTION>
Six-Months Ended Fiscal Years Ended
Fiscal Years Ended December 31, June 30, June 30,
(unaudited)
---------------------------------------------------------------------------------
1990 1991 1992(1) 1992 1993(2) 1994 1995
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<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Net sales $ --- $ --- $ --- $ --- $ --- $ 5,538 $ 21,701
--------- --------- --------- --------- --------- --------- ---------
Costs and expenses:
Costs of goods sold --- --- --- --- --- 3,859 16,447
Operating expenses 1,954 1,729 1,484 444 651 1,977 5,481
Reserve for subsidiary litigation --- 1,510 (1,510) --- --- --- ---
Other income (expense) (9,202) 108 1,292 1,096 174 159 (435)
---------- --------- --------- --------- --------- --------- ----------
Income (loss) from continuing operations
before income taxes and minority interest (11,156) (3,131) 1,318 652 (477) (139) (662)
Income tax expense (benefit)(3) (566) 312 (1,481) (1,609) 4,287 (20) 25
Minority interest --- --- --- --- --- (60) (211)
--------- --------- --------- --------- --------- ---------- ----------
Income (loss) from continuing operations ( 10,590) ( 3,443) 2,799 2,261 ( 4,764) ( 179) ( 898)
Loss from discontinued operations ( 80,314) ( 53,172) ( 59,727) ( 34,278) --- --- ---
---------- ---------- ---------- ---------- --------- --------- ---------
Net loss ($ 90,904) ($ 56,615) ($ 56,928) ($ 32,017) ($ 4,764) ($ 179) ($ 898)
========== ========== ========== ========== ========== ========== ==========
Net earnings (loss) per share:
Continuing operations ($ 9.67) ($ 3.14) $ 2.55 $ 2.06 ($ 4.35) ($ 0.16) ($ 0.81)
Discontinued operations ( 73.34) ( 48.56) ( 54.51) ( 31.28) --- --- ---
---------- ---------- ---------- ---------- --------- --------- ---------
Net loss per share ($ 83.01) ($ 51.70) ($ 51.96) ($ 29.22) ($ 4.35) ($ 0.16) ($ .81)
========== ========== ========== ========== ========== ========== ==========
Weighted average shares outstanding (4) 1,095,033 1,095,072 1,095,643 1,095,652 1,096,017 1,087,039 1,113,250
CONSOLIDATED BALANCE SHEET DATA:
Total assets 124,687 69,925 11,371 37,618 10,545 23,162 26,820
Stockholders' equity 124,435 67,827 10,897 35,810 6,159 5,805 4,996
Long-term debt -- -- -- -- -- 251 10,274
</TABLE>
_________________________
(1) In October 1992, the FDIC was appointed receiver for the Bank. Substantially
all the Bank's operations have been shown as discontinued.
(2) Effective June 30, 1993, the Company changed its fiscal year end from
December 31 to June 30.
(3) Income tax expense for the six-months ended June 30, 1993 included a reserve
of $4,300 for a tax claim by the FDIC.
(4) The number of shares outstanding has been adjusted to reflect the one for
ten reverse stock split that was effective on May 11, 1994.
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SELECTED FINANCIAL DATA OF STROUSE
(AMOUNTS IN THOUSANDS)
The following are selected financial data for Strouse for the fiscal years
ended August 31, 1991 and 1992 and June 30, 1993, 1994 and 1995. The selected
financial data for the fiscal years ended June 30, 1993 and 1994 have not been
audited, but, in the opinion of the management of Strouse, all adjustments
necessary for a fair presentation have been included. All such adjustments are
of a normal, recurring nature. The selected financial data presented below
should be read in conjunction with the Consolidated Financial Statements of the
Company, together with the Notes to Consolidated Financial Statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this report.
<TABLE>
<CAPTION>
Fiscal Years Ended Fiscal Years Ended June 30,
August 31, (unaudited) (unaudited)
------------------------ -------------------------------------
1991 1992 1993 1994 1995
------------------------ -------------------------------------
<S> <C> <C> <C> <C> <C>
Statements of operations data:
Net sales $11,891 $13,019 $14,966 $18,267 $21,701
-------- -------- -------- -------- --------
Costs and expenses:
Costs of goods sold (1) 8,402 8,515 9,996 12,831 16,403
Product development 255 375 378 433 485
Selling, general and administrative (2) 2,825 3,051 3,428 4,362 4,134
Restructuring charge -- -- -- -- 219
Interest expense 450 387 395 486 823
-------- -------- -------- -------- --------
11,932 12,328 14,197 18,112 22,064
-------- -------- -------- -------- --------
Income (loss) from continuing operations
before provision for income taxes (41) 691 769 155 (363)
Income tax expense (benefit) -- 20 191 (98) (45)
-------- -------- -------- -------- --------
Net income (loss) ($ 41) $ 671 $ 578 $ 253 $ (318)
======== ======== ======== ======== ========
BALANCE SHEET DATA:
Working capital $ 714 $5,360 $5,429 $ 1,924 $ 10,604
Total assets 5,537 7,107 7,977 12,945 16,571
Long-term debt 823 4,863 4,551 251 10,274
Stockholders' equity 267 937 1,417 2,400 2,083
</TABLE>
_________________________
(1) Costs of goods sold for the fiscal year ended June 30, 1994 includes $89 in
transaction costs incurred in connection with the Acquisition.
(2) Selling, general and administrative expenses for the fiscal year ended June
30, 1994 include $491 in transaction costs incurred in connection with the
Acquisition.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
CHANGES IN THE BUSINESS OF ARISTOTLE AND THE METHODOLOGY FOR MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Aristotle's business has changed substantially over the last three years.
See "Item 1. Business-Background Regarding Aristotle." Aristotle has been, and
continues to be, a holding company for its subsidiaries. From 1986 to 1992, its
sole subsidiary was the Bank. From the time the Bank was seized by the FDIC in
October 1992, until April 1994 when Aristotle acquired Strouse, Aristotle had no
operating subsidiaries. From April 1994 on, the assets of the Company primarily
consisted of the assets of Strouse, and the operations of the Company were
substantially comprised of the operations of Strouse.
This discussion and analysis of financial condition and results of
operations will discuss and analyze the results of operations of both the
Company, on a consolidated basis, and Strouse, on a stand alone basis. It will
also discuss and analyze the financial condition of the Company on a
consolidated basis. This discussion and analysis of financial condition and
results of operations have been derived from, and should be read in conjunction
with, the Consolidated Financial Statements and Notes to Consolidated Financial
Statements contained elsewhere in this report. Effective June 30, 1993, the
Company changed its fiscal year end from December 31 to June 30.
RESULTS OF OPERATIONS OF THE COMPANY
FISCAL YEAR ENDED JUNE 30, 1995 AS COMPARED TO THE YEAR ENDED JUNE 30, 1994
The Company's net sales for the fiscal year ended June 30, 1995 were
$21,701,000 versus net sales of $5,538,000 for the year ended June 30, 1994. The
increase reflects the operations of its main subsidiary, Strouse, for the entire
year ended June 30, 1995, but the fiscal year ended June 30, 1994 only included
the operations of Strouse for the period April 12, 1994 to June 30, 1994.
The Company's gross profit for the fiscal year ended June 30, 1995 was $
5,254,000 versus gross profit of $1,679,000 for the year ended June 30, 1994.
The increase reflects the operations of its main subsidiary, Strouse, for the
entire year ended June 30, 1995, but the fiscal year ended June 30, 1994 only
included the operations of Strouse for the period April 12, 1994 to June 30,
1994.
Operating expenses includes selling, general and administrative, product
development, and restructuring charges. Selling, general and administrative
expenses for the fiscal year ended June 30, 1995 were $4,777,000 versus
$1,875,000 for the year ended June 30, 1994. Expenses incurred at Aristotle were
$643,000 for the year ended June 30, 1995 versus $967,000 for the fiscal year
ended June 30, 1994, which mainly reflects reductions in compensation of
officers. Aristotle expenses included board of directors fees, corporate
insurance costs, stockholder expenses and professional fees. Expenses incurred
by Strouse for the fiscal year ended June 30, 1995 were $4,134,000 versus
$908,000 for the year ended June 30, 1994. The increase at Strouse reflects the
operations for the entire year ended June 30, 1995, but the fiscal year ended
June 30, 1994 only included the operations of Strouse for the period April 12,
1994 to June 30, 1994.
Product development costs for the Company for the fiscal year ended June
30, 1995 were $485,000 versus $102,000 for the year ended June 30, 1994. The
increase reflects the operations of its main subsidiary, Strouse, for the entire
year ended June 30, 1995, but the fiscal year ended June 30, 1994 only included
the operations of Strouse for the period April 12, 1994 to June 30, 1994.
Restructuring charges of $219,000 incurred for the year ended June 30, 1995
reflect the downsizing of the Strouse operations in New Haven, Connecticut and
the related costs of terminating employees.
Other income includes investment and interest income and expense.
Investment and interest income of $321,000 and $294,000 in fiscal year ended
June 30, 1995 and 1994, respectively was principally generated by two escrowed
9
<PAGE>
investment accounts (the "Escrowed Accounts") with account balances totaling
$4,682,000 and $4,638,000 in fiscal year ended June 30, 1995 and 1994,
respectively.
The Company's interest expense for the fiscal year ended June 30, 1995 was
$756,000 versus $135,000 for the year ended June 30, 1994. The increase reflects
the operations of its main subsidiary, Strouse, for the entire year ended June
30, 1995, but the fiscal year ended June 30, 1994 only included the operations
of Strouse for the period April 12, 1994 to June 30, 1994.
Minority interest expense was $211,000 for the fiscal year ended June 30,
1995 versus $60,000 for the year ended June 30, 1994. The minority interest
expense is mainly due to dividends paid and accrued during the year on the ASI
preferred stock for the entire year of fiscal 1995, but the fiscal year ended
June 30, 1994 only included dividends for the period April 12, 1994 to June 30,
1994.
SIX MONTH INTERIM PERIOD ENDED JUNE 30, 1993 AS COMPARED TO THE SIX MONTHS ENDED
JUNE 30, 1992
The Company's net loss for the six month interim period ended June 30, 1993
was $4,764,000, or $4.35 per share, compared with a net loss of $32,017,000, or
$29.22 per share, for the six months ended June 30, 1992.
The Company's investment and interest income for the six month interim
period ended June 30, 1993 was $174,000 compared with investment and interest
income of $648,000 for the same period in 1992. The decrease in investment and
interest income primarily resulted from a loss on the sale of securities of
$27,000 for the six month interim period ended June 30, 1993 compared to a gain
of $608,000 for the six months ended June 30, 1992. Interest and dividend income
for the six month interim period ended June 30, 1993 was $201,000 compared with
$40,000 for the corresponding period in 1992. This increase was the result of a
shift in investments into income producing securities.
During the six months ended June 30, 1992 the Company recognized $448,000
as other income through the establishment of a receivable for legal fees
expended which the Company believes are recoverable from the Company's insurance
carrier in the Stockholder Litigation.
Operating expenses for the six month interim period ended June 30, 1993
were $651,000 compared with $444,000 for the corresponding period in 1992. This
increase in operating expenses primarily resulted from an allocation from the
Bank to the Company of certain costs, principally insurance premiums of
$191,000, incurred by the Company. Compensation and benefits expenses were
$148,000 and $158,000 for the six month interim period ended June 30, 1993 and
for the six months ended June 30, 1992, respectively. Legal and professional
fees were $218,000 and $227,000 for the six month interim period ended June 30,
1993 and for the six months ended June 30, 1992, respectively.
The Company recorded a reserve of $4,287,000 during the June 30, 1993
period related to the claim of the FDIC, as receiver for the Bank, on federal
income tax refunds received or to be received by the Company.
As a result of the seizure of the Bank in October 1992, the operating
results of the Bank have been presented as the results from a discontinued
operation. During the six months ended June 30, 1992 the Company presented a
loss from discontinued operations of $34,278,000 which produced a loss per share
from discontinued operations of $31.28.
FISCAL YEAR ENDED DECEMBER 31, 1992 AS COMPARED TO FISCAL YEAR ENDED DECEMBER
31, 1991
The Company's net loss for the fiscal year ended December 31, 1992 was
$56,928,000, or $51.96 per share, compared with a net loss of $56,615,000, or
$51.70 per share, for the fiscal year ended December 31, 1991. The losses in
both years were primarily due to the operations of the Bank.
The Company's investment and interest income for the fiscal year ended
December 31, 1992 was $844,000. This compared with investment and interest
income of $108,000 for fiscal year 1991. The increase in investment and interest
income primarily resulted from a gain on the sale of securities of $688,000 for
the fiscal year ended December 31, 1992.
10
<PAGE>
During the fiscal year ended December 31, 1992 the Company recognized
$448,000 as other income through the establishment of a receivable for legal
fees expended which the Company believes are recoverable from the Company's
insurance carrier in the Stockholder Litigation.
Operating expenses for fiscal year 1992 were $1,484,000 compared with
$1,729,000 for fiscal year 1991. This decrease in operating expenses primarily
resulted from a decrease in professional fees from $1,167,000 in fiscal 1991 to
$531,000 in fiscal 1992. Significant professional fees were expended by the
Company in fiscal year 1991 in efforts to raise additional capital, in
discussions with regulatory bodies, and on accounting and tax issues.
Compensation and benefits expenses were $427,000 and $280,000 for the fiscal
years ended December 31, 1992 and 1991, respectively.
During the fiscal year ended December 31, 1992 the Company recognized a
loss from discontinued operations of $59,727,000 which related to the seizure of
the Bank and produced a loss per share from discontinued operations of $54.51.
During the fiscal year ended December 31, 1991 the Company presented a loss from
discontinued operations of $53,172,000 which related to the seizure of the Bank
which produced a loss per share from discontinued operations of $48.56. These
losses reflected the continuing deterioration of the Bank during these fiscal
years.
RESULTS OF OPERATIONS OF STROUSE
YEAR ENDED JUNE 30, 1995 AS COMPARED TO THE YEAR ENDED JUNE 30, 1994
Strouse's net sales for the year ended June 30, 1995 increased 19% to
$21,701,000 compared to net sales of $18,267,000 for the prior year. The
increase was generated by a $3,720,000 volume growth in shapewear products and a
$311,000 impact from increased prices, partially offset by a $581,000 volume
decrease in specialty brassiere products and increases in in-store markdowns and
discounts for sales events.
Strouse's price increases during the year ended June 30, 1995, expressed as
a percentage of total price, have been lower than the increase in the Consumer
Price Index for the corresponding period. Strouse's private label business which
began in 1991 has grown substantially since 1991, representing 21.8% of revenues
in the year ended June 30, 1995, compared to 0.4% in 1991. Since the principal
market for Strouse's products is the United States, continued expansion of the
economy of the United States is important to Strouse.
Gross profit for the year ended June 30, 1995 decreased to $5,298,000 from
$5,436,000 for the prior year, and gross margin decreased to 24.4% from 29.8%.
The decrease in gross margin is principally due to increased subcontracting
costs, higher production scrap, growth in the private label business (which
contributes comparable operating income margins comparable to the branded
business, but lower gross margins), costs incurred relating to the resourcing of
manufacturing operations, and extra costs incurred in response to delayed
deliveries from suppliers.
Selling, general and administrative expenses for the fiscal year ended June
30, 1995 were $4,134,000 compared to $4,362,000 for the corresponding period in
1994. Selling, general, and administrative expenses were comprised mainly of
cooperative advertising, sales commissions, customer service, accounting,
personnel, data processing, and administration departments, and professional
fees. The $228,000 decrease principally reflects transaction costs of $491,000
incurred in connection with the Acquisition in 1994 and decreased advertising
costs in 1995, partially offset by increased selling expenses of $276,000
resulting primarily from higher commissions and staffing for a new merchandiser
program.
Product development costs for the fiscal year ended June 30, 1995 were
$485,000, compared to $433,000 for the corresponding period in 1994. Product
development costs primarily included compensation of company personnel. All
products are designed internally in Strouse's New Haven and New York design
centers. The increase in costs reflects Strouse's continued investment in the
product development process.
Restructuring charges of $219,000 incurred for the year ended June 30, 1995
reflect the downsizing of operations in New Haven, Connecticut and the related
costs of terminating employees.
Interest expense for 1995 increased to $823,000 from $486,000 in the prior
year. The increase reflected higher borrowing rates and higher borrowing levels
to support working capital needs and business growth.
11
<PAGE>
The provisions for income taxes for the year ended June 30, 1995 was a
benefit of $45,000, compared to a benefit of $98,000 in the prior year. The
benefit in 1995 results from the 1995 loss. The benefit in 1994 is primarily due
to the tax deduction of $620,000 generated by the exercise by management of
Strouse of certain options to purchase Strouse common stock prior to the
Acquisition and the payment of certain bonuses to management of Strouse equal,
in the aggregate, to the net tax savings realized by Strouse and attributable to
the disposition by such persons of certain Strouse stock acquired pursuant to
the exercise of such options and the payment of such bonus.
YEAR ENDED JUNE 30, 1994 AS COMPARED TO THE YEAR ENDED JUNE 30, 1993
The results of operations of Strouse, on a stand alone basis, for the year
ended June 30, 1994 include certain transaction costs incurred by Strouse in the
Acquisition, in addition to costs incurred by Strouse in the ordinary course of
its operating activities.
Strouse's net sales for the year ended June 30, 1994 increased 22% to
$18,267,000, compared to net sales of $14,966,000 for the prior year. The
increase was generated by a $2,200,000 volume growth in shapewear products, a
$1,200,000 volume growth in specialty brassiere products, and a $200,000 impact
from increased prices, partially offset by increases in in-store markdowns and
discounts for sales events.
Strouse's price increases during the year ended June 30, 1994, expressed as
a percentage of total price, have been lower than the increase in the Consumer
Price Index for the corresponding period. Strouse's private label business which
began in 1991 has grown substantially since 1991, representing 19.6% of revenues
in the year ended June 30, 1994, compared to 0.4% in 1991. Since the principal
market for Strouse's products is the United States, continued expansion of the
economy of the United States is important to Strouse.
Gross profit for the year ended June 30, 1994 increased to $5,436,000 from
$4,970,000 for the prior year, but gross margin decreased to 29.8% from 33.2%.
The decrease in gross margin is principally due to (i) growth in the private
label business which contributes operating income margins comparable to the
branded business, but lower gross margins, (ii) transaction costs of $89,000
related to the Acquisition, and (iii) increases in production costs.
Selling, general and administrative expenses for the fiscal year ended June
30, 1994 were $4,362,000, compared to $3,428,000 for the corresponding period in
1993. Selling, general, and administrative expenses were comprised mainly of
cooperative advertising, sales commissions, employee compensation for the
customer service, accounting, personnel, data processing, and administration
departments, and professional fees. The $934,000 increase was principally a
result of transaction costs of $491,000 incurred in connection with the
Acquisition, increased selling expenses of $270,000 resulting primarily from
commissions, staffing in customer service, and electronic data interchange, and
increased advertising costs of $90,000.
Product development costs for the fiscal year ended June 30, 1994 were
$433,000, compared to $378,000 for the corresponding period in 1993. Product
development costs primarily included compensation of company personnel. All
products are designed internally in Strouse's New Haven design center and a
design center maintained by Strouse in New York. The increase in costs reflects
Strouse's continued investment in the product development process.
Interest expense for 1994 increased to $486,000 from $395,000 in the prior
year. The increase reflected higher borrowing rates and higher borrowing levels
to support working capital needs and business growth.
The provisions for income taxes for the year ended June 30, 1994 was a
benefit of $98,000, compared to an expense of $191,000 in the prior year. The
benefit is primarily due to the tax deduction of $620,000 generated by the
exercise by management of Strouse of certain options to purchase Strouse common
stock prior to the Acquisition and the payment of certain bonuses to management
of Strouse equal, in the aggregate, to the net tax savings realized by Strouse
and attributable to the disposition by such persons of certain Strouse stock
acquired pursuant to the exercise of such options and the payment of such bonus.
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<PAGE>
Strouse's net income for the year ended June 30, 1994 was $253,000,
compared to net income of $578,000 for the year ended June 30, 1993. The
decrease in net income was principally due to transaction costs-net of taxes of
$430,000 related to the Acquisition, partially offset by income generated by the
increase in sales.
LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY
Substantially all of the Company's assets are either dedicated to support
Strouse's business needs (primarily inventory of $11,782,000 and accounts
receivable of $4,498,000) or are held in the Escrowed Accounts ($4,682,000).
Cash required to fund the working capital needs of Strouse is supplied
principally through the Credit Facilities with the Bank, trade credit, and
internally generated funds. At June 30, 1995, Strouse was not in compliance with
certain of the covenants in the Credit Agreement. On October 6, 1995, the
Company and the Bank executed the Letter of Intent pursuant to which the Bank
waived Strouse's non-compliance with such covenants through September 30, 1995.
Pursuant to such Letter of Intent, which is conditioned on a closing taking
place on or before October 31, 1995, the Bank and the Company have agreed to,
among other things, modify certain covenants, to modify the maturity date of the
Credit Agreement to October 31, 1996 and to modify the maximum borrowing under
the line-of-credit facility to $8,750,000 through October 31, 1996. See "Item 1.
Business-Financing" and Note 4 of the Notes to Consolidated Financial
Statements.
Cash required to fund the operations of Aristotle is supplied primarily
through earnings generated from the two Escrowed Accounts, amounts payable to
Aristotle pursuant to certain notes from certain officers of Strouse, and taxes
received from Strouse in connection with a tax sharing agreement between
Aristotle and Strouse. If earnings from the two Escrowed Accounts and taxes
received from Strouse are below current projections and no funds are generated
through the settlements of the Stockholder Litigation and the FDIC tax claim,
Aristotle's cash flow would not be sufficient to meet its operating expenses. If
the former stockholders of Strouse do not convert certain preferred stock of ASI
that was issued in connection with the Acquisition, and if the maximum
additional payments to the former stockholders of Strouse were earned and paid,
then Aristotle would have to pay up to $4,499,000 during the next four fiscal
years to such stockholders as part of the Acquisition. It is not anticipated
that current amounts of capital will be sufficient to satisfy potential
commitments related to the Acquisition. Any default in the payments due to the
former stockholders of Strouse could create a partial unwinding of the
Acquisition. See "Item 3. Legal Proceedings" and Note 1 of the Notes to
Consolidated Financial Statements.
In order to meet its projected capital requirements and potential
commitments to the former stockholders of Strouse, the Company believes that it
must either raise new equity capital or obtain additional financing or both.
There can, however, be no assurance that the Company will be able to raise new
equity capital or obtain additional financing.
DISCUSSION OF AUDITORS' REPORTS
KPMG Peat Marwick LLP's Auditor's Report on the Company's consolidated
financial statements for the period ended December 31, 1992 does not express an
opinion. Peat Marwick has indicated to the Company that this "disclaimer" of
opinion was not caused by any limitations on the scope of their audit engagement
or any departures from generally accepted accounting principles. The disclaimer
of opinion was caused by significant uncertainties (an unasserted claim by the
FDIC for the proceeds of a tax refund, and the Stockholders Litigation, both of
which raised a substantial doubt as to the Company's ability to continue as a
going-concern). KPMG Peat Marwick did perform an audit on the 1992 consolidated
financial statements. They concluded, based upon their review of circumstances
at that time, that there was sufficient uncertainty as to those matters that
they could not express an opinion on the consolidated financial statements. Such
disclaimer of opinion generally precludes the Company from undertaking a
securities offering under the Securities Act of 1933 until such time, generally
three years, as the disclaimed financial statements are no longer includable in
a filing.
Richard A. Eisner & Company, LLP audited the Company's financial statements
as of and for the six-month period ending June 30, 1993 and the fiscal year
ended June 30, 1994 and they did express an opinion. At June 30, 1993, the
Company had fully reserved for the potential tax refund claim. In addition, by
the date of Richard A. Eisner & Company, LLP's audit report, the FDIC had
asserted the tax refund claim, thus significantly reducing that uncertainty.
Richard A. Eisner & Company, LLP's auditor's report contains disclosures
relating to the continuing uncertainty of the Stockholders' Litigation and
expresses substantial doubt about whether the Company could continue as a going-
concern as a result of
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actions, if any, which could be asserted arising from the Bank's activities. To
date, no action has been asserted, other than a claim for recovery of the tax
refund and an investigation as to whether a claim will be asserted by the FDIC
against the former officers and directors of the Bank. If such claims are
asserted, Aristotle may have an obligation to indemnify such former officers and
directors. See "Legal Proceedings". In addition, footnotes to the financial
statements include information about the uncertainties arising from the Bank's
operations.
Arthur Andersen LLP audited the Company's financial statements as of June
30, 1995 and they did express an unqualified opinion.
The Company believes that the audit reports of Arthur Andersen LLP, Richard
A. Eisner & Company, LLP and KPMG Peat Marwick LLP, taken as a whole, allow the
user to make an informed evaluation of the Company's financial statements.
INCOME TAXES
At June 30, 1995, the Company had federal and state tax carryforwards as
follows (excluding the re-attributed losses described in the second paragraph
below):
<TABLE>
<S> <C>
Federal net operating loss $2,000,000
Federal capital loss $4,800,000
State net operating loss $5,000,000
State capital loss $9,800,000
</TABLE>
All federal net operating loss carryforwards expire by 2010 and all federal
capital loss carryforwards expire by 1999. State of Connecticut net operating
loss and capital loss carryforwards expire from 1995 to 1999.
In addition, for the tax return filed for the year ending December 31,
1992, the Company made elections under provisions set forth in regulations
proposed by the Internal Revenue Service in April of 1992 as guidance for the
application of Section 597 of the Internal Revenue Code of 1986, as amended (the
"Code") and under Section 1.1502-20(g)(1) of the Federal Income Tax Regulations.
The elections enabled the Company to disaffiliate from the Bank for federal
income tax purposes and to re-attribute certain losses of the Bank to the
Company. As a result of these elections, the Company expects to succeed to
federal net operating loss carryforwards of the Bank in amounts in excess of
$81,000,000.
The application of tax law with respect to the Company's election to
disaffiliate from the Bank and to re-attribute Bank tax losses to the Company is
not certain. Although the Company believes that the tax law permitted it to re-
attribute to itself the loss carryforwards of the Bank, there is no assurance
that any part of the net operating loss carryforwards of the Bank will be
available to be utilized by the Company. If the re-attributed Bank tax losses
are disallowed, such losses will not be available to offset future income of the
Company and its Subsidiaries. Even if the Company succeeds to any part of the
Bank's tax loss carryforwards, its ability to fully utilize such carryforwards
is dependent upon many factors including, (1) the realization of taxable income
by the Company, and (2) avoiding a 50 percent "ownership change" as defined in
Section 382 of the Code. If there is an "ownership change", utilization of the
tax loss carryforwards of the Company (including the re-attributed losses) would
be significantly reduced or eliminated. An ownership change occurs with respect
to a "loss corporation", such as the Company, if the percentage of stock owned
by one or more "5% stockholders" increases, during a rolling 3-year testing
period, by more than 50 percentage points over the lowest percentage of stock
owned by such stockholders at any time during the testing period.
The Company believes, assuming that the Strouse Stockholders currently own
the maximum number of shares of Common Stock they could acquire through the
exercise of their various rights and options in the Acquisition, that the
Company has not undergone an ownership change within the meaning of Section 382
of the Code. During the period which the Company has an unutilized federal net
operating loss carryforward, which may be for many years into the future,
particularly if the Company does succeed to a significant portion of the Bank's
net operating loss carryforward, it will be necessary for the Company to
determine whether an ownership change has occurred each time a new or existing
stockholder becomes a 5% stockholder or an existing 5% stockholder increases its
ownership interest. Except with respect to the Strouse Stockholders, the Company
does not know of any stockholders who currently own or would, upon the exercise
of options or warrants, own five percent or more of the Common Stock.
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At a special meeting of stockholders held on April 8, 1994, the
stockholders voted to restrict certain share transfers because they could affect
the Company's ability to use its net operating losses under Section 382.For
state tax purposes the election to re-attribute the losses of the Bank to the
Company is not applicable and it is unlikely that the Company will obtain any
Connecticut tax loss carryforwards as a result of its disposition of the Bank.
During the first quarter of 1992, the Company adopted Financial Accounting
Statement Number 109, which had no material effect on the Company's financial
statements.
The FDIC is claiming entitlement to income tax refunds previously received
and yet to be received by Aristotle. See "Item 3. Legal Proceedings-FDIC Tax
Claim."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Consolidated Financial Statements of the Company and the Notes to
Consolidated Financial Statements and Supplementary Data, appear on Pages F-1
through F-28 of this report.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On October 3, 1994, the Board of Directors appointed Arthur Andersen LLP to
serve as independent accountants for the Company, subject to ratification of
such appointment by the stockholders. The information required by this Item 9
has been previously reported in the Company's current report on Form 8-K filed
with the Securities and Exchange Commission ("SEC") on October 21, 1994, as
amended.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information required by this item will be set forth under the section
entitled "Election of Directors" and "Executive Officers" in the Company's 1995
definitive proxy statement to be filed pursuant to Regulation 14A within 120
days after the end of the Company's fiscal year, and is incorporated herein by
reference.
Item 11. EXECUTIVE COMPENSATION.
Information required by this item will be set forth under the section
entitled "Executive Compensation" in the Company's 1995 definitive proxy
statement, and, except for the "Report on Executive Compensation" and the
"Performance Graph," is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information required by this item will be set forth under the section
entitled "Stock Owned by Management and Principal Stockholders" in the Company's
1995 definitive proxy statement, and is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information required by this item will be set forth under the section
entitled "Certain Transactions" in the Company's 1995 definitive proxy
statement, and is incorporated herein by reference.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following are filed as part of this Form 10-K:
(1) Financial Statements:
For a listing of financial statements which are filed as part of
this Form 10-K, see Page F-1.
<TABLE>
<CAPTION>
(2) Financial Statement Schedules: Page
----
<S> <C> <C>
Reports of Independent Public Accountants F-1, F-1A and F-1B
Schedule I - Condensed Financial Information of the Registrant F-25
Schedule II - Valuation and Qualifying Accounts F-28
</TABLE>
All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the consolidated
financial statements on notes thereto.
(3) Exhibits:
Exhibit 2.1- Capital Contribution Agreement dated as of November 19,
1993 by and among The Aristotle Corporation, Aristotle Sub, Inc.,
The Strouse, Adler Company and the Stockholders of Strouse.
Incorporated herein by reference to Exhibit 2.1 of The Aristotle
Corporation's Current Report on Form 8-K dated April 14, 1994, as
amended (the "1994 Current Report").
Exhibit 3.1- Restated Certificate of Incorporation of The Aristotle
Corporation, Certificates of Amendments thereto, and Certificate of
Correction thereto. Incorporated herein by reference to Exhibit 4.2
of the 1994 Current Report.
Exhibit 3.2- Certificate of Designation, Preferences and Right of
Series A, B, C and D Preferred Stock of The Aristotle Corporation.
Incorporated herein by reference to Exhibit 4.3 of the 1994 Current
Report.
Exhibit 3.3- Bylaws. Incorporated herein by reference to Exhibit 3.2
of The Aristotle Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992, filed on March 31, 1993 (the
"1992 Form 10-K").
Exhibit 4.1- Restated Certificate of Incorporation of The Aristotle
Corporation, Certificates of Amendment thereto, and Certificate of
Correction thereto. See Exhibit 3.1 hereof.
Exhibit 4.2- Certificate of Designation, Preferences and Right of
Series A, B, C and D Preferred Stock of The Aristotle Corporation.
See Exhibit 3.2 hereof.
Exhibit 4.3- Amended and Restated Certificate of Incorporation of
Aristotle Sub, Inc., and amendment thereto. Incorporated herein by
reference to Exhibit 4.1 of the 1994 Current Report.
Exhibit 4.4- Certificate of Amendment of Amended and Restated
Certificate of Incorporation of Aristotle Sub, Inc. filed August 30,
1995 is attached hereto as Exhibit 4.4.
Exhibit 4.5- Form of Stock Purchase Warrant Series A of The
Aristotle Corporation dated as of April 11, 1994. Incorporated
herein by reference to Exhibit 2.10 of the 1994 Current Report.
Exhibit 4.6- Form of Stock Purchase Warrant Series B of The
Aristotle Corporation dated as of April 11, 1994. Incorporated
herein by reference to Exhibit 2.11 of the 1994 Current Report.
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Exhibit 10.1- Form of Option Agreement between Aristotle Sub, Inc.
and optionees dated as of April 11, 1994. Incorporated herein by
reference to Exhibit 2.2 of the 1994 Current Report.
Exhibit 10.2- Pledge and Escrow Agreement dated as of April 11, 1994
by and among Aristotle Sub, Inc. and certain other parties.
Incorporated herein by reference to Exhibit 2.8 of the 1994 Current
Report.
Exhibit 10.3- Letter Agreement by and among The Aristotle
Corporation, Aristotle Sub, Inc., Alfred Kniberg and David Howell
dated June 27, 1995 is attached hereto as Exhibit 10.3.
Exhibit 10.4- Security Agreement dated as of April 11, 1994 by and
among The Strouse, Adler Company and certain other parties.
Incorporated herein by reference to Exhibit 2.9 of the 1994 Current
Report.
Exhibit 10.5- Term Promissory Notes dated April 11, 1994 payable to
The Aristotle Corporation. Incorporated herein by reference to
Exhibit 2.12 of the 1994 Current Report.
Exhibit 10.6- Employment Agreement dated as of April 11, 1994 by and
among The Aristotle Corporation, Aristotle Sub, Inc., The Strouse,
Adler Company and David Howell. Incorporated herein by reference to
Exhibit 2.3 of the 1994 Current Report.
Exhibit 10.7- Employment Agreement dated as of April 11, 1994 by and
among The Aristotle Corporation, Aristotle Sub, Inc., The Strouse,
Adler Company and Alfred Kniberg. Incorporated herein by reference
to Exhibit 2.4 of the 1994 Current Report.
Exhibit 10.8- Employment Agreement dated as of April 11, 1994 by and
among The Aristotle Corporation, Aristotle Sub, Inc., The Strouse,
Adler Company and Joyce Baran. Incorporated herein by reference to
Exhibit 2.5 of the 1994 Current Report.
Exhibit 10.9- Employment Agreement dated as of April 11, 1994 by and
among The Aristotle Corporation, Aristotle Sub, Inc., The Strouse,
Adler Company and Paul McDonald. Incorporated herein by reference to
Exhibit 2.6 of the 1994 Current Report.
Exhibit 10.10- Employment Agreement dated as of April 11, 1994 by
and among The Aristotle Corporation, Aristotle Sub, Inc., The
Strouse, Adler Company and Graeme Caulfield. Incorporated herein by
reference to Exhibit 2.7 of the 1994 Current Report.
Exhibit 10.11- Shareholder Loan Pledge Agreements dated as of April
11, 1994 by and between certain parties and The Aristotle
Corporation. Incorporated herein by reference to Exhibit 2.13 of the
1994 Current Report.
Exhibit 10.12- Stock Option Plan of The Aristotle Corporation, as
amended. Incorporated herein by reference to Exhibit 10.2 of the
1992 Form 10-K.
Exhibit 10.13- Form of Stock Option Agreement (for non-employee
directors). Incorporated herein by reference to Exhibit 10.3 of the
1992 Form 10-K.
Exhibit 10.14- Form of Incentive Stock Option Agreement (for
employees). Incorporated herein by reference to Exhibit 10.4 of the
1992 Form 10-K.
Exhibit 10.15- Lease dated October 4, 1991 by and between The
Strouse, Adler Company and New England Resources Limited Partnership
is attached hereto as Exhibit 10.15.
Exhibit 10.16- First Amendment to Lease dated April 11, 1994 by and
between New England Resources Limited Partnership is attached hereto
as Exhibit 10.16.
18
<PAGE>
Exhibit 10.17- Second Amendment to Lease dated December 14, 1994 by
and between New England Resources Limited Partnership is attached
hereto as Exhibit 10.17.
Exhibit 10.18- First Amended and Restated Master Credit Agreement
dated as of November 9, 1994 by and between The Strouse, Adler
Company and Fleet Bank, National Association is attached hereto as
Exhibit 10.18.
Exhibit 10.19- Letter of Intent dated October 6, 1995 by and between
The Strouse, Adler Company, The Aristotle Corporation, Aristotle
Sub, Inc. and Fleet Bank, National Association is attached hereto as
Exhibit 10.19.
Exhibit 10.20- Option Agreement dated as of December 22, 1994 by and
among The Strouse, Adler Company, PBS Enterprises Ltd., Davedan
Properties Ltd. and Maggie Manufacturing Company Ltd. is attached
hereto as Exhibit 10.20.
Exhibit 10.21- Exclusive Subcontracting Agreement dated as of
December 22, 1994 by and among The Strouse, Adler Company, PBS
Enterprises Ltd., Davedan Properties Ltd. and Maggie Manufacturing
Company Ltd. is attached hereto as Exhibit 10.21.
Exhibit 10.22- Restrictive Covenant Agreement dated as of December
22, 1994 by and among The Strouse, Adler Company, PBS Enterprises
Ltd., Davedan Properties Ltd., Maggie Manufacturing Company Ltd.,
Peter Blair Shalleck and Sandy Shalleck is attached hereto as
Exhibit 10.22.
Exhibit 10.23- Specific Performance Agreement dated as of December
22, 1994 by and among The Strouse, Adler Company, Peter Blair
Shalleck and Sandy Shalleck is attached hereto as Exhibit 10.23.
Exhibit 21.1- Subsidiaries of The Aristotle Corporation is attached
hereto as Exhibit 21.1.
Exhibit 27- Financial Data is attached hereto as Exhibit 27.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed in the fourth quarter of the
Company's fiscal year ended June 30, 1995.
(c) See (a)(3) above.
(d) See (a)(2) above.
19
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THE ARISTOTLE CORPORATION
/s/ John J. Crawford
---------------------------
John J. Crawford
Its President, Chief Executive Officer
and Chairman of the Board
Date: October 11, 1995
/s/ Paul M. McDonald
---------------------------
Paul M. McDonald
Its Chief Financial Officer
and Secretary
Date: October 11, 1995
20
<PAGE>
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 and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ John J. Crawford President, Chief Executive October 11, 1995
- ----------------------- Officer, Chairman of the
John J. Crawford Board and Director
/s/ Paul McDonald Chief Financial Officer and October 11, 1995
- ----------------------- Secretary
Paul McDonald
/s/ Barry R. Banducci Director October 11, 1995
- -----------------------
Barry R. Banducci
/s/ Mary Jane Burt Director October 11, 1995
- -----------------------
Mary Jane Burt
/s/ Robert L. Fiscus Director October 11, 1995
- -----------------------
Robert L. Fiscus
/s/ Betsy Henley-Cohn Director October 11, 1995
- -----------------------
Betsy Henley-Cohn
/s/ Marcus R. McCraven Director October 11, 1995
- -----------------------
Marcus R. McCraven
/s/ Daniel J. Miglio Director October 11, 1995
- -----------------------
Daniel J. Miglio
/s/ Sharon M. Oster Director October 11, 1995
- -----------------------
Sharon M. Oster
/s/ Alfred A. Kniberg Director October 11, 1995
- -----------------------
Alfred A. Kniberg
/s/ John C. Warfel Director October 11, 1995
- -----------------------
John C. Warfel
</TABLE>
21
<PAGE>
INDEX OF FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report of Arthur Andersen LLP F-1
Independent Auditors' Report of Richard A. Eisner & Company, LLP F-1A
Independent Auditors' Report of KPMG Peat Marwick LLP F-1B
Consolidated Balance Sheets as of June 30, 1995 and 1994 F-2
Consolidated Statements of Operations for the Twelve Months
Ended June 30, 1995and 1994, the Six Months Ended June 30,
1993 and the Twelve Months Ended December 31, 1992 F-3
Consolidated Statements of Changes in Stockholders' Equity
for the Year Ended December 31, 1992, the Six Month Period
and the Years Ended Ended June 30, 1993, June 30, 1994 and 1995 F-4
Consolidated Statements of Cash Flows for the Twelve Months
Ended June 30, 1995 and 1994, the Six Months Ended June 30,
1993 and the Twelve Months Ended December 31, 1992 F-5
Notes to Consolidated Financial Statements F-6
</TABLE>
i
<PAGE>
[LETTERHEAD OF ARTHUR ANDERSEN LLP APPEARS HERE]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Board of Directors and Stockholders of
The Aristotle Corporation:
We have audited the accompanying consolidated balance sheet of The Aristotle
Corporation (the "Company") and subsidiary as of June 30, 1995, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Aristotle Corporation and
subsidiary as of June 30, 1995, and the results of their operations and their
cash flows for the year then ended in conformity with generally accepted
accounting principles.
/S/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
New Haven, Connecticut
September 1, 1995
(except with respect to the
matter discussed in Note 4,
as to which the date is
October 6, 1995)
F-1
<PAGE>
LETTER HEAD OF RICHARD A.EISNER & COMPANY, LLP APPEARS HERE
- --------------------------------------------------------------------------------
Accountants and Consultants
[LOGO OF RAE APPEARS HERE]
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
The Aristotle Corporation
New Haven, Connecticut
We have audited the accompanying consolidated balance sheet of The
Aristotle Corporation (the "Company") and subsidiaries as of June 30, 1994, and
the related consolidated statements of operations, changes in stockholders'
equity and cash flows for the year ended June 30, 1994 and the six months ended
June 30, 1993. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 of The Aristotle
Corporation and subsidiaries present fairly, in all material respects, the
financial position of The Aristotle Corporation and subsidiaries as at June 30,
1994, and the results of their operations and their cash flows for the year
ended June 30, 1994 and the six months ended June 30, 1993 in conformity with
generally accepted accounting principles.
As discussed in Note 5 to the financial statements, in 1990 the Company
and certain of its former officers and directors were named in litigation
alleging certain securities law violations, amongst which were filing false and
misleading financial information, or omitting certain information. At the time
that the litigation was initiated, the Company's principal operation was
banking. In 1992, its bank operating subsidiary was seized by the Federal
Deposit Insurance Corporation (FDIC). At the time of the FDIC seizure the
stockholder litigation was stayed. The ultimate outcome of this litigation is
not presently determinable.
The Company cannot evaluate what claims, if any, could be asserted as a
result of its former subsidiary's banking activities (which, if successful,
could trigger a partial unwinding of the Company's major acquisition consummated
in April 1994). This uncertainty raises substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not include
adjustments, if any, which could result from this uncertainty.
Richard A. Eisner & Company, LLP
New York, New York
August 26, 1994
F-1A
<PAGE>
[LETTERHEAD OF KPMG PEAT MARWICK LLP APPEARS HERE]
Independent Auditors' Report
----------------------------
The Board of Directors and Shareholders
The Aristotle Corporation:
We have audited the accompanying statements of operations, changes in
shareholders' equity and cash flows of The Aristotle Corporation (formerly First
Constitution Financial Corporation) for the year ended December 31, 1992. These
financial statements are the responsibility of the Company's management. Our
responsibility is to report on these financial statements based on the results
of our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our report.
As discussed in Note 1 to the financial statements, the Company's prior
subsidiary, First Constitution Bank (the "Bank"), was seized by the Federal
Deposit Insurance Corporation on October 2, 1992. The loss of the Bank has been
presented as a discontinued operation in the accompanying financial statements,
which have been prepared assuming the Company will continue as a going concern.
As discussed in Note 5 to the financial statements, the Company received $4.0
million in refunded federal income taxes and has accrued for the receipt of an
additional $300,000 of federal income taxes refundable. The federal income tax
refunds have been retained and recorded by the Company based on management's
application of the tax sharing agreement between the Company and the Bank. The
Office of Thrift Supervision ("OTS"), which regulated the Company while the
Company owned the Bank, and to whom the Company has requested deregistration as
a savings and loan holding company, has informed the Company that it believes
the tax refunds are related to the Bank and therefore, payable to the Federal
Deposit Insurance Corporation ("FDIC"). While not presently asserted, the FDIC
as receiver of the Bank, may assert a claim for these federal income tax
refunds. The ultimate outcome of the OTS's assertion and the potential FDIC
claim, if asserted, cannot presently be determined. Accordingly, no liability
has been recorded in the accompanying financial statements.
As discussed in Note 5 to the financial statements, the Company and certain of
its present and former officers and directors are defendants in a lawsuit
alleging, among other things, that the Company and certain of its present and
former officers and directors issued false or misleading financial information
or omitted to issue certain information. Proceedings have been stayed pending a
court decision on the Company's motion to dismiss the lawsuit. The ultimate
outcome of the litigation cannot presently be determined. Accordingly, no
provision for any liability that may result upon adjudication has been made in
the accompanying financial statements.
F-1B
<PAGE>
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in the two preceding paragraphs,
the Company is presently involved in litigation and regulatory matters which at
December 31, 1992, raises substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Because of the significance of the uncertainties discussed above, we are unable
to express, and do not express, an opinion on the accompanying 1992 financial
statements.
/s/ KPMG Peat Marwick LLP
New Haven, Connecticut
March 3, 1993
F-1BB
<PAGE>
THE ARISTOTLE CORPORATION AND SUBSIDIARY
----------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
AS OF JUNE 30, 1995 AND 1994
----------------------------
(dollars in thousands, except for share data)
<TABLE>
<CAPTION>
1995 1994
---- ----
ASSETS
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 188 $ 12
Accounts receivable, net of reserves
of $171 and $177 4,498 3,564
Inventories 11,782 10,071
Other current assets 867 1,197
--------- ---------
Total current assets 17,335 14,844
--------- ---------
Property and equipment, net 1,517 581
--------- ---------
Other assets:
Marketable securities held in escrow
at market value 4,682 4,638
Employee notes receivable 354 354
Patents and trademarks, net 88 98
Goodwill, net of amortization of $52 and $8 1,894 1,610
Deferred tax asset 725 901
Other noncurrent assets 225 136
--------- ---------
7,968 7,737
--------- ---------
$ 26,820 $ 23,162
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities
of long-term debt $ 548 $ 6,736
Accounts payable 2,367 1,904
Accrued expenses 1,304 1,090
Deferred tax liability 725 800
--------- ---------
Total current liabilities 4,944 10,530
--------- ---------
Long-term debt, less current maturities 10,274 251
Reserve for potential FDIC tax refund claim 3,982 3,982
--------- ---------
14,256 4,233
--------- ---------
Total liabilities 19,200 14,763
--------- ---------
Minority interest in subsidiary's preferred stock 2,454 2,454
--------- ---------
Minority interest in subsidiary's common stock 167 137
--------- ---------
Commitments and contingencies (Note 5)
Redeemable preferred stock, $.01 par value
3,000,000 shares authorized; 122,691
Series A, 61,345 Series B, 61,345
Series C and 24,998 Series D issued
and outstanding 3 3
--------- ---------
Stockholders' equity:
Common stock, $.01 par value, 3,000,000
shares authorized, 1,105,801 shares
issued and outstanding 11 11
Additional paid-in capital 159,843 159,816
Retained earnings (deficit) (154,713) (153,815)
Treasury stock, at cost, 18,268 shares in
1995 and 21,610 shares in 1994 (151) (143)
Net unrealized investment gains (losses) 6 (64)
--------- ---------
Total stockholders' equity 4,996 5,805
--------- ---------
$ 26,820 $ 23,162
========= =========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-2
<PAGE>
THE ARISTOTLE CORPORATION AND SUBSIDIARY
----------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(dollars in thousands, except for share data)
<TABLE>
<CAPTION>
Twelve Six Twelve
Months Ended Months Ended Months Ended
------------
June 30, June 30, June 30, December 31,
1995 1994 1993 1992
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $21,701 $5,538 $ - $ -
Cost of goods sold 16,447 3,859 - -
------- ------ ------- --------
Gross profit 5,254 1,679
Operating expenses:
Selling 2,826 704 - -
General and administrative 1,951 1,171 651 1,484
Product development 485 102 - -
Restructuring charges 219 - - -
Reserve for subsidiary
litigation - - - (1,510)
------- ------ ------- --------
Operating income
(loss) (227) (298) (651) 26
------- ------ ------- --------
Other income (expense):
Investment and interest
income 321 294 174 844
Interest expense (756) (135) - -
Recoverable legal fees - - - 448
------- ------ ------- --------
(435) 159 174 1,292
------- ------ ------- --------
Income (loss) from
continuing operations
before income taxes
and minority interest (662) (139) (477) 1,318
Income tax expense (benefit) 25 (20) 4,287 (1,481)
------- ------ ------- --------
Income (loss) from
continuing
operations before
minority interest (687) (119) (4,764) 2,799
Minority interest (211) (60) - -
------- ------ ------- --------
Income (loss) from continuing
operations (898) (179) (4,764) 2,799
------- ------ ------- --------
Discontinued operations:
Loss from operations of
subsidiary prior to
seizure - - - (34,280)
Loss on write-off of
subsidiary upon
seizure - - - (25,447)
------- ------ ------- --------
Loss from discontinued
operations $ - $ - - (59,727)
------- ------ ------- --------
NET LOSS $ (898) $ (179) $(4,764) $(56,928)
======= ====== ======= ========
Income (loss) per share
from continuing operations $(.81) $(.16) $(4.35) $2.55
Loss per share from
discontinued operations - - - (54.51)
----- ----- ------ -------
Net loss per share $(.81) $(.16) $(4.35) $(51.96)
===== ===== ====== =======
Weighted average shares
outstanding 1,113,250 1,087,039 1,096,017 1,095,643
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-3
<PAGE>
THE ARISTOTLE CORPORATION AND SUBSIDIARY
----------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
----------------------------------------------------------
YEAR ENDED DECEMBER 31, 1992
----------------------------
SIX-MONTH PERIOD ENDED JUNE 30, 1993 AND
----------------------------------------
YEARS ENDED JUNE 30, 1994 AND 1995
----------------------------------
(dollars in thousands, except for share data)
<TABLE>
<CAPTION>
Net
Additional Retained Unrealized
Common Paid-in Earnings Treasury Investment
Stock Capital (Deficit) Stock Losses Total
----- ------- --------- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1991 $ 11,058 $150,313 $ (91,944) $ (1,600) $ - $ 67,827
Net loss - - (56,928) - - (56,928)
Purchase of treasury
stock - - - (2) - (2)
-------- -------- --------- -------- --- --------
Balance, December 31,
1992 11,058 150,313 (148,872) (1,602) - 10,897
Net loss - - (4,764) - - (4,764)
Issuance of treasury
stock to directors - (680) - 707 - 27
Purchase of treasury
stock - - - (1) - (1)
-------- -------- --------- -------- --- --------
Balance, June 30, 1993 11,058 149,633 (153,636) (896) - 6,159
Net loss - - (179) - - (179)
Net unrealized investment
loss - - - - (64) (64)
Issuance of treasury
stock to directors - (854) - 896 - 42
Purchase of treasury
stock - - - (143) - (143)
Ten to one reverse
stock split and change
in par value (11,047) 11,037 - - - (10)
-------- -------- --------- -------- --- --------
Balance, June 30, 1994 11 159,816 (153,815) (143) (64) 5,805
Net loss - - (898) - (898)
Purchase of treasury
stock - - - (11) - (11)
Issuance of treasury
stock to directors - 27 - 3 - 30
Net unrealized invest-
ment gain - - - - 70 70
-------- -------- --------- -------- --- --------
Balance, June 30, 1995 $ 11 $159,843 $(154,713) $ (151) $ 6 $ 4,996
======== ======== ========= ======== === ========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-4
<PAGE>
THE ARISTOTLE CORPORATION AND SUBSIDIARY
----------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(dollars in thousands)
<TABLE>
<CAPTION>
Twelve
Months EndedSix Twelve
June 30, Months Ended Months Ended
-----------------
1995 1994 June 30, 1993 Dec 31, 1992
---- ---- ------------- ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (898) $ (179) $(4,764) $(56,928)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Loss from discontinued operations - - - 59,727
(Gain) loss on sale of
investments held for sale - 48 (11) (688)
Write-down of securities - - 38 -
Reserve for tax refund claim - - 4,287 -
Other - - 128 141
Depreciation and amortization 355 46 - -
Issuance of treasury stock
for services 30 42 - -
Changes in assets and
liabilities:
Accounts receivable (934) (687) - -
Inventories (1,711) 98 - -
Other assets 200 39 - -
Accounts payable 464 (400) - -
Accrued expenses 214 (420) - -
------- ------- ------- --------
Net cash provided
by (used in)
operating activities (2,280) (1,413) (322) 2,252
------- ------- ------- --------
Cash flows from investing activities:
Increase in notes from employees - (354) - -
Purchase of investments held for sale - (8,479) (4,077) -
Proceeds from sale of investments
held for sale 26 7,778 23 1,565
Purchase of property and equipment (640) (113) - -
Purchase of subsidiary, net of
acquired cash of $589 (184) (2,617) - -
Minority interest 29 12 - -
------- ------- ------- --------
Net cash provided by
(used in) investing
activities (769) (3,773) (4,054) 1,565
------- ------- ------- --------
Cash flows from financing activities:
Net borrowings (payments) under
line of credit 996 (479) - -
Borrowings under term notes 2,500 - - -
Principal debt payments (260) (12) - -
Purchase of treasury stock (11) (143) (1) (2)
Decrease in amounts due
from (to) subsidiary - - - (40)
------- ------- ------- --------
Net cash provided by
(used in) financing
activities 3,225 (634) (1) (42)
------- ------- ------- --------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 176 (5,820) (4,377) 3,775
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 12 5,832 10,209 6,434
------- ------- ------- --------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 188 $ 12 $ 5,832 $ 10,209
======= ======= ======= ========
SUPPLEMENTAL DISCLOSURES:
Cash paid during the year for:
Interest $ 690 $ 137 $ - $ -
======= ======= ======= ========
Income taxes $ (216) $ (72) $ (24) $ 240
======= ======= ======= ========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-5
<PAGE>
THE ARISTOTLE CORPORATION AND SUBSIDIARY
----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JUNE 30, 1995
-------------
1. Basis of Presentation and Nature of Business:
--------------------------------------------
The Aristotle Corporation ("Aristotle" or the "Company"), prior to October
2, 1992, was the holding company of First Constitution Bank (the "Bank"), a
thrift institution. On October 2, 1992, the Federal Deposit Insurance
Corporation (the "FDIC") was appointed by the Connecticut Superior Court -
District of New Haven as receiver of the Bank. Upon transfer of the Bank to
receivership, Aristotle wrote off its investment in the Bank of
$25,400,000. The banking operations are presented in the accompanying
financial statements as discontinued operations.
