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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For Fiscal Year Ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
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Commission File Number 0-15491
Parlux Fragrances, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 22-2562955
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3725 SW 30th Avenue, Ft. Lauderdale, FL 33312
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(Address of principal executive offices) (zip code)
(Registrant's telephone number, including area code) (954) 316-9008
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Securities registered pursuant to Section 12(b) of the Act:
Title of Class Name of Exchange on which registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock ( par value $ .01 per share)
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Title of Class
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
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Indicate the number of shares outstanding of each of the registrant's classes of
stock as of the latest practicable date.
Class Outstanding at June 25, 1997
- ----------------------------- --------------------------------
Common Stock, $ .01 par value 16,814,423
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The aggregate market value of the Registrant's common stock held by
non-affiliates of the Registrant was approximately $28,393,527 based on a
closing price of $2.125 for the Common Stock as of June 25, 1997 as reported on
the National Association of Securities Dealers Automated Quotation System on
such date. For purposes of the foregoing calculation, only the Directors and
beneficial owners of the registrant are deemed to be affiliates.
Documents incorporated by Reference: The information required by Part III (Items
10, 11, 12 & 13) is incorporated by reference from the registrant's definitive
proxy statement (to be filed pursuant to Regulation 14A).
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Item 1. BUSINESS
Parlux Fragrances, Inc. (the Company), was incorporated in Delaware in
1984 and is engaged in the creation, design, manufacture, distribution and sale
of prestige fragrances, cosmetics and beauty related products marketed primarily
through specialty stores and national department stores. The fragrance market is
generally divided into a prestige segment (distributed primarily through
department and specialty stores) and a mass market segment. The Company's
products are positioned primarily in the prestige segment. Additionally, the
Company manufactures and distributes certain brands through Perfumania Inc., a
related party national chain which is a leading specialty retailer of
fragrances. Currently, the Company engages in the manufacture (through
sub-contractors), distribution and sale of PERRY ELLIS, FRED HAYMAN BEVERLY
HILLS, BARYSHNIKOV, PHANTOM OF THE OPERA, TODD OLDHAM and VICKY TIEL fragrances
and grooming items on an exclusive worldwide basis as a licensee. Additionally,
the Company manufactures, distributes and sells its own brands of ANIMALE, BAL A
VERSAILLES, DANIEL DE FASSON, DECADENCE and LIMOUSINE fragrances and ALEXANDRA
DE MARKOFF cosmetics on a worldwide basis.
Recent Developments
On May 23, 1997, the Company entered into an agreement with General
Electric Capital Corporation for a $25 million senior secured revolving credit
facility. See "Liquidity and Capital Resources" for further discussion.
In November of 1996, the Company engaged Montgomery Securities to
explore a potential sale or merger of the Company, or other alternatives which
would lead to the maximization of shareholder value. In March of 1997, the
Company announced that the engagement of Montgomery Securities had not resulted
in any definitive offers. Accordingly, the Company concluded its relationship
with Montgomery Securities and announced that it would independently restructure
the Company by terminating warehousing and distribution operations in
Connecticut and France, discontinuing certain brands, and consolidating
operations in South Florida. As of March 31, 1997, the restructuring has been
completed and the costs related to this restructuring of approximately
$5,765,000 have been recorded in the quarter ended March 31, 1997.
In January 1997, the Company completed the repurchase of 350,000 shares
of its common stock under Phase I of its buyback program, and the Board of
Directors authorized a second phase covering an additional 500,000 shares. As of
June 18, 1997, the Company had repurchased 239,555 shares under the second
phase.
During October 1996, the Company entered into agreements to redeem
approximately $5,232,000 of previously issued convertible debentures by issuing
$6,134,000 of 10% bonds which were repaid in accordance with their terms. See
"Liquidity and Capital Resources" for further discussion.
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THE PRODUCTS
The Company's principal products are fragrances and cosmetics. Each
fragrance is distributed in a variety of sizes and packaging. In addition, each
fragrance line may be complemented by beauty-related products such as soaps,
deodorants, body lotions, cremes and dusting powders. The cosmetics are
full-service lines with treatment and make-up products consisting of over 200
stock keeping units (S.K.U.'s). The Company's basic products generally retail at
prices ranging from $20 to $300 per item.
The Company designs and creates fragrances and cosmetics/shades using
its own staff and independent contractors. It also supervises the design of its
packaging by independent contractors and has recently completed the design
process for FRED HAYMAN'S "HOLLYWOOD" for women, which the Company anticipates
launching in the fall of 1997.
During the last three fiscal years, the following brands have accounted
for 10% or more of the Company's gross sales:
Fiscal 1997 Fiscal 1996 Fiscal 1995
----------- ----------- -----------
PERRY ELLIS 48% 39% 16%
ANIMALE 15% 15% 24%
ALEXANDRA DE MARKOFF 14% 3% 0%
FRED HAYMAN 13% 20% 45%
MARKETING AND SALES
In the United States, the Company has established its own sales and
marketing staff, and also utilizes independent sales representatives for certain
channels of distribution. The Company sells directly to retailers, primarily
national and regional department stores and specialty stores, which it believes
will maintain the image of its products as prestige fragrances. The Company's
products are sold in over 1,800 retail outlets in the United States.
Additionally, the Company sells products to Perfumania, Inc., a related party,
which is a leading specialty retailer of fragrances with over 265 retail outlets
principally located in manufacturers' outlet malls and regional malls.
Marketing and sales activities outside the United States are conducted
through arrangements with independent distributors. The Company has established
relationships for the marketing of its fragrances with distributors in Canada,
Europe, the Middle East, the Far East, Latin America, the Caribbean and Russia.
The Company advertises both directly and through a cooperative
advertising program in association with major retailers in the fashion media on
a national basis and through retailers' statement enclosures and catalogues. The
Company is required to spend certain minimum amounts for advertising under
certain licensing agreements. See "Licensing Agreements" and Note 9 (B) to the
Consolidated Financial Statements.
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RAW MATERIALS
Raw materials and components for the Company's products are available
from sources in Europe and the United States. The Company uses third party
contract manufacturers to produce finished products. During the fiscal year
ended March 31, 1997, the Company completed the transition of its remaining
contract manufacturing in France to the United States.
In the past, the Company has had little difficulty obtaining raw
materials at competitive prices. The Company has no reason to believe that this
situation will change in the near future, but there can be no assurances that
this will continue.
SEASONALITY
Typical of the fragrance industry, the Company has its highest sales
during the calendar year end holiday season. Lower than projected sales during
this period could have a material adverse affect on the Company's operating
results.
INDUSTRY PRACTICES
It is an industry practice in the United States for businesses that
market cosmetics and fragrances to department stores to provide the department
stores with rights to return merchandise. The Company's products are subject to
such return rights. It is the Company's practice to establish reserves and
provide allowances for product returns at the time of sale. The Company believes
that such reserves and allowances are adequate based on past experience,
however, no assurances can be made that reserves and allowances will continue to
be adequate. Consequently, if product returns are in excess of the reserves and
allowances made by the Company, sales will be reduced in later periods.
CUSTOMERS
The Company concentrates its sales efforts in the United States in
specialty stores, such as Nordstrom's, Neiman Marcus, and Bergdorf Goodman and a
number of regional department store retailers including, among others, Dillards,
Macy's, J.L. Hudson, and Bloomingdales. Retail distribution has been targeted by
brand to maximize potential and minimize overlap between each of these
distribution channels.
Sales to Perfumania, a company associated with Mr. Ilia Lekach, the
Company's Chairman of the Board and Chief Executive Officer, amounted to
$26,568,290 for the fiscal year ended March 31, 1997. Net amounts owed by
Perfumania to the Company amounted to $22,136,000 at March 31, 1997. The loss of
Perfumania as a customer could have a material adverse effect on the operations
of the Company.
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FOREIGN AND EXPORT SALES
A significant portion of the Company's international sales and exports
are made through its wholly-owned French subsidiary, Parlux S.A. Net sales to
unaffiliated customers by Parlux S.A. were $12,776,773, $9,101,611 and
$7,219,601 for fiscal years ended March 31, 1997, 1996, and 1995, respectively.
The French subsidiary reported net income of $817,649, $887,163 and $319,535 for
the fiscal years ended March 31, 1997, 1996 and 1995, respectively.
LICENSING AGREEMENTS
PERRY ELLIS: The Company acquired the Perry Ellis license from Sanofi Beaute in
December 1994. The Perry Ellis license is entering its twelfth year, and is
renewable every two years if the average annual sales in the completed period
exceed 75% of the average sales of the previous four years. All minimum sales
levels have been met by the previous licensee, and the Company believes that
this will continue. The license requires the payment of royalties, which decline
as a percentage of net sales as net sales volume increases, and the spending of
certain minimum amounts for advertising based upon net sales levels achieved in
the prior year.
FRED HAYMAN: In June 1994, the Company entered into an Asset Purchase Agreement
with Fred Hayman Beverly Hills, Inc. (FHBH), pursuant to which the Company
purchased substantially all of the assets and liabilities of the FHBH fragrance
division. In addition, FHBH granted to Parlux an exclusive royalty free 55-year
license to use FHBH's United States Class 3 trademarks Fred Hayman(R), 273(R),
Touch(R), With Love(R) and Fred Hayman Personal Selections(R) and the
corresponding international registrations. There are no minimum sales or
advertising requirements.
PHANTOM OF THE OPERA: In April 1993, the Company entered into an exclusive
worldwide agreement with Creative Fragrances, Inc. for the worldwide
manufacturing and distribution rights to PHANTOM OF THE OPERA covering men's and
women's fragrances and beauty related products. The agreement expires in April
1998. Royalties are payable at 7% of net sales. There are no minimum sales or
advertising requirements.
BARYSHNIKOV: The Company assumed the Baryshnikov license as part of the RBF
acquisition, pursuant to which the Company has the exclusive right to
manufacture and distribute fragrances and personal care products using the
Baryshnikov trademark. The initial term of the license expires on December 31,
1997, renewable for subsequent three and four-year periods upon achieving
specified sales or minimum royalty levels. The license requires the payment of
royalties, and the spending of certain minimum amounts for advertising based
upon the annual net sales of the products.
VICKY TIEL: In September 1992, the Company entered into an exclusive worldwide
license agreement with VICKY TIEL S.A. in which the Company secured the rights
to
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manufacture and distribute fragrances and beauty care products using the VICKY
TIEL trademark for an initial five-year period, renewable for a subsequent
five-year period upon achieving specified sales or minimum royalty levels. Under
this agreement, the Company is obligated to pay royalties calculated as a
percentage of net sales, which decline as net sales volume increases. The
Company is also obligated to spend certain minimum amounts for advertising based
upon the annual net sales of the products.
TODD OLDHAM: In December 1992, the Company entered into an exclusive worldwide
licensing agreement with L-7 Designs, Inc. in which the Company secured the
rights to manufacture and distribute fragrances and beauty care products using
the TODD OLDHAM trademark for an initial contract period ending March 31, 1997,
renewable for subsequent three-year and four-year periods upon achieving
specified sales or minimum royalty levels. The license requires the payment of
royalties, which decline as a percentage of net sales as net sales volume
increases, and the spending of certain minimum amounts for advertising based
upon net sales levels. The Company has informed the licensor of its intent not
to renew the license. In accordance with the licensing agreement, the Company
may produce and sell the Todd Oldham trademarked products until March 31, 1998.
SUMMARY: The Company believes it is presently in compliance with all material
obligations under the above agreements. There can be no assurance the Company
will be able to continue to comply with the terms of these agreements in the
future.
BARTER ARRANGEMENTS
In June 1991, the Company entered into a barter arrangement (the Barter
Agreement) under which the Company would receive advertising credits in exchange
for its inventory of JOAN COLLINS products, which had been manufactured under a
manufacturing and distribution agreement terminated in 1991. Sales under the
Barter Agreement were finalized during fiscal 1994.
The estimated value of the advertising was recorded as a prepaid
expense on the Company's balance sheet at the time such inventory was sold, net
of unearned income equal to the amount of advertising credits minus the related
cost of goods bartered. As advertising credits are used by the Company, unearned
income is debited and cost of goods sold is credited. As a result, as the
advertising credits are used aggregate cost of goods as a percentage of net
sales decreases and gross margin as a percentage of net sales increases.
During the fiscal year ended March 31, 1997, the Company had no barter
sales, utilized $161,000 of its deferred advertising credits and realized
$88,000 of deferred income on the use of these credits. Since the inception of
the Barter Agreement, $6,186,000 of JOAN COLLINS products were bartered and
$5,858,000 of advertising credits have been used. In addition, in connection
with the FHBH acquisition in 1994, the Company acquired approximately $471,000
of advertising credits, of which $264,000
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were utilized during the fiscal year ended March 31, 1997. The balance of
deferred advertising credits and unearned income at March 31, 1997 were
$1,069,000 and $345,000, respectively ($933,000 and $345,000, respectively
relate to the Barter Agreement).
The Company expects to be able to fully utilize these advertising
credits as part of its normal ongoing advertising expenditures.
TRADEMARKS
The Company owns the worldwide trademarks and distribution rights to
ANIMALE, BAL A VERSAILLES, DANIEL DE FASSON, DECADENCE and LIMOUSINE fragrances,
and ALEXANDRA de MARKOFF cosmetics. Accordingly, there are no licensing
agreements requiring the payment of royalties. Additionally, the Company has the
rights to license certain of these trademarks for all classes of merchandise.
PRODUCT LIABILITY
The Company has insurance coverage for product liability in the amount
of $5 million per incident. The Company maintains an additional $5 million of
coverage under an "umbrella" policy. In addition, the Company believes that the
manufacturers of the products sold by the Company also carry product liability
coverage and that the Company effectively is protected thereunder.
There are no pending and, to the best of the Company's knowledge, no
threatened product liability claims. Over the past nine years, the Company has
not been presented with any significant product liability claims. Based on this
historical experience, management believes that its insurance coverage is
adequate.
COMPETITION
The market for fragrances and beauty related products is highly
competitive and sensitive to changing consumer preferences and demands. The
Company believes that the quality of its fragrance and cosmetics products, as
well as its ability to develop, distribute and market new products, will enable
it to continue to compete effectively in the future and to continue to achieve
positive product reception, position and inventory levels in retail outlets.
However, there are products which are better known than the products distributed
by the Company. There are also companies which are substantially larger and more
diversified, and which have substantially greater financial and marketing
resources than the Company, as well as greater name recognition, and the ability
to develop and market products similar to, and competitive with, those
distributed by the Company.
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EMPLOYEES
As of March 31, 1997, the Company had 173 full-time and part-time
employees. Of these, 36 were engaged in worldwide sales activities, 76 in
operations, administrative and finance functions and 61 in warehousing and
distribution activities, which reflects the increased staffing requirements to
support the AdM cosmetic line. None of the Company's employees are covered by a
collective bargaining agreement and the Company believes that its relationship
with its employees is satisfactory. The Company also uses the services of
independent contractors in various capacities, including sales representatives.
During June 1993, the Company established a 401-K Plan covering
substantially all of its U.S. employees. Commencing on April 1, 1996, the
Company matched 25% of the first 6% of employee contributions, within annual
limitations established by the Internal Revenue Code.
ITEM 2. PROPERTIES
In November 1995, the Company moved its corporate headquarters and
domestic operations from a 38,500 square foot leased facility in Pompano Beach,
Florida to a new 100,000 square foot leased facility in Fort Lauderdale, Florida
to accommodate current and future growth. The annual lease cost of the new
facility is approximately $600,000, with the lease covering a ten-year period.
On February 10, 1997, the Company consummated an agreement with
Cosmetic Essence, Inc., one of the Company's third-party fillers, to sublease
the manufacturing and distribution areas (78,000 square feet), and purchase
certain fixed assets, at the 90,000 square foot facility in Orange, Connecticut,
which lease was assumed as part of the Richard Barrie Fragrances, Inc. ("RBF")
acquisition. The Company's liability, net of the sublease, is approximately
$12,500 per month, which has been recorded as part of the Company's
restructuring charge during the quarter ended March 31, 1997. The Company is
actively seeking to sublease the remaining 12,000 square feet of office space.
The lease on this facility expires on December 31, 1998.
All of the remaining distribution and warehousing activities previously
performed at the Connecticut facility have been consolidated in South Florida.
In connection therewith, the Company has leased an additional 26,600 square feet
of warehouse space adjacent to its corporate headquarters at an annual cost of
approximately $170,000. The lease expires in March 2002.
Effective October 1, 1996, the Company entered into an agreement with
Hirel Holdings, Inc., a publicly traded company, to sublease the Company's
previous corporate headquarters and distribution center in Pompano Beach,
Florida, for the approximate lease commitment, including escalations.
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The Company's French subsidiary leases approximately 1,500 square feet
under an operating lease which provides for annual rentals equivalent to
approximately $42,000, which terminates in 1999.
ITEM 3. LEGAL PROCEEDINGS
To the best of the Company's knowledge, there are no proceedings
pending against the Company or any of its properties which, if determined
adversely to the Company, would have a material effect on the Company's
financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On August 12, 1996, the Company held a special meeting of its
shareholders to vote on an increase in the amount of authorized shares of common
stock from 15,000,000 to 30,000,000 shares. The shareholders approved the
proposal as follows:
For Against Abstained
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8,214,421 275,100 5,500
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND
RELATED SECURITY HOLDER MATTERS
The Company's Common Stock, par value $0.01 per share, has been listed
on the National Association of Securities Dealers Automatic Quotation System
("NASDAQ") National Small Cap List market since February 26, 1987 and commenced
trading on the NASDAQ National Market on October 24, 1995. All share references
below have been retroactively adjusted to reflect the two-for-one stock split
effected on November 3, 1995.
In July 1992, 250,000 shares included in the Company's employee stock
option plans were registered with the SEC via a Form S-8 registration statement.
Of these shares, 174,092 have been exercised through March 31, 1997. Of the
75,908 remaining shares, 67,000 have been granted and 8,908 remain available for
future grants.
At March 31, 1995, certain officers and/or directors and previous
employees of the Company held warrants to purchase 2,172,916 shares of the
Company's common stock exercisable at prices ranging from $1.50 to $3.125 per
share. In addition, Mr. Boris Lekach, a relative of the Company's chairman
received warrants to purchase 100,000 shares of common stock in connection with
a $200,000 loan extended to the Company during 1990. In connection with the
October 1990 acquisition of certain fragrance brands from the Deco Distribution
Group, Inc. (Deco), the Deco shareholders held 1,100,000 warrants exercisable at
$2.00 per share, which were to expire in March 1996. In
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connection with the FHBH acquisition, FHBH held 200,000 warrants exercisable at
$2.125 per share.
In May 1995, the Company extended a discount of $0.75 per share to
those holders of warrants issued in connection with the FHBH and Deco
acquisitions, as well as the loan to Mr. Boris Lekach, if the holders would
exercise by May 31, 1995. The exercise period was subsequently extended to July
31, 1995. These warrant holders exercised all of their warrants into 1,400,000
shares of common stock, increasing stockholders' equity by approximately
$2,300,000. The Company had agreed to register with the SEC all shares issued as
a result of such warrants being exercised prior to July 31, 1995, and the
registration was completed in September 1995.
In June 1995, in connection with a $300,000 long-term loan, the Company
issued warrants to acquire 60,000 unregistered shares of common stock to Mr. F.
Lekach, which were exercisable at $6.94 per share, for a two-year period. On
July 15, 1996, these warrants were exercised, and a portion of the proceeds was
utilized to repay the $300,000 loan and accrued interest thereon.
During the year ended March 31, 1996, the Company issued 1,125,044
shares of common stock in private placements pursuant to Regulation S or Rule
144, which resulted in an increase in stockholders' equity of $7,715,000.
In December 1995, the Company issued 424,000 shares of common stock to
Revlon in connection with the AdM acquisition. In addition, the Company granted
Revlon an option to purchase 176,000 shares of the Company's common stock at an
exercise price of $8.00 per share, which was exercised in May 1996. The combined
effect increased stockholders' equity by $4,800,000 ($3,392,000 in the year
ended March 31, 1996 and $1,408,000 during the current fiscal year).
During the period November 2, 1995 through March 31, 1996, the Company
issued $3,700,000 of 7% convertible debentures and $15,000,000 of 5% convertible
debentures, (the "Debentures") pursuant to Regulation S. The Debentures were
convertible into shares of the Company's common stock at 85% of the closing
price of the stock as listed on NASDAQ over specific time frames. As of March
31, 1996, $7,000,000 of the Debentures, plus accrued interest of $48,146, had
been converted into 1,073,688 shares of common stock. Subsequent to March 31,
1996, the remaining $11,700,000 have been converted into 1,348,058 shares of
common stock.
During April and May 1996, the Company issued an additional $13,000,000
of 5% convertible debentures, $3,000,000 pursuant to Regulation S and
$10,000,000 pursuant to Regulation D with the same conversion features and terms
as those issued above, of which $9,355,324, plus accrued interest of $130,916,
have been converted into 1,868,272 shares of common stock.
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On July 2, 1996, the Company issued an additional $10,000,000 of 5%
Debentures, in private placements pursuant to Regulation D, with the same
conversion features and terms as those issued above, except that the conversion
rate was 86%. During October 1996, $8,412,236 of the debentures, plus accrued
interest of $72,466, were converted into 2,154,222 shares of common stock.
During October 1996, the Company entered into agreements to redeem
$5,232,440 of the May and July Debentures which had not been converted, plus
$105,638 of accrued interest thereon, by issuing $6,239,726 of 10% bonds which
were repaid in accordance with their terms in December 1996. The redemption
resulted in a one-time charge to net income of $901,648 during the quarter ended
December 31, 1996, which is not deductible for income tax purposes.
On July 12, 1996, a proxy statement was distributed to
shareholders of record as of June 28, 1996, requesting a special shareholders'
meeting to vote on a proposed increase in the authorized shares of common stock
from 15,000,000 to 30,000,000 shares. On August 12, 1996, the shareholders
approved the proposal.
On July 18, 1996, the Company filed a Form S-3 registration statement
with the Securities and Exchange Commission ( "S.E.C.") to register 460,000
shares of previously issued and outstanding stock, and 1,617,646 shares of
common stock underlying the $10,000,000 of 5% convertible debentures issued
during May 1996. The registration statement was declared effective on August 12,
1996.
On September 13, 1996, the Company filed a Form S-3 registration
statement with the S.E.C. to register 2,154,222 shares of common stock
underlying the $10,000,000 of 5% convertible debentures issued during July 1996.
The registration statement was declared effective on October 2, 1996.
On July 24, 1996, the Board of Directors authorized the
repurchase of up to 350,000 shares of the Company's common stock. This phase of
the repurchase was completed during January 1997, at which time the Board of
Directors authorized the repurchase of an additional 500,000 shares. As of June
25, 1997, the Company has repurchased a total of 589,355 shares at a cost of
$2,244,915 (381,055 shares at a cost of $1,749,173 as of March 31, 1997).
The Company believes that the number of beneficial owners of its common
stock is approximately 1,500.
The following chart, as reported by the National Association of
Securities Dealers, Inc., shows the high and low bid prices, adjusted for the
stock split, for the Company's securities available for each quarter of the last
two years and the interim period from January through June 1997. The prices
represent quotations by the dealers without adjustments for retail mark-ups,
mark-downs or commissions and may not represent actual transactions.
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Calendar Quarter Common Stock
---------------- ------------
High Low
---- ---
First 1995 4.875 2.875
Second 1995 7.313 4.500
Third 1995 9.188 6.500
Fourth 1995 10.000 7.000
First 1996 13.250 6.125
Second 1996 15.250 9.000
Third 1996 11.250 4.125
Fourth 1996 4.563 3.063
First 1997 4.063 2.250
Second 1997
(to June 25, 1997) 3.188 2.125
ITEM 6. SELECTED FINANCIAL DATA
The following data has been derived from financial statements audited
by Price Waterhouse LLP, independent certified public accountants. Consolidated
balance sheets at March 31, 1996 and 1997 and the related consolidated
statements of income and of cash flows for the three years ended March 31, 1997
and notes thereto appear elsewhere in this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
For the Year Ended March 31, (in thousands of dollars, except per share data)
- ----------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales $87,640 $67,727 $38,209 $25,366 $28,427
Costs/operating exp. 84,321 53,539 31,208 23,071 26,982
Operating income 3,319 14,188 7,001 2,295 1,445
Net income 176 7,772 4,231 1,362 135
Income per share:
Primary $0.02 $0.74 $0.50 $0.22 $0.03
Fully diluted $0.02 $0.72 $0.48 $0.22 $0.03
<CAPTION>
At March 31, 1997 1996 1995 1994 1993
- ------------ ---- ---- ---- ---- ----
Current assets $81,205 $67,666 $31,955 $18,514 $18,094
Current liabilities 31,885 36,866 27,113 14,679 12,575
Working capital 49,320 30,800 4,842 3,835 5,519
Long-term debt 4,949 4,694 5,281 0 3,021
Total assets 111,385 95,239 45,477 20,746 20,184
Total liabilities 37,266 53,194 32,394 14,678 15,596
Stockholders' equity 74,119 42,045 13,083 6,068 4,588
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
The following discussion and analysis should be read in conjunction
with the Consolidated Financial Statements and notes thereto appearing elsewhere
in this annual report. Except for the historical matters contained herein,
statements made in this annual report are forward looking and are made pursuant
to the safe harbor provisions of the Securities Litigation Reform Act of 1995.
Investors are cautioned that forward looking statements involve risks and
uncertainties which may affect the Company's business and prospects, including
economic, competitive, governmental, technological and other factors discussed
in this annual report and in the Company's filings with the Securities and
Exchange Commission.
COMPARISON OF THE TWELVE-MONTH PERIOD ENDED MARCH 31, 1997 WITH THE
TWELVE-MONTH PERIOD ENDED MARCH 31, 1996
For the fiscal year ended March 31, 1997 net sales increased 29% to
$87,640,006 as compared to $67,726,926 in the prior fiscal year. This increase
was primarily due to continued growth of Perry Ellis brand products, the full
year effect of Alexandra de Markoff (AdM) brand cosmetics, and Bal a Versailles
(BAV) brand products in fiscal 1997, compared to a partial year of operations in
the prior year, and licensed sales of Baryshnikov brand products acquired in
connection with the RBF acquisition in June 1996. Gross sales of Perry Ellis
increased 64% to $43,807,624 as compared to $26,663,302 in the prior year. Gross
sales of Parlux house brands (brands which the Company owns) increased 34% to
$41,209,043, as compared to $30,759,544 in the prior year, due to significant
increases in AdM and BAV which are included in this category. AdM and BAV
increased to $12,951,646 and $2,137,682, respectively, as compared to $2,095,035
and $1,542,138, respectively, in the prior year. Baryshnikov brand product sales
totaled $2,147,781 in its initial period of operations by the Company. These
increases were partially offset by a decrease in gross sales of $3,933,695 of
Francesco Smalto brand fragrances, which license was terminated on September 30,
1996.
Net Sales to unrelated customers increased by 44% to $59,799,669, while
net sales to related parties increased by 6% to $27,840,337. The percentage of
net sales to related parties in relation to total net sales decreased from 39%
in the prior year to 32% in fiscal 1997. Approximately 85% of total net sales in
the fiscal year ended March 31, 1997 came from operations in, or supplied by,
the United States, and 15% from the Company's French subsidiary.
Cost of goods sold increased as a percentage of net sales from 42% for
the fiscal year ended March 31, 1996 to 45% for the fiscal year ended March 31,
1997, which was mainly attributable to the costs involved in discontinuing
certain brands and closing distribution centers in the last quarter of the
fiscal year. These costs totaled approximately $5,243,000. Without the effects
of the restructuring costs, cost of goods sold in the fiscal year ended March
31, 1997 would have been 39%. Cost of goods sold on sales to unrelated customers
and related parties approximated 42% and 51%,
13
<PAGE> 14
respectively. All of the Company's products are manufactured by third parties.
For fiscal 1997, approximately 2% of the Company's products were manufactured in
France, and the Company has consolidated its manufacturing, warehousing and
shipping in the United States, as it expects to continue to achieve cost
reductions through consolidation.
Operating expenses increased 80% to $45,138,306 for the year ended
March 31, 1997 compared to $25,099,294 in the prior year, and as a percentage of
sales were 51% in fiscal 1997 compared to 37% in the prior year. The major
portion of the increase was due to advertising and promotional expenses which
increased by 87% to $24,245,502 compared to $12,942,647 in fiscal 1996,
reflecting the investments required to launch new brands, particularly Perry
Ellis "America", the full year support costs for AdM and increased promotional
expenses in connection with the U.S. department and specialty store business.
Selling and distribution costs increased by 86%, and as a percentage of sales
increased from 8% in the prior fiscal year to 11% currently. This was partially
due to costs of approximately $522,000 in connection with terminating
warehousing and distribution operations in Connecticut and France and certain
duplicate costs from maintaining two domestic facilities until March 1997.
General and administrative costs increased by 62% in fiscal 1997 compared to the
prior year, and increased as a percentage of net sales from 8% to 10%. The
increases were mainly attributable to the full year's effect of staff additions
during the last quarter of fiscal 1996 and increased support required for the
AdM cosmetic line. Royalty expense increased by 61% in fiscal 1997 compared to
the prior year, principally due to the royalties required on the sale of Perry
Ellis brand products, and increased to 3% of net sales as compared to 2% in the
prior year. As a result of the above, operating income decreased by 77% to
$3,318,535 or 4% of net sales for the year ended March 31, 1997, compared to
$14,187,843 or 21% of net sales in the prior year.
Interest expense increased by 15% for fiscal 1997 compared to fiscal
1996 due to increased borrowing levels, but decreased from 3% of net sales in
the prior year to 2% in the current year. Exchange gains were $595,045 for
fiscal 1997 compared to exchange gains of $234,074 in the prior year, due to the
weakening of the French franc against the U.S. dollar and the Company's net
French franc liability position.
As a result of the above, income before extraordinary item and taxes
decreased to $1,737,952 in fiscal 1997 compared to $12,536,505 in fiscal 1996.
Due to the redemption of $5,232,440 in convertible debentures in October 1996,
the Company incurred an extraordinary charge of $901,648, which is not
deductible for income tax purposes. Accordingly, the effective tax rate
increased to 79% in the current fiscal year as compared to 38% in the prior
year. As a result, net income decreased 98% to $176,223 in the fiscal year ended
March 31, 1997, compared to $7,772,691 for the fiscal year ended March 31, 1996.
14
<PAGE> 15
COMPARISON OF THE TWELVE-MONTH PERIOD ENDED MARCH 31, 1996 WITH THE TWELVE-MONTH
PERIOD ENDED MARCH 31, 1995
For the fiscal year ended March 31, 1996 net sales increased 77% to
$67,726,926 as compared to $38,209,099 in the prior fiscal year. This increase
was primarily due to strong international growth of Perry Ellis and to the full
year effect of Perry Ellis brands in fiscal 1996, compared to a partial year of
operations in the prior year. Sales of Perry Ellis increased 337% to $26,663,302
as compared to $6,101,700 in the prior year. Sales of Parlux continued brands
(brands which the Company owned or held licenses at March 31, 1994) increased
60% to $24,890,474, as compared to $15,551,408 in the prior year, due to
significant increases in Vicky Tiel and Todd Oldham fragrances, and to the
resolution of out-of-stock situations existing in the prior year. Sales of the
FHBH brands declined 18% from $18,024,268 in the prior year to $14,848,225 in
the current fiscal year. Sales of AdM and Bal a Versailles were $2,095,305 and
$1,542,138, respectively, compared to no sales in the prior year period.
Sales of $41,539,466 to unrelated customers increased by 81%, while
sales to related parties of $26,187,460 increased by 72%. The percentage of
sales to related parties in relation to total sales decreased from 40% in the
prior year to 39% in fiscal 1996. Approximately 82% of total net sales in the
fiscal year ended March 31, 1996 came from operations in, or supplied by, the
United States, and 17% from the Company's French subsidiary.
In June 1991, the Company entered into the Barter Agreement for which
the Company would receive advertising credits in exchange for its inventory of
JOAN COLLINS products. The Company expects to fully utilize these bartered
advertising credits as part of its ongoing advertising expenditures. Advertising
credits, less unearned income, are accounted for as prepaid expenses on the
Company's balance sheet at the time such inventory is bartered. Unearned income
equals the amount of advertising credits minus the cost of goods bartered. As
advertising credits are used by the Company, unearned income is debited and the
cost of goods sold is credited. As a result, as the advertising credits are
used, the aggregate cost of goods sold as a percentage of net sales decreases
and gross margin as a percentage of net sales increases.
Cost of goods sold increased as a percentage of net sales from 39% for
the fiscal year ended March 31, 1995 to 42% for the fiscal year ended March 31,
1996, which was mainly attributable to the effect of the Barter Agreement. The
Company utilized advertising credits amounting to $684,000 in the current year
($1,592,000 in 1995) generating $355,000 ($866,000 in 1995) of earned income
which partially offset cost of goods during this period. Without the effects of
the Barter Agreement, cost of goods sold in the fiscal year ended March 31, 1996
would have remained at 42% compared to 41% in the prior fiscal year. All of the
Company's products are manufactured by third parties. For fiscal 1996,
approximately 10% of the Company's products were manufactured in France. The
Company will continue transitioning the consolidation of
15
<PAGE> 16
manufacturing, warehousing and shipping to the United States, as it believes
that it can continue to achieve cost reductions through consolidation.
Operating expenses increased 54% to $25,099,294 for the year ended
March 31, 1996 compared to $16,251,094 in the prior year, but as a percentage of
sales were 37% in fiscal 1996 compared to 43% in the prior year. Advertising and
promotional expenses of $12,942,647 increased by 79% compared to fiscal 1995,
reflecting the similar increase in sales. Selling and distribution costs
increased by 45%, but as a percentage of sales decreased from 9% in the prior
fiscal year to 8% currently. General and administrative costs increased by 19%
in fiscal 1996 compared to the prior year, however, as a percentage of net
sales, general and administrative costs declined to 8% compared to 12% in the
prior fiscal year. These percentage decreases reflect the economies of scale
realized from the acquisition of FHBH, Perry Ellis and Alexandra de Markoff
brand products. Royalty expense increased by 83% in fiscal 1996 compared to the
prior year, principally due to the royalties required on the sale of Perry Ellis
and Todd Oldham brand products, but remained relatively constant at 2% of net
sales. As a result of the above, operating income increased by 103% to
$14,187,843 or 21% of net sales for the year ended March 31, 1996, compared to
$7,000,530 or 18% of net sales in the prior year.
Interest expense increased by 58% for fiscal 1996 compared to fiscal
1995 due to increased borrowing levels, but remained relatively constant at 3%
of net sales. Exchange gains were $234,074 for fiscal 1996 compared to exchange
losses of $300,661 in the prior year, due to the weakening of the French franc
against the U.S. dollar and the Company's net French franc liability position.
As a result of the above, income before taxes increased to $12,536,505
in fiscal 1996 compared to $5,510,211 in fiscal 1995. Taxes increased to
$4,763,814 in fiscal 1996 compared to $1,279,000 in fiscal 1995, as the Company
utilized all tax loss carry forwards and reversed its valuation allowance on
deferred tax assets in fiscal 1995. As a result, net income increased 84% to
$7,772,691, or 11% of net sales in the fiscal year ended March 31, 1996,
compared to $4,231,211, or 11% of net sales for the fiscal year ended March 31,
1995.
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased to $49,320,272 at March 31, 1997 from
$30,800,351 at March 31, 1996. The increase was mainly attributable to: (i)
During May 1996, the Company issued $10,000,000 of 5% convertible debentures,
due May 1, 1998 (the "May Debentures"), in private placements pursuant to
Regulation D. The net proceeds were used to repay current liabilities. During
September and October 1996, $6,355,324 of the May Debentures, plus accrued
interest of $110,505, were converted into 1,559,545 shares of common stock; (ii)
During April 1996, the Company issued $3,000,000 of 5% convertible debentures in
private placements pursuant to Regulation S. In June 1996, the debentures, plus
accrued interest of $20,411, were converted into 308,727 shares of common stock,
increasing working capital and stockholders' equity by approximately $2,950,000,
net of
16
<PAGE> 17
placement costs; (iii) During July 1996, the Company issued an additional
$10,000,000 of 5% convertible debentures, due June 1, 1997 (the "July
Debentures"), in private placements pursuant to Regulation D. During October
1996, $8,412,236 of the July Debentures, plus accrued interest of $72,466, were
converted into 2,154,222 shares of common stock.
During October 1996, the Company entered into agreements to redeem
$5,232,440 of the May and July Debentures which had not been converted, plus
$105,638 of accrued interest thereon, by issuing $6,239,726 of 10% bonds which
were repaid in accordance with their terms in December 1996. The redemption
resulted in a one-time charge to net income of $901,648 during the quarter ended
December 31, 1996, which is not deductible for income tax purposes.
On July 24, 1996, the Board of Directors authorized the repurchase of
up to 350,000 shares of the Company's common stock. This phase of the repurchase
was completed during January 1997, at which time the Board of Directors
authorized the repurchase of an additional 500,000 shares. As of June 25, 1997,
the Company has repurchased a total of 589,355 shares at a cost of $2,244,915
(381,055 shares at a cost of $1,749,173 as of March 31, 1997).
In August 1995, the Company entered into an agreement to borrow, on an
unsecured basis, $500,000 from Distribudora de Perfumes Senderos, Ltda., with an
additional $500,000 available at the option of the Company, to be drawn upon
prior to October 31, 1995. The note bore interest at 12% per annum and was
originally due on February 23, 1996, but was subsequently extended through
August 1996. In connection with the note, the Company issued warrants to
purchase 53,978 shares of Parlux common stock at a price of $8.11 per share,
which expire on August 21, 1997. The Company borrowed a total of $674,722 under
the agreement, which was repaid in installments of $500,000 and $174,722 in May
and August 1996, respectively.
In June 1995, the Company borrowed, on an unsecured basis, $300,000
from an individual related to the Company's Chairman of the Board. The note bore
interest at 11% per annum and was due on June 27, 1997. In connection with the
note, the Company issued warrants to purchase 60,000 shares of Parlux common
stock at a price of $6.94 per share, which were to expire on June 27, 1997. On
July 15, 1996, these warrants were exercised, and a portion of the proceeds was
utilized to repay the $300,000 note and accrued interest thereon.
The Company has overdraft and trade financing facilities aggregating
18,150,000 French francs (approximately $3,220,000 as of March 31, 1997). These
credit facilities are reviewed annually.
In May 1997, the Company entered into a three year Loan and Security
Agreement (the Credit Agreement) with General Electric Capital Corporation
(GECC). Under the Credit Agreement, the Company is able to borrow, depending on
the availability of a borrowing base, on a revolving basis, up to $25,000,000 at
an interest rate of LIBOR plus 2.50% or .75% in excess of the Wall Street
Journal prime rate, at the Company's option.
17
<PAGE> 18
GECC has taken a security interest in substantially all of the domestic assets
of the Company. The Credit Agreement contains customary events of default and
covenants which prohibit, among other things, incurring additional indebtedness
in excess of a specified amount, paying dividends, creating liens, and engaging
in mergers and acquisitions without the prior consent of GECC. The Credit
Agreement also contains certain financial covenants relating to net worth,
interest coverage and other financial ratios. Proceeds from the Credit Agreement
were used, in part, to repay the Company's previous $10,000,000 credit facility
with Finova Capital Corporation and Merrill Lynch Financial Services, Inc.