Effective June 30, 1993, Aristotle changed its fiscal year end from
December 31 to June 30.
On April 11, 1994, Aristotle, through a newly created subsidiary Aristotle
Sub., Inc. ("ASI"), acquired (the "Acquisition") 97.78% of the outstanding
common stock of The Strouse, Adler Company ("Strouse"). Strouse designs,
manufactures and markets women's intimate apparel. The Acquisition was
accounted for as a purchase.
Total acquisition cost to date is $5,990,000 (including expenses of the
Acquisition of $610,000) of which: (i) $2,454,000 represents the issuance
of 122,691 shares of 8.9% Series A, 61,345 shares of 8.9% Series B and
61,345 shares of 8.9% Series C preferred stock of ASI (collectively
referred to herein as the "ASI Preferred Stock"), valued at its redemption
value of $10 per share; (ii) $125,000 represents the value of 25,000 common
shares of ASI issued at the Acquisition (the "ASI Common Stock"); (iii)
$2,617,000 is cash paid at date of acquisition; and (iv) $184,000
represents the August 31, 1994 Additional EBIT Consideration (see below).
The excess of cost over the fair value of net assets acquired amounts to
$1,946,000, which is being amortized over forty years. The fair value of
assets purchased and liabilities assumed amounted to $14,934,000 and
$10,890,000, respectively.
The operating results of Strouse are included in the consolidated financial
statements since the date of the Acquisition.
Operating results for the year ended June 30, 1994 and 1993 on a pro forma
basis as though Strouse was acquired as of July 1, 1992 are:
<TABLE>
<CAPTION>
(Dollars in Thousands
except share data)
June 30,
---------------------
1994 1993
---- ----
(Unaudited)
<S> <C> <C>
Net sales $18,267 $14,966
Net loss (132) (4,364)
Net loss per share $ (.12) $ (3.89)
</TABLE>
F-6
<PAGE>
The pro forma financial information is presented for informational purposes
only and is not necessarily indicative of the operating results that would
have occurred had the Acquisition been consummated as of the above dates,
nor are they necessarily indicative of the future operating results. The
pro forma adjustments include amortization of intangibles, decreased
interest income and expense, minority share and preferred dividend costs
and related income tax effects of the Acquisition.
The Acquisition agreements (the "Acquisition Agreements") provide that the
former stockholders of Strouse (the "Strouse Stockholders") may receive
additional consideration (the "Additional EBIT Consideration"), the amount
of which will be based upon the earnings before interest and income tax
("EBIT") of Strouse, calculated on an August 31 fiscal year through August
31, 1996, with the maximum amount of such consideration not to exceed
$1,854,000. The EBIT target will be increased by an amount equal to one-
half of the aggregate management bonuses paid pursuant to certain
Employment Agreements with some of the Strouse Stockholders (see Note 5).
Of each years Additional EBIT Consideration, if any, 80% will be paid in
cash and 20% will be paid in ASI Common Stock. The ASI Common Stock issued
as Additional EBIT Consideration is convertible into Common Stock of
Aristotle (the "Aristotle Common Stock").
Additional EBIT Consideration of $184,000 was paid to the Strouse
Stockholders for the fiscal period ended August 31, 1994. In accordance
with the Acquisition Agreements, $147,270 of the Additional EBIT
Consideration was paid in cash and $36,817 was paid through the issuance of
8,424 shares of ASI Common Stock. No Additional EBIT Consideration has been
recognized for this fiscal period ended August 31, 1995 as the EBIT target
is not expected to be met based on EBIT earned through June 30, 1995.
The 25,000 shares of ASI Common Stock issued at the date of Acquisition to
the Strouse Stockholders pursuant to the Acquisition represented 2.22% of
the outstanding ASI Common Stock. The Strouse Stockholders also received
options (the "ASI Options") to purchase 25,000 additional shares of ASI
Common Stock at $5.45 per share. The ASI Common Stock exercisable pursuant
to the ASI Options represented an additional 2.13% of the outstanding ASI
Common Stock at date of Acquisition, if exercised. After recognition of the
fiscal 1994 Additional EBIT Consideration, and the bonuses paid pursuant to
the Employment Agreements (see Note 5), the Strouse Stockholders hold
33,424 shares of ASI Common Stock (2.95% of the outstanding shares of ASI
Common Stock as of June 30, 1995) and ASI Options to purchase 35,208 shares
of ASI Common Stock (an additional 3.10% of the outstanding shares of ASI
Common Stock, if exercised, as of June 30, 1995).
The ASI Preferred Stock has a liquidation preference of $2,454,000 in the
aggregate, or $10 per share. Dividends at the rate of 8.9% per annum are
payable on the ASI Preferred Stock until the later of: (i) the dates on
which the Put Right (as defined below) commences (between April 11, 1996
and April 11, 2001); and (ii) the first date upon which Aristotle has
sufficient audited financial statements in order to satisfy the
requirements for filing a registration statement under the federal
securities laws pursuant to which the shares of Aristotle's Common Stock
issued to the Strouse Stockholders can be registered for sale. Aristotle
F-7
<PAGE>
received an independent auditors' report containing a disclaimer of opinion
on the 1992 financial statements from a predecessor auditor relating to
uncertainties associated with its former banking activities, which may
preclude such registration from taking place before June 30, 1996.
Aristotle is obligated to pay the costs of such registration under the
Acquisition Agreements. The ASI Preferred Stock is redeemable by ASI.
Aristotle has issued to the Strouse Stockholders warrants (the "Warrants")
that permit the holders of the Warrants to exchange their ASI Preferred
Stock and/or ASI Common Stock for Aristotle Common Stock. After recognition
of the fiscal 1994 Additional EBIT Consideration and the bonuses paid
pursuant to the Employment Agreements (see Note 5), the Strouse
Stockholders hold warrants that entitle them to purchase 383,223 shares of
Aristotle Common Stock, which, if exercised, would represent 25.7% of the
outstanding Aristotle Common Stock as of June 30, 1995. If the Strouse
Stockholders do not exercise their Warrants and exchange their ASI
Preferred Stock for Aristotle Common Stock, they have the right to put such
shares of ASI Preferred Stock back to Aristotle (the "Put Right") for
$2,454,000, plus any accrued and unpaid dividends, beginning April 11,
1996. The Put Right during the period from April 11, 1996 to April 10, 1997
is limited to $700,000. Such $700,000 is in marketable securities, is held
in escrow to protect against various contingencies, may be available to
fund the Put Right and is contained within marketable securities held in
escrow at market value in the accompanying consolidated balance sheet.
In connection with the Acquisition, Aristotle also issued 270,379 shares of
voting preferred stock, which shares will not have the right to receive
dividends and will not share in the proceeds from any liquidation of the
assets of Aristotle (the "Aristotle Preferred Stock"). The Aristotle
Preferred Stock has one vote per share or aggregate voting power of 19.65%
of all of the issued and outstanding capital stock of Aristotle, with
respect to matters other than the election of directors and auditors.
As a condition to the exercise of any Warrant, the exercise of the Put
Right, or the redemption of the ASI Preferred Stock, the Strouse
Stockholders must redeem the Aristotle Preferred Stock for $.001 per share.
The Aristotle Preferred Stock will automatically be redeemed, for $.001 per
share, at various dates beginning on and after April 11, 1999, or upon the
cessation of the voting rights of the Aristotle Preferred Stock.
The Acquisition Agreements provide for loans from the Company at 8.9%
interest to the Strouse Stockholders aggregating $707,000, of which
$354,000 was outstanding at June 30, 1995 and 1994. The Acquisition
Agreements also provide that the Strouse Stockholders have the right to
require a partial unwinding (the "Partial Unwinding") of the Acquisition if
the net worth of Aristotle, as defined in the Acquisition Agreements, falls
below $1,000,000 during a five-year period subsequent to April 11, 1994. A
Partial Unwinding would result in the return by ASI to the Strouse
Stockholders of 59% of the outstanding common stock of Strouse in exchange
for an amount of ASI Preferred Stock, Aristotle Common Stock and cash that,
taken together, have the aggregate value of $2,100,000.
F-8
<PAGE>
If, after April 11, 1994, an Acceleration Event occurs, then the Strouse
Stockholders may require that ASI immediately repurchase the ASI Preferred
Stock or immediately exchange the ASI Preferred Stock for Aristotle Common
Stock, and require that the Additional EBIT Consideration be immediately
paid in cash. An "Acceleration Event" includes the sale of all of the stock
or assets of Strouse, ASI or Aristotle; a merger or reorganization
involving Strouse, ASI or Aristotle in which Strouse, ASI or Aristotle is
not the survivor; the bankruptcy or insolvency of Strouse, ASI or
Aristotle; or the breach by Strouse, ASI or Aristotle of certain
obligations to the Strouse Stockholders.
Pursuant to the Acquisition Agreements, ASI and Strouse are bound by
certain standstill provisions until approximately April 11, 1999,
including, without limitation, limitations on the payment of dividends, the
incurring of certain indebtedness, the granting of any lien, the issuance
of securities, and the amendment of their certificates of incorporation and
bylaws.
2. Significant Accounting Policies and Other Matters:
-------------------------------------------------
Principle of consolidation -
--------------------------
The consolidated financial statements include the accounts of Aristotle and
its majority owed subsidiary. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Cash and cash equivalents -
-------------------------
Cash and cash equivalents include cash and highly liquid investments with
an original maturity of three months or less.
Inventories -
-----------
Inventories are valued at the lower of cost, using the last-in, first-out
method (LIFO), or market.
As a result of the application of purchase accounting in 1994, the
financial accounting basis of the Company's inventories changed, while the
basis for federal income tax reporting purposes did not. Accordingly, as of
June 30, 1995, the LIFO inventories reflected in the accompanying
consolidated balance sheet are stated at an amount $2,031,000 greater than
LIFO inventories reported for federal income tax purposes.
At June 30, 1995, the LIFO inventories reflected in the accompanying
consolidated balance sheets are $1,207,000 greater than current costs.
F-9
<PAGE>
At June 30, 1995 and 1994, inventories consisted of the following (in
thousands):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Raw materials $ 2,600 $ 2,628
Work-in-process 4,503 2,387
Finished goods 3,472 5,056
------- -------
10,575 10,071
LIFO reserve 1,207 -
------- -------
$11,782 $10,071
======= =======
</TABLE>
Property and equipment -
----------------------
Property and equipment are recorded at cost and are depreciated or
amortized, using the straight-line method, over their estimated useful life
of five to ten years.
At June 30, 1995 and 1994, property and equipment consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Machinery and equipment $1,002 $561
Furniture and fixtures 42 10
Leasehold improvements 213 46
Equipment under capital lease 600 -
------ ----
1,857 617
Less accumulated depreciation and
amortization (340) (36)
------ ----
$1,517 $581
====== ====
</TABLE>
Expenditures for repairs and maintenance are charged against income as
incurred. Renewals and betterments are capitalized.
Goodwill -
--------
The excess of cost over the fair value of net tangible and identifiable
intangible assets acquired results from the Acquisition and is being
amortized using the straight-line method over 40 years.
The Company will continually evaluate whether events and circumstances have
occurred which indicate that the remaining estimated useful life of
goodwill may warrant revision or that the remaining balance of goodwill may
not be recoverable.
F-10
<PAGE>
Earnings (loss) per share -
-------------------------
Earnings (loss) per share is computed using the weighted average common
shares after giving retroactive effect to the 10 to 1 reverse stock split
(effected in May 1994) for all years presented. Fully diluted earnings
(loss) per share is not presented since its effect is anti-dilutive.
Revenue recognition -
-------------------
The Company recognizes revenue as the product is shipped.
Co-op advertising -
-----------------
The Company grants customers a co-op advertising credit relating to
qualified advertising and promotional costs incurred by the customer in
promoting the Company's products. These credits are recognized in the
Company's consolidated financial statements as the advertising costs are
incurred.
Restructuring charges -
---------------------
In 1995, the Company recognized a $219,000 restructuring charge related to
curtailing certain manufacturing operations at the New Haven facility and
the termination of employees.
Principal supplier -
------------------
In 1995, approximately 85% of the Company's products were manufactured and
sewn in the Caribbean, with approximately 60% of the Company's products
assembled in Santo Domingo, Dominican Republic.
Concentration of credit risk -
----------------------------
Substantially all of the Company's accounts receivable reflected in the
accompanying consolidated balance sheets are from a diverse group of
retailers. Net sales to two customers accounted for approximately 14% and
11% of total sales in 1995 and one customer accounted for approximately 11
% of total net sales for fiscal 1994.
Investments in debt and equity securities -
-----------------------------------------
During 1994, the Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" (SFAS 115), which requires that, except for debt securities
classified as "held-to-maturity securities", investments in debt and equity
securities be reported at fair value. Implementation did not have a
material effect on the financial results of the Company.
Disclosures about fair value of financial instruments -
-----------------------------------------------------
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate that value:
F-11
<PAGE>
Cash, accounts receivable, employee notes receivable, payables, and
-------------------------------------------------------------------
accrued expenses -
----------------
For these short-term account balances, the carrying amount is a
reasonable estimate of fair value.
Notes payable and long-term debt -
--------------------------------
The carrying amount is a reasonable estimate of fair value as the debt
is frequently repriced based on prime, and there has been no significant
change in credit risks and interest rates since the financing was
obtained or repriced.
Estimated liability for potential tax refund claim -
--------------------------------------------------
It is not practical to determine a fair value of this liability.
Reclassifications -
-----------------
Certain reclassifications have been made to the 1994 financial statements
to make them consistent with the 1995 presentation.
3. Marketable Securities Held in Escrow:
------------------------------------
To enable the Strouse Stockholders to effectuate the Partial Unwinding, and
to secure the obligations of the Company to pay dividends on the ASI
Preferred Stock, to repurchase the ASI Preferred Stock if the Strouse
Stockholders exercise their Put Rights and to pay the Additional EBIT
Consideration to the Strouse Stockholders, the Company pledged 59% of the
outstanding common stock of Strouse and cash collateral in the amount of
$700,000 to the Strouse Stockholders (See Note 1). Strouse also granted to
the Strouse Stockholders a security interest in all of its assets to secure
such obligations.
Under an agreement with the Office of Thrift Supervision (the "OTS"), the
Company placed $3,982,000 (the "Principal Amount") in an escrow account
(the "OTS Escrow") that was established to provide a vehicle to pay
possible amounts arising from disputed tax refunds based on a tax sharing
agreement between Aristotle and the Bank. The Company may withdraw all
interest and dividend income earned on the Principal Amount. The potential
amount of the full loss was provided for in 1993 and the matter is being
contested. In addition, the Company and the FDIC have agreed that certain
future refunds, including a refund for approximately $1,300,000, will also
be deposited in a separate escrow account. The Company may not withdraw
interest and dividend income on the future refunds placed in the second
escrow account.
The funds relating to the above mentioned escrow arrangements are invested
in U.S. Treasuries and high-grade corporate debentures which mature at
various dates through 1998. These securities have been classified as
available for sale and an unrealized holding gain (loss) of approximately
$6,000 and ($64,000) is recorded as a component of stockholders' equity as
of June 30, 1995 and 1994, respectively. As these securities mature, the
proceeds will be invested in United States Treasury Notes with a maturity
of not more than 120 days.
F-12
<PAGE>
Investment securities available for sale relating to the above escrow
arrangements are summarized as follows (dollars in thousands):
<TABLE>
<CAPTION>
June 30, 1995
-----------------------
Gross
Amortized Unrealized Market
Cost Gains Value
---- ----- -----
<S> <C> <C> <C>
Company obligations:
U.S. Treasuries maturing
in 1 to 5 years $ 171 $ - $ 171
Corporate debt maturing
in 1 to 5 years 157 - 157
Cash equivalents and
interest receivable 372 - 372
------ ---- ------
700 - 700
------ ---- ------
OTS Escrow:
U.S. Treasuries maturing
in 1 to 5 years 1,804 6 1,810
Corporate debt maturing
in 1 to 5 years 2,029 - 2,029
Cash equivalents and
interest receivable 143 - 143
------ ---- ------
3,976 6 3,982
------ ---- ------
Total $4,676 $ 6 $4,682
====== ==== ======
</TABLE>
<TABLE>
<CAPTION>
June 30, 1994
-----------------------
Gross
Amortized Unrealized Market
Cost Gains Value
---- ----- -----
<S> <C> <C> <C>
Company obligations:
U.S. Treasuries maturing
in 1 to 5 years $ 355 $ (6) $ 349
Corporate debt maturing
in 1 to 5 years 347 (4) 343
------ ---- ------
702 (10) 692
------ ---- ------
OTS Escrow re: tax claim:
U.S. Treasuries maturing
in 1 to 5 years 1,838 (20) 1,818
Corporate debt maturing
in 1 to 5 years 2,162 (34) 2,128
------ ---- ------
4,000 (54) 3,946
------ ---- ------
Total $4,702 $(64) $4,638
====== ==== ======
</TABLE>
F-13
<PAGE>
4. Notes Payable and Long-Term Debt:
--------------------------------
Notes payable and long-term debt at June 30, 1995 and 1994, consisted of
the following (in thousands):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Borrowings under a bank line of credit $ 7,687 $6,691
Term notes payable to a bank 2,389 -
Note payable to a bank, due in
monthly principal installments of
$3,750 plus interest through
January 1999, bearing interest at
7.25%, collateralized by substantially
all of the assets of the Company 161 206
Note payable bearing interest at
6% with interest only payable monthly
through April 1997, thereafter
monthly installments of $2,114
including interest and principal through
April 2001, collateralized by
substantially all of the assets of
the Company 90 90
Capital lease obligation 495 -
------- ------
Total 10,822 6,987
Less current maturities 548 6,736
------- ------
$10,274 $ 251
======= ======
</TABLE>
Line of credit and term notes -
-----------------------------
On November 9, 1994, Strouse entered into a three-year agreement (the Bank
Agreement) which established a line-of-credit facility and two term loan
facilities. The Bank Agreement matures on October 31, 1997.
The line-of-credit facility provides for maximum borrowings of $8,500,000
in the first year, $11,000,000 in the second year, and $13,000,000 in the
third year. Primary borrowings under the line-of-credit are limited to 80%
of eligible accounts receivable plus the lesser of (i) 50% of eligible raw
materials, 50% of eligible finished goods, and 20% of eligible work-in-
process or (ii) $5 million in the first year, $6 million in the second
year, and $7 million in the third year. In addition to the primary
borrowings, the bank agreement permits advances to exceed the formula
amounts (the seasonal "Overadvance") by up to $500,000 in the first year,
$1,000,000 in the second year and $1,500,000 in the third year (so long as
the total line-of-credit is not more than the maximum borrowings allowed
and the Overadvance reduces to zero at each fiscal year end). At June 30,
1995, additional borrowings of approximately $590,000 were available under
the line-of-credit facility.
F-14
<PAGE>
The interest rate on the line-of-credit is fixed at 8.3% for the first
$3,500,000 million and varies at prime plus .25 for the remaining balance.
The term notes are a $2,500,000 facility which has an interest rate fixed
at 8.55% and a $225,000 facility which has an interest rate fixed at 7.25%.
The term loan facilities have a three year term and require principal
payments to reduce the amount outstanding based on a 15 year amortization
for the $2,500,000 facility and a 5 year amortization for the $225,000
facility.
The Bank Agreement also provides that (i) a currently existing $500,000
subordinated loan from Aristotle to Strouse may be repaid after June 30,
1995 if certain covenants are achieved, and (ii) Strouse may pay dividends
up to an aggregate of $500,000 per year to Aristotle if certain covenants
are achieved.
Strouse must maintain certain financial ratios in connection with these
loans. These covenants, which use the first-in, first-out (FIFO) inventory
costing method, require that the Company maintain (a) a net worth, as
defined, of $3,750,000 at June 30, 1995 increasing thereafter to $5,000,000
by June 30, 1997, (b) a debt service ratio, as defined, of 1.5 to 1.0 at
June 30, 1995 increasing to 1.75 at June 30, 1996 and thereafter, (c) a
debt to net worth ratio, as defined, of 3.5 to 1.0 at June 30, 1995
decreasing to 3.0 to 1.0 by June 30, 1997 and (d) an inventory turnover
ratio, as defined, of 1.5 to 1.0. At June 30, 1995 the Company was not in
compliance with certain of these covenants, for which the bank has waived
noncompliance.
Borrowings under the Bank Agreement are collateralized by substantially all
of the assets of Strouse. In addition, Aristotle has provided a guarantee
against the Overadvances.
On October 6, 1995, the Company and its bank executed a letter of intent
(the "Letter of Intent") pursuant to which they agreed in principle to a
modification of certain terms of the Bank Agreement (the "Amended Bank
Agreement").
Pursuant to such Letter of Intent, the bank and the Company have agreed (i)
to modify the maturity of the Bank Agreement to October 31, 1996; (ii) to
provide for maximum borrowings of $8,750,000 under the line-of-credit;
(iii) to reduce the maximum amount that the bank will advance against
eligible inventory, as defined, to $5,000,000; (iv) to reduce the amount of
Overadvances that are available to $1,000,000 through December 31, 1995,
and to $500,000 at all times thereafter; (v) to adjust the interest rate on
the line-of-credit to 1.0% over the bank's prime rate, or 3.0% over LIBOR;
(vi) to require that the Company and ASI unconditionally guarantee the
$2,500,000 term loan; and (vii) to prohibit Strouse from paying any
dividends up to the Company without the prior consent of the bank.
The Amended Bank Agreement also requires that the Company use certain
proceeds, if any, resulting from the release of amounts from the OTS Escrow
(see Note 3) to prepay up to one half of all amounts outstanding under the
term notes, with such prepayment not to exceed $500,000. The utilization of
any such proceeds in excess of the prepayment is also limited until such
time as the term loans are paid in full.
F-15
<PAGE>
In addition, the Amended Bank Agreement provides for revised financial
covenants to require (i) a net worth, as defined, of $3,100,000 through
December 31, 1995 and increasing thereafter to $3,700,000 as of June 30,
1996; (ii) a debt service ratio, as defined, of 1.4 to 1.0 at June 30,
1996; (iii) a debt to net worth ratio, as defined, of 4.25 to 1.0 through
March 30, 1996 and decreasing thereafter to 3.75 to 1.0 as of June 30,
1996; (iv) an interest coverage ratio, as defined, of 1.5 to 1.0 through
March 31, 1996 and increasing thereafter to 1.75 to 1.0 and (v) a capital
expenditure limitation, as defined, of $450,000 for fiscal year 1996.
Capital lease obligation -
------------------------
Strouse has entered into a capital lease obligation with one of their
principal suppliers to lease the supplier's land, building, machinery and
equipment. Under the terms of the lease, Strouse makes quarterly payments
of $81,250, $87,500, and $93,750, for principal, interest and executor
costs, for calendar years 1995, 1996 and 1997, respectively. The imputed
interest rate on the obligation is 9.0% per annum. Included in the
accompanying consolidated balance sheet is $600,000 of land, building and
equipment under capital lease, net of accumulated depreciation of $39,000,
resulting from this lease commitment.
In connection with this lease, Strouse has the option to purchase the land,
building, machinery and equipment for $700,000.
Aggregate maturities of all long-term debt and notes payable for each of
the succeeding five years subsequent to June 30, 1995 and thereafter are as
follows (in thousands):
<TABLE>
<CAPTION>
Year Ending
June 30, Amount
-------- ------
<S> <C>
1996 $ 548
1997 428
1998 9,760
1999 48
2000 24
Thereafter 14
-------
Total $10,822
=======
</TABLE>
5. Commitments and Contingencies:
-----------------------------
Lease commitments -
-----------------
Strouse is the lessee of space in its New Haven facility from a related
party. The agreement provides that the Company will pay for its prorated
portion of operating expenses associated with the building. As of June 30,
1995, Strouse owed the related party $27,000 related to this lease which is
included in accrued liabilities in the accompanying 1995 consolidated
balance sheet. In addition, Strouse leases showroom space in New York City
and Aristotle leases an administrative office in New
F-16
<PAGE>
Haven. Rent expense under these operating leases amounted to approximately
$474,000 for the year ended June 30, 1995 and $118,000 for the period from
the Acquisition to June 30, 1994. Rent expense for years prior to 1994 was
not significant.
At June 30, 1995, approximate future minimum payments including current
escalations for operating expenses under these operating leases are as
follows (in thousands):
<TABLE>
<CAPTION>
Year Ending
June 30, Amount
-------- ------
<S> <C>
1996 $487
1997 498
1998 523
1999 549
2000 288
</TABLE>
Guarantee -
---------
Strouse has guaranteed annuity payments to the participants of a terminated
Company pension plan. The payments are currently being satisfied under an
annuity contract with an insurance company.
Contingencies -
-------------
During 1990, two separate purported stockholder class action suits were
filed against the Company and were subsequently filed as a consolidated
complaint. The complaint alleges, among other things, that the Company, a
former director and certain former officers acted to inflate the price of
the Company's common stock by issuing materially false and misleading
statements or omissions. Management believes that the aggregate
liabilities, if any, net of insurance coverage, arising from such actions
will not have a material adverse effect on the results of operations or
financial position of the Company. An insurance claim for recoverable legal
fees of $576,000 is included in other current assets in 1995 and 1994.
The Company is aware that the FDIC is preparing claims against former
officers and directors of the Bank based on alleged negligence in approving
certain loans that the Bank made and subsequently lost money on when the
borrowers defaulted. Under Delaware law and under the Company's bylaws, the
Company may have an obligation to indemnify these officers and directors
for expenses and liabilities incurred by them in connection with any action
the FDIC may bring to enforce its claims. Due to the fact that the FDIC has
not yet defined its claims with precision, and given the uncertainties of
litigation, the Company is unable to determine what the outcome of these
claims will have on the financial condition of the Company. Any potential
loss from those indemnifications has not been accrued for.
On April 19, 1995, the FDIC filed a complaint claiming entitlement to
income tax refunds previously received and yet to be received by the
Company. Although the Company believes that the FDIC is not entitled to the
entire amount of the refunds or to damages for the Company's refusal
F-17
<PAGE>
to pay the refunds to the Bank or to the FDIC, the Company established a
reserve of $3,982,000 which was reflected in income tax expense during the
six months ended June 30, 1993. Currently, amounts equal to the $3,982,000
of refunds that have been received by the Company have been deposited in an
escrow account. The Company and the FDIC have agreed that certain future
refunds, including a refund of approximately $1,300,000, will also be
deposited in a separate escrow account. (See Note 3).
Other commitments -
-----------------
The Company has entered into five-year employment agreements (the
"Employment Agreements") with four officers. In addition to providing for
base salaries, the Employment Agreements provide for (a) 6% annual
increases if certain levels of EBIT are achieved, and (b) an annual cash
bonus and the annual grant of stock options to purchase ASI Common Stock,
if certain other levels of EBIT are achieved. The minimum level of EBIT
required in order for such employees to receive the bonus and stock options
under the Employment Agreements for the one-year period ended August 31,
1995 is $2,022,000. The annual bonus increases proportionately from 20% of
salary for achieving the minimum level of EBIT to 100% of salary for
achieving EBIT of more than double the minimum level of EBIT. The annual
stock options increase proportionately from 10,000 shares of ASI Common
Stock for achieving the minimum level of EBIT to 20,000 shares for
achieving EBIT of more than double the minimum level of EBIT. The stock
options will be exercisable at the market price on the date that they are
granted. The number of stock options granted to each employee will be based
on the amount of his or her salary in relation to the amounts of the
salaries of the other employees who are parties to such Employment
Agreements. During 1994, approximately $93,000 of bonuses were accrued of
which approximately $75,000 was recorded in the Acquisition discussed in
Note 1. In conjunction therewith, the Strouse Stockholders were issued
options to purchase 10,208 shares of ASI Common Stock. There is no similar
bonus accrued for as of June 30, 1995 as management does not expect to meet
the EBIT target.
6. Stockholders' Equity:
--------------------
In April 1994, Aristotle's stockholders and board of directors approved an
amendment to Aristotle's certificate of incorporation which, among other
things: (i) decreased the number of authorized shares of Aristotle's common
stock from 20,000,000 shares to 3,000,000 shares; (ii) provided for a ten
to one reverse stock split of Aristotle's common stock and (iii) reduced
the par value of the Aristotle common stock and Aristotle preferred stock
from $1.00 per share to $.01 per share.
The Company had the following common, treasury and preferred stock issued
and outstanding at June 30, 1995 and 1994:
F-18
<PAGE>
<TABLE>
<CAPTION>
Redeemable
Common Preferred Treasury
Stock Stock Stock
----- ----- ----
<S> <C> <C> <C>
Outstanding, January 1, 1992 11,058,019 - 101,500
Purchase of treasury stock - - 7,869
----------- -------- --------
Outstanding, December 31, 1992 11,058,019 - 109,369
Issuance of treasury stock
to directors - - (45,118)
Purchase of treasury stock - - 3,816
----------- -------- --------
Outstanding, June 30, 1993 11,058,019 - 68,067
Issuance of treasury stock
to directors - - (67,172)
Purchases of treasury stock - - 215,200
Issuance of preferred stock
in connection with the
Acquisition (Note 1) - 270,379 -
Ten to one reverse stock split (9,952,218) - (194,485)
----------- -------- --------
Outstanding, June 30, 1994 1,105,801 270,379 21,610
Issuance of treasury stock
to directors - - (5,417)
Redemption of fractional shares - - 2,075
----------- -------- --------
Outstanding, June 30, 1995 1,105,801 270,379 18,268
=========== ======== ========
</TABLE>
Aristotle common shares reserved for future issuance consist of the
following:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Conversion of ASI Preferred Stock 314,591 314,591
Conversion of ASI Common Stock 33,424 25,000
Exercise of ASI Options 35,208 25,000
Exercise of stock options granted
under the Plan (Note 8) 65,037 60,537
Options remaining to be granted
under the Plan (Note 8) 41,453 45,953
------- -------
Total 489,713 471,081
======= =======
</TABLE>
F-19
<PAGE>
7. Income Taxes:
------------
The Company has adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" (SFAS 109). SFAS 109 utilizes the
liability method and deferred taxes are determined based on the estimated
future tax effects of differences between the financial statement and tax
basis of assets and liabilities given the provisions of enacted tax laws.
At June 30, 1995 and 1994, the principal components of deferred tax assets,
liabilities and the valuation allowance are as follows (in thousands):
<TABLE>
<CAPTION>
1995
--------------------------------
Current Asset Long-term Asset
(Liability) (Liability)
------------- ---------------
<S> <C> <C>
Federal net operating loss carryforwards $ 250 $ 440
Federal capital loss carryforwards - 1,648
State of Connecticut net operating loss
carryforwards - 580
State of Connecticut capital loss
carryforwards - 1,133
Inventory purchase accounting basis
difference (812) -
Patents and trademarks purchase
accounting basis difference - (35)
Other 191 152
----- --------
(371) 3,918
Valuation allowance (354) (3,193)
----- --------
$(725) $ 725
===== ========
</TABLE>
<TABLE>
<CAPTION>
1994
--------------------------------
Current Asset Long-term Asset
(Liability) (Liability)
------------- ---------------
<S> <C> <C>
Federal net operating loss carryforwards $ - $ 588
Federal capital loss carryforwards - 1,648
State of Connecticut net operating loss
carryforwards - 545
State of Connecticut capital loss
carryforwards - 1,133
Inventory purchase accounting basis
difference (830) -
Patents and trademarks purchase
accounting basis difference - (36)
Other 221 -
----- -------
(609) 3,878
Valuation allowance (191) (2,977)
----- -------
$(800) $ 901
===== =======
</TABLE>
F-20
<PAGE>
Charges (benefits) for income taxes are comprised of the following:
<TABLE>
<CAPTION>
(Dollars in Thousands)
--------------------------------------------------
Twelve
Twelve Months Ended Six Months Ended Months Ended
------------------- ----------------
June 30, June 30, December 31,
--------
1995 1994 1993 1992
---- ---- ---- ----
<S> <C> <C> <C> <C>
Current:
Federal $ - $ 21 $4,287 $(1,412)
State 25 (41) - (69)
--- ---- ------ -------
$25 $(20) $4,287 $(1,481)
=== ==== ====== =======
</TABLE>
The 1995 tax provision relates principally to minimum state and franchise
taxes as the statutory tax benefit has been fully offset by an increase in
the valuation allowance. The 1994 tax benefit relates principally to a
state tax refund of $86,000, a federal built in gains tax of $21,000 for a
LIFO decrement occurring subsequent to the business s combination discussed
in Note 1 and state taxes of $31,000.
At June 30, 1995, the Company had Federal net operating loss carryforwards
of approximately $2,000,000 (expiring by 2010) and capital loss
carryforward of approximately $4,800,000 (expiring by 1999). In addition,
for the tax return filed for the year ended December 31, 1992, the Company
made elections under provisions set forth in regulations proposed by the
Internal Revenue Service in April 1992. The elections will enable the
Company to disaffiliate from the Bank for federal income tax purposes and
to reattribute certain losses of the Bank to the Company. As a result of
these elections, the Company expects to succeed to Federal net operating
loss carryforwards of approximately $81,600,000. These carryforwards may be
reduced by the amounts of assistance given the acquirer of the assets and
liabilities of the Bank.
The application of tax law with respect to the Company's election to
disaffiliate from the Bank and to reattribute bank tax losses to the
Company is not certain and the Company can make no assurance that any part
of the net operating loss carryforwards of the Bank will be available to be
utilized by the Company. Even if the Company succeeds to any part of the
Bank's tax loss carryforwards, its ability to fully utilize such tax loss
carryforwards is dependent upon many factors including, (1) the acquisition
by the Company of profitable investments, and (2) avoiding a fifty percent
"ownership change" as defined in Section 382 of the Internal Revenue Code.
If there is an "ownership change", the tax loss carryforwards available to
the Company would be significantly reduced or eliminated. At a special
stockholders meeting held on April 8, 1994 the stockholders voted to
restrict certain stockholder transfers.
For state tax purposes, the election to reattribute the losses of the Bank
to the Company is not applicable and it is unlikely that the Company will
obtain a Connecticut tax loss carryforward as a result of its disposition
of the Bank. Excluding any state tax benefit from disposition of the Bank,
Connecticut net operating loss carryforwards and capital loss carryforwards
are approximately $5,000,000 and $9,800,000, respectively, and expire from
1995 through 1999.
F-21
<PAGE>
8. Stock Option Plan and Profit Sharing Plan:
-----------------------------------------
The Company established a Stock Option Plan (the "Plan") in 1986, which
provides for the granting of nonincentive and incentive stock options to
directors and officers of the Company for the purchase of Aristotle common
stock. Nonincentive stock options and certain incentive stock options
granted under the Plan are generally exercisable after one year but within
ten years as of the date of the grant. Additionally, certain nonincentive
stock options granted under the Plan may be accompanied by stock
appreciation rights ("SAR"). The granting of such stock options (SAR's)
entitle the holder to surrender an option and receive cash equal to the
increase in the fair market value of the common stock from the date of
grant to the date of exercise.
In 1990, the Board of Directors of the Company approved a Stock Option
Exchange program that gave officers holding nonincentive and incentive
stock options granted prior to 1990 the opportunity to voluntarily cancel
their outstanding stock options ("Original Options") and receive in
exchange new incentive stock options ("Exchange Options") on a one-for-
four-basis (i.e., four Original Options exchange for one Exchange Option).
The Original Options were exercisable at various prices, all at or
exceeding $100.00 per share. The option exercise price of Exchange Options
was 100% of the fair value of the Company's common stock on the date of
grant, or $13.13 per share. All Exchange Options are exercisable six months
after the date of grant and generally expire within five years of the date
of grant. In 1990, 15,270 Original Options were exchanged for 3,818
Exchange Options.
The activity for the Plan for each of the following periods as adjusted for
the 10 to 1 reverse stock split in May 1994, is as follows:
<TABLE>
<CAPTION>
Twelve Months Ended Twelve Months Ended
June 30,1995 June 30, 1994
----------------------- -----------------------
Number of Option Number of Option
Shares Price Shares Price
------ ----- ------ -----
<S> <C> <C> <C> <C>
Options outstanding,
beginning of period 60,537 $5.30-$150.00 58,141 $10.00-$150.00
Options exercised - - - -
Options granted 4,500 5.45 2,396 $5.30
Options canceled or
expired - - - -
------- -------
Options outstanding,
end of period 65,037 $5.30-$150.00 60,537 $ 5.30-$150.00
======= =======
</TABLE>
F-22
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1993 June 30, 1992
----------------------- -----------------------
Number of Option Number of Option
Shares Price Shares Price
------ ----- ------ -----
<S> <C> <C> <C> <C>
Options outstanding,
beginning of period 39,641 $10.00-$150.00 89,901 $10.00-$151.13
Options exercised - - - -
Options granted 25,375 $10.00 12,396 $10.00-$ 11.25
Options canceled or
expired 6,875 $10.00-$150.00 62,656 $10.00-$151.00
------- -------
Options outstanding,
end of period 58,141 $10.00-$150.00 39,641 $10.00-$150.00
======= =======
</TABLE>
Options for 38,031 shares were exercisable at June 30, 1995. At that date,
there were options for 41,453 shares remaining to be granted under the
Plan.
Strouse has a deferred profit sharing plan (the "Profit Plan"). Under the
Profit Plan, Strouse will match 25% of employee contributions not to exceed
4% of participants' annual compensation. Eligibility is based on attaining
twenty-one years of age and completing one year of service, as defined
within the Profit Plan. Strouse contributions will vest 20% in year 3 and
an additional 20% per year thereafter until full vesting is achieved.
Strouse contributions were approximately $35,000 for the year ended June
30, 1995 and $9,300 for the period from the Acquisition to June 30, 1994.
9. Related Party Transactions:
--------------------------
During the years ended June 30, 1995, 1994 and the six-months ended June
30, 1993, the Company paid its directors $62,000, $76,000 and $48,000,
respectively, in compensation for services as directors of the Company.
Additionally, in 1995, 1994 and 1993, $30,000, $42,000 and $27,000,
respectively, was paid in the form of shares of Aristotle common stock
issued out of treasury stock.
During the year ended December 31, 1992 and the six-month period ended June
30, 1993, certain costs, principally insurance and compensation, incurred
by the Company were allocated to the Company from the Bank.
F-23
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Board of Directors and Stockholders of
The Aristotle Corporation:
We have audited in accordance with generally accepted auditing standards, the
financial statements included in The Aristotle Corporation's Form 10-K, and have
issued our report thereon dated September 1, 1995, except with respect to the
matter discussed in Note 4, as to which the date was October 6, 1995. Our audit
was made for the purpose of forming an opinion on those statements taken as a
whole. The schedules listed in the index of financial statements are presented
for purposes of complying with the Securities and Exchange Commissions rules and
are not part of the basic financial statements. These schedules have been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, fairly state in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
New Haven, Connecticut
September 1, 1995
F-24
<PAGE>
[LOGO OF RAE APPEARS HERE]
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
The Aristotle Corporation
New Haven, Connecticut
The audits referred to in our report dated August 26, 1994 included a
Schedule of Valuation and Qualifying Accounts for the year ended June 30, 1994.
In our opinion, such schedule presents fairly the information set forth
therein in compliance with the applicable accounting regulation of the
Securities and Exchange Commission.
Richard A. Eisner & Company, LLP
New York, New York
August 26, 1994
F-24A
<PAGE>
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF
THE ARISTOTLE CORPORATION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE SHEETS:
JUNE 30, 1995 JUNE 30, 1994
------------- -------------
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS
Cash $ 164 $ 7
Other Current Assets 523 844
----- ------
Total Current Assets 687 851
----- ------
INVESTMENT IN SUBSIDIARY 2,844 3,471
----- ------
OTHER ASSETS
Marketable Securities
Held in Escrow at Market Value 4,682 4,638
Employee Notes Receivable 354 354
Notes Receivable from Subsidiaries 989 1,050
----- ------
6,025 6,042
----- ------
$9,556 $10,364
===== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Accrued Expenses and Other Liabilities $ 578 $ 577
----- ------
Total Current Liabilities 578 577
ESTIMATED LIABILITY, tax refund claim 3,982 3,982
----- ------
Total Liabilities 4,560 4,559
----- ------
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY 4,996 5,805
----- ------
$9,556 $10,364
===== ======
</TABLE>
F-25
<PAGE>
SCHEDULE I
(CONTINUED)
CONDENSED FINANCIAL INFORMATION OF
THE ARISTOTLE CORPORATION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS:
TWELVE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, 1995 JUNE 30, 1994 JUNE 30, 1993 DECEMBER 31, 1992
------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C>
INCOME
Investment and Interest Income $ 392 $ 343 $ 174 $ 844
Other Expenses (589) (1,016) (651) 474
------ ----- -------- ---------
Income (Loss) from Continuing Operations
Before Provision for Income Tax and Equity
in Undistributed Earnings of Subsidiary (197) (673) (477) 1,318
EQUITY IN UNDISTRIBUTED EARNINGS
OF SUBSIDIARY (626) 253 - -
INCOME TAX EXPENSE (BENEFIT) 75 (241) 4,287 (1,481)
------ ----- -------- ---------
INCOME (LOSS) FROM
CONTINUING OPERATIONS (898) (179) (4,764) 2,799
DISCONTINUED OPERATIONS
Loss from Operations of Subsidiary
Prior to Seizure - - - (34,280)
Loss on Write-off of Subsidiary Upon
Seizure - - - (25,447)
------ ----- -------- --------
Loss from Discontinued Operations - - - (59,727)
------ ----- -------- --------
NET LOSS ($898) ($ 179) ($4,764) ($56,928)
====== ======== ======== =========
</TABLE>
F-26
<PAGE>
SCHEDULE I
(CONTINUED)
CONDENSED FINANCIAL INFORMATION OF
THE ARISTOTLE CORPORATION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS:
TWELVE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, 1995 JUNE 30, 1994 JUNE 30, 1993 DECEMBER 31, 1992
------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net Loss ($898) ($ 179) ($4,764) ($56,928)
Equity in Undistributed Earnings of Subsidiary 626 (253) - -
(Gain) Loss on Sale of Investment Securities - 48 (11) (688)
Write-down of Securities - - 38 -
Issuance of Treasury Stock for Services 30 42 - -
Loss from Discontinued Operations - - - 59,727
Reserve for FDIC Claim - - 4,287 -
Other 384 (1,668) 128 141
------ ------- -------- ---------
Total Cash Provided from (Used in)
Operating Activities 142 (2,010) (322) 2,252
INVESTING ACTIVITIES
Increase in Notes Receivable from Employees - (354) - -
Proceeds from Sale of Investment Securities 26 7,778 23 1,565
Purchases of Investment Securities - (8,479) (4,077) -
Purchase of Subsidiary, Net of Acquired Cash - (2,617) - -
------ ------- -------- ---------
Total Cash Provided by (Used in)
Investing Activities 26 (3,672) (4,054) 1,565
FINANCING ACTIVITIES
Purchase of Treasury Stock (11) (143) (1) (2)
Decrease in amounts due from/to Subsidiary - - - (40)
------ ------- -------- ---------
Total Cash Used by Financing Activities (11) (143) (1) (42)
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 157 (5,825) (4,377) 3,775
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 7 5,832 10,209 6,434
------ ------- -------- ---------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $164 $ 7 $5,832 $10,209
====== ======= ======== =========
</TABLE>
F-27
<PAGE>
SCHEDULE II
THE ARISTOTLE CORPORATION AND SUBSIDIARY
VALUATION ACCOUNTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
_________________________________________________________________________________________________________________
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -----------------------------------------------------------------------------------------------------------------
Additions
===============================
(1) (2)
-------------------------------------
Balance at Charged to Balance
beginning of costs and Deductions/ at end
Description period expenses Other (A) write-offs of period
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FISCAL YEAR ENDED JUNE 30, 1995
- -------------------------------
Accounts Receivable Reserve $108 - - (8) $100
Co-op Advertising Reserve $ 69 84 - (82) $ 71
Accounts Receivable - LT Reserve $ 63 15 - (42) $ 36
FISCAL YEAR ENDED JUNE 30, 1994
- -------------------------------
Accounts Receivable Reserve $ - 8 117 (17) $108
Co-op Advertising Reserve $ - 152 59 (142) $ 69
Accounts Receivable - LT Reserve $ - 5 58 - $ 63
</TABLE>
(A) Acquired through business combination
F-28
<PAGE>
EXHIBIT INDEX
Exhibit 4.4- Certificate of Amendment of Amended and Restated Certificate of
Incorporation of Aristotle Sub, Inc. filed August 30, 1995
Exhibit 10.3- Letter Agreement by and among The Aristotle Corporation, Aristotle
Sub, Inc., Alfred Kniberg and David Howell dated June 27, 1995
Exhibit 10.15- Lease dated October 4, 1991 by and between The Strouse, Adler
Company and New England Resources Limited Partnership
Exhibit 10.16- First Amendment to Lease dated April 11, 1994 by and between New
England Resources Limited Partnership
Exhibit 10.17- Second Amendment to Lease dated December 14, 1994 by and between
New England Resources Limited Partnership
Exhibit 10.18- First Amended and Restated Master Credit Agreement dated as of
November 9, 1994 by and between The Strouse, Adler Company and Fleet Bank,
National Association
Exhibit 10.19- Letter Agreement dated October 6, 1995 by and between The
Strouse, Adler Company, The Aristotle Corporation, Aristotle Sub, Inc. and Fleet
Bank, National Association
Exhibit 10.20- Option Agreement dated as of December 22, 1994 by and among The
Strouse, Adler Company, PBS Enterprises Ltd., Davedan Properties Ltd. and Maggie
Manufacturing Company Ltd.
Exhibit 10.21- Exclusive Subcontracting Agreement dated as of December 22, 1994
by and among The Strouse, Adler Company, PBS Enterprises Ltd., Davedan
Properties Ltd. and Maggie Manufacturing Company Ltd.
Exhibit 10.22- Restrictive Covenant Agreement dated as of December 22, 1994 by
and among The Strouse, Adler Company, PBS Enterprises Ltd., Davedan Properties
Ltd., Maggie Manufacturing Company Ltd., Peter Blair Shalleck and Sandy Shalleck
Exhibit 10.23- Specific Performance Agreement dated as of December 22, 1994 by
and among The Strouse, Adler Company, Peter Blair Shalleck and Sandy Shalleck
Exhibit 21.1- Subsidiaries of The Aristotle Corporation
Exhibit 27- Financial Data
<PAGE>
EXHIBIT 4.4
-----------
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
ARISTOTLE SUB, INC.
ARISTOTLE SUB, INC., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify:
FIRST: That at a meeting of the Board of Directors of the Corporation, a
resolution was duly adopted setting forth a proposed amendment to the Amended
and Restated Certificate of Incorporation of the Corporation, declaring the
amendment to be advisable and calling a meeting of the stockholders of the
Corporation for consideration thereof. The resolution setting forth the proposed
amendment is as follows:
RESOLVED, that it is declared to be advisable that the Corporation amend
its Certificate of Incorporation in accordance with Schedule A attached
----------
hereto and that a meeting of the Stockholders of the Corporation shall be
held to consider such amendment.
SECOND: That thereafter, this Certificate of Amendment of Amended and
Restated Certificate of Incorporation was duly adopted by the Stockholders of
the Corporation in accordance with the applicable provisions of Section 242 of
the General Corporation Law of the State of Delaware, notice of such adoption by
the required percentages of each class of capital stock having been given, in
accordance with Section 228(d), to each Stockholder who did not execute a
written consent to such adoption.
IN WITNESS WHEREOF, Aristotle Sub, Inc. has caused this Certificate to be
signed by John Crawford, its President, this 30th day of August, 1995.