Management believes that, based on current circumstances, the new
Credit Agreement will be sufficient to fund the Company's operating needs.
IMPACT OF CURRENCY EXCHANGE AND INFLATION
The Company's business operations were positively affected in the
current year in the amount of $595,045, positively affected in the amount of
$234,074 in the fiscal year ended March 31, 1996, and negatively affected in the
amount of $300,661 in the fiscal year ended March 31, 1995, due to the
movement of the French franc vs. the U.S. dollar.
The Company's sales and purchases are virtually all in U.S. dollars or
French francs. A strengthening of the French franc vis-a-vis the U.S. dollar
results in exchange rate losses for the Company. Conversely, a weakening of the
French franc vis-a-vis the U.S. dollar results in exchange rate gains for the
Company.
The Company monitors exchange rates on a daily basis and regularly
seeks to evaluate long-term expectations for the French franc in order to
minimize its exchange rate risk.
The Company has completed the centralization of manufacturing in the
United States which will minimize the currency exchange impact on intercompany
transactions for the future.
ITEM 8. FINANCIAL STATEMENTS
The financial statements are included herein commencing on page F-1.
The financial statement schedules are listed in the Index to Financial
Statements on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
18
<PAGE> 19
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT
The information required in response to this item is incorporated by
reference to the Company's Proxy Statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A not later than 120 days after the
end of the fiscal year covered by this report.
ITEM 11. EXECUTIVE COMPENSATION
The information required in response to this item is incorporated by
reference to the Company's Proxy Statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A not later than 120 days after the
end of the fiscal year covered by this report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information required in response to this item is incorporated by
reference to the Company's Proxy Statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A not later than 120 days after the
end of the fiscal year covered by this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required in response to this item is incorporated by
reference to the Company's Proxy Statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A not later than 120 days after the
end of the fiscal year covered by this report.
19
<PAGE> 20
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K.
(a) 1. Financial Statements
See Index to Financial Statements beginning on page F-1 of this annual
report.
2. Financial Statement Schedules
See Index to Financial Statements beginning on Page F-1 of this annual
report.
3. Exhibit Index
The following exhibits are attached:
4.24 Credit Agreement, dated May 23, 1997, between the Company and General
Electric Capital Corporation
10.40 Employment Agreement with Ilia Lekach, dated as of April 1, 1997.
10.41 Employment Agreement with Zalman Lekach, dated as of April 1, 1997.
10.42 Employment Agreement with Frank A. Buttacavoli, dated as of April 1,
1997.
10.43 Employment Agreement with Ruben Lisman, dated as of April 1, 1997.
10.44 Consulting Agreement with Cosmix, Inc., dated as of April 1, 1997.
10.45 Consulting Agreement with Cambridge Development Corp.,dated as of
April 1, 1997.
23 Consent of Price Waterhouse LLP.
27 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K
There were no reports on Form 8-K during the fiscal year ended
March 31, 1997.
20
<PAGE> 21
PARLUX FRAGRANCES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Income F-4
Consolidated Statement of Changes in Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
FORM 10-K SCHEDULES:
Schedule VIII - Valuation and Qualifying Accounts F-25
Schedule IX - Short-term Bank Borrowings F-26
</TABLE>
All other Schedules are omitted as the required information is not
applicable or the information is presented in the financial statements
or the related notes thereto.
F-1
<PAGE> 22
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
To the Board of Directors and
Shareholders of Parlux Fragrances, Inc.
In our opinion, the consolidated financial statements listed in the index
referred to under Item 14(a)(1) and (2) on page 20 and appearing on page F-1
present fairly, in all material respects, the financial position of Parlux
Fragrances, Inc. and its subsidiaries at March 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended March 31, 1997, in conformity with generally accepted
accounting principles. 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 of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Miami, Florida
June 26, 1997
F-2
<PAGE> 23
PARLUX FRAGRANCES, INC. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
March 31,
---------------------------------
1997 1996
---------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 191,486 $ 339,423
Receivables, net of allowance for
doubtful accounts, sales returns and
allowances of approximately $2,494,000 and $2,121,000
in 1997 and 1996, respectively 14,289,841 10,892,347
Trade receivables from related parties 22,862,335 13,482,423
Inventories, net 35,595,323 35,762,570
Prepaid expenses and other current assets 8,266,126 7,189,213
------------- -------------
TOTAL CURRENT ASSETS 81,205,111 67,665,976
Equipment and leasehold improvements, net 3,253,800 2,475,919
Trademarks, licenses and goodwill, net 26,783,807 24,623,417
Other 142,526 473,611
------------- -------------
TOTAL ASSETS $ 111,385,244 $ 95,238,923
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Borrowings, current portion $ 12,665,065 $ 11,564,917
Accounts payable 11,904,808 18,739,117
Accrued expenses 2,255,966 1,543,591
Income taxes payable 5,059,000 4,768,000
Convertible debentures -- 250,000
------------- -------------
TOTAL CURRENT LIABILITIES 31,884,839 36,865,625
Borrowings, less current portion 4,949,230 4,694,239
Convertible debentures -- 11,450,000
Deferred tax liability 432,440 183,864
------------- -------------
TOTAL LIABILITIES 37,266,509 53,193,728
------------- -------------
COMMITMENTS AND CONTINGENCIES -- --
------------- -------------
STOCKHOLDERS' EQUITY :
Preferred stock, $0.01 par value, 5,000,000 shares
authorized, 0 issued and outstanding -- --
Common stock, $0.01 par value, 30,000,000
shares authorized, 17,447,478 and 11,456,426
shares issued in 1997 and 1996, respectively 174,475 114,564
Additional paid-in capital 66,753,596 32,881,207
Retained earnings 9,176,872 9,000,649
Cumulative translation adjustment (103,562) 182,247
------------- -------------
76,001,381 42,178,667
Less - 420,055 and 39,000 shares of common stock in treasury,
at cost in 1997 and 1996, respectively (1,882,646) (133,472)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 74,118,735 42,045,195
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 111,385,244 $ 95,238,923
============= =============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 24
PARLUX FRAGRANCES, INC. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
<TABLE>
<CAPTION>
Year ended March 31,
--------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net sales:
Unrelated customers $ 59,799,669 $ 41,539,466 $ 22,978,956
Related parties 27,840,337 26,187,460 15,230,143
------------ ------------ ------------
87,640,006 67,726,926 38,209,099
Cost of goods sold 39,183,165 28,439,789 14,957,475
------------ ------------ ------------
Gross profit 48,456,841 39,287,137 23,251,624
------------ ------------ ------------
Operating expenses:
Advertising and promotional 24,245,502 12,942,647 7,248,839
Selling and distribution 9,553,192 5,130,099 3,530,133
General and administrative 8,926,499 5,524,416 4,648,899
Royalties 2,413,113 1,502,132 823,223
------------ ------------ ------------
Total operating expenses 45,138,306 25,099,294 16,251,094
------------ ------------ ------------
Operating income 3,318,535 14,187,843 7,000,530
Interest expense and bank charges 2,175,628 1,885,412 1,189,658
Exchange (gains) losses (595,045) (234,074) 300,661
------------ ------------ ------------
Income before extraordinary item and income taxes 1,737,952 12,536,505 5,510,211
Income taxes 660,081 -- --
------------ ------------ ------------
Income before extraordinary item 1,077,871 12,536,505 5,510,211
Extraordinary item - loss on conversion of debt 901,648 4,763,814 1,279,000
------------ ------------ ------------
Net income $ 176,223 $ 7,772,691 $ 4,231,211
============ ============ ============
Earnings per common and common
equivalent share:
Primary:
Income before extraordinary item $ 0.07 $ 0.74 $ 0.50
Extraordinary item - loss on
conversion of debt $ (0.05) -- --
------------ ------------ ------------
Net income $ 0.02 $ 0.74 $ 0.50
============ ============ ============
Fully diluted:
Income before extraordinary item $ 0.07 $ 0.72 $ 0.48
Extraordinary item - loss on
conversion of debt $ (0.05) -- --
------------ ------------ ------------
Net income $ 0.02 $ 0.72 $ 0.48
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 25
PARLUX FRAGRANCES, INC. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
---------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK
-------------------------- RETAINED
ADDITIONAL EARNINGS
NUMBER PAR PAID-IN (ACCUMULATED
ISSUED VALUE CAPITAL DEFICIT)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE at April 1, 1994 2,861,189 $ 28,612 $ 8,868,994 (2,959,264)
Net income -- -- -- 4,231,211
Issuance of common stock in connection with:
Exercise of employee stock options 19,025 190 61,020 --
Sale of stock in private placement 110,000 1,100 438,523 --
Acquisition of assets 500,000 5,000 2,195,000 --
Foreign currency translation adjustment -- -- -- --
Purchase of 39,000 shares of treasury stock, at cost -- -- -- --
----------- ----------- ----------- -----------
BALANCE at March 31, 1995 3,490,214 34,902 11,563,537 1,271,947
Net income -- -- -- 7,772,691
Issuance of common stock upon exercise of:
Employee stock options 11,175 112 33,910 --
Warrants 1,056,916 10,569 3,006,022 --
Sale of stock in private placements 1,001,514 10,015 7,605,570 --
Stock issued in connection with the acquisition of assets 424,000 4,240 3,739,760 --
Conversion of debentures, net of unamortized debt 1,073,688 10,737 6,932,408 --
issuance costs
Adjustment for stock split 4,398,919 43,989 -- (43,989)
Foreign currency translation adjustment -- -- -- --
----------- ----------- ----------- -----------
BALANCE at March 31, 1996 11,456,426 114,564 32,881,207 9,000,649
Net income -- -- -- 176,223
Issuance of common stock upon exercise of:
Employee stock options 14,500 145 18,448 --
Options 176,000 1,760 1,406,240 --
Warrants 60,000 600 415,650 --
Stock issued in connection with the acquisition of assets 370,000 3,700 3,002,550 --
Conversion of debentures, net of unamortized debt
issuance costs 5,370,552 53,706 29,029,501 --
Foreign currency translation adjustment -- -- -- --
Purchase of 381,055 shares of treasury stock, at cost -- -- -- --
----------- ----------- ----------- -----------
BALANCE at March 31, 1997 17,447,478 $ 174,475 $66,753,596 $ 9,176,872
=========== =========== =========== ===========
<CAPTION>
CUMULATIVE
TRANSLATION TREASURY
ADJUSTMENT STOCK TOTAL
----------- ----------- -----------
BALANCE at April 1, 1994 $ 129,258 -- $ 6,067,600
Net income -- -- 4,231,211
Issuance of common stock in connection with:
Exercise of employee stock options -- -- 61,210
Sale of stock in private placement -- -- 439,623
Acquisition of assets -- -- 2,200,000
Foreign currency translation adjustment 216,495 -- 216,495
Purchase of 39,000 shares of treasury stock, at cost -- $ (133,472) (133,472)
----------- ----------- -----------
BALANCE at March 31, 1995 345,753 (133,472) 13,082,667
Net income -- -- 7,772,691
Issuance of common stock upon exercise of:
Employee stock options -- -- 34,022
Warrants -- -- 3,016,591
Sale of stock in private placements -- -- 7,615,585
Stock issued in connection with the acquisition of assets -- -- 3,744,000
Conversion of debentures, net of unamortized debt
issuance costs -- -- 6,943,145
Adjustment for stock split -- -- --
Foreign currency translation adjustment (163,506) -- (163,506)
----------- ------------ -----------
BALANCE at March 31, 1996 182,247 (133,472) 42,045,195
Net income -- -- 176,223
Issuance of common stock upon exercise of:
Employee stock options -- -- 18,593
Options issued in connection with the
acquisition of assets -- -- 1,408,000
Warrants -- -- 416,250
Stock issued in connection with the acquisition of assets -- -- 3,006,250
Conversion of debentures, net of unamortized debt
issuance costs -- -- 29,083,207
Foreign currency translation adjustment (285,809) -- (285,809)
Purchase of 381,055 shares of treasury stock, at cost -- (1,749,174) (1,749,174)
----------- ------------ -----------
BALANCE at March 31, 1997 $ (103,562) $(1,882,646) $74,118,735
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE> 26
PARLUX FRAGRANCES, INC. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
Year ended March 31,
--------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 176,223 $ 7,772,691 $ 4,231,211
------------ ------------ ------------
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 2,784,790 1,563,673 807,491
Loss on disposal of equipment 137,971
Net deferred tax benefit (1,103,817) (4,184) (628,504)
Changes in assets and liabilities net of effect of acquisitions:
(Increase) decrease in trade receivables - customers (4,107,535) (7,900,097) 2,683,107
Increase in trade receivables - related parties (9,379,912) (8,588,713) (1,788,026)
Decrease (increase) in inventories 1,451,721 (15,371,203) 1,919,988
Decrease (increase) in prepaid expenses and other current assets 954,549 (1,032,135) 944,125
Decrease (increase) in other non-current assets 296,061 (376,504) (4,497)
(Decrease) increase in accounts payable (7,989,864) 11,401,204 (1,321,624)
Increase in accrued expenses and income taxes payable 1,296,895 2,726,637 2,557,874
(Decrease) increase in advances from customers -- (2,451,059) 2,451,059
------------ ------------ ------------
Total adjustments (15,659,141) (20,032,381) 7,620,993
------------ ------------ ------------
Net cash (used in) provided by operating activities (15,482,918) (12,259,690) 11,852,204
------------ ------------ ------------
Cash flows from investing activities:
Purchases of equipment and leasehold improvements, net (1,579,912) (1,168,386) (336,046)
Purchases of trademarks (19,309) (82,122) (17,467)
Cash paid in acquisitions:
Fred Hayman Beverly Hills -- -- (2,000,000)
Perry Ellis -- -- (7,500,000)
Alexandra de Markoff -- (8,608,000) --
Richard Barrie Fragrances, Inc. (694,707) -- --
Bal a Versailles -- (1,697,500) --
------------ ------------ ------------
Net cash used in investing activities (2,293,928) (11,556,008) (9,853,513)
------------ ------------ ------------
Cash flows from financing activities:
(Payments) proceeds - overdraft facilities (646,368) 145,450 (481,929)
Proceeds (payments) - receivable financing facilities 1,188,890 579,731 (348,082)
(Payments) proceeds - notes payable Distr. de Perfumes Senderos (674,722) 674,722 --
(Payments) proceeds - notes payable related parties (400,000) 300,000 --
Proceeds (payments) - revolving credit facility Finova Capital Corp. 3,989,713 (127,352) 4,015,729
Payments to National Bank of Kuwait -- (560,000) (2,040,000)
(Payments) proceeds from Eagle Bank (482,392) 401,378 81,014
Payments to Sanofi Beaute, Inc. -- (5,501,535) (947,335)
Payments to Fred Hayman Beverly Hills (478,510) (202,480) (2,770,027)
Proceeds - International Finance Bank 753,125 -- --
Payments - Parfums Jean Desprez (2,553,360) -- --
Proceeds - Lyon Credit Corporation 984,858 -- --
Payments - note payable to stockholder (148,545) -- --
Proceeds (payments) - other notes payable 122,450 -- (29,969)
Proceeds - 7% debentures, net -- 3,666,000 --
Proceeds - 5% debentures, net 16,451,774 14,614,500 --
Purchases of treasury stock (1,749,174) -- (133,472)
Proceeds from issuance of common stock, net 1,489,520 9,771,094 500,833
------------ ------------ ------------
Net cash provided by (used in) financing activities 17,847,259 23,761,508 (2,153,238)
------------ ------------ ------------
Effect of exchange rate changes on cash (218,350) 91,500 417,968
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents (147,937) 37,310 263,421
Cash and cash equivalents, beginning of year 339,423 302,113 38,692
------------ ------------ ------------
Cash and cash equivalents, end of year $ 191,486 $ 339,423 $ 302,113
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 27
PARLUX FRAGRANCES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997, 1996 AND 1995
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. NATURE OF BUSINESS
Parlux Fragrances, Inc. was incorporated in Delaware on July 23, 1984,
and is a manufacturer and distributor of prestige fragrances, cosmetics
and beauty related products.
B. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Parlux
Fragrances, Inc., Parlux S.A., a wholly-owned French subsidiary
(S.A.) and Parlux, Ltd. (jointly referred to as the "Company"). All
material intercompany accounts and transactions have been eliminated
in consolidation.
C. REVENUE RECOGNITION
Revenue is recognized when the product is shipped to a customer.
Estimated amounts for sales returns and allowances are recorded at the
time of sale.
D. ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. The more significant
estimates relate to the Company's reserve for doubtful accounts, sales
returns and allowances, inventory obsolescence and periods of
amortization for trademarks, licenses and goodwill. Actual results
could differ from those estimates.
E. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out
method) or market. The cost of inventories includes product costs and
handling charges, including the allocation of the Company's applicable
overhead.
F. BARTER SALES AND CREDITS
The Company has sold certain of its products to a barter broker in
exchange for advertising that the Company will use. The Company defers
the gross margin on barter sales until the advertising is used.
The estimated value of the advertising is recorded as a prepaid expense
on the Company's balance sheet at the time such inventory is sold, net
of unearned income equal to the amount of advertising credits minus the
related cost of goods sold. As advertising credits are used by the
Company, advertising and promotional expense is charged for the
advertising credits used, unearned income is debited and cost of goods
sold is credited. As a result, as the advertising credits are used,
aggregate cost of goods sold as a percentage of net sales decreases and
gross margin as a percentage of net sales increases.
F-7
<PAGE> 28
G. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are carried at cost. Equipment is
depreciated using the straight-line method over the estimated useful
life of the asset. Leasehold improvements are amortized over the lesser
of the estimated useful life or the lease period. Repairs and
maintenance charges are expensed as incurred, while betterments and
major renewals are capitalized.
H. TRADEMARKS, LICENSES AND GOODWILL
Trademarks, licenses and goodwill are recorded at cost and amortized
over the estimated periods of benefit, principally 25 years.
Accumulated amortization at March 31, 1997 of trademarks, licenses and
goodwill was $2,360,373 ($983,499 at March 31, 1996).
On April 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets
and Long-Lived Assets to Be Disposed Of" (SFAS 121), which requires a
review of the carrying value of intangibles whenever events or changes
in circumstances indicate that the carrying value amount of the asset
may not be recoverable. Any such determination would require a charge
to income for the estimated reduction in carrying value.
I. ADVERTISING COSTS
Advertising and promotional expenditures are charged to operations as
incurred. These expenditures include print and media advertising as
well as in-store promotions.
J. INCOME TAXES
The Company follows the liability method in accounting for income
taxes. The liability method provides that deferred tax assets and
liabilities are recorded, using currently enacted tax rates, based upon
the difference between the tax bases of assets and liabilities and
their carrying amounts for financial statement purposes.
Valuation allowances are established when necessary to reduce deferred
tax assets to the amounts expected to be realized. Income tax expense
is the tax payable for the period and the change during the period in
deferred tax assets and liabilities.
K. FOREIGN CURRENCY TRANSLATION
The assets and liabilities of S.A. are translated into U.S. dollars at
year-end exchange rates. Income and expense items are translated at
weighted average rates of exchange prevailing during the year.
Translation adjustments are accumulated as a separate component of
stockholders' equity.
Both realized and unrealized gains and losses arising from foreign
currency transactions are recorded in the statement of income.
L. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of instruments
whose fair value approximates their carrying value.
M. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
On October 26, 1995, the Company announced a two-for-one stock split
effected in the form of a dividend to shareholders of record as of
November 3, 1995 (the stock split). All references to share and per
share data within the financial statements and notes thereto have been
retroactively adjusted to reflect the stock split.
F-8
<PAGE> 29
Fully dilutive earnings per common and common equivalent share have
been computed based upon the weighted average number of shares of
common stock and common stock equivalents outstanding of 17,647,503,
10,924,808 and 9,014,808 for the years ended March 31, 1997, 1996 and
1995, respectively. The modified treasury stock method was used during
1995 to determine the dilutive effect of the options, warrants, and
convertible debentures since the number of shares of common stock
issuable upon their exercise exceeds 20% of the outstanding common
shares.
N. STOCK BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 123, Accounting For
Stock Based Compensation (SFAS 123). SFAS 123 establishes a fair value
based method of accounting for stock based compensation plans, the
effect of which can either be disclosed or recorded. The Company
adopted the provisions of SFAS 123 for the year ended March 31, 1997.
Upon adoption, the Company retained the intrinsic value method of
accounting for stock based compensation, which it previously used. Had
the fair value based provisions of SFAS 123 been adopted, the effect
would be insignificant. Accordingly, no proforma disclosures have been
presented.
O. CASH FLOW INFORMATION
The Company considers temporary investments with an original maturity
of three months or less to be cash equivalents.
Supplemental disclosures of cash flow information follow:
1997 1996 1995
---- ---- ----
Cash paid for:
Interest $2,210,000 $1,940,000 $ 991,000
========== ========== ==========
Income taxes $ 840,000 $1,390,000 $ 162,000
========== ========== ==========
In addition to the barter transactions discussed in Note 9 (D), the
following non-cash transactions were entered into:
Year ended March 31, 1997:
- Notes payable and accrued interest in the amount of $300,000 and
$53,323, respectively, were repaid from the proceeds of the
issuance of common stock in connection with the exercise of
certain warrants.
- Acquisition of Richard Barrie Fragrances, Inc. was partially
funded through the issuance of common stock, as discussed in
Note 6.
Year ended March 31, 1996:
- Acquisition of the Alexandra de Markoff cosmetic line and the
Bal A Versailles fragrance lines were partially funded through the
issuance of common stock and notes payable, respectively, as
discussed in Note 6.
- Notes payable and accrued interest in the amount of $792,603 and
$178,750, respectively, were repaid through the issuance of common
stock in connection with the exercise of certain warrants and
options.
Year ended March 31, 1995:
- Acquisitions of the Fred Hayman and Perry Ellis fragrance lines
which were partially financed through the issuance of common
stock and notes payable as discussed in Note 6.
F-9
<PAGE> 30
P. RECLASSIFICATIONS
Certain amounts in the consolidated financial statements for prior
years have been reclassified to conform to the 1997 presentation.
2. CORPORATE RESTRUCTURING
In November of 1996, the Company engaged investment bankers to explore a
potential sale or merger of the Company, or other alternatives which would
lead to the maximization of shareholder value. In March of 1997, the
Company announced that such exploration had not resulted in alternatives
which should be pursued. Accordingly, the Company announced that it would
independently restructure the Company by terminating warehousing and
distribution operations in Connecticut and France, discontinuing certain
brands, and consolidating operations in South Florida. Costs related to
this restructuring of approximately $5,765,000 have been recorded in the
quarter ended March 31, 1997, increasing costs of goods sold and selling
and distribution expenses by approximately $5,243,000 and $522,000,
respectively.
3. INVENTORIES
The components of inventories are as follows:
March 31,
----------------------------
1997 1996
---- ----
Finished products $16,075,376 $13,477,055
Components and packaging material 14,944,196 17,306,010
Raw material 4,575,751 4,979,505
----------- -----------
$35,595,323 $35,762,570
=========== ===========
The above amounts are net of reserves for potential inventory obsolescence
of $2,833,000 and $1,200,000 at March 31, 1997 and 1996, respectively.
4. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets are as follows:
March 31,
---------------------------
1997 1996
---- ----
Promotional supplies $4,313,083 $2,903,611
Deferred tax assets 2,168,945 816,552
Prepaid advertising 534,686 424,000
Advertising barter credits, net 723,263 1,059,332
Advances to vendors 117,854 1,463,007
Other 408,295 522,711
---------- ----------
$8,266,126 $7,189,213
========== ==========
F-10
<PAGE> 31
5. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are comprised of the following:
<TABLE>
<CAPTION>
March 31, Estimated
------------------------------ useful lives
1997 1996 (in years)
---- ---- ----------
<S> <C> <C> <C>
Molds and equipment $ 6,113,025 $ 4,593,621 3-7
Furniture and fixtures 966,149 840,908 5
Leasehold improvements 460,411 126,756 5-7
Vehicles 5,617 6,260 3
----------- -----------
7,545,202 5,567,545
Less: accumulated depreciation and
amortization (4,291,402) (3,091,626)
----------- ----------
$ 3,253,800 $2,475,919
=========== ==========
</TABLE>
Depreciation and amortization expense on equipment and leasehold
improvements for the years ended March 31,1997, 1996 and 1995 was
$1,407,916, $1,007,522, and $560,771, respectively.
6. ACQUISITIONS
On June 28, 1996, the Company consummated the acquisition of substantially
all of the assets and assumption of certain liabilities of Richard Barrie
Fragrances, Inc. (RBF), pursuant to an asset purchase agreement entered
into on January 31, 1996.
Parlux acquired from RBF certain inventories, fixed assets and licenses
relating to the brands Baryshnikov and Melrose Place, as well as fixed
assets located in RBF's office and distribution center in Orange,
Connecticut.
Parlux provided as consideration $750,000 in cash which was paid on July 1,
1996, and 370,000 shares of common stock. The common stock was valued at
$3,006,250, the average price of the shares on January 30, 1996, the date
of the original asset purchase agreement, which in management's opinion,
better reflected the acquisition price, since the average price of the
common stock at the date of closing was affected by matters unrelated to
the acquisition or the regular operations of the Company.
The estimated fair value of the net assets acquired is summarized as
follows:
Molds and other fixed assets $ 893,856
Inventories, net 1,784,474
Other assets 141,518
Goodwill and licenses 2,417,957
Accounts payable and other liabilities (1,481,555)
-----------
Fair value of net assets acquired $ 3,756,250
===========
On March 19, 1996, the Company consummated the acquisition of the
trademarks and certain inventory for the Bal A Versailles (BAV) fragrance
and beauty products brand name from Parfums Jean Desprez, S.A., pursuant to
a letter of intent entered into on January 11, 1996.
F-11
<PAGE> 32
At closing, the Company provided as consideration $1,697,500 in cash and
$2,553,360 in the form of non-interest bearing promissory notes due in
varying installments through August 1996.
The estimated fair value of the assets acquired is summarized as follows:
Goodwill, licenses and trademarks $2,872,500
Inventories 878,360
Covenant-not-to-compete 300,000
Molds and other fixed assets 200,000
----------
Fair value of assets acquired $4,250,860
==========
On December 27, 1995, the Company consummated the acquisition of
substantially all of the assets of Alexandra de Markoff (AdM), a prestige
cosmetic line, pursuant to an asset purchase agreement entered into on
September 21, 1995 between the Company and Revlon Holdings, Inc. (Revlon).
Parlux acquired from Revlon certain inventories and fixed assets and the
rights in certain trademarks relating to AdM. Parlux provided as
consideration $8,608,000 in cash, 424,000 shares of common stock valued at
$3,392,000 and agreed to accept returns and allowances in excess of
$100,000 related to sales of AdM products by Revlon prior to December 27,
1995. In addition, the Company granted Revlon an option to purchase 176,000
shares of the Company's common stock, until June 30, 1996, at an exercise
price of $8.00 per share; management's estimate of the value of these
options was $352,000.
The estimated fair value of the net assets acquired is summarized as
follows:
Goodwill, licenses and trademarks $11,117,000
Advance for future inventory purchases 4,000,000
Molds and other fixed assets 85,000
Reserve for sales returns and allowances (2,850,000)
-----------
Fair value of net assets acquired $12,352,000
===========
In December 1994, the Company consummated the acquisition of the license
for the worldwide manufacturing and distribution rights and for the use of
the trademarks associated with the Perry Ellis International, Inc. ( Perry
Ellis ) line of fragrances and beauty products pursuant to an Asset
Purchase Agreement entered into in October 1994 between the Company and
Sanofi Beaute, Inc., the prior holder of the Perry Ellis fragrances
license. In addition to the acquisition of the license, which is renewable
every two years if the Company meets certain average sales levels, Parlux
acquired from Sanofi: a) the assets, rights, claims and contracts relating
to the brands Perry Ellis for Men(R) and 360(Degree) Perry Ellis(R) ( the
Brands ), b) certain inventories relating to the Brands, c) certain fixed
assets relating to the Brands, and d) the ownership rights in certain
trademarks relating to the Brands.
At closing, the Company provided as consideration, $7,500,000 in cash and
$6,535,660 in the form of a one-year promissory note, bearing interest at
7% and secured by the assets acquired under the Purchase Agreement.
The estimated fair value of the assets acquired is summarized as follows:
Goodwill, license and trademarks $ 7,500,000
Inventories 4,528,925
Promotional supplies 1,073,135
Molds and other fixed assets 933,600
-----------
Fair value of assets acquired $14,035,660
===========
F-12
<PAGE> 33
In June 1994, the Company entered into an Asset Purchase Agreement with
Fred Hayman Beverly Hills, Inc. ( FHBH ) pursuant to which the Company
purchased substantially all of the assets and liabilities of the FHBH
fragrance division, including inventory, accounts receivable molds and
other assets. In addition, FHBH granted Parlux an exclusive 55-year,
royalty free license to use FHBH's United States Class 3 trademarks for
Fred Hayman(R), 273(R), Touch(R), With Love(R), and Fred Hayman Personal
Selections(R) and the corresponding international registrations.
In consideration for the purchased assets, the Company provided the
following to the seller: (i) payment of $2,000,000 in cash, (ii) issuance
of 1,000,000 shares of the Company's common stock (approximately $2,200,000
market value at date of closing), (iii) delivery of a short-term
non-interest bearing note in the amount of $2,544,942 and (iv) delivery of
a 10-year 7.25% note in the amount of $5,950,774. In addition, the Company
granted FHBH warrants to purchase 200,000 shares of the Company's common
stock, for a five-year period, at an exercise price of $2.13 per share.
The estimated fair value of the net assets acquired is summarized as
follows:
Accounts receivable, net $ 2,252,796
Inventories 6,461,236
Prepaid promotional supplies and
expenses 1,407,897
Molds 477,894
Goodwill 2,655,719
Accounts payable and other liabilities (559,827)
------------
Fair value of net assets acquired $ 12,695,715
============
Goodwill, licenses and trademarks recorded in connection with these
acquisitions are being amortized over periods ranging from 10 to 25 years.
7. BORROWINGS
The composition of debt is as follows:
<TABLE>
<CAPTION>
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Note payable to FHBH, secured by the acquired
licensed trademarks, interest at 7.25%, payable
in equal monthly installments of $69,863,
including interest, through June 2004 $ 4,694,699 $ 5,173,209
Revolving credit facility payable to Finova Capital
Corporation, interest at Citibank N.A. prime rate
(8.25% at March 31, 1997) plus 2%, payable on
December 27, 1997, net of restricted cash of $884,464
and $273,587 at March 31, 1997 and 1996, respectively 7,878,090 3,888,378
Unsecured $1,000,000 line of credit payable to
International Finance Bank, interest at the bank's prime
rate plus 2%, due January 1, 1998 753,125 --
Note payable to Lyon Credit Corporation,
secured by certain equipment, interest at 11%,
payable in equal monthly installments through
September 2001 984,858 --
</TABLE>
F-13
<PAGE> 34
<TABLE>
<S> <C> <C>
Notes payable to Parfums Jean Desprez,
non-interest bearing, payable in installments
through February 1997 -- 2,553,360
Note payable to Distribuidora de Perfumes Senderos,
Ltda., unsecured, interest at 12%, repaid in August 1996 -- 674,722
Unsecured $500,000 line of credit payable to
Eagle National Bank, interest at the bank's
prime rate plus 2%, repaid in January 1997 -- 482,392
Unsecured notes payable to related parties,
interest payable monthly at 11%, repaid
during fiscal 1997 -- 700,000
Overdraft facilities, interest from 10.25%
to 10.75%, payable on demand (1) 1,128,946 646,368
Receivable financing facilities, interest at 9.25% to
10.25%, payable on demand (1) 1,981,820 1,921,876
Note payable to stockholder, interest at 10%,
repaid in May 1996 (1) -- 148,544
Other notes payable 192,757 70,307
------------ ------------
17,614,295 16,259,156
Less: long-term borrowings (4,949,230) (4,694,239)
------------ ------------
Short-term borrowings $ 12,665,065 $ 11,564,917
============ ============
</TABLE>
(1) Denominated in French francs
In May 1997, the Company entered into a Loan and Security Agreement ( the
Credit Agreement ) with General Electric Capital Corporation (GECC),
pursuant to which the Company is able to borrow, depending on the
availability of a borrowing base, on a revolving basis for a three-year
period, up to $25,000,000 at an interest rate of LIBOR plus 2.50% or .75%
in excess of the Wall Street Journal prime rate, at the Company's option.
GECC has taken a security interest in substantially all of the domestic
assets of the Company. The Credit Agreement contains customary events of
default and covenants which prohibit, among other things, incurring
additional indebtedness in excess of a specified amount, paying dividends,
creating liens, and engaging in mergers and acquisitions without the prior
consent of GECC. The Credit Agreement also contains certain financial
covenants relating to net worth, interest coverage and other financial
ratios. Proceeds from the Credit Agreement were used, in part, to repay the
Company's previous $10,000,000 credit facility with Finova Capital
Corporation and Merrill Lynch Financial Services, Inc.
The Company has overdraft and trade financing facilities aggregating
18,150,000 French francs (approximately $3,220,000 as of March 31, 1997),
which were fully utilized at March 31, 1997. These credit facilities are
reviewed annually.
On September 21, 1995, in connection with the proposed purchase of the AdM
cosmetic line, the Company entered into a $2,400,000 loan agreement with
Revlon. The loan was repaid on December 27, 1995 upon closing of the AdM
transaction.
F-14
<PAGE> 35
In August, 1995, the Company entered into an agreement to borrow, on an
unsecured basis, $500,000 from Distribuidora de Perfumes Senderos, Ltda.,
with an additional $500,000 available at the option of the Company, to be
drawn upon prior to October 31, 1995. The note bore interest at 12% per
annum and was originally due on February 23, 1996. The Company borrowed a
total of $674,722 under the agreement which was repaid in installments of
$500,000 and $174,722 in May and August 1996, respectively.
In June 1995, the Company borrowed, on an unsecured basis, $300,000 from an
individual related to the Company's Chairman and Chief Executive Officer.
The note bore interest at 11% per annum and was due on June 27, 1997. In
connection with the note, the Company issued warrants to purchase 60,000
shares of Parlux common stock at a price of $6.94 per share, which were to
expire on June 27, 1997. On July 15, 1996, these warrants were exercised,
and a portion of the proceeds was utilized to repay the $300,000 note and
accrued interest thereon.
During September 1990, the Company borrowed on an unsecured basis, $400,000
from individuals related to the Company's Chairman and Chief Executive
Officer. The notes bore interest at 11% per annum and repayment had been
postponed until December 1996. The Company repaid $50,000 of these loans
during each of December 1996 and January 1997. The remaining $300,000
liability was assumed by the Company's Chairman and offset against advances
due from him.
Future maturities of borrowings are as follows (in 000's):
For the year ending March 31,
-----------------------------
1998 $12,665
1999 806
2000 827
2001 849
2002 822
Thereafter 1,645
-------
Total $17,614
=======
8. CONVERTIBLE DEBENTURES
During the period November 2, 1995 through March 31, 1996, the Company
issued $3,700,000 of 7% convertible debentures and $15,000,000 of 5%
convertible debentures (the Debentures), pursuant to Regulation S. The
Debentures were convertible into shares of the Company's common stock at
85% of the closing price of the stock as listed on NASDAQ over specific
time frames. As of March 31, 1996, $7,000,000 of the Debentures, plus
accrued interest of $48,146, had been converted into 1,073,688 shares of
common stock. Subsequent to March 31, 1996, the remaining $11,700,000 have
been converted into 1,348,058 shares of common stock.
During April and May 1996, the Company issued an additional $13,000,000 of
5% convertible debentures, $3,000,000 pursuant to Regulation S and
$10,000,000 pursuant to Regulation D with the same conversion features and
terms as those issued above, of which $9,355,324, plus accrued interest of
$130,916, have been converted into 1,868,272 shares of common stock.
On July 2, 1996, the Company issued an additional $10,000,000 of 5%
Debentures, in private placements pursuant to Regulation D, with the same
conversion features and terms as those issued above, except that the
conversion rate was 86%. During October 1996, $8,412,236 of the debentures,
plus accrued interest of $72,466, were converted into 2,154,222 shares of
common stock.
F-15
<PAGE> 36
During October 1996, the Company entered into agreements to redeem
$5,232,440 of the May and July Debentures which had not been converted,
plus $105,638 of accrued interest thereon, by issuing $6,239,726 of 10%
bonds which were repaid in accordance with their terms in December 1996.
The redemption resulted in a one-time charge to net income of $901,648
during the quarter ended December 31, 1996, which is not deductible for
income tax purposes.
9. COMMITMENTS AND CONTINGENCIES
A. LEASES:
The Company leases its office space and certain equipment in both the
U.S. and France under operating leases expiring on various dates through
the year ending October 31, 2005. Total rent expense charged to
operations for the years ended March 31, 1997, 1996 and 1995 was
approximately $1,451,000, $916,000 and $568,000, respectively.
At March 31, 1997, the minimum annual rental commitments are as follows
(in 000's):
For the year ending March 31,
-----------------------------
1998 $1,149
1999 1,097
2000 958
2001 860
2002 782
Thereafter 2,051
------
Total $6,897
======
B. LICENSE AND DISTRIBUTION AGREEMENTS:
The Company holds the following exclusive worldwide licenses to
manufacture and sell fragrance and other related products:
Perry Ellis
Baryshnikov
Phantom of the Opera
Vicky Tiel
Todd Oldham
Under each of these arrangements, the Company must pay royalties at
various rates based on net sales, and spend minimum amounts for
advertising based on sales volume. The agreements expire on various
dates through 1998 and are subject to renewal.
In May 1995, the Company terminated its license agreement with Francesco
Smalto for breach of contract. On October 5, 1995, the Company entered
into a transition and termination agreement with SMALTO which provided
for the continued use of the Francesco Smalto trademark through
September 30, 1996. The agreement contained certain production
restrictions and required a fixed amount of royalties during the period,
which approximated 5% of net sales of Smalto fragrances. Sales of
Francesco Smalto products represented approximately 1% of total Company
net sales for the year ended March 31, 1997.
The Company has informed the Todd Oldham licensor of its intent not to
renew the license. In accordance with the licensing agreement, the
Company may produce and sell the Todd Oldham trademarked products until
March 31, 1998. Sales of Todd Oldham products represented approximately
2% of total Company net sales for the year ended March 31, 1997.
F-16
<PAGE> 37
The Company believes it is presently in compliance with all material
obligations under the above agreements. The Company expects to incur
continuing obligations for advertising and royalty expense under these
license agreements. The minimum amounts of these obligations derived
from the aggregate minimum sales goals, set forth in the agreements,
over the remaining contract periods are as follows (in 000's):
Fiscal year ending March 31, 1998 1999 2000
---------------------------- ---- ---- ----
Advertising $9,729 $8,409 $8,409
Royalties $696 $375 $375
C. TRADEMARKS:
Though various acquisitions since 1991, the Company acquired worldwide
trademarks and distribution rights to ANIMALE, DANIEL DE FASSON,
DECADENCE, LIMOUSINE and BAL A VERSAILLES fragrances and ALEXANDRA de
MARKOFF cosmetics and fragrances. In addition, FHBH granted the Company
an exclusive 55-year royalty free license. Accordingly, there are no
licensing agreements requiring the payment of royalties. The Company
also has the rights to license these trademarks, other than FHBH, for
all classes of merchandise.
D. BARTER ARRANGEMENTS:
In June 1991, the Company entered into a barter arrangement (the Barter
Agreement ) for which the Company would receive advertising credits in
exchange for its inventory of JOAN COLLINS products. The final sale of
these products was completed in June 1993.
The following table sets forth the balances and transactions included in
the accompanying financial statements related to the Barter Agreement
(in 000's):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Prepaid advertising at March 31, net of
deferred income of $345, $434 and $643
in 1997, 1996 and 1995, respectively $ 588 $ 660 $ 989
======= ======== ======
Advertising credits used for the year ended
March 31 $ 161 $ 684 $1,592
======= ======== ======
Deferred income recognized for the year ended
March 31 $ 89 $ 355 $ 866
======= ======== ======
</TABLE>
In connection with the June 1994 FHBH acquisition, the Company acquired
$471,000 of advertising credits of which $263,640 and $72,000 was
utilized during the years ended March 31, 1997 and 1996, respectively.
The Company expects to be able to fully utilize all of these barter
advertising credits as part of its normal ongoing advertising
expenditures.
E. EMPLOYMENT AND CONSULTING AGREEMENTS:
The Company has employment contracts with certain officers and employees
which expire from January 1998 through March 2000. Minimum commitments
under these contracts are as follows (in 000's):
F-17
<PAGE> 38
For the year ending March 31,
-----------------------------
1998 $1,818
1999 1,416
2000 970
------
$4,204
In connection with previous employment contracts, warrants to purchase
1,190,000 shares of common stock, at prices ranging from $1.50 to $7.50
have been issued. These warrants are exercisable for a ten-year period
from the date of grant and vest over the term of the applicable
contracts through January 1998. During the year ended March 31, 1996,
28,000 warrants were exercised. As of March 31, 1997, all of the above
mentioned warrants were vested. In addition, during January 1996, the
Board of Directors approved a resolution whereby the number of warrants
issued to key employees would double in the event of a change in
control.
On April 1, 1994, the Company entered into a three-year consulting
agreement with Cosmix, Inc., a company owned by Mr. Frederick Purches,
the Vice Chairman of the Board, which provides for monthly payments of
$8,333. The agreement calls for Mr. Purches to spend substantial time to
assist the Company in the areas of banking, SEC and stockholder
relations, financial planning, assessment and coordination of
acquisitions and divestiture, and any other similar activities which may
be assigned by the Board of Directors. Mr. Purches receives certain
insurance benefits as a part of his agreement, and has received 90,000
warrants to acquire shares of common stock at $2.06 over the three-year
period of the contract, of which 60,000 warrants have been exercised
during the year ended March 31, 1996. The consulting agreement was
extended for an additional three-year period until March 31, 2000, with
no additional warrants being provided.
On April 1, 1994, the Company entered into a three-year consulting
agreement commencing June 1, 1994, with Cambridge Development
Corporation, a company owned by Mr. Albert F. Vercillo, who is a
director of the Company. The Agreement calls for Mr. Vercillo to devote
substantial time to the Company in the areas of U.S. and international
financial analysis and planning. Cambridge Development Corporation
receives $4,500 a month and Mr. Vercillo receives certain insurance
benefits, and has received 30,000 warrants to acquire shares of common
stock at $2.06 over the three-year period of the contract. The
consulting agreement was extended for an additional three-year period
until May 31, 2000, at a rate of $5,416 per month. No additional
warrants were provided.
On April 1, 1994, the Company entered into a consulting agreement with
its former President, which provides for monthly payments of $16,667
through September 30, 1997. In addition, the former President had
previously received warrants to purchase 500,000 shares of common stock,
at an exercise price of $1.875 per share.
All of the previously described warrants were issued at the market value
of the underlying shares at the date of grant and reflect the
two-for-one stock split effected as of November 3, 1995.
F. CONTINGENCIES:
The Company is a party to legal and administrative proceedings arising
in the ordinary course of business. The outcome of these actions are not
expected to have a material effect on the Company's financial position
or results of operations.
F-18
<PAGE> 39
10. FOREIGN SUBSIDIARY
The following amounts relate to the Company's wholly-owned subsidiary,
Parlux S.A.:
<TABLE>
<CAPTION>
As of and for the year ended March 31,
---------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Total assets $10,443,117 $ 9,458,774 $10,607,585
Working capital 2,731,167 2,115,755 1,112,504
Equity 2,761,554 2,229,714 1,506,057
Net Sales:
Trade 12,776,773 9,101,611 7,219,601
Affiliates 409,557 2,742,211 336,195
Intercompany 2,760,856 4,258,054 4,845,524
----------- ----------- -----------
Total $15,947,186 $16,101,876 $12,401,320
=========== =========== ===========
Net income $ 817,649 $ 887,163 $ 319,535
=========== =========== ===========
</TABLE>
Prior to fiscal 1996, foreign sales were principally made by Parlux S.A.
During the years ended March 31, 1997 and 1996, sales to foreign customers
from the Company's domestic subsidiary amounted to approximately
$18,059,000 and $19,000,000, respectively. At March 31, 1997 and 1996,
trade receivables from foreign customers amounted to approximately
$11,228,000 and $5,753,000, respectively.
11. INCOME TAXES
Income tax expense is as follows:
<TABLE>
<CAPTION>
Years Ended March 31,
-----------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Current taxes:
U.S. Federal $ 1,116,040 $ 3,764,477 $ 1,570,504
U.S. state and local 132,058 472,360 175,000
Foreign income taxes 515,800 531,161 162,000
----------- ----------- -----------
1,763,898 4,767,998 1,907,504
U.S. Federal deferred tax benefit (1,103,817) (4,184) (628,504)
----------- ----------- -----------
Income tax expense $ 660,081 $ 4,763,814 $ 1,279,000
=========== =========== ===========
</TABLE>
F-19
<PAGE> 40
A reconciliation of the U.S. Federal statutory rate to the Company's
effective tax rate follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Tax at statutory rate 35.0 % 35.0% 35.0 %
Utilization of net operating loss carry forward -- -- (4.3)%
Valuation allowance recognition -- -- (11.0)%
Loss on debt conversion 37.7 % -- --
Incremental foreign taxes 1.7 % .3% (.1)%
State and local taxes 5.5 % 2.4% 2.0 %
Other (1.0)% .3% .8 %
---- ---- ----
78.9 % 38.0% 22.4 %
==== ==== ====
</TABLE>
Deferred tax assets, which are included in other current assets, and
deferred tax liabilities, are comprised of the following:
<TABLE>
<CAPTION>
March 31,
-------------------------
1997 1996
---------- ---------
<S> <C> <C>
Allowance for doubtful accounts, sales returns and
allowances $ 961,118 $ 653,000
Reserve for inventory obsolescence 1,076,540 188,000
Other, net 131,287 (24,448)
---------- ---------
Total deferred tax assets $2,168,945 $ 816,552
========== =========
Deferred tax liabilities related to
depreciation and amortization $ 432,440 $ 183,864
========== =========
</TABLE>
During fiscal 1995, the Company utilized approximately $700,000 of net
operating loss carryforwards to offset current U.S. taxable income. A
valuation allowance for 100% of these net operating loss carryforwards had
been established at March 31, 1994. Additionally, during fiscal 1995, the
Company reversed $544,000 of valuation allowances on deferred tax assets at
March 31, 1994, as a result of the expected recoverability of such deferred
tax assets in the future.
In fiscal 1997, the Internal Revenue Service audited the Company's federal
income tax return for the year ended March 31, 1994. Management believes
that the outcome of this audit will not have a material effect on the
Company's financial position or results of operations.
12. COMMON STOCK
At various dates since April 1989, the Company has issued, in addition to
the warrants described in Note 9 (E), a total of 688,000 warrants to key
employees and/or consultants to purchase the Company's common stock at an
exercise price of $1.87 per share. In March 1993, Mr. Gerard Semhon, in
exchange for an amount due him of $180,000, exercised warrants to acquire
96,000 registered shares and Mr. Fred Purches exercised warrants for the
acquisition of 28,000 unregistered shares in exchange for cash and amounts
due him of $47,000. In September 1993, Mr. Semhon exercised his remaining
warrants to acquire 24,000 registered shares in exchange for amounts due
him of $45,000. Accordingly, as of March 31, 1995, 540,000 of these
warrants remained outstanding. The underlying shares related to the
unexercised warrants had not been registered.
In September 1990, in connection with a long-term loan, the Company issued
100,000 warrants to Mr. Boris Lekach which were exercisable at $2.00 per
share. Mr. Boris Lekach is related to Mr. Ilia Lekach, the Company's
Chairman and Chief Executive Officer.
F-20
<PAGE> 41
In March 1991, the Company issued warrants to Deco Distribution Group, Inc.
(Deco) to acquire 1,100,000 shares of common stock in accordance with an
Asset Acquisition Agreement of the same date. The warrants were exercisable
through March 1, 2001 at an exercise price of $2.00 per share.
In May 1995, the Company extended a discount of $0.75 per share to those
holders of warrants issued in connection with the FHBH and Deco
acquisitions, as well as the loan to Mr. Boris Lekach, if the holders would
exercise by May 31, 1995. The exercise period was subsequently extended to
July 31, 1995. These warrant holders exercised all of their warrants into
1,400,000 shares of common stock, increasing stockholders' equity by
approximately $2,300,000.
In June 1993, in recognition of continuing financial support, personal
guarantees and pledged deposits in connection with the NBK loan, the
Company issued 52,916 warrants to Mr. Zouheir Beidoun, a Director of the
Company, at an exercise price of $1.75. These warrants, along with an
additional 200,000 warrants issued during 1991, were exercised during
February 1996, whereby a portion of the note payable to Mr. Beidoun,
including accrued interest payable, was partially converted to equity.
The following table summarizes the activity for the warrants outstanding
under the commitments disclosed in Note 9 (E) and the warrants described
above after the retroactive effect of the stock split:
Amount Exercise Price
------ --------------
Balance at March 31, 1994 2,042,916 $1.50 - $2.00
Issued 1,530,000 $1.75 - $3.12
Exercised -- --
----------
Balance at March 31, 1995 3,572,916 $1.50 - $3.12
Issued 307,978 $3.75 - $4.06
Exercised (1,830,916) $1.62 - $2.06
----------
Balance at March 31, 1996 2,049,978 $1.50 - $8.11
Issued 10,000 $6.75
Exercised (236,000) $6.93 - $8.00
----------
Balance at March 31, 1997 1,823,978 $1.50 - $8.11
==========
13. STOCK OPTION AND OTHER PLANS
The Company has adopted a Stock Option Plan and a 1989 Stock Option Plan
(collectively, the "Plan") and has reserved and registered 250,000 shares
of its Common Stock for issue thereunder. Options for most of the shares in
the Plan may qualify as "incentive stock options" under the Internal
Revenue Code. The shares are also available for distribution pursuant to
options which do not so qualify. Under the Plan, options can be granted to
eligible officers and key employees at not less than the fair market value
of the shares at the date of grant of the option (110% of the fair market
value for 10% or greater stockholders).
Options which do not qualify as "incentive stock options" may also be
granted to consultants. Options generally may be exercised only if the
option holder remains continuously associated with the Company or a
subsidiary from the date of grant to the date of exercise.
On June 20, 1995, the Company granted to various employees additional
options to acquire 24,500 shares of common stock at $5.75, the closing bid
price of the stock on June 19, 1995. These options are exercisable at the
rate of 25% per annum beginning June 20, 1996. Concurrently, 5,500 options
were canceled through employee resignations.
As of March 31, 1997, and since the inception of the Plan, options have
been issued, net of cancellations, to purchase 241,092 shares at exercise
prices ranging from $1.06 to $5.75 per share. Through March 31, 1997,
174,092 options had been exercised under the Plan.
F-21
<PAGE> 42
The following table summarizes the activity for options covered by the Plan
after the retroactive effect of the stock split:
Amount Exercise Price
------ --------------
Balance at March 31, 1995 84,850 $1.06 - $2.19
Issued 24,500 $5.75
Exercised (22,350) $1.06 - $2.19
Canceled (5,500) $1.44 - $5.75
------
Balance at March 31, 1996 81,500 $1.06 - $5.75
------
Issued --
Exercised (14,500) $1.06 - $1.44
Canceled --
------
Balance at March 31,1997 67,000 $1.44 - $5.75
======
As of March 31, 1997, options to purchase 67,000 shares are outstanding, of
which 54,750 are currently exercisable and 12,250 are exercisable during
the year ending March 31, 1999.
During June 1993, the Company established a 401-K plan covering
substantially all of its U.S. employees. No Company contribution was made
during the year. Commencing on April 1, 1996, the Company matched 25% of
the first 6% of employee contributions, within annual limitations
established by the Internal Revenue Code. The cost of the matching program
totaled approximately $54,000 for the year ended March 31, 1997.
14. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
For the year ended March 31, 1995, the number of shares of common stock
issuable upon exercise of outstanding options and warrants, in the
aggregate, exceeded 20% of the number of common shares outstanding.
Accordingly, the modified treasury stock method was used to determine the
dilutive effect of the options and warrants on earnings per share.
Earnings per common and common equivalent share and the weighted average
number of shares outstanding used in the computations, retroactively
adjusted for the stock split, are summarized as follows:
<TABLE>
<CAPTION>
Primary 1997 1996 1995
------- ---- ---- ----
<S> <C> <C> <C>
Net income $ 176,223 $ 7,772,691 $4,231,211
Add - reduction of interest expense 199,491 (1) 104,099 (1) 237,585 (3)
----------- ----------- ----------
Adjusted for per share computation $ 375,714 $ 7,876,790 $4,468,796
=========== =========== ==========
Number of shares:
Weighted average shares outstanding 15,013,931 8,791,749 6,696,890
Add - net additional shares issuable 2,633,573 (2) 1,890,857 (2) 2,317,918 (4)
----------- ----------- ----------
Weighted average shares used in the per share
computation 17,647,503 10,682,606 9,014,808
=========== =========== ==========
Earnings per common and common equivalent share:
Income before extraordinary item $ 0.07 $ 0.74 $ 0.50
Extraordinary item - loss on conversion of debt
(0.05) -- --
----------- ----------- ----------
Net income $ 0.02 $ 0.74 $ 0.50
=========== =========== ==========
</TABLE>
F-22
<PAGE> 43
<TABLE>
<CAPTION>
Fully diluted 1997 (5) 1996 1995
------------- -------- ---- ----
<S> <C> <C> <C>
Net income $ 7,772,691 $ 4,231,211
Add - reduction of interest expense 104,099(1) 77,317(3)
----------- -----------
Adjusted for per share computation $ 7,876,790 $ 4,308,528
=========== ===========
Number of shares:
Weighted average shares outstanding 8,791,749 6,696,890
Add - net additional shares issuable 2,133,059(2) 2,317,918(4)
----------- ---------
Weighted average shares used in the per share
computation 10,924,808 9,014,808
=========== ==========
Earnings per common and common equivalent share
$ 0.72 $ 0.48
=========== ==========
</TABLE>
(1) Reduction of interest expense assumes that the Debentures were
converted into shares of common stock on the date of their issuance.
Accordingly, no interest expense on the Debentures would have been
incurred.
(2) Assumes exercise or conversion of outstanding common stock equivalents
(options, warrants and convertible debentures) at the beginning of the
period, or at the date of issuance if issued during the period, net of the
assumed repurchase of common stock from exercise proceeds. The assumed
repurchase of common stock is based on the average price of the Company's
common stock during the period for primary and the end of period price for
fully diluted.
(3) Reduction of interest expense assumes that proceeds from the exercise
of stock options and warrants, after the assumed repurchase of 20% of the
weighted average common shares outstanding, were used to repay debt at the
beginning of the period.
(4) Assumes exercise of outstanding common stock equivalents (options and
warrants) at the beginning of the period, or at the date of issuance if
issued during the period, net of the assumed repurchase of common stock.
The assumed repurchase of common stock was limited to 20% of the weighted
average common shares outstanding and is based on the average price of the
Company's common stock during the period for primary and the end of period
price for fully diluted.
(5) The calculation of fully diluted earnings per share was not required
for 1997 since it would be antidilutive.
15. RELATED PARTY TRANSACTIONS, SIGNIFICANT CUSTOMERS AND CONCENTRATION OF
CREDIT RISK
The Company had sales of approximately $26,568,000, $26,187,000 and
$15,230,000 during the fiscal years ended March 31, 1997, 1996 and 1995,
respectively, to Perfumania, Inc. (Perfumania), and sales of $1,272,000
during the fiscal year ended March 31, 1997, to L. Luria & Son, Inc.
(Luria), companies affiliated with the Company's Chairman and Chief
Executive Officer. Net amounts due from Perfumania amounted to $22,136,000
and $13,482,000 at March 31, 1997 and 1996, respectively. Amounts due from
Luria totaled $726,000 at March 31, 1997. Amounts due from related parties
are non-interest bearing and are realizable in less than one year.
No unrelated customer accounted for more than 10% of the Company's sales
during the years ended March 31, 1997, 1996 and 1995.
F-23
<PAGE> 44
16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
The following is a summary of the Company's unaudited quarterly results of
operations for the years ended March, 31, 1997 and 1996 (in thousands,
except per share amounts).
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------------------
June 30, September 30, December 31, March 31,
1996 1996 1996 1997(1)
-------- ------------- ------------ ---------
<S> <C> <C> <C> <C>
Net sales $18,740 $25,503 $ 27,020 $ 16,377
Gross margin 12,454 13,987 16,378 5,638
Income (loss) before extraordinary item
1,934 2,149 990 (3,995)
Extraordinary item - loss on conversion
of debt -- -- 902 --
Net income (loss) 1,934 2,149 88 (3,995)
Earnings (loss) per common and
common equivalent share (2):
Income (loss) before extraordinary
item $ 0.13 $ 0.12 $ 0.06 $ (0.23)
Extraordinary item - loss on
conversion of debt -- -- $ (0.05) --
Net income (loss) $ 0.13 $ 0.12 $ 0.01 $ (0.23)
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------------------
June 30, September 30, December 31, March 31,
1995 1995 1995 1996(1)
-------- ------------- ------------ ---------
<S> <C> <C> <C> <C>
Net sales $10,209 $13,925 $ 23,834 $ 19,759
Gross margin 7,076 8,495 13,687 10,029
Net income 1,142 1,508 2,991 2,132
Earnings per common and
common equivalent share:
Primary $ 0.13 $ 0.15 $ 0.29 $ 0.17
Fully diluted $ 0.13 $ 0.15 $ 0.29 $ 0.15
</TABLE>
NOTE: Earnings per common and common equivalent shares have been
retroactively adjusted for the effect of the November 1995 two-for-one
stock split.
(1) Includes restructuring charge of approximately $5,765,000. See Note 2
for further discussion.
(2) The calculation of fully diluted earnings per share was not required
for 1997 since it would be antidilutive.
F-24
<PAGE> 45
PARLUX FRAGRANCES, INC. AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Additions charged
Description beginning of to costs Balance at
period and expenses Deductions end of period
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended
March 31, 1997
--------------
Reserves for:
Doubtful accounts $ 472,561 $ 557,502 $ 487,334 $ 542,729
Sales returns 637,221 3,915,488 4,169,308 383,401
Other allowances 1,011,463 7,368,791 6,812,504 1,567,750
----------- ----------- ----------- ----------
$ 2,121,245 $11,841,781(1) $11,469,146 $2,493,880
=========== =========== =========== ==========
Reserve for
inventory shrinkage
and obsolescence $ 1,200,000 $ 3,857,483(2) $ 2,224,483 $2,833,000
=========== =========== =========== ==========
Year ended
March 31, 1996
--------------
Reserves for:
Doubtful accounts $ 1,231,522 $ 123,936 $ 882,897 $ 472,561
Sales returns 318,972 780,342 462,093 637,221
Other allowances 504,919 4,144,166 3,637,622 1,011,463
----------- ----------- ----------- ----------
$ 2,055,413 $ 5,048,444(3) $ 4,982,612 $2,121,245
=========== =========== =========== ==========
Reserve for
inventory shrinkage
and obsolescence $ 685,629 $ 688,626(4) $ 174,255 $1,200,000
=========== =========== =========== ==========
Year ended
March 31, 1995
--------------
Reserves for:
Doubtful accounts $ 349,438 $ 971,255 $ 89,171 $1,231,522
Sales returns 94,315 471,430 246,773 318,972
Other allowances 298,198 558,916 352,195 504,919
----------- ----------- ----------- ----------
$ 741,951 $ 2,001,601(5) $ 688,139 $2,055,413
=========== =========== =========== ==========
Reserve for
inventory shrinkage
and obsolescence $ 200,000 $ 485,629(6) $ -- $ 685,629
=========== =========== =========== ==========
</TABLE>
(1) Net of reserves of $630,562 recorded in connection with the RBFI
acquisition.
(2) Net of reserves recorded in connection with:
RBFI acquisition: $ 833,433
BAV acquisition: $ 100,000
AdM acquisition: $1,000,000
(3) Net of reserves of $1,500,000 recorded in connection with the AdM
acquisition.
(4) Includes $600,000 recorded in connection with the AdM acquisition.
(5) Net of reserves of $1,556,275 recorded in connection with the FHBH
acquisition.
(6) Includes $303,665 recorded in connection with the FHBH and Perry
Ellis acquisitions.
F-25
<PAGE> 46
PARLUX FRAGRANCES, INC. AND SUBSIDIARIES
SCHEDULE IX - SHORT-TERM BANK BORROWINGS
<TABLE>
<CAPTION>
Col. A Col. B. Col.C Col.D Col.E Col.F
Weighted
Category of Weighted Maximum amount Average amount average
aggregate average outstanding outstanding interest
short-term Balance at end interest during the during the during the
borrowings of period rate(4) period period period(5)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
March 31, 1997 Notes
Payable
Banks (1) $12,459,266 10.2% $12,459,266 $9,861,542 11.0%
March 31, 1996
Notes Payable
Banks (2) $6,939,014 10.2% $7,823,478 $7,361,251 12.1%
March 31, 1995
Notes Payable
Banks (3) $6,773,394 10.3% $6,773,394 $5,932,300 12.1%
</TABLE>
(1) Loans of $8,595,375 from Finova, $753,125 for International Finance Bank
and $3,110,766 in overdraft and receivable facilities granted by French
banks.
(2) Loans of $3,888,378 from Finova, $482,392 from Eagle National Bank, as well
as overdraft and receivable facilities of $2,568,244 granted by French
banks.
(3) Loans of $4,289,316 from Finova , $560,000 from the National Bank of
Kuwait, $81,004 from Eagle National Bank, as well as overdraft and
receivable facilities of $1,843,074 granted by French banks.
(4) The weighted average interest rate was computed by dividing the annual
interest costs based on March 31, 1997 rates by the short-term bank
borrowings outstanding at March 31, 1997.
(5) The weighted average interest rate during the period was computed by
dividing the actual interest expense for the year by the average short-term
bank borrowings outstanding during the year.
F-26
<PAGE> 47
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.
PARLUX FRAGRANCES, INC.
/s/ Ilia Lekach
- -------------------------------------------------
Ilia Lekach, Chief Executive Officer and Chairman
Dated: June 27, 1997
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 date indicated:
/s/ Zalman Lekach
- -------------------------------------------------
Zalman Lekach, President, Chief Operating Officer
and Director
/s/ Frank A. Buttacavoli
- -------------------------------------------------
Frank A. Buttacavoli, Executive Vice President,
Chief Financial Officer and Director
/s/ Frederick E. Purches
- -------------------------------------------------
Frederick E. Purches, Vice Chairman and Director
/s/ Albert F. Vercillo
- -------------------------------------------------
Albert F. Vercillo, Director
/s/ Mayi de la Vega
- -------------------------------------------------
Mayi de la Vega, Director
/s/ Glenn Gopman
- -------------------------------------------------
Glenn Gopman, Director
F-27
<PAGE> 1
Exhibit 4.24
- -------------------------------------------------------------------------------
CREDIT AGREEMENT
Dated as of May 23, 1997
among
PARLUX, LTD., as Borrower, and
PARLUX FRAGRANCES, INC., as Guarantor
and
THE LENDER OR LENDERS
WHICH ARE OR MAY BECOME
PARTIES HERETO,
as LENDERS
and
GENERAL ELECTRIC CAPITAL CORPORATION,
as Agent for the Lenders
- -------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
1. AMOUNT AND TERMS OF CREDIT.................................................................................1
1.1 Revolving Credit Loans and Letter of Credit Obligations.........................................1
1.2 Use of Proceeds.................................................................................3
1.3 Single Obligation...............................................................................3
1.4 Interest........................................................................................3
1.5 Eligible Accounts and Inventory.................................................................5
1.6 Fees............................................................................................6
1.7 Cash Management Systems.........................................................................7
1.8 Receipt of Payments.............................................................................7
1.9 Application and Allocation of Payments..........................................................7
1.10 Loan Account and Accounting.....................................................................8
1.11 Indemnity.......................................................................................8
1.12 Access..........................................................................................9
1.13 Taxes.......................................................................................... 9
1.14 Additional Provisions..........................................................................10
2. CONDITIONS PRECEDENT......................................................................................12
2.1 Conditions to the Initial Loans or Initial Letter of Credit Obligations........................12
2.2 Further Conditions to Each Loan or Letter of Credit Obligation.................................13
3. REPRESENTATIONS AND WARRANTIES............................................................................14
3.1 Corporate Existence; Compliance with Law.......................................................14
3.2 Executive Office; Corporate or Other Names.....................................................15
3.3 Corporate Power; Authorization; Enforceable Obligations........................................15
3.4 Financial Statements and Projections...........................................................15
3.5 Material Adverse Change........................................................................15
3.6 Ownership of Property; Liens...................................................................16
3.7 Restrictions; No Default.......................................................................16
3.8 Labor Matters..................................................................................16
3.9 Subsidiaries, Joint Ventures and Affiliates;
Outstanding Stock and Indebtedness.............................................................17
3.10 Government Regulation..........................................................................17
3.11 Margin Regulations.............................................................................17
3.12 Taxes..........................................................................................18
3.13 ERISA..........................................................................................18
3.14 No Litigation..................................................................................19
3.15 Brokers........................................................................................19
3.16 Employment Matters.............................................................................19
3.17 Patents, Trademarks, Copyrights and Licenses...................................................20
3.18 Full Disclosure................................................................................20
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
3.19 Hazardous Materials............................................................................20
3.20 Insurance Policies.............................................................................20
3.21 Cash Management and Other Deposit Accounts.....................................................20
3.22 Solvent Financial Condition....................................................................21
4. FINANCIAL STATEMENTS AND INFORMATION......................................................................21
4.1 Reports and Notices............................................................................21
4.2 Communication with Accountants.................................................................21
5. AFFIRMATIVE COVENANTS.....................................................................................21
5.1 Maintenance of Existence and Conduct of Business...............................................21
5.2 Payment of Obligations.........................................................................22
5.3 Books and Records..............................................................................22
5.4 Litigation.....................................................................................22
5.5 Insurance......................................................................................22
5.6 Compliance with Laws...........................................................................23
5.7 Compliance with Agreements.....................................................................23
5.8 Supplemental Disclosure........................................................................23
5.9 Employee Plans.................................................................................24
5.10 Environmental Matters..........................................................................24
5.11 Landlord, Processor and Licensor Agreements....................................................24
6. NEGATIVE COVENANTS........................................................................................25
6.1 Mergers, Etc...................................................................................25
6.2 Investments; Loans.............................................................................25
6.3 Indebtedness...................................................................................25
6.4 Transactions with Affiliates and Perfumania....................................................25
6.5 Capital Structure and Business.................................................................26
6.6 Guaranteed Indebtedness........................................................................26
6.7 Liens..........................................................................................26
6.8 Sale of Assets.................................................................................26
6.9 Events of Default..............................................................................26
6.10 ERISA..........................................................................................27
6.11 Financial Covenants............................................................................27
6.12 Hazardous Materials............................................................................27
6.13 Sale-Leasebacks................................................................................27
6.14 Cancellation of Indebtedness...................................................................27
6.15 Restricted Payments............................................................................27
7. TERM......................................................................................................28
7.1 Termination....................................................................................28
7.2 Survival of Obligations Upon Termination of Financing Arrangement..............................28
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C> <C>
8. EVENTS OF DEFAULT; RIGHTS AND REMEDIES....................................................................28
8.1 Events of Default..............................................................................28
8.2 Remedies.......................................................................................30
8.3 Waivers by Borrower............................................................................31
9. ASSIGNMENT AND PARTICIPATIONS; APPOINTMENT OF AGENT.......................................................31
9.1 Assignment and Participations..................................................................31
9.2 Appointment of Agent...........................................................................33
9.3 Agent's Reliance, Etc..........................................................................34
9.4 GE Capital and Affiliates......................................................................34
9.5 Lender Credit Decision.........................................................................34
9.6 Indemnification................................................................................35
9.7 Successor Agent................................................................................35
9.8 Setoff and Sharing of Payments.................................................................36
9.9 Revolving Credit Loans; Payments; Non-Funding Lenders; Information.............................36
10. SUCCESSORS AND ASSIGNS....................................................................................38
10.1 Successors and Assigns.........................................................................38
11. MISCELLANEOUS.............................................................................................39
11.1 Complete Agreement; Modification of Agreement..................................................39
11.2 Amendments and Waivers.........................................................................39
11.3 Fees and Expenses..............................................................................40
11.4 No Waiver......................................................................................42
11.5 Remedies.......................................................................................42
11.6 Severability...................................................................................42
11.7 Conflict of Terms..............................................................................42
11.8 Confidentiality................................................................................42
11.9 Governing Law..................................................................................43
11.10 Notices........................................................................................43
11.11 Section Titles.................................................................................44
11.12 Counterparts...................................................................................44
11.13 Waiver of Jury Trial...........................................................................44
11.14 Press Releases.................................................................................44
11.15 Reinstatement..................................................................................45
11.16 Advice of Counsel..............................................................................45
11.17 No Strict Construction.........................................................................45
</TABLE>
-iii-
<PAGE> 5
INDEX OF EXHIBITS, SCHEDULES AND ANNEXES
----------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Exhibit A-1 - Form of Notice of Revolving Credit Loan
Exhibit A-2 - Form of Borrowing Base Certificate
Exhibit A-3 - Form of Compliance Certificate
Exhibit B - Form of Revolving Credit Note
Exhibit C - Form of Guaranty Agreement
Exhibit D-1 - Form of Security Agreement
Exhibit D-2 - Form of Stock Pledge Agreement
Exhibit D-3 - Form of Trademark Security Agreement
Exhibit E - Form of Landlord Agreement
Exhibit F-1 - Form of Processor Agreement
Exhibit F-2 - Form of Licensor Agreement
Exhibit F-3 - Form of FHBH Consent
Exhibit G - Forms of Cash Management Account Agreements
Exhibit H - Form of Telephone Instruction Letter
Exhibit I - Form of Accountant/Tax Adviser Disclosure Letter
Exhibit J - Forms of Closing Certificates
Exhibit K - Form of Opinion of Borrower's and Parent's Counsel
Exhibit L - Form of Existing Indebtedness Pay-Off Confirmation Letter
Exhibit M - Form of Pay Proceeds Letter
Exhibit N - Form of Assignment Agreement
Schedule 1.2 - Refinanced Indebtedness
Schedule 1.5(a) - Eligible Accounts
Schedule 1.5(b) - Eligible Inventory
Schedule 3.4 - Financial Statements and Projections
Schedule 3.6 - Real Estate and Leases
Schedule 3.8 - Labor Matters
Schedule 3.9 - Subsidiaries, Joint Ventures, and Affiliates; Outstanding Stock and
Indebtedness
Schedule 3.12 - Tax Matters
Schedule 3.13 - ERISA Plans
Schedule 3.14 - Litigation
Schedule 3.15 - Brokers
Schedule 3.16 - Employment Matters
Schedule 3.17 - Patents, Trademarks, Copyrights and Licenses
Schedule 3.19 - Hazardous Materials
Schedule 3.20 - Insurance Policies
Schedule 3.21 - Cash Management and Other Deposit Accounts and Banks
Schedule 4.1 - Financial Statements and Other Notices
Schedule 6.7 - Liens
Schedule 6.11 - Financial Covenants
Schedule 11.10 - Notice Addresses
</TABLE>
-iv-
<PAGE> 6
<TABLE>
<S> <C> <C>
Annex A - Definitions
Annex B - Letters of Credit
Annex C - Cash Management System
Annex D - Schedule of Documents
</TABLE>
-v-
<PAGE> 7
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (this "AGREEMENT"), dated as of May 23,
1997, is made by and among PARLUX, LTD., a New York corporation ("BORROWER"),
PARLUX FRAGRANCES, INC., a Delaware corporation, ("PARENT"), GENERAL ELECTRIC
CAPITAL CORPORATION, a New York corporation (in its individual capacity, "GE
CAPITAL"), for itself, as a Lender, and as Agent for the Lenders, and the other
Lenders signatory hereto from time to time.
RECITALS
A. Borrower is a wholly-owned subsidiary of Parent.
B. Parent and Borrower desire that Borrower obtain up to a
total of Twenty-Five Million Dollars ($25,000,000) in credit from the Lenders
and the Agent, and the Lenders and the Agent are willing to extend such credit
to Borrower of up to such total amount at any one time, all upon the terms and
conditions set forth herein.
C. Capitalized Terms used herein shall have the meanings
ascribed to them on ANNEX A to this Agreement. All Schedules, Annexes and
Exhibits hereto, or expressly identified to this Agreement, are incorporated
herein by reference, and taken together, shall constitute but a single
agreement. As used herein, the plural shall include the singular, the singular
shall include the plural, and pronouns in any gender (masculine, feminine or
neuter) shall apply to all genders. These Recitals shall be construed as part
of this Agreement.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants hereinafter contained, the parties hereto agree as follows:
1. AMOUNT AND TERMS OF CREDIT
1.1 REVOLVING CREDIT LOANS AND LETTER OF CREDIT OBLIGATIONS.
(a) Upon and subject to the terms and conditions hereof, each Lender agrees to
make available, from time to time prior to the Commitment Termination Date, for
Borrower's use and upon the request of Borrower therefor, Revolving Credit
Loans (each a "REVOLVING CREDIT LOAN") in an aggregate principal amount
outstanding which shall not at any one time exceed an amount equal to such
Lender's Commitment; PROVIDED, however, that the sum of the aggregate
outstanding principal balance of all Revolving Credit Loans made by all Lenders
hereunder PLUS the aggregate outstanding balance of all Letter of Credit
Obligations incurred by the Agent and the Lenders hereunder shall not exceed at
any time the lesser of the Borrowing Base at such time and the Maximum
Revolving Credit Loans. The obligations of each Lender hereunder shall be
several and not joint. All Revolving Credit Loans shall be made by all Lenders
on the basis of their respective Pro Rata Shares of the Commitments. Until all
amounts outstanding in respect of the Borrower's advance of Revolving
Credit Loans shall become due and payable on the Commitment Termination Date,
Borrower may from time to time borrow, repay and reborrow under this
<PAGE> 8
SECTION 1.1(a). Each advance of Revolving Credit Loans shall be made on notice
by Borrower to the Agent, given no later than 11:00 a.m. (Eastern Standard
time) on the Business Day of the proposed advance. Such notice (each a "NOTICE
OF REVOLVING CREDIT LOAN") shall be substantially in the form of EXHIBIT A-1
hereto, specifying therein the requested date of such advance, the aggregate
amount of such Revolving Credit Loans, and such other information as may be
required by the Agent and shall be given in writing (by telecopy, telex or
cable) or by telephone confirmed immediately in writing.
(b) The Revolving Credit Loans made by each Lender shall be
evidenced by a note dated the Closing Date and executed by Borrower in favor of
such Lender substantially in the form of EXHIBIT B (each, a "REVOLVING CREDIT
NOTE" and, collectively, the "REVOLVING CREDIT NOTES"). The Revolving Credit
Note in favor of each Lender shall represent the obligation of Borrower to pay
the amount of such Lender's Commitment or, if less, the aggregate unpaid
principal amount of all Revolving Credit Loans made by such Lender with
interest thereon as prescribed in SECTION 1.4. The entire unpaid balance of the
Revolving Credit Loans of Borrower shall be immediately due and payable in full
on the Commitment Termination Date.
(c) Subject to the terms and conditions of ANNEX B, Borrower
shall have the right to request, and the Lenders and the Agent agree to incur,
Letter of Credit Obligations for Borrower in accordance with ANNEX B.
(d) In the event that the outstanding balance of the Revolving
Credit Loans shall, at any time, exceed any of the applicable limits set forth
in SECTION 1.1(a) above, Borrower shall immediately prepay all Revolving Credit
Loans ratably by the amount of such excess. If the unpaid principal balance of
the Revolving Credit Loans should at any time exceed any of the
above-referenced limits, the excess balance nevertheless shall constitute
Obligations of Borrower that are secured by the Collateral and entitled to all
of the benefits thereof and of the other Loan Documents and shall be evidenced
by the Revolving Credit Notes.
(e) Borrower shall have the right at any time on sixty (60)
days' prior written notice to the Agent and each Lender to prepay all of the
Lenders' Revolving Credit Loans, cause all outstanding Letter of Credit
Obligations to be cancelled, and terminate this Agreement, all without premium
or penalty except as expressly provided in this paragraph or in SECTION 1.6(d)
below, and upon such prepayment, cancellation and termination Borrower's rights
to receive any further Revolving Credit Loans or cause the Lenders and the
Agent to incur any further Letter of Credit Obligations shall simultaneously
terminate; PROVIDED, however, that a prepayment of any Revolving Credit Loan
which constitutes a Fixed Rate Loan may be made without penalty or premium by
Borrower only on the last day of the Interest Period applicable thereto and if
any such prepayment is made on a day that is not the last day of the applicable
Interest Period, Borrower shall pay any additional amount due under SECTION
1.14(d) below. In the event Borrower exercises its right under this paragraph
to prepay the Revolving Credit Loans, cause the Letter of Credit Obligations to
be cancelled and terminate this Agreement, Borrower agrees that such
prepayment, cancellation and termination shall be accompanied by the payment by
Borrower of all accrued and unpaid interest and all Fees and other remaining
Obligations.
-2-
<PAGE> 9
1.2 USE OF PROCEEDS. Borrower shall utilize the proceeds of the
Revolving Credit Loans solely to (i) refinance in full on the Closing Date all
of the Existing Indebtedness described on SCHEDULE 1.2 and finance payment of
the Tax Deficiency (ii) finance the payment of the Fees and expenses associated
with the initial closing of this Agreement, and (iii) finance the working
capital needs of Borrower. Borrower may request that the Lenders and the Agent
incur Letter of Credit Obligations to support any other transaction for which
Borrower could obtain a Revolving Credit Loan pursuant to clause (iii) above.
Borrower may advance the proceeds of any Loans to the Foreign Subsidiary or use
Loan proceeds to finance the working capital needs of the Foreign Subsidiary so
long as the aggregate cumulative principal amount of all such Loans does not
exceed $4,800,000 during any one Fiscal Year.