ARISTOTLE SUB, INC.
/s/John Crawford
By --------------------------------------------
John Crawford
Its President
<PAGE>
SCHEDULE A
----------
1. The words and numbers "one hundred twenty two thousand six hundred
ninety (122,690)" in the first sentence of the second paragraph of Article 4
shall be deleted and "one hundred twenty two thousand six hundred ninety one
(122,691)" shall be inserted in its place and stead.
2. The definition of the "Dividend Termination Date" set forth in Section
-------
2 shall be deleted in its entirety and the following shall be inserted in its
- -
place and stead:
As used in this Certificate of Incorporation, the "Dividend Termination Date"
for any share of (a) Series A Preferred Stock, means April 12, 1997; and (b) for
any other share of Preferred Stock, means the later of (i) the Put Right
Commencement Date (as hereinafter defined) or (ii) the first date upon which The
Aristotle Corporation ("Aristotle") has sufficient audited financial statements
in order to satisfy the requirements for filing a registration statement under
the federal securities laws pursuant to which shares of Common Stock of
Aristotle can be registered for sale.
3. The first paragraph of Section 4 shall be deleted in its entirety and
---------
the following shall be inserted in its place and stead:
On the earlier of an "Acceleration Event" (as hereinafter defined) or at any
time after (a) April 12, 1996 with respect to the 70,000 shares of Series A
Preferred Stock, (b) April 12, 1997 with respect to 52,691 shares of Series A
Preferred Stock, and the Series B Preferred Stock and (c) April 12, 1998 with
respect to the Series C Preferred Stock (each such date being a "Put Right
Commencement Date"), and before the date three (3) years after the applicable
Put Right Commencement Date (the "Put Right Termination Date"), each holder of
Series A, B or C Preferred Stock shall have the right to sell and the
Corporation shall have the obligation to purchase, any or all of such Series A,
B or C Preferred Stock for $10 per share plus any accrued and unpaid dividends
thereon (each such right being a "Put Right"); provided, however, that in order
for the holder to exercise such Put Right, the holder shall sell a number of
each of the Series A, B and C Preferred Stock of The Aristotle Corporation,
issued to the holder on April 11, 1994, which is equal to the number of Series
A, B and C Preferred Stock with respect to which the holder is exercising the
Put Right, to The Aristotle Corporation for a purchase price of $.001 per share.
The Put Right may be exercised after the Put Right Commencement Date until the
Put Right Termination Date.
<PAGE>
Notwithstanding anything herein to the contrary, no holder of Series A
Preferred Stock shall, prior to April 12, 1997, exercise the Put Right (whether
at one time or from time to time) as to such number of shares of Series A
Preferred Stock, which exceeds the product of 70,000, times a fraction, the
-----
numerator of which is the number of shares of Series A Preferred Stock held of
record by such holder as of July 1, 1995 and the denominator of which is
122,691.
<PAGE>
EXHIBIT 10.3
------------
MR. DAVID HOWELL MR. ALFRED KNIBERG
151 RIVER ROAD 295 PUTTING GREEN RD.
ESSEX, CT 06426 TRUMBULL, CT 06611
June 27, 1995
Aristotle Sub, Inc. The Aristotle Corporation
78 Olive Street 78 Olive Street
New Haven, CT 06511 New Haven, CT 06511
RE: THE STROUSE, ADLER COMPANY
Gentlemen:
Reference is hereby made to that certain Pledge and Escrow Agreement dated
as of April 11, 1994 (the "Pledge Agreement") by and among David Howell and
Alfred Kniberg (collectively the "Pledgees"), in their capacity as collateral
agent for Howell Resource Partners, Alfred Kniberg, Joyce Baran, Paul McDonald,
Richard Sheldon, C. David Goldman, trustee, Louis Musante, John Peterson, Janney
Montgomery Scott, Inc., custodian f/b/o Paul McDonald and Graeme Caulfield (the
"Original Strouse Shareholders") , and Aristotle Sub, Inc. (the "Pledgor").
Initial capitalized terms not defined herein shall have the meaning assigned to
them in the Pledge Agreement.
The Pledgor is the owner of all of the issued and outstanding stock of The
Strouse, Adler Company ("Strouse, Adler") and Strouse, Adler is indebted to
Fleet Bank, N.A. ("Fleet") under the terms of a certain First Amended and
Restated Master Credit Agreement dated November 9, 1994 (the "Credit Agreement")
by and between Strouse, Adler and Fleet. Pursuant to Section 2.1.2 of the
Credit Agreement, Strouse, Adler is entitled to receive from Fleet Overadvances
(as defined therein), subject to certain restrictions as set forth therein, and
provided, further, that as of the first day of Strouse, Adler's fiscal year,
- -------- -------
Strouse, Adler must reduce the amount of Overadvances to zero (0) and maintain
such zero (0) balance for thirty (30) days thereafter. It is the Pledgees'
understanding that (a) the current amount of outstanding Overadvances is
$500,000; (b) Strouse, Adler's fiscal year commences on July 1, 1995; and (c) it
is not anticipated that Strouse, Adler will have sufficient cash available to
reduce the amount of Overadvances to zero (0) on July 1, 1995.
Pursuant to the Pledge Agreement, the Pledgor has deposited $700,000 in the
Account as security for the Future Obligations. Pledgor has requested the
Original Strouse Shareholders to allow Pledgor to loan the cash in the Account
to Strouse, Adler to pay
<PAGE>
down the Overadvances, to consent to certain restrictions on the Put Right, and
to allow use of the proceeds of the Account to satisfy certain obligations under
the Put Right.
In connection with the foregoing, this letter will confirm the following:
1. In the event that Strouse, Adler is unable to reduce the amount of
Overadvances to zero (0) on June 30, 1995 and to maintain the balance of the
Overadvance at zero (0) until August 1, 1995, then, the Pledgor shall have the
right (the "Overadvance Withdrawal Right") from time to time to withdraw from
the Account an aggregate amount not in excess of $700,000, which amount shall be
loaned to Strouse, Adler and used to reduce such Overadvances to zero (0) or
otherwise used for Strouse, Adler's working capital . The Overadvance Withdrawal
Right shall terminate and be of no further force and effect after July 31, 1995.
2. Any withdrawal from the Account under the Overadvance Withdrawal Right
must be pursuant to the joint written instruction of the Pledgor and either
Pledgee. Other than pursuant to the Put Withdrawal Right or pursuant to other
writing from the Pledgees, the Pledgor shall have no right to withdraw any sums
from the Account except interest pursuant to Section 5 of the Pledge Agreement,
provided, however, that if the Account is $700,000 or less or would become under
$700,000 as a result of the withdrawal of interest, the Pledgor shall not be
entitled to withdraw any interest from the Account.
3. In the event that (a) the Pledgor exercises the Overadvance Withdrawal
Right and (b) The Aristotle Corporation's ("Aristotle") net cash recovery (after
expenses) from existing claims against its insurance company relating to certain
shareholder litigation and/or federal income tax refund claims involving the
Federal Deposit Insurance Corporation, and dividends or tax sharing payments
hereafter made by Strouse, Adler and/or Pledgor exceed $250,000 in the aggregate
such excess cash recovery and payments will be loaned to Pledgor or otherwise
contributed to Pledgor and Pledgor shall use such loan or contribution to
restore the balance of the Account to $700,000. Aristotle and Aristotle Sub
shall use their best efforts to restore the balance of the Account to $700,000
by August 5, 1995. In any event, no later than April 11, 1996, the balance of
the Account shall not be less than $700,000 and the failure to achieve such a
balance on such date shall be an Event of Default under the Pledge Agreement.
4. Neither Pledgor nor Aristotle shall seek any personal recourse or
liability against either Pledgee for the execution and delivery of this
Agreement whether or not the terms and conditions contained herein are fully
enforceable in accordance with their terms against all of the Original Strouse
Shareholder.
5. The agreements by the Pledgees herein are not, nor shall it be
deemed to be, a waiver or modification by the Pledgees
<PAGE>
of any term of the Pledge Agreement or the Pledgor's Certificate of
Incorporation, except to the extent expressly set forth herein, and all of such
terms are and shall remain in full force and effect.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
Please indicate your agreement to the foregoing by executing this letter
agreement in the space provided below. This letter may be executed in
counterpart and the facsimile of the signature of any party shall constitute an
original signature of such party.
/s/ David Howell
----------------------------------------------
David Howell
/s/ Alfred Kniberg
----------------------------------------------
Alfred Kniberg
Acknowledged and agreed to:
ARISTOTLE SUB, INC.
/s/ John J. Crawford
- -------------------------------
By: John J. Crawford
Its: President
THE ARISTOTLE CORPORATION
/s/ John J. Crawford
- -------------------------------
By: John J. Crawford
Its: President
<PAGE>
EXHIBIT 10.15
-------------
LEASE
-----
THIS INDENTURE of Lease ("Lease") made this 4th day of October, 1991, by
and between:
NEW ENGLAND RESOURCES LIMITED PARTNERSHIP, a Connecticut limited
-----------------------------------------
partnership having an address at 151 River Road, Essex, Connecticut
06426 (hereinafter called "Landlord") and
THE STROUSE, ADLER COMPANY, a Connecticut corporation having an
--------------------------
address at 78 Olive Street, New Haven, Connecticut (hereinafter called
"Tenant").
WHEREAS, the Landlord is the owner of a certain tract of land with
improvements thereon located in the Town of New Haven, County of New Haven,
State of Connecticut, more particularly described on Schedule "A" annexed hereto
------------
(said land and the improvements thereon being hereinafter sometimes referred to
as the "premises").
WHEREAS, the Landlord wishes to lease to the Tenant approximately 87,000
square feet of space on the third, second and basement floors of the building
located on the premises (the "Building"), this space being the "Demised
Premises".
WHEREAS, the Tenant wishes to lease the Demised Premises from the Landlord
subject to the terms and conditions set forth herein:
W I T N E S S E T H:
-------------------
In consideration of the covenants and agreements contained in this lease,
the Landlord hereby leases to the Tenant and the Tenant hereby leases from the
Landlord the Demised Premises under the following terms and conditions:
1. LEASE TERM. The term of this Lease shall commence as of the 31st day of
----------
August 1993 and shall end on August 31, 1998 unless sooner terminated under the
provisions defined in section 21 of this lease.
2. NET RENT. The Tenant shall pay to Landlord the annual net rental (net rent)
--------
calculated as follows: The rent for year #1 (8/31/93 - 8/31/94) will be set at a
price per square foot which equals the price per square foot for the previous
year plus the lower of 5% or the increase in the CPI for the twelve previous
--------
months (September through August). The price per square foot for the 8/31/93 -
8/31/93 period is set at $4.00 as per the present lease between Landlord and
Tenant. The net rent will increase in each of years two through five by the
lower of 5% or the increase in the CPI as defined above.
<PAGE>
3. NET LEASE. It is the purpose and intent of the Landlord and the Tenant that
---------
the Net Rent hereinbefore specified shall be net to the Landlord in each year
during the Lease Term, that all costs, expenses and obligations of every kind
relating to the Demised Premises and 56% of all costs, expenses and obligations
of every kind relating to the premises or which may arise or become due during
the Lease Term shall be paid by the Tenant, and that the Landlord shall be
indemnified by the Tenant against such costs, expenses and obligations. The Net
Rent shall be paid to the Landlord without notice or demand and without
abatement, deduction or set-off except as otherwise specifically provided for in
this Lease.
4. ADDITIONAL RENT. All taxes, charges, costs, expenses and other obligations
---------------
which the Tenant is required to pay hereunder, together with any interest and/or
penalties that may accrue thereon in the event of the Tenant's failure to pay
such amounts, and any damage, costs or expenses (including reasonable attorney's
fees) which the Landlord may incur by reason of any default by the Tenant or
failure on the Tenant's part to comply with the provisions of this Lease shall
be deemed Additional Rent, and in the event of nonpayment by the Tenant, the
Landlord shall have all the rights and remedies with respect thereto as Landlord
has for the nonpayment of the Net Rent. The Landlord shall notify the Tenant in
writing of the amount of any Additional Rent due and payable by the Tenant
hereunder and the Tenant shall pay the full amount of such Additional Rent
within ten (10) days of receipt of such notice.
5. USE OF PREMISES. The Tenant shall use the Demised Premises for
---------------
manufacturing, office and warehouse uses or other uses consistent with any
reasonable business purpose of the Tenant and such incidental activities as may
be related to the Tenant's business; provided the same does not violate any
--------
applicable zoning, environmental, recycling or other law or governmental
regulation. Tenant is responsible for recycling all paper, waste and trash as
required by state and local laws.
6. LANDLORD'S ENTRY. The Landlord, it agents or employees, may enter the
----------------
Demised Premises at reasonable times during the Lease Term for the purpose of
inspection, carrying out any of the Landlord's covenants, and showing the same
to prospective purchasers or mortgagees, or to prospective tenants.
7. TAXES AND ASSESSMENTS. The Tenant, in addition to the Net Rent, shall pay
---------------------
as Additional Rent 56% of all taxes, assessments and other governmental charges
("Impositions") upon the premises, including any buildings and improvements
thereon as of the date hereof, which Impositions are assessed or become payable
during the Lease Term, together with any interest or penalties thereon assessed
because of action or inaction of Tenant. Tenant shall pay to Landlord each
month, together with the monthly installments of rent, one-twelfth (1/12) of
Tenant's pro-rata portion of the Impositions as estimated by Landlord to be
required to enable Landlord to pay the Impositions as they become due. Upon
demand of
<PAGE>
Landlord, Tenant shall pay to Landlord such additional sums that may be
necessary to make up any deficiency in the amount needed to enable Landlord to
pay the Impositions.
All Impositions assessed prior to the commencement of the Lease Term, but which
become payable in whole or in part during the Lease Term, and all Impositions
assessed during the Lease Term, but which become payable in whole or in part
after the termination of the Lease Term, shall be adjusted and prorated so that
the Landlord shall pay its pro-rated share for the period prior to and
subsequent to the Lease Term, and the Tenant shall pay its pro-rated share for
the Lease Term.
The Tenant may, if it shall so desire, endeavor at any time to contest the
validity of any assessment, or to obtain a lowering of the assessed valuation
upon the Demised Premises for the purpose of reducing any assessment. In such
event, the Landlord shall offer no objection, and at the request of Tenant, but
without expense to the Landlord, the Landlord will cooperate with the Tenant. If
requested by the Tenant, and provided the Landlord will not, in its reasonable
judgment, incur any expense or liability thereby, the Landlord will execute any
document which may be necessary and proper for any such proceeding. Upon the
termination of any proceeding and after the Tenant has paid any such assessment
together with costs, any refund shall be the property of the Tenant to the
extent to which it may be based on a payment of an assessment made by the
Tenant.
The certificate, advice, bill or receipt made by any officer, person or
corporation legally authorized to give such certificate, advice, bill or
receipt, showing that any Imposition was due and payable or had been paid at the
date of such certificate, advice, bill or receipt, shall be prima facie evidence
that such Imposition is due and payable, or has been paid and discharged as the
case may be.
8. INSURANCE.
---------
(a) The Tenant shall pay as Additional Rent all cost and expenses to keep
the Demised Premises insured for the mutual benefit of the Landlord, the Tenant,
and any mortgagee of the Landlord during the Lease Term, against loss or damage
by fire and against loss or damage by other risks now or hereafter embraced by
"Extended Coverage" so called, and against such other risks as the Landlord from
time to time reasonably may designate, in amounts reasonably designated by the
Landlord, which insurance shall be sufficient to prevent the Landlord or the
Tenant from becoming a co-insurer under the terms of the applicable policies.
The Tenant shall also pay as additional rent all cost and expenses to maintain
for the mutual benefit of the Landlord and the Tenant and any mortgagee of the
fee title in the Demised Premises:
(1) Personal injury and property damage liability insurance against
claims for bodily injury, death or property
<PAGE>
damage occurring on the Demised Premises, such insurance to afford minimum
protection, during the Lease Term, of not less than THREE MILLION DOLLARS
($3,000,000.00) in respect of bodily injury or death to any one person, and
THREE MILLION DOLLARS ($3,000,000.00) in respect of any one accident, and of not
less than ONE HUNDRED THOUSAND AND NO/100 ($100,000.00) DOLLARS for property
damage,
(2) Rent or rental value insurance against loss of rent or rental
value due to fire, including extended coverage endorsement, in an amount equal
to the annual rent for the Demised Premises, plus the estimated amount of real
estate taxes payable by the Tenant.
(3) Such other insurance, including but not limited to, demolition
insurance, and insurance against the presence of any hazardous waste or any lien
which may be imposed on the premises on account of Tenant's operations and use
of the Demised Premises and in such amounts as may from time to time be
reasonably required by the Landlord against other insurance hazards which at the
time are commonly insured against in the case of premises similarly situated.
(b) The loss, if any, under any policies provided for herein shall be
adjusted with the insurance companies by the Landlord and its mortgagee, if
applicable. The proceeds of any such insurance shall be payable to the Landlord
and to the mortgagee as their interest may appear. Tenant shall be entitled to
receive all insurance payments for loss of personal property which it has paid
for under its own insurance policy.
9. QUIET ENJOYMENT. The Tenant, upon the payment of the rent herein reserved,
---------------
and upon the performance of all the terms of this Lease, shall at all times
during the Lease Term peaceably and quietly enjoy the Demised Premises and all
appurtenances without any disturbance from the Landlord or from any other person
claiming through the Landlord, subject to any existing or future mortgages.
10. REPAIRS AND MAINTENANCE. Throughout the Lease Term, except as otherwise
-----------------------
provided in this Lease, the Tenant, at its sole cost and expense, will take good
care of the Demised Premises and keep the same in good order and condition. The
Tenant shall keep and maintain all portions of the Demised Premises in a clean
and orderly condition, free of dirt, rubbish and unlawful obstructions. Except
as provided below, the Tenant hereby assumes the full and sole responsibility
for the future condition, operation, repair, replacement, maintenance and
management of the Demised Premises, including the share of the parking lot which
Landlord allows Tenant to use.
The Tenant shall be responsible for all structural maintenance and repair, all
systems maintenance and shall provide exterior ground maintenance. All such
repairs and maintenance shall be made at the sole discretion of Landlord who
will have sole authority to approve or direct the amount and timing of the work
and the selection of
<PAGE>
contractors who will perform the work. Tenant agrees to pay as Additional Rent
100% of the cost of all such maintenance and repair of or to the Demised
Premises and 56% of the cost of all such maintenance and repair of or to the
premises as a whole or for the benefit of the premises as whole. The Tenant
agrees to strictly follow all EPA and DEP guidelines regarding the storage
and/or disposal of hazardous waste or substances on the premises. Tenant shall
indemnify and hold Landlord harmless from and against any claims, damages,
expense or penalties incurred because of the Tenant's failure to fulfill its
obligations set forth in this paragraph.
11. FACILITIES AND SERVICES. The Tenant shall at its own expense provide all
-----------------------
utilities and services for the Demised Premises and shall indemnify the Landlord
for any damage to the Landlord for the Tenant's failure to pay any such amount
of charge. Tenant shall pay 56% of the cost of utilities or services provided to
the premises or otherwise not separately metered to the Demised Premises, to
Landlord or Landlord's designee immediately upon receipt of a statement for
same.
12. ALTERATION AND CONSTRUCTION. The Tenant shall not make any material
---------------------------
alterations, improvements, additions or changes to the Demised Premises without
the written consent of the Landlord.
13. DAMAGE OR DESTRUCTION. In the event of the destruction of the Demised
---------------------
Premises or the Building by fire, explosion, the elements or otherwise during
the term hereby created, or previous thereto, or such partial destruction
thereof as to render the Demised Premises wholly untenantable or unfit for
occupancy, or should the Demised Premises be so badly injured that the same
cannot be repaired within 120 days from the happening of such injury, then the
term hereby created, shall, at the option of the Landlord, or Tenant provided
Tenant notifies Landlord within ten (10) days of such damage or destruction,
cease and become null and void from the date of such damage or destruction, and
the Tenant shall immediately surrender said premises and all the Tenant's
interests therein to the Landlord, and shall pay rent only to the time of such
surrender, in which event the Landlord may reenter and repossess the Demised
Premises, thus discharged from this Lease.
Should the Demised Premises be rendered untenantable and unfit for occupancy,
but yet be repairable within 120 days from the happening of said injury, then
neither Landlord nor Tenant shall have the right to terminate the Lease and the
Landlord shall enter and repair the same with reasonable speed, and the rent
shall not accrue after said injury and while repairs are being made, but shall
recommence immediately after said repairs shall be completed. But if the
premises shall be so slightly injured as not to be rendered untenantable and
unfit for occupancy, then the Landlord agrees to repair the same with reasonable
promptness and in that case the rent accrued and accruing shall not cease or
determine. The Tenant shall immediately notify the Landlord in case of fire or
other damage to the premises.
<PAGE>
14. SURRENDER UPON TERMINATION. The Tenant shall on the last day of the
--------------------------
term of this Lease, or upon the sooner termination thereof, peaceably and
quietly surrender the Demised Premises to the Landlord, including all repairs,
improvements, alterations, replacements and additions constructed or erected,
but not including personal property or trade fixtures added or placed thereon by
the Tenant or otherwise, in as good condition and repair as at the commencement
of the Lease Term or as of the completion date thereof subsequent to the
commencement of the Lease Term, as the case may be, with the natural wear and
tear thereof excepted.
15. CONDEMNATION. If ten percent (10%) or more of the Demised Premises shall be
------------
taken for any public or any quasi-public use under any statute or by right of
eminent domain or if any part of the premises is so taken which renders the use
of the remainder thereof impractical for the purposes for which the Demised
Premises were being used at the time of such taking, then the Landlord and the
Tenant shall have the right to terminate this Lease on 30 days notice to the
other party given within 90 days after the date of such taking and each party
shall be free to make claim against the taking authority for the amount of the
actual provable damages done to each of them. If any part of the Demised
Premises shall be so taken and this Lease shall not terminate or be terminated
under the provisions of this Section, then that part of the annual Net Rent and
other payments herein reserved and required which is earned up to the date of
such taking shall be paid, and the annual Net Rent thereafter shall be
apportioned by the parties according to the proportionate fair rental value of
the Demised Premises remaining and shall constitute the reserve Net Rent for the
remaining portion of the term.
In the case of such partial taking, the Landlord shall, at its own expense, as
speedily as circumstances permit, restore the Demised Premises and the buildings
thereon to an architectural unit as nearly like that in existence prior to the
taking as possible. Landlord shall make such restoration in the same manner as
provided in paragraph 13 of this Lease for repairs and restoration to the
Demised Premises due to fire or other casualty.
If the temporary use of the whole or any part of the Demised Premises shall be
taken by any lawful power or authority, by the exercise of the right of
condemnation or eminent domain, the term of this Lease shall not be reduced or
affected in any way, the Tenant shall continue to pay in full the Net Rent,
Additional Rent and other charges herein reserved, without reduction or
abatement, and the Tenant shall be entitled to receive for itself any award of
payment for such use.
16. ASSIGNMENT AND SUB-LEASE. The Tenant shall not sublet, sell, assign,
------------------------
pledge, or otherwise dispose of this Lease or the Tenant's interest in this
Lease without Landlord's written consent; provided, however, that Tenant shall
have the right to assign this Lease in the event that Tenant sells all or
substantially all of its assets.
<PAGE>
17. SECURITY DEPOSIT. The Tenant will deposit with the Landlord at the
----------------
time of execution of this lease the sum of Thirty-Five Thousand and No/100
Dollars ($35,000.00) in cash, as security for the faithful performance by the
Tenant of all of the terms and covenants of this Lease. In the event that the
Tenant shall fail to perform or observe any of the terms, covenants, conditions
or agreements to be observed or performed by the Tenant hereunder, and such
default shall not be cured within the grace period provided in this Lease, the
Landlord may apply said sum toward any and all damages owed to the Landlord by
the Tenant as a result of such default. In the event the Tenant is not in
default as aforesaid, the Landlord agrees to return said sum to the Tenant at
the termination of this Lease. It is hereby acknowledged that the full amount of
$35,000 is on deposit by Tenant to Landlord from the lease in effect from 1988
to 1993.
18. EVENT OF DEFAULT. Each of the following events shall be considered an event
----------------
of default (an "Event of Default") under this Lease:
(a) A default in the due and punctual payment of any Net Rent or
Additional Rent payable under this Lease or any part thereof within ten (10)
days after the same shall become due and payable; or
(b) A default by the Tenant in the performance of or compliance with any
of the covenants, agreements, terms or provisions contained in this Lease, other
than those referred to in the preceding subdivision (a), provided that the
Tenant shall have 30 days after written notice from the Landlord of such default
to cure such default and provided further that in connection with a default not
susceptible of being cured with due diligence within such 30 day period, the
time of the Tenant within which to cure the same shall be extended for such time
as may be necessary to cure the same with all due diligence, provided the Tenant
--------
commences promptly and proceeds diligently to cure the same; or
(c) Abandonment by the Tenant of the Demised Premises or if the Demised
Premises are vacated by the Tenant for a period of fifteen (15) days without the
prior written consent of the Landlord; or
(d) The filing by the Tenant of a petition under the United States
Bankruptcy Code or the entry of an order for relief against the Tenant as a
debtor in any proceeding pending under the United States Bankruptcy Code, or the
filing by the Tenant of any petition or other pleading seeking any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under the present or any future federal bankruptcy act or any
other present or future applicable federal, state or other statute or law or the
seeking, consenting or acquiescing in the appointment of any trustee, receiver
or liquidator of the Tenant or of all or any substantial part of its properties
or of the Demised Premises; or
<PAGE>
(e) Any action by Tenant to dissolve or cease operations. This lease
requires that the Tenant immediately provide Landlord notice of its intent to
dissolve or cease operations; or
(f) If within 60 days after the commencement of any proceeding against the
Tenant seeking any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under the present or any future
federal bankruptcy act or any other statute or law, such proceeding shall not
have been dismissed, or if, within 60 days after the appointment, without the
consent or acquiescence of the Tenant, of any trustee, receiver or liquidator of
the Tenant, or of all of any substantial part of its properties or of the
Demised Premises, such appointment shall not have been vacated or stayed on
appeal or otherwise, or if, within 60 days after the expiration of any such
stay, such appointment shall not have been vacated.
19. LANDLORD'S REMEDIES. On the occurrence of an Event of Default and at any
-------------------
time thereafter during the continuance of such Event of Default, the Landlord
may give written notice to the Tenant stating that this Lease and the Lease Term
shall expire and terminate on the date specified in such notice, and except as
otherwise herein provided, this Lease and the Lease Term and all rights of the
Tenant under this Lease shall expire and terminate. Upon any such expiration or
termination of this Lease, the Tenant shall quit and peacefully surrender the
Demised Premises to the Landlord, and the Landlord, upon or at any time after
any such expiration or termination, may without further notice, enter upon and
re-enter the Demised Premises and possess and repossess themselves thereof, by
force, summary proceedings, ejectment or otherwise, and may dispossess the
Tenant and remove the Tenant and all other persons and property from the Demised
Premises and may have, hold and enjoy the Demised Premises and the right to
receive all rental income of and from the same.
No expiration or termination of this Lease by Landlord as above provided shall
relieve Tenant of its liability and obligations under this Lease, and such
liability and obligations shall survive any such expiration or termination. In
the event of an expiration or termination, whether or not the Demised Premises
or any part thereof shall have been relet, Tenant shall pay to the Landlord the
whole rent and other charges required to be paid by Tenant plus expenses of
reletting, including fitting up the Demised Premises for a new tenant, any legal
fees, brokers' commissions and other costs, but minus any rentals received from
such reletting up to the time or expiration or termination of this Lease.
Thereafter, Tenant, until the end of what would have been the term of the Lease
in the absence of such expiration or termination, shall be fully liable to
Landlord and shall pay to Landlord such damages as may now or hereafter exist at
law or in equity or by statute or otherwise in such cases, plus all collection
costs incurred by Landlord, including reasonable attorney's fees. Landlord shall
use its reasonable efforts to relet the Demised Premises.
<PAGE>
The Tenant shall be fully liable to Landlord and shall pay to Landlord all
expenses incurred in enforcing the obligations of the Tenant under this Lease,
including but not limited to all court costs and reasonable attorneys fees.
20. LATE CHARGE. If any monthly installment of the Net Rent, or any Additional
-----------
Rent, is not received by the Landlord within ten (10) days after the date it
becomes due and payable, Tenant shall pay to the Landlord a late charge equal to
five percent (5%) of such overdue payment.
21. SALE OF PREMISES OR TENANT. In the event that a sale of the premises is
--------------------------
consummated, then, as a condition of said sale, Landlord may terminate this
lease on the condition that Landlord give Tenant a minimum of eighteen (18)
calendar months notice prior to termination. In the event that a sale of
substantially all of the stock or assets of the Tenant is consummated, then, as
a condition of said sale, the new owner of the Tenant may terminate this lease
on the condition that Tenant give Landlord a minimum of eighteen (18) calendar
months notice prior to termination. It is clearly understood that all
obligations of Tenant and Landlord must be met during the eighteen months after
notice has been given and prior to the termination.
22. WAIVER OF NOTICE. The Tenant hereby expressly waives, so far as permitted
----------------
by law, the service of any notice of intention to re-enter provided for in any
statute, or of the institution of legal proceedings to that end, and the Tenant,
for and on behalf of itself and all persons claiming through or under the Tenant
also waives any and all right of redemption or re-entry or repossession or to
restore the operation of this Lease in case the Tenant shall be dispossessed by
a judgment or by warrant of any court or judge or in case or re-entry or re-
possession by the Landlord or in case of any expiration or termination of this
Lease. The terms, "enter" or "re-enter", "entry" or "re-entry" as used in this
Lease are not restricted to their technical legal meaning.
23. LANDLORD'S NON-WAIVER. No failure by the Landlord to insist upon the strict
---------------------
performance of any covenant, agreement, term or condition of this Lease or to
exercise any right or remedy consequent upon a breach thereof, and no acceptance
of full or partial rent during the continuance of any such breach, shall
constitute a waiver of any such breach or of such covenant, agreement, term or
condition. No covenant, agreement, term or condition of this Lease to be
performed or complied with by the Tenant, and no breach thereof,, shall be
waived, altered or modified except by a written instrument executed by the
Landlord. No waiver of any breach shall affect or alter this Lease, but each and
every covenant, agreement, term and condition of this Lease shall continue in
full force and effect with respect to any other then existing or subsequent
breach thereof.
24. CUMULATIVE REMEDIES. Each right and remedy of the Landlord provided for in
-------------------
this Lease shall be cumulative and shall be in
<PAGE>
addition to every other right or remedy provided for in this Lease or now or
hereafter existing at law or in equity or by statute or otherwise, and the
exercise or beginning of the exercise by the Landlord of any one or more of the
rights or remedies provided for in this Lease or now or hereafter existing at
law or in equity or by statute or otherwise shall not preclude the simultaneous
or later exercise by the Landlord of any or all other rights or remedies
provided for in this Lease or now or hereafter existing at law or in equity or
by statute or otherwise.
25. SUBORDINATION. This Lease shall be subject and subordinate to all mortgages
-------------
and building loan mortgages which may presently or hereafter affect the premises
or Demised Premises, and each and every advance which may hereafter be made
thereunder, and to all renewals, modifications, consolidations, replacements and
extensions thereof. Tenant shall, at the request of Landlord, execute and
deliver such instruments or documents required by any mortgagee of the premises
or the Demised Premises to evidence or reflect the subordination of this Lease
as provided herein.
26. RENEWAL. Tenant and Landlord agree that, if Strouse, Adler has not been
-------
sold during the term of this lease, that the lease will be renewed on mutually
acceptable terms for an additional term of five (5) years.
27. NON-DISTURBANCE. The Landlord shall, at the request of the Tenant, provide
---------------
the Tenant with the customary non-disturbance agreement from any mortgagee to
whose interest this Lease is subordinate. Such non-distribution agreement shall
provide that the rights of Tenant hereunder shall not be disturbed so long as
the Tenant is not in default hereunder.
28. ESTOPPEL CERTIFICATES. Each party shall, without charge, at any time and
---------------------
from time to time, deliver a written estoppel certificate to any person, firm or
corporation specified by the other party.
29. NOTICE OF LEASE. At the option of either party, the Landlord and the Tenant
---------------
shall execute a short form of Notice of Lease for recording purposes, which
shall be subject to approval of counsel for the Landlord and Tenant.
30. NOTICE. Any notice under this Lease must be in writing and must be
------
personally delivered or sent by registered or certified mail to the last address
of the party to whom the notice is to be given as designated by such party from
time to time in writing. The Landlord and Tenant hereby designate the address
hereinbefore set opposite their respective names as their respective addresses.
31. EXONERATION. The Landlord shall not be liable for any personal injury to
-----------
the Tenant or for any damage to any property of the Tenant or of any other
occupant of any part of the Demised Premises, irrespective of how such injury or
damage may be caused, whether from action of the elements or acts of negligence
of the
<PAGE>
Tenant or occupants of adjacent properties. Tenant shall indemnify Landlord from
any liability or any claims, demands or expenses incurred, which arise out of,
or result from any personal injury to any persons or property on or about the
Demised Premises or the premises during the term hereof, which indemnification
shall include, but shall not be limited to any court costs and attorneys fees
incurred by Landlord in connection with the defense hereof.
32. CAPTIONS. The captions of this Lease are for convenience only and shall in
--------
no way be construed to affect the interpretation of this Lease.
34. SEVERABILITY. If any term or provision of this Lease, or the application
------------
thereof to any person or circumstance, shall to any extent be invalid or
unenforceable, the remainder of this Lease or the application of such term or
provision to persons or circumstances, other than those as to which it is
invalid or unenforceable, shall not be affected thereby; and each term and
provision of this Lease shall be valid and enforceable to the fullest extent by
law.
IN WITNESS WHEREOF, the Landlord and Tenant hereunder have hereunto set
their names and seals the day and year first above written.
LANDLORD
Signed, Sealed and Delivered NEW ENGLAND RESOURCES LIMITED
as to the signatories in the PARTNERSHIP
presence of:
/s/ Ann-Marie Howell
By: ---------------------------------------
Its
TENANT:
THE STROUSE, ADLER COMPANY
/s/Alfred A. Kniberg
By: ---------------------------------------
Its President
<PAGE>
EXHIBIT 10.16
-------------
FIRST AMENDMENT TO LEASE
------------------------
This Amendment to lease (the "Amendment") made this 11th day of April,
1994, by and between:
NEW ENGLAND RESOURCES LIMITED PARTNERSHIP, a Connecticut limited
-----------------------------------------
partnership having an address at 151 River Road, Essex, Connecticut 06426
(hereinafter called "Landlord"); and
THE STROUSE, ADLER COMPANY, a Connecticut corporation having and address at
--------------------------
78 Olive Street, New Haven, Connecticut 06507 (hereinafter called
"Tenant").
W I T N E S S E T H
WHEREAS, the Landlord is the owner of real property and the improvements
thereon known as 78-84 Olive Street, New Haven, Connecticut (the "premises");
and
WHEREAS, the Landlord and the Tenant entered into a certain Lease dated
October 4, 1991 (the "Lease"), whereby the Tenant leased a portion of the
premises; and
WHEREAS, the parties hereto now desire to amend the Lease as more fully set
forth herein; and
WHEREAS, capitalized terms not otherwise defined in this Amendment shall
have the same meaning herein as defined in the Lease.
NOW THEREFORE, in consideration of the foregoing and the mutual promises
and covenants herein contained, the Landlord and the Tenant agree as follows:
A. DEMISED PREMISES. Tenant shall lease from the Landlord an additional
----------------
11,650 square feet located on the first floor of the building. Accordingly, the
second recital of the Lease is hereby amended and restated in its entirety to
read as follows:
WHEREAS, the Landlord wishes to lease to the Tenant approximately
87,000 square feet (the "Initial Premises") of space on the third,
second and basement floors of the building located on the Premises
(the "Building"), approximately 10,500 square feet of space (the
"Additional Premises") located on the first floor of the Building and
the right to use, in common with other tenants, a loading dock and
related space constituting 1,150 square feet (the "Common Area")
located on the
<PAGE>
first floor of the Building (the Initial Premises, the Additional
Premises and the Common Area are collectively herein referred to as
the "Demised Premises").
B. LEASE TERM. The term of the Lease for the Additional Premises and the
----------
Common Area shall commence on March 1, 1994. The term of the Lease for the
Demised Premises shall be extended until December 31, 1999. Accordingly,
Section 1 is hereby amended and restated in its entirety to read as follows:
"1. Lease Term. The term of this Lease shall commence as of the 1st
----------
day of September, 1993 as to the Initial Premises and as of March 1,
1994 as to the Additional Premises and the Common Area and shall end
on December 31, 1999 unless sooner terminated under the provisions
defined in section 21 of this lease ("Lease Term") provided, however,
that either Landlord or Tenant can terminate this Lease as to the
Additional Premises and the Common Area only on not less than six (6)
months written notice. Upon any such termination as to the Additional
Premises and the Common Area, this Lease will remain in effect as to
the Initial Premises and the Initial Premises shall thereafter
constitute the Demised Premises."
C. NET RENT. Landlord and Tenant have agreed that the rent for the
--------
Additional Premises shall be $2.00 per square foot per year and the rent for the
Common Area shall be $0.75 per square foot per year payable in equal monthly
installments and in advance with rental increases using the same method used for
increases in the rent for the Initial Premises. The annual increase in rent
shall be extended until the end of the term of the Lease. Accordingly, Section
2 is hereby amended and restated in its entirety to read as follows:
"2. Net Rent. The Tenant shall pay to Landlord the annual net rental
--------
for the Initial Premises of $4.11 per square foot for the period from
September 1, 1993 until August 31, 1994. The Tenant shall pay to
Landlord annual net rental for the Additional Premises equal to $2.00
per square foot per year and $0.75 per square foot per year for the
Common Area for the period from March 1, 1994 until August 31, 1994.
Each September 1st, commencing September 1, 1994, the annual net
rental for the Initial Premises, Additional Premises and the Common
Area for each subsequent 12 month period shall be increased over the
prior year's net annual rent by an amount equal to the product of (a)
the prior year's net annual rent per square foot times (b) the lesser
-----
of (x) 5% or (y) the increase in the Consumer Price Index as reported
in the Wall Street
<PAGE>
Journal for the previous 12 months (September through August). The
annual net rental for the Initial Premises, the Common Area and the
Additional Premises shall be hereinafter referred to as the "Net Rent"
and the annual increases in Net Rent shall continue each September 1st
until the end of the term of the Lease."
D. PERCENTAGE OF PROPERTY. The addition of the Additional Premises and
----------------------
the Common Area to the Demised Premises increase Tenant's occupancy of the
Building from 56% to 63.5% of the Building. Accordingly, various Sections of
the Lease have to be amended to increase the Tenant's responsibility from 56% to
63.5% for the common charges and other items. Accordingly, Sections 3, 7, 10
and 11 are hereby amended to delete "56%" and insert "63.5%" but the percentage
in such sections shall be reduced to 56% upon any termination of the Lease for
the Additional Premises and Common Areas pursuant to Section 1.
E. REPAIRS AND MAINTENANCE. Any cost or expense incurred in connection
-----------------------
with the remediation of any environmental hazard or problem which occurred on or
before September 1, 1988 is the sole responsibility of the Landlord and shall
not be deemed to be a repair or maintenance under the Lease for which Tenant is
responsible and the cost and expense in connection with any such remediation
shall be conducted at the sole expense of the Landlord. Accordingly, Section 10
is amended by inserting the following sentence at the end of such paragraph:
"Notwithstanding the foregoing, any cost or expense incurred
in connection with the remediation of any environmental
hazard or problem on the premises which occurred on or
before September 1, 1988 shall not be deemed to be a repair
or maintenance under the Lease for which Tenant is
responsible and such remediation shall be the sole
responsibility of the Landlord and any and all cost and
expense in connection with such remediation shall be
conducted at the sole expense of the Landlord."
F. Tenant's Right to Terminate. Tenant's right to terminate this Lease
---------------------------
upon the sale of stock or assets of the Tenant is being terminated.
Accordingly, the second sentence of Section 21 is deleted in its entirety.
G. RENEWAL. Tenant's right to renew the Lease is being terminated.
-------
Accordingly, Section 26 is hereby deleted in its entirety.
H. MISCELLANEOUS. This Agreement constitutes the entire agreement of the
-------------
parties with respect to the Amendment of the Lease. Except as provided herein,
the Lease is and remains in full force and effect without amendment or
modification.
<PAGE>
IN WITNESS WHEREOF, the Landlord and Tenant hereunder have hereunto set
their names and seals the day and year first above written.
SIGNED, SEALED AND DELIVERED
as to the Signatures in the
Presence of
NEW ENGLAND RESOURCES
LIMITED PARTNERSHIP
By: Howell Resources, Inc.
Its General Partner
/s/Ann-Marie Howell
By:-------------------------------------
Ann-Marie Howell
Its Vice President
THE STROUSE, ADLER COMPANY
/s/David S. Howell
By -------------------------------------
Its Chairman
<PAGE>
EXHIBIT 10.17
-------------
SECOND AMENDMENT TO LEASE
-------------------------
This Amendment to lease (the "Amendment") made this 14th day of December, 1994,
by and between:
NEW ENGLAND RESOURCES LIMITED PARTNERSHIP, a Connecticut limited
-----------------------------------------
partnership having an address at 151 River Road, Essex, Connecticut 06426
(hereinafter called "Landlord"); and
THE STROUSE, ADLER COMPANY, a Connecticut corporation having an address at
--------------------------
78 Olive Street, New Haven, Connecticut 06507 (hereinafter called
"Tenant").
WITNESSETH
WHEREAS, the Landlord is the owner of real property and the improvements
thereon known as 78-84 Olive Street, New Haven, Connecticut (the "Premises");
and
WHEREAS, the Landlord and the Tenant entered into a certain Lease dated
October 4, 1991 (the "Lease"), whereby the Tenant leased a portion of the
Premises; and
WHEREAS, the Landlord and the Tenant executed a First Amendment to lease
dated April 11, 1994.
WHEREAS, the parties hereto now desire to amend the Lease again as more
fully set forth herein; and
WHEREAS, capitalized terms not otherwise defined in this Amendment shall
have the same meaning herein as defined in the Lease.
NOW THEREFORE, in consideration of the foregoing and the mutual promises
and covenants herein contained, the Landlord and the Tenant agree as follows;
A. DEMISED PREMISES. Tenant shall lease from the Landlord an additional
----------------
18,850 square feet located on the first floor of the building. Accordingly, the
third recital of the Lease is hereby amended and restated in its entirety to
read as follows:
WHEREAS, the Landlord wishes to lease to the Tenant approximately 87,000
square feet (the "Initial Premises") of space on the third, second and
basement floors of the building located on the Premises (the "Building"),
approximately 10,500 square feet of space (the "Additional Premises")
located on the first floor of the Building and approximately 20,000 square
feet of space
<PAGE>
(the "Second Additional Premises") located on the first floor of the
Building (the Initial Premises, the Additional Premises and the Second
Additional Premises are collectively herein referred to as the "Demised
Premises").
B. LEASE TERM. The term of the Lease for the Second Additional Premises
----------
shall commence on December 1, 1994. The term of the Lease for the Demised
Premises shall be extended until December 31, 1999. Accordingly, Section 1 is
hereby amended and restated in its entirety to read as follows:
"1. Lease Term. The term of this Lease shall commence as of the 1st day of
----------
September, 1993 as to the Initial Premises and as of March 1, 1994 as to
the Additional Premises and as of the 1st day of December, 1994 as to the
Second Additional Premises and shall end on December 31, 1999.
C. NET RENT. Landlord and Tenant have agreed that the rent for the Second
--------
Additional Premises shall be $1.00 per square foot per year payable in equal
monthly installments and in advance with rental increases using the same method
used for increase in the rent for the Initial Premises. The annual increase in
rent shall be extended until the end of the term of the Lease. Accordingly,
Section 2 is hereby amended and restated in its entirety to read as follows:
"2. Net Rent. The Tenant shall pay to the Landlord the annual net rental
--------
for the Initial Premises of $4.23 per square foot for the period from
September 1, 1994 until August 31, 1995. The Tenant shall pay to the
Landlord annual net rental for the Additional Premises equal to $2.06 per
square foot per year and $1.00 per square foot per year for the Second
Additional Premises for the period from December 1, 1994 until August 31,
1995. Each September 1st, commencing September 1, 1995, the annual net
rental for the Initial Premises, Additional Premises and the Second
Additional Premises for each subsequent 12 moth period shall be increased
over the prior year's net annual rent by an amount equal to the product of
(a) the prior year's net annual rent per square foot times (b) the lesser
-----
of (x) 5% or (y) the increase in the CPI as published in the Wall Street
Journal for the previous 12 months (September through August). The annual
net rental for the Initial Premises, the Additional Premises and the Second
Additional Premises shall be hereinafter referred to as the "Net Rent: and
the annual increases in New Rent shall continue each September 1st until
the end of the term of the Lease."
D. PERCENTAGE OF PROPERTY. The addition of the Second Additional Premises
----------------------
to the Demised Premises increases Tenant's occupancy of the Building from 63.5%
to 74.8% of the Building.
<PAGE>
Accordingly, various Sections of the Lease have to be amended to increase the
Tenant's responsibility for the common charges and other items. Accordingly,
Sections 3, 7, 10 and 11 are hereby amended to delete "63.5%" and insert
"74.8%".
E. MISCELLANEOUS. This Agreement constitutes the entire agreement of the
-------------
parties with respect to the Amendment of the Lease. Except as provided herein,
the Lease is and remains in full force and effect without amendment or
modification.
IN WITNESS WHEREOF, the Landlord and the Tenant hereunder have hereunto set
their names and seals the day and year first above written.
SIGNED, SEALED AND DELIVERED
as to the Signatures in the
Presence of NEW ENGLAND RESOURCES
LIMITED PARTNERSHIP
By: Howell Resources, Inc.
Its General Partner
/s/Ann-Marie Howell
By:-------------------------------------------
Ann-Marie Howell
Its Vice President
THE STROUSE, ADLER COMPANY
/s/David S. Howell
By:-------------------------------------------
Its Chairman
<PAGE>
EXHIBIT 10.18
-------------
________________________________________________________________________________
________________________________________________________________________________
FIRST AMENDED AND RESTATED MASTER CREDIT AGREEMENT
by and between
FLEET BANK, NATIONAL ASSOCIATION
and
THE STROUSE, ADLER COMPANY
October 2, 1995
________________________________________________________________________________
________________________________________________________________________________
<PAGE>
FIRST AMENDED AND RESTATED MASTER CREDIT AGREEMENT
This FIRST AMENDED MASTER CREDIT AGREEMENT (the "Agreement") is made
as of this 9th day of November, 1994 by and between FLEET BANK, NATIONAL
ASSOCIATION, a national banking association, with an office and principal place
of business at One Constitution Plaza, Hartford, Connecticut 06115-1600 (the
"Bank") and THE STROUSE, ADLER COMPANY, a Delaware corporation with its chief
executive office located at 78 Olive Street, New Haven, Connecticut 06507 (the
"Borrower").
W I T N E S S E T H:
WHEREAS, pursuant to a certain Master Credit Agreement made as of the
15th day of June, 1992 by and between Bank and Borrower (as amended and in
effect from time to time, the "Original Credit Agreement"), Bank agreed to make
loans and advances and otherwise extend credit to Borrower; and
WHEREAS, Bank and Borrower wish to amend and restate the terms and
conditions of the Original Credit Agreement; and
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, Bank and Borrower hereby agree as follows:
SECTION 1. DEFINITIONS
All capitalized terms used in this Agreement, the Notes or the Other
Documents, or in any certificate, report or other document, instrument or
agreement executed or delivered pursuant hereto and thereto (unless otherwise
indicated therein) shall have the meanings ascribed to such terms below.
Section 1.1. "Account Debtor" means any Person obligated to
Borrower with respect to an Account Receivable.
Section 1.2. "Account Receivable" or "Accounts Receivable" means the
unpaid portion of obligations as stated on the respective invoices issued to a
customer of Borrower or any of its Subsidiaries with respect to Inventory sold
and shipped or services performed or rendered in the ordinary course of
business.
Section 1.3. "Affiliate" means any Person (i) which directly or
indirectly controls, or is controlled by, or is under common control with,
Borrower or any Subsidiary of Borrower; (ii) which directly or indirectly
beneficially owns or holds ten percent (10%) or more of any class of voting
stock of Borrower or any Subsidiary of Borrower; or (iii) ten percent (10%) or
more of the voting stock of which is directly or indirectly beneficially owned
or held by Borrower or any Subsidiary of Borrower. The term "control" (and its
correlative meanings "controlled by" and "under common control with") as used in
this Section 1.3. means the possession, directly
<PAGE>
or indirectly, of the power to direct, or cause the direction of, the management
and policies of a Person, whether through ownership of voting stock, by contract
or otherwise.
Section 1.4. "Agreement" means this First Amended and Restated Master
Credit Agreement, including all schedules and exhibits attached hereto, and any
and all amendments, modifications and supplements hereto.
Section 1.5. "Bank" has the meaning set forth in the Preamble hereof.
Section 1.6. "Bank Affiliate" or "Bank Affiliates" means any
Affiliate of Bank or its parent bank holding company.
Section 1.7. "Bank Agents" has the meaning set forth in Section
13.2.5. hereof.
Section 1.8. "Bankruptcy Code" means Title 11 of the United States
Code, entitled "Bankruptcy", as amended from time to time and all rules and
regulations promulgated thereunder.
Section 1.9. "Beneficiary" means the beneficiary of any Letter of
Credit or Letter of Credit Guaranty issued by Bank for the account of Borrower
or any Subsidiary of Borrower.
Section 1.10. "Borrower" has the meaning set forth in the Preamble
hereof.
Section 1.11. "Borrowing Base" means, as of any date as of which the
amount thereof shall be determined, an amount equal to the sum of (i) the
Security Value of Accounts Receivable as of such date and (ii) the Security
Value of Inventory as of such date.
Section 1.12. "Borrowing Base Certificate" has the meaning set forth
in Section 7.1.3. hereof.
Section 1.13. "Breakage Costs" means an amount equal to all costs
Bank sustains in breaking or unwinding or in not making after receiving a Notice
(except where such results from the failure of Bank to fund) any Libor funding
contract, and all expenses that Bank sustains or incurs as a result of
prepayment or receipt of principal with respect to a Libor Loan on a day other
than the last day of the then current Interest Period.
Section 1.14. "Business Day" means, in the case of a Libor Loan, any
day in which dealings in foreign currencies and exchange between banks may be
carried on in the place where the Eurodollar Office is located and in Boston,
Massachusetts and, in all other cases, any day other than a Saturday, Sunday,
legal holiday or other day on which banks in the State of Connecticut are
required or permitted by law to close.