1.3 SINGLE OBLIGATION The Loans, any Letter of Credit Obligations, and
all of the other Obligations of the Borrower arising under this Agreement and
the other Loan Documents shall constitute one general obligation of the Borrower
secured, until the Termination Date, by all of the Collateral.
1.4 INTEREST. (a) Borrower shall pay interest on the outstanding Loans
to the Agent, for ratable distribution to the Lenders in accordance with their
respective Pro Rata Shares of such Loans, in arrears on the first (1st) day of
each calendar month, commencing with the calendar month following the calendar
month in which the Closing Date occurs, and continuing to be due on the first
(1st) day of each succeeding calendar month thereafter; PROVIDED, however, that
(i) accrued interest on any Fixed Rate Loan shall be payable by Borrower to the
Agent, for ratable distribution to the Lenders as aforesaid, in arrears on the
last day of the Interest Period applicable thereto and (ii) in all cases accrued
interest on all of the Loans shall be payable by Borrower to the Agent, for
ratable distribution to the Lenders as aforesaid, on the Commitment Termination
Date. If any interest on any of the Loans accrues or remains payable after the
Commitment Termination Date, such interest shall be payable by Borrower upon
demand by the Agent or any Lender.
(b) Except as provided in paragraph (c) below, Borrower shall be
obligated to pay interest on the outstanding principal balance of each Loan
from the date such Loan is made until such Loan is repaid in full at a floating
rate (each such rate, a "FLOATING RATE") equal the Prime Rate (as in effect for
each calendar month during the term hereof) PLUS the Applicable Margin
therefor. Loans bearing interest at the Floating Rate are herein referred to as
the "FLOATING RATE LOANS". On the Closing Date and continuing through the last
day of the calendar month in which the Closing Date occurs, the Floating Rate
Loans shall bear interest at the Prime Rate (as in effect on the Business Day
immediately preceding the Closing Date) PLUS the Applicable Margin therefor.
(c) Provided that no Default or Event of Default has occurred
and is then continuing, and subject to the terms and conditions set forth
herein, Borrower may, by a written notice (or by telephonic notice promptly
confirmed in writing) delivered to the Agent not later than 12:00 a.m. (Eastern
Standard Time) on the third (3rd) Business Day prior to the Interest Period
designated by Borrower in such notice (each such notice being herein referred
to
-3-
<PAGE> 10
as a "NOTICE OF FIXED RATE ELECTION"), direct that interest accrue on the
unpaid principal balance of the Loans (or any portion thereof which is in an
amount of not less than $500,000 or any greater integral multiple of $100,000)
outstanding from time to time during such Interest Period (each such Loan or
portion thereof being herein referred to as a "FIXED RATE LOAN") at a fixed
rate per annum (each such rate, a "FIXED RATE") equal to the sum of the
Adjusted LIBOR for such Interest Period PLUS the Applicable Margin therefor;
PROVIDED, however, that (i) not more than four (4) such Interest Periods may be
in effect at any one time, (ii) no Interest Period may extend beyond the
Commitment Termination Date, (iii) any prepayment of a Fixed Rate Loan may be
made without penalty or premium by Borrower only on the last day of the
Interest Period applicable thereto and if any such prepayment is made on a day
that is not the last day of the applicable Interest Period, Borrower shall pay
any additional amount due under SECTION 1.14(d) below, and (iv) upon the
occurrence and during the continuation of any Default or Event of Default, the
Agent may (and the Agent shall, if requested in writing to do so by the
Requisite Lenders) suspend Borrower's right to use the aforesaid Fixed Rate
option. Upon determining the Adjusted LIBOR for an Interest Period requested by
Borrower, the Agent shall promptly notify Borrower and the other Lenders by
telephone (which shall be promptly confirmed in writing) of such determination,
and such determination shall, in the absence of manifest error, be final,
conclusive and binding for all purposes hereunder.
(d) The Agent shall be entitled to rely upon and shall be fully
protected under this Agreement in relying on any Notice of Fixed Rate Election
believed by the Agent to be genuine and to assume that the persons giving the
same on behalf of Borrower were duly authorized unless the responsible
individual acting thereon for the Agent shall have actual notice to the
contrary. In the event that Borrower shall fail to give a new Notice of Fixed
Rate Election with respect to any Fixed Rate Loan at the expiration of the
Interest Period applicable thereto, the entire principal amount of such Fixed
Rate Loan shall thereafter bear interest at the Floating Rate as in effect from
time to time unless and until Borrower thereafter shall give a new Notice of
Fixed Rate Election with respect thereto in accordance with paragraph (c)
above.
(e) All computations of interest hereunder or under the other
Loan Documents shall be made on the basis of a three hundred and sixty (360)
day year, in each case for the actual number of days occurring in the period
for which such interest is payable. Each determination by the Agent of an
interest rate hereunder shall be conclusive and binding for all purposes,
absent manifest error.
(f) So long as any Default or Event of Default shall have
occurred and be continuing, at the election of the Agent (or upon the written
request of the Requisite Lenders) the interest rate applicable to the Loans or
other Obligations shall be increased by up to two percentage points (2%) per
annum above the rate otherwise applicable (the "DEFAULT RATE").
(g) Notwithstanding anything to the contrary set forth in this
SECTION 1.4, if, at any time until payment in full of all of the Obligations,
the rate of interest payable hereunder by Borrower exceeds the highest rate of
interest permissible under any law which a court of competent jurisdiction
shall, in a final determination, deem applicable hereto (the "MAXIMUM LAWFUL
RATE"), then in such event and so long as the Maximum Lawful Rate would
-4-
<PAGE> 11
be so exceeded, the rate of interest payable hereunder by Borrower shall be
equal to the Maximum Lawful Rate; PROVIDED, however, that if at any time
thereafter the rate of interest payable by Borrower hereunder is less than the
Maximum Lawful Rate, Borrower shall continue to pay interest hereunder at the
Maximum Lawful Rate until such time as the total interest received by the
Agent, on behalf of the Lenders, from the making of Revolving Credit Loans
hereunder to Borrower is equal to the total interest which would have been
received had the interest rate payable hereunder by Borrower been (but for the
operation of this paragraph) the interest rate payable since the Closing Date
as otherwise provided in this Agreement. Thereafter, the interest rate payable
by Borrower hereunder shall be the rate of interest otherwise provided in this
SECTION 1.4, unless and until the rate of interest again exceeds the Maximum
Lawful Rate, in which event this paragraph shall again apply. In no event shall
the total interest received by any Lender pursuant to the terms of this
Agreement or any other Loan Document exceed the amount which such Lender could
lawfully have received had the interest due hereunder been calculated for the
full term hereof or thereof at the Maximum Lawful Rate. All interest paid by,
charged to or collected from Borrower hereunder or under any other Loan
Document shall, to the maximum extent permitted by applicable law, be
amortized, allocated and spread throughout the full term of the Obligation on
which it accrued. In the event the Maximum Lawful Rate is calculated pursuant
to this paragraph, such interest shall be calculated at a daily rate equal to
the Maximum Lawful Rate divided by the number of days in the year in which such
calculation is made. In the event that a court of competent jurisdiction,
notwithstanding the provisions of this SECTION 1.4(g), shall make a final
determination that any Lender has received interest hereunder or under any of
the Loan Documents from Borrower in excess of the Maximum Lawful Rate, the
Agent shall, to the extent permitted by applicable law, promptly apply such
excess first to any interest due such Lender from Borrower and not yet paid
hereunder, then to the outstanding principal of the Obligations of Borrower to
such Lender, then to Fees due to such Lender and any other unpaid Obligations
owed by Borrower to such Lender and thereafter shall refund any excess to
Borrower or as a court of competent jurisdiction may otherwise order.
1.5 ELIGIBLE ACCOUNTS AND INVENTORY. (a) Based on the most
recent Borrowing Base Certificate delivered by Borrower to the Agent and on
other information available to the Agent, the Agent shall determine in
accordance with SCHEDULE 1.5(a) which Accounts of Borrower shall be deemed to
be "ELIGIBLE ACCOUNTS" for purposes of determining the maximum amount of the
Revolving Credit Loans or Letter of Credit Obligations, if any, to be advanced
or incurred by the Lenders and/or the Agent hereunder. In determining whether a
particular Account constitutes an Eligible Account, the Agent shall not be
required to include any such Account which does not meet the criteria set forth
on SCHEDULE 1.5(a).
(b) Based on the most recent Borrowing Base Certificate
delivered by Borrower to the Agent and on other information available to the
Agent, the Agent shall determine in accordance with SCHEDULE 1.5(b) which
Inventory of Borrower shall be deemed to be "ELIGIBLE INVENTORY" for purposes
of determining the maximum amount of the Revolving Credit Loans or the Letter
of Credit Obligations, if any, to be advanced or incurred by the Lenders and/or
the Agent hereunder. In determining whether any particular item of Inventory
constitutes Eligible Inventory, the Agent shall not be required to include any
such Inventory which does not meet the criteria set forth on SCHEDULE 1.5(b).
-5-
<PAGE> 12
1.6 FEES. (a) As additional compensation for GE Capital's costs
and risks in making the Revolving Credit Loans available to Borrower during
this Agreement's initial term, Borrower agrees to pay to GE Capital, for its
own account, a non-refundable closing fee of $125,000 (the "CLOSING FEE"). The
Closing Fee shall be fully earned and shall be due on the Closing Date and
there shall be credited against the Closing Fee, the commitment letter fee and
the unused balance (if any) of any underwriting deposit theretofor paid by
Borrower to GE Capital in connection with the Loans.
(b) As additional compensation for the Lenders' costs and risks
in making the Revolving Credit Loans available to Borrower, Borrower agrees to
pay to the Agent, for ratable distribution to the Lenders in accordance with
their Pro Rata Shares, in arrears for the preceding month, on the first day of
each calendar month prior to the Commitment Termination Date and on the
Commitment Termination Date, a fee for Borrower's non-use of available funds
(the "NON-USE FEE") in an amount equal to three-eighths of one percent (0.375%)
per annum of the difference between the daily average for such month of (i) the
Maximum Revolving Credit Loans MINUS (ii) the sum of the outstanding balance of
all of the Letter of Credit Obligations and the aggregate outstanding principal
balance of the Revolving Credit Loans during the period for which the Non-use
Fee is due. The Non-use Fee shall be computed on the basis of a 360-day year
and the actual days elapsed.
(c) The Borrower also shall reimburse the Agent for all expenses
incurred by the Agent in connection with the Agent's monitoring of the
Collateral and Borrower agrees to pay to the Agent a field examination fee (a
"FIELD EXAMINATION FEE") of $600 per day per person in connection with the
Agent's field examinations of the Collateral; provided, however, unless a
Default or Event of Default then exists, the Agent shall not charge Field
Examination Fees for more than two (2) such field examinations during each
12-month period following the Closing Date.
(d) If Borrower terminates this Agreement pursuant to SECTION
1.1(e) above at any time during any period specified below, Borrower shall pay
to the Agent, for ratable distribution to the Lenders in accordance with their
Pro Rata Shares, at the time of such early termination, a fee (the "EARLY
TERMINATION FEE") in an amount equal to the percentage specified below for such
period multiplied by the amount of the Maximum Revolving Credit Loans as then
in effect:
-6-
<PAGE> 13
Period Percentage
------ ----------
Closing Date until (but not including) the
first (1st) anniversary thereof 3.0%
First (1st) anniversary of the Closing Date
until (but not including) the second (2nd)
anniversary thereof 2.0%
Second (2nd) anniversary of the Closing
Date until (but not including) the third
(3rd) anniversary thereof 1.0%
Borrower acknowledges and agrees that (i) it would be difficult
or impractical to calculate the Lenders' actual damages from Borrower's early
termination of this Agreement pursuant to SECTION 1.1(e) above, (ii) the Early
Termination Fee is intended to be a fair and reasonable approximation of such
damages, and (iii) the Early Termination Fee is not intended to be a penalty.
1.7 CASH MANAGEMENT SYSTEMS. On or prior to the Closing Date,
Borrower and Parent will establish, and Borrower and Parent will maintain until
the Termination Date, the Cash Management System described on ANNEX C.
1.8 RECEIPT OF PAYMENTS. Borrower shall make each payment owing by it
hereunder not later than 2:00 p.m. (Eastern Standard time) on the day when due
in lawful money of the United States of America in immediately available funds
to the Collection Account. Solely for purposes of determining the amount of
funds available for borrowing by Borrower hereunder, (a) all payments
(including cash sweeps) consisting of cash, wire, or electronic transfers in
immediately available funds shall be deemed received upon (i) deposit in the
Collection Account, and (ii) notice to the Agent of such deposit, and (b) all
payments consisting of checks, drafts, or similar non-cash items shall be
deemed received when the proceeds thereof are available for withdrawal by the
Agent from the Collection Account.
1.9 APPLICATION AND ALLOCATION OF PAYMENTS. Borrower irrevocably
waives the right to direct the application of any and all payments at any time
or times hereafter received from or on behalf of Borrower, and Borrower
irrevocably agrees that the Agent shall have the continuing exclusive right to
apply any and all such payments against the then due and payable Obligations as
the Agent may deem advisable. In the absence of a specific determination by the
Agent with respect thereto, the same shall be applied to the Obligations in the
following order: (i) then due and payable Fees and the Agent's expenses; (ii)
then due and payable interest payments on the Loans, ratably in proportion to
the interest accrued on each Loan; (iii) Obligations other than Fees, the
Agent's expenses and interest and principal payments; and (iv) then due and
payable principal payments on the Obligations, ratably in proportion to the
aggregate, combined
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principal balance thereof (and such amount shall be applied, first, to any such
Obligations then bearing interest at the Floating Rate then in effect and then
to the Obligations then bearing interest at any Fixed Rate then in effect and
the payments to be applied to the latter Obligations shall be applied to those
having the shortest Interest Periods first). The Agent is authorized to, and at
its option and to the extent permitted by law, the Agent may, make or cause to
be made Revolving Credit Loans by the Lenders (according to their Pro Rata
Shares) to Borrower for payment of all Fees, expenses, Charges, costs,
interest, or other Obligations owing by Borrower under this Agreement or any of
the other Loan Documents if and to the extent such Obligations are not paid as
and when due.
1.10 LOAN ACCOUNT AND ACCOUNTING. Agent shall maintain a loan account
(the "LOAN ACCOUNT") on its books to record: (a) all advances of Loans, (b) all
payments made by Borrower, and (c) all other debits and credits as provided in
this Agreement with respect to the Loans or any other Obligations. All entries
in the Loan Account shall be made in accordance with Agent's customary
accounting practices as in effect from time to time. The balance in the Loan
Account, as recorded on Agent's most recent printout or other written
statement, shall be presumptive evidence of the amounts due and owing to Agent
and Lenders by Borrower; PROVIDED that any failure to so record or any error in
so recording shall not limit or otherwise affect Borrower's duty to pay the
Obligations. Agent shall render to Borrower and the other Lenders a monthly
accounting of transactions with respect to the Loans setting forth the balance
of the Loan Account. Unless Borrower notifies Agent in writing of any objection
to any such accounting (specifically describing the basis for such objection),
within thirty (30) days after the date thereof, each and every such accounting
shall (absent manifest error) be deemed final, binding and conclusive upon
Borrower in all respects as to all matters reflected therein. Only those items
expressly objected to in such notice shall be deemed to be disputed by
Borrower.
1.11 INDEMNITY. Borrower shall indemnify and hold each of the Agent
and the Lenders and their respective Affiliates, officers, directors,
employees, attorneys and agents (each an "INDEMNIFIED PERSON"), harmless from
and against any and all suits, actions, proceedings, claims, damages, losses,
liabilities and expenses (including reasonable attorneys' fees and
disbursements and other costs of investigation or defense, including those
incurred upon any appeal) which may be instituted or asserted against or
incurred by such Indemnified Person as the result of credit having been
extended to Borrower under this Agreement or any of the other Loan Documents or
in connection with or arising out of any of the transactions contemplated
hereunder and thereunder, including any claim, action, suit, proceeding, loss,
cost, damage, liability, deficiency, fine, penalty, punitive, exemplary or
consequential damage or expense (including reasonable attorneys' and
consultants' fees, investigation and laboratory fees, court costs and
litigation expenses), directly or indirectly resulting from, arising out of, or
based upon (i) the presence, Release, use, manufacture, installation,
generation, discharge, storage or disposal, at any time, of any Hazardous
Materials on, under, in or about, or the transportation of any such materials
to or from, any of the Subject Property, or (ii) the violation or alleged
violation by Borrower or any other Credit Party of any law, statute, ordinance,
order, rule, regulation, permit, judgment or license relating to the use,
generation, manufacture, installation, Release, discharge, storage or disposal
of Hazardous Materials to or from any of the Subject Property; which indemnity
shall include, without limitation, (A) any damage, liability, fine, penalty,
punitive,
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exemplary or consequential damage, cost or expense arising from or
out of any claim, action, suit or proceeding for personal injury (including
sickness, disease, death, pain or suffering), tangible or intangible property
damage, compensation for lost wages, business income, profits or other economic
loss, damage to the natural resources or the environment, nuisance, pollution,
contamination, leak, Release or other adverse effect on the environment, and
(B) the cost of any required or necessary repair, cleanup, treatment,
remediation or detoxification of any of the Subject Property and the
preparation and implementation of any closure, disposal, remedial or other
required actions in connection with any of the Subject Property; PROVIDED, that
Borrower shall not be liable for any indemnification to such Indemnified Person
to the extent that any such suit, action, proceeding, claim, damage, loss,
liability or expense results from such Indemnified Person's gross negligence or
willful misconduct. NO INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY
OTHER PARTY HERETO, ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY OF SUCH
PERSON OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY,
FOR INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED
AS A RESULT OF CREDIT HAVING BEEN EXTENDED UNDER THE LOAN DOCUMENTS.
1.12 ACCESS. Each of Parent and Borrower shall, upon not
less than two (2) days' advance notice (unless a Default or Event of Default
shall have occurred and be continuing, in which event no notice shall be
required and the Agent shall have access at any and all times), (i) provide
access during normal business hours to the Agent and any of its officers,
employees and agents, as frequently as the Agent reasonably determines to be
appropriate, to the properties and facilities of any Credit Party; (ii) permit
the Agent and any of its officers, employees and agents to inspect, audit and
make extracts from any Credit Party's records, files and books of account, and
(iii) permit the Agent to inspect, review and evaluate such Credit Party's
accounts and other records, at such Credit Party's locations and at premises
not owned by or leased to such Credit Party. Each of Parent and Borrower shall
promptly make available to the Agent and its counsel, originals or copies of
all books, records, board minutes, contracts, insurance policies, environmental
audits, business plans, files, financial statements (actual and PRO FORMA),
filings with federal, state and local regulatory agencies, and other
instruments and documents which the Agent may request. Each of Parent and
Borrower shall deliver any document or instrument reasonably necessary for the
Agent, as it may from time to time request, to obtain records from any service
bureau or other Person which maintains records for any Credit Party, and shall
maintain duplicate records or supporting documentation on media, including,
without limitation, computer tapes and discs owned by any Credit Party. Each of
Parent and Borrower shall instruct its certified public accountants and its
banking and other financial institutions to make available to the Agent such
information and records as the Agent may reasonably request. Unless a Default
or Event of Default is then continuing, the Agent and the Lenders shall not
exercise any of its rights under this Section if and to the extent the same
unreasonably interferes with the operation of the Credit Parties' business.
1.13 TAXES. (a) Any and all payments by Borrower, Parent or any other
Credit Party hereunder or under the Notes or any other Loan Document shall be
made, in accordance with this SECTION 1.13, free and clear of and without
deduction for any and all present or future
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<PAGE> 16
Taxes. If Borrower shall be required by law to deduct any Taxes from or in
respect of any sum payable hereunder or under the Notes or any other Loan
Document, (i) the sum payable shall be increased as may be necessary so that
after making all required deductions (including deductions applicable to
additional sums payable under this SECTION 1.13) each of the Lenders and the
Agent receives an amount equal to the sum it would have received had no such
deductions been made, (ii) Borrower shall make such deductions, and (iii)
Borrower shall pay the full amount deducted to the relevant taxing or other
authority in accordance with applicable law.
(b) Borrower shall indemnify and pay, within 10 days of demand
therefor, the Agent or any Lender for the full amount of Taxes (including
without limitation, any Taxes imposed by any jurisdiction on amounts payable
under this SECTION 1.13) paid by the Agent or such Lender and any liability
(including penalties, interest and expenses) arising therefrom or with respect
thereto, whether or not such Taxes were correctly or legally asserted.
(c) Within 30 days after the date of any payment of Taxes,
Borrower shall furnish or cause to be furnished to the Agent, at its address
referred to in SECTION 10.9, the original or a certified copy of a receipt
evidencing payment thereof.
(d) Each Lender organized under the laws of a jurisdiction
outside the United States (a "FOREIGN LENDER") as to which payments to be made
under this Agreement or under the Notes are exempt from United States
withholding tax under an applicable statute or tax treaty shall provide to
Borrower and Agent a properly completed and executed IRS Form 4224 or Form 1001
or other applicable form, certificate or document prescribed by the IRS or the
United States certifying as to such Foreign Lender's entitlement to such
exemption (a "CERTIFICATE OF EXEMPTION"). Any foreign Person that seeks to
become a Lender under this Agreement shall provide a Certificate of Exemption
to Borrower and Agent prior to becoming a Lender hereunder. No foreign Person
may become a Lender hereunder if such Person is unable to deliver a Certificate
of Exemption.
1.14 CAPITAL ADEQUACY; INCREASED COSTS; ILLEGALITY. (a) If (i) any
Lender determines that the making or maintenance by it of any Fixed Rate Loan
hereunder would violate any applicable law, rule or regulation or the
interpretation or application thereof (whether or not having the force of law),
(ii) any Lender determines that deposits of the type and maturity appropriate
to fund any Fixed Rate Loan or any Interest Period hereunder are not available
in the relevant market, or (iii) any Lender determines that, due to
circumstances affecting such Lender or the relevant market or such Lender's
position in such market at the time a Notice of Fixed Rate Election is given,
the Adjusted LIBOR does not fully reflect such Lender's cost of maintaining
particular interest rate options and/or Interest Periods hereunder, then the
availability of the Fixed Rate option and/or any particular Interest Period
therefor may be suspended by such Lender for new Interest Periods until such
time as such Lender determines, in its judgment, that market conditions or
legal considerations permit the same to be reinstated.
(b) If, due to either (i) the introduction of or any change
(other than a change by way of imposition of or increase in reserve
requirements already included in computing the relevant Fixed Rate) in or in
the interpretation of any law or regulation after the date hereof or
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<PAGE> 17
(ii) the compliance with any guideline or request from any central bank or
other Governmental Authority issued after the date hereof (whether or not
having the force of law), there shall be any increase in the cost to any Lender
of agreeing to make or making, funding or maintaining any Fixed Rate Loan
(other than an increase in the Adjusted LIBOR or the Prime Rate itself, as the
case may be), then within ten (10) days after written notice and demand by such
Lender, Borrower shall from time to time pay such Lender such additional
amounts as are sufficient to compensate such Lender for such increased cost.
Each such notice and demand shall be accompanied by a certificate of such
Lender setting forth in reasonable detail the basis for computing the
additional amount claimed by such Lender, and each such certificate shall, in
the absence of manifest error, be conclusive evidence of the amount of such
cost.
(c) Without limiting paragraph (b) above, in the event that any
Lender determines after the date hereof that the introduction or change after
the date of this Agreement of any law, treaty, governmental (or
quasi-governmental) rule, regulation, guideline or order regarding capital
adequacy, or any change therein or in the interpretation or application thereof
after the date of this Agreement, or compliance by such Lender with any request
or directive regarding capital adequacy (whether or not having the force of law
and whether or not failure to comply therewith would be unlawful) from a
central bank or governmental authority or body having jurisdiction which is
introduced or changed after the date of this Agreement, does or shall have the
effect of reducing the rate of return on the such Lender's capital as a
consequence of its obligations hereunder to a level below that which such
Lender could have achieved but for such law, treaty, rule, regulation,
guideline or order or such change or compliance (taking into consideration such
Lender's policies with respect to capital adequacy and assuming the full
utilization of such Lender's capital immediately before such adoption, change
or compliance) by an amount reasonably deemed by such Lender to be material,
then such Lender shall promptly after its determination of such occurrence
notify the Borrower thereof. The Borrower agrees to pay to such Lender as an
additional fee from time to time, within ten (10) days after written notice and
demand by such Lender, such amount as such Lender certifies to be the amount
that will compensate it for such reduction in connection with its obligations
hereunder. A certificate of such Lender claiming compensation under this
paragraph shall be conclusive in the absence of manifest error or fraud and
shall set forth the nature of the occurrence giving rise to such compensation,
the additional amount or amounts to be paid to it hereunder and the method by
which such amounts were determined. In determining such amount, such Lender may
use reasonable averaging and attribution methods.
(d) In order to induce each Lender to fund and maintain any
Fixed Rate Loan at a Fixed Rate on the terms provided herein, and in
consideration of such Lender's entering into funding arrangements from time to
time in contemplation thereof, Borrower agrees that if any Fixed Rate Loan made
by such Lender is repaid or prepaid in full or in part on any day other than
the last day of the Interest Period therefor (whether any such repayment or
prepayment is voluntarily made by Borrower or is required to be made pursuant
to any provision of this Agreement or any other Loan Document or is the result
of acceleration, by operation of law or otherwise), Borrower shall pay to such
Lender, upon the request of such Lender, such amount or amounts as shall
compensate such Lender for any loss, cost or expense incurred by such Lender
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<PAGE> 18
(as determined by such Lender in its sole judgment) by reason of the
liquidation or re-employment of funds acquired or committed to be acquired by
Lender to fund or maintain such Fixed Rate Loan, pursuant to such Lender's
customary funding arrangements. The amount of any such loss or expense shall
include the excess, if any, of (i) such Lender's cost or deemed cost of
obtaining funding for the amount necessary to fund or maintain such Fixed Rate
Loan for the Interest Period applicable thereto over (ii) the return such
Lender will receive on it re-employment of such funds, each as determined by
Lender in its sole judgment. Without limiting the generality of the foregoing,
each Lender may compute such loss or expense on the basis of such funds having
been borrowed by such Lender at a rate equal to the interest rate on United
States Treasury bills or notes with a maturity that most closely approximates
the end of the relevant Interest Period as quoted by Telerate News Service
(page 5) at the close of business on the first (1st) day of the Interest Period
in respect of such Fixed Rate Loan, and on the reinvestment by such Lender of
such funds in United States Treasury bills or notes with a maturity that most
closely approximates the end of the relevant Interest Period as quoted by
Telerate News Service (page 5) at the close of business on the date of
repayment or prepayment of such Fixed Rate Loan (or as such United States
Treasury bill or note rates are quoted by such other nationally-recognized
quote service as may be specified by such Lender to the Borrower from time to
time). Each such request shall be accompanied by a certificate of the
requesting Lender setting forth in reasonable detail the basis for computing
the amount of such loss or expense, and each such certificate shall, in the
absence of manifest error, be conclusive.
(e) The calculation of all amounts payable to any Lender under
this Agreement with respect to any Fixed Rate Loan made by it shall be made as
though such Lender had actually funded such Fixed Rate Loan through the
purchase of deposits in the relevant market and in an amount equal to the
amount of the Fixed Rate Loan and having a maturity comparable to the relevant
Interest Period and through the transfer of such Fixed Rate Loan from an
offshore office of such Lender to a domestic office of such Lender in the
United States of America; PROVIDED, however, that such Lender may fund each of
the Fixed Rate Loans in any manner it sees fit and the foregoing assumptions
shall be used only for calculation of amounts which may be payable by Borrower
to such Lender under this Agreement with respect thereto.
2. CONDITIONS PRECEDENT
2.1 CONDITIONS TO THE INITIAL LOANS OR INITIAL LETTER OF
CREDIT OBLIGATIONS. Notwithstanding any other provision of this Agreement and
without affecting in any manner the rights of the Lenders and the Agent
hereunder, the Lenders and the Agent shall not be obligated hereunder to make
the initial Loans or to incur the initial Letter of Credit Obligations, or to
take, fulfill, or perform any other action hereunder, unless and until each and
every of the following conditions have been satisfied, in the Agent's and the
initial Lenders' sole discretion, or waived in writing by the Agent and the
initial Lenders:
(a) This Agreement or counterparts thereof shall have been duly
executed by, and delivered to, Borrower, Parent, the initial Lenders and the
Agent.
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<PAGE> 19
(b) The Agent shall have received such documents, instruments
and agreements as the Agent shall reasonably request in connection with the
transactions contemplated by this Agreement, including all documents,
instruments, agreements listed in the Schedule of Documents, each in form and
substance reasonably satisfactory to the Agent.
(c) Evidence satisfactory to the Agent that the Existing
Indebtedness will be
refinanced in full on the Closing Date from the proceeds of the initial Loans
and that all Liens on any Credit Party's assets securing the Existing
Indebtedness will be terminated and released on the Closing Date.
(d) Evidence satisfactory to the Agent that each Credit Party
has obtained consents and acknowledgments of all Persons whose consents and
acknowledgments may be required (if any), including, but not limited to, all
requisite Governmental Authorities, to the terms, and to the execution and
delivery, of this Agreement and the other Loan Documents and the consummation
of the transactions contemplated hereby and thereby.
(e) Evidence satisfactory to the Agent that the insurance
policies provided for in SECTION 3.20 and SCHEDULE 3.20 are in full force and
effect, together with appropriate evidence showing loss payable endorsements or
clauses in favor of the Agent and in form and substance acceptable to the
Agent, and that the Agent has been named an additional insured under each
Credit Party's liability policies, all as required by SECTION 5.5(b) hereof.
(f) A duly completed and executed initial Borrowing Base
Certificate shall have been delivered to the Agent by Borrower demonstrating to
the Agent's satisfaction that the Eligible Accounts and Eligible Inventory of
Borrower supporting the initial Loans and the initial Letter of Credit
Obligations (net of the amount, if any, of the reserves to be established on
the Closing Date) are sufficient in value, as determined by the Agent, to
provide Borrower with an Unused Borrowing Availability after giving effect to
all such initial Loans and the initial Letter of Credit Obligations (including
without limitation all such Loans used to refinance the Existing Indebtedness
and to pay the Tax Deficiency) of not less than $2,000,000.
(g) Payment by Borrower of the Fees due on the Closing Date as
provided in SECTION 1.6 above together with all fees, costs and expenses of
closing incurred by the Agent(including fees of consultants and special counsel
to the Agent presented as of the Closing Date) to the extent Borrower is
obligated to reimburse the Agent therefor pursuant to SECTION 10.2 hereof.
2.2 FURTHER CONDITIONS TO EACH LOAN OR LETTER OF CREDIT
OBLIGATION. It shall be a further condition to the funding of the initial and
each subsequent Loan and to the incurrence of the initial and each subsequent
Letter of Credit Obligation that each and every of the following statements
shall be true on the date of each such funding or incurrence, as the case may
be:
(a) All of the Credit Parties' representations and warranties
contained herein or in any of the other Loan Documents shall be true and
correct in all material respects on and as of the Closing Date and the date on
which each such Loan is made or each such Letter of
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<PAGE> 20
Credit Obligation is incurred as though made or incurred on and as of such
date, except to the extent that any such representation or warranty expressly
relates to an earlier date and except for changes therein expressly permitted
or expressly contemplated by this Agreement or such other Loan Document.
(b) No event shall have occurred and be continuing, or would
result from the making of such Loan or the incurrence of such Letter of Credit
Obligation, which constitutes or would constitute a Default or an Event of
Default.
(c) After giving effect to the making of such Loan or the
incurrence of such Letter of Credit Obligation, the aggregate principal amount
of the Revolving Credit Loans shall not exceed the maximum amount permitted by
SECTION 1.1(a) and SECTION 1.1(d) and the aggregate outstanding Letter of
Credit Obligations shall not exceed the maximum amount permitted by ANNEX B.
(d) Each of the conditions set forth in SECTION 2.1(a) through
(e) shall continue to be satisfied by Borrower as of such date.
(e) No action, proceeding, investigation, regulation or
legislation shall have been instituted, threatened or proposed before any
court, governmental agency or legislative body to enjoin, restrain or prohibit,
or to obtain damages in respect of, or which is related to or arises out of
this Agreement or any of the other Loan Documents or the consummation of the
transactions contemplated thereby and which, in the Agent's sole judgment,
would make it inadvisable to consummate the transactions contemplated by this
Agreement or any of the other Loan Documents.
Each request or acceptance by Borrower of the proceeds of any Loan, and each
request by Borrower for the incurrence of any Letter of Credit Obligation,
shall be deemed to constitute, as of the date of such request or acceptance,
(i) a representation and warranty by Borrower and Parent that the conditions in
this SECTION 2.2 have been satisfied and (ii) a confirmation by all Credit
Parties of the granting and continuance of the Agent's Liens in the Collateral
pursuant to the Collateral Documents.
3. REPRESENTATIONS AND WARRANTIES
To induce the Lenders and the Agent to make the Loans and
Letter of Credit Obligations available to Borrower, and to make Loans and to
incur Letter of Credit Obligations in each case as herein provided for, each of
Parent and Borrower makes (as to itself and each other Credit Party) the
following representations and warranties to the Lenders and the Agent, each and
all of which shall be true and correct as of the date of execution and delivery
of this Agreement and shall survive the execution and delivery of this
Agreement:
3.1 CORPORATE EXISTENCE; COMPLIANCE WITH LAW. Each Credit Party
(i) is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or organization and is
duly qualified to do business and is in good
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<PAGE> 21
standing in each other jurisdiction where its ownership or lease of property or
the conduct of its business requires such qualification; (ii) has the requisite
corporate power and authority and the legal right to obtain credit, to own,
pledge, mortgage or otherwise encumber and operate its properties, to lease the
property it operates under lease, and to conduct its business as now,
heretofore and proposed to be conducted; (iii) has all licenses, permits,
consents or approvals from or by, and has made all filings with, and has given
all notices to, all Governmental Authorities having jurisdiction, to the extent
required for such ownership, operation and conduct; (iv) is in compliance with
its certificate or articles of incorporation and by-laws; and (v) is in
compliance with all applicable provisions of law where the failure to comply
could reasonably be expected to result in a Material Adverse Effect.
3.2 EXECUTIVE OFFICE; CORPORATE OR OTHER NAMES. The current
location of the chief executive office and principal place of business of each
of Borrower and Parent are set forth on SCHEDULE III to the Security Agreement
executed by such Credit Party. During the five-year period immediately
preceding the date of this Agreement, each such Credit Party has not been known
as or used any corporate, fictitious or trade names except as disclosed on
SCHEDULE III to the Security Agreement executed by such Credit Party.
3.3 CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. The
execution, delivery and performance by each Credit Party of the Loan Documents
executed by it and all instruments and documents to be delivered by such Credit
Party hereunder and thereunder and the creation of all Liens provided for
herein and therein: (i) are within such Credit Party's corporate power; (ii)
have been duly authorized by all necessary or proper corporate and shareholder
action on its part; (iii) are not in contravention of any provision of such
Credit Party's certificate or articles of incorporation or by-laws; (iv) will
not violate any law or regulation, or any order or decree of any court or
governmental instrumentality; (v) will not conflict with or result in the
breach or termination of, constitute a default under or accelerate any
performance required by, any indenture, mortgage, deed of trust, lease,
agreement or other instrument to which such Credit Party is a party or by which
any such Person or any of its property is bound; (vi) will not result in the
creation or imposition of any Lien upon any of the property of any Credit Party
other than those in favor of the Agent, all pursuant to the Loan Documents; and
(vii) do not require the consent or approval of any Governmental Authority or
any other Person, except those referred to in SECTION 2.1(d), all of which will
have been duly obtained, made or complied with prior to the Closing Date. At or
prior to the Closing Date, each of the Loan Documents shall have been duly
executed and delivered for the benefit of or on behalf of the Credit Party
which executed it and each shall then constitute a legal, valid and binding
obligation of such Credit Party, enforceable against it in accordance with its
terms.
3.4 FINANCIAL STATEMENTS AND PROJECTIONS. Parent and Borrower
have delivered the financial statements and projections identified on SCHEDULE
3.4, and each such financial statement complies with the description thereof
contained on SCHEDULE 3.4.
3.5 MATERIAL ADVERSE CHANGE. Neither Parent, Borrower nor any
other Credit Party, as of March 31, 1996, had any obligations, contingent
liabilities, or liabilities for Charges, long-term leases or unusual forward or
long-term commitments which are not reflected in the
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<PAGE> 22
financial statements (including footnotes) of the Credit Parties as of and for
the period ending with such date which were heretofore delivered by them to the
Agent and which could reasonably be expected, alone or in the aggregate, to
have or result in a Material Adverse Effect. Except for the Fourth Quarter 1997
Restructuring Charges, there has been no material adverse change in the
business, assets, operations, prospects or financial or other condition of the
Credit Parties taken as a whole since March 31, 1996.
3.6 OWNERSHIP OF PROPERTY; LIENS. (a) Except as described on
SCHEDULE 3.6, the real estate listed on SCHEDULE 3.6 constitute all of the real
property owned, leased, or used by any Credit Party in its business. Each such
Credit Party owns: (i) good fee simple title to all of such Person's real
estate, and valid leasehold interests in all of such Person's Leases (both as
lessor and lessee, sublessee or assignee), all as described on SCHEDULE 3.6,
and (ii) good title to, or valid leasehold interests in, all of its other
properties and assets, and none of the properties and assets of such Person are
subject to any Liens, except Permitted Encumbrances; and each such Credit Party
has received all deeds, assignments, waivers, consents, non-disturbance and
recognition or similar agreements, bills of sale and other documents, and duly
effected all recordings, filings and other actions necessary to establish,
protect and perfect such Person's right, title and interest in and to all such
real estate and other assets or property. Except as described on SCHEDULE 3.6,
(i) neither any Credit Party nor any other party to any such Lease described on
SCHEDULE 3.6 is in default of its obligations thereunder or has delivered or
received any notice of default under any such Lease, and no event has occurred
which, with the giving of notice, the passage of time or both, would constitute
a default under any such Lease; (ii) no Credit Party owns or holds, or is
obligated under or a party to, any option, right of first refusal or any other
contractual right to purchase, acquire, sell, assign or dispose of any real
property owned or leased by such Person except as set forth therein; and (iii)
no portion of any real property owned or leased by any Credit Party has
suffered any material damage by fire or other casualty loss or a Release which
has not heretofore been completely repaired and restored to its original
condition or is being remedied. All permits required to have been issued or
appropriate to enable all real property owned or leased by any Credit Party to
be lawfully occupied and used for all of the purposes for which it is currently
occupied and used, has been lawfully issued and is, as of the date hereof, in
full force and effect.
3.7 RESTRICTIONS; NO DEFAULT. No contract, lease, agreement or
other instrument to which any Credit Party is a party or by which any such
Person or any of its properties or assets is bound or affected and no provision
of applicable law or governmental regulation has or results in a Material
Adverse Effect, or insofar as any Credit Party can reasonably foresee could
have or result in a Material Adverse Effect. No Credit Party is in default, and
to Borrower's knowledge no third party is in default, under or with respect to
any material contract, agreement, lease or other instrument to which any such
Credit Party is a party. No Default or Event of Default has occurred and is
continuing.
3.8 LABOR MATTERS. There are no strikes or other labor disputes
against any Credit Party that is pending or, to Parent's or Borrower's
knowledge, threatened which could have or result in a Material Adverse Effect.
Hours worked by and payments made to employees of each Credit Party have not
been in violation of the Fair Labor Standards Act or any other
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applicable law dealing with such matters which could have or result in a
Material Adverse Effect. All payments due from each Credit Party on account of
employee health and welfare insurance which could reasonably be expected to
have or result in a Material Adverse Effect if not paid have been paid or
accrued as a liability on the books of such Credit Party. No Credit Party has
any obligation under any collective bargaining agreement or any employment
agreement except as set forth on SCHEDULE 3.8. There is no organizing activity
involving any Credit Party pending or threatened by any labor union or group of
employees except as set forth on SCHEDULE 3.8. Except as set forth on SCHEDULE
3.8, there are no representation proceedings involving employees of any Credit
Party pending or threatened with the National Labor Relations Board, and no
labor organization or group of employees of any Credit Party have made a
pending demand for recognition. There are no complaints or charges against any
Credit Party pending or threatened to be filed with any federal, state, local
or foreign court, governmental agency or arbitrator based on, arising out of,
in connection with, or otherwise relating to the employment or termination of
employment by such Credit Party of any individual except as set forth on
SCHEDULE 3.8.
3.9 SUBSIDIARIES, JOINT VENTURES AND AFFILIATES; OUTSTANDING
STOCK AND INDEBTEDNESS. Except as set forth on SCHEDULE 3.9, Parent has no
Subsidiaries. Except as set forth on SCHEDULE 3.9, neither Parent nor any of
its Subsidiaries is engaged in any joint venture or partnership with any other
Person, or is an Affiliate of any other Person. All outstanding Stock and
Indebtedness of Parent and its Subsidiaries are described on SCHEDULE 3.9.
3.10 GOVERNMENT REGULATION. No Credit Party is 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. No Credit Party is subject to regulation under
the Public Utility Holding Company Act of 1935, the Federal Power Act, the
Interstate Commerce Act or any other federal or state statute that restricts or
limits such Person's ability to incur Indebtedness, pledge its assets or to
perform its obligations hereunder or under any other Loan Document and the
making of any Loans by the Lenders, the incurring of any Letter of Credit
Obligations by the Agent and/or the Lenders, the application of the proceeds of
any such Revolving Credit Loans or credits and repayment thereof by Borrower or
the other Credit Parties and the consummation of the transactions contemplated
by this Agreement and the other Loan Documents will not violate any provision
of any such statute or any rule, regulation or order issued by the Securities
and Exchange Commission.
3.11 MARGIN REGULATIONS. None of the Credit Parties owns any
"margin security", as that term is defined in Regulations G and U of the Board
of Governors of the Federal Reserve System (the "FEDERAL RESERVE BOARD"), and
none of the proceeds of any of the Loans or the Letters of Credit will be used,
directly or indirectly, for the purpose of purchasing or carrying any margin
security, 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 cause any of the loans or other extensions of credit under
this Agreement to be considered a "purpose credit" within the meaning of
Regulation G, T, U or X of the Federal Reserve Board. Borrower will not take or
permit to be taken any action which might cause this Agreement or any document
or instrument delivered pursuant hereto to violate any regulation of the
Federal Reserve Board.
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3.12 TAXES. Except as disclosed on SCHEDULE 3.12,
all federal, state, local and foreign tax returns, reports and statements
required to be filed by any Credit Party have been filed with the appropriate
Governmental Authority and all Charges and other impositions shown thereon to
be due and payable have been paid prior to the date on which any fine, penalty,
interest or late charge may be added thereto for nonpayment thereof, or any
such fine, penalty, interest, late charge or loss has been paid. Except as
disclosed on SCHEDULE 3.12, each Credit Party has paid when due and payable all
Charges required to be paid by it. Proper and accurate amounts have been
withheld by each Credit Party from its respective employees for all periods in
full and complete compliance with the tax, social security and unemployment
withholding provisions of applicable federal, state, local and foreign law and
such withholdings have been timely paid to the respective Governmental
Authorities. SCHEDULE 3.12 sets forth those taxable years for which any Credit
Party's tax returns are being audited by the IRS or any other applicable
Governmental Authority and any assessments or threatened assessments in
connection with such audit or which are otherwise outstanding. Except as
described on SCHEDULE 3.12, none of the Credit Parties has (i) executed or
filed with the IRS or any other Governmental Authority any agreement or other
document extending, or having the effect of extending, the period for
assessment or collection of any Charges, (ii) filed a consent pursuant to IRC
Section 341(f) or agreed to have IRC Section 341(f)(2) apply to any
dispositions of subsection (f) assets (as such term is defined in IRC Section
341(f)(4)), or (iii) agreed to make any adjustment under IRC Section 481(a) by
reason of a change in accounting method or otherwise. None of the Credit
Parties has any obligations under any tax sharing agreement except as disclosed
on SCHEDULE 3.12. Parent and Borrower shall cause the Tax Deficiency to be paid
on the Closing Date with the proceeds of the initial Loans made hereunder.
3.13 ERISA. (a) SCHEDULE 3.13 lists all Plans maintained or
contributed to by any Credit Party and all Qualified Plans maintained or
contributed to by any other ERISA Affiliate, and separately identifies the
Title IV Plans, Multiemployer Plans, any multiple employer plans subject to
Section 4064 of ERISA, unfunded Pension Plans, Welfare Plans and Retiree
Welfare Plans. Each Qualified Plan has been determined by the IRS to qualify
under Section 401 of the IRC, and the trusts created thereunder have been
determined to be exempt from tax under the provisions of Section 501 of the
IRC, and to the best knowledge of Parent and Borrower nothing has occurred
which would cause the loss of such qualification or tax-exempt status. Each
Plan is in compliance with the applicable provisions of ERISA and the IRC,
including the filing of reports required under the IRC or ERISA which are true
and correct as of the date filed, and with respect to each Plan, other than a
Qualified Plan, all required contributions and benefits have been paid in
accordance with the provisions of each such Plan. Neither any Credit Party nor
any other ERISA Affiliate, with respect to any Qualified Plan, has failed to
make any contribution or pay any amount due as required by Section 412 of the
IRC or Section 302 of ERISA or the terms of any such Plan. None of the Credit
Parties has been engaged in a prohibited transaction, as defined in Section
4975 of the IRC or Section 406 of ERISA, in connection with any Plan, which
would subject any or all of the Credit Parties (after giving effect to any
exemption) to a material tax on prohibited transactions imposed by Section 4975
of the IRC or any other material liability.
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(a) Except as set forth on SCHEDULE 3.13: (i) no Title IV Plan
has any Unfunded Pension Liability; (ii) No ERISA Event or event described in
Section 4062(e) of ERISA with respect to any Title IV Plan has occurred or is
reasonably expected to occur; (iii) there are no pending, or to the knowledge
of Parent or Borrower, threatened claims, actions or lawsuits (other than
claims for benefits in the normal course), asserted or instituted against (x)
any Plan or its assets, (y) any fiduciary with respect to any Plan or (z) any
Credit Party or any other ERISA Affiliate with respect to any Plan; (iv)
neither any Credit Party nor any other ERISA Affiliate has incurred or
reasonably expects to incur any Withdrawal Liability (and no event has occurred
which, with the giving of notice under Section 4219 of ERISA, would result in
such liability) under Section 4201 of ERISA as a result of a complete or
partial withdrawal from a Multiemployer Plan; (v) within the last five years,
neither Credit Party nor or any other ERISA Affiliate has engaged in a
transaction which resulted in a Title IV Plan with Unfunded Pension Liabilities
being transferred outside of the "controlled group" (within the meaning of
Section 4001(a)(14) of ERISA) of any such entity; (vi) no plan which is a
Retiree Welfare Plan provides for continuing benefits or coverage for any
participant or any beneficiary of a participant after such participant's
termination of employment for reasons other than retirement (except as may be
required by Section 4980B of the IRC and at the sole expense of the participant
or the beneficiary of the participant); (vii) the Credit Parties and the other
ERISA Affiliates have complied with the notice and continuation coverage
requirements of Section 4980B of the IRC and the regulations thereunder except
where the failure to comply could not reasonably be expected have or result in
any Material Adverse Effect; and (viii) no liability under any Plan has been
funded, nor has such obligation been satisfied, with the purchase of a contract
from an insurance company that is not rated AAA by the Standard & Poor's
Corporation and the equivalent by each other nationally recognized rating
agency.
3.14 NO LITIGATION. Except as set forth on SCHEDULE 3.8 or
SCHEDULE 3.14, no action, claim or proceeding is now pending or, to the
knowledge of Parent or Borrower, threatened against any Credit Party at law, in
equity or otherwise, before any court, board, commission, agency or
instrumentality of any federal, state, or local government or of any agency or
subdivision thereof, or before any arbitrator or panel of arbitrators, (i)
which challenges any Credit Party's right, power or competence to enter into or
perform any of its obligations under any Loan Document, or the validity or
enforceability of any Loan Document or any action hereunder or thereunder or
(ii) which if determined adversely, could reasonably be expected to have or
result in a Material Adverse Effect, nor to the knowledge of Parent or Borrower
does a state of facts exist which is reasonably likely to give rise to such
proceedings.
3.15 BROKERS. Except as set forth on SCHEDULE 3.15, no broker or
finder acting on behalf of Parent, Borrower or any other Credit Party brought
about the obtaining, making or closing of the loans made pursuant to this
Agreement or the other credit transactions contemplated by the Loan Documents
and none of the Credit Parties has any obligation to any Person in respect of
any finder's or brokerage fees in connection therewith.
3.16 EMPLOYMENT MATTERS. Except as set forth on SCHEDULE 3.16,
there are no (i) employment, consulting or management agreements covering
management of any or all of the Credit Parties, or (ii) collective bargaining
agreements or other labor agreements covering any
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employee of any Credit Party. A true and complete copy of each such agreement
has been furnished to the Agent by Borrower or Parent.
3.17 PATENTS, TRADEMARKS, COPYRIGHTS AND LICENSES. Except as
otherwise set forth on SCHEDULE 3.17, each Credit Party owns all material
licenses, patents, patent applications, copyrights, service marks, trademarks,
trademark applications, and trade names necessary to continue to conduct its
business as heretofore conducted by it, now conducted by it and proposed to be
conducted by it, each of which is listed, together with Patent and Trademark
Office application or registration numbers, where applicable, on SCHEDULE 3.17.
SCHEDULE 3.17 lists all tradenames or other names under which each Credit Party
conducts business. Each Credit Party conducts its business without infringement
or claim of infringement of any license, patent, copyright, service mark,
trademark, trade name, trade secret or other intellectual property right of
others, except where such infringement or claim of infringement could not have
or result in a Material Adverse Effect. To the Parent's and the Borrower's
knowledge there is no infringement or claim of infringement by others of any
material license, patent, copyright, service mark, trademark, trade name, trade
secret or other intellectual property right of any Credit Party.
3.18 FULL DISCLOSURE. No information contained in this
Agreement, the other Loan Documents, the Projections, the Financials or any
written statement furnished by or on behalf of any Credit Party pursuant to the
terms of this Agreement, which has previously been delivered to the Agent or
any Lender, contains any untrue statement of a material fact or omits to state
a material fact necessary to make the statements contained herein or therein
not misleading in light of the circumstances under which they were made. No
event has occurred since March 31, 1996 and is continuing which has had or
could reasonably be expected to have or result in a Material Adverse Effect
(other than the Fourth Quarter 1997 Restructuring Charges).
3.19 HAZARDOUS MATERIALS. Except as set forth on SCHEDULE 3.19,
to the Parent's and Borrower's knowledge the Subject Property is free of any
material contamination from any Hazardous Material. In addition, SCHEDULE 3.19
discloses potential material environmental liabilities of any Credit Party of
which the Parent or Borrower has knowledge (i) related to noncompliance with
the Environmental Laws or (ii) associated with the Subject Property. Except as
set forth on SCHEDULE 3.19, none of the Credit Parties has caused or suffered
to occur any material Release of any Hazardous Material at, under, above or
within any of the Subject Property.
3.20 INSURANCE POLICIES. SCHEDULE 3.20 PART II lists all
insurance of any nature maintained for current occurrences by the Credit
Parties, as well as a summary of the terms of such insurance. Parent and
Borrower covenant that such Insurance complies with and shall at all times
comply with the standards set forth on SCHEDULE 3.20, PART I.
3.21 CASH MANAGEMENT AND OTHER DEPOSIT ACCOUNTS. SCHEDULE 3.21
list all banks at which any Credit Party maintains any deposit and/or other
such accounts, including, without limitation, the Cash Management Accounts, and
such Schedule correctly identifies the name, address and telephone number of
each such bank, the name in which each such account is held at such bank, a
description of the purpose of each such account, and the complete account
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number for each such account. No Credit Party shall establish or maintain (or
permit any of its Subsidiaries to establish or maintain) any other deposit
accounts with any bank or other financial institution.
3.22 SOLVENT FINANCIAL CONDITION. On the date of this Agreement
as well as after giving effect to each Loan made hereunder and each Letter of
Credit Obligation incurred hereunder, each of Parent and Borrower is and will
be Solvent.
4. FINANCIAL STATEMENTS AND INFORMATION
4.1 REPORTS AND NOTICES. Each of Parent and Borrower covenant
and agree that from and after the Closing Date and until the Termination Date,
it shall deliver or cause to be delivered to the Agent and/or the Lenders, as
required, the Financial Statements, notices and Projections at the times and in
the manner set forth on SCHEDULE 4.1.
4.2 COMMUNICATION WITH ACCOUNTANTS. Each of Parent and Borrower
authorizes (and shall cause each of the other Credit Parties to authorize) the
Agent and the Lenders to communicate directly with its and the other Credit
Parties' independent certified public accountants and tax advisors and
authorizes those accountants to disclose to the Agent and the Lenders any and
all financial statements and other supporting financial documents and schedules
including copies of any management letter with respect to the business,
financial condition and other affairs of the Credit Parties. At or before the
Closing Date, Parent and Borrower shall deliver a letter addressed to such
accountants and tax advisors instructing them to comply with the provisions of
this SECTION 4.2 and authorizing the Agent and the Lenders to rely on the
certified financial statements prepared by such accountants. Each such letter
shall be in the form of EXHIBIT I or in such other form as may be acceptable to
the Agent.
5. AFFIRMATIVE COVENANTS
Each of Parent and Borrower covenants and agrees (for itself
and the other Credit Parties) that, unless the Requisite Lenders and the Agent
shall otherwise consent in writing, from and after the date hereof and until
the Termination Date:
5.1 MAINTENANCE OF EXISTENCE AND CONDUCT OF BUSINESS. Each of
Parent and Borrower shall, and shall cause each of the other Credit Parties to,
(a) do or cause to be done all things necessary to preserve and keep in full
force and effect such Person's corporate existence and its rights and
franchises; (b) continue to conduct such Person's business substantially as now
conducted or as otherwise permitted hereunder; (c) at all times take all
commercially reasonable steps to maintain, preserve and protect all of such
Person's trademarks, trade names and all other intellectual property and rights
as licensee or licensor thereof, and to preserve all the remainder of such
Person's property, in use or useful in the conduct of its business, and to keep
the same in good repair, working order and condition (taking into consideration
ordinary wear and tear) and from time to time to make, or cause to be made, all
necessary and commercially reasonable repairs, replacements and improvements
thereto consistent with industry practices, so that the business carried on in
connection therewith may be properly and advantageously conducted at all
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times; and (d) in the case of each such Credit Party, transact business only in
its corporate name or such fictitious or trade names as are expressly disclosed
in the Security Agreement executed by such Credit Party.
5.2 PAYMENT OF OBLIGATIONS. (a) Each of Parent and Borrower
shall, and shall cause each of the other Credit Parties to, (i) pay and
discharge or cause to be paid and discharged all such Person's Obligations, and
(ii) prior to an Event of Default, pay and discharge, or cause to be paid and
discharged, such Person's Indebtedness other than the Obligations, and, subject
to SECTION 5.2(b), pay and discharge all (A) Charges imposed upon such Person,
its income and profits, or any of its property (real, personal or mixed), and
(B) lawful claims for labor, materials, supplies and services or otherwise,
before any thereof shall become in default.
(b) Any Credit Party may in good faith contest, by proper legal
actions or proceedings, the validity or amount of any Charges or claims arising
under SECTION 5.2(a)(ii); PROVIDED, that at the time of commencement of any
such action or proceeding, and during the pendency thereof (i) adequate
reserves with respect thereto are maintained on the books of the contesting
Person in accordance with GAAP, (ii) such contest operates to suspend
collection of the contested Charges or claims and such contest is maintained
and prosecuted continuously and with diligence, (iii) none of the Collateral
would be subject to forfeiture or loss or any Lien by reason of the institution
or prosecution of such contest, (iv) no Lien shall exist, be imposed or be
attempted to be imposed for such Charges or claims during such action or
proceeding, (v) the contesting Person shall promptly pay or discharge such
contested Charges and all additional charges, interest, penalties and expenses,
if any, and shall deliver to the Agent evidence acceptable to the Agent of such
compliance, payment or discharge, if such contest is terminated or discontinued
adversely to the contesting Person, and (vi) the Agent has not advised Borrower
or Parent in writing that the Agent reasonably believes that nonpayment or
nondischarge thereof could reasonably be expected to have or result in a
Material Adverse Effect.
5.3 BOOKS AND RECORDS. Each of Parent and Borrower shall, and
shall cause each of the other Credit Parties to, keep adequate records and
books of account with respect to such Person's business activities, in which
proper entries, reflecting all of its financial transactions, are made in
accordance with GAAP and on a basis consistent with the Financials.
5.4 LITIGATION. Borrower and Parent shall notify the Agent and
the Lenders in writing, promptly upon learning thereof, of any litigation
commenced or threatened against Borrower, Parent or any other Credit Party, and
of the institution against Borrower, Parent or any other Credit Party of any
suit or administrative proceeding, that (a) may involve an amount in excess of
$100,000 or (b) could reasonably be expected to have or result in a Material
Adverse Effect if adversely determined.
5.5 INSURANCE. (a) Parent and Borrower shall, at their cost and
expense, maintain and shall cause the other Credit Parties to maintain the
policies of insurance described on SCHEDULE 3.20 in form and with insurers
recognized as adequate by the Agent. Such polices shall be in such amounts as
are set forth on SCHEDULE 3.20. Borrower shall notify the Agent and the Lenders
promptly of any occurrence causing a material loss or decline in value of any of
its or any
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other Credit Party's real or personal property and the estimated (or actual, if
available) amount of such loss or decline. In the event any Credit Party at any
time or times hereafter shall fail to obtain or maintain (or cause to be
obtained or maintained) any of the policies of insurance required above or to
pay (or cause to be paid) any premium in whole or in part relating thereto, the
Agent, without waiving or releasing any Obligations or Default or Event of
Default hereunder, may at any time or times thereafter (but shall not be
obligated to) obtain and maintain such policies of insurance and pay such
premium and take any other action with respect thereto which the Agent deems
advisable. All sums so disbursed, including reasonable attorneys' fees, court
costs and other charges related thereto, shall be payable, on demand, by
Borrower to the Agent and shall be additional Obligations hereunder secured by
the Collateral, PROVIDED, that if and to the extent Borrower fail to promptly
pay any of such sums upon the Agent's demand therefor, the Agent is authorized
to, and at its option may, make or cause to be made Revolving Credit Loans on
behalf of Borrower for payment thereof.
(b) Parent and Borrower shall deliver to the Agent endorsements
to all of the Credit Parties' general liability and other liability policies
naming the Agent an additional insured.
5.6 COMPLIANCE WITH LAWS. (a) Each of Parent and Borrower shall,
and shall cause each of the other Credit Parties to, comply in all material
respects with all federal, state, local and foreign laws and regulations
applicable to each such Credit Party and its assets and operations, including,
without limitation, those relating to licensing, environmental, occupational
safety, transportation, controlled substances, currency reporting or
regulation, tariff, ERISA, air safety, customs, and labor matters.
5.7 COMPLIANCE WITH AGREEMENTS. Each of Borrower shall, and
shall cause each of the other Credit Parties to, perform within all required
time periods (after giving effect to any applicable grace periods) all of such
Person's obligations and enforce all of such Person's rights under each
agreement to which such Person is a party, including, without limitation, any
lease and customer contracts to which such Person is a party where the failure
to so perform and enforce could have or result in a Material Adverse Effect.
Parent and Borrower shall not, and shall not permit any other Credit Party to,
terminate or modify any provision of any agreement to which such Person is a
party which termination or modification could reasonably be expected to have or
result in a Material Adverse Effect.
5.8 SUPPLEMENTAL DISCLOSURE. On the request of the Agent(in the
event that such information is not otherwise delivered by Parent or Borrower to
the Agent and/or the Lenders pursuant to this Agreement), so long as there are
Obligations outstanding hereunder, each of Parent and Borrower will supplement
(or cause to be supplemented) each schedule or representation herein or in the
other Loan Documents with respect to any matter hereafter arising which, if
existing or occurring at the date of this Agreement, would have been required
to be set forth or described in such schedule or as an exception to such
representation or which is necessary to correct any information in such
schedule or representation which has been rendered inaccurate or misleading
thereby; PROVIDED, however, that such supplement to such schedule or
representation shall not be deemed an amendment thereof unless and until
expressly consented
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to by the Requisite Lenders and the Agent in writing, and no such amendments,
except as the same may be consented to by the Requisite Lenders and the Agent
in a writing which expressly includes a waiver, shall be or be deemed a waiver
of any Default or Event of Default disclosed therein.
5.9 EMPLOYEE PLANS. Parent and Borrower shall notify the Agent
and the Lenders of (i) any and all claims, actions, or lawsuits asserted or
instituted, and of any threatened litigation or claims, against any Credit
Party or any other ERISA Affiliate in connection with any Plan maintained, at
any time, by any such Person or to which any such Person has or had at any time
any obligation to contribute, or/and against any such Plan itself, or against
any fiduciary of or service provided to any such Plan, and (ii) the occurrence
of any "Reportable Event" with respect to any Pension Plan of any Credit Party
or any other ERISA Affiliate.
5.10 ENVIRONMENTAL MATTERS. Each of Parent and Borrower shall,
and shall cause each of the other Credit Parties to, (i) comply in all material
respects with the Environmental Laws applicable to such Person, (ii) notify the
Agent and the Lenders promptly after such Person becomes aware of any material
Release upon any premises owned or occupied by such Person, and (iii) promptly
forward to the Agent and the Leaders a copy of any order, notice, permit,
application, or any communication or report received by such Person in
connection with any such material Release or any other matter relating to the
Environmental Laws that may materially and adversely affect such premises. The
provisions of this SECTION 5.10 shall apply whether or not the Environmental
Protection Agency, any other federal agency or any state or local environmental
agency has taken or threatened any action in connection with any Release or the
presence of any Hazardous Materials.
5.11 LANDLORD, PROCESSOR AND LICENSOR AGREEMENTS. Each of Parent
and Borrower shall obtain a landlord agreement in substantially the form of
EXHIBIT E (or in such other form as may be acceptable to the Agent) from the
lessor of each leased premises currently being used by any such Credit Party as
well as from the lessor of any new premises hereafter leased by such Credit
Party. Within thirty (30) days after the Closing Date, each of Parent and
Borrower also shall obtain a processor agreement in substantially the form of
EXHIBIT F-1 (or in such other form as may be acceptable to the Agent) from each
Person who currently or hereafter stores, processes, assembles or packages any
of such Credit Party's Inventory and each of Parent; PROVIDED, HOWEVER, that a
processor agreement need not be obtained from any such Person who will not have
in its possession at any one time Inventory of Borrower and Parent having an
aggregate value (at cost) of greater than $100,000. Within thirty (30) days
after the Closing Date, Borrower also shall obtain a licensor agreement in
substantially the form of EXHIBIT F-2 (or in such other form as may be
acceptable to the Agent) from each Person who has granted such Credit Party a
license to use any Trademark or Trademark registration by such Person which is
being used by any Credit Party on any of its Inventory.
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6. NEGATIVE COVENANTS
Each of Parent and Borrower covenants and agrees (for itself
and the other Credit Parties) that, without the prior written consent of the
Requisite Lenders and the Agent, from and after the date hereof until the
Termination Date:
6.1 MERGERS, ETC. No Credit Party shall directly or indirectly,
by operation of law or otherwise, merge with, consolidate with, acquire all or
substantially all of the assets or capital stock of, or otherwise combine with,
any Person or form any Subsidiary; PROVIDED, however, that any Subsidiary of
Parent (other than Borrower) may merge, consolidate or otherwise combine with
or sell all or substantially all of its assets to Parent, Borrower or another
wholly-owned Subsidiary of Parent so long as Parent, Borrower or such other
wholly-owned Subsidiary (as the case may be) is the surviving or acquiring
entity in each such case and no other Default or Event of Default is caused
thereby.
6.2 INVESTMENTS; LOANS. No Credit Party shall make any
investment in, or make any loans of money to any Person, through the direct or
indirect holding of securities or otherwise, except (i) to the extent permitted
under SECTION 6.1 above, (ii) Borrower may make loans or Revolving Credit Loans
from time to time to any other Credit Party so long as no other Default or
Event of Default is caused thereby and (iii) any Credit Party may make loans or
advances of money to any Credit Party's employees or officers so long as the
aggregate outstanding principal balance of all such loans or advances at any
one time to any and all employees and officers of any and all Credit Parties
shall not exceed $50,000.
6.3 INDEBTEDNESS. No Credit Party shall create, incur, assume or
permit to exist any Indebtedness, except (i) the Obligations, (ii) until
refinanced on the Closing Date, the Existing Indebtedness, (iii) any other
Indebtedness secured by Liens permitted under SECTION 6.7, (iv) any
Indebtedness of any Credit Party to Borrower to the extent permitted under
SECTION 6.2 above, (v) all deferred taxes, (vi) Purchase Money Indebtedness to
the extent such Indebtedness does not exceed $250,000 in aggregate outstanding
principal amount at any one time, and (vii) any other Indebtedness set forth on
SCHEDULE 3.9.
6.4 TRANSACTIONS WITH AFFILIATES AND PERFUMANIA. No Credit Party
shall directly or indirectly purchase, acquire or lease any property from or
sell, transfer or lease any property to, or render any service to or obtain any
service from, or otherwise deal with, in the ordinary course of business or
otherwise, Perfumania or any Affiliate of any Credit Party except upon terms
which are no less favorable to such Credit Party than could be obtained in a
comparable arm's length transaction with a non-affiliated Person; PROVIDED,
HOWEVER, that this Section 6.4 shall not apply to any loans or advances by
Borrower to any of its employees or officers to the extent such loans or
advances are permitted under Section 6.2 above. Notwithstanding anything in
this Agreement to the contrary, no Credit Party shall engage in any
transactions with Perfumania or any Affiliate of any Credit Party except for
purchases or sales of Inventory in the ordinary course of business and in
accordance with the requirements of Section this 6.4.
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6.5 CAPITAL STRUCTURE AND BUSINESS. None of the Credit Parties
shall: (i) make any changes in any of its business objectives, purposes, or
operations which could materially and adversely affect the repayment of the
Obligations or have or result in a Material Adverse Effect, (ii) make any
change in their respective capital structures as described on SCHEDULE 3.9
(including, without limitation, the issuance of any shares of stock, warrants,
or other securities convertible into stock or any revision of the terms of its
outstanding Stock, except that Borrower or any other Subsidiary of Parent may
issue additional shares of its Stock in favor of Parent provided that such
shares constitute part of the Pledged Stock pledged to the Agent under the
Stock Pledge Agreement), and except further that Parent may issue additional
shares of its Stock; (iii) amend their respective certificates or articles of
incorporation (or other charter instruments) or by-laws; or (iv) form or
acquire any new Subsidiaries after the date of this Agreement. None of the
Credit Parties shall engage in any type of business other than the respective
type or types currently engaged in by each such Credit Party.
6.6 GUARANTEED INDEBTEDNESS. None of the Credit Parties shall
incur any Guaranteed Indebtedness except (a) by endorsement of instruments or
items of payment for deposit or collection in the ordinary course of business
and (b) for any other Guaranteed Indebtedness incurred for the benefit of
Borrower if the primary obligation is permitted by this Agreement.
6.7 LIENS. None of the Credit Parties shall create or permit any
Lien on any of such Person's properties or assets except (i) presently existing
or hereafter created Liens in favor of Lender, (ii) Liens set forth on SCHEDULE
6.7, (iii) Purchase Money Liens securing Purchase Money Indebtedness to the
extent permitted under SECTION 6.3 above, and (iv) other Permitted
Encumbrances. Parent and Borrower also shall defend, and shall cause each of
the other Credit Parties to defend, the right, title and interest of the Agent
and the Lenders and Parent's, Borrower's or such other Credit Party's rights,
titles and interest in, to and under the Collateral and the Proceeds thereof
against the claims and demands of all Persons whomsoever.
6.8 SALE OF ASSETS. None of the Credit Parties shall sell,
transfer, convey, assign or otherwise dispose of any such Person's assets or
properties, including, without limitation, its Accounts; PROVIDED, however,
that the foregoing shall not prohibit (i) the sale of Inventory in the ordinary
course of business, (ii) any sale of obsolete, unnecessary or scrap Equipment
in the ordinary course of business and in accordance with the past practices of
such Credit Party, (iii) any other sale of other assets expressly permitted by
SECTION 6.1, (iv) any Lien expressly permitted under SECTION 6.7, or (v) any
sale of such Person's own Stock provided no other Default or Event of Default
is caused thereby.
6.9 EVENTS OF DEFAULT. Parent and Borrower shall not, and shall
not permit any other Credit Party to, take any action or omit to take any
action, which act or omission would constitute (a) a default or an event of
default pursuant to, or noncompliance with any of, the terms of any of the Loan
Documents or (b) a material default or an event of default pursuant to, or
noncompliance with, any other contract, lease, mortgage, deed of trust or
instrument to which such Person is a party or by which it or any of its
property is bound, or any document creating a Lien.
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6.10 ERISA. Neither any Credit Party nor any other ERISA
Affiliate shall acquire any new ERISA Affiliate that maintains or has an
obligation to contribute to a Pension Plan that has either an accumulated
funding deficiency, as defined in Section 302 of ERISA, or any "unfunded vested
benefits," as defined in Section 4006(a)(3)(e)(iii) of ERISA, in the case of
any plan other than a Multiemployer Plan, and in Section 4211 of ERISA in the
case of a Multiemployer Plan. Additionally, neither any Credit Party nor any
other ERISA Affiliate shall terminate any Pension Plan that is subject to Title
IV of ERISA where such termination could reasonably be anticipated to result in
liability to any such Person; permit any accumulated funding deficiency, as
defined in Section 302(a)(2) of ERISA, to be incurred with respect to any
Pension Plan; fail to make any contributions or fail to pay any amounts due and
owing as required by the terms of any Plan before such contributions or amounts
become delinquent; make a complete or partial withdrawal (within the meaning of
Section 4201 of ERISA) from any Multiemployer Plan; or at any time fail to
provide the Agent or any Lenders with copies of any Plan documents or
governmental reports or filings, if reasonably requested by such Person.
6.11 FINANCIAL COVENANTS. Parent and Borrower shall not breach
or fail to comply with any of the Financial Covenants (the "FINANCIAL
COVENANTS") set forth on SCHEDULE 6.11.
6.12 HAZARDOUS MATERIALS. Except as set forth on SCHEDULE 3.19,
each of Parent and Borrower shall not, and shall not permit any other Credit
Party to, cause or permit any material Release or the presence, use,
generation, manufacture, installation, Release, discharge, storage or disposal
of any Hazardous Materials on, under, in, above, or about any of the Subject
Property or the transportation of any Hazardous Materials to or from any of the
Subject Property where such Release or presence, use, generation, manufacture,
installation, Release, discharge, storage or disposal would violate any
Environmental Laws in any material respects.
6.13 SALE-LEASEBACKS. None of the Credit Parties shall engage in
any sale-leaseback or similar transaction involving any of such Person's
assets.
6.14 CANCELLATION OF INDEBTEDNESS. None of the Credit Parties
shall cancel any claim or debt owing to such Person, except for reasonable
consideration and in the ordinary course of its business.
6.15 RESTRICTED PAYMENTS. Parent shall not make any Restricted
Payments; PROVIDED, however, the Parent may make a Restricted Payment to the
extent that (i) the aggregate amount of all Restricted Payments made by Parent
in any one Fiscal Month (commencing with the Fiscal Month in which the Closing
Date occurs) does not exceed $100,000, (ii) the aggregate amount of all
Restricted Payments made by Parent in the last eleven months of its Fiscal Year
ending March 31, 1998 or in any full Fiscal Year ending thereafter does not
exceed $800,000, (iii) Borrower's Unused Borrowing Availability after Parent
makes such Restricted Payment is not less than $2,000,000, and (iv) no other
Default or Event of Default exists at the time of or would be caused by such
Restricted Payment.
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7. TERM.
7.1 TERMINATION. The financing arrangements contemplated hereby
shall be in effect until the Commitment Termination Date.
7.2 SURVIVAL OF OBLIGATIONS UPON TERMINATION OF FINANCING
ARRANGEMENT. Except as otherwise expressly provided for in the Loan Documents,
no termination or cancellation (regardless or cause or procedure) of any
financing arrangements under this Agreement shall in any way affect or impair
the obligations, duties and liabilities of Borrower, Parent or any other Credit
Party or the rights of the Lenders and the Agent relating to any unpaid
Obligations, due or not due, liquidated, contingent or unliquidated or any
transaction or event occurring prior to such termination, or any transaction or
event, the performance of which is not required until after the Commitment
Termination Date. Except as otherwise expressly provided herein or in any other
Loan Document, all undertakings, agreements, covenants, warranties and
representations of or binding upon the Borrower, Parent and the other Credit
Parties, and all rights and Liens of the Lenders and the Agent, all as
contained in the Loan Documents shall not terminate or expire, but rather shall
survive such termination or cancellation and shall continue in full force and
effect until such time as all of the Obligations have been indefeasibly paid in
full in accordance with the terms of the agreements creating such Obligations
and there are no Letter of Credit Obligations outstanding.
8. EVENTS OF DEFAULT; RIGHTS AND REMEDIES
8.1 EVENTS OF DEFAULT. The occurrence of any one or more of the
following events (regardless of the reason therefor) shall constitute an "Event
of Default" hereunder:
(a) Borrower shall fail to make any payment in respect of any
Obligations hereunder or under any of the other Loan Documents when due and
payable or declared due and payable, including, without limitation, any payment
of principal of, or interest on, the Revolving Credit Loans or any payment of
any Fees, and, in the case of the failure to make any payment of Fees, the
continuation of such failure for seven (7) days after the due date of such
payment.
(b) Parent or Borrower shall fail or neglect to perform, keep or
observe any of its covenants or obligations under SECTION 1.7, SECTION 4 or
SECTION 6, including, without limitation, any of the covenants or obligations
set forth on ANNEX C, SCHEDULE 4.1 AND SCHEDULE 6.11, respectively.
(c) Parent or Borrower shall fail or neglect to perform, keep or
observe any of its other covenants or obligations under this Agreement (other
than any such covenant or obligation referred to in PARAGRAPHS (a) or (b)
above), and the same shall remain unremedied for a period ending on the first
to occur of thirty (30) days after Parent or Borrower shall receive written
notice of any such failure from the Agent or any Lender or thirty (30) days
after the president, the chief executive officer, the chief financial officer,
or the controller of Parent or Borrower shall become aware thereof.
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(d) A default shall occur in the payment of any amount (whether
principal, interest or otherwise) payable on any Indebtedness of any Credit
Party (other than the Obligations) or a default shall occur in the performance
of any other agreement, term or covenant contained in any agreement, instrument
or other document under which any of such Indebtedness is created, evidenced,
secured or guaranteed if the effect of such default is to entitle (after giving
effect to any applicable notice and/or cure rights) the holder or holders of
such Indebtedness (or any trustee therefor) to cause such Indebtedness to become
due at or prior to its stated maturity or to otherwise demand payment thereof;
PROVIDED, however, that in the case of any Indebtedness noted above, the
aggregate then outstanding balance of such Indebtedness must equal or exceed
$100,000.
(e) Any representation or warranty of Parent, Borrower or any
other Credit Party made herein or in any other Loan Document or in any written
statement delivered pursuant thereto or hereto or in any report, financial
statement or certificate made or delivered to the Agent or any Lender by Parent,
Borrower or any other Credit Party pursuant thereto or hereto shall be untrue or
incorrect in any material respect as of the date when made or deemed made
(including those made or deemed made pursuant to SECTION 2.2).
(f) Any of the assets of any or all of Credit Parties having an
individual or aggregate value (based on the higher of book value or fair market
value) of $100,000 or more shall be attached, seized, levied upon or subjected
to a writ or distress warrant, or come within the possession of any receiver,
trustee, custodian or assignee for the benefit of creditors of such Person and
such matter shall remain unstayed or undismissed for forty-five (45) consecutive
days; or any Person other than a Credit Party shall apply for the appointment of
a receiver, trustee or custodian for any Credit Party's assets and such matter
shall remain unstayed or undismissed for forty-five (45) consecutive days; or
any Credit Party shall have concealed removed or permitted to be concealed or
removed, any part of such Person's property, with intent to hinder delay or
defraud its creditors or any of them or made or suffered a transfer of any of
its property or the incurring of an obligation which may be fraudulent under any
bankruptcy, fraudulent conveyance or other similar law.
(g) A case or proceeding shall have been commenced against any
Credit Party in a court having competent jurisdiction seeking a decree or order
(i) under Title 11 of the United States Code, as now constituted or hereafter
amended, or any other applicable federal, state or foreign bankruptcy,
insolvency, moratorium or other similar law, (ii) appointing a custodian,
receiver, liquidator, assignee, trustee or sequestrator (or similar official)
for such Credit Party or of any substantial part of its or their properties, or
(iii) ordering the winding up or liquidation of the affairs of such Credit Party
and such case or proceeding shall remain undismissed or unstayed for forty-five
(45) consecutive days or such court shall enter a decree or order granting the
relief sought in such case or proceeding.
(h) Any Credit Party shall (i) file a petition seeking relief
under Title 11 of the United States Code, as now constituted or hereafter
amended, or any other applicable federal, state or foreign bankruptcy,
insolvency, moratorium or other similar law, (ii) consent to
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the institution of proceedings thereunder or to the filing of any such petition
or to the appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee or sequestrator (or similar official) of such
Credit Party or of any substantial part of such Person's properties, (iii) fail
generally pay its debts as such debts become due, or (iv) take any corporate
action in furtherance of any such action.
(i) Final judgment or judgments (after the expiration of all
times to appeal therefrom) for the payment or money in excess of $150,000 in the
aggregate shall be rendered against any or all of the Credit Parties unless the
same shall be (i) fully covered by insurance in accordance with SECTION 5.5 or
(ii) vacated, stayed, bonded, paid or discharged within a period of thirty (30)
days from the date of such judgment.
(j) Any other event shall have occurred which has had or could
reasonably be expected to have a Material Adverse Effect and the Agent or any
Lender shall have given the Parent or Borrower at least thirty (30) days written
notice thereof.