<PAGE>
Section 1.15. "Capital Expenditures" means, without duplication, for
any period, the aggregate of all expenditures on a consolidated basis including
deposits (whether paid in cash or property or accrued as liabilities and
including the aggregate amount of all principal payments due for the entire term
of all Capital Leases that are required to be capitalized on the balance sheet)
made by Borrower and its Subsidiaries that, in conformity with GAAP, are
required to be included in the property, plant, equipment, or similar fixed
asset account.
Section 1.16. "Capital Lease" means any lease of any property
(whether real, personal or mixed) that, in conformity with GAAP, should be
accounted for as a capital lease.
Section 1.17. "Closing Date" means the date hereof.
Section 1.18. "Code" means the Internal Revenue Code of 1986 and the
rules and regulations promulgated thereunder, collectively, as the same may from
time to time be supplemented or amended and remain in effect.
Section 1.19. "Collateral" means all collateral received or delivered
as security for the Obligations pursuant to, and as more particularly described
in, the Security Agreement, the Stock Pledge, the Letter of Credit Applications
and the Collateral Disclosure List and any property or interest provided in
addition to or in substitution for any of the foregoing.
Section 1.20. "Collateral Disclosure List" has the meaning set forth
in Section 3.1. hereof.
Section 1.21. "Collection Fee" has the meaning set forth in Section
2.1.14. hereof.
Section 1.22. "Commitment Amount" means (i) the amount of EIGHT
MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($8,500,000.00) during the
period commencing as of the Closing Date and continuing through October 31,
1995, ELEVEN MILLION AND NO/100 DOLLARS ($11,000,000.00) during the period
commencing as of November 1, 1995 and continuing through October 31, 1996 and
THIRTEEN MILLION AND NO/100 DOLLARS ($13,000,000.00) during the period
commencing as of November 1, 1996 and continuing through the Revolving Credit
Termination Date or (ii) any lesser amount, including zero (0), resulting from a
reduction or termination of such amount in accordance with Section 2.1.5. or
Section 12.1.
Section 1.23. "Contractual Obligation" means, as applied to any
Person, any indenture, mortgage, deed of trust, contract, undertaking, agreement
or other instrument to which that Person is a party or by which it or any of its
properties is bound or to which it or any of its properties is subject.
Section 1.24. "Controlled Group" means all trades or businesses
(whether or not incorporated) under common control that
<PAGE>
together with Borrower, are treated as a single employer under Section 414(b) or
414(c) of the Code or Section 4001 of ERISA.
Section 1.25. "Covered Employees" means David Howell, Alfred Kniberg,
Ann-Marie Howell, Joyce Baran, Paul McDonald and Graeme Caulfield.
Section 1.26. "Credits Outstanding" means, as of any date as of which
the amount thereof shall be determined, the aggregate undrawn amount of all
issued and outstanding Letters of Credit and Letter of Credit Guaranties but
excluding any amounts which constitute unpaid Reimbursement Obligations as of
such date.
Section 1.27. "Default" means an event or condition that, but for the
lapse of time, the giving of notice, or both, would constitute an Event of
Default if that event or condition was not cured or removed within any
applicable grace or cure period.
Section 1.28. "Default Rate" has the meaning set forth in Section 2.4.
7. hereof.
Section 1.29. "Disqualified Accounts Receivable" means:
a. An Account Receivable which does not arise out of a bona
fide sale of goods or rendering of services of the kind sold or
rendered by Borrower in the ordinary course of its business.
b. An Account Receivable which remains unpaid for more than
sixty (60) days after the due date; or
c. An Account Receivable owing by an Account Debtor if fifty
percent (50%) or more of the dollar value of all Accounts
Receivable owed by such Account Debtor remain unpaid for more
than sixty (60) days after the due date; or
d. An Account Receivable with respect to which the Account
Debtor is a director, officer, employee or agent of Borrower or
is a Subsidiary or an Affiliate of Borrower; or
e. An Account Receivable with respect to which any covenant,
representation or warranty set forth in this Agreement has been
breached; or
f. An Account Receivable with respect to which the Account
Debtor has commenced a voluntary case in bankruptcy, or made an
assignment for the benefit of creditors, or if a decree or order
for relief has been entered by a court having jurisdiction over
the Account Debtor in an involuntary case in bankruptcy, or if
any petition or other application for relief in bankruptcy has
been filed against the Account Debtor, or if the
<PAGE>
Account Debtor has failed, ceased business operations, become
insolvent or consented to or suffered a receiver, trustee,
liquidator or custodian to be appointed for it or all or
substantially all of its properties or assets unless Bank
otherwise consents to the inclusion of such Account Receivable
in the calculation of the Borrowing Base; or
g. An Account Receivable with respect to which the goods giving
rise thereto have not been shipped to the Account Debtor or the
services giving rise thereto have not been performed by Borrower
or if the Account Receivable does not otherwise represent a
final sale; or
h. An Account Receivable owing by a single Account Debtor
located outside of the United States of America, Canada or
Puerto Rico unless such Account Receivable is a Secured Foreign
Receivable or an Insured Foreign Receivable; or
i. An Account Receivable with respect to which the sale giving
rise thereto is on a bill-and-hold, sale-and-return, sale on
approval, consignment or other repurchase or return basis; or
j. An Account Receivable with respect to which the Account
Debtor is the United States of America or any department, agency
or office thereof unless Borrower assigns its right to payment
of such Account Receivable to Bank in accordance with the
Federal Assignment of Claims Act of 1940; or
k. An Account Receivable to the extent that the Account Debtor
has paid or advanced to Borrower any deposit or other advance in
respect of the payment thereof; or
l. An Account Receivable to the extent that the Account Debtor
has earned or accrued, or is due, any rebate, credit or other
allowance by Borrower; or
m. An Account Receivable to the extent of any amounts owed by
Borrower to such Account Debtor; or
n. An Account Receivable in which Bank does not possess a valid
and perfected first priority security interest; or
o. An Account Receivable owing by an Account Debtor located in
a jurisdiction in which Borrower has not complied with any laws
which might restrict Borrower's ability to collect such Account
Receivable; or
<PAGE>
p. An Account Receivable which Bank, in its reasonable credit
judgment, excludes from the calculation of the Borrowing Base
under Section 2.1.3. hereof.
Section 1.30. "Disqualified Inventory" means:
a. Inventory in which Bank does not possess a valid and
perfected first priority security interest; or
b. Inventory which is not in good, saleable and readily usable
condition or is obsolete or unmerchantable; or
c. Inventory which is located outside of, or in transit to, the
United States of America, Canada or Puerto Rico unless Bank
otherwise consents to the inclusion of such Inventory in the
calculation of the Borrowing Base; or
d. Inventory which has been produced in violation of the Fair
Labor Standards Act and subject to the so-called "hot goods"
provisions contained in 29 U.S.C. 215 (a); or
e. Inventory with respect to which any covenant, representation
or warranty set forth in this Agreement has been breached; or
f. Inventory which Bank, in its reasonable credit judgment,
excludes from the calculation of the Borrowing Base under
Section 2.1.3. hereof.
Section 1.31. "Dividend" or "Dividends" means the payment of any
dividend or other distribution in respect of the capital stock of a corporation
in cash or other property (excepting distribution in the form of such stock) or
the redemption or acquisition of any capital stock or security of a corporation.
Section 1.32. "Distribution Covenants" means the financial covenants
set forth in Section 9.2. hereof.
Section 1.33. "Drawing" or "Drawings" means any payment(s) or
disbursement(s) made by Bank under any Letter of Credit or any Letter of Credit
Guaranty issued by Bank for the account of Borrower honoring any demand for
payment presented by the Beneficiary of such Letter of Credit or such Letter of
Credit Guaranty in accordance with the terms thereof.
Section 1.34. "Eligible Account Receivable" means an Account
Receivable which is NOT a Disqualified Account Receivable.
Section 1.35. "Eligible Inventory" means that portion of Borrower's
Finished Goods, Raw Materials and Work-in-Process which is NOT Disqualified
Inventory.
Section 1.36. "Encumbrance or "Encumbrances" means any security
interest, mortgage, pledge, lien, claim, charge,
<PAGE>
encumbrance, title retention agreement, lessor's interest under a financing
lease or any analogous arrangements in any of Borrower's properties or assets,
intended as, or having the effect of, security.
Section 1.37. "Environmental Certificate" has the meaning set forth in
Section 5.2.11. hereof.
Section 1.38. "Environmental Laws" means any and all laws, statutes,
ordinances, rules, regulations, orders, or determinations of any Federal, state
or local governmental body, instrumentality or agency pertaining to the
environment, including without limitation, the Clean Water Act, the Clean Air
Act, as amended, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986 ("SARA"), and as may be further amended (all
together herein called "CERCLA"), the Federal Water Pollution Control
Amendments, the Resource Conservation and Recovery Act of 1976, as amended
("RCRA"), the Hazardous Materials Transportation Act of 1975, as amended, the
Safe Drinking Water Act, as amended, the Toxic Substances Control Act, as
amended, and any comparable or similar environmental laws of the State of
Connecticut and any other state in which Borrower maintains business premises.
Likewise, the terms "hazardous substance," "release," and "threatened release"
herein referenced in connection with Environmental Laws shall have the meanings
specified in CERCLA and the terms "solid waste" and "dispose" (or "disposed")
shall have the meanings specified in RCRA; provided, however, in the event
either CERCLA or RCRA is amended so as to broaden the meaning of any term
defined therein, such broader meaning shall apply subsequent to the effective
date of such amendment.
Section 1.39. "Equipment" means all of Borrower's machinery,
equipment, office machinery, furniture, trade fixtures, conveyors, tools,
materials, storage and handling equipment, computer equipment and hardware,
including central processing units, terminals, drives, memory units, printers,
keyboards, screens, peripherals and input or output devices, automotive
equipment, trucks, molds, dies, stamps, motor vehicles and other equipment of
every kind and nature.
Section 1.40. "ERISA" means the Employee Retirement Income Security
Act of 1974 and the rules and regulations promulgated thereunder; collectively,
as the same may from time to time be supplemented or amended and remain in
effect.
Section 1.41. "Eurodollar Office" means initially, Bank's office in
Boston, Massachusetts, and thereafter such other office of offices of Bank (as
designated from time to time by notice from Bank)through which the Libor Rate is
determined. A Eurodollar Office may be, at the option of the Bank, either a
domestic or a foreign office.
<PAGE>
Section 1.42. "Event of Default" has the meaning set forth in Section
11. hereof.
Section 1.43. "Exchange Act" means the Securities Exchange Act of
1934, as amended.
Section 1.44. "Extension of Credit" means any Loan, Letter of Credit,
Letter of Credit Guaranty or any other loan, advance or extension of credit by
Bank to Borrower under this Agreement or the Other Documents.
Section 1.45. "Facility Fee" has the meaning set forth in Section
2.1.13. hereof.
Section 1.46. "FIFO" means the first in, first out method of valuing
inventory.
Section 1.47. "Financial Statement" or "Financial Statements" means,
as of any date, or with respect to any period, as applicable, a financial report
or reports consisting of (i) a balance sheet; (ii) an income statement; (iii) a
statement of cash flow; and (iv) a statement of changes in stockholders' equity.
Section 1.48. "Finished Goods" means that portion of Borrower's
Eligible Inventory which consists of finished goods.
Section 1.49. "Fiscal Year" means June 30 in each year.
Section 1.50. "Forecasts" has the meaning set forth in Section 4.8.
hereof.
Section 1.51. "Foreign Credit Insurer" means either (i) collectively,
the Foreign Credit Insurance Association and the Export- Import Bank of the
United States of America or (ii) or any private insurer approved in writing by
Bank.
Section 1.52. "GAAP" means generally accepted accounting principles as
set forth in Statement on Auditing Standards No. 69 entitled "The Meaning of
`Present Fairly in Conformity with Generally Accepted Accounting Principles' in
the Independent Auditor's Report" issued by the American Institute of Certified
Public Accountants and statements and pronouncements of the Financial Accounting
Standards Board that are applicable to the circumstances as of the date of
determination.
Section 1.53. "Governmental Authority" means any Federal, state, local
or foreign court, commission or tribunal, or governmental, administrative or
regulatory agency, department, authority, instrumentality or other body.
Section 1.54. "Government Obligations" means securities which are
general obligations of the United States of America or which are unconditionally
guaranteed by the United States of America as to timely payment of principal and
interest.
<PAGE>
Section 1.55. "Government Contract" means any contract for the purchase of
goods or services by the United States of America or any department, agency or
office thereof.
Section 1.56. "Guarantees" means, as applied to Borrower and its
Subsidiaries, all guarantees, endorsements or other contingent or surety
obligations with respect to obligations of any other Person, whether or not
reflected on the consolidated balance sheet of Borrower and its Subsidiaries,
including any obligation to furnish funds, directly or indirectly (whether by
virtue of partnership arrangements, by agreement to keep-well or otherwise),
through the purchase of goods, supplies or services, or by way of stock
purchase, capital contribution, advance or loan, or to enter into a contract for
any of the foregoing, for the purpose of payment of obligations of any other
Person.
Section 1.57. "Hazardous Materials" means (i) any chemical, compound,
material, mixture or substance that is now or hereafter defined as or included
in the definition of "hazardous substances", "hazardous wastes", "hazardous
materials", "extremely hazardous waste", "restricted hazardous waste", or "toxic
substances" or terms of similar import under any applicable Federal, state or
local law or under the regulations adopted or promulgated pursuant thereto,
including, without limitation, Environmental Laws; (ii) any oil, petroleum or
petroleum derived substance, any drilling fluids, produced waters and other
wastes associated with the exploration, development or production of crude oil,
any flammable substances or explosives, any radioactive materials, any hazardous
wastes or substances, any toxic wastes or substances or any other materials or
pollutants which (a) could pose a hazard to any properties or assets of Borrower
or its Subsidiaries or (b) could cause any of such properties or assets to be in
violation of any Environmental Laws; (iii) asbestos in any form, urea
formaldehyde foam insulation, electrical equipment which contains any oil or
dielectric fluid containing levels of polychlorinated biphenyls in excess of
fifty (50) parts per million; and (iv) any other chemical, material or
substance, exposure to, or disposal of, which is now or hereafter prohibited,
limited or regulated by any Federal, state or local governmental body,
instrumentality or agency.
Section 1.58. "Indebtedness" means, as applied to any Person, without
duplication: (a) all indebtedness for borrowed money; (b) that portion of
obligations with respect to Capital Leases that is properly classified as a
liability on a balance sheet in conformity with GAAP; (c) notes payable and
drafts accepted representing extensions of credit whether or not representing
obligations for borrowed money; (d) any obligation owed for all or any part of
the deferred purchase price of property or services if the purchase price is due
more than six months from the date the obligation is incurred or is evidenced by
a note or similar written instrument; and (e) all indebtedness secured by any
Encumbrance on any property or asset owned or held by that Person regardless of
whether the
<PAGE>
indebtedness secured thereby shall have been assumed by that Person or is
nonrecourse to the credit of that Person.
Section 1.59. "Insured Foreign Receivable" means an Account Receivable
(other than a Secured Foreign Receivable) that arises from a sale of goods to an
Account Debtor having its principal assets or place of business outside of the
United States of America, Canada or Puerto Rico, so long as a Foreign Credit
Insurer has assumed the risk of nonpayment due to the Account Debtor's financial
inability to pay and due to foreign currency restrictions and political matters
in the country of such Account Debtor, and Borrower has promptly and properly
submitted to the Foreign Credit Insurer proof of loss with respect to all
Accounts Receivable of such Account Debtor for which a claim could be submitted
under the foreign credit insurance policy insuring Borrower's sales to such
Account Debtor.
Section 1.60. "Interest Period" means,
(a) with respect to each Libor Loan, the period commencing on the
date of the making or continuation of, or conversion to, such Libor
Loan and ending thirty (30), sixty (60), ninety (90) or one hundred
eighty (180) days (or such other period of time as Bank may offer from
time to time) thereafter, as Borrower may elect in the applicable
Notice; and
(b) with respect to each Matched Rate Loan, the period commencing on
the date of the making or continuation of or conversion to such
Matched Rate Loan and ending, in the case of a Revolving Loan, on the
Revolving Credit Termination Date, in the case of the Term Loan, on
the Maturity Date or, in the case of any Loan, on such earlier date as
Borrower may elect in the applicable Notice; and
(c) with respect to each Prime Rate Loan, the period commencing on
the date of the making or continuation of, or conversion to, such
Prime Rate Loan and ending, in the case of a Revolving Loan, on the
Revolving Credit Termination Date, in the case of the Term Loan, on
the Maturity Date or, in the case of any Loan, on such earlier date as
the Borrower may elect in the applicable Notice;
provided, however, that:
- -------- -------
(i) any Interest Period (other than an Interest Period
determined pursuant to clause (iii) below) that would
otherwise end on a day that is not a Business Day shall be
extended to the next succeeding Business Day unless, in the
case of Libor Loans, such Business Day falls in the next
calendar month, in which
<PAGE>
case such Interest Period shall end on the immediately
preceding Business Day;
(ii) any Interest Period applicable to a Libor Loan that begins
on the last Business Day of a calendar month (or on a day
for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period) shall,
subject to clause (iii) below, end on the last Business Day
of a calendar month;
(iii) any Interest Period applicable to a Revolving Loan that
would otherwise end after the Revolving Credit Termination
Date shall end on the Revolving Credit Termination Date, and
any Interest Period applicable to the Term Loan that would
otherwise end after the Maturity Date of the Term Loan shall
end on Maturity Date; and
(iv) no Interest Period applicable to the Term Loan shall include
a principal repayment date for such Term Loan unless an
aggregate principal amount of Loans at least equal to the
principal amount due on such principal repayment date shall
be Prime Rate Loans or other Loans having Interest Periods
ending on or before such date; and
(v) notwithstanding clause (iii) and (iv) above, no Interest
Period applicable to a Libor Loan or a Matched Rate Loan
shall have a duration of less than thirty (30) days and if
any Interest Period applicable to such Loans would be for a
shorter Interest Period, such Interest Period shall not be
available hereunder.
Section 1.61. "Inventory" means all goods, merchandise, raw materials,
supplies, work in process, finished goods and other tangible personal property
held by Borrower for processing, sale or lease or furnished or to be furnished
by Borrower under contracts of service or to be used or consumed in Borrower's
business.
Section 1.62. "Inventory Cap" means the amount of FIVE MILLION AND NO/100
DOLLARS ($5,000,000.00) during the period commencing as of the Closing Date and
continuing through October 31, 1995, SIX MILLION AND NO/100 DOLLARS
($6,000,000.00) during the period commencing as of November 1, 1995 and
continuing through October 31, 1996 and SEVEN MILLION AND NO/100 DOLLARS
($7,000,000.00) during the period commencing as of November 1, 1996 and
continuing through the Revolving Credit Termination Date.
<PAGE>
Section 1.63. "Investment" means, as applied to Borrower and its
Subsidiaries, the purchase or acquisition of (i) any share of capital stock,
partnership interest, evidence of indebtedness or other equity security of any
other Person, or (ii) all or any material portion of the properties and assets
of any Person, any loan, advance or extension of credit to, or contribution to
the capital of, any other Person, any real estate held for sale or investment,
any commodities futures contracts held other than in connection with bona fide
hedging transactions, any other investment in any other Person, and the making
of any commitment or acquisition of any option to make an Investment.
Section 1.64. "Letter of Credit" or "Letters of Credit" means any
letter(s) of credit issued by Bank for the account of Borrower or its
Subsidiaries and shall include any Letter of Credit as it may be amended,
modified or extended from time to time.
Section 1.65. "Letter of Credit Application" has the meaning set forth in
Section 2.2.2. hereof.
Section 1.66. "Letter of Credit Guaranty" means a guaranty issued by Bank
or a Bank Affiliate to guaranty the payment of a letter of credit to a Bank
which has issued such letter of credit for the account of Borrower or a
Subsidiary of Borrower.
Section 1.67. "Libor Base" means the rate per annum (rounded upwards, if
necessary, to the nearest 1/16 of 1%) shown on the display referred to as the
"LIBO page" (or any display substituted therefor) of the Reuters U.S. Domestic
Money Service transmitted through the Reuters monitor system as being the
respective rates at which U.S. dollar deposits would be offered two (2) Business
Days prior to the beginning of the relevant Interest Period by the principal
London offices of each of the banks named thereon to major banks in the London
interbank Eurodollar market where the Eurodollar Office is located at the
Relevant Local Time for delivery on the first day of such Interest Period for
the number of days comprised therein and in the amount of the requested Loan.
Section 1.68. "Libor Loan" means any Revolving Loan or any portion of the
Term Loan bearing interest at a rate determined by reference to the Libor Rate.
Section 1.69. "Libor Rate" means, with respect to each Interest Period,
the rate per annum equal to (i) the Libor Base for such Interest Period divided
by (ii) a percentage equal to one hundred percent (100%) minus the maximum
reserve percentage applicable during such interest period under regulations
issued from time to time by the Board of Governors of the Federal Reserve System
(the "Board") for determining the maximum reserve requirements (including,
without limitation, any basic, supplemental, marginal or emergency reserve
requirements) for Bank in respect of liabilities or assets consisting of or
including Eurocurrency liabilities (as defined in Regulation D of the Board)
having a term equal to the Interest Period (Bank acknowledging that
<PAGE>
as of the Closing Date there are no presently effective reserve requirements).
Section 1.70. "Limited Guarantor" means ARISTOTLE SUB, INC., a Delaware
corporation, having its chief executive office located at 129 Church Street, New
Haven, Connecticut.
Section 1.71. "Limited Guaranty" has the meaning set forth in Section
3.2.2. hereof.
Section 1.72. "Line of Credit" has the meaning set forth in Section 2.1.1.
hereof.
Section 1.73. "Loan" means any Revolving Loan or the Term Loan Loan.
Section 1.74. "Loans" means each Revolving Loan and the Term Loan.
Section 1.75. "Loan Account" means the account established by Borrower
with Bank or a Bank Affiliate for purposes of administering the Line of Credit.
Section 1.76. "Lockbox Account" has the meaning set forth in Section
10.1.1. hereof.
Section 1.77. "Matched Rate" means the fixed rated of interest offered by
Bank in its sole discretion for loans having similar maturities to that
requested by Borrower in the applicable Notice.
Section 1.78. "Matched Rate Loan" means any Revolving Loan or any portion
of the Term Loan bearing interest at a rate determined by reference to the
Matched Rate.
Section 1.79. "Material Adverse Effect" means (i) a material adverse
effect upon the business, operations, properties, assets or condition (financial
or otherwise) of Borrower and its Subsidiaries, taken as a whole, or (ii) a
material adverse effect on the ability of Borrower to perform its obligations
under this Agreement, the Notes or the Other Documents or the ability of Bank to
enforce or collect any of the Obligations. In determining whether any individual
event would result in a Material Adverse Effect, notwithstanding that such event
does not of itself have such an effect, a Material Adverse Effect shall be
deemed to have occurred if the cumulative effect of such event and all other
then existing events would result in a Material Adverse Effect.
Section 1.80. "Maturity Date" means October 31, 1997.
Section 1.81. "Note" means the Revolving Credit Note or the Term Note.
<PAGE>
Section 1.82. "Notes" means the Revolving Credit Note and the Term Note.
Section 1.83. "Notice" means a Notice of Borrowing or a Notice of
Continuation or Conversion.
Section 1.84. "Notice of Borrowing" has the meaning set forth in Section
2.1.3. hereof.
Section 1.85. "Notice of Continuation or Conversion" shall have the
meaning set forth in Section 2.4.3. hereof.
Section 1.86. "Obligations" means any and all loans, advances,
indebtedness, liabilities, obligations, covenants or duties of Borrower to Bank
of any kind or nature, including obligations to pay money and to perform acts or
refrain from taking action, whether arising under a loan, lease, credit card,
line of credit, letter of credit, guaranty, indemnity, confirmation, acceptance,
currency exchange, interest rate protection arrangement, overdraft or other type
of financing arrangement, and any and all extensions and renewals thereof, and
modifications and amendments thereto, whether in whole or in part, whether any
of the foregoing are direct or indirect, joint or several, absolute or
contingent under, due or to become due, now existing or hereafter arising,
whether any present or future agreement or instrument, and whether or not
evidenced by a writing and specifically including but not being limited to (i)
the unpaid principal amount outstanding at any time under the Notes, plus all
accrued and unpaid interest thereon, together with all fees, expenses, including
attorneys' fees, penalties, and other amounts owing by or chargeable to by
Borrower under this Agreement, the Notes or the Other Documents and (ii) unpaid
Reimbursement Obligations.
Section 1.87. "Other Documents" means the Collateral Disclosure List, the
Security Agreement, and the Letter of Credit Applications, all of even date
herewith and any other document, agreement or instrument executed by Borrower in
connection with any Extension of Credit and any and all amendments,
modifications and supplements thereto.
Section 1.88. "Outstanding Amount" means, as of any date as of which the
amount thereof shall be determined, the outstanding principal amount of the Line
of Credit as of the date of determination.
Section 1.89. "Overadvances" has the meaning set forth in Section 2.1.2.
hereof.
Section 1.90. "Overadvance Limit" means, as of any date as of which the
amount thereof shall be determined, an amount not to exceed FIVE HUNDRED
THOUSAND AND NO/100 DOLLARS ($500,000.00) during the period commencing as of the
Closing Date and continuing through June 30, 1995, ONE MILLION AND NO/100
DOLLARS ($1,000,000.00) during the period commencing as of July 1, 1995 and
<PAGE>
continuing through June 30, 1996 and ONE MILLION FIVE HUNDRED THOUSAND AND
NO/100 DOLLARS ($1,500,000.00) during the period commencing as of July 1, 1996
and continuing through the Revolving Credit Termination Date.
Section 1.91. "PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to all or part of its functions under ERISA.
Section 1.92. "Performance Covenants" means the financial covenants set
forth in Section 9.1. hereof.
Section 1.93. "Permitted Encumbrances" has the meaning set forth in
Section 8.5. hereof.
Section 1.94. "Permitted Indebtedness" has the meaning set forth in
Section 8.1. hereof.
Section 1.95. "Person" means an individual, partnership, corporation,
business trust, joint stock company, trust, unincorporated association, joint
venture or other entity of whatever nature, whether public or private.
Section 1.96. "Plan" means, at any time, an employee pension or other
benefit plan that is subject to Title IV of ERISA or subject to the minimum
funding standards under Section 412 of the Code and is either (i) maintained by
Borrower or any member of the Controlled Group for employees of Borrower or any
member of the Controlled Group or (ii) if such plan is established, maintained
pursuant to a collective bargaining agreement or any other arrangement under
which more than one (1) employer makes contributions and to which Borrower or
any member of the Controlled Group is then making or accruing an obligation to
make contributions or has within the preceding five (5) plan years made
contributions.
Section 1.97. "Post Closing Matters" has the meaning set forth on Section
11.1.(l) hereof.
Section 1.98. "Prime Rate" means a base interest rate used by Bank for
loans making reference thereto and is not necessarily the lowest rate at which
Bank may lend money and is neither tied to any external rate of interest nor is
it a rate charged by Bank to any particular class or category of customer.
Section 1.99. "Prime Rate Loan" means any Revolving Loan or portion of the
Term Loan bearing interest determined by reference to the Prime Rate.
Section 1.100. "Qualifications" means, with respect to any report of
independent public accountants covering any Financial Statements of Borrower and
its Subsidiaries, a qualification to such report (such as a "subject to" or
"except for" statement therein) (i) resulting from a limitation on the scope of
<PAGE>
examination of the Financial Statements or the underlying data; (ii) as to the
capability of the Person whose Financial Statements are certified to continue
operations as a going concern; or (iii) which could be eliminated by changes in
the Financial Statements or notes thereto covered by such report (such as, by
the creation of or increase in a reserve or a decrease in the carrying value of
assets) and which if so eliminated by the making of any such change and after
giving effect thereto would constitute of and Event of Default; provided that
neither of the following shall constitute a Qualification: (a) a consistency
exception relating to a change in accounting principles with which the
independent public accountants for the Person whose Financial Statements are
being examined have concurred or (b) a qualification relating to the outcome or
disposition of any uncertainty, including but not limited to threatened
litigation, pending litigation being contested in good faith, pending or
threatened claims or other contingencies, the impact of which litigation,
claims, contingencies or uncertainties cannot be determined with sufficient
certainty to permit certification in such Financial Statements.
Section 1.101. "Qualified Investments" means, as applied to Borrower and
its Subsidiaries, investments in (i) notes, bonds or other obligations of the
United States of America or any agency thereof that as to principal and interest
constitute direct obligations of or are guaranteed by the United States of
America; (ii) certificates of deposit or other deposit instruments or accounts
of Banks or trust companies organized under the laws of the United States or any
state thereof that have capital and surplus of at least ONE HUNDRED MILLION AND
NO/100 DOLLARS ($100,000,000.00); (iii) commercial paper that is rated not less
than prime-one or A-1 or their equivalents by Moody's Investors Service, Inc. or
Standard & Poor's Corporation, respectively, or their successors; and (iv) any
repurchase agreement secured by any one (1) or more of the foregoing.
Section 1.102. "Raw Materials" means that portion of Borrower's Eligible
Inventory which consists of raw materials.
Section 1.103. "Reimbursement Obligations" means, as of any date as of
which the amount thereof shall be determined, the aggregate obligation of
Borrower, as of such date, to reimburse Bank in respect of Letters of Credit in
accordance with Section 2.2.3. hereof.
Section 1.104. "Release" means any release, emission, disposal, leaching,
or migration into the environment, (including, without limitation, the
abandonment or disposal of any barrels, containers, or other closed receptacles
containing any Hazardous Materials), or into or out of any property owned,
occupied or used by Borrower.
Section 1.105. "Relevant Local Time" means, with respect to Libor Loans,
10:00 a.m. local time in the place where the Eurodollar Office is located.
<PAGE>
Section 1.106. "Reportable Event" means any of the events described in
Section 4043(b) of ERISA.
Section 1.107. "Revolving Credit Period" means the period beginning on the
Closing Date and extending through and including the Revolving Credit
Termination Date or such earlier date on which the obligation of Bank to make
Revolving Loans is terminated or the Commitment Amount is reduced to zero (0) in
accordance with the terms hereof.
Section 1.108. "Revolving Credit Termination Date" means October 31, 1997,
and any subsequent date to which the Revolving Credit Termination Date may be
extended under Section 2.1.10. hereof.
Section 1.109. "Revolving Credit Note" has the meaning set forth in Section
2.1.6. hereof.
Section 1.110. "Revolving Loan" or "Revolving Loans" means the loan(s) and
advance(s) which Borrower requests or is deemed to have requested pursuant to
Section 2.1.1. hereof, and to the extent permitted under this Agreement, Section
2.1.2. hereof.
Section 1.111. "Secured Foreign Receivable" means an Account Receivable
(other than an Insured Foreign Receivable) that arises from the sale of goods to
an Account Debtor having its principal assets or place of business outside of
the United States of America, Canada or Puerto Rico so long as Bank has received
in respect of such Account Receivable a letter of credit or similar guaranty of
payment in form and substance and issued or confirmed by a financial institution
satisfactory to Bank and its legal counsel that has not expired, been revoked or
terminated, and has been pledged to, and had the proceeds thereof assigned to,
Bank.
Section 1.112. "Security Agreement" means the security agreement executed
and delivered by Borrower in favor of Bank as of April 11, 1994, as it may be
amended, modified, confirmed or supplemented from time to time.
Section 1.113. "Security Value of Accounts Receivable" means, as of any
date as of which the amount thereof shall be determined, eighty percent (80%) of
Borrower's Eligible Account Receivables as of the date of determination.
Section 1.114. "Security Value of Inventory" means, as of any date as of
which the amount thereof shall be determined, the lesser of (i) the sum of
twenty percent (20%) of Borrower's Work-in-Process as of the date of
determination plus fifty percent (50%) of Borrower's Raw Materials and Finished
Goods as of the date of determination, all of the foregoing valued on a FIFO
basis at the lower of cost or market value, or (ii) the Inventory Cap in effect
as of the date of determination.
<PAGE>
Section 1.115. "Solvent" means, when used with respect to any Person, that
as of the date as to which the Person's solvency is to be determined:
(a) the fair saleable value of such Person's properties and assets is
in excess of the total amount of its liabilities (including contingent
liabilities) as they become absolute and matured;
(b) it has sufficient capital to conduct its business; and
(c) it is able to meet its debts as they mature.
Section 1.116. "Stock Pledge" means the stock pledge agreement to be
executed and delivered by the Limited Guarantor in favor of Bank, as it may be
amended, modified or supplemented from time to time.
Section 1.117. "Subordinated Indebtedness" means Indebtedness, whether now
existing or hereafter arising, with respect to which the payment of the
principal of and interest on is expressly subordinated in right of payment, in
form and on terms approved by Bank in writing, to the prior payment of the
Obligations.
Section 1.118. "Subsidiary" means any Person of which fifty percent (50%)
or more of the ordinary voting power for the election of a majority of the
members of the board of directors or other governing body of such Person is held
or controlled by Borrower or a Subsidiary of Borrower; or any other such
organization the management of which is directly or indirectly controlled by
Borrower or Subsidiary of Borrower through the exercise of voting power or
otherwise; or any joint venture, whether incorporated or not, in which Borrower
has a fifty percent (50%) or more ownership interest. The term "control" (and
its correlative meanings "controlled by" and "under common control with") as
used in this Section 1.118. means the possession, directly or indirectly, of the
power to direct, or cause the direction of, the management and policies of a
Person, whether through ownership of voting stock, by contract or otherwise.
Section 1.119. "Term Note" has the meaning set forth in Section 2.3.2.
hereof.
Section 1.120. "Term Loan" has the meaning set forth in Section 2.3.1.
hereof.
Section 1.121. "Unused Portion" means for any month the average daily
difference between the Commitment Amount and the aggregate principal amount of
Revolving Loans, Credits Outstanding and any amounts deemed to be Revolving
Loans, whether now existing or hereafter arising.
<PAGE>
Section 1.122. "Uniform Customs and Practice" means the Uniform Customs and
Practice for Documentary Credits (1993) Revision, International Chamber of
Commerce Publication No. 500.
Section 1.123. "Work-in-Process" means as of any date of which the amount
thereof shall be determined, that portion of Borrower's Eligible Inventory which
constitutes work-in-process.
SECTION 2. THE CREDIT FACILITIES
Section 2.1. Line of Credit.
Section 2.1.1. Revolving Loans. Upon the execution of this Agreement, Bank
agrees to extend to Borrower a line of credit, so that as long as no Default or
Event of Default has occurred and is continuing, Borrower may borrow, repay and
reborrow, on a revolving basis in one (1) or more Revolving Loans from time to
time prior to the close of business on the Revolving Credit Termination Date,
amounts which together with the amount of (i) Credits Outstanding and (ii)
unpaid Reimbursement Obligations deemed to be Revolving Loans under this Section
2.1.1., do not exceed in the aggregate at any one time outstanding the lesser of
the Borrowing Base or the Commitment Amount in effect from time to time (the
"Line of Credit"). Bank shall have the right, in its reasonable credit judgment,
to deem any unpaid Reimbursement Obligations and any other payments, deposits,
guaranties or indemnifications made by Bank for the account of Borrower under
any letter of credit, reimbursement agreement, acceptance, guaranty or similar
instrument to be Revolving Loans, and Bank may, in its reasonable credit
judgment, establish such reserves as it deems appropriate against any present or
future obligation of Bank to make payment, to deposit or to perform in respect
of any of the same. Bank may, in its reasonable credit judgment and upon notice
to Borrower, fund such reserves and/or charge the same to the Loan Account at
such time as it deems appropriate. Notwithstanding any provision of this
Agreement to the contrary, all Revolving Loans, including Overadvances, and any
unpaid Reimbursement Obligations and other payments, deposits, guaranties or
indemnifications deemed to be Revolving Loans by Bank hereunder, shall
constitute one obligation of Borrower to Bank, secured by Bank's security
interest in the Collateral.
Section 2.1.2. Overadvances. Notwithstanding the provisions of Section
2.1.1. hereof, the Borrower may from time to time request, and Bank shall make,
Revolving Loans which exceed the available Borrowing Base ("Overadvances") but
which, in addition to all Revolving Loans, Credits Outstanding and any unpaid
Reimbursement Obligations and other payments, deposits, guaranties or
indemnifications deemed to be Revolving Loans made under Section 2.1.1. hereof
in respect of the Borrowing Base, do not exceed the Commitment Amount in effect
from time to time; provided, however, that the aggregate outstanding principal
amount of Overadvances shall in no event exceed the Overadvance Limit in effect
from time
<PAGE>
to time and provided, further, that as of the first day of each Fiscal Year,
Borrower must reduce the amount of Overadvances to zero (0) and maintain such
zero (o) balance for thirty (30) days.
Section 2.1.3. Notice of Borrowing. Whenever Borrower desires to obtain a
Revolving Loan, Borrower shall notify Bank (which notice shall be irrevocable in
the case of a Libor Loan or a Matched Rate Loan) by telex, telegraph or
telephone received no later than 10:00 a.m. (Hartford, Connecticut time) on the
date on which the requested Revolving Loan is to be made as a Prime Rate Loan,
received no later than 10:00 a.m. (Hartford, Connecticut time) on the date one
(1) Business Day before the day on which the requested Revolving Loan is to be
made as a Matched Rate Loan, and received no later than 10:00 a.m. (Hartford,
Connecticut time) on the date three (3) Business Days before the day on which
the requested Revolving Loan is to be made as a Libor Loan. Such notice shall
specify: (i) the effective date and amount of each Revolving Loan, subject to
the limitations set forth in Section 2.1.1. and Section 2.1.2. hereof; (ii) the
interest rate option to be applicable thereto; and (iii) the duration of the
applicable Interest Period, if any (subject to the provisions of the definition
of Interest Period and Section 2.4.4. hereof). Each such notification (a "Notice
of Borrowing") shall be immediately followed by a written confirmation thereof
by Borrower in substantially the form of Exhibit A attached hereto; provided,
however, that if such written confirmation differs in any material respect from
the action taken by Bank, the records of Bank shall control absent manifest
error. Subject to the terms and conditions of this Agreement, Bank shall make
each Revolving Loan on the effective date specified therefor by crediting the
amount of such Revolving Loan to the Loan Account.
Section 2.1.4. Calculation of Borrowing Base. The Borrowing Base as of any
time shall be calculated by Bank using the most recent Borrowing Base
Certificate and other financial reports delivered by Borrower to Bank under
Section 7.1. hereof. Bank shall have the right, in its reasonable credit
judgment, and at any time and for any reason, to reduce the dollar amount of (i)
Eligible Accounts Receivable by the amount of discounts, credits, allowances and
returns of any kind then outstanding, issued, granted, owing, accrued or liable
to be accrued or (ii) Eligible Inventory by the amount of special order goods,
advertising, packaging, parts, supplies, tooling or similar items. Any Accounts
Receivable or Inventory which have been so excluded as well as any Accounts
Receivable or Inventory which are or have become Disqualified Accounts
Receivable or Disqualified Inventory for any other reason shall remain as
collateral for the Obligations notwithstanding such exclusion or
disqualification.
Section 2.1.5. Reduction of Commitment Amount. Borrower may from time to
time, by written notice delivered to Bank at least five (5) Business Days prior
to the date of the requested reduction, reduce by integral multiples of ONE
HUNDRED THOUSAND AND NO/100 DOLLARS ($100,000.00) any unborrowed portion of the
<PAGE>
Commitment Amount. No reduction of the Commitment Amount shall be subject to
reinstatement.
Section 2.1.6. Revolving Credit Note. Revolving Loans shall be evidenced by
a promissory note executed by Borrower in substantially the form attached hereto
as Exhibit B (the "Revolving Credit Note"), with all blanks therein
appropriately completed, payable to the order of Bank, which Revolving Credit
Note is hereby incorporated herein by reference and made a part hereof.
Section 2.1.7. Payment of Principal. The aggregate unpaid principal amount
of all Revolving Loans, together with accrued and unpaid interest thereon, as
evidenced by the Revolving Credit Note, shall, unless sooner accelerated by Bank
following the occurrence of an Event of Default, be repaid by Borrower on the
Revolving Credit Termination Date.
Section 2.1.8. Record of Revolving Loans. Each Revolving Loan shall be
recorded on the books maintained by Bank with respect to the Loan Account by
Bank. Bank shall also record on such books all payments made by Borrower on the
Revolving Credit Note, interest and expenses and other appropriate debits and
credits as herein provided. Bank shall from time to time render and send to
Borrower a statement of the Loan Account showing the outstanding aggregate
principal balance of the Revolving Credit Note, together with interest and other
appropriate debits and credits as of the date of the statement. The statement of
Loan Account shall be considered correct in all respects and accepted by and be
conclusively binding upon Borrower unless Borrower makes specific written
objections thereto within sixty (60) days after the date the statement of the
Loan Account is received or later presents objective evidence demonstrating a
manifest error by Bank in the preparation of the statement of the Loan Account.
Bank may also record and endorse on Schedule A attached to and forming a part of
the Revolving Credit Note appropriate notations evidencing (i) the date and
amount of each Revolving Loan to be evidenced by the Revolving Credit Note and
(ii) the date and amount of each payment of principal made by Borrower with
respect thereto; provided, however, that the failure of Bank to make such
notation shall not limit or otherwise affect the obligations of Borrower under
the Revolving Credit Note or this Agreement. Bank is hereby irrevocably
authorized by Borrower to so endorse such Schedule A and to attach to and make a
part of the Revolving Credit Note a continuation of such Schedule A as and when
required.
Section 2.1.9. Termination. The Line of Credit and Bank's obligation to
lend thereunder shall terminate on the Revolving Credit Termination Date, at
which point all of the sums due and owing under the Line of Credit shall be
immediately due and payable, unless the Line of Credit is renewed in accordance
with Section 2.1.10. hereof.
Section 2.1.10. Renewal. Bank may, in its sole and absolute discretion,
upon written agreement with Borrower, renew
<PAGE>
the Line of Credit for additional periods of time on such terms and conditions
as it may elect. In the event of the renewal of the Line of Credit, the
Revolving Credit Termination Date shall be extended for a corresponding period.
Section 2.1.11. Use of Proceeds. The proceeds of Revolving Loans may be
used by the Borrower for general working capital purposes and for any other
purpose not prohibited under this Agreement.
Section 2.1.12. Mandatory Prepayment. If at any time the outstanding
aggregate principal amount of all Revolving Loans shall exceed the Borrowing
Base plus the amount of the Overadvance Limit in effect from time to time, then
any such excess amount shall, at Bank's election, be due and payable on demand.
Section 2.1.13. Facility Fee. In consideration of the maintenance of
the Line of Credit, Borrower hereby agrees to pay to Bank commencing November
15, 1994 and continuing on the fifteenth (15th) day of each succeeding month a
facility fee equal to one-half of one percentage point (.50%) of the amount of
the Unused Portion for the period commencing on the fifteenth (15th) day of the
preceding month and ending on the fourteenth (14th) day of the month in which
the payment is due times a fraction, the numerator of which is the actual number
of days in such period and the denominator of which is 360 (the "Facility Fee").
Section 2.1.14. Collection Fee. In consideration of Bank crediting
Borrower with payments received from Account Debtors before the collection of
such payments in good funds as more particularly set forth in Section 10.1.1.
hereof, Borrower shall pay Bank on the fifteenth (15th) day of each month a
collection fee equal to interest accrued for two (2) days at the rate equal to
the Prime Rate plus one- quarter of one percentage point (.25%) on the aggregate
of all payments received by Bank in respect to Accounts Receivable during the
preceding month (the "Collection Fee").
Section 2.2. Letters of Credit.
Section 2.2.1. Issuance. Upon the execution of this Agreement, and as
long as no Default or Event of Default has occurred and is continuing, Bank,
either directly or through a Bank Affiliate, hereby agrees to issue, extend,
amend or renew Letters of Credit or Letter of Credit Guaranties from time to
time after the Closing Date, either directly or through a Bank Affiliate, for
the account of Borrower; provided, however, that the amount of each requested
Letter of Credit or Letter of Credit Guaranty, when added to the aggregate
amount of all Revolving Loans, all Credits Outstanding and all unpaid
Reimbursement Obligations deemed to be Revolving Loans and other payments,
deposits, guaranties or indemnifications deemed to be Revolving Loans under
Section 2.1.1. hereof, does not exceed the lesser of the Borrowing Base or the
Commitment Amount in effect from time to time and provided, further, that the
aggregate amount of Credits Outstanding and
<PAGE>
unpaid Reimbursement Obligations (after taking into account the amount of the
requested Letter of Credit or Letter of Credit Guaranty) shall not exceed ONE
MILLION AND NO/100 DOLLARS ($1,000,000.00) Notwithstanding the foregoing, the
issuance of each Letter of Credit or Letter of Credit Guaranty other than
documentary letters of credit shall be made on a case by case basis in the sole
and absolute discretion of Bank.
Section 2.2.2. Application. Borrower shall request the issuance of a
Letter of Credit or Letter of Credit Guaranty by its execution and delivery to
Bank of an application in such form as Bank may require from time to time (the
"Letter of Credit Application"). If the Letter of Credit Application is
acceptable to Bank, in its sole and absolute discretion, then Bank shall prepare
the Letter of Credit or the Letter of Credit Guaranty in accordance with the
instructions set forth in the Letter of Credit Application and, provided that
there is adequate availability under the Line of Credit as set forth in Section
2.2.1. above, issue the Letter of Credit or the Letter of Credit Guaranty to the
Beneficiary thereof unless otherwise instructed by Borrower. Borrower
acknowledges and agrees that Bank shall have no obligation to issue any Letter
of Credit or any Letter of Credit Guaranty which provides for an expiration date
later than thirty (30) days prior to the Revolving Credit Termination Date.
Section 2.2.3. Reimbursement. Borrower hereby acknowledges and agrees
that it shall be obligated to reimburse Bank in respect of obligations under
Letters of Credit and Letter of Credit Guaranties:
(a) except as otherwise provided in this Agreement, or the applicable
Letter of Credit Application, on each date that any Drawing is honored by
Bank or a Bank Affiliate, Bank or a Bank Affiliate or otherwise makes a
payment with respect thereto, and only to the extent that such Drawing is
not deemed to be a Revolving Loan under Section 2.1.1. hereof, (i) the
amount paid by Bank or a Bank Affiliate under or with respect to such
Drawing, and (ii) the amount of any taxes, fees, charges or other
reasonable costs and expenses whatsoever incurred by Bank or any Bank
Affiliate in connection with any payment made by Bank or a Bank Affiliate
under, or with respect to, such Letter of Credit or the Letter of Credit
Guaranty;
(b) upon the reduction (but not termination) of the Commitment Amount to
an amount less than the sum of (i) all Revolving Loans and amounts deemed
to be Revolving Loans as of such date and Credits Outstanding as of such
date plus (ii) the amount of unpaid Reimbursement Obligations as of such
date, an amount equal to any such difference, which amount shall be held by
Bank as cash collateral for all Reimbursement Obligations; and
(c) upon the termination of the Commitment Amount, or the acceleration of
the Reimbursement Obligations in accordance
<PAGE>
with Section 12.1. hereof, an amount equal to the sum of (i) Credits
Outstanding as of such date plus (ii) the amount of unpaid Reimbursement
Obligations as of such date, which amount shall be held by Bank as cash
collateral for all Reimbursement Obligations.
Borrower shall pay interest on any amounts due and payable under this Section
2.2.3. from the date such amounts are payable (whether at maturity, by
acceleration or otherwise) until paid in full at the rate of interest applicable
to Prime Rate Loans for three (3) days and, thereafter, at the Default Rate
applicable to Prime Rate Loans.
Section 2.2.4. Debit to Line of Credit. Bank shall be entitled, in its
sole and absolute discretion, to debit the amount of any Drawing as well as any
fees, costs and expenses incurred by Bank or a Bank Affiliate in connection with
such Drawing against the Line of Credit and deem such amount to be Revolving
Loans under Section 2.1.1. hereof.
Section 2.2.5. Termination of Obligation. The obligation of Bank to
issue Letters of Credit or Letter of Credit Guaranties under this Section 2.2.
shall terminate thirty (30) days prior to the Revolving Credit Termination Date
or any renewal thereof.
Section 2.2.6. Obligations Absolute. The obligations of Borrower with
respect to Letters of Credit or Letter of Credit Guaranties issued under this
Agreement shall be unconditional and irrevocable, shall be paid strictly in
accordance with the terms of this Agreement under all circumstances and shall
not be reduced by: (a) any lack of validity or enforceability of any document
executed between Borrower and a Beneficiary; (b) the existence of any claim,
set-off, defense or other right which Borrower may have at any time against a
Beneficiary or any transferee of a Letter of Credit or Letter of Credit
Guaranties (or any Persons for which such Beneficiary or any such transferee may
be acting) or against any other Person, whether in connection with this
Agreement, the transactions contemplated herein or any unrelated transaction;
and (c) any statement or any other document presented under a Letter of Credit
or Letter of Credit Guaranties proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or inaccurate
in any respect, unless Bank had actual knowledge (without any investigation
having been made) that such statement or other document was forged, fraudulent,
invalid or insufficient.
Section 2.2.7. Indemnification. Borrower hereby indemnifies and holds
Bank, and its directors, officers, employees and agents (collectively, the "Bank
Agents"), harmless from and against any and all claims, damages, losses,
liabilities, costs or expenses (including reasonable legal fees and expenses)
which Bank or any Bank Agents may incur or which may be claimed against Bank by
any Person by reason of or in connection with the execution and delivery or
transfer of, or payment or failure to make lawful
<PAGE>
payment under, a Letter of Credit or Letter of Credit Guaranties; provided,
however, that Borrower shall not be required to indemnify Bank or any Bank
Agents for any claims, damages, losses, liabilities, costs or expenses to the
extent, but only to the extent, caused by Bank's (i) failure to act in good
faith and in conformity with such laws, regulations or commercial or banking
customs, as Bank may reasonably deem to be applicable, or (ii) honoring a
Drawing on a Letter of Credit or Letter of Credit Guaranty issued hereunder when
at the time of such honoring Bank had actual knowledge (without any
investigation having been made) that such Drawing was forged, fraudulent,
invalid or insufficient. Nothing in this Section 2.2.7. is intended to limit
Borrower's obligations hereunder. Without prejudice to the survival of any other
obligation of Borrower hereunder, the indemnities and obligations of Borrower
contained in this Section 2.2.7. shall survive the payment in full of the
Obligations. In case any claim is asserted or any action or proceeding is
brought against Bank or any Bank Agents, Bank or any such Bank Agents shall
promptly notify Borrower of such claim, action or proceeding and Borrower shall
resist, settle or defend with counsel reasonably acceptable to Bank, such claim,
action or proceeding. If, within ten (10) days of Borrower's receipt of such
notice, Borrower does not commence and continue to prosecute the defense of such
claim, action or proceeding, Bank, or any such Bank Agents, may retain legal
counsel to represent it in such defense and Borrower shall indemnify Bank, or
any such Bank Agents, for the reasonable fees and expenses of such legal
counsel. Subject to the foregoing, Bank shall cooperate and join with Borrower,
at the expense of Borrower, as may be required in connection with any action
taken or defended by Borrower.
Section 2.2.8. Liability of Bank. Any action, inaction or omission on
the part of Bank under or in connection with a Letter of Credit or Letter of
Credit Guaranty issued hereunder or related instruments or documents, if in good
faith and in conformity with such laws, regulations or commercial or banking
customs as Bank may reasonably deem to be applicable, shall be binding upon
Borrower, shall not place Bank under any liability to Borrower, shall not
affect, impair or prevent the vesting of any of Bank's rights or powers
hereunder or Borrower's obligation to make full reimbursement to Bank. Borrower
assumes all risks of the acts or omissions of a Beneficiary or transferee of a
Letter of Credit or Letter of Credit Guaranty with respect to its use of the
Letter of Credit or Letter of Credit Guaranty. In furtherance of, and not in
limitation of Bank's rights and powers under the Uniform Customs and Practice,
but subject to all other provisions of this Section 2.2. it is understood and
agreed that Bank shall not have any liability for and that Borrower assumes all
responsibility for: (a) the genuineness of any signature; (b) the form,
correctness, validity, sufficiency, genuineness, falsification and legal effect
of any draft, certification or other document required by a Letter of Credit or
Letter of Credit Guaranty and the authority of the person signing the same; (c)
the failure of any instrument to bear any reference or adequate reference to the
Letter of Credit or
<PAGE>
Letter of Credit Guaranty or the failure of any persons to note the amount of
any instrument on the reverse of the Letter of Credit or to surrender the Letter
of Credit or Letter of Credit Guaranty or otherwise to comply with the terms and
conditions of the Letter of Credit or Letter of Credit Guaranty; (d) the good
faith or acts of any person other than Bank and its agents and employees; (e)
the existence, form, sufficiency or breach of or default under any other
agreement or instrument of any nature whatsoever; (f) any delay in giving or
failure to give any notice, demand or protest; and (g) any error, omission,
delay in or nondelivery of any notice or other communication, however sent. The
determination as to whether the required documents are presented prior to the
expiration of a Letter of Credit or Letter of Credit Guaranty issued hereunder
and whether such other documents are in proper and sufficient form for
compliance with the Letter of Credit or Letter of Credit Guaranty shall be made
by Bank in its sole and absolute discretion.
Section 2.2.9. Fees. Borrower hereby agrees to pay to Bank or a Bank
Affiliate any issuance, drawing, renewal, amendment or other fee or charge
customarily assessed by Bank or a Bank Affiliate in connection with any Letter
of Credit or Letter of Credit Guaranty. Any such fees shall be paid at the time
Borrower becomes obligated to pay any such fee.
Section 2.3. Term Loan.
Section 2.3.1. Amount of Loan. Upon the execution of this Agreement,
Borrower agrees to borrow from Bank, and Bank agrees to lend to Borrower, the
principal amount of TWO MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS
($2,500,000.00) (the "Term Loan").
Section 2.3.2. Term Note. The Term Loan shall be evidenced by a
promissory note executed by Borrower in substantially the form attached hereto
as Exhibit C (the "Term Note"), with all blanks therein appropriately completed
and payable to the order of Bank, which Term Note is hereby incorporated by
reference and made a part hereof.
Section 2.3.3. Payment of Principal. Commencing November 15, 1994, and
continuing on the same day of each succeeding month thereafter, the principal
amount of the Term Note shall be payable in thirty-seven (37) consecutive
monthly installments, the first thirty- six (36) of such installments to be in
the amount of THIRTEEN THOUSAND EIGHT HUNDRED EIGHTY-EIGHT AND 88/100 DOLLARS
($13,888.88) and if not sooner paid, a final installment in the then unpaid
principal amount of the Term Loan, together with all other amounts due and owing
under the Term Note, shall be due and payable on the Maturity Date.
Section 2.3.4. Maturity. Except where this Agreement or any instrument
evidencing indebtedness hereunder provides that the obligations of Borrower
shall become due upon any earlier date and notwithstanding any applicable
provision permitting repayment at a
<PAGE>
later date, the Term Loan shall become fully and finally due and payable on the
Maturity Date.
Section 2.3.5. Use of Proceeds. The proceeds of the Term Loan shall be
used to refinance existing Indebtedness of Borrower to Bank.
Section 2.4. Interest on the Loans.
Section 2.4.1. Interest Rates and Payments of Interest.
(a) Each Prime Rate Loan which is a Revolving Loan shall bear interest on the
outstanding principal amount thereof at a rate per annum equal to the Prime Rate
and each Prime Rate Loan which relates to the Term Loan shall bear interest on
the outstanding principal amount thereof at a rate per annum equal to the Prime
Rate plus one-quarter of one percentage point (.25%). Such interest shall be
payable on the fifteenth day of each month commencing November 15, 1994 and
continuing on the same day of each succeeding month until such Loan is due
(whether at maturity, by reason of acceleration, by reason of prepayment or
otherwise).
(b) Each Libor Loan shall bear interest on the outstanding principal
amount thereof, for each Interest Period applicable thereto, at a rate per
annum, in the case of Revolving Loans, equal to the Libor Rate plus two
percentage points (2.0%) and, in the case of the Term Loan, equal to the Libor
Rate plus two and one-half percentage points (2.5%). Such interest shall be
payable on the fifteenth day of each month commencing November 15, 1994, and
continuing on the same day of each succeeding month until such Libor Loan is due
(whether at maturity, by reason of acceleration, by reason of prepayment or
otherwise).
(c) Each Matched Rate Loan shall bear interest on the outstanding
principal amount thereof, for each Interest Period applicable thereto, at a rate
per annum equal to the Matched Rate Rate. Such interest shall be payable on the
fifteenth day of each month commencing November 15, 1994 and continuing on the
same day of each succeeding month until such Matched Rate Loan is due (whether
at maturity, by reason of acceleration, by reason of prepayment or otherwise).
(d) Interest shall be computed daily on the basis of a year of three
hundred sixty (360) days and paid for the actual number of days elapsed during
each Interest Period. If the due date for any payment of principal is extended
by operation of law, interest shall be payable for such extended time. If any
payment required by this Agreement becomes due on a day that is not a Business
Day such payment may be made on the next succeeding Business Day (subject to
clause (i) of the definition of Interest Period), and such extension shall be
included in computing interest in connection with such payment.
Section 2.4.2. Prime Rate. Each adjustment in the Prime Rate shall
result immediately, without notice or demand of any
<PAGE>
kind, in a new rate of interest effective with respect to periods on and after
the date of such adjustment. The Prime Rate is a base interest rate used by Bank
for loans making reference thereto and is not necessarily the lowest rate at
which Bank may lend money. The Prime Rate is neither tied to any external rate
of interest nor is it a rate charged by Bank to any particular class or category
of customer. If the Prime Rate shall be discontinued or for any other reason not
be available for determining the rate of interest chargeable under this
Agreement, then Bank shall select a substitute method of determining the rate of
interest chargeable under this Agreement and shall notify Borrower of such
selection, which method shall, in Bank's estimation, yield a rate of return to
Bank substantially equivalent to the rate of return that Bank would have
expected to receive if the Prime Rate remained available for that purpose.
Section 2.4.3. Continuation or Conversion of Loans. As long as no
Default or Event of Default shall have occurred and be continuing, Borrower may
continue or convert all or any part (in integral multiples of TEN THOUSAND AND
NO/100 DOLLARS ($10,000.00) of any outstanding Loan into a Loan of any other
type provided for in this Agreement in the same aggregate principal amount, on
any Business Day (which, in the case of a conversion of a Libor Loan or a
Matched Rate Loan shall be the last day of the Interest Period applicable to
such Libor Loan or a Matched Rate Loan. Borrower shall give Bank prior notice of
each such conversion (which notice shall be effective upon receipt) in
accordance with Section 2.1.1. hereof. Such notice shall specify: (i) the
effective date and amount of each Loan or portion thereof to be continued or
converted; (ii) the interest rate option to be applicable thereto; and (iii) the
duration of the applicable Interest Period, if any (subject to the provisions of
the definition of Interest Period and Section 2.4.4. hereof). each such
notification (a "Notice of Continuation or Conversion") shall be immediately
followed by a written confirmation thereof by Borrower in substantially the form
of Exhibit D attached hereto; provided, however, that if such written
confirmation differs in any material respect from the action taken by Bank, the
records of Bank shall control absent manifest error.
Section 2.4.4. Duration of Interest Periods.
(a) Subject to the provisions of the definition of Interest Period,
the duration of each Interest Period applicable to a Loan shall be as specified
in the applicable Notice.
(b) If the Bank does not receive a Notice for a Libor Loan or a
Matched Rate Loan pursuant to subsection (a) above within the applicable time
limits specified therein, or if, when such notice must be given, a Default or
Event of Default shall have occurred and be continuing, Borrower shall be deemed
to have elected to convert such Loan in whole into a Prime Rate Loan on the last
day of the then current Interest Period with respect thereto.
<PAGE>
(c) Notwithstanding the foregoing, Borrower may not select an
Interest Period that would end, but for the provisions of the definition of
Interest Period, after the Revolving Credit Termination Date, in the case of a
Revolving Loan, or the Maturity Date, in the case of the Term Loan.
Section 2.4.5. Changed Circumstances.
(a) In the event that:
(i) on any date on which the Libor Base or the Matched Rate
would otherwise be set the Bank shall have determined in
good faith (which determination shall be final and
conclusive) that adequate and fair means do not exist for
ascertaining the Libor Base or the Matched Rate as the case
may be, or
(ii) at any time the Bank shall have determined in good faith
(which determination shall be final and conclusive) that:
(A) the making or continuation of or conversion of any Loan
to a Libor Loan or a Matched Rate Loan has been made
impracticable or unlawful by (1) the occurrence of a
contingency that materially and adversely affect the
London interbank Eurodollar market or the market for
certificates of deposit maintained by dealers in New
York City of recognized standing or (2) compliance by
the Bank in good faith with any applicable law or
governmental regulation, guideline or order or
interpretation or change thereof by any Governmental
Authority charged with the interpretation or
administration thereof or with any request or directive
of any such Governmental Authority (whether or not
having the force of law); or
(B) the Libor Rate shall no longer represent the effective
cost to Bank for U.S. dollar deposits in the London
interbank Eurodollar market for deposits in which it
regularly participates, or the Matched Fund Rate shall
no longer represent the effective cost to Bank for
certificates of deposit;
then, and in any such event, the Bank shall forthwith so notify Borrower
thereof. Until the Bank notifies Borrower that the circumstances giving rise to
such notice no longer apply, the
<PAGE>
obligation of the Bank to allow selection by Borrower of the type of Loan
affected by the contingencies described in this Section 2.4.5. (herein called
"Affected Loans") shall be suspended. If at the time the Bank so notifies
Borrower, Borrower has previously given the Bank a Notice with respect to one or
more Affected Loans but such Revolving Loans have not yet gone into effect, such
notification shall be deemed to be void and Borrower may borrow Loans of a non-
affected type by giving a substitute Notice pursuant to Section 2.4.3. hereof.
Upon such date as shall be specified in such notice (which shall not be
earlier than five (5) days from the date such notice is given) Borrower shall,
with respect to the outstanding Affected Loans, prepay the same, together with
interest thereon and any amounts required to be paid pursuant to Section 2.4.8.
hereof, and may borrow a Revolving Loan of another type in accordance with
Section 2.4.3. hereof by giving a Notice pursuant to Section 2.4.3. hereof.
Section 2.4.6. Prepayments of the Loans. (a) Revolving Loans that are
Libor Loans or Matched Rate Loans may be prepaid at any time, without premium or
penalty, on the last day of any Interest Period applicable thereto, upon one (1)
Business Day's notice in the case of Matched Rate Loans and three (3) Business
Days' notice, in the case of Libor Loans. Any prepayment of Matched Rate Loans
or Libor Loans not made on the last of the Interest Period applicable thereto
shall be subject to a prepayment penalty as set forth in Section 2.4.8. hereof.
Revolving Loans that are Prime Rate Loans may be prepaid, in whole or in part,
at any time, without premium or penalty, upon one (1) Business Day's notice. Any
interest accrued on the amounts so prepaid to the date of such payment must be
paid at the time of any such payment. No prepayment of the Revolving Loans
during the Revolving Credit Period shall affect the Commitment Amount or impair
Borrower's right to borrow as set forth in Section 2.1.1. hereof.
(b) The Term Loan may be prepaid at any time, in whole or in part, on
the last day of any Interest Period applicable thereto in the case of any
portion of the Term Loan that is a Libor Loan or Matched Rate Loan, and at any
time in the case of any portion of the Term Loan that is a Prime Rate Loan,
without premium or penalty, upon one Business Day's notice in the case of a
Prime Rate Loan or Matched Rate Loan and upon three Business Days' notice in the
case of a Libor Loan, provided that interest accrued on the amounts so paid to
the date of such payment must be paid at the time of any such payment.
Prepayment of the Term Loan shall be applied to installments of principal due
thereunder in the inverse order of their maturities.
Section 2.4.7. Overdue Payments. Overdue principal (whether at maturity, by
reason of acceleration or otherwise) and, to the extent permitted by applicable
law, overdue interest and fees or any other amounts payable under this Agreement
shall bear interest from and including the due date thereof until paid,
compounded
<PAGE>
daily and payable on demand, at a rate per annum equal to (i) if such due date
occurs prior to the end of an Interest Period, three percentage points (3.0%)
above the interest rate applicable to such Loan for such Interest Period until
the expiration of such Interest Period, and thereafter, three percentage points
(3.0%) the Prime Rate; and (ii) in all other cases, three percentage points
(3.0%) above the rate then applicable to Prime Rate Loans (the "Default Rate").
Section 2.4.8. Payments Not at End of Interest Period. If Borrower for any
reason makes any payment of principal with respect to any Libor Loan or Matched
Rate Loan on any day other than the last day of an Interest Period applicable to
such Libor Loan or Matched Rate Loan or fails to borrow or continue or convert
to a Libor Loan or a Matched Rate Loan after giving a Notice pursuant to Section
2.4.3. hereof, or if any Libor Loan or Matched Rate Loan is accelerated pursuant
to Section 12.1. hereof, Borrower shall pay to Bank (i) all Breakage Costs in
the case of a Libor Loan and (ii) in the case of a Matched Rate Loan, an amount
computed pursuant to the following formula:
The latest published rate preceding the date of prepayment for United
States Treasury Notes or Bills (Bills on a discounted basis shall be
converted to a bond equivalent) as published weekly in the Federal
Reserve Statistical Release with a maturity date closest to the last
date of the then applicable Interest Period as to which the prepayment
is made shall be subtracted from the interest rate in effect at the
time of prepayment with respect to the indebtedness being paid. If the
result is zero or a negative number, there shall be no prepayment
premium. If the result is positive number, then the resulting
percentage shall be multiplied by the amount of the principal balance
being prepaid. The resulting amount will be divided by 360 and
multiplied by the number of days remaining in the then applicable
Interest Period. Said amount shall be reduced to present value
calculated by using the above-referenced United States Treasury Note
or Bill rate as of the date of prepayment as the discount rate. The
resulting amount shall be the prepayment premium due to the Bank upon
prepayment.
Borrower shall pay such amount upon presentation by Bank of a statement
setting forth the amount and the Bank's calculation thereof pursuant hereto,
which statement shall be deemed true and correct absent manifest error.
Section 2.5. General Terms Applicable to Any Extension of Credit
Section 2.5.1. Increased Costs and Capital Adequacy.
(a) If Bank determines that any change in any law or regulation or
directive or bulletin or in the interpretation
<PAGE>
thereof after the Closing Date by any court or administrative or governmental
authority charged with the administration thereof shall either (i) impose,
modify or deem applicable any reserve, special deposit or similar requirement
against any credit extended by Bank under this Agreement, or (ii) impose on Bank
or its parent bank holding company any other condition regarding this Agreement
and the result of any event referred to in the preceding clause (i) or (ii)
above shall be to increase the cost to Bank or such holding company of issuing,
funding or maintaining any Extension of Credit (which increase in cost shall be
determined by Bank's reasonable allocation of the aggregate of such cost
increases resulting from such event), then, upon written demand by Bank,
Borrower shall pay to Bank from time to time as specified by Bank, additional
amounts which shall be sufficient to compensate Bank for such increased cost
from the date of such change. A certificate as to such increased cost incurred
by Bank as a result of any event mentioned in clause (i) or (ii) above prepared
in reasonable detail (which shall include the method employed by Bank in
determining the allocation of such costs to Borrower) and otherwise in
accordance with this subsection (a), submitted by Bank to Borrower, shall be
conclusive evidence, absent manifest error, as to the amount thereof.
(b) If Bank shall determine that the adoption after the Closing Date
of any applicable law, rule or regulation pursuant to or arising out of the July
1988 report of the Base Committee on Banking Regulations and Supervisory
Practices entitled "International Convergence of Capital Measurement and Capital
Standards", or the adoption after the date hereof of any other law, rule, or
regulation regarding capital adequacy, or any change therein, or any change in
the interpretation or administration thereof, or compliance by Bank or its
parent bank holding company with any requirement or directive regarding capital
adequacy (whether or not having the force of law) of any such authority, central
Bank or comparable agency, except any such adoption or change or any such
compliance with a request or directive which applies or has been applied solely
to Bank or its parent Bank holding company by reason of events or conditions
relating solely to Bank, has the effect of reducing the rate of return on Bank's
or its parent Bank holding company's capital as a consequence of its commitment
hereunder or to a level below that which Bank or such holding company could have
achieved but for such adoption, change or compliance by an amount deemed by Bank
to be material (for which reduction of the rate of return shall be determined by
Bank's or such holding company's reasonable allocation of such reduction of the
rate of return resulting from such event) then, upon written demand by Bank,
Borrower shall pay to Bank, from time to time as specified by Bank, such
additional amount or amounts which shall be sufficient to compensate Bank for
such reduction. A certificate as to such increased cost incurred by Bank as a
result of any event mentioned in this subsection (b), prepared in reasonable
detail (which shall include the method employed by Bank in determining the
allocation of such costs to Borrower) and otherwise in accordance with this
subsection (b) submitted by Bank to Borrower, shall be
<PAGE>
conclusive evidence, absent manifest error, as to the amount thereof.
(c) Amounts payable by Borrower pursuant to this Section 2.5.1. shall
be payable within ten (10) Business Days of receipt by Borrower of a certificate
described in subsection (a) or (b) of this Section 2.5.1.
Section 2.5.2. Late Payment. Any payment of principal due and payable
under the Term Loan or interest due under this Agreement with respect to any of
the Loans which is not made within ten (10) days of the date specified for
payment shall bear a late fee equal to five percent (5%) of the amount of the
payment then due to compensate Bank for the costs incurred in processing the
late payment. The imposition or collection of a late fee shall not affect Bank's
right to exercise any of its rights and remedies upon the occurrence of an Event
of Default.
Section 2.5.3. Method of Payment. All payments and prepayments of
principal and all payments of interest shall be made by Borrower to Bank at its
head office in immediately available funds, on or before 3:00 p.m. on the due
date thereof, free and clear of, and without any deduction or withholding for,
any taxes or other payments. Bank may, and Borrower hereby authorizes Bank to,
debit the amount of any payment not made by such time to the Loan Account.
SECTION 3. SECURITY FOR THE OBLIGATIONS
Section 3.1. Collateral Disclosure List. Borrower shall deliver to Bank
on the Closing Date a list identifying, inter alia, all of its properties and
assets and the locations thereof on a form provided by Bank (the "Collateral
Disclosure List").
Section 3.2. Security. The Obligations shall be secured by:
Section 3.2.1. All properties and assets of Borrower, including goods,
accounts receivable, inventory, contract rights, accounts, documents,
instruments and chattel paper, business and financial records and general
intangible assets of Borrower as more particularly defined in the Security
Agreement.
Section 3.2.2. A limited guaranty executed by the Limited Guarantor in
substantially the form attached hereto as Exhibit E (the "Guaranty").
Section 3.2.3. A pledge of all of the Limited Guarantor's right, title
and interest in and to all shares of capital stock of Borrower pursuant to the
Stock Pledge.
SECTION 4. REPRESENTATIONS AND WARRANTIES
In order to induce Bank to enter into this Agreement and to make any
Extension of Credit, Borrower makes the following
<PAGE>
representations and warranties to Bank, which shall be deemed made as of the
date hereof and, except as otherwise provided in this Section 4., the date of
each Extension of Credit. Any knowledge acquired by Bank shall not diminish its
rights to rely upon such representations and warranties.
Section 4.1. Corporate Existence. Borrower is a corporation duly
incorporated, validly existing and in good standing under the laws of its state
of incorporation and, to the best of its knowledge, is duly qualified in all
other jurisdictions in which the properties and assets owned, leased or operated
by it, or the nature of the business conducted by it, make such qualification
necessary and where failure to so qualify would have a Material Adverse Effect.
Section 4.2. Corporate Authority. The execution, delivery and performance
of this Agreement, the Notes and the Other Documents, the consummation of the
transactions herein and therein contemplated, the fulfillment of and compliance
with the terms and provisions hereof and thereof have been duly authorized by
all necessary corporate action of Borrower and are within its corporate power
and will not result in a violation of its Certificate of Incorporation or
Bylaws, if and as amended.
Section 4.3. Binding Obligations. This Agreement, the Notes and the Other
Documents constitute the legal, valid and binding obligations of Borrower,
enforceable against it in accordance with their respective terms.
Section 4.4. Noncontravention. The execution, delivery and performance by
Borrower of this Agreement, the Notes and the Other Documents will not violate
any existing law, ordinance, rule, regulation or order of any Governmental
Authority or result in a breach of any of the terms of, or constitute a default
under, any contractual obligation to which Borrower is a party or by which it or
any of its properties or assets are bound or result in or require the imposition
of any Encumbrances on any of Borrower's properties or assets.
Section 4.5. Permits. Borrower possesses all material permits,
authorizations, licenses, approvals, waivers and consents, without unusual
restrictions or limitations, the failure of which to possess would have a
Material Adverse Effect, all of which are in full force and effect.
Section 4.6. No Consents. The execution, delivery and performance of this
Agreement, the Notes and the Other Documents does not require any approval,
consent or waiver under any Contractual Obligation. No approval, authorization,
consent, waiver or order of, or registration, application or filing with, any
Governmental Authority is required in connection with the transactions
contemplated by this Agreement, the Notes and the Other Documents.
<PAGE>
Section 4.7. Financial Statements. Borrower has provided to Bank its
Financial Statements dated as of June 30, 1994 and related footnotes, audited
and certified by R. Eisner & Co. Borrower has also provided to Bank its
internally prepared Financial Statements dated as of July 28, 1994, certified by
the chief financial officer of Borrower but subject, however, to normal,
recurring year-end adjustments that shall not in the aggregate be material in
amount. All Financial Statements of Borrower heretofore provided to Bank present
fairly in all material respects the financial condition and results of business
operations of Borrower for the periods indicated in accordance with GAAP.
Borrower has no direct or contingent liabilities, liabilities for taxes, unusual
commitments or unrealized or unanticipated losses not disclosed in such
Financial Statements. Since the date of the latest dated balance sheet included
in the Financial Statements, there has been no material adverse change in the
business operations or financial condition of Borrower from that set forth in
the balance sheet contained in such Financial Statements and no Dividends have
been declared or made to stockholders, nor have any shares of its capital stock
(or any warrant to purchase, options to acquire or notes convertible, in whole
or in part, into any shares of its capital stock) been purchased or acquired by
any Person in any manner nor has Borrower made any Investment except as set
forth on Schedule 4.7. attached hereto.
Section 4.8. Financial Forecasts. Borrower has provided to Bank
forecasted Financial Statements together with appropriate supporting details and
a statement of the underlying assumptions, ranges and limitations, prepared on a
monthly basis covering the Fiscal Year commencing on July 1, 1994 (the
"Forecasts"). The Forecasts have been prepared in good faith and represent the
good faith opinion of Borrower and its senior management as to the most probable
course of Borrower's business operations for the periods covered thereby and
have a reasonable basis. Except as noted therein, the practices followed in
preparing the Forecasts do not materially differ from practices usually followed
by companies engaged in businesses similar to that of Borrower in the
preparation of accounting forecasts in good faith and are in conformity with the
guidelines established by the American Institute of Certified Public Accountants
in the presentation of a financial forecast.
Section 4.9. Financial Information. All written data, reports and
information which Borrower has supplied to Bank or caused to be so supplied by a
third party on its behalf in connection with this Agreement are complete and
accurate and contain no material omission or misstatement except such as have
been corrected in a writing delivered to Bank.
Section 4.10. Business Relationships. There exists no actual or threatened
termination, cancellation or limitation of, or any modification or change in,
the business relationship of Borrower with any customer or group of customers
whose purchases individually or in the aggregate are material to Borrower's
<PAGE>
business operations, or with any material supplier (other than in the ordinary
course of business where one supplier is replaced by another offering terms
which are no less favorable to Borrower).
Section 4.11. Brokers. No broker or finder has brought about the
obtaining, making or closing of, and no broker's or finder's fees or commissions
will be payable by Borrower to any Person in connection with, the transactions
contemplated by this Agreement.
Section 4.12. Use of Proceeds. Borrower is not an "investment company," or
an "affiliated person" of, or "promoter" or "principal underwriter" for, an
"investment company," as such terms are defined in the Investment Company Act of
1940, as amended (15 U.S.C. (S)(S)80(a)(1) et seq.). No Extension of Credit, the
application of the proceeds and repayment thereof by Borrower or the performance
of the transactions contemplated by this Agreement will violate any provision of
said Act, or any rule, regulation or order issued by the Securities and Exchange
Commission thereunder. Borrower does not own any margin security as that term is
defined in Regulation U of the Board of Governors of the Federal Reserve System
and the proceeds of each Extension of Credit will be used only for the purposes
set forth in this Agreement. None of the proceeds of any Extension of Credit
will be used, or have been used, directly or indirectly, for the purpose of
purchasing or carrying any margin security or for the purpose of reducing or
retiring any Indebtedness which was originally incurred to purchase or carry any
margin security or for any other purpose which might constitute such Extension
of Credit a "purpose credit" within the meaning of said Regulation U or
Regulations G or X of the Federal Reserve Board. Borrower will not take, or
permit any Person acting on its behalf to take, any action which might cause
this Agreement or any document or instrument delivered pursuant hereto to
violate any regulation of the Federal Reserve Board.
Section 4.13. Statutory Compliance. Borrower is in compliance with all
material laws, ordinances, rules, regulations and orders of any Governmental
Authority applicable to it, its properties and assets and the business conducted
by it, including, without limitation, ERISA, the United States Occupational
Safety and Health Act of 1970 and all Environmental Laws except where non-
compliance would not have a Material Adverse Effect.
Section 4.14. Commitments. Borrower has no fixed, contingent or other
obligations to issue any shares, or rights exercisable into shares, of its
capital stock.
Section 4.15. Events of Default. No Default or Event of Default has
occurred and is continuing.
Section 4.16. Other Defaults. Borrower is not in default in the
performance, observance or fulfillment of any Contractual Obligation.
<PAGE>
Section 4.17. Taxes. Borrower has filed all tax returns and reports
required to be filed by it with any Governmental Authority and has paid in full,
or made adequate provisions or established adequate reserves for, the payment of
all taxes, interest, penalties, assessments or deficiencies shown to be due or
claimed to be due on or in respect to such tax returns and reports.
Section 4.18. Ownership of Borrower. The Limited Guarantor is the holder
of all of the issued and outstanding shares of capital stock of Borrower and no
other Person has any rights and/or claim to any issued or unissued shares of
such capital stock except for a pledge of capital stock to the Covered
Employees.
Section 4.19. Solvency. Borrower is currently Solvent; and Borrower is not
contemplating either the filing of a petition by it under Bankruptcy Code or any
state bankruptcy or insolvency law or the liquidating of all or a major portion
of its properties and assets, and Borrower has no knowledge of any Person
contemplating the filing of any such petition against it.
Section 4.20. Business Name. Borrower conducts its business solely through
the names set forth on Schedule 12 of the Collateral Disclosure List, without
the use of any trade name, or the intervention of or through any other Person.
Borrower has not, except as set forth in the Collateral Disclosure List, during
the preceding five (5) years, conducted its business through any other name or
trade name or been the surviving corporation in a merger or consolidation or
acquired all or substantially all of the assets of any other Person.
Section 4.21. Affiliate Contracts. All contracts and transactions between
Borrower and any Affiliate or Subsidiary of Borrower have been executed or will
be executed on such terms as would be contained in an agreement executed at
arms' length with an unrelated third party.
Section 4.22. Capitalization. The outstanding shares of capital stock of
Borrower have been duly issued and are fully paid and non-assessable.
Section 4.23. Litigation. Except as set forth on Schedule 4.23. attached
hereto, there are no actions, suits or proceedings by or before any Governmental
Authority or any arbitration or alternate dispute resolution proceeding, pending
or, to the knowledge of Borrower or any of Borrower's officers, threatened
against Borrower or its properties and assets, which if adversely determined,
would have a Material Adverse Effect.
Section 4.24. Title to Properties. Each of Borrower and its Subsidiaries
has good and marketable title to all of the properties, assets and rights of
every name and nature now purported to be owned by it, including, without
limitation, such properties, assets and rights as are reflected in the Financial
Statements referred to in Section 4.7. (except such properties,
<PAGE>
assets or rights as have been disposed of in the ordinary course of business
since the date thereof), free from all Encumbrances except Permitted
Encumbrances or those Encumbrances disclosed in Schedule 4.24. attached hereto,
and, free from all defects of title that might have a Material Adverse Effect.
Borrower's properties, assets and rights are sufficient to permit Borrower to
conduct the business in which it is presently engaged. Borrower possesses all
trademarks, service marks, trade names, trade service styles, copyrights and
patents that may be necessary to own its properties and assets, and to conduct
its business as it is presently conducted or as Borrower intends to conduct it
hereafter, without any infringement or conflict with the rights of any other
Person or any violation of law.
Section 4.25. Labor Relations. Borrower is not a party to any collective
bargaining or other agreement with any union and there are no material
grievances, disputes or controversies with any union or other organization of
Borrower's employees, or threats of strikes, work stoppages or demands by any
union or such other organization.
Section 4.26. Guarantees. Except as set forth on Schedule 4.26. attached
hereto, Borrower is not a party to any Guarantee or other similar type of
agreement, and it has not offered its endorsement to any Person which would in
any way create a contingent liability (except by endorsement of negotiable
instruments payable at sight for deposit or collection or similar banking
transactions in Borrower's ordinary course of business).
Section 4.27. Subsidiaries. As of the date of this Agreement, all of the
Subsidiaries and Affiliates of Borrower are set forth on Schedule 14 of the
Collateral Disclosure List. Borrower or a Subsidiary of Borrower is the owner
(subject to specified minority interests) free and clear of all Encumbrances, of
all of the issued and outstanding capital stock of each Subsidiary. All shares
of such capital stock have been validly issued and are fully paid and
nonassessable, and no rights to subscribe to any additional shares have been
granted, and no options, warrants or similar rights are outstanding. Borrower is
not engaged in any joint venture, partnership or other business arrangement with
any other Person except as described on said Schedule 14.
Section 4.28. ERISA. Borrower and each member of the Controlled Group have
fulfilled their obligations under the minimum funding standards of ERISA and the
Code with respect to each Plan and are in compliance in all material respects
with the applicable provisions of ERISA and the Code, and have not incurred any
liability to the PBGC or a Plan under Title IV of ERISA; and no "prohibited
transaction" or "reportable event" (as such terms are defined in ERISA) has
occurred with respect to any Plan.
Section 4.29. Environmental Protection. Except as set forth on Schedule
4.29. attached hereto:
<PAGE>
(a) The business operations of Borrower comply in all material
respects with all Environmental Laws.
(b) Borrower has not received (i) any notice or claim to the effect
that it is or may be liable to any Person as a result of the Release or
threatened Release of any Hazardous Materials or (ii) any letter or request for
information under CERCLA or any other Environmental Laws, and, to the best of
Borrower's knowledge, based upon reasonable investigation, the operations of
Borrower are not the subject of any investigation by any Governmental Authority
evaluating whether any remedial action is needed to respond to a Release or
threatened Release of any Hazardous Material or claim, or threatened lawsuit or
claim arising under or related to any Environmental Law.
(c) Borrower and its properties, assets and operations are not
subject to any outstanding written order or agreement with any Governmental
Authority or private party respecting any Environmental Laws.
(d) Borrower has not filed any notice under any Environmental Law
indicating past or present treatment or disposal of Hazardous Materials, and
none of the operations of Borrower involves the generation, transportation,
treatment, storage or disposal of Hazardous Materials.
(e) To the best of Borrower's knowledge, based upon reasonable
investigation, no Hazardous Material exists on, under or about any of the
properties or assets of Borrower, real or personal, in a manner that could give
rise to any claim or suit against Borrower, and Borrower has not filed any
notice or report of a Release of any Hazardous Materials that could give rise to
any such claim or suit against Borrower.
Section 4.30. Accounts Receivable. All of Borrower's Accounts Receivable
(i) are and shall be based on an actual and bona fide sale and delivery of goods
or the rendition of services to Account Debtors; (ii) are and shall be made by
Borrower in the ordinary course of its business; (iii) result from goods and
Inventory being sold which are the exclusive property of Borrower; (iv) are the
exclusive property of Borrower; (v) are not subject to any Encumbrance other
than Permitted Encumbrances; and (vi) are represented by invoices or statements
issued in the name of Borrower.
Section 4.31. Investments. Except as set forth on Schedule 4.31. attached
hereto, Borrower has no Investment in any Person other than existing Investments
in Subsidiaries and Qualified Investments.
SECTION 5. CONDITIONS TO OBLIGATION OF BANK
<PAGE>
Bank shall have no obligation under this Agreement to make any Extension of
Credit unless and until it is satisfied, in its sole and absolute discretion,
that all of the following conditions shall have been satisfied prior to or on
the Closing Date:
Section 5.1. Representations and Warranties True The representations and
warranties contained in Section 4 are true and correct, and Borrower, by its
President, shall have so certified to Bank.
Section 5.2. Delivery of Documents Borrower shall have duly executed and
delivered to Bank, in form and substance satisfactory to Bank and its legal
counsel, this Agreement, the Notes, the Other Documents and all further
documents as Bank may request to evidence the Obligations or to create, perfect
or continue any security interest or mortgage lien contemplated by this
Agreement and the Other Documents In addition, Bank shall have received or
agreed in writing to waive or delay the receipt of:
Section 5.2.1. Copies of all corporate action taken by Borrower
to authorize the execution and delivery of this Agreement, the Notes and the
Other Documents, together with a certificate of the corporate secretary of
Borrower certifying that the same are true, correct and complete as of the
Closing Date.
Section 5.2.2. Copies of Borrower's Certificate of Incorporation and
Bylaws, if and as amended, together with a certificate of the Secretary of
Borrower certifying that the same are true, correct and complete as of the
Closing Date.
Section 5.2.3. INTENTIONALLY LEFT BLANK.
Section 5.2.4. A certificate issued by the office of the Secretary of
State of the state of Borrower's incorporation to the effect that Borrower is
legally existing and in good standing under the laws of such states.
Section 5.2.5. A certificate issued by the office of the Secretary of
State of each state in which Borrower is qualified as a foreign corporation to
the effect that Borrower is duly qualified and in good standing as a foreign
corporation under the laws of such states.
Section 5.2.6. A certificate of the Secretary of Borrower certifying
to the incumbency and signatures of all officers of Borrower who are authorized
to execute this Agreement, the Notes and the Other Documents.
Section 5.2.7. Objective evidence satisfactory to Bank and its legal
counsel of the payment of all taxes and assessments due or claimed to be due to
any Governmental Authority with respect to the Collateral.
<PAGE>
Section 5.2.8. A UCC-11 Request for Information certified by the
Office of the Secretary of State of the State of Connecticut (or an acceptable
equivalent thereto) for each name set forth on the Collateral Disclosure List
listing the filings against Borrower as debtor under such names at such offices.
Section 5.2.9. Such UCC-1 Financing Statements as Bank deems necessary
to perfect any security interests contemplated by this Agreement or the Other
Documents.
Section 5.2.10. Insurance policies and certificates evidencing
adequate insurance coverage on Borrower's properties and assets which insurance
policies shall name Bank as an additional insured/loss payee.
Section 5.2.11. An environmental certificate and indemnity
agreement executed by Borrower, satisfactory in form and substance to Bank and
its legal counsel (the "Environmental Certificate").
Section 5.2.12. Such cash management, lockbox and similar
agreements required by Bank to administer the Line of Credit.
Section 5.2.13. Such further documents, instruments and agreements
as Bank shall reasonable request, all satisfactory in form and substance
satisfactory to Bank and its legal counsel.
Section 5.3. Validity of Liens. All Encumbrances in the Collateral shall
have been created in favor of Bank, which Encumbrances shall constitute legal,
valid and enforceable and, unless otherwise consented to by Bank, first security
interests in and liens upon the Collateral All filings, recordings, deliveries
of instruments and other actions necessary or desirable in the sole and absolute
discretion of Bank and its legal counsel to create said Encumbrances shall have
been made, taken and/or effected.
Section 5.4. Opinion of Counsel. Bank shall have received from counsel
for Borrower a written opinion, satisfactory in form and substance to Bank and
its legal counsel.
Section 5.5. Payment of Fees. Borrower shall have paid any applicable
fees and expenses due to Bank at closing, including the fees and expenses of
Bank's legal counsel.
Section 5.6. Legal Matters. All legal matters incident to the
transactions hereby contemplated shall be satisfactory to Bank and its legal
counsel.
SECTION 6 CONDITIONS TO EXTENSION OF CREDIT
Bank shall have no obligation to make any Extension of Credit unless and
until, it is satisfied, in its sole and absolute discretion, that all of the
following conditions shall have been
<PAGE>
fulfilled prior to or contemporaneously with the making of such Extension of
Credit.
Section 6.1. Notice of Borrowing. Bank shall have received, in a timely
manner, a Notice of Borrowing in a form satisfactory to Bank.
Section 6.2. Borrowing Base. Certificate Bank shall have received a
Borrowing Base Certificate satisfactory in form and substance to Bank showing
that the Borrowing Base is sufficient to permit Bank to make the requested
Extension of Credit.
Section 6.3. No Material Adverse Change. There has been no change in the
financial condition or business operations of Borrower or its Subsidiaries since
the date of the last Financial Statements or other financial reports delivered
to Bank which has a Material Adverse Effect.
Section 6.4. Truth of Representations and Warranties. All of the
representations and warranties set forth in Section 4 of this Agreement are
either true and correct or, in the case of any such representations and
warranties which by their nature relate to the Closing Date or any other
specific date, restated as of the date on which the requested Extension of
Credit is made.
Section 6.5. No Default. No Default or Event of Default shall have
occurred and be continuing or shall occur as a result of the requested Extension
of Credit.
Section 6.6. Payment of Fees. Borrower shall have paid any applicable
fees and expenses due to Bank, including any fees and expenses of Bank's legal
counsel.
Section 6.7. Corporate Action. The corporate action of Borrower referred
to in Section 5.2.1. shall remain in full force and effect and the incumbency of
officers shall be as stated in the certificates of incumbency delivered pursuant
to Section 5.2.6. or as subsequently reflected in a new certificate of
incumbency delivered to Bank in connection with the requested Extension of
Credit.
Section 6.8 Legal Matters. All legal matters incident to the transactions
contemplated by the requested Extension of Credit shall be satisfactory to Bank
and its legal counsel and no change shall have occurred in any law or regulation
or interpretation thereof, which, in the opinion of Bank and its legal counsel,
would make it illegal or against the policy of any governmental body, agency or
instrumentality for Bank to make the requested Extension of Credit.
<PAGE>
SECTION 7 AFFIRMATIVE COVENANTS OF BORROWER
Borrower covenants and agrees that from the date hereof until the payment
and performance in full of the Obligations, unless Bank otherwise consents in
writing:
7.1. Financial Statements and Reporting Requirements. Borrower shall
furnish to Bank:
Section 7.1.1. As soon as available, but in no event later than ninety
(90) days after the end of each Fiscal Year, Financial Statements for such year,
audited and certified by Arthur Andersen & Co. (or other independent certified
public accountants acceptable to Bank) in the case of such consolidated
statements, and certified by the chief financial officer of Borrower in the case
of such consolidating statements; and, concurrently with the delivery of such
Financial Statements, a copy of said certified public accountants' management
report, if any.
Section 7.1.2. As soon as available, but in no event later than twenty
(20) days after the end of each month, internally prepared Financial Statements,
prepared in accordance with GAAP on year-to-date and month-to-date basis and
internally prepared copies of the following financial reports: (i) aging of
accounts receivable and accounts payable and (ii) summary of Inventory, all
prepared in accordance with GAAP.
Section 7.1.3. As soon as available, but in no event later than three
(3) days after the end of each calendar week, a certificate in substantially the
form of Exhibit F attached hereto setting forth (i) Borrower's then existing
Eligible Inventory or, if requested by Bank, particular items, types or
categories thereof; (ii) Borrower's then existing Eligible Accounts Receivable;
(iii) such other information in respect of Inventory, Accounts Receivable,
Equipment and other Collateral as Bank may reasonably request; and (iv) a
calculation of Borrowing Base and borrowing availability as of the date of said
certificate (the "Borrowing Base Certificate").
Section 7.1.4. As soon as available, but in no event later than the
end of each Fiscal Year, forecasted Financial Statements prepared in accordance
with the standards set forth in Section 4.8. hereof, showing a most likely
scenario and including collateral availability and usage under the Line of
Credit and in such further reasonable detail as Bank may request for each of the
forthcoming twelve (12) months, month by month, together with such appropriate
supporting details and statements or assumptions.
Section 7.1.5. As soon as available, but in no event later than forty-
five (45) days after the end of each Fiscal Year, a report in substantially the
form of Exhibit G attached hereto signed on behalf of Borrower by its chief
financial officer.
<PAGE>
Section 7.2. Fire and Hazard Insurance. Borrower shall keep its
properties and assets insured against fire and other hazards (so called "All
Risk Coverage") in amounts and with companies satisfactory to Bank to the same
extent and covering such risks as is customary in the state or similar business,
but in no event in an aggregate amount less than the Obligations, which policies
shall name Bank as first loss payee as its interest may appear Borrower shall
also maintain public liability coverage against claims for personal injuries or
death, business interruption, worker's compensation, employment or similar
insurance with coverage and in amounts satisfactory to Bank and as may be
required by applicable law Such all risk policy shall provide for a minimum of
thirty (30) days' written cancellation notice to Bank Borrower agrees to deliver
copies of all of the aforesaid insurance policies to Bank In the event of any
loss or damage to the Collateral, Borrower shall give immediate written notice
to Bank and to its insurers of such loss or damage and shall promptly file proof
of loss with its insurers.
Section 7.3. Maintenance of Existence. Borrower shall preserve and
maintain its corporate existence, rights, franchises and privileges, including
its corporate name, in the jurisdiction of its incorporation, and qualify and
remain qualified as a foreign corporation in each jurisdiction in which such
qualification is necessary or desirable
Section 7.4. Preservation of Collateral. Borrower shall preserve and
maintain the Collateral in good repair, working order and operating condition
and Borrower shall immediately notify Bank of any event causing material loss or
unusual depreciation in the value of the Collateral.
Section 7.5. Taxes and Other Assessments. Borrower shall pay and
discharge, and maintain adequate reserves for the payment and discharge of, all
taxes, assessments, government charges or levies, or claims for labor, supplies,
rent or other obligations made against it or its properties and assets which, if
unpaid, might become an Encumbrance against Borrower or its properties and
assets, except liabilities which are being contested in good faith in
appropriate proceedings Borrower shall file all Federal, state and local tax
returns and other reports that it is required by law to file. Borrower shall
promptly notify or cause notice to be given to Bank of any pending or future
audits of its income tax returns by the Internal Revenue Service or by any state
in which Borrower conducts business operations and the results of each such
audit.
Section 7.6. Inspection. Borrower shall permit Bank or its designees to
(i) visit and inspect the properties and assets of Borrower and its
Subsidiaries; (ii) examine and make copies of and take abstracts from the books
and records of Borrower and its Subsidiaries; and (iii) discuss the affairs,
finances and accounts of Borrower and its Subsidiaries with their appropriate
officers, employees and accountants In handling such information Bank shall
exercise the same degree of care that it exercises with respect to
<PAGE>
its own proprietary information of the same types, to maintain the
confidentiality of any non-public information thereby received or received
pursuant to Section 7.1. hereof except that disclosure of such information may
be made (i) to Bank Affiliates in connection with their present or prospective
business relations with Borrower; (ii) to prospective transferees or purchasers
of an interest in the Obligations; (iii) as required by law, regulation, rule or
order, subpoena, judicial order or similar order; and (iv) as may be required in
connection with the examination, audit or similar investigation of Bank Borrower
shall permit Bank (or any of its officers, agents, attorneys or accountants) for
the purpose of ascertaining whether or not each and every provision of this
Agreement or the Other Documents is being performed or for the purpose of
examining the Collateral and the records relating thereto, to enter the offices
and business premises of Borrower and its Subsidiaries, and to conduct an audit
of the Collateral and/or Borrower's financial and business records on two (2)
occasions during each twelve (12) month period at such times as Bank may select
in its sole and absolute discretion; provided, however, that Bank shall have the
right to conduct such an audit on more than two (2) occasions if a Default or
Event of Default shall have occurred and be continuing for such services Any
such audit shall be conducted at Borrower's expense at Bank's then current rate
of plus expenses to a maximum of FIVE THOUSAND AND NO/100 DOLLARS ($5,000.00)
per fiscal year; provided, however, that such maximum shall not apply if a
Default or an Event of Default shall have occurred or be continuing Any charges
and expenses relating to such audits shall be directly debited by Bank from the
Loan Account.
Section 7.7. Notices. Borrower shall promptly upon becoming aware of the
occurrence of a Default or Event of Default notify Bank thereof in writing
Borrower shall also promptly advise Bank of:
(a) any labor controversy resulting in or threatening to result in a
strike or work stoppage against Borrower or its Subsidiaries; or
(b) any change of independent public accountants, notice that such
change has occurred together with the name of the new accountants.
Section 7.8. Litigation. Borrower shall promptly inform Bank of any
action, suit, or proceeding by or before any Government Authority or arbitration
or alternate dispute resolution proceeding, which might have a Material Adverse
Effect.
Section 7.9. Maintenance of Books and Records. Each of Borrower and its
Subsidiaries shall keep adequate books and records of account, in which true and
complete entries will be made reflecting all of its business and financial
transactions, and such entries will be made in accordance with GAAP including
the maintenance of adequate reserves for depreciation of property, if such
reserves are required by GAAP. Each of Borrower and its
<PAGE>
Subsidiaries shall maintain duplicate copies of all such books and records (i)
on-site at all times and (ii) off- site updated on a monthly basis.
Section 7.10. Maintenance of Permits. Borrower shall obtain and/or
maintain in full force and effect all material permits, authorizations,
licenses, approvals, waivers and consents which it presently possesses or which
may may become necessary in the future to conduct its business operations.
Section 7.11. Use of Proceeds. Borrower will use the proceeds of any
Extension of Credit solely for the purposes set forth in this Agreement.
Section 7.12. Payment of Indebtedness. Borrower shall promptly pay and
discharge when due and payable (or within applicable grace periods) all
Indebtedness due to any Person from Borrower, except when the amount thereof is
being contested in good faith by appropriate proceedings and with reserves
therefor being established as a current liability on the books of Borrower as
required by GAAP.
Section 7.13. Additional Offices. Borrower shall give Bank written notice
of each additional facility or office of Borrower to be opened after the Closing
Date Except to the extent set forth in any such notice, the chief executive
office of Borrower and all records relating to the Collateral shall be located
at the locations set forth in the Collateral Disclosure List.
Section 7.14. Access to Collateral. With respect to each location at which
the Collateral is now or hereafter located, Borrower will obtain such lien
waivers, estoppel certificates or subordination agreements as Bank may
reasonably require to insure the priority of its security interest in, and its
ability to take possession of, the Collateral situated at such locations.
Section 7.15. Compliance with Laws. Borrower shall comply with the
requirements of all applicable laws, ordinances, rules, regulations and orders
of any Government Authority.
Section 7.16. ERISA. Borrower shall: (i) make prompt payments of
contributions required to meet the minimum funding standards set forth under
ERISA with respect to each and every Plan and, promptly after the filing
thereof, furnish to Bank copies of each annual report required to be filed under
ERISA in connection with each and every Plan for each and every Plan year; (ii)
notify Bank immediately of any fact, including, but not limited to, any
"reportable event", arising in connection with any Plan which might constitute
grounds for the termination thereof by the PBGC or for the appointment by the
appropriate United States district court of a trustee to administer the Plan;
(iii) promptly after the issuance thereof, furnish to Bank a copy of any notice
of any "reportable event" given to the PBGC with respect to any Plan; (iv)
promptly after receipt thereof, furnish to Bank a copy of any notice
<PAGE>
received from the PBGC relating to the intention of the PBGC to terminate any
Plan or to appoint a trustee to administer any Plan; and (v) furnish to Bank,
promptly upon its request therefor, such additional information concerning each
and every Plan as may be reasonably requested.
Section 7.17. Compliance with Environmental Laws.
(a) Borrower shall, from time to time, if requested by Bank upon
reasonable cause, retain, at Borrower's expense, an independent professional
consultant to prepare a report relating to Hazardous Materials and to conduct an
investigation of any or all of the properties and assets of Borrower Borrower
agrees also that Bank (or its agents) may, from time to time retain at
Borrower's expense, an independent professional consultant to advise Bank as to
any such report relating to Hazardous Materials Borrower hereby grants to Bank,
its agents, employees, consultants and contractors the right to enter into or
onto Borrower's business premises to perform such tests as are reasonably
necessary to conduct such a review and/or investigation.
(b) Borrower shall promptly advise Bank in writing and in reasonable
detail of (i) any Release of any Hazardous Material required to be reported to
any Governmental Authority under any applicable Environmental Laws; (ii) any and
all written communications with respect to claims or suits under such laws or
any Release of Hazardous Materials required to be reported to any Governmental
Authority, instrumentality or agency; (iii) any remedial action taken by
Borrower or any other Person in response to (A) any Hazardous Materials on,
under or about the properties or assets of Borrower, the existence of which
could have a Material Adverse Effect or (B) any claim or suit resulting in a
material adverse change of Borrower's business operations or financial
condition; (iv) Borrower's discovery of any occurrence or condition on any real
property adjoining or in the vicinity of Borrower's business premises that could
cause such premises or any part thereof to be classified as "border-zone
property" or to be otherwise subject to any restrictions on the ownership,
occupancy, transferability or use thereof under any Environmental Laws; and (v)
any request for information from any Governmental Authority that indicates such
authority, instrumentality or agency is investigating whether Borrower may be
potentially responsible for a Release of Hazardous Materials.
(c) Borrower shall, at its own expense, provide copies of such
documents or information as Bank may reasonably request in relation to any
matters disclosed pursuant to this Section 7.17.