(k) Any provisions of any Collateral Document, after delivery
thereof pursuant to SECTION 2.1, shall for any reason cease to be valid, binding
and enforceable in accordance with its terms, or any Lien created under any
Collateral Document shall cease to be valid and perfected Lien having the first
priority (or other priority if and as expressly permitted under the Collateral
Document establishing such Lien) in any of the Collateral purported to be
covered thereby.
(l) The acquisition after the date of this Agreement by any
Person or by any two or more such Persons acting in concert of beneficial
ownership (within the meaning of Rule 13d-3 of the Securities and Exchange
Commission) of twenty percent (20%) or more of the outstanding Voting Stock of
Parent, or Borrower shall cease for any reasons to be a wholly-owned Subsidiary
of Parent.
(m) Parent, Borrower or any other Credit Party shall have been
indicted or convicted or shall have plead guilty or NOLO CONTENDERE to any
charge that such Person has violated the Federal Money Laundering Control Act,
the Control Substances Act, the Currency and Foreign Transactions Reporting Act
or any other federal, state or local drug, controlled substances, money
laundering, currency reporting, racketeering, or
racketeering-influenced-and-corrupt-organization statute or regulations, or any
other similar federal, state or local forfeiture statute (including without
limitation 18 USC ss. 1963).
(n) Any of the Material Trademark Licenses shall expire or
otherwise cease to be in effect, whether due to revocation, termination or
non-renewal.
8.2 REMEDIES. (a) If any Event of Default shall have occurred
and be continuing, or if a Default shall have occurred and be continuing and the
Agent or the Requisite Lenders shall have determined not to make any Revolving
Credit Loans or incur any Letter of Credit Obligations so long as that specific
Default is continuing, Agent may (and at the written request of the Requisite
Lenders shall), without notice, suspend this facility with respect to further
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Revolving Credit Loans and/or the incurrence of further Letter of Credit
Obligations whereupon any further Revolving Credit Loans and Letter of Credit
Obligations shall be made or extended in Agent's sole discretion (or in the sole
discretion of the Requisite Lenders, if such suspension occurred at their
direction) so long as such Default or Event of Default is continuing. If any
Default or Event of Default shall have occurred and be continuing, the Agent may
(and at the written request of Requisite Lenders shall), without notice except
as otherwise expressly provided herein, increase the rate of interest applicable
to the Loans and the Letter of Credit Fees to the Default Rate.
(b) If any Event of Default shall have occurred and be
continuing, the Agent may (and at the written request of the Requisite Lenders
shall), without notice, (i) terminate this facility with respect to further
Revolving Credit Loans or the incurrence of further Letter of Credit
Obligations; (ii) declare all or any portion of the Obligations, including all
or any portion of any Loan to be forthwith due and payable, and require that
the Letter of Credit Obligations be cash collateralized as provided in ANNEX B,
all without presentment, demand, protest or further notice of any kind, all of
which are expressly waived by Borrower and each other Credit Party; and (iii)
exercise any rights and remedies provided to Agent under the Loan Documents
and/or at law or equity, including all remedies provided under the Code;
PROVIDED, HOWEVER, that upon the occurrence of an Event of Default specified in
SECTIONS 8.1(F), (G) or (H), all of the Obligations, including all Revolving
Credit Loans, shall become immediately due and payable without declaration,
notice or demand by any Person.
8.3 WAIVERS BY BORROWER. Except as otherwise provided for in
this Agreement and applicable law, Borrower hereby waives (i) presentment,
demand and protest and notice of presentment, dishonor, notice of intent to
accelerate, notice of acceleration, protest, default, nonpayment, maturity,
release, compromise, settlement, extension or renewal of any or all commercial
paper, accounts, contract rights, documents, instruments, chattel paper and
guaranties at any time held by the Agent on which Borrower may in any way be
liable, and hereby ratifies and confirms whatever the Agent may do in this
regard, (ii) all rights to notice and a hearing prior to the Agent's taking
possession or control of, or to the Agent's replevy, attachment or levy upon,
the Collateral or any bond or security which might be required by any court
prior to allowing the Agent to exercise any of its remedies, and (iii) the
benefit of all valuation, appraisal and exemption laws. Borrower acknowledges
that each of it and the other Credit Parties has been advised by counsel of such
Person's choice with respect to this Agreement, the other Loan Documents and the
transactions evidenced by this Agreement and the other Loan Documents.
9. ASSIGNMENT AND PARTICIPATIONS; APPOINTMENT OF AGENT
9.1 ASSIGNMENT AND PARTICIPATIONS. (a) The Credit Parties
signatory hereto consent to any Lender's assignment of, and/or sale of
participations in, at any time or times, the Loan Documents, Loans, Letter of
Credit Obligations and any Commitment or of any portion thereof or interest
therein, including any Lender's rights, title, interests, remedies, powers or
duties thereunder, whether evidenced by a writing or not. Any assignment by a
Lender shall (i) require the consent of Agent (which shall not be unreasonably
withheld or delayed) and the execution of an assignment agreement (an
"ASSIGNMENT AGREEMENT" substantially in the form
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attached hereto as EXHIBIT N and otherwise in form and substance satisfactory
to, and acknowledged by, Agent; (ii) be conditioned on such assignee Lender
representing to the assigning Lender and Agent that it is purchasing the
applicable Loans, Letter of Credit Obligation and Commitment (or portion
thereof) to be assigned to it for its own account, for investment purposes and
not with a view to the distribution thereof; (iii) if a partial assignment, be
in an amount at least equal to $5,000,000 and, after giving effect to any such
partial assignment, the assigning Lender shall have retained Commitments in an
amount at least equal to $5,000,000; and (iv) include a payment to Agent by the
assignee or assignor (as they may agree) of an assignment fee of $3,500. In the
case of an assignment by a Lender under this SECTION 9.1, the assignee shall
have, to the extent of such assignment, the same rights, benefits and
obligations as it would if it were a Lender hereunder. The assigning Lender
shall be relieved of its obligations hereunder with respect to its Commitments
or assigned portion thereof from and after the date of such assignment. Borrower
hereby acknowledges and agrees that any assignment will give rise to a direct
obligation of Borrower to the assignee and that the assignee shall be considered
to be a "Lender". In all instances, each Lender's liability to make Loans
hereunder shall be several and not joint and shall be limited to such Lender's
Pro Rata Share of the applicable Commitment. In the event Agent or any Lender
assigns or otherwise transfers all or any part of a Note, Agent or any such
Lender shall so notify Borrower and Borrower shall, upon the request of Agent or
such Lender, execute new Notes in exchange for the Notes being assigned.
Notwithstanding the foregoing provisions of this SECTION 9.1(a), any Lender may
at any time pledge or assign all or any portion of such Lender's rights under
this Agreement and the other Loan Documents to a Federal Reserve Bank; PROVIDED,
HOWEVER, that no such pledge or assignment shall release such Lender from such
Lender's obligations hereunder or under any other Loan Document. Notwithstanding
anything hereunder to the contrary, GE Capital shall not make any assignment of
all or any portion of its interests in the Loans, the Letter of Credit
Obligations or the Commitments to any of Fleet Capital, Heller Financial,
Congress Financial or Bank of America Business Credit until after July 15, 1997
(if ever).
(b) Any participation by a Lender of all or any part of its
Commitments shall be in an amount at least equal to $5,000,000, and with the
understanding that all amounts payable by Borrower hereunder shall be
determined as if that Lender had not sold such participation, and that the
holder of any such participation shall not be entitled to require such Lender
to take or omit to take any action hereunder except actions directly affecting
(i) any reduction in the principal amount of, or interest rate or Fees payable
with respect to, any Loan in which such holder participates, (ii) any extension
of the scheduled amortization of the principal amount of any Loan in which such
holder participates or the final maturity date thereof, and (iii) any release
of all or substantially all of the Collateral (other than in accordance with
the terms of this Agreement, the Collateral Documents or the other Loan
Documents). Solely for purposes of SECTIONS 1.11, 1.13, 1.14 and 9.8, Borrower
acknowledges and agrees that a participation shall give rise to a direct
obligation of Borrower to the participant and the participant shall be
considered to be a "Lender". Except as set forth in the preceding sentence
neither Borrower nor any other Credit Party shall have any obligation or duty
to any participant. Neither Agent nor any Lender (other than the Lender selling
a participation) shall have any duty to any participant and may continue to
deal solely with the Lender selling a participation as if no such sale had
occurred.
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(c) Except as expressly provided in this SECTION 9.1, no
Lender shall, as between Borrower and that Lender, or Agent and that Lender, be
relieved of any of its obligations hereunder as a result of any sale,
assignment, transfer or negotiation of, or granting of participation in, all or
any part of the Loans, the Notes or other Obligations owed to such Lender.
(d) Each Credit Party executing this Agreement shall assist
any Lender permitted to sell assignments or participations under this SECTION
9.1 as reasonably required to enable the assigning or selling Lender to effect
any such assignment or participation, including the execution and delivery of
any and all agreements, notes and other documents and instruments as shall be
requested and the preparation of informational materials for, and the
participation of management in meetings with, potential assignees or
participants. Each Credit Party executing this Agreement shall certify the
correctness, completeness and accuracy of all descriptions of the Credit
Parties and their affairs contained in any selling materials provided by it and
all other information provided by it and included in such materials, except
that any Projections delivered by Borrower shall only be certified by Borrower
as having been prepared by Borrower in compliance with the representations
contained in Part II of SCHEDULE 3.4.
(e) A Lender may furnish any information concerning Borrower
in the possession of such Lender from time to time to assignees and
participants (including prospective assignees and participants). Each Lender
shall obtain from assignees or participants confidentiality covenants
substantially equivalent to those contained in SECTION 11.8.
9.2 APPOINTMENT OF AGENT. GE Capital is hereby appointed to
act on behalf of all Lenders as Agent under this Agreement and the other Loan
Documents. The provisions of this SECTION 9.2 are solely for the benefit of
Agent and Lenders and no Credit Party nor any other Person shall have any rights
as a third party beneficiary of any of the provisions hereof. In performing its
functions and duties under this Agreement and the other Loan Documents, Agent
shall act solely as an agent of Lenders and does not assume and shall not be
deemed to have assumed any obligation toward or relationship of agency or trust
with or for any Credit Party or any other Person. Agent shall have no duties or
responsibilities except for those expressly set forth in this Agreement and the
other Loan Documents. The duties of Agent shall be mechanical and administrative
in nature and Agent shall not have, or be deemed to have, by reason of this
Agreement, any other Loan Document or otherwise a fiduciary relationship in
respect of any Lender. Neither Agent nor any of its Affiliates nor any of their
respective officers, directors, employees, agents or representatives shall be
liable to any Lender for any action taken or omitted to be taken by it hereunder
or under any other Loan Document, or in connection herewith or therewith, except
for damages solely caused by its or their own gross negligence or willful
misconduct as finally determined by a court of competent jurisdiction.
If Agent shall request instructions from Requisite Lenders or
all affected Lenders with respect to any act or action (including failure to
act) in connection with this Agreement or any other Loan Document, then Agent
shall be entitled to refrain from such act or taking such action unless and
until Agent shall have received instructions from Requisite Lenders or all
affected Lenders, as the case may be, and Agent shall not incur liability to
any Person by reason of so refraining. Agent shall be fully justified in
failing or refusing to take any action hereunder or
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under any other Loan Document (a) if such action would, in the opinion of Agent,
be contrary to law or the terms of this Agreement or any other Loan Document, or
(b) if Agent shall not first be indemnified to its satisfaction against any and
all liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. Without limiting the foregoing, no Lender
shall have any right of action whatsoever against Agent as a result of Agent
acting or refraining from acting hereunder or under any other Loan Document in
accordance with the instructions of Requisite Lenders or all affected Lenders,
as applicable.
9.3 AGENT'S RELIANCE, ETC. Neither Agent nor any of its
Affiliates nor any of their respective directors, officers, agents or employees
shall be liable for any action taken or omitted to be taken by it or them under
or in connection with this Agreement or the other Loan Documents, except for
damages solely caused by its or their own gross negligence or willful misconduct
as finally determined by a court of competent jurisdiction. Without limitation
of the generality of the foregoing, Agent: (a) may treat the payee of any Note
as the holder thereof until Agent receives written notice of the assignment or
transfer thereof signed by such payee and in form satisfactory to Agent; (b) may
consult with legal counsel, independent public accountants and other experts
selected by it and shall not be liable for any action taken or omitted to be
taken in good faith by it in accordance with the advice of such counsel,
accountants or experts; (c) makes no warranty or representation to any Lender
and shall not be responsible to any Lender for any statements, warranties or
representations made in or in connection with this Agreement or the other Loan
Documents; (d) shall not have any duty to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions of this
Agreement or the other Loan Documents on the part of any Credit Party or to
inspect the Collateral (including the books and records) of any Credit Party;
(e) shall not be responsible to any Lender for the due execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement or
the other Loan Documents or any other instrument or document furnished pursuant
hereto or thereto; and (f) shall incur no liability under or in respect of this
Agreement or the other Loan Documents by acting upon any notice, consent,
certificate or other instrument or writing (which may be by telecopy, telegram,
cable or telex) believed by it to be genuine and signed or sent by the proper
party or parties.
9.4 GE CAPITAL AND AFFILIATES. With respect to its Commitments
hereunder, GE Capital shall have the same rights and powers under this Agreement
and the other Loan Documents as any other Lender and may exercise the same as
though it were not Agent; and the term "Requisite Lenders", "Lender" or
"Lenders" shall, unless otherwise expressly indicated, include GE Capital in its
individual capacity. GE Capital and its Affiliates may lend money to, invest in,
and generally engage in any kind of business with, any Credit Party, any of
their Affiliates and any Person who may do business with or own securities of
any Credit Party or any such Affiliate, all as if GE Capital were not Agent and
without any duty to account therefor to Lenders. GE Capital and its Affiliates
may accept fees and other consideration from any Credit Party for services in
connection with this Agreement or otherwise without having to account for the
same to Lenders.
9.5 LENDER CREDIT DECISION. Each Lender acknowledges that it
has, independently and without reliance upon Agent or any other Lender and based
on the financial
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statements referred to in SECTION 3.4 and such other documents and information
as it has deemed appropriate, made its own credit and financial analysis of the
Credit Parties and its own decision to enter into this Agreement. Each Lender
also acknowledges that it will, independently and without reliance upon Agent or
any other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement. Each Lender acknowledges the potential
conflict of interest of each other Lender as a result of Lenders holding
disproportionate interests in the Loans, and expressly consents to, and waives
any claim based upon, such conflict of interest.
9.6 INDEMNIFICATION. Lenders agree to indemnify Agent (to the
extent not reimbursed by Borrower or Parent and without limiting the obligations
of Borrower or Parent hereunder), ratably according to their respective Pro Rata
Shares, from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by, or asserted
against Agent in any way relating to or arising out of this Agreement or any
other Loan Document or any action taken or omitted by Agent in connection
therewith; PROVIDED, HOWEVER, that no Lender shall be liable for any portion of
such liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting solely from Agent's gross
negligence or willful misconduct as finally determined by a court of competent
jurisdiction. Without limiting the foregoing, each Lender agrees to reimburse
Agent promptly upon demand for its ratable share of any out-of-pocket expenses
(including counsel fees) incurred by Agent in connection with the preparation,
execution, delivery, administration, modification, amendment or enforcement
(whether through negotiations, legal proceedings or otherwise) of, or legal
advice in respect of rights or responsibilities under, this Agreement and each
other Loan Document, to the extent that Agent is not reimbursed for such
expenses by Borrower.
9.7 SUCCESSOR AGENT. Agent may resign at any time by giving
not less than thirty (30) days' prior written notice thereof to Lenders, Parent
and Borrower. Upon any such resignation, the Requisite Lenders shall have the
right to appoint a successor Agent. If no successor Agent shall have been so
appointed by the Requisite Lenders and shall have accepted such appointment
within 30 days after the resigning Agent's giving notice of resignation, then
the resigning Agent may, on behalf of Lenders, appoint a successor Agent, which
shall be a Lender, if a Lender is willing to accept such appointment, or
otherwise shall be a commercial bank or financial institution or a subsidiary of
a commercial bank or financial institution if such commercial bank or financial
institution is organized under the laws of the United States of America or of
any State thereof and has a combined capital and surplus of at least
$300,000,000. If no successor Agent has been appointed pursuant to the
foregoing, by the 30th day after the date such notice of resignation was given
by the resigning Agent, such resignation shall become effective and the
Requisite Lenders shall thereafter perform all the duties of Agent hereunder
until such time, if any, as the Requisite Lenders appoint a successor Agent as
provided above. Any successor Agent appointed by Requisite Lenders hereunder
shall be subject to the approval of Parent and Borrower, such approval not to be
unreasonably withheld or delayed; PROVIDED that such approval shall not be
required if a Default or an Event of Default shall have occurred and be
continuing. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall succeed to and become vested with
all the rights, powers, privileges and
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duties of the resigning Agent. Upon the earlier of the acceptance of any
appointment as Agent hereunder by a successor Agent or the effective date of the
resigning Agent's resignation, the resigning Agent shall be discharged from its
duties and obligations under this Agreement and the other Loan Documents, except
that any indemnity rights or other rights in favor of such resigning Agent shall
continue. After any resigning Agent's resignation hereunder, the provisions of
this SECTION 9 shall inure to its benefit as to any actions taken or omitted to
be taken by it while it was Agent under this Agreement and the other Loan
Documents. Agent may be removed at the written direction of the holders (other
than Agent) of two-thirds or more of the Commitments (excluding Agent's
Commitment); provided that in so doing, such Lenders shall be deemed to have
waived and released any and all claims they may have against Agent.
9.8 SETOFF AND SHARING OF PAYMENTS. In addition to any rights
now or hereafter granted under applicable law and not by way of limitation of
any such rights, upon the occurrence and during the continuance of any Event of
Default, each Lender and each holder of any Note is hereby authorized at any
time or from time to time, without notice to Borrower, Parent or any other
Person, any such notice being hereby expressly waived, to set off and to
appropriate and to apply any and all balances held by it at any of its offices
for the account of Borrower or Parent (regardless of whether such balances are
then due to Borrower or Parent) and any other properties or assets any time held
or owing by that Lender or that holder to or for the credit or for the account
of Borrower or Parent against and on account of any of the Obligations which are
not paid when due. Any Lender or holder of any Note exercising a right to set
off or otherwise receiving any payment on account of the Obligations in excess
of its Pro Rata Share thereof shall purchase for cash (and the other Lenders or
holders shall sell) such participations in each such other Lender's or holder's
Pro Rata Share of the Obligations as would be necessary to cause such Lender to
share the amount so set off or otherwise received with each other Lender or
holder in accordance with their respective Pro Rata Shares. Each of Parent and
Borrower agrees, to the fullest extent permitted by law, that (a) any Lender or
holder may exercise its right to set off with respect to amounts in excess of
its Pro Rata Share of the Obligations and may sell participations in such amount
so set off to other Lenders and holders and (b) any Lender or holders so
purchasing a participation in the Loans made or other Obligations held by other
Lenders or holders may exercise all rights of set-off, bankers' lien,
counterclaim or similar rights with respect to such participation as fully as if
such Lender or holder were a direct holder of the Loans and the other
Obligations in the amount of such participation. Notwithstanding the foregoing,
if all or any portion of the set-off amount or payment otherwise received is
thereafter recovered from the Lender that has exercised the right of set-off,
the purchase of participations by that Lender shall be rescinded and the
purchase price restored without interest.
9.9 REVOLVING CREDIT LOANS; PAYMENTS; NON-FUNDING LENDERS;
INFORMATION; ACTIONS IN CONCERT.
(a) REVOLVING CREDIT LOANS; PAYMENTS. (i) Agent shall notify
Lenders, promptly after receipt of a Notice of Revolving Credit Loan and in any
event prior to 1:00 p.m. (Eastern Standard time) on the date such Notice of
Revolving Credit Loan is received, by telecopy, telephone or other similar form
of transmission. Each Lender shall make the amount of such Lender's Revolving
Credit Loan requested under such Notice of Revolving Credit Loan
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available to Agent in same day funds by wire transfer not later than 3:00 p.m.
(Eastern Standard time) on the requested funding date, in the case of a Floating
Rate Loan and not later than 11:00 a.m. (Eastern Standard time) on the requested
funding date in the case of a Fixed Rate Loan. After receipt of such wire
transfers (or, in the Agent's sole discretion, before receipt of such wire
transfers), subject to the terms hereof, Agent shall deposit the proceeds of the
requested Revolving Credit Loans to the Disbursement Account on Borrower's
behalf pursuant to the Cash Management System. All payments by each Lender shall
be made without setoff, counterclaim or deduction of any kind.
(ii) On the second (2nd) Business Day of each calendar
week or more frequently as aggregate cumulative payments in excess of $2,000,000
are received with respect to the Loans (each, a "SETTLEMENT DATE"), Agent will
advise each Lender by telephone, or telecopy of the amount of such Lender's Pro
Rata Share of principal, interest and Fees paid for the benefit of Lenders with
respect to the Loans or other Obligations. Provided that such Lender has made
all payments required to be made by it under this Agreement and the other Loan
Documents as of such Settlement Date, Agent will pay to each Lender such
Lender's Pro Rata Share of principal, interest and Fees paid by Borrower since
the previous Settlement Date for the benefit of that Lender on the Loans and
other Obligations held by it. Such payments shall be made by wire transfer to
such Lender's account (as specified by each Lender by written notice to the
Agent) not later than 2:00 p.m. (Eastern Standard time) on the next Business Day
following each Settlement Date.
(b) AVAILABILITY OF LENDER'S PRO RATA SHARE. Agent may assume
that each Lender will make each Loan available to Agent on each funding date.
If any Loan is not, in fact, paid to Agent by such Lender when due, Agent will
be entitled to recover such amount on demand from such Lender without set-off,
counterclaim or deduction of any kind. If any Lender fails to pay the amount of
such Loan forthwith upon Agent's demand, Agent shall promptly notify Borrower
and Borrower shall repay such amount to Agent within five (5) days thereafter.
Nothing in this SECTION 9.9(b) or elsewhere in this Agreement or the other Loan
Documents shall be deemed to require Agent to advance funds on behalf of any
Lender or to relieve any Lender from its obligation to fulfill its Commitments
hereunder or to prejudice any rights that Borrower may have against any Lender
as a result of any default by such Lender hereunder. To the extent that Agent
funds to Borrower on behalf of any Lender and is not reimbursed therefor on the
same Business Day as such advance is made, Agent shall be entitled to retain
for its account all interest accrued on such advance until reimbursed by the
applicable Lender.
(c) RETURN OF PAYMENTS. (i) If Agent pays an amount to a
Lender under this Agreement in the belief or expectation that a related payment
has been or will be received by Agent from Borrower and such related payment is
not received by Agent, then Agent will be entitled to recover such amount from
such Lender on demand without set-off, counterclaim or deduction of any kind.
(ii) If Agent determines at any time that any amount received
by Agent under this Agreement must be returned to Borrower or paid to any other
Person pursuant to any insolvency law or otherwise, then, notwithstanding any
other term or condition of this Agreement
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or any other Loan Document, Agent will not be required to distribute any portion
thereof to any Lender. In addition, each Lender will repay to Agent on demand
any portion of such amount that Agent has distributed to such Lender, together
with interest at such rate, if any, as Agent is required to pay to Borrower or
such other Person, without set-off, counterclaim or deduction of any kind.
(d) NON-FUNDING LENDER. The failure of any Lender (such
Lender, a "NON-FUNDING LENDER") to make any Loan to be made by it on the date
specified therefor shall not relieve any other Lender (each such other Lender,
an "OTHER LENDER") of its obligations to make such Loan on such date, but
neither any Other Lender nor Agent shall be responsible for the failure of any
Non-Funding Lender to make a Loan to be made by such Non-Funding Lender, and no
Non-Funding Lender shall have any obligation to Agent or any Other Lender for
the failure by such Non-Funding Lender. Notwithstanding anything set forth
herein to the contrary, a Non-Funding Lender shall not have any voting or
consent rights under or with respect to any Loan Document or constitute a
"Lender" (or be included in the calculation of "Requisite Lenders" hereunder)
for any voting or consent rights under or with respect to any Loan Document.
(e) DISSEMINATION OF INFORMATION. Agent will use reasonable
efforts to provide Lenders with any notice of Default or Event of Default
received by Agent from, or delivered by Agent to, any Credit Party, with notice
of any Event of Default of which Agent has actually become aware and with
notice of any action taken by Agent following any Event of Default; provided,
however, that Agent shall not be liable to any Lender for any failure to do so,
except to the extent that such failure is attributable solely to Agent's gross
negligence or willful misconduct as finally determined by a court of competent
jurisdiction. Lenders acknowledge that Borrower is required to provide all
financial statements and collateral reports to Lenders in accordance with
SCHEDULE 4.1 and agree that Agent shall have no duty to provide the same to
Lenders.
(f) ACTIONS IN CONCERT. Anything in this Agreement to the
contrary notwithstanding, each Lender hereby agrees with each other Lender that
no Lender shall take any action to protect or enforce its rights arising out of
this Agreement or the Notes (including exercising any rights of set-off)
without first obtaining the prior written consent of Agent or Requisite
Lenders, it being the intent of Lenders that any such action to protect or
enforce rights under this Agreement and the Notes shall be taken in concert and
at the direction or with the consent of Agent.
10. SUCCESSORS AND ASSIGNS
10.1 SUCCESSORS AND ASSIGNS. This Agreement and the other
Loan Documents shall be binding on and shall inure to the benefit of the
Borrower, Parent, Agent, Lenders, and their respective successors and assigns,
except as otherwise provided herein or therein. Neither Parent nor Borrower may
assign, transfer, delegate or otherwise convey any of their respective rights,
benefits, obligations or duties hereunder or under any of the other Loan
Documents without the prior express written consent of the Agent and the
Lenders. Any such purported assignment, transfer, delegation or other conveyance
by Parent or Borrower without the prior express written consent of the Agent and
the Lenders shall be void. The terms and provisions of
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this Agreement and the other Loan Documents are for the purpose of defining the
relative rights and obligations of the Credit Parties , the Agent and the
Lenders with respect to the transactions contemplated hereby and there shall be
no third party beneficiaries of any of the terms and provisions of this
Agreement or any of the other Loan Documents.
11. MISCELLANEOUS
11.1 COMPLETE AGREEMENT; MODIFICATION OF AGREEMENT. The Loan
Documents constitute the complete agreement between the parties with respect to
the subject matter thereof, supersede all prior agreements, understandings,
correspondence, negotiations or inducements (whether express or implied, or oral
or written), and may not be modified, altered or amended in accordance with
SECTION 11.2 below. Without limiting the generality of the immediately preceding
sentence, any term sheet, letter of interest, letter of intent or commitment
letter from the Agent or any Lender to Borrower or Parent predating this
Agreement and relating to a financing of substantially similar form, purpose or
effect shall be merged with and into and superseded by this Agreement.
11.2 AMENDMENTS AND WAIVERS. (a) Except for actions expressly
permitted to be taken by Agent, no amendment, modification, termination or
waiver of any provision of this Agreement or any of the Notes, or any consent to
any departure by any Credit Party therefrom, shall in any event be effective
unless the same shall be in writing and signed by Agent, Parent and Borrower,
and the Requisite Lenders, or all affected Lenders, as applicable. Except as set
forth in CLAUSES (b) and (c) below, all such amendments, modifications,
terminations or waivers requiring the consent of any Lenders shall require the
written consent of the Requisite Lenders.
(b) No amendment, modification, termination or waiver of or
consent with respect to any provision of this Agreement which increases the
percentage advance rates set forth in the definition of the Borrowing Base, or
which makes less restrictive the nondiscretionary criteria for exclusion from
Eligible Accounts and Eligible Inventory set forth in Schedule 1.(a) and
1.5(b), shall be effective unless the same shall be in writing and signed by
Agent, all Lenders, Parent and Borrower.
(c) No amendment, modification, termination or waiver shall,
unless in writing and signed by Agent and each Lender directly affected
thereby, do any of the following: (i) increase the principal amount of any
Lender's Commitment (which action shall be deemed to directly affect all
Lenders); (ii) reduce the principal of, rate of interest on or Fees payable
with respect to any Loan or Letter of Credit Obligations of any affected
Lender; (iii) extend any scheduled payment date or final maturity date of the
principal amount of any Loan of any affected Lender; (iv) waive, forgive,
defer, extend or postpone any payment of interest or Fees as to any affected
Lender; (v) release the Parent from liability under the Guaranty Agreement or,
except as otherwise permitted herein or in the other Loan Documents, permit any
Credit Party to sell or otherwise dispose of any Collateral with a value
exceeding $1,000,000 in the aggregate (which action shall be deemed to directly
affect all Lenders); (vi) change the percentage of the Commitments or of the
aggregate unpaid principal amount of the Loans which shall be required for
Lenders or any of them to take any action hereunder; and (vii) amend or waive
this SECTION
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11.2 or the definition of the term "Requisite Lenders" insofar as such
definition affects the substance of this SECTION 11.2. Furthermore, no
amendment, modification, termination or waiver affecting the rights or duties of
Agent under this Agreement or any other Loan Document shall be effective unless
in writing and signed by Agent, in addition to Lenders required hereinabove to
take such action. Each amendment, modification, termination or waiver shall be
effective only in the specific instance and for the specific purpose for which
it was given. No amendment, modification, termination or waiver shall be
required for Agent to take additional Collateral pursuant to any Loan Document.
No amendment, modification, termination or waiver of any provision of any Note
shall be effective without the written concurrence of the holder of that Note.
No notice to or demand on any Credit Party in any case shall entitle such Credit
Party or any other Credit Party to any other or further notice or demand in
similar or other circumstances. Any amendment, modification, termination, waiver
or consent effected in accordance with this SECTION 11.2 shall be binding upon
each holder of the Notes at the time outstanding and each future holder of the
Notes.
(d) If, in connection with any proposed amendment,
modification, waiver or termination (a "PROPOSED CHANGE"):
(i) requiring the consent of all affected Lenders,
the consent of Requisite Lenders is obtained, but the consent
of other Lenders whose consent is required is not obtained
(any such Lender whose consent is not obtained as described
this CLAUSE (i) or in CLAUSE (ii), below being referred to as
a "NON-CONSENTING LENDER"), or
(ii) requiring the consent of Requisite Lenders, the
consent of Lenders holding 51% or more of the aggregate
Commitments is obtained, but the consent of Requisite Lenders
is not obtained,
then, so long as Agent is not a Non-Consenting Lender, at Borrower's request
Agent, or a Person acceptable to Agent, shall have the right with Agent's
consent and in Agent's sole discretion (but shall have no obligation) to
purchase from such Non-Consenting Lenders, and such Non-Consenting Lenders
agree that they shall, upon Agent's request, sell and assign to Agent or such
Person, all of the Commitments of such Non-Consenting Lender for an amount
equal to the principal balance of all Loans held by the Non-Consenting Lender
and all accrued interest and Fees with respect thereto through the date of
sale, such purchase and sale to be consummated pursuant to an executed
Assignment Agreement.
11.3 FEES AND EXPENSES. Borrower shall reimburse Agent for all
out-of-pocket expenses incurred in connection with the preparation of the Loan
Documents (including the reasonable fees and expenses of all of its special loan
counsel, advisors, consultants and auditors retained in connection with the Loan
Documents and the all related transactions and advice in connection therewith).
Borrower shall reimburse Agent (and, with respect to CLAUSES (c) and (d) below,
all Lenders) for all fees, costs and expenses, including the reasonable fees,
costs and expenses of counsel or other advisors (including environmental and
management consultants and appraisers) for advice, assistance, or other
representation in connection with:
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(a) the forwarding to Borrower or any other Person on
behalf of Borrower by Agent of the proceeds of the Loans;
(b) any amendment, modification or waiver of, or
consent with respect to, any of the Loan Documents or advice in connection with
the administration of the Loans made pursuant hereto or its rights hereunder or
thereunder;
(c) any litigation, contest, dispute, suit,
proceeding or action (whether instituted by Agent, any Lender, Borrower or any
other Person) in any way relating to the Collateral, any of the Loan Documents
or any other agreement to be executed or delivered in connection therewith or
herewith, whether as party, witness, or otherwise, including any litigation,
contest, dispute, suit, case, proceeding or action, and any appeal or review
thereof, in connection with a case commenced by or against Borrower or any other
Person that may be obligated to Agent by virtue of the Loan Documents; including
any such litigation, contest, dispute, suit, proceeding or action arising in
connection with any work-out or restructuring of the Loans during the pendency
of one or more Events of Default;
(d) any attempt to enforce any remedies of Agent or
any Lender against any or all of the Credit Parties or any other Person that may
be obligated to Agent or any Lender by virtue of any of the Loan Documents;
including any such attempt to enforce any such remedies in the course of any
work-out or restructuring of the Loans during the pendency of one or more Events
of Default;
(e) any work-out or restructuring of the Loans during
the pendency of one or more Events of Default; and
(f) efforts to (i) monitor the Loans or any of the
other Obligations, (ii) evaluate, observe or assess any of the Credit Parties or
their respective affairs, and (iii) verify, protect, evaluate, assess, appraise,
collect, sell, liquidate or otherwise dispose of any of the Collateral;
including all such attorneys' and other professional and service providers' fees
arising from such services, including those in connection with any appellate
proceedings; and all expenses, costs, charges and other fees incurred by such
counsel and others in any way or respect arising in connection with or relating
to any of the events or actions described in this SECTION 11.3 shall be payable,
on demand, by Borrower to Agent. Without limiting the generality of the
foregoing, such expenses, costs, charges and fees may include: fees, costs and
expenses of accountants, environmental advisors, appraisers, investment bankers,
management and other consultants and paralegals; court costs and expenses;
photocopying and duplication expenses; court reporter fees, costs and expenses;
long distance telephone charges; air express charges; telegram or telecopy
charges; secretarial overtime charges; and expenses for travel, lodging and food
paid or incurred in connection with the performance of such legal or other
advisory services.
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11.4 NO WAIVER. Agent's or any Lender's failure, at any time
or times, to require strict performance by the Credit Parties of any provision
of this Agreement and any of the other Loan Documents shall not waive, affect or
diminish any right of Agent or such Lender thereafter to demand strict
compliance and performance therewith. Any suspension or waiver of an Event of
Default shall not suspend, waive or affect any other Event of Default whether
the same is prior or subsequent thereto and whether the same or of a different
type. Subject to the provisions of SECTION 11.2, none of the undertakings,
agreements, warranties, covenants and representations of any Credit Party
contained in this Agreement or any of the other Loan Documents and no Default or
Event of Default by any Credit Party shall be deemed to have been suspended or
waived by Agent or any Lender, unless such waiver or suspension is by an
instrument in writing signed by an officer of or other authorized employee of
Agent and the applicable required Lenders and directed to Borrower specifying
such suspension or waiver.
11.5 REMEDIES. Agent's and Lenders' rights and remedies under
this Agreement shall be cumulative and nonexclusive of any other rights and
remedies which Agent or any Lender may have under any other agreement, including
the other Loan Documents, by operation of law or otherwise. Recourse to the
Collateral shall not be required.
11.6 SEVERABILITY. Wherever possible, each provision of this
Agreement and the other Loan Documents shall be interpreted in such a manner as
to be effective and valid under applicable law, but if any provision of this
Agreement shall be prohibited by or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
11.7 CONFLICT OF TERMS. Except as otherwise provided in this
Agreement or any of the other Loan Documents by specific reference to the
applicable provisions of this Agreement, if any provision contained in this
Agreement is in conflict with, or inconsistent with, any provision in any of the
other Loan Documents, the provision contained in this Agreement shall govern and
control.
11.8 CONFIDENTIALITY. Agent and each Lender agree to use
commercially reasonable efforts (equivalent to the efforts Agent or such Lender
applies to maintain the confidentiality of its own confidential information) to
maintain as confidential all confidential information provided to them by the
Credit Parties and designated as confidential for a period of two (2) years
following receipt thereof, except that Agent and each Lender may disclose such
information (a) to Persons employed or engaged by Agent or such Lender in
evaluating, approving, structuring or administering the Loans and the
Commitments; (b) to any bona fide assignee or participant or potential assignee
or participant that has agreed to comply with the covenant contained in this
SECTION 11.8 (and any such bona fide assignee or participant or potential
assignee or participant may disclose such information to Persons employed or
engaged by them as described in CLAUSE (a) above); (c) as required or requested
by any Governmental Authority or reasonably believed by Agent or such Lender to
be compelled by any court decree, subpoena or legal or administrative order or
process; (d) as, in the opinion of Agent's or such Lender's counsel, required by
law; (e) in connection with the exercise of any right or remedy
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under the Loan Documents or in connection with any Litigation to which Agent or
such Lender is a party; or (f) which ceases to be confidential through no fault
of Agent or such Lender.
11.9 GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN
ANY OF THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, THE LOAN DOCUMENTS AND THE OBLIGATIONS
SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE,
AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. EACH CREDIT PARTY
HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN NEW YORK
COUNTY, CITY OF NEW YORK, NEW YORK SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND
DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE CREDIT PARTIES, AGENT AND LENDERS
PERTAINING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY MATTER
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS,
PROVIDED, THAT AGENT, LENDERS AND THE CREDIT PARTIES ACKNOWLEDGE THAT ANY
APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF NEW
YORK COUNTY, CITY OF NEW YORK, NEW YORK AND, PROVIDED, FURTHER NOTHING IN THIS
AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE AGENT FROM BRINGING SUIT OR
TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE COLLATERAL
OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER
COURT ORDER IN FAVOR OF AGENT. EACH CREDIT PARTY EXPRESSLY SUBMITS AND CONSENTS
IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH
COURT, AND EACH CREDIT PARTY HEREBY WAIVES ANY OBJECTION WHICH SUCH CREDIT PARTY
MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON
CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF
AS IS DEEMED APPROPRIATE BY SUCH COURT. EACH CREDIT PARTY HEREBY WAIVES PERSONAL
SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR
SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY
BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO SUCH CREDIT PARTY AT THE
ADDRESS SET FORTH IN SCHEDULE 11.10 TO OF THIS AGREEMENT AND THAT SERVICE SO
MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF SUCH CREDIT PARTY'S ACTUAL
RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER
POSTAGE PREPAID.
11.10 NOTICES. Except as otherwise provided herein, whenever
it is provided herein that any notice, demand, request, consent, approval,
declaration or other communication shall or may be given to or served upon any
of the parties by any other parties, or whenever any of the parties desires to
give or serve upon any other parties any communication with respect to this
Agreement, each such notice, demand, request, consent, approval, declaration or
other
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communication shall be in writing and shall be deemed to have been validly
served, given or delivered (a) upon the earlier of actual receipt and three (3)
Business Days after deposit in the United States Mail, registered or certified
mail, return receipt requested, with proper postage prepaid, (b) upon
transmission, when sent by telecopy or other similar facsimile transmission
(with such telecopy or facsimile promptly confirmed by delivery of a copy by
personal delivery or United States Mail as otherwise provided in this SECTION
11.10), (c) one (1) Business Day after deposit with a reputable overnight
courier with all charges prepaid or (d) when delivered, if hand-delivered by
messenger, all of which shall be addressed to the party to be notified and sent
to the address or facsimile number indicated on SCHEDULE 11.10 or to such other
address (or facsimile number) as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Failure or delay in delivering
copies of any notice, demand, request, consent, approval, declaration or other
communication to any Person (other than Borrower or Agent) designated on
SCHEDULE 11.10 to receive copies shall in no way adversely affect the
effectiveness of such notice, demand, request, consent, approval, declaration or
other communication.
11.11 SECTION TITLES. The Section titles and Table of Contents
contained in this Agreement are and shall be without substantive meaning or
content of any kind whatsoever and are not a part of the agreement between the
parties hereto.
11.12 COUNTERPARTS. This Agreement may be executed in any
number of separate counterparts, each of which shall collectively and separately
constitute one agreement.
11.13 WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN
CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY
RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE
STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES
DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS.
THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL
SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY
IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER
SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG AGENT, LENDERS AND ANY CREDIT
PARTY ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF
THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS RELATED THERETO.
11.14 PRESS RELEASES. Each of Borrower and Parent agrees that
neither it nor its Affiliates will in the future issue any press releases or
other public disclosure using the name of GE Capital or its Affiliates or
referring to this Agreement or the other Loan Documents without at least two (2)
Business Days' prior notice to GE Capital and without the prior written consent
of GE Capital unless (and only to the extent that) such Credit Party or
Affiliate is required to do so under law and then, in any event, such Credit
Party or Affiliate will consult with GE Capital before issuing such press
release or other public disclosure. Each Credit Party consents to the
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publication by Agent or any Lender of a tombstone or similar advertising
material relating to the financing transactions contemplated by this Agreement.
11.15 REINSTATEMENT. This Agreement and each of the Loan
Documents shall remain in full force and effect and continue to be effective
should any petition be filed by or against Borrower or Parent for liquidation or
reorganization, should Borrower or Parent become insolvent or make an assignment
for the benefit of any creditor or creditors or should a receiver or trustee be
appointed for all or any significant part of Borrower's or Parent's assets, and
shall continue to be effective or to be reinstated, as the case may be, if at
any time payment and performance of the Obligations, or any part thereof, is,
pursuant to applicable law, rescinded or reduced in amount, or must otherwise be
restored or returned by any obligee of the Obligations, whether as a "voidable
preference," "fraudulent conveyance," or otherwise, all as though such payment
or performance had not been made. In the event that any payment, or any part
thereof, is rescinded, reduced, restored or returned, the Obligations and the
Loan Documents shall be reinstated and deemed reduced only by such amount paid
and not so rescinded, reduced, restored or returned.
11.16 ADVICE OF COUNSEL. Each of the parties represents to
each other party hereto that it has discussed this Agreement and, specifically,
the provisions of SECTIONS 11.9 and 11.13, with its counsel.
11.17 NO STRICT CONSTRUCTION. The parties hereto have
participated jointly in the negotiation and drafting of this Agreement and the
other Loan Documents. In the event an ambiguity or question of intent or
interpretation arises, this Agreement and the other Loan Documents shall be
construed as if drafted jointly by the parties hereto and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any provisions of this Agreement.
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IN WITNESS WHEREOF, this Agreement has been duly executed as
of the date first written above.
PARLUX, LTD.
By: /s/ Frank A. Buttacavoli
---------------------------------------
Executive Vice President
PARLUX FRAGRANCES, INC.
By: /s/ Frank A. Buttacavoli
---------------------------------------
Executive Vice President
GENERAL ELECTRIC CAPITAL
CORPORATION, AS AGENT AND LENDER
By: /s/ Timothy C. Huban
---------------------------------------
Authorized Signatory
Revolving Loan Commitment:
$25,000,000
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1
Exhibit 10.40
EMPLOYMENT AGREEMENT
--------------------
Agreement (the "Agreement") dated as of March 27, 1997 between Parlux
Fragrances, Inc., a corporation of the State of Delaware with offices located at
3725 S.W. 30th Avenue, Fort Lauderdale, Florida 33312 (hereinafter called the
"Company"), and Ilia Lekach, residing, at 137 Golden Beach Drive, Golden Beach,
Florida 33160 (hereinafter called the "Executive").
WITNESSETH
WHEREAS, the Company desires to employ the Executive and the Executive
is willing to be employed by the Company and accepts such employment;
NOW THEREFORE, in consideration of the mutual promises and covenants
herein contained intending to be legally bound, the parties do hereby agree as
follows:
1. EMPLOYMENT. The Company agrees to employ the Executive and the
Executive hereby accepts the terms and conditions hereinafter set forth, for a
period commencing on April 1, 1997 and ending on March 31, 2000 (the "Initial
Term") (unless terminated as specifically provided for in this Agreement).
Upon expiration of the Initial Term, the Executive's term of employment shall be
extended for an additional three (3) year period, unless either party gives
written notice of its intention not to renew this Agreement at least six (6)
months prior to the expiration of the Initial Term, in which case the
Executive's term of employment shall end upon such expiration.
2. POSITION AND DUTIES. The Executive shall serve as Chief Executive
Officer of the Company and shall have the powers and duties as may from time to
time be prescribed by the Company's Board of Directors (the "Board"), provided
that the Executive's duties are consistent with the Executive's position as a
senior executive officer involved with the general management of the Company.
The Executive shall report to the Board.
3. PLACE OF PERFORMANCE. In connection with his employment by the
Company, the Executive shall be based, and the duties to be performed, shall be
performed at the Company's principal executive offices located in Broward County
or Dade County, South Florida. Such office shall not be further relocated
without the Executive's consent.
4. COMPENSATION AND RELATED MATTERS.
(a) BASE SALARY: The Executive shall receive a base salary, exclusive
of benefits (the "Base Salary"), in substantially equal monthly or bi-weekly
installments as follows:
(i) For the period commencing on April 1, 1997 and ending on March 31,
1998, at the annual rate of $260,000; for the periods commencing on April 1,
1998 and 1999 and ending on March 31, 1999 and 2000, respectively, at the
immediate prior year's annual rate, plus an increase based on performance, to be
determined by the Board.
(b) EXPENSES: During the term of his employment under this Agreement,
the Executive shall be entitled to receive prompt reimbursement for all
reasonable business expenses incurred by him in accordance with the policies and
procedures of the Company for
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2
reimbursement of business expenses by its senior executive officers, provided
that the Executive accounts for the expenses in accordance with the Company's
policies.
(c) OTHER BENEFITS: The Executive shall be entitled to participate in
or receive benefits under all executive benefit plans and arrangements made
available by the Company at any time to its employees and key management
executives. Nothing paid to the Executive under any plan or arrangement
presently in effect or made available in the future shall be deemed to be in
lieu of the Base Salary or any other obligation payable to the Executive
pursuant to this Agreement.
(d) VACATIONS: The Executive shall be entitled to the number of paid
vacation days in each fiscal year determined by the Company from time to time
for its senior executive officers, but not less than three weeks in any fiscal
year.
(e) PERQUISITES: The Executive shall be entitled to receive all
perquisites and fringe benefits provided or available to senior executive
officers of the Company in accordance with present practice and as may be
changed from time to time with respect to all senior executive officers of the
Company.
5. NONCOMPETITION; UNAUTHORIZED DISCLOSURE:
(a) NO MATERIAL COMPETITION: Except with respect to services performed
under this Agreement on behalf of the Company, and subject to the obligations of
the Executive as an officer of the Company and the employment obligations of the
Executive under this Agreement, the Executive agrees that at no time during the
term of this Agreement or, for a period of one year immediately following any
termination of this Agreement for any reason, will he engage in any business if,
within thirty (30) days of the Executive advising the Company in writing of his
proposed business activity, the Board determines in good faith that such
proposed business activity is directly competitive with a material part of the
business of the Company and its subsidiaries (both present and future) and
such competitive business activity is reasonably likely to materially affect in
an adverse manner the consolidated sales, profits or financial condition of the
Company.
(b) UNAUTHORIZED DISCLOSURES: During the period of his employment under
this Agreement, the Executive shall not, without the written consent of the
Board or a person authorized by the Board, disclose to any person, other than an
Executive of the Company or person to whom disclosure is reasonably necessary or
appropriate in connection with the performance by the Executive of his duties as
an executive of the company, any material confidential information obtained by
him while in the employ of the company with respect to any of the Company's
customers, suppliers, creditors, lenders, investment bankers or methods of
marketing, the disclosure of which he knows will materially damage the Company;
provided, however, that confidential information shall not include any
information known generally to the public (other than as a result of
unauthorized disclosure by the Executive) or any information of a type not
otherwise considered confidential by persons engaged in the same business or a
business similar to that conducted by the Company. For the period ending one
year following the termination of employment under this Agreement for any
reason, the Executive shall not disclose any confidential information of the
type described above except as
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3
determined by him to be reasonably necessary in connection with any business or
activity in which he is then engaged.
(c) Certain Provisions: The limitations of Section 5 (a) shall
terminate if upon termination of this Agreement for any reason the Company does
not fulfill its obligations as required by Section 7 of this Agreement; however,
such termination shall not affect the rights of the Executive to receive all
payments he is entitled to receive under Section 7. The provisions of Section 5
shall apply during the time the Executive is receiving any payments from the
Company as a result of a termination of this Agreement pursuant to Section 6
(b).
6. TERMINATION. The Company may terminate the Executive's employment
under this Agreement prior to the expiration of the term set forth in Section 1
only under the following circumstances:
(a) DEATH. Upon the Executive's death.
(b) DISABILITY. If , as a result of the Executive's incapacity due to
physical or mental illness, the Executive shall have been absent from his duties
under this Agreement on a full time basis for 120 calendar days during any
calendar year, then 30 days after written notice of termination is given to the
Executive (which may only be given after the end of the 120 day period),
provided that he has not returned to his duties under this Agreement on a full
time basis.
(c) CAUSE. For Cause. The Company shall have "Cause" to terminate the
Executive's employment under this Agreement upon (A) the willful and continued
failure by the Executive to substantially perform his duties under this
Agreement (other than any failure resulting from the Executive's incapacity due
to physical or mental illness) for thirty (30) days after written demand for
substantial performance is delivered by the Company specifically identifying the
manner in which the Company believes the Executive has not substantially
performed his duties, or (B) the willful engaging by the Executive in misconduct
(including embezzlement and criminal fraud) which is materially injurious to
the Company, or (C) the willful violation by the Executive of Section 5 of this
Agreement, provided that the violation results in material injury to the
Company, or (D) the conviction of the Executive of a felony. For purposes of
this paragraph, no act, or failure to act, by the Executive shall be considered
"willful" unless done or omitted to be done, by him not in good faith and
without reasonable belief that his action or omission was in the interest of the
Company. The Executive shall not be deemed to have been terminated for Cause
unless and until there shall have been delivered to the Executive a copy of a
resolution, duly adopted by the affirmative vote of a majority of the entire
membership of the Board at a meeting of the Board called and held for such
purpose (after a reasonable notice to the Executive and an opportunity for him,
together with his counsel, to be heard before the Board), finding that in the
good faith opinion of the Board the Executive was guilty of conduct set forth
above in clause (A), (B), (C) or (D) and specifying the particulars of the
conduct in detail.
(d) TERMINATION BY THE EXECUTIVE. The Executive may terminate his
employment under this Agreement (i) for Good Reason (as defined below) or (ii)
if his health should become impaired to any extent that makes the continued
performance of his duties under this Agreement hazardous to his physical or
mental health or his life, provided that the Executive
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4
shall have furnished the Company with a written statement from a qualified
doctor to that effect and provided further that at the Company's request and
expense the Executive shall submit to an examination by a doctor selected by the
Company, and the doctor shall have concurred in the conclusion of the
Executive's doctor.
"Good Reason" means the Company has (through its Board or otherwise)
(A) limited the powers of the Executive in any manner not contemplated by
Section 2, (B) failed to comply with Section 3 or 4, (C) failed to cause any
successor as contemplated in Section 8 of this Agreement to assume this
Agreement, or (D) a change in control. The Executive shall give the Company 30
days prior written notice of his intent to terminate this Agreement as a result
of clause (A), (B), (C) or (D) and the Company shall have the right to cure
within the 30 day period. For purposes of this Agreement, a change in control
means the occurrence of one or more of the following events (whether or not
approved by the Board): (i) an event or series of events by which any person or
other entity or group of persons or other entities acting in concert as
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), whether or not applicable, together
with its or their affiliates or associates shall, as a result of a tender offer
or exchange offer, open market purchases, privately negotiated purchases, merger
or otherwise (including pursuant to receipt of revocable proxies) (A) be or
become directly or indirectly the beneficial owner (within the meaning of Rule
13d-3 and Rule 13d-5 under the Exchange Act, whether or not applicable, except
that a person shall be deemed to have beneficial ownership of all securities
that such person has the right to acquire whether such right is exercisable
immediately or only after the passage of time) of more than 30% of the combined
voting power of the then outstanding common stock of the Company or (B)
otherwise have the ability to elect, directly or indirectly, a majority of the
members of the Board.
(e) NOTICE OF TERMINATION. Any termination of the Executive's
employment by the Company or by the Executive (other than termination pursuant
to subsection (a) above) shall be communicated by written Notice of Termination
to the other party of this Agreement. "Notice of Termination" means a notice
which indicates the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated.
(f) DATE OF TERMINATION. Date of termination means (i) if the
Executive's employment is terminated by his death, the date of his death, (ii)
if the Executive's employment is terminated pursuant to subsection (b) above, 30
days after Notice of Termination is given (provided that the Executive shall
not have returned to the performance of his duties on a full-time basis during
the 30 day period), (iii) if the Executive's employment is terminated pursuant
to subsection (c) above, the date specified in the Notice of Termination after
the expiration of any cure periods, and (iv) if the Executive's employment is
terminated for any other reason, the date on which Notice of Termination is
given.
7. COMPENSATION UPON TERMINATION OR DURING DISABILITY:
(a) Upon the Executive's death, the Company shall pay to the person
designated by the Executive in a notice filed with the Company or, if no person
is designated, to his estate as a lump sum death benefit, his full Base Salary
to the date of his death in addition to any
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5
payments the Executive's spouse, beneficiaries or estate may be entitled to
receive pursuant to any pension, stock option or Executive benefit plan or life
insurance policy or similar plan or policy then maintained by the Company. Upon
full payment of all amounts required to be paid under this subsection, the
Company shall have no further obligation under this Agreement.
(b) During any period that the Executive fails to perform his duties
under this Agreement as a result of incapacity due to physical or mental
illness, the Executive shall continue to receive his full base salary until the
Executive's employment is terminated pursuant to Section 6(b) of this
Agreement, or until the Executive terminates his employment pursuant to Section
6(d)(ii) of this Agreement, whichever comes first. After termination, the
Executive shall receive in equal monthly installments 100% of his base salary at
the rate in effect at the time Notice of Termination is delivered for one year,
plus any disability payments otherwise payable by or pursuant to plans provided
by the Company ("Disability Payments")
(c) If the Executive's employment is terminated for Cause, the Company
shall pay the Executive his full base salary through the date of termination at
the rate in effect at the time Notice of Termination is delivered and the
Company shall have no further obligation to the Executive under this Agreement.
(d) If (A) in breach of this Agreement, the Company shall terminate the
Executive's employment other than pursuant to Sections 6(b) or 6(c) (it being
understood that a purported termination pursuant to Sections 6(b) or 6(c)
which is disputed and finally determined not to have been proper shall be a
termination by the Company in breach of this Agreement), or (B) the Executive
shall terminate his employment for Good Reason, then
(i) The Company shall pay the Executive his full base salary through
the date of termination at the rate then in effect at the time Notice of
Termination is given;
(ii) in lieu of any further salary payments to the Executive for
periods subsequent to the Date of Termination and in consideration of the rights
of the Company under Section 5 of this Agreement, the Company shall pay
severance pay to the Executive on the fifth day following the date of
termination, in a lump sum amount equal to the entire salary due until the end
of the term of this Agreement based on an annual base salary at the highest rate
in effect during the twelve (12) months immediately preceding the date of
Termination.
(iii) In the event of a change in control of the Company as defined in
Section 6(d), the Company shall pay twice the amount of severance pay required
in Section 7(d)(ii) above.
(iv) The Company shall pay all reasonable legal fees and expenses
incurred by the Executive in contesting or disputing any such termination or in
seeking to obtain or enforce any right or benefit in this Agreement.
(e) Unless the Executive is terminated for Cause, the Company shall
maintain in full force and effect, for the continued benefit of the Executive
for the greater of the remaining term of this Agreement or eighteen (18)
months after termination of this Agreement, all Executive health and
hospitalization plans and programs in which the Executive was entitled to
participate in immediately prior to the Date of Termination, provided that the
Executive's
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6
continued participation is possible under the general terms and provisions of
the plans and programs. If the Executive's participation in any plan or program
is barred, the Company shall arrange to provide the Executive with benefits
substantially similar to those which the Executive would otherwise have been
entitled to receive under the plan and program from which his continued
participation is barred.
(f) The Executive shall not be required to mitigate the amount of any
payment provided for in this Section 7 by seeking other employment or otherwise,
however, the amount of any payment provided for in this Section 7 shall not be
reduced by any compensation earned by the Executive as the result of employment
by another employer after the Date of Termination.
(g) In the event of a termination of this Agreement by the Executive
for Good Reason as a result of a change in control, the amount to be utilized in
Section 7(d)(ii) shall be changed to the average compensation of the Executive
during this Agreement for the taxable years prior to such termination (all as
determined to compute the base amount for purposes of Section 280G of the
Internal Revenue Code of 1984, as amended).
8. SUCCESSORS; BINDING AGREEMENT:
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive, to expressly assume and agree
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of the Company to obtain an assumption of this Agreement prior to or
simultaneously with the effectiveness of any such succession shall be a breach
of this Agreement and shall entitle the Executive to compensation from the
Company in the same amount and on the same terms as he would be entitled to
under this Agreement if he terminated his employment for Good Reason, except for
purposes of implementing the foregoing, the date on which any such succession
becomes effective shall be deemed the date of termination. As used in this
Agreement, "Company" shall mean the Company as previously defined and any
successor to its business and/or assets which executes and delivers the
agreement provided for in this Section 8 or which otherwise becomes bound by all
the terms and provisions of this Agreement by operation of law.
(b) This Agreement and all rights if the Executive under this Agreement
shall inure to the benefit of and be enforceable by the Executive's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive should die while any
amounts would still be payable to him under this Agreement, including all
payments payable under Section 7, if he had continued to live, all such amounts
shall be paid in accordance with the terms of this Agreement to the Executive's
devisee, legatee, or other designee or, if there is no such designee, the
Executive's estate.
9. NOTICE: For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed as
follows:
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If to the Executive: Mr. Ilia Lekach
137 Golden Beach Drive
Golden Beach, Florida 33160
If to the Company: Parlux Fragrances, Inc.
3725 S.W. 30th Avenue
Fort Lauderdale, Florida 33312
Attention: Board of Directors
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except with notices of change of address which
shall be effective only upon receipt.
10. ENTIRE AGREEMENT: No provisions of this Agreement may be modified,
waived or discharged unless such is signed by the Executive and the officer of
the Company which is specifically designated by the Board. No Agreements or
representations, oral or otherwise, expressed or implied, with respect to the
subject matter of this Agreement have been made by either party which are not
set forth expressly in this Agreement and this Agreement supersedes any other
employment agreement between the Company and the Executive.
11. WAIVER OF BREACH: No waiver by either party to this Agreement of,
or compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of any other provision or condition
at any prior or subsequent time.
12. HEADINGS: The section headings contained in this Agreement have
been inserted only as a matter of convenience or reference and in no way define,
limit or describe the scope or intent of any provisions of this Agreement nor in
any way affect any of these provisions.
13. GOVERNING LAW: The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Florida, without giving effect to conflict of law principles.
14. SEVERABILITY: The invalidity or unenforceability of any provision
or provisions of this Agreement shall not effect the validity or enforceability
of any other provision of this Agreement, which shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and year first above written.
ATTEST: PARLUX FRAGRANCES, INC.
/s/ Frederick E. Purches By: /s/ Frank A. Buttacavoli
- --------------------------- ---------------------------------------------
Frank A. Buttacavoli, Executive V.P./C.F.O.
WITNESS:
/s/ Tania N. Espinosa /s/ Ilia Lekach
- --------------------------- ----------------------------------------
Ilia Lekach, Executive
7
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1
Exhibit 10.41
EMPLOYMENT AGREEMENT
--------------------
Agreement (the "Agreement") dated as of March 27, 1997 between Parlux
Fragrances, Inc., a corporation of the State of Delaware with offices located at
3725 S.W. 30th Avenue, Fort Lauderdale, Florida 33312 (hereinafter called the
"Company"), and Zalman Lekach, residing, at 16445 Collins Avenue, Apt. 1725,
Miami Beach, Florida 33160 (hereinafter called the "Executive").
WITNESSETH
WHEREAS, the Company desires to employ the Executive and the Executive
is willing to be employed by the Company and accepts such employment;
NOW THEREFORE, in consideration of the mutual promises and covenants
herein contained intending to be legally bound, the parties do hereby agree as
follows:
1. EMPLOYMENT. The Company agrees to employ the Executive and the
Executive hereby accepts the terms and conditions hereinafter set forth, for a
period commencing on April 1, 1997 and ending on March 31, 2000 (the "Initial
Term") (unless terminated as specifically provided for in this Agreement).
Upon expiration of the Initial Term, the Executive's term of employment shall be
extended for an additional three (3) year period, unless either party gives
written notice of its intention not to renew this Agreement at least six (6)
months prior to the expiration of the Initial Term, in which case the
Executive's term of employment shall end upon such expiration.
2. POSITION AND DUTIES. The Executive shall serve as President and
Chief Operating Officer of the Company and shall have the powers and duties as
may from time to time be prescribed by the Company's Chief Executive Officer and
Board of Directors (the "Board"), provided that the Executive's duties are
consistent with the Executive's position as a senior executive officer involved
with the general management of the Company. The Executive shall report to the
Chief Executive Officer.
3. PLACE OF PERFORMANCE. In connection with his employment by the
Company, the Executive shall be based, and the duties to be performed, shall be
performed at the Company's principal executive offices located in Broward County
or Dade County, South Florida. Such office shall not be further relocated
without the Executives consent.
4. COMPENSATION AND RELATED MATTERS.
(a) BASE SALARY: The Executive shall receive a base salary, exclusive
of benefits (the "Base Salary"), in substantially equal monthly or bi-weekly
installments as follows:
(i) For the period commencing on January 1, 1998 and ending on March
31, 1998, at the annual rate of $195,000; for the periods commencing on April 1,
1998 and 1999 and ending on March 31, 1999 and 2000, respectively, at the
immediate prior year's annual rate, plus an increase based on performance, to be
determined by the Chief Executive Officer.
(b) EXPENSES: During the term of his employment under this Agreement,
the Executive shall be entitled to receive prompt reimbursement for all
reasonable business
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2
expenses incurred by him in accordance with the policies and procedures of the
Company for reimbursement of business expenses by its senior executive officers,
provided that the Executive accounts for the expenses in accordance with the
Company's policies.
(c) OTHER BENEFITS: The Executive shall be entitled to participate in
or receive benefits under all executive benefit plans and arrangements made
available by the Company at any time to its employees and key management
executives. Nothing paid to the Executive under any plan or arrangement
presently in effect or made available in the future shall be deemed to be in
lieu of the Base Salary or any other obligation payable to the Executive
pursuant to this Agreement.
(d) VACATIONS: The Executive shall be entitled to the number of paid
vacation days in each fiscal year determined by the Company from time to time
for its senior executive officers, but not less than three weeks in any fiscal
year.
(e) PERQUISITES: The Executive shall be entitled to receive all
perquisites and fringe benefits provided or available to senior executive
officers of the Company in accordance with present practice and as may be
changed from time to time with respect to all senior executive officers of the
Company.
5. NONCOMPETITION; UNAUTHORIZED DISCLOSURE:
(a) NO MATERIAL COMPETITION: Except with respect to services performed
under this Agreement on behalf of the Company, and subject to the obligations of
the Executive as an officer of the Company and the employment obligations of the
Executive under this Agreement, the Executive agrees that at no time during the
term of this Agreement or, for a period of one year immediately following any
termination of this Agreement for any reason, will he engage in any business if,
within thirty (30) days of the Executive advising the Company in writing of his
proposed business activity, the Board determines in good faith that such
proposed business activity is directly competitive with a material part of the
business of the Company and its subsidiaries (both present and future) and
such competitive business activity is reasonably likely to materially affect in
an adverse manner the consolidated sales, profits or financial condition of the
Company.
(b) UNAUTHORIZED DISCLOSURES: During the period of his employment under
this Agreement, the Executive shall not, without the written consent of the
Board or a person authorized by the Board, disclose to any person, other than an
Executive of the Company or person to whom disclosure is reasonably necessary or
appropriate in connection with the performance by the Executive of his duties as
an executive of the company, any material confidential information obtained by
him while in the employ of the company with respect to any of the Company's
customers, suppliers, creditors, lenders, investment bankers or methods of
marketing, the disclosure of which he knows will materially damage the Company;
provided, however, that confidential information shall not include any
information known generally to the public (other than as a result of
unauthorized disclosure by the Executive) or any information of a type not
otherwise considered confidential by persons engaged in the same business or a
business similar to that conducted by the Company. For the period ending one
year following the termination of employment under this Agreement for any
reason, the Executive shall not disclose any confidential information of the
type described above except as
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3
determined by him to be reasonably necessary in connection with any business or
activity in which he is then engaged.
(c) CERTAIN PROVISIONS: The limitations of Section 5(a) shall
terminate if upon termination of this Agreement for any reason the Company does
not fulfill its obligations as required by Section 7 of this Agreement; however,
such termination shall not affect the rights of the Executive to receive all
payments he is entitled to receive under Section 7. The provisions of Section 5
shall apply during the time the Executive is receiving any payments from the
Company as a result of a termination of this Agreement pursuant to Section 6
(b).
6. TERMINATION. The Company may terminate the Executive's employment
under this Agreement prior to the expiration of the term set forth in Section 1
only under the following circumstances:
(a) DEATH. Upon the Executive's death.
(b) DISABILITY. If, as a result of the Executive's incapacity due to
physical or mental illness, the Executive shall have been absent from his duties
under this Agreement on a full time basis for 120 calendar days during any
calendar year, then 30 days after written notice of termination is given to the
Executive (which may only be given after the end of the 120 day period),
provided that he has not returned to his duties under this Agreement on a full
time basis.
(c) CAUSE. For Cause. The Company shall have "Cause" to terminate the
Executive's employment under this Agreement upon (A) the willful and continued
failure by the Executive to substantially perform his duties under this
Agreement (other than any failure resulting from the Executive's incapacity due
to physical or mental illness) for thirty (30) days after written demand for
substantial performance is delivered by the Company specifically identifying the
manner in which the Company believes the Executive has not substantially
performed his duties, or (B) the willful engaging by the Executive in misconduct
(including embezzlement and criminal fraud) which is materially injurious to
the Company, or (C) the willful violation by the Executive of Section 5 of this
Agreement, provided that the violation results in material injury to the
Company, or (D) the conviction of the Executive of a felony. For purposes of
this paragraph, no act, or failure to act, by the Executive shall be considered
"willful" unless done or omitted to be done, by him not in good faith and
without reasonable belief that his action or omission was in the interest of the
Company. The Executive shall not be deemed to have been terminated for Cause
unless and until there shall have been delivered to the Executive a copy of a
resolution, duly adopted by the affirmative vote of a majority of the entire
membership of the Board at a meeting of the Board called and held for such
purpose (after a reasonable notice to the Executive and an opportunity for him,
together with his counsel, to be heard before the Board), finding that in the
good faith opinion of the Board the Executive was guilty of conduct set forth
above in clause (A), (B), (C) or (D) and specifying the particulars of the
conduct in detail.
(d) TERMINATION BY THE EXECUTIVE. The Executive may terminate his
employment under this Agreement (i) for Good Reason (as defined below) or (ii)
if his health should become impaired to any extent that makes the continued
performance of his duties under this Agreement hazardous to his physical or
mental health or his life, provided that the Executive
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4
shall have furnished the Company with a written statement from a qualified
doctor to that effect and provided further that at the Company's request and
expense the Executive shall submit to an examination by a doctor selected by the
Company, and the doctor shall have concurred in the conclusion of the
Executive's doctor.
"Good Reason" means the Company has (through its Board or otherwise)
(A) limited the powers of the Executive in any manner not contemplated by
Section 2, (B) failed to comply with Section 3 or 4, (C) failed to cause any
successor as contemplated in Section 8 of this Agreement to assume this
Agreement, or (D) a change in control. The Executive shall give the Company 30
days prior written notice of his intent to terminate this Agreement as a result
of clause (A), (B), (C) or (D) and the Company shall have the right to cure
within the 30 day period. For purposes of this Agreement, a change in control
means the occurrence of one or more of the following events (whether or not
approved by the Board): (i) an event or series of events by which any person or
other entity or group of persons or other entities acting in concert as
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), whether or not applicable, together
with its or their affiliates or associates shall, as a result of a tender offer
or exchange offer, open market purchases, privately negotiated purchases, merger
or otherwise (including pursuant to receipt of revocable proxies) (A) be or
become directly or indirectly the beneficial owner (within the meaning of Rule
13d-3 and Rule 13d-5 under the Exchange Act, whether or not applicable, except
that a person shall be deemed to have beneficial ownership of all securities
that such person has the right to acquire whether such right is exercisable
immediately or only after the passage of time) of more than 30% of the combined
voting power of the then outstanding common stock of the Company or (B)
otherwise have the ability to elect, directly or indirectly, a majority of the
members of the Board.
(e) NOTICE OF TERMINATION. Any termination of the Executive's
employment by the Company or by the Executive (other than termination pursuant
to subsection (a) above) shall be communicated by written Notice of Termination
to the other party of this Agreement. "Notice of Termination" means a notice
which indicates the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated.
(f) DATE OF TERMINATION. Date of termination means (i) if the
Executive's employment is terminated by his death, the date of his death, (ii)
if the Executive's employment is terminated pursuant to subsection (b) above, 30
days after Notice of Termination is given (provided that the Executive shall
not have returned to the performance of his duties on a full-time basis during
the 30 day period), (iii) if the Executive's employment is terminated pursuant
to subsection (c) above, the date specified in the Notice of Termination after
the expiration of any cure periods, and (iv) if the Executive's employment is
terminated for any other reason, the date on which Notice of Termination is
given.
7. COMPENSATION UPON TERMINATION OR DURING DISABILITY:
(a) Upon the Executive's death, the Company shall pay to the person
designated by the Executive in a notice filed with the Company or, if no person
is designated, to his estate as a lump sum death benefit, his full Base Salary
to the date of his death in addition to any
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5
payments the Executive's spouse, beneficiaries or estate may be entitled to
receive pursuant to any pension, stock option or Executive benefit plan or life
insurance policy or similar plan or policy then maintained by the Company. Upon
full payment of all amounts required to be paid under this subsection, the
Company shall have no further obligation under this Agreement.
(b) During any period that the Executive fails to perform his duties
under this Agreement as a result of incapacity due to physical or mental
illness, the Executive shall continue to receive his full base salary until the
Executive's employment is terminated pursuant to Section 6(b) of this
Agreement, or until the Executive terminates his employment pursuant to Section
6(d)(ii) of this Agreement, whichever comes first. After termination, the
Executive shall receive in equal monthly installments 100% of his base salary at
the rate in effect at the time Notice of Termination is delivered for one year,
plus any disability payments otherwise payable by or pursuant to plans provided
by the Company ("Disability Payments")
(c) If the Executive's employment is terminated for Cause, the Company
shall pay the Executive his full base salary through the date of termination at
the rate in effect at the time Notice of Termination is delivered and the
Company shall have no further obligation to the Executive under this Agreement.
(d) If (A) in breach of this Agreement, the Company shall terminate the
Executive's employment other than pursuant to Sections 6(b) or 6(c) (it being
understood that a purported termination pursuant to Sections 6(b) or 6(c)
which is disputed and finally determined not to have been proper shall be a
termination by the Company in breach of this Agreement), or (B) the Executive
shall terminate his employment for Good Reason, then
(i) The Company shall pay the Executive his full base salary through
the date of termination at the rate then in effect at the time Notice of
Termination is given;
(ii) in lieu of any further salary payments to the Executive for
periods subsequent to the Date of Termination and in consideration of the rights
of the Company under Section 5 of this Agreement, the Company shall pay
severance pay to the Executive on the fifth day following the date of
termination, in a lump sum amount equal to the entire salary due until the end
of the term of this Agreement based on an annual base salary at the highest rate
in effect during the twelve (12) months immediately preceding the date of
Termination.
(iii) In the event of a change in control of the Company as defined in
Section 6(d), the Company shall pay twice the amount of severance pay required
in Section 7(d)(ii) above.
(iv) The Company shall pay all reasonable legal fees and expenses
incurred by the Executive in contesting or disputing any such termination or in
seeking to obtain or enforce any right or benefit in this Agreement.
(e) Unless the Executive is terminated for Cause, the Company shall
maintain in full force and effect, for the continued benefit of the Executive
for the greater of the remaining term of this Agreement or eighteen (18)
months after termination of this Agreement, all Executive health and
hospitalization plans and programs in which the Executive was entitled to
participate in immediately prior to the Date of Termination, provided that the
Executive's
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6
continued participation is possible under the general terms and provisions of
the plans and programs. If the Executive's participation in any plan or program
is barred, the Company shall arrange to provide the Executive with benefits
substantially similar to those which the Executive would otherwise have been
entitled to receive under the plan and program from which his continued
participation is barred.
(f) The Executive shall not be required to mitigate the amount of any
payment provided for in this Section 7 by seeking other employment or otherwise,
however, the amount of any payment provided for in this Section 7 shall not be
reduced by any compensation earned by the Executive as the result of employment
by another employer after the Date of Termination.
(g) In the event of a termination of this Agreement by the Executive
for Good Reason as a result of a change in control, the amount to be utilized in
Section 7(d)(ii) shall be changed to the average compensation of the Executive
during this Agreement for the taxable years prior to such termination (all as
determined to compute the base amount for purposes of Section 280G of the
Internal Revenue Code of 1984, as amended).
8. SUCCESSORS; BINDING AGREEMENT:
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive, to expressly assume and agree
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of the Company to obtain an assumption of this Agreement prior to or
simultaneously with the effectiveness of any such succession shall be a breach
of this Agreement and shall entitle the Executive to compensation from the
Company in the same amount and on the same terms as he would be entitled to
under this Agreement if he terminated his employment for Good Reason, except for
purposes of implementing the foregoing, the date on which any such succession
becomes effective shall be deemed the date of termination. As used in this
Agreement, "Company" shall mean the Company as previously defined and any
successor to its business and/or assets which executes and delivers the
agreement provided for in this Section 8 or which otherwise becomes bound by all
the terms and provisions of this Agreement by operation of law.
(b) This Agreement and all rights if the Executive under this Agreement
shall inure to the benefit of and be enforceable by the Executive's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive should die while any
amounts would still be payable to him under this Agreement, including all
payments payable under Section 7, if he had continued to live, all such amounts
shall be paid in accordance with the terms of this Agreement to the Executive's
devisee, legatee, or other designee or, if there is no such designee, the
Executive's estate.
9. NOTICE: For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed as
follows:
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If to the Executive: Mr. Zalman Lekach
16445 Collins Avenue, Apt. 1725
Miami Beach, Florida 33160
If to the Company: Parlux Fragrances, Inc.
3725 S.W. 30th Avenue
Fort Lauderdale, Florida 33312
Attention: Ilia Lekach
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except with notices of change of address which
shall be effective only upon receipt.
10. ENTIRE AGREEMENT: No provisions of this Agreement may be modified,
waived or discharged unless such is signed by the Executive and the officer of
the Company which is specifically designated by the Board. No Agreements or
representations, oral or otherwise, expressed or implied, with respect to the
subject matter of this Agreement have been made by either party which are not
set forth expressly in this Agreement and this Agreement supersedes any other
employment agreement between the Company and the Executive.
11. WAIVER OF BREACH: No waiver by either party to this Agreement of,
or compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of any other provision or condition
at any prior or subsequent time.
12. HEADINGS: The section headings contained in this Agreement have
been inserted only as a matter of convenience or reference and in no way define,
limit or describe the scope or intent of any provisions of this Agreement nor in
any way affect any of these provisions.
13. GOVERNING LAW: The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Florida, without giving effect to conflict of law principles.
14. SEVERABILITY: The invalidity or unenforceability of any provision
or provisions of this Agreement shall not effect the validity or enforceability
of any other provision of this Agreement, which shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and year first above written.
ATTEST: PARLUX FRAGRANCES, INC.
/s/ Frederick E. Purches By: /s/ Ilia Lekach
- --------------------------- ------------------------------------
Ilia Lekach, Chief Executive Officer
WITNESS:
/s/ Frank A. Buttacavoli /s/ Zalman Lekach
- --------------------------- ----------------------------------
Zalman Lekach, Executive
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1
Exhibit 10.42
EMPLOYMENT AGREEMENT
--------------------
Agreement (the "Agreement") dated as of March 27, 1997 between Parlux
Fragrances, Inc., a corporation of the State of Delaware with offices located at
3725 S.W. 30th Avenue, Fort Lauderdale, Florida 33312 (hereinafter called the
"Company"), and Frank A. Buttacavoli, residing, at 5451 Alton Road, Miami
Beach, Florida 33140 (hereinafter called the "Executive").
WITNESSETH
WHEREAS, the Company desires to employ the Executive and the Executive
is willing to be employed by the Company and accepts such employment;
NOW THEREFORE, in consideration of the mutual promises and covenants
herein contained intending to be legally bound, the parties do hereby agree as
follows:
1. EMPLOYMENT. The Company agrees to employ the Executive and the
Executive hereby accepts the terms and conditions hereinafter set forth, for a
period commencing on April 1, 1997 and ending on March 31, 2000 (the "Initial
Term") (unless terminated as specifically provided for in this Agreement).
Upon expiration of the Initial Term, the Executive's term of employment shall be
extended for an additional three (3) year period, unless either party gives
written notice of its intention not to renew this Agreement at least six (6)
months prior to the expiration of the Initial Term, in which case the
Executive's term of employment shall end upon such expiration.
2. POSITION AND DUTIES. The Executive shall serve as Executive Vice
President and Chief Financial Officer of the Company and shall have the powers
and duties as may from time to time be prescribed by the Company's Chief
Executive Officer and Board of Directors (the "Board"), provided that the
Executive's duties are consistent with the Executive's position as a senior
executive officer involved with the general management of the Company. The
Executive shall report to the Chief Executive Officer.
3. PLACE OF PERFORMANCE. In connection with his employment by the
Company, the Executive shall be based, and the duties to be performed, shall be
performed at the Company's principal executive offices located in Broward County
or Dade County, South Florida. Such office shall not be further relocated
without the Executives consent.
4. COMPENSATION AND RELATED MATTERS.
(a) BASE SALARY: The Executive shall receive a base salary, exclusive
of benefits (the "Base Salary"), in substantially equal monthly or bi-weekly
installments as follows:
(i) For the period commencing on April 1, 1997 and ending on March 31,
1998, at the annual rate of $180,000; for the periods commencing on April 1,
1998 and 1999 and ending on March 31, 1999 and 2000, respectively, at the
immediate prior year's annual rate, plus an increase based on performance, to be
determined by the Chief Executive Officer.