(d) Borrower shall comply with all Environmental Laws and establish
and maintain policies and procedures to ensure and monitor continued compliance
with all Environmental Laws Borrower shall promptly take any and all necessary
remedial action in connection with the presence, storage, use, disposal,
transportation or Release of any Hazardous Materials on, under or
<PAGE>
about its business premises If Borrower undertakes any remedial action with
respect to any Hazardous Materials on, under or about its business premises,
Borrower shall conduct and complete such remedial action in compliance with the
policies, orders and directives of any Governmental Authority except when and
only to the extent that Borrower's liability for such presence, storage, use,
disposal, transportation or discharge of any Hazardous Material is being
contested in good faith by Borrower.
Section 7.18. Operating Accounts Borrower shall establish and maintain all
of its operating accounts, including its payroll account, with Bank.
SECTION 8 NEGATIVE COVENANTS
Borrower covenants and agrees that from the date hereof until the payment
and performance in full of the Obligations, unless Bank otherwise consents in
writing:
Section 8.1. Limitation on Indebtedness. Neither Borrower nor any of its
Subsidiaries shall create, incur, assume, guarantee or be or remain liable with
respect to any Indebtedness other than the following ("Permitted Indebtedness"):
(a) Indebtedness of Borrower or any of its Subsidiaries to Bank or
any Bank Affiliates;
(b) Indebtedness existing as of the date of this Agreement and
disclosed on Schedule 8.1. attached hereto or in the Financial Statements
referred to in Section 4.7. hereof;
(c) Subordinated Indebtedness incurred with the prior written consent
of Bank;
(d) Indebtedness secured by Permitted Encumbrances;
(e) Indebtedness incurred or arising as a result of the re-
classification of Borrower's option, lease and subcontracting relationship for
its Jamaica manufacturing facility; and
(f) other Indebtedness of Borrower in an aggregate outstanding
principal amount not exceeding FIFTY THOUSAND AND NO/100 DOLLARS ($50,000.00) in
any one (1) instance or ONE HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS
($150,000.00) in the aggregate during any twelve (12) month period.
Section 8.2. Contingent Liabilities. Neither Borrower nor any of its
Subsidiaries shall create, incur, assume, guarantee or remain liable with
respect to any Guarantees other than the following:
(a) Guarantees in favor of Bank or any Bank Affiliates;
<PAGE>
(b) Guarantees existing on the date of this Agreement and disclosed
on Schedule 4.26. attached hereto or in the Financial Statements referred to in
Section 4.7. hereof;
(c) Guarantees resulting from the endorsement of negotiable
instruments for collection in the ordinary course of business;
(d) Guarantees with respect to surety, appeal, performance and
return-of-money and other similar obligations incurred in the ordinary course of
business (exclusive of obligations for the payment of borrowed money) not
exceeding ONE HUNDRED THOUSAND AND NO/100 DOLLARS ($100,000.00) in the aggregate
at any one time;
(e) Guarantees in support of Borrower's sub-contractors in an amount
not to exceed FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($500,000.00) in the
aggregate at any one time; and
(e) Guarantees of normal trade debt relating to the acquisition of
goods and supplies.
Section 8.3. Sale and Leaseback. Neither Borrower nor any of its
Subsidiaries shall enter into any arrangement, directly or indirectly, whereby
it shall sell or transfer any property owned by it in order to lease such
property or lease other property that Borrower or any such Subsidiary intends to
use for substantially the same purpose as the property being sold or
transferred.
Section 8.4. Encumbrances. Neither Borrower nor any of its Subsidiaries
shall create, incur, assume or suffer to exist any Encumbrance, or assign or
otherwise convey any right to receive income, including the Accounts Receivable,
with or without recourse, except the following ("Permitted Encumbrances"):
(a) Encumbrances in favor of Bank or any Bank Affiliates;
(b) Encumbrances existing as of the date of this Agreement and
disclosed in Schedule 4.24. attached hereto;
(c) liens for taxes, fees, assessments and other governmental charges
to the extent that payment of the same may be postponed or is not required in
accordance with the provisions of Section 8.4. hereof;
(d) landlords' and lessors' liens in respect of rent not in default
or liens in respect of pledges or deposits under worker's compensation,
unemployment insurance, social security laws, or similar legislation (other than
ERISA) or in connection with appeal and similar bonds incidental to litigation;
mechanics', laborers' and materialmen's and similar liens, if the obligations
secured by such liens are not then delinquent; liens securing the performance of
bids, tenders, contracts (other than for the payment
<PAGE>
of money); and statutory obligations incidental to the conduct of its business
and that do not in the aggregate materially detract from the value of its
property or materially impair the use thereof in the operation of its business;
(e) judgment liens that shall not have been in existence for a period
longer than thirty (30) days after the creation thereof or, if a stay of
execution shall have been obtained, for a period longer than thirty (30) days
after the expiration of such stay;
(f) rights of lessors under Capital Leases;
(g) Encumbrances in respect of any purchase money obligations for
tangible property used in its business that at any time shall not exceed TWENTY
FIVE THOUSAND AND NO/100 DOLLARS ($25,000.00) in any one (1) instance or ONE
HUNDRED THOUSAND AND NO/100 DOLLARS ($100,000.00) in the aggregate during any
twelve (12) month period; provided, however, that any such Encumbrances shall
not extend to properties and assets of Borrower or any such Subsidiary not
financed by such purchase money obligation;
(h) easements, rights of way, restrictions and other similar charges
or Encumbrances relating to real property and not interfering in a material way
with the ordinary conduct of its business; and
(i) Encumbrances on its property or assets created in connection with
the refinancing of Indebtedness secured by Permitted Encumbrances on such
property; provided, however, that the amount of Indebtedness secured by any such
Encumbrance shall not be increased as a result of such refinancing and no such
Encumbrance shall extend to property and assets of Borrower or any such
Subsidiary not encumbered prior to any such refinancing.
Section 8.5. Merger; Consolidation; Sale or Lease of Assets. Neither
Borrower nor any of its Subsidiaries shall sell, lease or otherwise dispose of
properties or assets (valued at the lower of cost or market), other than sales
of Inventory in the ordinary course of business or Equipment as permitted under
Section 10.3.5. hereof; or liquidate, merge or consolidate into or with any
other Person; provided, however, that any Subsidiary of Borrower may merge or
consolidate into or with (i) Borrower if no Default or Event of Default has
occurred and is continuing or would result from such merger and if Borrower is
the surviving company, or (ii) any other wholly-owned Subsidiary of Borrower.
Section 8.6. Additional Stock Issuance. Borrower shall not permit any
of its Subsidiaries to issue any additional shares of its capital stock or other
equity securities, any options therefor or any securities convertible thereto
other than to Borrower Neither Borrower nor any of its Subsidiaries shall sell,
transfer or otherwise dispose of any of the capital stock or other equity
securities of a Subsidiary, except (i) to Borrower or any of its
<PAGE>
wholly-owned Subsidiaries, or (ii) in connection with a transaction permitted by
Section 8.5.
Section 8.7. Dividends. Borrower shall not pay any Dividends on any
class of its capital stock or make any other distribution or payment on account
of or in redemption, retirement or purchase of such capital stock except that,
as long as no Default or Event of Default shall have occurred and be continuing
and as long as Borrower is in compliance with all of the Distribution Covenants
at the time of the payment of any such Dividends, Borrower may pay Dividends in
an amount which does not exceed FIVE HUNDRED THOUSAND AND NO/100 ($500,000.00)
DOLLARS in any Fiscal Year Notwithstanding the foregoing, if, Borrower does not
pay all or any portion of the Dividends permitted to be paid under this Section
8.7. in any Fiscal Year, Borrower may pay any such unpaid Dividends in future
Fiscal Years as long as no Default or Event of Default shall have occurred and
be continuing and the payment thereof will not cause Borrower to violate any of
the Distribution Covenants as of the date of the payment of any such Dividends
This Section 8.7. shall not apply to (i) the issuance, delivery or distribution
by Borrower of shares of its capital stock pro rata to its existing shareholders
and (ii) the purchase or redemption by Borrower of its capital stock with the
proceeds of the issuance of additional shares of capital stock.
Section 8.8. Investments. Neither Borrower nor any of its Subsidiaries
shall make or maintain any Investments other than (i) existing Investments in
Subsidiaries and (ii) Qualified Investments.
Section 8.9. ERISA. Neither Borrower nor any member of the Controlled
Group shall permit any plan maintained by it to (i) engage in any "prohibited
transaction" (as defined in Section 4975 of the Code); (ii) incur any
"accumulated funding deficiency" (as defined in Section 302 of ERISA) whether or
not waived; or (iii) terminate any Plan in a manner that could result in the
imposition of an Encumbrance on the property and assets of Borrower or any of
its Subsidiaries pursuant to Section 4068 of ERISA.
Section 8.10. Change in Terms and Prepayment of Subordinated Indebtedness.
Borrower shall not:
(a) effect or permit any change in or amendment to (i) the terms by
which any Subordinated Indebtedness purports to be subordinated to the payment
and performance of the Obligations or (ii) the terms relating to the repayment
of any Subordinated Indebtedness; or
(b) directly or indirectly, make any payment of principal in respect
of or in redemption, retirement or repurchase of any Subordinated Indebtedness
except in accordance with the terms of any documents, agreements or instruments
which serve to subordinate such Indebtedness to the Obligations.
<PAGE>
Section 8.11. Change in Management. Borrower shall not make nor suffer a
change in the overall composition of its present executive management which
would have a Material Adverse Effect.
Section 8.12. Change Name or Location. Borrower shall not change its
corporate name or conduct its business under any name other than those set forth
in the Collateral Disclosure List or change its chief executive office, place of
business or location of the Collateral or records relating to the Collateral
from the locations set forth in the Collateral Disclosure List unless it has
given Bank at least thirty (30) days prior written notice.
Section 8.13. Contracts. Borrower shall not enter into any contract other
than on such terms as would be contained in an agreement executed at arms'
length with an unrelated third party.
Section 8.14. Compliance with Environmental Laws. Borrower shall not
generate, handle, use, store or treat any Hazardous Materials except in
compliance with Environmental Laws.
Section 8.15. Lines of Business. Borrower shall not make a material change
in or discontinue its existing lines of business nor enter into any new line or
lines of business except as set forth in the Forecasts.
Section 8.16. Fiscal Year. Borrower shall not change its existing Fiscal
Year.
SECTION 9 FINANCIAL COVENANTS.
Borrower covenants and agrees that from the date hereof, until the payment
and performance in full of the Obligations, unless Bank otherwise consents in
writing:
Section 9.1. Performance Covenants.
Section 9.1.1. Net Worth Borrower's Net Worth shall not be less than
the following amounts at all times during the following Periods:
<TABLE>
<CAPTION>
Amount Period
<S> <C>
$3,250,000.00 September 30, 1994 through
June 29, 1995
$3,750,000.00 June 30, 1995 through
June 29, 1996
$4,250,000.00 June 30, 1996 through
June 29, 1997
$5,000,000.00 June 30, 1997 and thereafter
</TABLE>
Section 9.1.2. Debt Service Coverage. Borrower shall not permit the
ratio of its EBITDA minus Capital Expenditures to its
<PAGE>
Total Debt Service to be less than the following ratios at the end of each of
the following Fiscal Years:
<TABLE>
<CAPTION>
Ratio Fiscal Year Ending
<S> <C>
1.50 to 1.0 June 30, 1995
1.75 to 1.0 June 30, 1996
1.75 to 1.0 June 30, 1997
</TABLE>
Section 9.1.3. Total Debt to Net Worth Ratio. The ratio of Borrower's
Total Debt to its Net Worth shall not be greater than the following ratios at
all times during the following Periods.
<TABLE>
<CAPTION>
Ratio Period
<S> <C>
3.75 to 1.0 September 30, 1994 through
June 29, 1995
3.5 to 1.0 June 30, 1995 through
June 29, 1996
3.5 to 1.0 June 30, 1996 through
June 29, 1997
3.0 to 1.0 June 30, 1997 and thereafter
</TABLE>
Section 9.1.4. Inventory Turnover. Borrower shall "turn over" its
Inventory during each Fiscal Year at the rate of at least 1.5 to 1.0 (determined
as of the end of each Fiscal Year by dividing Borrower's cost of goods sold
during such Fiscal Year by the value of Borrower's Inventory as of such date).
Section 9.2. Distribution Covenants.
Section 9.2.1. Net Worth. Borrower's Net Worth shall not be less than
the following amounts at all times during the following Periods:
<TABLE>
<CAPTION>
Amount Period
<S> <C>
$4,750,000.00 June 30, 1995 through
June 29, 1996
$4,750,000.00 June 30, 1996 through
June 29, 1997
$5,500,000.00 June 30, 1997 and thereafter
</TABLE>
Section 9.2.2. Debt Service Coverage. Borrower shall not permit the
ratio of its EBITDA minus Capital Expenditures to its Total Debt Service to be
less than the following ratios at the end of each of the following Fiscal Years:
<TABLE>
<CAPTION>
Ratio Fiscal Year Ending
<S> <C>
1.75 to 1.0 June 30, 1995
2.00 to 1.0 June 30, 1996
2.00 to 1.0 June 30, 1997
</TABLE>
<PAGE>
Section 9.2.3. Total Debt to Net Worth Ratio. The ratio of Borrower's
Total Debt to its Net Worth shall not be greater than the following ratios at
all times during the following Periods.
<TABLE>
<CAPTION>
Ratio Periods
<S> <C>
3.0 to 1.0 June 30, 1995 through
June 29, 1996
3.0 to 1.0 June 30, 1996 through
June 29, 1997
2.5 to 1.0 June 30, 1997 and thereafter
</TABLE>
Section 9.2.4. Inventory Turnover. Borrower shall "turn over" its
Inventory during each Fiscal Year at the rate of at least 1.5 to 1.0 (determined
as of the end of each Fiscal Year by dividing Borrower's cost of goods sold
during such Fiscal Year by the value of Borrower's Inventory as of such date).
Section 9.5. Definitions. The following capitalized terms
used in this Section 9 and in any certificate, report or other document,
instrument or agreement executed or delivered in connection with the covenants
set forth in this Section 9 shall have the meanings ascribed to such terms
below:
Section 9.3.1. "EBITDA." means, for any period, the net income (as
such term is understood under GAAP) but excluding any extraordinary items of
gain of Borrower before any provision for (i) taxes paid or payable for such
period (other than real estate and sales and use taxes), (ii) all interest paid
or accrued for such period in respect of all Indebtedness, (iii) amounts in
respect of depreciation and amortization for such period and (iv) for the
calculation of EBITDA for the fiscal period ending August 31, 1994 only: (x) the
fees and expenses paid or incurred by Borrower in connection with the
transactions contemplated by that certain Capital Contribution Agreement dated
November 19, 1993 by and amount The Aristotle Corporation, Aristotle Sub, Inc.,
Borrower and the shareholders of Borrower as of such date, (y) a bonus of
approximately $349,540 paid to the Covered Employees (other than David Howell
and Ann-Marie Howell) and (z) a compensation deduction to Borrower of
approximately $620,000 due to the sale of Borrower's capital stock acquired by
such Covered Employees pursuant to the exercise of certain incentive stock
options, all of the foregoing determined in accordance with GAAP and valuing
Inventory on a "FIFO" basis.
Section 9.3.2 "Net Worth" means, as of any date, Borrower's total
shareholders equity plus additional paid in capital and retained earnings after
deducting treasury stock plus Subordinated Debt, all as determined in accordance
with GAAP but calculated valuing Inventory on a "FIFO" basis and Equipment on a
basis which is consistent with the manner in which Borrower has historically
valued Equipment on its internally prepared Financial Statements.
<PAGE>
Section 9.3.3. "Total Debt" means, as of any date as of which the
amount thereof shall be determined, all Indebtedness of Borrower including the
Obligations but excluding Subordinated Indebtedness, as of such date and
Indebtedness described in Section 8.1(e).
Section 9.3.4 "Total Debt Service" means, for any period, the
aggregate amount of Borrower's obligation to make payments of principal,
interest and other amounts in respect of all Total Debt for such period;
provided, however, that for purposes of the calculation of Total Debt Service,
the obligation of Borrower to make payments of principal with respect to the
Revolving Loan shall be considered a long term obligation not payable within any
such period.
SECTION 10 SPECIAL COVENANTS RELATING TO COLLATERAL
Borrower covenants and agrees that from the date hereof until the payment
and performance in full of the Obligations, unless Bank otherwise consents in
writing:
Section 10.1. Accounts Receivable. With respect to its Accounts
Receivable:
Section 10.1.1. Borrower shall deposit all payments received from
or on behalf of an Account Debtor into an account established with Bank and
Borrower shall direct or otherwise cause all Account Debtors to pay all monies
due under their respective Accounts Receivable to a lockbox account (the
"Lockbox Account") maintained by Bank in Borrower's name at Borrower's expense
and, to the extent Borrower receives such payments directly, all remittances
received by Borrower on account of Accounts Receivable shall be held as Bank's
property by Borrower as trustee of an express trust for Bank's benefit, and
Borrower will immediately deliver to Bank the identical checks, moneys or other
forms of payment received Borrower hereby constitutes Bank, or any
representative whom Bank may designate, as Borrower's attorney-in-fact (i) to
endorse the name on any notes, acceptances, checks, drafts, money orders or
other evidence of payment or security interest that may come into Bank's
possession, and (ii) following the occurrence of an Event of Default, to sign
Borrower's name on any invoice or bill of lading relating to Accounts
Receivable, on drafts against customers, assignments and certificates of
Accounts Receivable, and notices to customers Bank retains the right at all
times after the occurrence of an Event of Default to notify Account Debtors that
their respective Accounts Receivable have been assigned to Bank and to collect
Accounts Receivable directly in its own name and to charge the collection costs
and expenses, including reasonable attorneys' fees to, the Loan Account Bank has
no duty to protect, insure, collect or realize upon the Accounts Receivable or
other collateral or preserve rights in them other than to act in a commercially
reasonable manner Borrower releases Bank from any liability for any
<PAGE>
act or omission relating to the Obligations, the Accounts Receivable or other
Collateral or this Agreement, except Bank's failure to act in a commercially
reasonable manner, willful misconduct or gross negligence All amounts received
by Bank in payment in Accounts Receivable assigned to it are to be credited to
the Borrower's Account upon receipt by Bank, conditioned upon collection by Bank
of good funds in respect thereof.
Section 10.1.2. Following the occurrence of an Event of Default
and in connection with any audit conducted under Section 7.6. hereof, and in all
other instances following written notice to Borrower, any of Bank's officers,
employees, or agents shall have the right, in Bank's name or in the name of
Borrower, to request the verification of the validity, amount or any other
matter relating to any Account Receivable by mail, telephone, facsimile
transmission, telegraph, or other communication to Account Debtors.
Section 10.1.3. Borrower shall keep accurate and complete records
of its Accounts Receivable and accounts payable, and upon demand by Bank shall
deliver to Bank copies of proof of delivery and the original copy of all
documents, including, without limitation, repayment histories and present status
reports, relating to Borrower's Accounts Receivable and accounts payable and
such other matters and information relating to the status of the Accounts
Receivable and accounts payable as Bank shall reasonably request.
Section 10.1.4. Borrower shall promptly advise Bank:
(a) of any material delay in Borrower's performance of any of its
obligations to any Account Debtor or the assertion of any claim, offset or
setoff by any Account Debtor in excess of ONE HUNDRED THOUSAND AND NO/100
DOLLARS ($100,000.00); or
(b) in the event that any Eligible Account Receivable becomes
ineligible for reasons other than lapse of time in payment and the reasons
therefor; or
(c) of the receipt of any Government Contract which is subject to the
Federal Assignment of Claims Act of 1940; or
(d) of the receipt of any cancellation or termination of, or the
delivery of notice of default under, any Government Contract.
Section 10.1.5. Borrower shall promptly execute any assignment and
take any action requested or required by Bank with respect to any Account
Receivable, , which arises out of a Government Contract which is subject to the
Federal Assignment of Claims Act of 1940.
Section 10.1.6. Borrower shall maintain all Accounts Receivable
free of all Encumbrances other than those in favor of Bank and Permitted
Encumbrances.
<PAGE>
Section 10.2. Inventory. With respect to its Inventory:
Section 10.2.1. Borrower shall maintain all Inventory free of all
Encumbrances other than those in favor of Bank.
Section 10.2.2. Borrower shall not store or deposit any Inventory
with a bailee, warehouseman, or similar party without Bank's prior written
consent and, if Bank gives such consent, Borrower will concurrently therewith
cause any such bailee, warehouseman, or similar party to issue and deliver to
Bank, in form and substance acceptable to Bank and its legal counsel, warehouse
receipts for such Inventory in Bank's name or a warehouseman's waiver and
agreement.
Section 10.2.3. If any Inventory is in the possession or control
of any third party other than a purchaser in the ordinary course of business or
a warehouseman where the warehouse receipt is in the name of or held by Bank or
whom has executed a warehouseman's waiver and consent in favor of Bank, Borrower
shall notify such Person of Bank's security interest therein and, upon request,
instruct such Person or Persons to hold all such Inventory for the account of
Bank and subject to Bank's instructions.
Section 10.3. Equipment. With respect to its Equipment:
Section 10.3.1. Borrower shall maintain the Equipment used in the
ordinary course of business in good operating condition and repair, and make all
necessary replacements of and repairs thereto so that the value and operating
efficiency of the Equipment shall be maintained and preserved.
Section 10.3.2. The Equipment, other than when being used in the
ordinary course of business, is located or stored at the locations described in
Schedule 3 of the Collateral Disclosure List (other than Equipment being
temporarily stored for purposes of repair or maintenance), and Borrower shall
promptly notify Bank, in writing, in the event Borrower shall store or locate
the Equipment at any location other than the locations specified in said
Schedule 3.
Section 10.3.3. Borrower, immediately on demand therefor by Bank,
shall deliver to Bank any and all evidence of ownership, if any, of any of the
Equipment Borrower purports to own (including, without limitation, certificates
of title and applications for title).
Section 10.3.4. Borrower shall maintain accurate, itemized
records, itemizing and describing the kind, type, quality, quantity and value of
its Equipment and shall furnish Bank with a current schedule containing the
foregoing information at Bank's reasonable request.
Section 10.3.5. Borrower shall not sell, lease, or otherwise
dispose of or transfer any interest in any of its
<PAGE>
Equipment or any part thereof in excess of TEN THOUSAND AND NO/100 DOLLARS
($10,000.00) in any one (1) instance or FIFTY THOUSAND AND NO/100 DOLLARS
($50,000.00) in the aggregate during any fiscal year without the prior written
consent of Bank, unless (a) no Default or Event of Default shall exist at the
time of such sale, lease or disposition, (b) such sale, lease or disposition is
made in the ordinary course of Borrower's business, and (c) the net proceeds of
such sale, lease or disposition are used for the purchase of additional
Equipment on which Bank will have a first priority security interest Where
Borrower is permitted to dispose of any Equipment under this Agreement or by any
consent thereto hereafter given by Bank, it shall do so at arm's length, in good
faith and by obtaining the maximum amount of recovery practicable therefor and
without impairing the operating integrity of the remaining Equipment.
Section 10.3.6 Borrower shall, if requested by Bank with due
cause, provide to Bank a forced and orderly liquidation value appraisal of
Borrower's Equipment performed by an appraiser acceptable to Bank and at
Borrower's expense.
SECTION 11. DEFAULT
Section 11.1. The occurrence of any of the following events shall
constitute a default under this Agreement, the Notes and the Other Documents (an
"Event of Default"):
(a) Borrower shall fail to pay (i) any outstanding principal amount
of the Line of Credit when due, (ii) any Reimbursement Obligations when due, or
(iii) any outstanding principal amount of the Term Loan, any accrued and unpaid
interest on the Loans or any fees or expenses payable under this Agreement, the
Notes or the Other Documents within fifteen (15) days of the due date therefor;
or
(b) Borrower shall fail to perform any term, covenant or agreement
contained in Sections 7.1., 7.6., 8.7., 8.11. or 10 of this Agreement or fail to
reduce the balance of Overadvances to zero (O) as required by Section 2.1.2. of
this Agreement; or
(c) Borrower shall fail to perform any act, duty, obligation or other
agreement contained in this Agreement, the Notes or Other Documents and not
otherwise constituting an Event of Default hereunder; provided, however, if the
act, duty, obligation or other agreement does not materially affect, in Bank's
sole and absolute discretion, Bank's rights under this Agreement, the Notes or
the other Documents, then Borrower shall have thirty (30) calendar days
following the date on which it becomes aware of any such non- performance in
which to make the required performance before the exercise by Bank of any of its
remedies under this Agreement, the Notes and the Other Documents; or
<PAGE>
(d) any representation or warranty of Borrower made in this
Agreement, the Notes or the Other Documents or in any certificate or report
delivered hereunder or thereunder shall prove to have been false in any material
respect upon the date when made or deemed to have been made; or
(e) Borrower or any of its Subsidiaries shall fail to pay at maturity
(unless disputed in good faith), or within any applicable period of grace, any
Indebtedness or obligations for the use of real or personal property in excess
of FIFTY THOUSAND AND NO/100 DOLLARS ($50,000.00) in the aggregate or fail to
observe or perform any term, covenant or agreement evidencing or securing such
Indebtedness, or obligations for the use of real or personal property, or
relating to such use of real or personal property, the result of which failure
is to permit (i) the holder or holders of such Indebtedness or obligations to
cause the same to become due prior to its stated maturity or (ii) the lessor of
such real or personal property to terminate Borrower or any Subsidiary's use
thereof prior to the specified term therefor; or
(f) Borrower or any of its Subsidiaries shall (i) apply for or
consent to the appointment of, or the taking of possession by, a receiver,
custodian, trustee, liquidator or similar official of itself or of all or a
substantial part of its properties and assets; (ii) be generally not paying its
debts as such debts become due; (iii) make a general assignment for the benefit
of its creditors; (iv) commence a voluntary case under the Bankruptcy Code; (v)
take any action or commence any case or proceeding under any law relating to
bBankruptcy, insolvency, reorganization, winding-up or composition or adjustment
of debts, or any other law providing for the relief of debtors; (vi) fail to
contest in a timely or appropriate manner, or acquiesce in writing to, any
petition filed against it in an involuntary case under Bankruptcy Code or other
law; (vii) take any action under the laws of its jurisdiction of incorporation
or organization similar to any of the foregoing; or (viii) take any corporate
action for the purpose of effecting any of the foregoing; or
(g) a proceeding or case shall be commenced, without the application
or consent of Borrower or any of its Subsidiaries in any court of competent
jurisdiction, seeking (i) the liquidation, reorganization, dissolution, winding
up, or composition or readjustment of its debts; (ii) the appointment of a
trustee, receiver, custodian, liquidator or the like of it or of all or any
substantial part of its properties and assets; or (iii) similar relief in
respect of it, under any law relating to Bankruptcy, insolvency, reorganization,
winding-up or composition or adjustment of debts or any other law providing for
the relief of debtors, or an order for relief shall be entered in an involuntary
case under the Bankruptcy Code, against Borrower or such Subsidiary; or action
under the laws of the jurisdiction of incorporation or organization of Borrower
or any of its Subsidiaries similar to any of the foregoing shall be taken with
respect to Borrower or such Subsidiary; or
<PAGE>
(h) a judgment or order for the payment of money shall be entered
against Borrower or any of its Subsidiaries by any court, or a warrant of
attachment or execution or similar process shall be issued or levied against
property of Borrower or such Subsidiary and such judgment, order, warrant or
process shall continue undischarged or unstayed for sixty (60) days; or
(i) Borrower or any member of the Controlled Group shall fail to pay
when due an amount or amounts that it shall have become liable to pay to the
PBGC or to a plan under Title IV of ERISA; intent to terminate a plan or plans
shall be filed under Title IV of ERISA by Borrower, any member of the Controlled
Group, any plan administrator or any combination of the foregoing; or the PBGC
shall institute proceedings under Title IV of ERISA to terminate or to cause a
trustee to be appointed to administer any such plan or plans or a proceeding
shall be instituted by a fiduciary of any such plan or plans against Borrower
and such proceedings shall not have been dismissed within sixty (60) days
thereafter; or a condition shall exist by reason of which the PBGC would be
entitled to obtain a decree adjudicating that any such plan or plans must be
terminated; or
(j) Borrower shall fail to meet any Performance Covenant set forth in
Section 9.1. hereof; or
(k) Borrower's independent certified public accountants shall refuse
to deliver an opinion with no Qualification with respect to any Financial
Statements required to be delivered under Section 7.1.1. of this Agreement; or
(l) The failure of Borrower to execute, deliver or address, or cause
to be executed, delivered and addressed, the matters set forth on Schedule 11.1.
attached hereto within thirty (30) days after the Closing Date (the "Post
Closing Matters"); or
(m) Any Government Authority shall condemn, seize or otherwise
appropriate, or take custody or control of, or file a lien, levy or assessment
in respect of, all or any substantial portion of the properties or assets of
Borrower; or
(n) Any Governmental Authority or other Person shall garnish, seize
or levy or execute upon any monies of Borrower on deposit with or otherwise in
the custody of Bank or any Bank affiliate; or
(o) If the Limited Guarantor, The Aristotle Corporation Borrower or
the holders of any of the Limited Guarantor's $10.00 par value Preferred Stock
(the "Preferred Stock") or any other Person should contest the right of the
holders of the Preferred Stock to compel a Partial Unwinding (as such term is
defined in Section 8.2. of that certain Capital Contribution Agreement dated
November 19, 1993 by and among The Aristotle Corporation, the Limited Guarantor,
Borrower and the Covered Employees.
<PAGE>
SECTION 12. REMEDIES
Section 12.1. Remedies. Upon the occurrence of an Event of Default, and at
any time thereafter while such Event of Default is continuing, immediately and
automatically in the case of an event of Default specified in Section 11.1(f) or
11.1.(g), and in all other cases, at Bank's option and upon Bank's declaration:
(a) Bank's obligation to make any Extension of Credit shall
terminate;
(b) the unpaid principal amount of the Loans, and all Reimbursement
Obligations together with accrued interest thereon, and all other Obligations
shall become immediately due and payable without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived;
(c) Bank may exercise any right of setoff granted to Bank pursuant to
Section 13.2.4 hereof;
(d) Bank may reduce any advance rate in respect of Borrower's
Accounts Receivable or Inventory as set forth in Sections 1.113 and 1.114 of
this Agreement; and
(e) Bank may exercise any and all other rights and remedies it has
under this Agreement, the Notes or the Other Documents or at law or in equity,
and proceed to protect and enforce Bank's rights by any action at law, in equity
or other appropriate proceeding.
SECTION 13. MISCELLANEOUS
Section 13.1. Cross Default, Cross Collateral and Cross Pay-out. Borrower
acknowledges and agrees that the occurrence of an Event of Default under this
Agreement, the Notes or the Other Documents shall constitute a default under the
documents and instruments evidencing or securing any other loan now existing or
hereafter made by Bank to Borrower, and a default under any of said existing or
future loans shall constitute an Event of Default under this Agreement, the
Notes and the Other Documents The security interests, liens and other rights and
interests in and relative to any collateral now or hereafter granted to Bank by
Borrower by or in any instrument or agreement, including but not limited to this
Agreement and the Other Documents, shall serve as security for any and all
liabilities of Borrower to Bank, including but not limited to the liabilities
described in this Agreement, the Notes and the Other Documents, and, for the
repayment thereof, Bank may resort to any security held by it in such order and
manner as it may elect Notwithstanding the terms of any of the documents and
instruments evidencing or securing the Obligations, Borrower hereby acknowledges
and agrees that if Borrower elects to terminate the Line of Credit at any time
prior to the Revolving Credit Termination Date, then then any remaining portion
of the
<PAGE>
Obligations shall be immediately due and payable without notice or demand by
Bank to Borrower.
Section 13.2. Waivers.
Section 13.2.1. In General. Borrower waives presentment, demand,
notice, protest, notice of acceptance, notice of loans made, credit extended,
collateral received or delivered or other action taken in reliance hereon and
all other demands and notices of any description With respect both to the
Obligations and the Collateral, Borrower assents to any extension or
postponement of the time of payment or any other indulgence, to any
substitution, exchange or release of the Collateral, to the addition or release
of any party or Person primarily or secondarily liable therefor, to the
acceptance of partial payments thereon and the settlement, compromising or
adjusting of any thereof, all in such manner and at such time or times as Bank
may deem advisable in its sole and absolute discretion. Bank shall have no duty,
other than to act in a commercially reasonable manner, as to the collection or
protection of the Collateral or any income thereon, as to the preservation of
rights or remedies against prior parties, or as to the preservation of any
rights and remedies pertaining thereto Bank may exercise its rights and remedies
with respect to the Collateral without resorting or regard to other collateral
or sources of reimbursement for liability. Bank shall not be deemed to have
waived any of its rights and remedies with respect to the Obligations or the
Collateral unless such waiver be in writing and signed by Bank No delay or
omission on the part of Bank in exercising any right or remedy shall operate as
a waiver of such right or remedy or any other right or remedy. A waiver on any
one occasion shall not be construed as a bar to any subsequent enforcement by
Bank. All rights and remedies of Bank with respect to the Obligations or the
Collateral shall be cumulative and may be exercised singularly or concurrently.
Section 13.2.2. PREJUDGMENT REMEDY. BORROWER ACKNOWLEDGES THAT THE
TRANSACTION OF WHICH THIS AGREEMENT IS A PART IS A COMMERCIAL TRANSACTION AND
HEREBY WAIVES ITS RIGHT TO NOTICE AND HEARING UNDER CHAPTER 903a OF THE
CONNECTICUT GENERAL STATUTES OR BY OTHER APPLICABLE LAW WITH RESPECT TO ANY
PREJUDGMENT REMEDY WHICH BANK MAY DESIRE TO USE.
Section 13.2.3. JURY TRIAL BORROWER HEREBY WAIVES TRIAL BY JURY IN
ANY COURT IN ANY SUIT, ACTION OR PROCEEDING OR ANY MATTER ARISING IN CONNECTION
WITH OR IN ANY WAY RELATED TO THE TRANSACTION OF WHICH THIS AGREEMENT IS A PART
AND/OR IN THE ENFORCEMENT BY BANK OF ANY OF ITS RIGHTS AND REMEDIES HEREUNDER OR
UNDER APPLICABLE LAW. BORROWER ACKNOWLEDGES THAT IT MAKES THIS WAIVER KNOWINGLY,
VOLUNTARILY AND ONLY AFTER CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER
WITH ITS ATTORNEY.
Section 13.2.4. Lien and Setoff. Regardless of the adequacy of any
collateral or other means of obtaining repayment of the Obligations, any
deposits (general or special, time or demand,
<PAGE>
provisional or final), balances or other sums credited by or due from Bank or
any Bank Affiliate to Borrower (other than payroll and payroll tax deposit
accounts) may, at any time and from time to time after the occurrence of an
Event of Default, without notice to Borrower or compliance with any other
condition precedent now or hereafter imposed by statute, rule of law, or
otherwise (all of which are hereby expressly waived) be setoff, appropriated,
and applied by Bank or any Bank Affiliate against any and all obligations of
Borrower to Bank or any Bank Affiliate in such manner as Bank or any Bank
Affiliate in their sole and absolute discretion may determine, and Borrower
hereby grants Bank a continuing security interest in such deposits, balances or
other sums for the payment and performance of all such obligations. The rights
provided to Bank and any Bank Affiliate in this Section 13.2.4. shall be in
addition to and shall not limit any common law right of setoff available to Bank
or any Bank Affiliate.
Section 13.2.5. Claims. Borrower does hereby (i) waive any claim
in tort, contract or otherwise which Borrower may have against Bank, a Bank
Affiliate or their officers, directors, agents, or employees (collectively,
"Bank Agents") which may arise out of the relationship between Borrower and Bank
or any Bank Affiliate prior to the Closing Date; and (ii) absolutely and
unconditionally release and discharge Bank and any Bank Affiliate or Bank Agents
from any and all claims, causes of action, losses, damages or expenses which may
arise out of any relationship between it and Bank or any Bank Affiliate which
Borrower may have as of the Closing Date. Borrower acknowledges that it makes
this waiver and release knowingly, voluntarily and only after considering the
ramifications of this waiver and release with its attorney.
Section 13.3. Notices. All notices, requests, demands or other
communications required by this Agreement shall be made in writing, and unless
otherwise specifically provided herein, shall be deemed to have been duly given
when delivered by hand or mailed first class mail postage prepaid, or, in the
case of telecopy or facsimile notice, when transmitted, answer back received,
addressed as follows, or to such other address as either party may designate in
writing:
If to Bank:
Fleet Bank, National Association
One Constitution Plaza
Secured Lending Department
Hartford, CT 06115-1600
Attn: Linda D. Mowry, Vice President
<PAGE>
with a copy to:
Updike, Kelly & Spellacy, P.C.
One State Street
P.O. Box 231277
Hartford, CT 06123-1277
Attn: John F. Wolter, Esq.
If to Borrower:
The Strouse, Adler Company
78 Olive Street
New Haven, CT 06507
Attn: David S. Howell, Chairman
with a copy to:
Brenner, Saltzman & Wallman
271 Whitney Avenue
New Haven, CT 06507-1746
Attn: Wayne A. Martino, Esq.
Section 13.4. Fees and Expenses. Borrower will pay on demand all expenses
incurred by Bank in connection with (i) the preparation, execution and delivery
of this Agreement, the Notes or the Other Documents, (ii) the administration of
Bank's obligations under this Agreement or (iii) Bank's exercise, preservation
or enforcement of any of its rights and remedies thereunder, including, without
limitation, reasonable fees and expenses of outside legal counsel or the
allocated costs of in-house legal counsel, accounting, appraisal, auditing,
consulting, brokerage or other similar professional fees or expenses, and any
fees or expenses associated with any travel or other costs relating to any
appraisals or examinations conducted in connection with the Obligations or the
Collateral.
Section 13.5. Term of Agreement. This Agreement shall continue in force
and effect so long as Bank has any commitment to extend credit or any of the
Obligations shall be outstanding.
Section 13.6. Stamp Tax. Borrower will pay any stamp, franchise or other
recording tax which becomes payable in respect of this Agreement, the Notes or
the Other Documents.
Section 13.7. Schedules and Exhibits. The schedules and exhibits which are
attached hereto are and shall constitute a part of this Agreement.
Section 13.8. Governing Law; Consent to Jurisdiction. This Agreement, the
Notes and the Other Documents, and the rights and obligations of the parties
hereunder and thereunder, shall be governed by and construed and interpreted in
accordance with, the laws of the State of Connecticut Borrower agrees that any
suit for the enforcement of this Agreement, the Notes or the Other Documents
<PAGE>
may be brought in the courts of the State of Connecticut or any federal court
sitting therein and consents to the non-exclusive jurisdiction of such court and
to service of process in any such suit being made upon Borrower by mail at the
address referred to Section 13.3. hereof. Borrower hereby waives any objection
that Borrower may now or hereafter have to the venue of any such suit or any
such court or that such suit is brought in an inconvenient court.
Section 13.9. Survival of Representations. All representa tions,
warranties, covenants and agreements contained in this Agreement, the Notes or
the Other Documents shall survive the Closing Date and continue in full force
and effect until the payment and the performance of the Obligations in full.
Section 13.10. Amendments. No modification or amendment of this Agreement,
the Notes or the Other Documents shall be effective unless the same shall be in
writing and signed by the parties hereto.
Section 13.11. Binding Effect of Agreement. This Agreement shall be binding
upon and inure to the benefit of Borrower and Bank and their respective
successors and assigns; provided, however, that Borrower may not assign or
transfer its rights or obligations hereunder Bank may sell, transfer or grant
participations in the obligations without the prior written consent of Borrower
(but after obtaining an agreement to maintain the confidentiality of any
financial and business information of Borrower), and Borrower agrees that any
transferee or participant shall be entitled to the benefits of this Agreement to
the same extent as if such transferee or participant were Bank; provided,
further, that notwithstanding any such transfer or participation, Borrower may,
for all purposes of this Agreement, treat Bank as the Person entitled to
exercise all rights and remedies under this Agreement and under the Notes and
the Other Documents and to receive all payments with respect to the Obligations.
Section 13.12. Interest Rate. If the rate of interest payable by Borrower
under this Agreement, the Notes or the Other Documents shall be or become
usurious or otherwise unlawful under laws applicable thereto, the interest rate
shall be reduced to the maximum lawful rate and any amount paid by Borrower in
excess of the maximum lawful rate shall be considered a payment in reduction of
principal or, at the sole election of Bank, shall be returned to Borrower.
Section 13.13. Counterparts. This Agreement may be signed in any number of
counterparts with the same effect as if the signatures hereto and thereto were
upon one and the same instrument.
Section 13.14. No Agency Relationship. Bank is not the agent, fiduciary or
representative of Borrower nor is Borrower the agent, fiduciary or
representative of Bank and this Agreement shall not
<PAGE>
make Bank liable to any third party, including but not limited to, Borrower's
shareholders, directors, officers, creditors or any other person.
Section 13.15. Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provisions in any other jurisdiction.
Section 13.16. Headings. All article, section and subsection headings in
this Agreement, the Notes and the Other Documents are included for convenience
of reference only and shall not constitute a part of this Agreement, the Notes
or the Other Documents for any other purpose.
Section 13.17. Reinstatement. This Agreement shall continue to be effective
or be reinstated, as the case may be, if at any time any amount received by Bank
in respect of the Obligations is rescinded or must otherwise be restored or
returned by Bank upon the insolvency, bankruptcy, dissolution, liquidation or
reorganization of Borrower or upon the appointment of any intervenor or
conservator of, or trustee or similar official for, Borrower or any substantial
part of its properties or assets, or otherwise, all as though such payments had
not been made.
Section 13.18. Interpretation and Construction. The following rules shall
apply to the interpretation and construction of this Agreement, the Notes and
the Other Documents unless the context requires otherwise: (a) the singular
includes the plural and the plural includes the singular; (b) words importing
any gender include the other genders; (c) references to statutes are to be
construed as including all statutory provisions consolidating, amending or
replacing the statute to which reference is made and all regulations promulgated
pursuant to such statutes; (d) references to "writing" shall include printing,
photocopy, typing, lithography and other means of reproducing words in a
tangible, visible form; (e) the words "including", "includes" and "include"
shall be deemed to be followed by the words "without limitation"; (f) references
to the introductory paragraph, preliminary statements, articles, sections (or
subdivisions of sections), exhibits or schedules are to those of this Agreement
unless otherwise indicated; (g) references to agreements and other contractual
instruments shall be deemed to include all subsequent amendments and other
modifications to such instruments, but only to the extent that such amendments
and other modifications are permitted or not prohibited by the terms of this
Agreement; (h) references to Persons include their respective permitted
successors and assigns; and (i) "or" is not exclusive.
Section 13.19. Relation to Other Documents. Nothing in this Agreement shall
be deemed to amend, or relieve Borrower of its obligations under, any of the
Other Documents and to the extent
<PAGE>
that the provisions of any of the Other Documents allow Borrower to take certain
actions, or not take certain actions, with regard for example to the granting of
liens, transfers of properties or assets, maintenance of financial ratios and
similar matters, Borrower nevertheless shall be fully bound by the provisions of
this Agreement.
IN WITNESS WHEREOF, Bank and Borrower have executed this Agreement as of
the date first above written.
FLEET BANK,
NATIONAL ASSOCIATION
By: /s/Linda D. Mowry
----------------------------------------
Linda D. Mowry
Its Vice President
Duly Authorized
THE STROUSE, ADLER COMPANY
By: /s/David S. Howell
----------------------------------------
David S. Howell
Its Chairman
Duly Authorized
<PAGE>
Exhibit 10.19
-------------
October 6, 1995
The Strouse, Adler Company
78 Olive Street
New Haven, CT 06507
Re: Modification of Credit Facilities
Ladies and Gentlemen:
We are pleased to advise you that, subject to the terms and conditions
set forth herein, Fleet Bank, National Association (the "Bank") has approved
the request of The Strouse, Adler Company (the "Borrower") for the modification
of its various existing credit facilities extended by the Bank pursuant to
that certain First Amended and Restated Master Credit Agreement dated as of
November 9, 1994 (the "Credit Agreement"). This letter sets forth the terms and
conditions on which the Bank will commit to modify such credit facilities.
Except as set forth in this letter, the existing terms and conditions applicable
to such credit facilities as set forth in the Credit Agreement shall remain in
full force and effect. All capitalized terms used but not otherwise defined
herein shall have the meanings ascribed to such terms in the Credit Agreement.
1. CREDIT FACILITIES.
A. Facility A. Revolving Line of Credit.
a. Amount. Section 1.22. of the Credit Agreement shall be amended to
provide that the Commitment Amount shall mean the amount of
$8,750,000.00 at all times following the Closing Date (as such
term is defined in Section 13 of this commitment).
b. Maturity. Section 1.108. of the Credit Agreement shall be amended
to provide that the Revolving Credit Termination Date shall be
October 31, 1996, at which time all outstanding principal,
accrued and unpaid interest and any other amounts due to the Bank
shall be immediately due and payable.
<PAGE>
c. Inventory Cap. Section 1.62. of the Credit Agreement shall be
amended to provide for an Inventory Cap of $5,000,000.00 at all
times.
d. Overadvances. Section 1.90. of the Credit Agreement shall be
amended to provide that the Overadvance Limit shall be
$1,000,000.00 during the period commencing as of the Closing Date
and continuing through December 31, 1995 and $500,000.00 at all
times thereafter (with a thirty (30) day clean-up at any time
prior to July 31, 1996).
e. Interest Rate. Each Revolving Loan which is a Prime Rate Loan
shall bear interest at the Prime Rate plus one percentage points
(1.0%). Each Revolving Loan which is a Libor Loan shall bear
interest at the Libor Rate plus three percentage points (3.0%).
B. Facility B. Term Loan
a. Maturity. Section 1.80. of the Credit Agreement shall be amended
to provide that the Maturity Date shall be October 31, 1996, at
which time all outstanding principal, accrued and unpaid interest
and any other amounts due to the Bank shall be immediately due
and payable.
b. Principal Repayment. The existing amortization shall be
maintained but a mandatory prepayment of principal in an amount
equal to one-half of all amounts remaining with The Aristotle
Corporation (but not to exceed $500,000.00) following the
settlement of the litigation by, and claims of, the FDIC against
The Aristotle Corporation and its officers and directors and the
release of escrowed funds (said amount to be determined net of
legal fees paid to The Aristotle Corporation's legal counsel for
services rendered in connection with such litigation and/or
claims). Any applicable prepayment penalty or premium and
breakage costs shall be due and payable upon such prepayment.
c. Interest Rate. If, for any reason the Matched Rate shall be
discontinued with respect to the Term Loan, that portion of the
Term Loan which is a Prime Rate Loan shall bear interest at the
Prime Rate plus one percentage point (1.0%) and that portion of
the Term Loan which is a Libor Loan
<PAGE>
shall bear interest at the Libor Rate plus three percentage
points (3.0%).
2. GENERAL PROVISIONS APPLICABLE TO CREDIT FACILITIES.
a. Late Payment Penalty. Any payment of principal, interest, fees or
expenses (other than payments of principal upon scheduled
maturity or upon acceleration) which is not paid with ten (10)
days of the date specified for payment shall be subject to a late
penalty equal to five percent (5%) of the amount due.
b. Default Rate. The definition of the term "Default Rate" shall be
amended to provide that the interest rate may be increased up to
three percentage points (3.0%) above the rate otherwise in effect
under the Credit Agreement upon the occurrence of an Event of
Default.
c. Restructuring/Waiver Fee. In consideration of the Bank's
agreement to amend and modify the terms and conditions of the
credit facilities and to waive certain Events of Default in lieu
of exercising its rights and remedies under the Credit Agreement,
the Notes and the Other Documents, the Borrower shall pay to the
Bank the amount of $50,000.00. This fee shall be payable in four
(4) equal installments on the Closing Date, December 1, 1995,
February 1, 1996 and April 1, 1996.
d. Negative Pledge/Use of Cash. The Aristotle Corporation shall
execute and deliver a negative pledge agreement in favor of the
Bank with respect to any monies remaining following the
settlement of the FDIC litigation and not applied as set forth in
Section 1.B. of this commitment to the Term Loan. In addition,
The Aristotle Corporation shall agree that none of such monies
shall be used for any purpose without the prior written consent
of the Bank until such time as the Term Loan is paid in full
other than (i) restoring the amount of Subordinated Indebtedness
due to The Aristotle Corporation by the Borrower to the amount of
$620,500.00 as required by section 2. h. of this commitment, (ii)
the normal and customary general operating expenses of The
Aristotle Corporation, including any payments in respect of
obligations to
<PAGE>
the former shareholders of the Borrower) and (iii) for loans to
the Borrower.
e. Field Examinations. Section 7.6. of the Credit Agreement shall be
amended to provide that the Bank shall have the right to conduct
an audit on three (3) occasions during each twelve month period
and that any such audits shall be conducted at the Borrower's
expense up to a maximum of $8,000.00 during any such period. The
Bank shall have the right to conduct audits on more than three
(3) occasions upon the occurrence of an Event of Default.
f. Indebtedness. Section 1.58. of the Credit Agreement shall be
amended to read as follows:
"Indebtedness" means, as applied to any Person, without
duplication: (a) all indebtedness for borrowed money; (b) that
portion of obligations with respect to Capital Leases that is
properly classified as a liability on a balance sheet in
conformity with GAAP; (c) notes payable and drafts accepted
representing extensions of credit whether or not representing
obligations for borrowed money; (d) any obligation owed for all
or any part of the deferred purchase price of property or
services if the purchase price is due more than six months from
the date the obligation is incurred or is evidenced by a note or
similar written instrument; (e) all indebtedness secured by any
Encumbrance on any property or asset owned or held by that Person
regardless of whether the indebtedness secured thereby shall have
been assumed by that Person or is nonrecourse to the credit of
that Person and (f) any other obligations which would be
classified as liabilities on a balance sheet in conformity with
GAAP but for purposes of calculating "Indebtedness" of the
Borrower obligations in respect of the Jamaica manufacturing
facility shall be excluded.
g. Dividends. Section 8.7. of the Credit Agreement shall be amended
to provide that the Borrower may only pay dividends with the
prior written consent of the Bank. In connection therewith,
Section 9.2. of the Credit Agreement shall be repealed.
<PAGE>
h. Subordinated Indebtedness. Section 8.10. of the Credit Agreement
shall be amended to provide that the Borrower shall not make any
principal payments or grant any collateral in respect of any
Subordinated Indebtedness (other than, as long as no Event of
Default has occurred and is continuing, payments under the Tax
Sharing Agreement) without the prior written consent of the Bank.