(b) EXPENSES: During the term of his employment under this Agreement,
the Executive shall be entitled to receive prompt reimbursement for all
reasonable business
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2
expenses incurred by him in accordance with the policies and procedures of the
Company for reimbursement of business expenses by its senior executive officers,
provided that the Executive accounts for the expenses in accordance with the
Company's policies.
(c) OTHER BENEFITS: The Executive shall be entitled to participate in
or receive benefits under all executive benefit plans and arrangements made
available by the Company at any time to its employees and key management
executives. Nothing paid to the Executive under any plan or arrangement
presently in effect or made available in the future shall be deemed to be in
lieu of the Base Salary or any other obligation payable to the Executive
pursuant to this Agreement.
(d) VACATIONS: The Executive shall be entitled to the number of paid
vacation days in each fiscal year determined by the Company from time to time
for its senior executive officers, but not less than three weeks in any fiscal
year.
(e) PERQUISITES: The Executive shall be entitled to receive all
perquisites and fringe benefits provided or available to senior executive
officers of the Company in accordance with present practice and as may be
changed from time to time with respect to all senior executive officers of the
Company.
5. NONCOMPETITION; UNAUTHORIZED DISCLOSURE:
(a) NO MATERIAL COMPETITION: Except with respect to services performed
under this Agreement on behalf of the Company, and subject to the obligations of
the Executive as an officer of the Company and the employment obligations of the
Executive under this Agreement, the Executive agrees that at no time during the
term of this Agreement or, for a period of one year immediately following any
termination of this Agreement for any reason, will he engage in any business if,
within thirty (30) days of the Executive advising the Company in writing of his
proposed business activity, the Board determines in good faith that such
proposed business activity is directly competitive with a material part of the
business of the Company and its subsidiaries (both present and future) and
such competitive business activity is reasonably likely to materially affect in
an adverse manner the consolidated sales, profits or financial condition of the
Company.
(b) UNAUTHORIZED DISCLOSURES: During the period of his employment under
this Agreement, the Executive shall not, without the written consent of the
Board or a person authorized by the Board, disclose to any person, other than an
Executive of the Company or person to whom disclosure is reasonably necessary or
appropriate in connection with the performance by the Executive of his duties as
an executive of the company, any material confidential information obtained by
him while in the employ of the company with respect to any of the Company's
customers, suppliers, creditors, lenders, investment bankers or methods of
marketing, the disclosure of which he knows will materially damage the Company;
provided, however, that confidential information shall not include any
information known generally to the public (other than as a result of
unauthorized disclosure by the Executive) or any information of a type not
otherwise considered confidential by persons engaged in the same business or a
business similar to that conducted by the Company. For the period ending one
year following the termination of employment under this Agreement for any
reason, the Executive shall not disclose any confidential information of the
type described above except as
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3
determined by him to be reasonably necessary in connection with any business or
activity in which he is then engaged.
(c) CERTAIN PROVISIONS: The limitations of Section 5(a) shall
terminate if upon termination of this Agreement for any reason the Company does
not fulfill its obligations as required by Section 7 of this Agreement; however,
such termination shall not affect the rights of the Executive to receive all
payments he is entitled to receive under Section 7. The provisions of Section 5
shall apply during the time the Executive is receiving any payments from the
Company as a result of a termination of this Agreement pursuant to Section 6
(b).
6. TERMINATION. The Company may terminate the Executive's employment
under this Agreement prior to the expiration of the term set forth in Section 1
only under the following circumstances:
(a) DEATH. Upon the Executive's death.
(b) DISABILITY. If , as a result of the Executive's incapacity due to
physical or mental illness, the Executive shall have been absent from his duties
under this Agreement on a full time basis for 120 calendar days during any
calendar year, then 30 days after written notice of termination is given to the
Executive (which may only be given after the end of the 120 day period),
provided that he has not returned to his duties under this Agreement on a full
time basis.
(c) CAUSE. For Cause. The Company shall have "Cause" to terminate the
Executive's employment under this Agreement upon (A) the willful and continued
failure by the Executive to substantially perform his duties under this
Agreement (other than any failure resulting from the Executive's incapacity due
to physical or mental illness) for thirty (30) days after written demand for
substantial performance is delivered by the Company specifically identifying the
manner in which the Company believes the Executive has not substantially
performed his duties, or (B) the willful engaging by the Executive in misconduct
(including embezzlement and criminal fraud) which is materially injurious to
the Company, or (C) the willful violation by the Executive of Section 5 of this
Agreement, provided that the violation results in material injury to the
Company, or (D) the conviction of the Executive of a felony. For purposes of
this paragraph, no act, or failure to act, by the Executive shall be considered
"willful" unless done or omitted to be done, by him not in good faith and
without reasonable belief that his action or omission was in the interest of the
Company. The Executive shall not be deemed to have been terminated for Cause
unless and until there shall have been delivered to the Executive a copy of a
resolution, duly adopted by the affirmative vote of a majority of the entire
membership of the Board at a meeting of the Board called and held for such
purpose (after a reasonable notice to the Executive and an opportunity for him,
together with his counsel, to be heard before the Board), finding that in the
good faith opinion of the Board the Executive was guilty of conduct set forth
above in clause (A), (B), (C) or (D) and specifying the particulars of the
conduct in detail.
(d) Termination by the Executive. The Executive may terminate his
employment under this Agreement (i) for Good Reason (as defined below) or (ii)
if his health should become impaired to any extent that makes the continued
performance of his duties under this Agreement hazardous to his physical or
mental health or his life, provided that the Executive
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4
shall have furnished the Company with a written statement from a qualified
doctor to that effect and provided further that at the Company's request and
expense the Executive shall submit to an examination by a doctor selected by the
Company, and the doctor shall have concurred in the conclusion of the
Executive's doctor.
"Good Reason" means the Company has (through its Board or otherwise)
(A) limited the powers of the Executive in any manner not contemplated by
Section 2, (B) failed to comply with Section 3 or 4, (C) failed to cause any
successor as contemplated in Section 8 of this Agreement to assume this
Agreement, or (D) a change in control. The Executive shall give the Company 30
days prior written notice of his intent to terminate this Agreement as a result
of clause (A), (B), (C) or (D) and the Company shall have the right to cure
within the 30 day period. For purposes of this Agreement, a change in control
means the occurrence of one or more of the following events (whether or not
approved by the Board): (i) an event or series of events by which any person or
other entity or group of persons or other entities acting in concert as
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), whether or not applicable, together
with its or their affiliates or associates shall, as a result of a tender offer
or exchange offer, open market purchases, privately negotiated purchases, merger
or otherwise (including pursuant to receipt of revocable proxies) (A) be or
become directly or indirectly the beneficial owner (within the meaning of Rule
13d-3 and Rule 13d-5 under the Exchange Act, whether or not applicable, except
that a person shall be deemed to have beneficial ownership of all securities
that such person has the right to acquire whether such right is exercisable
immediately or only after the passage of time) of more than 30% of the combined
voting power of the then outstanding common stock of the Company or (B)
otherwise have the ability to elect, directly or indirectly, a majority of the
members of the Board.
(e) NOTICE OF TERMINATION. Any termination of the Executive's
employment by the Company or by the Executive (other than termination pursuant
to subsection (a) above) shall be communicated by written Notice of Termination
to the other party of this Agreement. "Notice of Termination" means a notice
which indicates the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated.
(f) DATE OF TERMINATION. Date of termination means (i) if the
Executive's employment is terminated by his death, the date of his death, (ii)
if the Executive's employment is terminated pursuant to subsection (b) above, 30
days after Notice of Termination is given (provided that the Executive shall
not have returned to the performance of his duties on a full-time basis during
the 30 day period), (iii) if the Executive's employment is terminated pursuant
to subsection (c) above, the date specified in the Notice of Termination after
the expiration of any cure periods, and (iv) if the Executive's employment is
terminated for any other reason, the date on which Notice of Termination is
given.
7. COMPENSATION UPON TERMINATION OR DURING DISABILITY:
(a) Upon the Executive's death, the Company shall pay to the person
designated by the Executive in a notice filed with the Company or, if no person
is designated, to his estate as a lump sum death benefit, his full Base Salary
to the date of his death in addition to any
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payments the Executive's spouse, beneficiaries or estate may be entitled to
receive pursuant to any pension, stock option or Executive benefit plan or life
insurance policy or similar plan or policy then maintained by the Company. Upon
full payment of all amounts required to be paid under this subsection, the
Company shall have no further obligation under this Agreement.
(b) During any period that the Executive fails to perform his duties
under this Agreement as a result of incapacity due to physical or mental
illness, the Executive shall continue to receive his full base salary until the
Executive's employment is terminated pursuant to Section 6(b) of this
Agreement, or until the Executive terminates his employment pursuant to Section
6(d)(ii) of this Agreement, whichever comes first. After termination, the
Executive shall receive in equal monthly installments 100% of his base salary at
the rate in effect at the time Notice of Termination is delivered for one year,
plus any disability payments otherwise payable by or pursuant to plans provided
by the Company ("Disability Payments")
(c) If the Executive's employment is terminated for Cause, the Company
shall pay the Executive his full base salary through the date of termination at
the rate in effect at the time Notice of Termination is delivered and the
Company shall have no further obligation to the Executive under this Agreement.
(d) If (A) in breach of this Agreement, the Company shall terminate the
Executive's employment other than pursuant to Sections 6(b) or 6(c) (it being
understood that a purported termination pursuant to Sections 6(b) or 6(c)
which is disputed and finally determined not to have been proper shall be a
termination by the Company in breach of this Agreement), or (B) the Executive
shall terminate his employment for Good Reason, then
(i) The Company shall pay the Executive his full base salary through
the date of termination at the rate then in effect at the time Notice of
Termination is given;
(ii) in lieu of any further salary payments to the Executive for
periods subsequent to the Date of Termination and in consideration of the rights
of the Company under Section 5 of this Agreement, the Company shall pay
severance pay to the Executive on the fifth day following the date of
termination, in a lump sum amount equal to the entire salary due until the end
of the term of this Agreement based on an annual base salary at the highest rate
in effect during the twelve (12) months immediately preceding the date of
Termination.
(iii) In the event of a change in control of the Company as defined in
Section 6(d), the Company shall pay twice the amount of severance pay required
in Section 7(d)(ii) above.
(iv) The Company shall pay all reasonable legal fees and expenses
incurred by the Executive in contesting or disputing any such termination or in
seeking to obtain or enforce any right or benefit in this Agreement.
(e) Unless the Executive is terminated for Cause, the Company shall
maintain in full force and effect, for the continued benefit of the Executive
for the greater of the remaining term of this Agreement or eighteen (18)
months after termination of this Agreement, all Executive health and
hospitalization plans and programs in which the Executive was entitled to
participate in immediately prior to the Date of Termination, provided that the
Executive's
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6
continued participation is possible under the general terms and provisions of
the plans and programs. If the Executive's participation in any plan or program
is barred, the Company shall arrange to provide the Executive with benefits
substantially similar to those which the Executive would otherwise have been
entitled to receive under the plan and program from which his continued
participation is barred.
(f) The Executive shall not be required to mitigate the amount of any
payment provided for in this Section 7 by seeking other employment or otherwise,
however, the amount of any payment provided for in this Section 7 shall not be
reduced by any compensation earned by the Executive as the result of employment
by another employer after the Date of Termination.
(g) In the event of a termination of this Agreement by the Executive
for Good Reason as a result of a change in control, the amount to be utilized in
Section 7(d)(ii) shall be changed to the average compensation of the Executive
during this Agreement for the taxable years prior to such termination (all as
determined to compute the base amount for purposes of Section 280G of the
Internal Revenue Code of 1984, as amended).
8. SUCCESSORS; BINDING AGREEMENT:
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive, to expressly assume and agree
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of the Company to obtain an assumption of this Agreement prior to or
simultaneously with the effectiveness of any such succession shall be a breach
of this Agreement and shall entitle the Executive to compensation from the
Company in the same amount and on the same terms as he would be entitled to
under this Agreement if he terminated his employment for Good Reason, except for
purposes of implementing the foregoing, the date on which any such succession
becomes effective shall be deemed the date of termination. As used in this
Agreement, "Company" shall mean the Company as previously defined and any
successor to its business and/or assets which executes and delivers the
agreement provided for in this Section 8 or which otherwise becomes bound by all
the terms and provisions of this Agreement by operation of law.
(b) This Agreement and all rights if the Executive under this Agreement
shall inure to the benefit of and be enforceable by the Executive's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive should die while any
amounts would still be payable to him under this Agreement, including all
payments payable under Section 7, if he had continued to live, all such amounts
shall be paid in accordance with the terms of this Agreement to the Executive's
devisee, legatee, or other designee or, if there is no such designee, the
Executive's estate.
9. NOTICE: For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed as
follows:
6
<PAGE> 7
7
If to the Executive: Mr. Frank A. Buttacavoli
5451 Alton Road
Miami Beach, Florida 33140
If to the Company: Parlux Fragrances, Inc.
3725 S.W. 30th Avenue
Fort Lauderdale, Florida 33312
Attention: Ilia Lekach
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except with notices of change of address which
shall be effective only upon receipt.
10. ENTIRE AGREEMENT: No provisions of this Agreement may be modified,
waived or discharged unless such is signed by the Executive and the officer of
the Company which is specifically designated by the Board. No Agreements or
representations, oral or otherwise, expressed or implied, with respect to the
subject matter of this Agreement have been made by either party which are not
set forth expressly in this Agreement and this Agreement supersedes any other
employment agreement between the Company and the Executive.
11. WAIVER OF BREACH: No waiver by either party to this Agreement of,
or compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of any other provision or condition
at any prior or subsequent time.
12. HEADINGS: The section headings contained in this Agreement have
been inserted only as a matter of convenience or reference and in no way define,
limit or describe the scope or intent of any provisions of this Agreement nor in
any way affect any of these provisions.
13. GOVERNING LAW: The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Florida, without giving effect to conflict of law principles.
14. SEVERABILITY: The invalidity or unenforceability of any provision
or provisions of this Agreement shall not effect the validity or enforceability
of any other provision of this Agreement, which shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and year first above written.
ATTEST: PARLUX FRAGRANCES, INC.
/s/ Frederick E. Purches By: /s/ Ilia Lekach
- -------------------------------- ------------------------------------
Ilia Lekach, Chief Executive Officer
WITNESS:
/s/ Tania N. Espinosa /s/ Frank A. Buttacavoli
- -------------------------------- ---------------------------------------
Frank A. Buttacavoli, Executive
7
<PAGE> 1
1
EMPLOYMENT AGREEMENT Exhibit 10.43
Agreement (the "Agreement") dated as of March 27, 1997 between Parlux
Fragrances, Inc., a corporation of the State of Delaware with offices located at
3725 S.W. 30th Avenue, Fort Lauderdale, Florida 33312 (hereinafter called the
"Company"), and Ruben Lisman, residing, at 3342 Amsterdam Avenue, Cooper City,
Florida 33026 (hereinafter called the "Executive").
WITNESSETH
WHEREAS, the Company desires to employ the Executive and the Executive
is willing to be employed by the Company and accepts such employment;
NOW THERFORE, in consideration of the mutual promises and covenants
herein contained intending to be legally bound, the parties do hereby agree as
follows:
1. EMPLOYMENT. The Company agrees to employ the Executive and the
Executive hereby accepts the terms and conditions hereinafter set forth, for a
period commencing on April 1, 1997 and ending on March 31, 2000 (the "Initial
Term") (unless terminated as specifically provided for in this Agreement).
Upon expiration of the Initial Term, the Executive's term of employment shall be
extended for an additional three (3) year period, unless either party gives
written notice of its intention not to renew this Agreement at least six (6)
months prior to the expiration of the Initial Term, in which case the
Executive's term of employment shall end upon such expiration.
2. POSITION AND DUTIES. The Executive shall serve as Vice President of
International Sales of the Company and shall have the powers and duties as may
from time to time be prescribed by the Company's President and Board of
Directors (the "Board"), provided that the Executive's duties are consistent
with the Executive's position as a senior executive officer involved with the
general management of the Company. The Executive shall report to the President.
3. PLACE OF PERFORMANCE. In connection with his employment by the
Company, the Executive shall be based, and the duties to be performed, shall be
performed at the Company's principal executive offices located in Broward County
or Dade County, South Florida. Such office shall not be further relocated
without the Executives consent.
4. COMPENSATION AND RELATED MATTERS.
(a) BASE SALARY: The Executive shall receive a base salary, exclusive
of benefits (the "Base Salary"), in substantially equal monthly or bi-weekly
installments as follows:
(i) For the period commencing on April 1, 1997 and ending on
March 31, 1998, at the annual rate of $175,000; for the periods commencing on
April 1, 1998 and 1999 and ending on March 31, 1999 and 2000, respectively, at
the immediate prior year's annual rate, plus an increase based on performance,
to be determined by the Company's Chief Executive Officer.
(b) EXPENSES: During the term of his employment under this Agreement,
the Executive shall be entitled to receive prompt reimbursement for all
reasonable business
<PAGE> 2
2
expenses incurred by him in accordance with the policies and procedures of the
Company for reimbursement of business expenses by its senior executive officers,
provided that the Executive accounts for the expenses in accordance with the
Company's policies.
(c) OTHER BENEFITS: The Executive shall be entitled to participate in
or receive benefits under all executive benefit plans and arrangements made
available by the Company at any time to its employees and key management
executives. Nothing paid to the Executive under any plan or arrangement
presently in effect or made available in the future shall be deemed to be in
lieu of the Base Salary or any other obligation payable to the Executive
pursuant to this Agreement.
(d) VACATIONS: The Executive shall be entitled to the number of paid
vacation days in each fiscal year determined by the Company from time to time
for its senior executive officers, but not less than three weeks in any fiscal
year.
(e) PERQUISITES: The Executive shall be entitled to receive all
perquisites and fringe benefits provided or available to senior executive
officers of the Company in accordance with present practice and as may be
changed from time to time with respect to all senior executive officers of the
Company.
5. NONCOMPETITION; UNAUTHORIZED DISCLOSURE:
(a) NO MATERIAL COMPETITION: Except with respect to services performed
under this Agreement on behalf of the Company, and subject to the obligations of
the Executive as an officer of the Company and the employment obligations of the
Executive under this Agreement, the Executive agrees that at no time during the
term of this Agreement or, for a period of one year immediately following any
termination of this Agreement for any reason, will he engage in any business if,
within thirty (30) days of the Executive advising the Company in writing of his
proposed business activity, the Board determines in good faith that such
proposed business activity is directly competitive with a material part of the
business of the Company and its subsidiaries (both present and future) and
such competitive business activity is reasonably likely to materially affect in
an adverse manner the consolidated sales, profits or financial condition of the
Company.
(b) UNAUTHORIZED DISCLOSURES: During the period of his employment under
this Agreement, the Executive shall not, without the written consent of the
Board or a person authorized by the Board, disclose to any person, other than an
Executive of the Company or person to whom disclosure is reasonably necessary or
appropriate in connection with the performance by the Executive of his duties as
an executive of the company, any material confidential information obtained by
him while in the employ of the company with respect to any of the Company's
customers, suppliers, creditors, lenders, investment bankers or methods of
marketing, the disclosure of which he knows will materially damage the Company;
provided, however, that confidential information shall not include any
information known generally to the public (other than as a result of
unauthorized disclosure by the Executive) or any information of a type not
otherwise considered confidential by persons engaged in the same business or a
business similar to that conducted by the Company. For the period ending one
year following the termination of employment under this Agreement for any
reason, the Executive shall not disclose any confidential information of the
type described above except as
<PAGE> 3
3
determined by him to be reasonably necessary in connection with any business or
activity in which he is then engaged.
(c) CERTAIN PROVISIONS: The limitations of Section 5(a) shall
terminate if upon termination of this Agreement for any reason the Company does
not fulfill its obligations as required by Section 7 of this Agreement; however,
such termination shall not affect the rights of the Executive to receive all
payments he is entitled to receive under Section 7. The provisions of Section 5
shall apply during the time the Executive is receiving any payments from the
Company as a result of a termination of this Agreement pursuant to Section 6
(b).
6. TERMINATION. The Company may terminate the Executive's employment
under this Agreement prior to the expiration of the term set forth in Section 1
only under the following circumstances:
(a) DEATH. Upon the Executive's death.
(b) DISABILITY. If, as a result of the Executive's incapacity due to
physical or mental illness, the Executive shall have been absent from his duties
under this Agreement on a full time basis for 120 calendar days during any
calendar year, then 30 days after written notice of termination is given to the
Executive (which may only be given after the end of the 120 day period),
provided that he has not returned to his duties under this Agreement on a full
time basis.
(c) CAUSE. For Cause. The Company shall have "Cause" to terminate the
Executive's employment under this Agreement upon (A) the willful and continued
failure by the Executive to substantially perform his duties under this
Agreement (other than any failure resulting from the Executive's incapacity due
to physical or mental illness) for thirty (30) days after written demand for
substantial performance is delivered by the Company specifically identifying the
manner in which the Company believes the Executive has not substantially
performed his duties, or (B) the willful engaging by the Executive in misconduct
(including embezzlement and criminal fraud) which is materially injurious to
the Company, or (C) the willful violation by the Executive of Section 5 of this
Agreement, provided that the violation results in material injury to the
Company, or (D) the conviction of the Executive of a felony. For purposes of
this paragraph, no act, or failure to act, by the Executive shall be considered
"willful" unless done or omitted to be done, by him not in good faith and
without reasonable belief that his action or omission was in the interest of the
Company. The Executive shall not be deemed to have been terminated for Cause
unless and until there shall have been delivered to the Executive a copy of a
resolution, duly adopted by the affirmative vote of a majority of the entire
membership of the Board at a meeting of the Board called and held for such
purpose (after a reasonable notice to the Executive and an opportunity for him,
together with his counsel, to be heard before the Board), finding that in the
good faith opinion of the Board the Executive was guilty of conduct set forth
above in clause (A), (B), (C) or (D) and specifying the particulars of the
conduct in detail.
(d) TERMINATION BY THE EXECUTIVE. The Executive may terminate his
employment under this Agreement (i) for Good Reason (as defined below) or (ii)
if his health should become impaired to any extent that makes the continued
performance of his duties under this Agreement hazardous to his physical or
mental health or his life, provided that the Executive shall have furnished the
Company with a written statement from a qualified doctor to that
<PAGE> 4
4
effect and provided further that at the Company's request and expense the
Executive shall submit to an examination by a doctor selected by the Company,
and the doctor shall have concurred in the conclusion of the Executive's doctor.
"Good Reason" means the Company has (through its Board or otherwise)
(A) limited the powers of the Executive in any manner not contemplated by
Section 2, (B) failed to comply with Section 3 or 4, (C) failed to cause any
successor as contemplated in Section 8 of this Agreement to assume this
Agreement, or (D) a change in control. The Executive shall give the Company 30
days prior written notice of his intent to terminate this Agreement as a result
of clause (A), (B), (C) or (D) and the Company shall have the right to cure
within the 30 day period. For purposes of this Agreement, a change in control
means the occurrence of one or more of the following events (whether or not
approved by the Board): (i) an event or series of events by which any person or
other entity or group of persons or other entities acting in concert as
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), whether or not applicable, together
with its or their affiliates or associates shall, as a result of a tender offer
or exchange offer, open market purchases, privately negotiated purchases, merger
or otherwise (including pursuant to receipt of revocable proxies) (A) be or
become directly or indirectly the beneficial owner (within the meaning of Rule
13d-3 and Rule 13d-5 under the Exchange Act, whether or not applicable, except
that a person shall be deemed to have beneficial ownership of all securities
that such person has the right to acquire whether such right is exercisable
immediately or only after the passage of time) of more than 30% of the combined
voting power of the then outstanding common stock of the Company or (B)
otherwise have the ability to elect, directly or indirectly, a majority of the
members of the Board.
(e) NOTICE OF TERMINATION. Any termination of the Executive's
employment by the Company or by the Executive (other than termination pursuant
to subsection (a) above) shall be communicated by written Notice of Termination
to the other party of this Agreement. "Notice of Termination" means a notice
which indicates the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated.
(f) DATE OF TERMINATION. Date of termination means (i) if the
Executive's employment is terminated by his death, the date of his death, (ii)
if the Executive's employment is terminated pursuant to subsection (b) above, 30
days after Notice of Termination is given (provided that the Executive shall
not have returned to the performance of his duties on a full-time basis during
the 30 day period), (iii) if the Executive's employment is terminated pursuant
to subsection (c) above, the date specified in the Notice of Termination after
the expiration of any cure periods, and (iv) if the Executive's employment is
terminated for any other reason, the date on which Notice of Termination is
given.
7. COMPENSATION UPON TERMINATION OR DURING DISABILITY:
(a) Upon the Executive's death, the Company shall pay to the person
designated by the Executive in a notice filed with the Company or, if no person
is designated, to his estate as a lump sum death benefit, his full Base Salary
to the date of his death in addition to any payments the Executive's spouse,
beneficiaries or estate may be entitled to receive pursuant to any pension,
stock option or Executive benefit plan or life insurance policy or similar plan
or
<PAGE> 5
5
policy then maintained by the Company. Upon full payment of all amounts required
to be paid under this subsection, the Company shall have no further obligation
under this Agreement.
(b) During any period that the Executive fails to perform his duties
under this Agreement as a result of incapacity due to physical or mental
illness, the Executive shall continue to receive his full base salary until the
Executive's employment is terminated pursuant to Section 6(b) of this
Agreement, or until the Executive terminates his employment pursuant to Section
6(d)(ii) of this Agreement, whichever comes first. After termination, the
Executive shall receive in equal monthly installments 100% of his base salary at
the rate in effect at the time Notice of Termination is delivered for one year,
plus any disability payments otherwise payable by or pursuant to plans provided
by the Company ("Disability Payments").
(c) If the Executive's employment is terminated for Cause, the Company
shall pay the Executive his full base salary through the date of termination at
the rate in effect at the time Notice of Termination is delivered and the
Company shall have no further obligation to the Executive under this Agreement.
(d) If (A) in breach of this Agreement, the Company shall terminate the
Executive's employment other than pursuant to Sections 6(b) or 6(c) (it being
understood that a purported termination pursuant to Sections 6(b) or 6(c)
which is disputed and finally determined not to have been proper shall be a
termination by the Company in breach of this Agreement), or (B) the Executive
shall terminate his employment for Good Reason, then
(i) The Company shall pay the Executive his full base salary through
the date of termination at the rate then in effect at the time Notice of
Termination is given;
(ii) in lieu of any further salary payments to the Executive for
periods subsequent to the Date of Termination and in consideration of the rights
of the Company under Section 5 of this Agreement, the Company shall pay
severance pay to the Executive on the fifth day following the date of
termination, in a lump sum amount equal to the entire salary due until the end
of the term of this Agreement based on an annual base salary at the highest rate
in effect during the twelve (12) months immediately preceding the date of
Termination.
(iii) In the event of a change in control of the Company as defined in
Section 6(d), the Company shall pay twice the amount of severance pay required
in Section 7(d)(ii) above.
(iv) The Company shall pay all reasonable legal fees and expenses
incurred by the Executive in contesting or disputing any such termination or in
seeking to obtain or enforce any right or benefit in this Agreement.
(e) Unless the Executive is terminated for Cause, the Company shall
maintain in full force and effect, for the continued benefit of the Executive
for the greater of the remaining term of this Agreement or eighteen (18)
months after termination of this Agreement, all Executive health and
hospitalization plans and programs in which the Executive was entitled to
participate in immediately prior to the Date of Termination, provided that the
Executive's continued participation is possible under the general terms and
provisions of the plans and programs. If the Executive's participation in any
plan or program is barred, the Company shall arrange to provide the Executive
with benefits substantially similar to those which the
<PAGE> 6
6
Executive would otherwise have been entitled to receive under the plan and
program from which his continued participation is barred.
(f) The Executive shall not be required to mitigate the amount of any
payment provided for in this Section 7 by seeking other employment or otherwise,
however, the amount of any payment provided for in this Section 7 shall not be
reduced by any compensation earned by the Executive as the result of employment
by another employer after the Date of Termination.
(g) In the event of a termination of this Agreement by the Executive
for Good Reason as a result of a change in control, the amount to be utilized in
Section 7(d)(ii) shall be changed to the average compensation of the Executive
during this Agreement for the taxable years prior to such termination (all as
determined to compute the base amount for purposes of Section 280G of the
Internal Revenue Code of 1984, as amended).
8. SUCCESSORS; BINDING AGREEMENT:
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive, to expressly assume and agree
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of the Company to obtain an assumption of this Agreement prior to or
simultaneously with the effectiveness of any such succession shall be a breach
of this Agreement and shall entitle the Executive to compensation from the
Company in the same amount and on the same terms as he would be entitled to
under this Agreement if he terminated his employment for Good Reason, except for
purposes of implementing the foregoing, the date on which any such succession
becomes effective shall be deemed the date of termination. As used in this
Agreement, "Company" shall mean the Company as previously defined and any
successor to its business and/or assets which executes and delivers the
agreement provided for in this Section 8 or which otherwise becomes bound by all
the terms and provisions of this Agreement by operation of law.
(b) This Agreement and all rights if the Executive under this Agreement
shall inure to the benefit of and be enforceable by the Executive's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive should die while any
amounts would still be payable to him under this Agreement, including all
payments payable under Section 7, if he had continued to live, all such amounts
shall be paid in accordance with the terms of this Agreement to the Executive's
devisee, legatee, or other designee or, if there is no such designee, the
Executive's estate.
9. NOTICE: For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive: Mr. Ruben Lisman
3342 Amsterdam Avenue
Cooper City, Florida 33026
<PAGE> 7
7
If to the Company: Parlux Fragrances, Inc.
3725 S.W. 30th Avenue
Fort Lauderdale, Florida 33312
Attention: Ilia Lekach
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except with notices of change of address which
shall be effective only upon receipt.
10. ENTIRE AGREEMENT: No provisions of this Agreement may be modified,
waived or discharged unless such is signed by the Executive and the officer of
the Company which is specifically designated by the Board. No Agreements or
representations, oral or otherwise, expressed or implied, with respect to the
subject matter of this Agreement have been made by either party which are not
set forth expressly in this Agreement and this Agreement supersedes any other
employment agreement between the Company and the Executive.
11. WAIVER OF BREACH: No waiver by either party to this Agreement of,
or compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of any other provision or condition
at any prior or subsequent time.
12. HEADINGS: The section headings contained in this Agreement have
been inserted only as a matter of convenience or reference and in no way define,
limit or describe the scope or intent of any provisions of this Agreement nor in
any way affect any of these provisions.
13. GOVERNING LAW: The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Florida, without giving effect to conflict of law principles.
14. SEVERABILITY: The invalidity or unenforceability of any provision
or provisions of this Agreement shall not effect the validity or enforceability
of any other provision of this Agreement, which shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and year first above written.
ATTEST: PARLUX FRAGRANCES, INC.
/s/ Frederick E. Purches By: /s/ Ilia Lekach
- --------------------------- ------------------------------------
Ilia Lekach, Chief Executive Officer
WITNESS:
/s/ Frank A. Buttacavoli /s/ Ruben Lisman
- --------------------------- ----------------------------------------
Ruben Lisman, Executive
<PAGE> 1
EXHIBIT 10.44
CONULTING AGREEMENT
This Consulting Agreement (hereinafter "Agreement") dated as of April
1, 1997, between PARLUX FRAGRANCES, INC., a corporation organized and existing
under the laws of the State of Delaware (hereinafter "Corporation") and COSMIX,
INC, 333 East 69th Street, New York, New York 10021 (hereinafter "Consultant"),
and Frederick Purches (hereinafter "Purches"), the President of Consultant
residing at 333 East 69th Street, New York, New York 10021.
WHEREAS, in the past, Consultant's President, Purches has been both
Chairman and Vice Chairman of the Board of Directors of the Corporation and has
from time to time consulted to the Corporation on both business and financial
matters, and
WHEREAS, the Corporation desires to engage the Consultant as its
business and financial consultant, and
WHEREAS, the Consultant desires to accept such engagement, all on the
terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual understanding set forth
herein, the Corporation and the
1
<PAGE> 2
Consultant agree as follows:
1. CONSULTANT'S DUTIES: The Corporation hereby engages the Consultant
as its business and financial consultant. The Consultant by Purches shall
continue to serve as a director of the Corporation. Subject at all times to the
control and direction of the Board of Directors and the Chief Executive Officer
of the Corporation, the Consultant shall have the duties as the general advisor
and consultant to management on all matters pertaining to the business and to
render all other services relevant thereto. The Consultant, by Purches, shall
perform all other duties that may be assigned to it by the Board of Directors
provided said duties be consistent with the prestige or responsibility of
Purches' position. The Consultant shall, through its agents, servants and
employees, devote its best efforts at all times necessary to perform its duties
and to advance the Corporation's best interests, subject to reasonable
vacations. The Consultant and the Corporation acknowledge that the Consultant
and its agents, servants and employees has other business interests and shall
not be required to devote its exclusive time and attention to the performance of
its duties hereunder.
2. TERM: Unless sooner terminated as provided in Section 4 below, this
Agreement shall be for a term of three (3) years commencing as of April 1, 1997
and ending on March
2
<PAGE> 3
31, 2000; provided however, that the term of this Agreement shall be
automatically extended on the same terms and conditions for a one year period
from year to year thereafter unless either the Corporation or the Consultant
shall give written notice of the termination of this Agreement to the other at
least ninety (90) days prior to the expiration of said term or extended term.
3. COMPENSATION: For all services rendered by the Consultant under
this Agreement, the Corporation shall pay to Consultant as compensation the sum
of $100,000 per annum, payable in equal bi-weekly installments of $3,846.15.
4. HEALTH AND LIFE INSURANCE: The Corporation shall, at no cost to the
Consultant or Purches, provide Purches with full health insurance, basic, major
medical and dental as well as group life insurance. Said coverage shall be
identical to that afforded the Corporations's top executives.
5. EXPENSES: Consultant will be reimbursed by the Corporation for all
reasonable business expenses incurred by the Consultant in the performance of
its duties. Said reimbursement shall be made no less frequently than monthly
upon submission by the Consultant of a written request for same.
3
<PAGE> 4
6. EARLY TERMINATION: The Consultant's engagement under this Agreement
may be terminated prior to the expiration or termination of this Agreement as
set forth in Section 2 above only as follows:
a. The Consultant's engagement under this Agreement shall
automatically terminate upon the death of Purches.
b. If Purches shall be disabled because of illness, injury,
mental incapacity or other reason and is substantially unable
to perform the duties of the Consultant duties under this
Agreement for a period of six consecutive calendar months, the
Corporation may, by written notice given after the end of the
sixth month, elect to terminate the Consultant's engagement
under this Agreement.
c. The Consultant's engagement under this Agreement may be
terminated by the Corporation for Cause (as defined below)
by giving written notice thereof to the Consultant. Such
termination shall be effective as of the termination date
specified in such notice. "Cause" shall mean only (i) the
breach or violation of any of the terms, covenants or
conditions of this Agreement
4
<PAGE> 5
in any respect, (ii) the failure or refusal of the Consultant to perform the
duties reasonably assigned to it under this Agreement or by the Board of
Directors of the Corporation, and (iii) the filing of a voluntary petition in
bankruptcy by the Consultant or Purches (which petition shall not have been
discharged within 30 days after its filing), an assignment by the Consultant or
Purches for the benefit of creditors, or any proceeding under any law for the
relief or readjustment of indebtedness shall have been commenced involving the
Consultant or Vercillo (which proceeding involving the Consultant shall not have
been vacated or discharged within 60 days after its commencement).
7. SAVINGS CLAUSE: The determination that any provision of this
Agreement is unenforceable shall not terminate this Agreement or otherwise
affect the other provisions of this Agreement, it being the intention of the
parties hereto that this Agreement shall be construed to permit the equitable
reformation of such provision to permit the enforcement thereof, if possible,
and otherwise to permit the enforcement of the
5
<PAGE> 6
remaining provisions of this Agreement as if such unenforceable provision were
not included herein.
8. EQUITABLE RELIEF: The parties hereto agree and declare that
legal remedies may be inadequate to enforce the provisions of this Agreement and
that equitable relief, including specific performance and injunctive relief, may
be used to enforce the provisions of this Agreement.
9. NOTICES: Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given and
received on the date when personally delivered or deposited in the United States
Mail, registered postage prepaid, addressed:
a. if the Corporation to:
Mr. Ilia Lekach
Parlux Fragrances, Inc.
3725 S.W. 30th Avenue
Fort Lauderdale, FL 33312
b. if to the Consultant or Purches to:
Mr. Frederick Purches
333 East 69th Street
New York, New York 10021
or to such other address as the Corporation or the Consultant may designate in
writing.
10. AMENDMENTS: This Agreement may be amended or modified only by a writing.
6
<PAGE> 7
11. GOVERNING LAW: This Agreement shall be governed and construed under the laws
of the State of Florida.
12. ENTIRE AGREEMENT: Effective April 1, 1997, this Agreement constitutes the
entire Agreement between the Consultant and the Corporation, with respect to its
subject matter, and all prior and other agreements between them, oral or written
concerning the same subject matter are merged into this Agreement and thus
extinguished.
13. SURVIVAL OF COVENANTS: Any of the provisions which would by their terms
continue after the termination of this Agreement shall be deemed to survive such
termination.
14. ASSIGNABILITY AND BINDING EFFECT: This Agreement shall be binding upon and
inure to the benefit of the Corporation and its successors and assigns. This
Agreement may not be assigned by either party without the written consent of the
other party hereto, provided, however, that the Corporation at its option, may
assign this Agreement in connection with any sale or transfer of its stock,
assets or business or that of its affiliates or subsidiaries.
IN WITNESS WHEREOF, the parties have hereunto
7
<PAGE> 8
set their hands and seals as of the date first written above.
PARLUX FRAGRANCES, INC.
By: /s/ Ilia Lekach
--------------------------------
Ilia Lekach, Chief
Executive Officer
Consultant:
COSMIX, INC
By: /s/ Frederick Purches
--------------------------------
Frederick Purches, President
and Frederick Purches
Individually
8
<PAGE> 1
EXHIBIT 10.45
CONSULTING AGREEMENT
This Consulting Agreement (hereinafter "Agreement") dated as of April
1, 1997, between PARLUX FRAGRANCES, INC., a corporation organized and existing
under the laws of the State of Delaware (hereinafter "Corporation") and
CAMBRIDGE DEVELOPMENT CORPORATION, 14 Vanderventer Avenue, Port Washington, New
York 11050 (hereinafter "Consultant"), and Albert Vercillo (hereinafter
"Vercillo"), the President of Consultant residing at 74 Summit Road, Port
Washington, New York 11050.
WHEREAS, in the past, Consultant's President, Vercillo has been a
member of the Board of Directors of the Corporation and has from time to time
consulted to the Corporation on both business and financial matters, and
WHEREAS, the Corporation desires to engage the Consultant as its
business and financial consultant, and WHEREAS, the Consultant desires to accept
such engagement, all on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual understanding set forth
herein, the Corporation and the