The Guarantors shall make a corresponding amendment to the
intercreditor and subordination agreements among the Borrower,
the Bank and themselves. In addition, The Aristotle Corporation
shall restore the amount of Subordinated Indebtedness due to it
from the Borrower to the amount of $620,500.00 from amounts
remaining with The Aristotle Corporation after the settlement of
the FDIC litigation and after the prepayment in respect of the
Term Loan required by Section 1 B. b. of this commitment.
i. Capital Expenditures. A new Section 8.17. shall be added to the
Credit Agreement to provide that the Borrower shall not make
Capital Expenditures in excess of $450,000.00 during the fiscal
year ending June 30, 1996 without the prior written consent of
the Bank.
j. Events of Default. Section 11.1. of the Credit Agreement shall be
amended to provide that the following shall constitute additional
Events of Default:
a. The failure of the Guarantors to restore the amount of
Subordinated Indebtedness due from the Borrower to the
Guarantors to the amount of $620,500.00 as set forth in
section 2. h. of this commitment.
b. The failure of the Borrower and the Guarantors to make the
mandatory prepayment in respect of the Term Loan as set
forth in section 1. B. of this commitment.
c. The failure of the Guarantors to restrict the use of any
monies remaining following the settlement of the litigation
by and claims of the FDIC in accordance with Section 2. d.
of this commitment until such time as the Term Loan is paid
in full.
<PAGE>
In addition, corresponding amendments shall be made to
Section 11.1. to reflect that violations of any term,
covenant or agreement of the Credit Agreement as amended by
this commitment constitutes an Event of Default.
3. SECURITY.
a. In addition to all existing Collateral for the Obligations, the
payment and performance of all obligations in respect of the Term
Loan shall be unconditionally guaranteed by The Aristotle
Corporation and Aristotle Sub, Inc. (the "Guarantors"). The
guaranty of Aristotle Sub, Inc. shall be in addition to and not
in substitution for its existing limited guaranty of the
Obligations.
4. DOCUMENTATION. The Bank shall require such documentation to evidence
the amendment and modification of the credit facilities contemplated
by this commitment as is deemed necessary by the Bank and its legal
counsel in their sole and absolute discretion, which documentation
shall be acceptable in form and substance to the Bank and its legal
counsel, in their sole and absolute discretion.
5. FINANCIAL COVENANTS.
a. Section 9.1.1. of the Credit Agreement shall be amended as follows:
Net Worth. Borrower's Net Worth shall not be less than the following
amounts at all times during the following periods:
<TABLE>
<CAPTION>
Amount Period
<C> <S>
$3,100,000.00 Closing Date through
December 30, 1995
$3,250,000.00 December 31, 1995 through
March 30, 1996
$3,400,000.00 March 31, 1996 through
June 29, 1996
$3,700,000.00 June 30, 1996 and thereafter
</TABLE>
b. Section 9.1.2. of the Credit Agreement shall be amended as follows:
<PAGE>
Debt Service Coverage. Borrower shall not permit the ratio of its
EBITDA minus Capital Expenditures to its Total Debt Service to be less
than the following ratios at the end of each of the following Fiscal
Years:
<TABLE>
<CAPTION>
Ratio Fiscal Year Ending
<C> <S>
1.40 to 1.0 June 30, 1996
</TABLE>
c. Section 9.1.3. of the Credit Agreement shall be amended as follows:
Total Debt to Net Worth Ratio. The ratio of Borrower's Total Debt to
its Net Worth shall not be greater than the following ratios at all
times during the following periods.
<TABLE>
<CAPTION>
Ratio Period
<C> <S>
4.25 to 1.0 Closing Date through
December 30, 1995
4.25 to 1.0 December 31, 1995 through
March 30, 1996
4.0 to 1.0 March 31, 1996 through
June 29, 1996
3.75 to 1.0 June 30, 1996 and thereafter
</TABLE>
d. A new Section 9.1.5 shall be added to the Credit Agreement as follows:
Interest Coverage. Borrower shall not permit the ratio of its EBIT to
its Total Interest to be less than the following ratios (calculated on
a rolling basis) at the end of each of the following periods.
<TABLE>
<CAPTION>
Ratio Period
<C> <S>
1.5 to 1.0 July 1, 1995 through
December 31, 1995
1.5 to 1.0 July 1, 1995 through
March 31, 1996
1.75 to 1.0 July 1, 1995 through
June 30, 1996
</TABLE>
e. Section 9.3.4 of the Credit Agreement shall be amended as follows:
"Total Debt Service" means, for any period, the aggregate amount of
Borrower's obligation to make payments of
<PAGE>
principal, interest and other amounts in respect of all Total Debt and
Subordinated Debt for such period; provided, however, that for
purposes of the calculation of Total Debt Service, the obligation of
Borrower to make payments of principal with respect to the Revolving
Loan shall be considered a long term obligation not payable within any
such period.
f. A new Section 9.3.5. shall be added to the Credit Agreement as
follows:
"Total Interest" means, for any period, the Borrower's aggregate
obligation to make payments of interest in respect of Total Debt
during such period.
g. A new Section 9.3.6. shall be added to the Credit Agreement as
follows:
"EBIT" means, for any period, the net income (as such term is
understood under GAAP) but excluding any extraordinary items of gain
of Borrower before any provision (i) taxes paid or payable for such
period (other than real estate and sales and use taxes) and (ii) all
interest paid or accrued for such period in respect of all
Indebtedness.
6. CONDITIONS PRECEDENT TO AMENDMENT OF CREDIT FACILITIES.
The obligation of the Bank to amend and modify the credit facilities as
contemplated by this commitment is subject to the satisfaction of the
following conditions by Borrower in a manner acceptable to the Bank and/or
its legal counsel.
a. The absence of any Event of Default other than Events of Default which
have been waived by the Bank as of the date hereof.
b. The negotiation, execution and delivery by the Borrower, the
Guarantors and David Howell and Alfred Kniberg as agents for the
former shareholders of the Borrower of definitive documentation for
the credit facilities contemplated by this commitment as required by
Section 4 hereof in a form acceptable to the Bank and its legal
counsel, including, but not be limited to, such documentation as the
Bank may require to ratify and confirm (i) any and all liens, security
interests and other encumbrances in and to the Collateral and (ii) any
and all subordination, intercreditor and similar agreements.
<PAGE>
c. The satisfaction by the Borrower of such other conditions as may be
required by the Bank or its legal counsel and which are customary for
transactions similar to the transactions contemplated by this
commitment including the delivery of evidence of corporate power and
authority to enter into the transactions contemplated by this
commitment, the delivery of appropriate legal opinions, the delivery
of title insurance policies, the valid, binding and legal effect of
all documentation required by this commitment, the absence of any
violation of Federal, state or local law and the filing and recording
of security documents.
7. INDEMNITY. The Borrower agrees to indemnify and hold the Bank and its
respective shareholders, directors, agents, officers, employees,
subsidiaries and affiliates harmless from and against any and all
damages, losses, obligations, payments, liabilities, claims, actions
or causes of action, fees or expenses (including legal fees) and other
matters incurred, sustained or paid by the Bank in connection with or
as a result of the transactions contemplated by this commitments,
except to the extent that any of the foregoing matters result from the
gross negligence or wilful misconduct of the Bank or any other
indemnified party.
8. ASSIGNMENT. The Borrower may not assign this commitment, and any
attempted assignment by the Borrower shall be null and void and
without legal effect.
9. AMENDMENTS. Amendments to this commitment must be in writing and
signed as to acceptance by the Bank, the Borrower and the Guarantors.
10. NO WAIVER. No delays on the part of the Bank in exercising any of its
rights under this commitment shall operate as a waiver thereof.
11. ENTIRE AGREEMENT. This commitment constitutes the entire obligation of
the Bank, and no covenant, promise, agreement, waiver, representation
or undertaking of any kind, whether written or oral not specifically
set forth herein shall be binding upon the Bank.
12. ACCEPTANCE. This commitment shall remain open for acceptance by the
Borrower until October 6, 1995.
<PAGE>
13. CLOSING. The amendment and modification of the credit facilities
as contemplated by this commitment shall be closed in full
compliance with the terms and conditions of this commitment on or
before October 31, 1995 (the "Closing Date").
14. TERMINATION. This commitment shall automatically terminate at the
Bank's option and the Bank shall not be obligated to close the credit
facilities contemplated hereby if:
a. The Borrower shall fail to accept this commitment by
b. The Borrower shall fail to close all of the credit facilities
contemplated by this commitment on or before October 31, 1995.
c. The Bank should discover that any representation or warranty made
by the Borrower or the Guarantors in any statement or information
submitted to the Bank in connection with preparation of this
commitment should be false, incomplete, or incorrect in any
respect.
d. There should be a material adverse change in the business
operations or financial condition of the Borrower or the
Guarantors.
e. The Borrower or the Guarantors shall fail to meet any of the
conditions set forth in Section 6 of this commitment to the
satisfaction of the Bank or its legal counsel, in their sole
discretion.
f. An Event of Default other than an Event of Default which has been
waived by the Bank as of the date hereof shall occur.
15. GOVERNING LAW. This commitment and the loan documents to be delivered
pursuant hereto shall be construed under the laws of the State of
Connecticut.
16. FEES AND EXPENSES. The Borrower shall pay all fees and expenses
incurred by the Bank in connection with the closing of the credit
facilities contemplated by this commitment including the fees and
expenses of the Bank's appraisal, environmental consultants, auditors,
credit
<PAGE>
examiners and legal counsel, Updike, Kelly & Spellacy, P.C., without
regard to whether a closing occurs.
17. PREJUDGMENT REMEDY WAIVER. The loan documents to be delivered pursuant
hereto will require that the Borrower and the Guarantors shall waive
such rights as may exist under state or federal laws to a hearing
prior to the Bank exercising its rights to attach the Borrower's or
the Guarantors' property after the occurrence of an event of default.
18. WAIVER OF TRIAL BY JURY. The loan documents to be delivered pursuant
hereto will require that the Borrower and the Guarantors shall waive
their right to a trial by jury in any suit, action or proceeding in
connection with the credit facilities contemplated by this commitment.
19. COUNTERPARTS. This commitment may be executed in one or more
counterparts with the same effect as if the signatures hereto and
thereto are upon the same instrument.
Very truly yours,
FLEET BANK, NATIONAL ASSOCIATION
By: /s/ Linda M. Smyth
-------------------------------
Name: Linda M. Smyth
Title: Vice President
The foregoing terms and conditions are accepted and agreed to this 6th day
of October, 1995.
BORROWER:
THE STROUSE, ADLER COMPANY
By: /s/ Paul McDonald
-------------------------------
Name: Paul McDonald
Title: Vice President, Finance
<PAGE>
GUARANTORS:
THE ARISTOTLE CORPORATION
By: /s/ Paul McDonald
-------------------------------
Name: Paul McDonald
Title: Chief Financial Officer
ARISTOTLE SUB, INC.
By: /s/ Paul McDonald
-------------------------------
Name: Paul McDonald
Title: Chief Financial Officer
<PAGE>
EXHIBIT 10.20
-------------
OPTION AGREEMENT
This OPTION AGREEMENT is made and entered into as of this 22nd day of
December, 1994 by and between:
THE STROUSE, ADLER COMPANY, a Delaware corporation, having offices at 78
--------------------------
Olive Street, New Haven, Connecticut 06511 (Strouse, Adler"); and
PBS ENTERPRISES LTD., a New York corporation, having offices located at 56
--------------------
Harrison Street, Suite 402, New Rochelle, New York 10801 ("PBS"); and
DAVEDAN PROPERTIES LTD., a Jamaica limited liability company, having
-----------------------
offices located at Sandside, Port Maria, Jamaica ("Davedan"); and
MAGGIE MANUFACTURING COMPANY LTD., a Jamaica limited liability company,
---------------------------------
having offices located at Sandside, Port Maria, Jamaica ("Maggie").
RECITALS
1. Strouse, Adler is engaged in the business of designing, manufacturing and
marketing intimate apparel and specialty shapewear.
2. Davedan is the owner of certain real property and buildings and
improvements thereon known as Lots 1 and 2, Sandside, Port Maria, Jamaica, as
more particularly described on Schedule 1 (the "Site").
----------
3. Maggie is engaged in the manufacture of intimate apparel at a facility
located on the Site.
4. PBS is an Affiliate (as defined herein) of Davedan and Maggie; Maggie has
contractual relationships with Davedan to utilize the Site and PBS has a
contractual relationship with Maggie to utilize Maggie's manufacturing capacity.
5. PBS, Maggie and Strouse, Adler shall enter into a certain Exclusive
Subcontracting Agreement of even date herewith pursuant to which Maggie shall
agree to devote one hundred percent (100%) of its manufacturing capacity to the
satisfaction of Strouse, Adler's requirements for the manufacture of intimate
apparel (the "Exclusive Subcontracting Agreement").
6. As a condition of entering into the Exclusive Subcontracting Agreement,
Strouse, Adler desires to acquire an option to purchase, and PBS desires to sell
and to cause Maggie and Davedan to sell,
<PAGE>
upon exercise of such option, (i) all of PBS' sewing machines and Maggie's
assets, except for certain Excluded Assets (as defined herein) and (ii) all of
Davedan's rights in and to the Site and improvements thereon, subject to the
terms and conditions hereof.
NOW THEREFORE, in consideration of the foregoing and of the mutual
representations, covenants and agreements hereinafter set forth, the parties
hereto hereby agree as follows:
ARTICLE I.
Definitions
-----------
As used herein, the following terms shall have the meanings indicated:
"Actual Operating Costs" has the meaning set forth in the Exclusive
----------------------
Subcontracting Agreement.
"Affiliate" means, with respect to a party, any entity (including a natural
---------
person) controlled by, controlling or under common control with such party. For
purposes hereof, the term "control" (including the terms "controlled by" and
"under common control with") means the possession, directly or indirectly, of
the power to direct or cause the direction of the management or policies of an
entity, whether through the ownership of voting securities, by conduct or
otherwise.
"Annual Amount" has the meaning set forth in the Exclusive Subcontracting
-------------
Agreement.
"Assets" shall mean all of the properties, rights, assets, businesses,
------
privileges, interests and claims, in the possession of Maggie or Davedan,
wherever situated, of every kind, nature and description, tangible or
intangible, relating to, or used in connection with, the Business, including,
without limitation, all equipment, spare parts, leasehold improvements,
supplies, books, records and the PBS sewing machines listed on Schedule 2.
----------
Assets shall not include any Excluded Assets.
"Assumed Severance Obligations" means, calculated as of the Closing Date, the
-----------------------------
amount owing to employees of Maggie in the nature of severance, redundancy or
other payments assuming such employees were terminated by Maggie on the Closing
Date.
"Business" means the business of manufacturing intimate apparel as conducted by
--------
Maggie at the Site.
"Business Expansion Costs" has the meaning set forth in the Exclusive
------------------------
Subcontracting Agreement.
"Business Interruption" means any loss to, or destruction of, any of the Assets
---------------------
or the Property or any taking by any Governmental
<PAGE>
Authority of any of the Assets or the Property, whether through the exercise of
the right of condemnation, eminent domain, or otherwise, which event has a
material adverse effect on the operation of the Business.
"Closing" has the meaning set forth in Section 4.1.
-------
"Closing Date" has the meaning set forth in Section 4.1.
------------
"Deposit" means $70,000.00.
-------
"Escrow Agent" has the meaning set forth in the Escrow Agreement.
------------
"Escrow Agreement" means an escrow agreement substantially in the form of
----------------
Exhibit 1 to be executed by PBS, Strouse, Adler and the Escrow Agent
- ---------
concurrently herewith.
"Excluded Assets" means (i) cash on hand, bank accounts and accounts receivable
---------------
owned by Maggie, Davedan or PBS on the Closing Date; (ii) any and all assets of
PBS other than the sewing machines listed on Schedule 2; and (iii) any and all
----------
right, title and interest of Maggie, Davedan or PBS in and to this Agreement and
any Related Agreement.
"Exclusive Subcontracting Agreement" has the meaning set forth in the fifth
----------------------------------
Recital.
"Expiration Date" means April 1, 1997, except that, in the event that PBS
---------------
notifies Strouse, Adler of its termination of the Exclusive Subcontracting
Agreement pursuant to Article VI.D thereof or of this Agreement, the Expiration
Date means (a) if such notice is received in 1995, the date six (6) months after
receipt of such notice; (b) if such notice is received in 1996, the date three
(3) months after receipt of such notice; and (c) if such notice is received in
1997, the date forty-five (45) days after receipt of such notice; provided,
--------
however, that, in any and all events, the Expiration Date shall not be later
- -------
than April 1, 1997.
"Final Payment" means the aggregate amount received by PBS and Strouse, Adler,
-------------
in the case of loss or destruction of the Assets or the Property, as final
payment under all applicable policies of insurance in complete discharge and
settlement of all claims thereunder, or, in the case of a taking of the Assets
or Property, as an award or settlement upon compromise or other disposition of
any and all claims relating to or arising out of such taking.
"Financial Information" has the meaning stated in Section 7.19.
---------------------
"Governmental Authority" means the governments of Jamaica and the United States
----------------------
or any state, county, borough, municipal, local, parish or other governmental
department, entity, authority, commission, board, bureau, court, agency or any
instrumentality of either of them.
<PAGE>
"Lease" means that certain lease by and among Maggie and Davedan, dated March 1,
-----
1988 pursuant to which Maggie has secured its right to use the Site for the
conduct of the Business.
"Licenses" has the meaning set forth in Section 7.15.
--------
"Loss" means any and all damages, demands, losses, obligations, tax, interest,
----
penalty, suit, judgment, order, lien, liabilities, debts, claims, actions,
causes of action, encumbrances, costs and expenses, whether administrative,
judicial or otherwise, of every kind and nature, including, without limitation,
reasonable attorneys', consultants', accountants' and expert witness fees.
"Option" has the meaning set forth in Section 2.1.
------
"Option Notice" has the meaning set forth in Section 2.3.
-------------
"PBS Parties" means PBS, Maggie and Davedan.
-----------
"PBS Party Obligations" has the meaning set forth in Section 3.5.
---------------------
"Permitted Encumbrances" means those liens, encumbrances and restrictions on the
----------------------
Property set forth on Schedule 7.6.
------------
"Projected Operating Costs" has the meaning set forth in the Exclusive
-------------------------
Subcontracting Agreement.
"Property" means the Site, together with (i) all property rights, easements,
--------
rights-of-way, privileges and appurtenances thereto; (ii) all leases, rents and
profits derived therefrom; (iii) the right to use any street, road, highway or
avenue, open or proposed, public or private, adjoining or adjacent thereto; (iv)
all strips and gores adjoining or adjacent thereto; (v) all oil, gas and mineral
rights; and (vi) any and all buildings, structures or improvements thereon or
thereto.
"Purchase Price" has the meaning set forth in Section 3.1.
--------------
"Related Agreements" means the Exclusive Subcontracting Agreement, the Escrow
------------------
Agreement, the Restrictive Covenant Agreement, the Specific Performance
Agreement and any and all agreements, certificates or instruments to be executed
and delivered in connection herewith or therewith.
"Remaining Subcontracting Payment" means, as of a given Closing Date, the
--------------------------------
balance of the Annual Amount due and payable to PBS for the year in which such
Closing Date occurs plus (a) $725,000.000, if such Closing Date is prior to
----
December 31, 1995; or (b) $375,000.00, if such Closing Date is after December
31, 1995 and before December 31, 1996; provided, however, that if such Closing
-------- -------
Date occurs after October 2, 1997, there shall be no Remaining Subcontracting
Payment.
<PAGE>
"Restrictive Covenant Agreement" means that certain agreement by and among
------------------------------
Strouse, Adler and PBS, Maggie, Davedan, Peter Shalleck and Sandy Shalleck of
even date herewith.
"Shareholders" means Peter Shalleck, Sandy Shalleck and Anselmo Rodriguez.
------------
"Site" has the meaning set forth in the second Recital.
----
"Specific Performance Agreement" means that certain agreement by and among
------------------------------
Strouse, Adler, Peter Shalleck and Sandy Shalleck of even date herewith.
ARTICLE II.
Option to Purchase
------------------
2.1 Grant of Option. PBS hereby grants to Strouse, Adler an option (the
---------------
"Option") to purchase and acquire the Assets and the Property upon payment of
the Purchase Price, such Option to be exercisable as provided herein.
2.2 Option Period. Subject to the terms and conditions hereof, the Option may
-------------
be exercised by Strouse, Adler at any time after January 1, 1995 until the
Expiration Date.
2.3. Manner of Exercise. Strouse, Adler may exercise the Option by providing
------------------
notice thereof to PBS, which notice shall designate the Closing Date (the
"Option Notice"). Simultaneously with the giving of the Option Notice, Strouse,
Adler shall pay the Deposit, by check or wire transfer, to the Escrow Agent to
be held in escrow subject to the terms and conditions of the Escrow Agreement.
Upon exercise of the Option by Strouse, Adler, the obligation of the PBS
Parties to consummate the Closing as provided in Section 4.1 shall be absolute
and unconditional, except for the satisfaction of the conditions set forth in
Article VI.
2.4 Caveat. In order to maintain Strouse, Adler's rights to purchase the
------
Property, PBS agrees that Strouse, Adler may lodge a caveat against the
Property, in form and substance acceptable to Strouse, Adler and PBS, which
reflects the existence of this Agreement and Strouse, Adler's rights and
Davedan's obligations hereunder and PBS undertakes to execute and deliver all
documents and to do any acts or things necessary to accomplish the foregoing.
ARTICLE III.
Purchase Price
--------------
3.1 Purchase Price. The purchase price for the Assets and the Property upon
--------------
exercise of the Option (the "Purchase Price") shall
<PAGE>
be $700,000.00 plus the amount of the Remaining Subcontracting Payment, if any,
----
calculated as of the Closing Date.
3.2 Adjustments to Purchase Price. The Purchase Price shall be reduced by an
-----------------------------
amount equal to fifty percent (50%) of the Assumed Severance Obligations.
3.3 Allocation of Purchase Price. The Purchase Price shall be allocated among
----------------------------
the Assets and the Property in accordance with Schedule 3.3.
------------
3.5 No Assumption of Liabilities. It is specifically acknowledged and agreed by
----------------------------
the PBS Parties that at the Closing Strouse, Adler is, except for the Assumed
Severance Obligations, assuming no liabilities of any PBS Party of any nature
whatsoever, whether absolute, accrued, contingent or otherwise ("PBS Party
Obligations"), including, but not limited to (a) liabilities in respect of taxes
due or payable to any Governmental Authority; (b) any liabilities for uncleared
checks, provided that the underlying liability with respect to such check is not
an Actual Operating Cost or a Business Expansion Cost; (c) any executory
obligation of any PBS Party under any contracts or agreements of any PBS Party;
(d) any obligations or liabilities to any current or former employee of any PBS
Party, including, without limitation, obligations or liabilities with respect to
accrued vacation, sick leave, severance or any payments relating to such
employee's work attendance record; and (e) any liability or obligation on
account of any claim for broker's or finder's fees or commissions arising by
reason of any services alleged to have been rendered on behalf of any PBS Party
with respect to this Agreement or any Related Agreement. Strouse, Adler agrees
to timely pay and discharge the Assumed Severance Obligations and the PBS
Parties agree to timely pay and discharge all PBS Party Obligations.
IV. ARTICLE
Closing
-------
4.1 Closing. The closing of the sale and purchase of the Assets and the
-------
Property (the "Closing") shall take place at the offices of Brenner, Saltzman &
Wallman, 270 Whitney Avenue, New Haven, Connecticut, 06511, or such other place
as the parties may agree, on the closing date set forth in the notice of
exercise of the Option given by Strouse, Adler pursuant to Section 2.3 (the
"Closing Date"); provided, however, that such Closing Date shall not be later
than January 15, 1998.
4.2 PBS Closing Deliverables. At the Closing, PBS shall deliver the following
------------------------
documents and things to Strouse, Adler:
(a) Bill of Sale. A duly executed Bill of Sale or other appropriate
------------
document(s) conveying to Strouse, Adler good and marketable fee simple
title to the Property free and clear of
<PAGE>
all mortgages, liens and encumbrances and other conditions of title in form
and substance customary in Jamaica.
(b) Termination of Lease. A termination of the Lease in recordable form.
--------------------
(c) Property Records. Originals of all of the following documents relating
----------------
to the Property, if applicable: (i) licenses, permits and certificates of
occupancy; (ii) service contracts and maintenance agreements; (iii)
warranties or guaranties, including warranties or guarantees given by
general contractors, subcontractors, suppliers and manufacturers with
respect to any buildings or improvements on the Property; (iv) appraisals,
paid tax bills for the year in which the Closing occurs, tax assessment
notices; (v) engineering reports or other, similar, technical data and
information; (vi) as-built plans and specifications, including
specifications for any proposed improvement to the Property; (vii) any
material correspondence which discloses claims, allegations or other
adverse information regarding the Property, including with respect to
environmental and other conditions regarding health and safety. It shall
not be the responsibility of Maggie, Davedan or PBS to obtain any such
documents if they do not currently exist.
(d) Assignment and Bill of Sale of Davedan PBS and Maggie. A duly executed
-----------------------------------------------------
Assignment and Bill of Sale in form and substance satisfactory to Strouse,
Adler conveying all of the Assets to Strouse, Adler free and clear of all
liens and encumbrances, including, without limitation, those listed on
Schedule 7.10.
-------------
(e) Resolutions. Certified copies of the resolutions duly adopted by the
-----------
shareholders and board of directors of each of PBS, Maggie and Davedan
authorizing the execution, delivery and performance of this Agreement and
the transfer of the Assets and Property, which resolutions shall be in full
force and effect at the time of delivery.
(f) Releases. Releases of any and all mortgages, liens, pledges,
--------
encumbrances, including, without limitation, Permitted Encumbrances and
those encumbrances listed on Schedule 7.10.
-------------
(g) Legal Opinion. An opinion of counsel to PBS, Maggie and Davedan in
--------------
form and substance acceptable to Strouse, Adler and its counsel as to the
matters described in Sections 7.1, 7.2, 7.3, 7.4 and 7.16.
4.3 Strouse, Adler Closing Deliverables. At the Closing, Strouse, Adler shall
-----------------------------------
deliver the following documents and things to PBS:
(a) Payment of Purchase Price. The Purchase Price, less the Deposit, by
-------------------------
bank check or wire transfer.
<PAGE>
(b) Resolutions. Certified copies of the resolutions duly adopted by the
-----------
board of directors of Strouse, Adler authorizing the execution and delivery
of and performance of its obligations under this Agreement, which
resolutions shall be in full force and effect at the time of delivery.
(c) Legal Opinion. An opinion of counsel to Strouse, Adler in form and
-------------
substance acceptable to the PBS Parties and their counsel as to the matters
described in Section 8.1, 8.2 and 8.3.
ARTICLE V
Closing Conditions of Strouse, Adler
------------------------------------
All of the obligations of Strouse, Adler to consummate the Closing are
subject to the satisfaction at or prior to the Closing of each and every one of
the following conditions precedent (any of which may be waived by Strouse, Adler
in its sole discretion):
5.1 Representations and Warranties True. Each of the representations and
-----------------------------------
warranties of PBS contained herein or in any certificate or document delivered
pursuant hereto or in connection with the transactions contemplated hereby shall
be true and correct in all material respects on and as of the Closing Date with
the same force and effect as though made on and as of such date.
5.2 Performance. PBS shall have performed and complied with all of the
-----------
agreements, covenants and obligations required under this Agreement to be
performed prior to or at the Closing and all conditions to be fulfilled by
persons other than the parties to this Agreement shall have been so fulfilled.
5.3 Delivery of PBS Deliverables. PBS shall have delivered prior to or at the
----------------------------
Closing all of the documents and items set forth in Section 4.2.
5.4 Nonoccurrence of Certain Events. There shall not have occurred or been
-------------------------------
discovered any event, condition, fact or circumstance, including any change in
the political, social or economic climate of Jamaica, which has affected or
which may adversely affect in any material respect (a) Strouse, Adler's ability
to operate the Business as such Business is being operated on the date hereof
and on the Closing Date; or (b) the condition of the Assets or the Property. In
addition, no litigation, arbitration or other legal or administrative proceeding
shall have been commenced or shall be pending by or before any court,
arbitration panel or Governmental Authority or official thereof, and no statute,
rule or regulation of any Governmental Authority shall have been enacted after
the date of this Agreement, and no judicial or administrative decision shall
have been rendered which (i) enjoins or prohibits the consummation of all or a
material part of the transactions contemplated by this Agreement; (ii) is an
action by any Governmental Authority which seeks to enjoin or prohibit the
<PAGE>
consummation of all or a material part of the transactions contemplated by this
Agreement; or (iii) affects in any way (x) Maggie or PBS' title to the Assets or
ability to transfer to Strouse, Adler good title to the Assets; or (y) Davedan's
title to the Property or ability to transfer good, marketable title to the
Property. In such event, there shall be no Strouse, Adler claim for damages or
specific performance against PBS, Davedan or Maggie.
5.5 Consents. PBS and Strouse, Adler shall have obtained all authorizations,
--------
consents, waivers and approvals as may be required in connection with the
consummation of the transactions contemplated hereby.
ARTICLE VI
Closing Conditions of PBS
-------------------------
All of the obligations of PBS to consummate the Closing are subject to
the satisfaction at or prior to the Closing of each and every one of the
following conditions precedent (any of which may be waived by PBS in its sole
discretion):
6.1 Representations and Warranties True. Each of the representations of
-----------------------------------
Strouse, Adler contained herein or in any certificate or document delivered
pursuant hereto or in connection with the transactions contemplated hereby shall
be true and correct on and as of the Closing Date with the same force and effect
as though made on and as of such date.
6.2 Performance. Strouse, Adler shall have performed and complied with all of
-----------
the agreements, covenants and obligations required under this agreement to be
performed prior to or at the Closing and all conditions to be fulfilled by
persons other than the parties to this Agreement shall have been so fulfilled.
6.3 Delivery of Strouse, Adler Deliverables. Strouse, Adler shall have
---------------------------------------
delivered prior to or at the Closing all of the documents and things set forth
in Section 4.3.
6.4 Nonoccurrence of Certain Events. No litigation, arbitration or other legal
-------------------------------
or administrative proceeding shall have been commenced or shall be pending by or
before any court, arbitration panel or Governmental Authority or official
thereof, and no statute, rule or regulation of any Governmental Authority shall
have been enacted after the date of this Agreement, and no judicial or
administrative decision shall have been rendered which (i) enjoins or prohibits
the consummation of all or a material part of the transactions contemplated by
this Agreement; or (ii) is an action by any Governmental Authority which seeks
to enjoin or prohibit the consummation of all or a material part of the
transactions contemplated by this Agreement.
<PAGE>
ARTICLE VII
Representations and Warranties of PBS
-------------------------------------
In order to induce Strouse, Adler to enter into this Agreement and the
Related Agreements, to exercise the Option and to consummate the transactions
contemplated hereby, PBS hereby represents and warrants to Strouse, Adler for
and on behalf of the PBS Parties as follows:
7.1 Organization. PBS is a corporation duly organized, validly existing and in
------------
good standing under the laws of the State of New York. Each PBS Party has all
requisite right, power and authority to enter into this Agreement and the
Related Agreements (as the case may be) and to consummate the transactions
contemplated hereby and thereby. The Shareholders are all of the shareholders
(as the case may be) of PBS, Maggie and of Davedan.
7.2 Authorization of Agreement. The execution and delivery of, and the
--------------------------
performance of the obligations under, this Agreement and the Related Agreements
(as the case may be) by each of the PBS Parties has been duly authorized by all
requisite corporate and company (as the case may be) action. This Agreement and
each of the Related Agreements to which he, she or it is a party constitute the
legal, valid and binding obligation of the PBS Parties and the Shareholders,
enforceable against each of them in accordance with their respective terms. The
Related Agreements are in full force and effect.
7.3 No Violation or Conflict. The execution and delivery of, and the
------------------------
performance of the obligations under, this Agreement and each of the Related
Agreements by the PBS Parties and the Shareholders (as the case may be) and the
consummation of the transactions contemplated hereby and thereby, and the
compliance with the terms hereof and thereof, (i) do not and will not violate or
conflict with any provision of law or regulation, or any writ, order or decree
of any court or Governmental Authority, or any term of the certificate of
incorporation, bylaws, articles of association or memorandum of association of
such PBS Party; (ii) do not and will not, with or without the passage of time or
the giving of notice or both, result in a breach of, or constitute a default or
require any consent under, or result in the creation of any lien, charge or
encumbrance upon the Property or any of the Assets under, any agreement or
instrument to which any of the PBS Parties or the Shareholders is a party or
pursuant to which the Assets or the Property may be bound or affected.
7.4 Consent or Approval of Governmental Authorities. No consent, approval or
-----------------------------------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any Governmental Authority is required in connection with the
execution, delivery or performance by the PBS Parties or the Shareholders of
this Agreement or any Related Agreement or the consummation of the
<PAGE>
transactions contemplated hereby or thereby which has not been obtained,
complied with or otherwise satisfied.
7.5 Solvency. None of the PBS Parties or the Shareholders has (i) made an
--------
assignment for the benefit of creditors; (ii) been adjudicated bankrupt; or
(iii) filed a petition in voluntary bankruptcy or sought reorganization, the
appointment of a receiver or other accommodation with his, her or its creditors
under any law, regulation or rule respecting bankruptcy or reorganization.
7.6 Title to Real Property. Davedan is the owner of marketable title to the
----------------------
Property, free and clear of all liens, encumbrances and restrictions of any
kind, except those Permitted Encumbrances set forth on Schedule 7.6.
------------
7.7 Certain Real Property Matters. No portion of the Property is, or to the
-----------------------------
knowledge of the PBS Parties, will be, affected by any special assessments or
impact fees imposed by any Governmental Authority. None of the PBS Parties has
received notice, or has any knowledge of (a) any change contemplated in the
requirements of any Governmental Authority, (b) any judicial or administrative
action, (c) any action by adjacent landowners, or (d) any material adverse
condition affecting (i) the Business or the Property, (ii) the operation by
either Strouse, Adler or Maggie of the Business, or (iii) the ability of
Strouse, Adler to conduct the Business or use the Property in a manner
substantially the same as the conduct of the Business and the use of the
Property by Maggie immediately prior to the date hereof. Except for Maggie and
Strouse, Adler, there are no other parties in possession of any portion of the
Property whether as lessees, tenants at sufferance, trespassers or otherwise.
7.8 Notices. As of December 22, 1994, none of the PBS Parties has received
-------
notice from, or has knowledge of, any insurance company, board of fire
underwriters (or other body exercising similar functions) or Governmental
Authority (i) requesting the performance of any repairs, alterations or other
work on the Property, (ii) that the either the Property or the use or operation
thereof is currently in violation of any zoning, environmental, health, safety
or land use law, rule or regulation; (iii) that any investigation has commenced
or is contemplated regarding such a violation. If any PBS Party receives such a
notice after December 22, 1994, PBS shall promptly notify Strouse, Adler. None
of the PBS Parties has received written notice of the institution of any
proceedings by any Governmental Authority relating to any proposed taking of any
portion of the property by condemnation, eminent domain or under similar
authority.
7.9 Service Contracts. There are no service contracts, warranties, permits,
-----------------
licenses, as-built plans or specifications pertaining to the Property as of the
date of this Agreement.
7.10 Title to Assets. Maggie and PBS have, and upon consummation of the
---------------
transactions contemplated hereby, Strouse, Adler will have,
<PAGE>
good title to all of the Assets necessary to allow Strouse, Adler to operate the
Business in the same manner as the Business is being operated prior to the date
hereof. None of the Assets is subject to any mortgage, lien, pledge,
encumbrance, claim or charge of any kind, except as disclosed on Schedule 7.10.
-------------
The Assets include all of the tangible and intangible property as of the Closing
Date necessary to the conduct of the Business as conducted by Maggie prior to
the Closing Date. None of the Assets is used by PBS, Maggie, Davedan or any
third party in connection with the operation of any business other than the
Business. All of the Assets are located on the Property.
7.11 Leases. Maggie is not a party to any lease, whether written or oral,
------
relating to the Assets or the Business other than the leases described on
Schedule 7.11. All of the leases described on Schedule 7.11 are in full force
- ------------- -------------
and effect on the date hereof and on the Closing Date and none is in default.
7.12 Contracts. To the knowledge of the PBS Parties, there are no contracts,
---------
commitments, licenses, agreements or permits of a material nature which relate
in any manner to the Business.
7.13 Compliance With Laws. To the knowledge of the PBS Parties, each of the PBS
--------------------
Parties is in compliance with all laws, rules or regulations applicable to the
conduct of the Business, including the Property and the Assets. None of the PBS
Parties is subject to any order, judgement or decree of any Governmental
Authority, or is presently charged or threatened with, or subject to any
investigation, proceeding or inquiry of any Governmental Authority. No PBS Party
has received notice of, or has knowledge of, any uncorrected violation of any
law, rule or regulation with respect to any PBS Party or the conduct of their
respective businesses, including the Business, or properties or assets,
including the Property and the Assets, asserted by a Governmental Authority.
7.14 Employee Matters. To the knowledge of the PBS Parties, the Business has
----------------
not been the object of any union organizing activity and there have been no
attempts to organize the employees of the Business either by organized unions or
the employees themselves. None of the PBS Parties is subject to any collective
bargaining agreement or similar agreement or arrangement with any union or labor
organization. No election or proceeding relating to labor relations of the
Business is pending or, to the knowledge of the PBS Parties, threatened, nor is
any labor dispute or disturbance pending or, to the knowledge of the PBS
Parties, threatened. Maggie is generally on good terms with its employees.
Except as described on Schedule 7.14, none of the PBS Parties has any pension or
-------------
profit-sharing plan or employee benefit or severance plan of any kind for any of
its employees, has any written employment agreement with any of its employees,
or is in breach of any oral or written agreement or understanding with respect
to employment. Except as described on Schedule 7.14, all employees of Maggie are
-------------
terminable at will and without payment of, or the incurring of any liability
relating to, severance, accrued vacation pay, sick leave or any
<PAGE>
amount due in respect of any employee's work attendance record or any other
benefits as a result of such termination.
7.15 Licenses and Permits. As of December 22, 1994, Maggie has all licenses,
--------------------
approvals, franchises, certificates, permits, planning permissions or
authorizations ("Licenses") necessary for the conduct of the Business and all
such Licenses are in full force and effect and no action or claim is pending,
and no notice of any action or claim has been received, which threatens to
revoke, vary, modify, suspend or terminate any License or declare any License
invalid in any respect. Neither the execution or delivery of nor the performance
of the obligations under this Agreement or any Related Agreement shall adversely
effect the status of any License nor permit or cause such License to be
terminated. A list of all Licenses is set forth on Schedule 7.15.
-------------
7.16 Litigation. There are no actions, suits, proceedings or investigations
----------
pending, or to the knowledge of the PBS Parties, threatened, nor has any notice
of any of such items been received by any PBS Party, in any court or before any
Governmental Authority against or affecting any of the PBS Parties, any of the
Assets or any portion of the Property.
7.17 Zoning. To the knowledge of the PBS Parties, the Property conforms in all
------
respects to and with all applicable requirements of any Governmental Authority
regarding zoning and land use so that the present use of the Property in the
Business is a proper use (which is not impaired, limited, restricted or
otherwise modified by the transfer to Strouse, Adler).
7.18 Tax Matters. All tax returns and reports required to be filed by any of
-----------
the PBS Parties pursuant to the requirements of any Governmental Authority have
been timely filed with the appropriate Governmental Authority and all taxes
required to be paid have been timely paid. No objection to any return, report or
payment or claim for additional taxes is currently being asserted.
7.19 Financial Information. The PBS Parties have furnished to Strouse, Adler
---------------------
certain financial information regarding Maggie and Maggie's use of the Property
and conduct of the Business, which information is set forth in Schedule 7.19
-------------
(the "Financial Information"). The Financial Information is a true, accurate and
complete description of all direct manufacturing expenses of Maggie for the 1993
calendar year.
7.20 Illegal Payments. None of the PBS Parties has (i) made any contributions,
----------------
payments or gifts of its funds or property to or for the private use of any
official, employee or agent of any Governmental Authority where either the
payment or the purpose of such contribution, payment or gift is illegal under
the laws of any Governmental Authority; (ii) established or maintained any
unrecorded fund or asset for any purpose, or has made any false or artificial
entries on any of its books or records for any reason; (iii) made any payments
to persons with the intention or
<PAGE>
understanding that any part of such payment was to be used for any purpose other
than that described in the documents supporting the payment; or (iv) made any
contribution, or has reimbursed any political gift or contribution made by any
other person, to a candidate for public office where such contribution would
violate the applicable laws of any Governmental Authority.
7.21 Commitments. To the knowledge of the PBS Parties, no commitments relating
-----------
to the Property or Assets have been made to any Governmental Authority, utility
company, school board, church or other religious body or any homeowner or
homeowners association or any other organization, group or individual which
would impose an obligation upon Strouse, Adler or its successors or assigns or
Affiliates to make any contribution, dedication of money or land, or to
construct, install or maintain any improvements of a public or private nature on
or off the Property. No Governmental Authority has imposed any requirement that
any owner of the Property or the Assets pay directly or indirectly any special
fees or contributions or incur any expense or obligations in connection with the
Property or the Assets.
7.22 No Material Adverse Change. Since January 1, 1994, the Business has been
--------------------------
operated in the ordinary course and consistent with past practice. Without
limiting the generality of the foregoing, there has not been (i) any material
adverse change in the Business, the Assets, the Property or the cost of
operating the Business, nor, to the knowledge of the PBS Parties, are such
changes threatened, anticipated or contemplated; (ii) any material increase in
the compensation paid to any employee; (iii) any actual, or to the knowledge of
the PBS Parties, threatened, anticipated or contemplated material damage,
destruction, loss, conversion, termination, cancellation, default, or taking by
condemnation, eminent domain or other action by any Governmental Authority which
has materially affected or which may hereafter materially affect the Business,
the Assets or the Property; (iv) any material and adverse pending or, to the
knowledge of the PBS Parties, threatened, anticipated or contemplated dispute
with any supplier, employee, adjacent landowner or Governmental Authority or any
pending or, to the knowledge of the PBS Parties, threatened, anticipated or
contemplated occurrence or situation which is likely to result in a material
change in the terms or conditions of any relationship with any supplier,
employee, adjacent landowner or Governmental Agency regarding the Business; or
(v) any pending or, to the knowledge of the PBS Parties, threatened, anticipated
or contemplated occurrence or situation materially and adversely affecting the
Business, the Assets or the Property, including any adverse change in the
political, social or economic climate of Jamaica.
7.23 Adverse Legislation. None of the PBS Parties has any knowledge of any
-------------------
legislation which has been enacted, or rule or regulation promulgated, by any
Governmental Authority within the twelve (12) months preceding the date hereof
up to and including the Closing Date, or any proposed legislation, rule or
regulation currently
<PAGE>
pending before any Governmental Authority which materially and adversely affects
the Business, the Assets or the Property. None of the PBS Parties has any
knowledge of any law, rule or regulation of any Governmental Authority which
makes, or will make Strouse, Adler or its successors, assigns or Affiliates
liable for any liability, obligation or indebtedness of any PBS Party. If any
PBS Party acquires knowledge of such legislation, rule or regulation prior to
the Closing Date, PBS shall promptly notify Strouse, Adler thereof.
7.24 Disclosure. No representation or warranty contained in this Agreement and
----------
no statement, report or certificate furnished or to be furnished to Strouse,
Adler by or on behalf of any PBS Party pursuant hereto or pursuant to any
Related Agreement or in connection with the transactions contemplated hereby or
thereby contains or will contain any untrue statement of material fact or omits
or will omit to state a material fact necessary in order to render the
statements contained herein or therein not misleading or omits or will omit to
state a material fact necessary in order to provide a prospective purchaser of
the Assets and the Property with full and proper information as to the same and
as to the prospects of the Business and the value of the assets and properties
used therein.
ARTICLE VIII.
Representations and Warranties of Strouse, Adler
------------------------------------------------
In order to induce PBS to enter into this Agreement and the Related
Agreements and to consummate the transactions contemplated hereby and thereby,
Strouse, Adler hereby represents and warrants to PBS as follows:
8.1 Organization. Strouse, Adler is a corporation duly organized, validly
------------
existing and in good standing under the laws of the State of Delaware. Strouse,
Adler has all requisite right, power and authority to enter into this Agreement
and the Related Agreements and to consummate the transactions contemplated
hereby and thereby.
8.2 Authorization of Agreement. The execution and delivery of and the
--------------------------
performance of the obligations under this Agreement and the Related Agreements
by Strouse, Adler have been duly authorized by all requisite corporate action.
This Agreement and each of the Related Agreements constitute the legal, valid
and binding obligations of Strouse, Adler, enforceable in accordance with their
respective terms.
8.3 No Violation or Conflict. The execution and delivery of and the performance
------------------------
of the obligations under this Agreement and the Related Agreements by Strouse,
Adler, the consummation by it of the transactions contemplated hereby and
thereby, and the compliance by it with the terms hereof and thereof, do not and
will not violate or conflict with any provision of law or regulation, or any
writ, order or decree of any court or Governmental Authority, the
<PAGE>
violation of which would interfere with Strouse, Adler's ability to consummate
the transactions contemplated hereby and thereby, or any term of its certificate
of incorporation or bylaws.
8.4 Brokers and Finders. Strouse, Adler has not been solicited or contacted by
-------------------
any financial advisor, broker or finder and Strouse, Adler has not incurred, nor
will it incur, any broker's, finder's or similar fees, commissions or expenses
payable by any party hereto in connection with the transactions contemplated by
this Agreement or the Related Agreements.
ARTICLE IX.
Conduct Prior to Closing
------------------------
9.1 Operation of Business. From January 2, 1995 until the Closing, Strouse,
---------------------
Adler and PBS shall each use its best efforts to ensure that the Business is
operated in accordance with the Exclusive Subcontracting Agreement.
9.2 PBS Party Obligations. From the date hereof until the Closing, the PBS
---------------------
Parties agree, except with the prior written consent of Strouse, Adler, which
shall not be unreasonably withheld, not to sell, lease, assign or dispose of any
Assets other than in the ordinary course of business, or create, incur or suffer
to be created or incurred any lien, pledge, mortgage or other encumbrance upon
the Assets or the Property which cannot be satisfied out of the proceeds of the
Closing.
9.3 Access to Information. PBS shall cause Maggie and Davedan and their
---------------------
professional consultants to give Strouse, Adler, its representatives, lenders,
appraisers, engineers, lawyers, accountants, and its other professional
consultants full and continuous access to the Property and the Assets, input and
cooperation, during all business hours on all business days to all of the
employees, accountants, offices, books and records relating to the Business, and
to furnish such information and documents regarding the Business, the Assets and
the Property as Strouse, Adler and its representatives or consultants may
reasonably request and as are usually available in order that Strouse, Adler may
conduct such factual, legal, accounting and tax due diligence as is appropriate
for a transaction of the type and magnitude of the transactions contemplated
hereby.
9.4 Diligent Application for all Approvals. Commencing upon the giving by
--------------------------------------
Strouse, Adler of the Option Notice, the PBS Parties agree to use their best
efforts to assist Strouse, Adler in preparing and in making diligent and
expeditious application for, to follow up on, and to actively and diligently
pursue all approvals, consents and licenses necessary for the consummation of
the transactions contemplated hereby or for the maintenance and operation by
Strouse, Adler of the Business after the Closing Date.
<PAGE>
9.5 Risk of Loss. From the execution of this Agreement until the Closing Date,
------------
PBS shall bear all risk of loss to the Assets and the Property and the legal
doctrine of equitable conversion shall not be applicable to this Agreement or
any Related Agreement or any of the transactions contemplated hereby or thereby.
Strouse, Adler shall reimburse Maggie and PBS for any property and liability
insurance obtained with respect to the Assets or the Property until the Closing,
which amount shall be included as an Actual Operating Expense under the
Exclusive Subcontracting Agreement.
In the event of any Business Interruption, PBS shall immediately notify
Strouse, Adler of the existence and nature thereof and, for the duration
thereof, all of Strouse, Adler's obligations under the Exclusive Subcontracting
Agreement, including the obligation to make payments thereunder, shall be
suspended and any payments previously made hereunder or under any Related
Agreement which relate to the period of time covered by the duration thereof
shall be equitably reduced. If such Business Interruption continues or is
reasonably expected to continue for more than sixty (60) days, within thirty
(30) days of receipt of such notice, Strouse, Adler shall give PBS notice either
(a) requiring PBS to repair, rebuild or restore the Assets and the Property (as
the case may be) as near as practicable to the state thereof prior to such
Business Interruption; or (ii) of Strouse, Adler's intention to terminate the
Exclusive Subcontracting Agreement, which termination shall be effective upon
receipt by PBS of such notice.
In the event that Strouse, Adler exercises its option to require PBS to
repair, rebuild or restore the Assets and the Property because of a Business
Interruption continuing more than sixty (60) days or in the event of any other
Business Interruption, PBS shall use its best efforts and due diligence to
repair, rebuild or restore the Assets and the Property as soon as possible and
all insurance proceeds of Maggie shall be made available to PBS for such repair,
rebuild or restoration. In the event of any Business Interruption extending
beyond the Expiration Date, the Option shall remain in full force and effect and
it shall be exercisable for thirty (30) days after receipt of Final Payment.
ARTICLE X.
Indemnity
---------
10.1 Survival of Representations and Warranties. All representations,
------------------------------------------
warranties, covenants and agreements made by any party hereto, and every one of
the rights and remedies afforded to the non-breaching party with respect to any
breach thereof shall be effective irrespective of any investigation, inspection
or inquiry made at any time by or on behalf of any other party or by its
employees or agents or by reason of any prior knowledge thereof. No
representation or warranty in Articles VII or VIII shall survive
<PAGE>
the Closing except for representations in Sections 7.6 and 7.10, which shall
survive the Closing.
10.2 Obligations Joint and Several. Each of Maggie, Davedan and PBS recognizes
-----------------------------
and acknowledges that each and every obligation of any one of them or all of
them hereunder is joint and several as to each of them.
10.3 Indemnification by PBS Parties. Each of the PBS Parties, jointly and
------------------------------
severally, assumes, indemnifies and agrees to hold Strouse, Adler harmless from,
against and in respect of:
(a) any Loss arising out of, relating to, or in connection with the
operation of the Business prior to January 2, 1995 or the condition of the
Property on January 2, 1995 arising out of any fact, action, omission,
circumstance or event which occurred prior to January 2, 1995, even if
discovered after January 2, 1995;
(b) any Loss attributable to any breach of any warranty or representation,
or the failure by any PBS Party to observe or perform any covenant or
agreement, of any PBS Party contained herein or in any Related Agreement;
or
(c) any Loss suffered or incurred in enforcing this indemnity.
10.4 Indemnification by Strouse, Adler. Strouse, Adler assumes, indemnifies and
---------------------------------
agrees to hold each of the PBS Parties harmless from, against and in respect of:
(a) any Loss attributable in any way to the operation of the Business or
the Property after January 2, 1995 and through the Closing Date, except for
items covered in Sections 9.5 or 10.3 hereof or under the Exclusive
Subcontracting Agreement;
(b) any Loss attributable to any breach of any warranty or representation,
or the failure by Strouse, Adler to observe or perform any covenant or
agreement, contained herein or in any Related Agreement; or
(c) any Loss suffered or incurred in enforcing this indemnity.
ARTICLE XI.
Additional Covenants and Agreements
-----------------------------------
11.1 No Solicitation. Upon execution of this Agreement until the earlier of the
---------------
Closing or the Expiration Date, none of the PBS Parties shall directly, or
through a third party solicit, initiate or participate in any discussions or
negotiations with, or provide any information to, any entity other than Strouse,
Adler or its
<PAGE>
representatives and affiliates concerning any offer or proposal for any merger,
sale of substantial assets, sale of shares of capital stock or debt securities,
joint venture or any similar transaction, unless such entity is made aware of
the existence of this Agreement and the Related Agreements and the encumbrance
on the Property and the Assets created hereby and thereby.
11.2 Confidentiality. Any and all information supplied by Strouse, Adler or any
---------------
PBS Party, or learned by the Strouse, Adler in the course of its due diligence
investigation and the terms and conditions of this Agreement and any Related
Agreement ("Confidential Information") shall be held in strict confidence and
disclosed only to employees, agents or representatives of the parties and on a
need to know basis. In the event of a termination of this Agreement, (a) any
documents, computer disks or other materials containing Confidential
Information, together with any copies thereof, shall be immediately returned to
the disclosing party, and (b) all Confidential Information shall be maintained
in strict confidence; provided, however, that Confidential Information may be
disclosed to the extent (i) it becomes available to the public generally or
becomes known to competitors of the disclosing party through sources other than
the parties hereto, (ii) such information was lawfully acquired by the other
party from a third party, or (iii) such disclosure is required by any
Governmental Authority. Nothing in this Section 11.2 shall prevent or otherwise
restrict Strouse, Adler from disclosing Confidential Information to the National
Association of Securities Dealers where required or appropriate.
11.3 Post-Closing Access. In connection with any matter relating to any period
-------------------
prior to, or any period ending on, the Closing Date, Strouse, Adler shall, upon
request and at the expense of PBS, permit PBS and its representatives full
access at all reasonable times during normal business hours to the books and
records of Maggie relating to the Business and Davedan relating to the Property,
for such period. Strouse, Adler shall not dispose of such books and records
during the three (3) year period commencing on the Closing Date without the
consent of PBS, which shall not be unreasonably withheld. Following the
expiration of such three (3) year period, Strouse, Adler may dispose of such
books and records at any time upon giving fifteen (15) days written notice to
PBS, unless PBS agrees to take, and does take, possession of such books and
records within such fifteen (15) day period at no expense to Strouse, Adler.
11.4 Publicity. There shall be no press release or public announcement
---------
concerning this Agreement, any Related Agreement or the transactions
contemplated hereby or thereby unless such an announcement is required by any
Governmental Authority. In the event such an announcement or press release is to
be made, the parties shall cooperate in the preparation thereof. Whenever
practicable, each party shall furnish drafts of all such press releases and
announcements to the other party prior to their release.
<PAGE>
11.5 Taxes. Each of Strouse, Adler and the PBS Party, respectively, shall
-----
timely pay and discharge any taxes or assessment including, without limitation,
conveyance taxes and stamp duties, assessed upon each of them in connection with
the purchase and sale of the Assets and Property. Except as required by law,
there shall be no withholding of the Purchase Price to satisfy the taxes
referred to herein.
ARTICLE XII.
Rights of Termination and Remedies for Default
----------------------------------------------
12.1 Default by PBS Parties. In the event that all of the conditions set forth
----------------------
in Article V of this Agreement have been satisfied or waived by Strouse, Adler
on or prior to the Closing Date, but any of the PBS Parties is (a) unwilling to
consummate the Closing in accordance with the terms and conditions of this
Agreement; or (b) is unable to consummate the Closing in accordance with the
terms and conditions hereof if the facts, circumstances or conditions resulting
in such inability were within the control of any PBS Party or if the best
efforts of any PBS Party could remedy, cure, solve, satisfy or eliminate such
facts, circumstances or conditions resulting in such inability; or (c) in the
event that any of the PBS Parties is otherwise in breach of this Agreement or
any Related Agreement, then Strouse, Adler may proceed to enforce its rights by
an action at law, suit in equity or other appropriate proceeding, whether for
the specific performance of any agreement contained herein or in any Related
Agreement, or for an injunction against a violation of any of the terms hereof
or thereof, or in and of the exercise of any power granted hereby or thereby or
by law. Each of the PBS Parties recognizes that in such event, any remedy at law
may be inadequate and that, therefore, Strouse, Adler may seek such equitable
relief, including, without limitation, temporary and permanent injunctive
relief. No course of dealing and no delay on the part of Strouse, Adler in
exercising any right shall operate as a waiver thereof or otherwise prejudice
any of Strouse, Adler's rights. No right conferred hereunder or under any
Related Agreement shall be exclusive of any other right referred to herein or
therein or now or hereafter available at law, in equity, by statute or
otherwise. Without limiting the generality of the foregoing, Strouse, Adler
shall be entitled to recover, among other things, reasonable attorneys' fees and
expenses incurred by it in enforcing this Agreement and any Related Agreement.
12.2 Strouse, Adler's Right to Terminate. If any one or more of the conditions
-----------------------------------
set forth in Article V has not been fulfilled, satisfied or waived in writing by
Strouse, Adler on or prior to the Closing Date, then Strouse, Adler, at its
option, may terminate this Agreement, effective upon receipt by PBS of such
notice. In the event of any such termination, PBS shall immediately refund to
Strouse, Adler the Deposit and if such termination was caused by the occurrence
of an event or condition described in Section 5.4 hereof, all of the remaining
obligations of the PBS Parties
<PAGE>
hereunder and under any Related Agreement shall terminate; otherwise, Strouse,
Adler's exercise of its right of termination and any return of the Deposit shall
not be in limitation of Strouse, Adler's other rights and remedies hereunder or
in any Related Agreement and no PBS Party shall be released from any liability
hereunder or under any Related Agreement. In any event, upon any such
termination by Strouse, Adler, all of the obligations of Strouse, Adler
hereunder and under any Related Agreement shall immediately terminate.
12.3 Default by Strouse, Adler. In the event that the PBS Parties are ready,
-------------------------
willing and able to proceed with the Closing and all of the conditions set forth
in Article VI have been fulfilled, satisfied or waived in writing by PBS, and
Strouse, Adler fails to complete the transactions contemplated by this Agreement
on the Closing Date, then PBS, at its option, may terminate this Agreement,
effective upon receipt from PBS of such notice. In the event of any such
termination, PBS shall retain, as liquidated damages, the Deposit and the
Exclusive Subcontracting Agreement, if it has been previously terminated, shall
be immediately reinstated and shall remain in full force and effect until the
date nine (9) months after the effective date of such termination. The Annual
Amount to be paid thereunder for such nine-month period shall be equal to 75% of
the Annual Amount for the then-current year of the Exclusive Subcontracting
Agreement. PBS' right to retain the Deposit and to reinstatement of the
Exclusive Subcontracting Agreement shall be its sole and exclusive remedy in the
event of such a failure.
12.4 PBS Right to Terminate. At any time after July 1, 1995 and prior to January
----------------------
16, 1997, and provided that Strouse, Adler has not previously exercised the
Option and further provided that no loss or taking has occurred under Section
9.5, PBS may terminate this Agreement at its option upon not less than twelve
(12) months written notice to Strouse, Adler. In the event of any termination of
this Agreement by PBS, subject to Strouse, Adler's right to exercise the Option
until the Expiration Date, all of the obligations of Strouse, Adler and the PBS
Parties hereunder and under any Related Agreement shall terminate.
12.5 Adjustments upon Termination. Upon any termination of this Agreement or
----------------------------
any Related Agreement by either Strouse, Adler or PBS for any reason or no
reason, PBS shall refund to Strouse, Adler any Annual Amount or Actual Operating
Costs or Business Expansion Costs paid to PBS prior to the date such termination
is effective but which relate to the period after such date. Strouse, Adler
shall remain liable for any Business Expansion Costs incurred by it prior to
termination.
12.6 Force Majeure. Neither Strouse, Adler nor any PBS Party shall be
-------------
responsible for the nonfulfillment of any of its obligation under this Agreement
or any Related Agreement, if such nonfulfillment is due to force majeure,
including but not limited to, earthquakes, acts of war, acts of the public
enemy, hurricanes,
<PAGE>
floods or any other deed or act, whether or not named explicitly herein, which
is beyond the control of the affected party and which cannot be reasonably
foreseen. In the event any PBS Party believes that a force majeure event has
occurred, PBS shall advise Strouse, Adler thereof immediately in writing. In the
event that Strouse, Adler believes that a force majeure event has occurred, it
shall advise PBS immediately thereof in writing. As soon as possible after the
giving of such a notice, the parties shall hold a joint meeting for the purpose
of establishing the magnitude and type of the event and whether such event
results in a partial or total suspension of the obligations of the party
affected. The term for fulfillment of any obligation suspended by reason of
force majeure shall be extended for the same period of time as the delay caused
by the force majeure.
ARTICLE XIII.
Miscellaneous
-------------
13.1 Entire Agreement. This Agreement and the Related Agreements together with
----------------
the schedules and exhibits hereto and thereto contain the entire understanding
of the parties with respect to the subject matter hereof and thereof. All
understandings, oral and written, and agreements heretofore had between the
parties are merged in this Agreement and the Related Agreements. This Agreement
and the Related Agreements supersede and replace the Letter of Intent by and
among Strouse, Adler and PBS dated November 2, 1994.
13.2 Binding Effect; Assignment. The rights and obligations under this Agreement
--------------------------
and any Related Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns. No PBS
Party may assign its obligations under this Agreement or any Related Agreement
without the written consent of Strouse, Adler, which consent shall not be
unreasonably withheld. Any transaction or series of transactions which result in
Peter Shalleck, Sandy Shalleck or Anselmo Rodriguez owning, individually or
collectively, less than 67% of each PBS Party's voting securities or equity
shall be deemed an assignment. The rights and obligations of Strouse, Adler
under this Agreement and any Related Agreement may be assigned (i) to any
Affiliate of Strouse, Adler; (ii) to any transferee of greater than fifty
percent (50%) of the assets of Strouse, Adler; or (iii) in all other events,
upon the consent of PBS, which consent shall not be unreasonably withheld. PBS
shall have the right to receive such information as is necessary to assure it of
the financial viability of any Strouse, Adler assignee.
13.3 Notices. Notice, demand, offer or other writing required or permitted to be
-------
given under this Agreement or any Related Agreement shall be in writing and
transmitted by hand-delivery, facsimile, or a nationally recognized overnight
courier service as follows:
If to Strouse, Adler:
<PAGE>
The Strouse, Adler Company
78 Olive Street
New Haven, CT 06511
Facsimile: (203) 789-8832
Attention: Paul McDonald
With a copy to:
Brenner, Saltzman & Wallman
217 Whitney Avenue
New Haven, CT 06511
Facsimile: (203) 562-2098
Attention: Wayne A. Martino, Esq.
If to any PBS Party:
PBS Enterprises, Ltd.
56 Harrison Street
New Rochelle, NY 10801
Facsimile: (914) 235-8003
Attention: Peter Blair Shalleck
With a copy to:
Gartner & Bloom, P.C.
885 Second Avenue
New York, NY 10017
Facsimile: (212) 759-5842
Attention: Stuart F. Gartner, Esq.
Any party shall have the right to change the place to which such notice shall be
sent or delivered by a similar notice sent in like manner to all other parties.
13.4 Governing Law. This Agreement shall be governed by and interpreted in
-------------
accordance with the laws of the State of Connecticut. Each of PBS, Maggie and
Davedan hereby irrevocably consents to the in personam jurisdiction of the
-- --------
United States District Court for the District of Connecticut and consents to
service of process by certified mail care of Stuart F. Gartner, Esq. at the
address provided in Section 13.3. Strouse, Adler hereby consents to service of
process by certified mail care of Wayne A. Martino, Esq. at the address provided
in Section 13.3. Any order or judgment entered in enforcing this Agreement or
any Related Agreement may be actionable in Jamaica and no party hereto or
thereto shall oppose the same.
13.5 Further Assurances. On a reciprocal basis, the PBS Parties and Strouse,
------------------
Adler agree to, at any time before or after the Closing, execute and deliver all
additional documents, and do any other acts or things that may reasonably be
requested by the other in order to perfect their respective rights and interests
contemplated hereunder and that they each will aid in the prosecution, defense
<PAGE>
or other litigation with third persons arising from this Agreement, all without
further consideration.
13.6 Rules of Construction. References in this Agreement or in any Related
---------------------
Agreement to "herein," "hereof" and "hereunder" shall be deemed to refer to this
Agreement or such Related Agreement (as the case may be) and shall not be
limited to any particular text, Article or Section in which such words appear.
References in this Agreement or in any Related Agreement to "Exhibit,"
"Schedule," "Article" or "Section" shall be deemed to refer to the specific
Exhibit, Schedule, Article or Section of this Agreement or such Related
Agreement (as the case may be) indicated. The use of any gender shall include
all genders and the use of any singular shall include the plural and vice versa
as context may require. All dollar figures expressed herein shall, unless
otherwise specifically indicated, be deemed to refer to lawful currency of the
United States of America.
13.7 Joint Effort. The preparation of this Agreement and the Related Agreements
------------
has been a joint effort of the parties hereto and thereto and their legal
counsel. All parties have participated in the negotiation and preparation of
this Agreement and the Related Agreements at all times from the commencement of
negotiations through the execution hereof and thereof and the resulting
documents shall not be construed more strictly against any one of the parties
than any other.
13.8 Severability. If any provision of this Agreement or any Related Agreement,
------------
or the application thereof, shall for any reason and to any extent be determined
by a court of competent jurisdiction to be invalid or unenforceable, the
remaining provisions of this Agreement or such Related Agreement shall be
interpreted so as best to reasonably effect the intent of the parties. The
parties agree to further replace any such invalid or unenforceable provisions
with valid and enforceable provisions designed to achieve, to the extent
possible, the business purpose and intent of such invalid and unenforceable
provisions.
13.9 Effectiveness. Neither this Agreement nor any Related Agreement shall be
-------------
effective unless and until executed and delivered by each of the parties hereto.
13.10 Counterparts. This Agreement and the Related Agreements may be
------------
executed in one or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same document.
13.11 Knowledge of PBS Parties. Whenever reference is made herein or in any
------------------------
Related Agreement to the knowledge of the PBS Parties of a subject, such
reference shall be deemed to mean the actual knowledge of such PBS Party and the
actual knowledge of any PBS Party or of any Shareholder shall be imputed to all
PBS Parties.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have each executed and delivered
this Agreement as of the date first above written.
THE STROUSE, ADLER COMPANY PBS ENTERPRISES LTD.
/s/ Graeme Caulfield /s/ Peter Blair Shalleck
- ---------------------------- ---------------------------------
By: Graeme Caulfield By: Peter Blair Shalleck
Its: Vice President Its: President
Price Operations
MAGGIE MANUFACTURING COMPANY, DAVEDAN PROPERTIES, LTD.
/s/ Peter Blair Shalleck /s/ Peter Blair Shalleck
- ---------------------------- ---------------------------------
By: Peter Blair Shalleck By: Peter Blair Shalleck
Its: Managing Director Its: Managing Director
<PAGE>
EXHIBIT 10.21
-------------
EXCLUSIVE SUBCONTRACTING AGREEMENT
This EXCLUSIVE SUBCONTRACTING AGREEMENT is made and entered into as of this
22nd day of December, 1994 by and among:
THE STROUSE, ADLER COMPANY, a corporation organized under the laws of the
State of Connecticut, having offices at 78 Olive Street, New Haven,
Connecticut 06511 (Strouse, Adler"); and
PBS ENTERPRISES LTD., a corporation organized under the laws of the State
of New York, having offices located at 56 Harrison Street, Suite 402, New
Rochelle, New York 10801 ("PBS"); and
MAGGIE MANUFACTURING COMPANY LTD., a limited liability company organized
under the laws of Jamaica, having offices located at Sandside, Port Maria,
Jamaica ("Maggie"); and
DAVEDAN PROPERTIES LTD., a limited liability company organized under the
laws of Jamaica, having offices located at Sandside, Port Maria, Jamaica
("Davedan").
RECITALS
1. Strouse, Adler is engaged in the business of designing, manufacturing and
marketing intimate apparel and specialty shapewear.
2. Maggie is engaged in the manufacture of intimate apparel for Strouse, Adler
and others at a facility located on certain real property (the "Site") in
Sandside, Port Maria, Jamaica.
3. PBS is an affiliate of Davedan and Maggie. PBS has contractual
relationships with Maggie to utilize Maggie's manufacturing capacity and Maggie
leases the Site from Davedan pursuant to a certain lease dated March 1, 1988
(the "Lease").
4. Strouse, Adler, PBS, Maggie and Davedan have entered into an Option
Agreement of even date herewith pursuant to which Strouse, Adler has been
granted an option to purchase (i) all of Maggie's assets and certain of PBS'
equipment used in Maggie's business, and (ii) all of Davedan's rights in and to
the Site and improvements thereon (the "Option Agreement").
5. In order that Strouse, Adler may evaluate whether to exercise its option
pursuant to the Option Agreement and to satisfy certain manufacturing needs of
Strouse, Adler, Strouse, Adler, PBS, Maggie and Davedan desire to enter into an
arrangement whereby Maggie shall devote one hundred percent (100%) of its
manufacturing
<PAGE>
capacity to the satisfaction of Strouse, Adler's requirements for the
manufacture of intimate apparel.
6. It is a condition to the execution and delivery of the Option Agreement
that the parties hereto enter into this Exclusive Subcontracting Agreement.
NOW THEREFORE, in consideration of the foregoing and of the mutual
representations, covenants and agreements hereinafter set forth, the parties
hereto hereby agree as follows:
ARTICLE I.
Definitions
-----------
As used herein, the following initial capitalized terms shall have the
following definitions, all other initial capitalized terms shall have the
meanings ascribed to them in the Option Agreement:
"Actual Operating Costs" has the meaning set forth in Schedule A.
---------------------- ----------
"Annual Amount" means (i) for 1995, $325,000, less any sums paid to PBS
-------------
upon the execution hereof; (ii) for 1996, $350,000; and (iii) for 1997,
$375,000.
"Business" means the manufacture by Maggie of intimate apparel for Strouse,
--------
Adler at the Site.
"Business Expansion Costs" has the meaning set forth in Section IV.F.
------------------------
"Effective Date" has the meaning set forth in Section VI.A.
--------------
"Garment" means a specific item of intimate apparel manufactured by Maggie
-------
for Strouse, Adler.
"Inventory Adjustment" has the meaning set forth in Section V.A.
--------------------
"Lease" has the meaning set forth in the third Recital.
-----
"Projected Operating Costs" shall be $520,000 for 1995, $540,800 for 1996
-------------------------
and $561,000 for 1997 based on 62,400 dozens of Garments per year. To the extent
that the number of Garments actually produced in any year are greater than
62,400, Projected Operating Costs for such year shall be increased by an amount
equal to the product of Projected Operating Costs for such year times the
difference (expressed as a percentage) between the actual number of dozens of
Garments produced in such year and 62,400. There shall be no decrease in
Projected Operating Costs if less than 62,400 dozens are produced.
<PAGE>
ARTICLE II.
PBS Services
------------
For and during the term of this Agreement, and subject to the terms
and conditions hereof, PBS shall provide the manufacturing services and the
transition services described below to Strouse, Adler in exchange for the
provision of goods and the payments by Strouse, Adler described in Article III.
A. Manufacturing Services. PBS shall cause Maggie to at all times devote one
----------------------
hundred percent (100%) of its manufacturing capacity at the Site towards the
satisfaction of Garment orders placed with Maggie by Strouse, Adler. Toward that
end, Maggie shall furnish all labor, equipment, materials, utilities and
supplies necessary to (1) manufacture the Garments using raw materials and other
inventory provided by Strouse, Adler, (2) conduct such quality control
inspection and testing of such Garments as Strouse, Adler may from time to time
require, and (3) package, load and ship such Garments, all in conformity with
Strouse, Adler's specifications.
Maggie shall not at any time engage in any business activity other than the
manufacture of Garments for Strouse, Adler, provided, however, that prior to
February 1, 1995, Maggie shall be entitled to sew out residual work-in-process
for third parties which exists on the Effective Date. Maggie's expenses related
to such sew-out of such work in process shall be mutually agreed upon by PBS and
Strouse, Adler and shall be paid by PBS to Maggie and used by Maggie to pay
Actual Operating Costs that would otherwise be funded by Strouse, Adler.
To the extent that Maggie has immediately prior to the Effective Date made
use in the ordinary course of its business of any equipment owned by PBS, PBS
shall make such equipment available to Maggie on similar terms and conditions as
existed immediately prior to the Effective Date.
PBS shall ensure that the Lease remains in full force and effect and that
Maggie's use of the Site pursuant thereto is not interrupted or diminished in
any manner.
B. Transition Services. PBS shall use its best efforts to preserve and
-------------------
maintain the existing state of Maggie, Davedan and PBS' social, political and
community relations at the Site and in Jamaica such that Maggie's business
operations continue after the Effective Date in an uninterrupted manner
consistent with such operations as they were conducted immediately prior to the
Effective Date.
In furtherance of the foregoing, PBS shall make available the services of
Peter Blair Shalleck ("Mr. Shalleck"). Mr. Shalleck shall be available in New
York and, to the extent necessary or appropriate in order to fulfil PBS'
obligations under this Paragraph B, in Jamaica, payment to be made in accordance
with Article III(e).
<PAGE>
ARTICLE III.
Strouse, Adler's Provision of Goods and Payments
------------------------------------------------
During the term hereof, in exchange for the provision by PBS of the
services described in Article II, and subject to the terms and conditions
hereof, Strouse, Adler shall:
(a) provide Maggie with all cut pieces, trim, labels and other raw
materials necessary for or relating to the satisfaction by Maggie of
Strouse, Adler Garment orders;
(b) provide a manager, acceptable to PBS, to manage Maggie's operations on
behalf of Strouse, Adler (the "Operations Manager");
(c) fund all Actual Operating Costs of Maggie in accordance with Schedule
--------
A ;
--
(d) for each year during the term of this Agreement, pay to PBS the
applicable Annual Amount for such year in four equal installments payable
on the first day of each calendar quarter of such year, provided, however,
that with respect to the first year of this Agreement, payments of the
Annual Amount shall be in four installments of $81,250 on the date hereof,
and on January 2, April 1, and July 1, 1995 . The Annual Amount due and
payable hereunder for any given year shall be reduced by the amount, if
any, by which Actual Operating Costs, calculated as of December 31, for
such year exceed Projected Operating Costs for such year. Such reduction
shall be made by application against the next succeeding payment of the
Annual Amount.
(e) pay to PBS $500 per day, plus telephone expenses and reasonable travel
expenses if he is travelling to Jamaica, for each day on which the services
of Mr. Shalleck are required to fulfil PBS' obligations hereunder and are
pre-approved by Strouse, Adler: (1) in New York in excess of two (2) full
days per calendar year; and (2) in Jamaica in excess of three (3) full days
per calendar year. The attendance by Mr. Shalleck at periodic meetings
pursuant to Section IV.B shall be excluded for purposes of the foregoing
sentence and PBS shall not be entitled to reimbursement of Mr. Shalleck's
travel and telephone expenses in respect of his attendance at such periodic
meetings. Mr. Shalleck shall submit quarterly statements setting forth any
days for which PBS seeks payment and any telephone or travel expense for
which PBS seeks reimbursement hereunder in such detail as Strouse, Adler
may reasonably request.
ARTICLE IV
Conduct of the Business
-----------------------
<PAGE>
A. Business Operations. During the term of this Agreement, the Business shall
-------------------
be conducted, and the Site shall be maintained in a manner substantially
consistent with the management of the Business and maintenance of the Site prior
to the Effective Date. No material change in the operations of the Business, or
the maintenance of the Site, shall be made without the prior consent of PBS and
Strouse, Adler, which consent shall not be unreasonably withheld or delayed. To
ensure Strouse, Adler's satisfaction with the manufacture of the Garments, PBS
has agreed to allow Strouse, Adler to appoint one of its employees as the
Operations Manager. To ensure PBS that the Business will be run in a manner
consistent with the operation thereof prior to the Effective Date, the
Operations Manager shall be Mr. Anselmo Rodriguez, a former employee of PBS.
During the term hereof Strouse, Adler agrees not to employ Mr. Rodriguez except
as the Operations Manager. No change in the Operations Manager shall be made
prior to the exercise of the Option Agreement without the prior consent to PBS,
which shall not be unreasonably withheld or delayed. No claim related to the
quality, shrinkage or manufacture of Garments, the day-to-day management of the
Business or the costs of manufacture (except for Strouse, Adler's rights under
Section III(c)) shall be made by Strouse, Adler hereunder and no claim shall be
made by PBS related to the actions or omissions of the Operations Manager
provided such actions or omissions do not violate any of the terms or provisions
hereof.
B. Independent Contractors. PBS, Maggie and Davedan are independent
-----------------------
contractors. Strouse, Adler is not, and shall not become by virtue of this
Agreement, the employer of any employee of the Business. Neither PBS, Maggie nor
Davedan shall have any right or authority to create any direct contractual or
other commitment or obligation of Strouse, Adler with any third party, including
any employee of Maggie. All obligations between Strouse, Adler and PBS, Maggie
and Davedan are governed by the Option Agreement, this Agreement and the other
Related Agreements.
C. Periodic Review of Operations. From time to time, but in any event not less
-----------------------------
frequently than once per calendar quarter, Strouse, Adler and Mr. Shalleck shall
meet for the purpose of conducting a review of Maggie's operations, including a
year-to-date review of financial operations to determine actual expense levels
versus budgeted annual allowances, and assuring Strouse, Adler's satisfaction
with the performance by the PBS Parties of their obligations hereunder and PBS'
satisfaction with the Operations Manager and the performance of Strouse, Adler
hereunder. Such meetings shall be conducted in a frank and open manner and shall
include a good faith discussion of the Business and the overall management
thereof. Each of PBS and Strouse, Adler agrees to use its best efforts to ensure
each other's continuing satisfaction with the Business and with the performance
of its obligations hereunder.
D. Strouse, Adler Access. During the entire term hereof, Maggie and Davedan
---------------------
shall afford Strouse, Adler personnel complete and
<PAGE>
unlimited access to the Site and to such of its employees, books and records as
may be necessary or appropriate to allow Strouse, Adler to monitor the Business
and PBS' performance under this Agreement and PBS shall cause Maggie to make its
office space available to Strouse, Adler personnel in connection therewith.
E. PBS Access. During the entire term hereof, Strouse, Adler agrees that PBS
----------
may have continuous access to Maggie's books and records and to Strouse, Adler's
Operations Manager, Mr. Anselmo Rodriguez, for consultative purposes not
prohibited hereunder or under any Related Agreement, provided, however, that
such activities do not materially interfere with such Operations Manager's
discharge of his duties and responsibilities to Strouse, Adler.
F. Expansion of Business. In the event that Strouse, Adler wishes to increase
---------------------
the production capacity of the Business or otherwise expand or modify the
conduct of the Business in a manner or magnitude not consistent with the conduct
of the Business prior to the Effective Date, PBS agrees to cooperate in
implementing such expansion or modification; provided, however, that Strouse,
Adler shall be solely responsible for all additional cost and expense associated
therewith, including the funding of any increased operating expenses
(collectively "Business Expansion Costs"). Notwithstanding the foregoing, Maggie
shall not, at the request of Strouse, Adler, materially increase the
compensation or benefits of Maggie's employees (including any material increase
in wages or bonuses or change in sewing rates), unless PBS shall have first
consented to such increase in writing, such consent not to be unreasonably
withheld or delayed. Business Expansion Costs include, by way of illustration
only, the cost of leasehold improvements (including completion of the canteen at
the Site), capital expenditures (such as the purchase of automobiles, a
generator, computers, fans or sewing machines) and costs associated with the
hiring of additional personnel for newly created positions after the Effective
Date.
ARTICLE V.
Additional Covenants and Agreements
-----------------------------------
A. Inventory Adjustment. Commencing on January 7, 1995, Maggie shall conduct
--------------------
and Strouse, Adler's accountants, Arthur Andersen and Company shall witness, a
physical audit of all raw materials, work-in-process and finished goods
inventory of Strouse, Adler then in the possession of Maggie at the Site. The
results of such physical audit shall be reconciled against the books and records
of Strouse, Adler as to deliveries of raw materials and finished goods inventory
to and from the Site. If such reconciliation reveals a shortfall in the amount
of raw materials, work-in-process and/or finished goods inventory then in the
possession of Maggie which exceeds two percent 2% of the total dollar value
thereof, there shall be an inventory adjustment equal to the amount of such
excess (the "Inventory Adjustment"). Such Inventory Adjustment shall be
<PAGE>
paid by PBS to Strouse, Adler within thirty (30) days after completion of the
physical audit and, if not so paid, may be deducted from the next succeeding
installment of the Annual Amount to be paid to PBS by Strouse, Adler.
B. Volatility of Product Demand. PBS acknowledges and agrees that the volume
----------------------------
of Purchase Orders placed by Strouse, Adler may be highly variable and that
Strouse, Adler shall have complete discretion in the exercise of its own
independent judgment as to whether any Garment order shall be placed with
Maggie.
C. Ownership of Inventory. PBS acknowledges and agrees that Strouse, Adler
----------------------
shall, at all times, remain the sole owner of all raw materials, work-in-process
and finished goods inventory and that none of PBS, Maggie or Davedan shall have
any rights or interests therein of any kind or nature whatsoever, except for
mechanic's, materialmen's or other, similar liens which arise by operation of
law. PBS shall, and shall cause Maggie and Davedan to, execute and deliver all
additional documents and do any other acts or things that may reasonably be
requested by Strouse, Adler in order to reflect and confirm Strouse, Adler's
continuing ownership of the raw materials, work-in-process and finished goods.
D. Obligations of Maggie and Davedan. Each of Maggie and Davedan undertakes
---------------------------------
and agrees to use its best efforts to ensure that PBS satisfies its obligations
hereunder.
E. Prior Obligations. The current debt of seventeen thousand dollars ($17,000)
-----------------
owed by PBS to Strouse, Adler is hereby forgiven. In addition the two (2) sewing
machines sent to Maggie by Strouse, Adler in 1994 will remain the property of
Strouse, Adler.
ARTICLE VI.
Term and Termination
--------------------
A. Term. The term of this Agreement shall commence on January 2, 1995 (the
----
"Effective Date") and shall continue until January 1, 1998 or such earlier date
upon which it is terminated pursuant to this Article VI or pursuant to the
Option Agreement.
B. Termination upon PBS Default. In the event that any one of PBS, Maggie or
----------------------------
Davedan is in material breach of any of its obligations hereunder and such
breach remains unremedied for thirty (30) days after notice from Strouse, Adler,
then Strouse, Adler may, in its sole and absolute discretion, terminate this
Agreement, effective upon receipt of written notice of such termination by PBS.
C. Termination Upon Strouse, Adler Default. In the event that Strouse, Adler
---------------------------------------
is in breach of any of its obligations hereunder or under the Option Agreement
and such breach remains unremedied for thirty (30) days after notice from PBS,
then PBS may, in its sole
<PAGE>
and absolute discretion, terminate this Agreement effective upon receipt of
written notice of such termination by Strouse, Adler.
D. Termination by Either Party Upon Notice. Either of Strouse, Adler and PBS
---------------------------------------
may terminate this Agreement without cause at any time upon not less than twelve
(12) months written notice to the other party (the "Termination Period"),
provided, however, that if Strouse, Adler thereafter exercises the Option during
the Termination Period and further makes all required payments hereunder as if
no termination option had been exercised, this Agreement shall be reinstated and
remain in full force and effect until the Closing or until otherwise terminated
pursuant to the Option Agreement.
E. Rights upon Termination. In addition to any other rights or remedies which
-----------------------
Strouse, Adler may have under this Agreement, the Option Agreement or any
Related Agreement, upon termination of this Agreement, Strouse, Adler may,
without any payment to any PBS Party, take possession of and sell or otherwise
dispose of any items of moveable office furniture, trade fixtures or other items
of moveable personal property or equipment which are not integral to the
functioning of any structure or improvement on the Property and which were
purchased or acquired by Maggie or Strouse, Adler during the term hereof the
purchase price or acquisition cost of which were funded by Strouse, Adler as
Business Expansion Costs pursuant hereto.
F. Operations Manager. Upon termination of this Agreement and the Option
------------------
Agreement, PBS shall have the exclusive right within the thirty (30) day period
after such termination to hire Mr. Anselmo Rodriguez. PBS shall notify Strouse,
Adler of its intention to hire Mr. Rodriguez and upon receipt of such notice
within such thirty (30) day period, Strouse, Adler shall terminate Mr.
Rodriguez' employment and consent to his employment by PBS.
ARTICLE VII.
Miscellaneous
-------------
A. Entire Agreement. This Agreement together with the schedules and exhibits
----------------
hereto contains the entire understanding of the parties with respect to the
subject matter hereof. All understandings, oral and written, and agreements
heretofore had between the parties are merged in this Agreement.
B. Binding Effect; Assignment. The rights and obligations under this Agreement
--------------------------
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns. No PBS Party may assign its
obligations under this Agreement without the written consent of Strouse, Adler,
which consent shall not be unreasonably withheld. Any transaction or series of
transactions which result in Peter Shalleck, Sandy Shalleck or Anselmo Rodriguez
owning, individually or collectively, less than 67% of each PBS Party's voting
securities or equity shall
<PAGE>
be deemed an assignment. The rights and obligations of Strouse, Adler under this
Agreement may be assigned (i) to any Affiliate of Strouse, Adler; (ii) to any
transferee of greater than fifty percent (50%) of the assets of Strouse, Adler;
or (iii) in all other events, upon the consent of PBS, which consent shall not
be unreasonably withheld.
13.3 Notices. Notice, demand, offer or other writing required or permitted to be
-------
given under this Agreement shall be in writing and transmitted by hand-delivery,
facsimile, or a nationally recognized overnight courier service as follows:
If to Strouse, Adler:
The Strouse, Adler Company
78 Olive Street
New Haven, CT 06511
Facsimile: (203) 789-8832
Attention: Paul McDonald
With a copy to:
Brenner, Saltzman & Wallman
217 Whitney Avenue
New Haven, CT 06511
Facsimile: (203) 562-2098
Attention: Wayne A. Martino, Esq.
If to any PBS Party:
PBS Enterprises, Ltd.
56 Harrison Street
New Rochelle, NY 10801
Facsimile: (914) 235-8003
Attention: Peter Blair Shalleck
With a copy to:
Gartner & Bloom, P.C.
885 Second Avenue
New York, NY 10017
Facsimile: (212) 759-5842
Attention: Stuart F. Gartner, Esq.
Any party shall have the right to change the place to which such notice shall be
sent or delivered by a similar notice sent in like manner to all other parties.
C. Governing Law. This Agreement shall be governed by and interpreted in
-------------
accordance with the laws of the State of Connecticut. Each of PBS, Maggie and
Davedan hereby irrevocably consents to the in personam jurisdiction of the
-- --------
United States District Court for the District of Connecticut and consents to
service of process by certified mail care of Stuart F. Gartner,
<PAGE>
Esq. at the address provided in Section VII.C. Strouse, Adler hereby consents to
service of process by certified mail care of Wayne A. Martino, Esq. at the
address provided in Section VII.C. Any order or judgment entered in enforcing
this Agreement may be actionable in Jamaica and no party hereto shall oppose the
same.
D. Rules of Construction. References in this Agreement to "herein," "hereof"
---------------------
and "hereunder" shall be deemed to refer to this Agreement and shall not be
limited to any particular text, Article or Section in which such words appear.
References in this Agreement to "Exhibit," "Schedule," "Article" or "Section"
shall be deemed to refer to the specific Exhibit, Schedule, Article or Section
of this Agreement indicated. The use of any gender shall include all genders and
the use of any singular shall include the plural and vice versa as context may
require. All dollar figures expressed herein shall, unless otherwise
specifically indicated, be deemed to refer to lawful currency of the United
States of America.
E. Joint Effort. The preparation of this Agreement has been a joint effort of
------------
the parties hereto and their legal counsel. All parties have participated in the
negotiation and preparation of this Agreement at all times from the commencement
of negotiations through the execution hereof and thereof and the resulting
document shall not be construed more strictly against any one of the parties
than any other.
F. Severability. If any provision of this Agreement or the application
------------
thereof, shall for any reason and to any extent be determined by a court of
competent jurisdiction to be invalid or unenforceable, the remaining provisions
of this Agreement shall be interpreted so as best to reasonably effect the
intent of the parties. The parties agree to further replace any such invalid or
unenforceable provisions with valid and enforceable provisions designed to
achieve, to the extent possible, the business purpose and intent of such invalid
and unenforceable provisions.
G. Effectiveness. This Agreement shall not be effective unless and until
-------------
executed and delivered by each of the parties hereto.
H. Counterparts. This Agreement may be executed in one or more counterparts,
------------
each of which shall be deemed an original, but all of which together shall
constitute one and the same document.
IN WITNESS WHEREOF, the parties hereto have each executed and delivered
this Agreement as of the date first above written.
THE STROUSE, ADLER COMPANY PBS ENTERPRISES LTD.
/s/Graeme Caulfield /s/Peter Blair Shalleck
- ------------------- -----------------------
By: Graeme Caulfield By: Peter Blair Shalleck
Its: Vice President Operations Its: President
<PAGE>
MAGGIE MANUFACTURING COMPANY, DAVEDAN PROPERTIES, LTD.
/s/Peter Blair Shalleck /s/Peter Blair Shalleck
- ----------------------- -----------------------
By: Peter Blair Shalleck By: Peter Blair Shalleck
Its: Managing Director Its: Managing Director
<PAGE>
SCHEDULE A
----------
A. Actual Operating Costs. For purposes of this Agreement, "Actual Operating
----------------------
Costs" means all costs or expenses reasonably and actually incurred by Maggie in
the conduct of the Business after the Effective Date, including costs or
expenses related to the day-to-day upkeep, normal maintenance, insurance and
taxes for the Site but excluding extraordinary repairs or replacement to walls
or structural components of the improvements on the Site plus an amount equal to
the total cost and expense to Strouse, Adler of employing Mr. Anselmo Rodriguez
as Operations Manager, such amount not to exceed his present compensation
package which is equal to $121,050.
B. Exclusions from Actual Operating Costs. Actual Operating Costs shall not
--------------------------------------
include any of the following:
(a) any Business Expansion Costs (such costs being the direct
responsibility of Strouse, Adler pursuant to Section IV.E.);
(b) any non-cash expenses such as depreciation or amortization;
(c) any prior period costs or expenses or other charges between PBS,
Maggie and Davedan not related to the current operation of the Business
after the Effective Date;
(d) any management charges or other intercompany charges, including,
without limitation, amounts due to PBS in respect of any equipment leases
or due to Davedan respecting the Lease;
(e) any costs or expenses which are or would be subject to indemnification
by PBS pursuant to the Option Agreement;
(f) any cost or expense related to any services provided to Maggie by Mr.
Shalleck or Sandy Shalleck (but such services may be reimbursable under
Section III(d));
(g) any income or similar taxes of Maggie, Davedan or PBS; or
(h) an amount equal to 50% of any payments made to Maggie's employees in
respect of severance, redundancy or other obligations upon termination of
such employees (the other 50% being paid by Maggie or PBS but not being
subject to reimbursement as an Actual Operating Expense); or
(i) any amounts paid to repair, rebuild or restore the Assets or the
Property in the event of any Business Interruption, including the
deductible under any policy of insurance (but the proceeds of such policy
of insurance to be made available to PBS under Section 9.5 of the Option
Agreement); or
<PAGE>
(j) any cost or expense related to the negotiation or preparation of the
Option Agreement or the Related Agreements or the consummation of any of
the transactions contemplated thereby.
C. Funding Procedure. Strouse, Adler and Maggie shall work together to
-----------------
establish and implement mutually acceptable mechanisms and procedures for the
funding of Actual Operating Costs and Business Expansion Costs (if any).
<PAGE>
EXHIIBT 10.22
-------------
RESTRICTIVE COVENANT AGREEMENT
This RESTRICTIVE COVENANT AGREEMENT is made and entered into as of this
22nd day of December, 1994 by and among:
THE STROUSE, ADLER COMPANY, a corporation organized under the laws of the
State of Connecticut, having offices at 78 Olive Street, New Haven,
Connecticut 06511 (Strouse, Adler"); and
PBS ENTERPRISES LTD., a corporation organized under the laws of the State
of New York, having offices located at 56 Harrison Street, Suite 402, New
Rochelle, New York 10801 ("PBS"); and
MAGGIE MANUFACTURING COMPANY LTD., a limited liability company organized
under the laws of Jamaica, having offices located at Sandside, Port Maria,
Jamaica ("Maggie"); and
DAVEDAN PROPERTIES LTD., a limited liability company organized under the
laws of Jamaica, having offices located at Sandside, Port Maria, Jamaica
("Davedan"); and
PETER BLAIR SHALLECK, an individual residing at 4669 Palisade Avenue,
Riverdale, New York 10471; and
SANDY SHALLECK, an individual residing at 4669 Palisade Avenue, Riverdale,
New York 10471.
RECITALS
As a condition of entering into the Exclusive Subcontracting Agreement and
the Option Agreement (the "Option Agreement"), by and among Strouse, Adler, PBS,
Maggie and Davedan both of such agreements of even date herewith, and provided
that Strouse, Adler is not in default pursuant to such agreements, Strouse,
Adler desires to restrict Maggie, Davedan, PBS, Peter Shalleck and Sandy
Shalleck (each, individually a "Restricted Party" and, collectively, the
"Restricted Parties") from directly or indirectly engaging in the manufacture of
intimate apparel in Jamaica or soliciting or hiring any of Maggie's employees,
all as more particularly described herein.
Initial capitalized terms not otherwise defined herein shall have the
meanings ascribed to them in the Option Agreement.
NOW THEREFORE, in consideration of the foregoing and of the mutual
representations, covenants and agreements hereinafter set forth, the parties
hereto hereby agree as follows:
<PAGE>
1. Covenant not to Compete; Solicit. Each of the Restricted Parties agrees
--------------------------------
that, during the Restricted Period (as defined below), none of the Restricted
Parties shall, other than on behalf of Strouse, Adler, directly or indirectly,
(a) own, manage, operate, control or participate in the ownership, management,
operation or control of, serve as an officer, director, partner, employee,
agent, consultant, advisor, developer or in any similar capacity with, or have
any financial interest in or aid or assist anyone else in the conduct of, any
business or business activity related to the design, marketing, distribution or
manufacture of intimate apparel in the Restricted Territory (as defined below);
or (b) solicit the employment of, negotiate with respect to employment with, or
employ any Covered Employee (as defined below).
For purposes hereof, the following initial capitalized terms shall have the
following meanings:
"Covered Employees" means any person who is, or who was at any time within
-----------------
the six (6) month period preceding the date of such determination, an
employee, agent, consultant or advisor of Maggie or Strouse, Adler.
"Restricted Period" means the period commencing on the date hereof and
-----------------
ending on the termination of both the Exclusive Subcontracting Agreement
and the Option Agreement; provided, however, that, if Strouse Adler
exercises the Option, the Restricted Period shall end on the date five (5)
years after the Closing Date.
"Restricted Territory" means an area having a radius of thirty (30) miles
--------------------
from the Site as well as the country of Jamaica.
2. Enforcement. Each of the Restricted Parties acknowledges and agrees that
-----------
the provisions of this Agreement are reasonable, both with respect to length of
duration and geographic scope. Strouse, Adler and each of the Restricted Parties
agree that the provisions of this Agreement are severable and separate and that
the unenforceability of any specific provision shall not affect the validity of
any other provision hereof. In the event that a court of competent jurisdiction
should determine that the time or geographic restrictions are unreasonable in
their scope, then, and in that event, the parties hereby authorize and empower
such court to insert reasonable limitations and enforce the restrictions in
accordance therewith so as to achieve as nearly as possible the business purpose
and intent of such restrictions.
Each Restricted Party further acknowledges and agrees that Strouse, Adler
will suffer irreparable harm as a result of a breach by any Restricted Party of
this Agreement for which money damages would be inadequate. Accordingly, in the
event of any actual or threatened breach by any Restricted Party of any
provision of this Agreement, Strouse, Adler shall, in addition to any other
legal remedies permitted by applicable law, be entitled to seek equitable
remedies, including, without limitation, specific performance, a
<PAGE>
temporary restraining order or a permanent injunction, in any court of competent
jurisdiction to prevent or otherwise restrain a breach hereof and to recover all
costs and expenses, including, without limitation, reasonable attorneys' fees,
incurred in enforcing this Agreement. Such relief shall be in addition to and
not in substitution for any other remedies available to Strouse, Adler.
5. Miscellaneous. This Agreement contains the entire understanding of the
-------------
parties with respect to the subject matter hereof. All understandings, oral and
written, and agreements heretofore had between the parties are merged in this
Agreement. No duties or obligations under this Agreement may be assigned by any
Restricted Party.
This Agreement shall be governed by and interpreted in accordance with the
laws of the State of Connecticut. Each of the Restricted Parties hereby
irrevocably consents to the in personam jurisdiction of the United Sates
-- --------
District Court for the District of Connecticut and consents to service of
process by certified mail care of Stuart F. Gartner, Esq., Gartner & Bloom,
P.C., 885 Second Avenue, New York, NY 10017. Strouse, Adler hereby consents to
service of process by certified mail care of Wayne A. Martino, Esq., Brenner,
Saltzman & Wallman, 271 Whitney Avenue, New Haven, CT 06511. Any judgment
entered in enforcing this Agreement may be actionable in Jamaica and none of the
parties shall oppose the same.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same document.
IN WITNESS WHEREOF, the parties hereto have each executed and delivered
this Agreement as of the date first above written.
THE STROUSE, ADLER COMPANY PBS ENTERPRISES LTD.
/s/Graeme Caulfield /s/Peter Blair Shalleck
- ------------------------------ ------------------------------
By: Graeme Caulfield By: Peter Blair Shalleck
Its: Vice President Operations Its: President
MAGGIE MANUFACTURING COMPANY, DAVEDAN PROPERTIES, LTD.
/s/Peter Blair Shalleck /s/Peter Blair Shalleck
- ------------------------------ ------------------------------
By: Peter Blair Shalleck By: Peter Blair Shalleck
Its: Managing Director Its: Managing Director
/s/Peter Blair Shalleck /s/Sandy Shalleck
- ------------------------------ ------------------------------
Peter Blair Shalleck Sandy Shalleck
(individually) (individually)
<PAGE>
EXHIBIT 10.23
-------------
Peter Blair Shalleck
Sandy Shalleck
56 Harrison Street
New Rochelle, NY 10801
The Strouse, Adler Company
78 Olive Street
New Haven, CT 06511
Re: Obligations of PBS Enterprises Ltd. December 22, 1994
Maggie Manufacturing Company Ltd.
Davedan Properties Ltd.
Gentlemen:
The undersigned are each directors and shareholders of PBS Enterprises
Ltd., Maggie Manufacturing Company Ltd. and Davedan Properties Ltd. (the "PBS
Parties") and, collectively, have the power to direct or cause the direction of
the management and policies of each of the PBS Parties. We have reviewed the
terms and provisions of the following agreements by and among you and the PBS
Parties, all of even date herewith: the Option Agreement, the Exclusive
Subcontracting Agreement and the Restrictive Covenant Agreement (the
"Transaction Documents") and, as an inducement to you to enter into the
Transaction Documents, hereby acknowledge and agree that each of the undersigned
will take any and all necessary and appropriate actions whether as officers,
directors or shareholders, including, but not limited to, voting his or her
respective shares in the PBS Parties, to assure that the PBS Parties perform
their obligations under the Transaction Documents and consummate the
transactions contemplated thereby provided that you are not in default under the
Transaction Documents. The undersigned further commit not to authorize, approve,
ratify or suffer to occur any action or failure to take action by PBS, Maggie or
Davedan which would frustrate the purposes of the Transaction Documents or which
would restrict or prohibit the consummation of the transactions contemplated
thereby. The commitment in this Paragraph is not intended to be, and shall not
be, an assumption by either of the undersigned of any of PBS', Maggie or
Davedan's representations, liabilities, obligations or indebtedness, whether
under the Transaction Documents or otherwise.
The undersigned hereby further acknowledge and agree that, in the event
that any of the undersigned fails to perform his or her obligations hereunder,
you will suffer irreparable harm for which money damages would be inadequate.
Accordingly, in the event of any actual or threatened breach hereof by the
undersigned, you shall be
<PAGE>
entitled to seek equitable remedies, including, without limitation, specific
performance, a temporary restraining order or a permanent injunction, in any
court of competent jurisdiction to prevent or otherwise restrain a breach
hereof. In no event shall the undersigned be liable for any compensatory,
consequential, exemplary or punitive damages.
This Letter Agreement shall be governed by and interpreted in accordance
with the laws of the State of Connecticut. Each of the undersigned hereby
irrevocably consents to the in personam jurisdiction of the United States
-- --------
District Court for the District of Connecticut and consents to service of
process by certified mail care of Stuart F. Gartner, Esq., Gartner & Bloom,
P.C., 885 Second Avenue, New York, NY 10017. Any judgment rendered in any court
to enforce this Letter Agreement may be actionable in Jamaica and none of the
undersigned shall contest the same.
Please acknowledge your acceptance of the foregoing in the space provided
below.
/s/Peter Blair Shalleck /s/Sandy Shalleck
- ------------------------------ ------------------------------
Peter Blair Shalleck Sandy Shalleck
Accepted by:
THE STROUSE, ADLER COMPANY
/s/Graeme Caulfield
- ------------------------------
By: Graeme Caulfield
Its: Vice Presidnet Operations
<PAGE>
EXHIBIT 21.1
------------
Subsidiaries of The Aristotle Corporation
Aristotle Sub, Inc.
The Strouse, Adler Company
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF OPERATIONS AND THE CONSOLIDATED BALANCE SHEETS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
<CASH> 188
<SECURITIES> 4,682
<RECEIVABLES> 4,669
<ALLOWANCES> (60)
<INVENTORY> 11,782
<CURRENT-ASSETS> 17,335
<PP&E> 1,820
<DEPRECIATION> (303)
<TOTAL-ASSETS> 26,820
<CURRENT-LIABILITIES> 4,944
<BONDS> 0
<COMMON> 11
2,454
0
<OTHER-SE> 4,985
<TOTAL-LIABILITY-AND-EQUITY> 26,820
<SALES> 21,701
<TOTAL-REVENUES> 22,022
<CGS> 16,447
<TOTAL-COSTS> 5,481
<OTHER-EXPENSES> 211
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 756
<INCOME-PRETAX> (662)
<INCOME-TAX> 25
<INCOME-CONTINUING> (898)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (898)
<EPS-PRIMARY> (0.81)
<EPS-DILUTED> 0
</TABLE>
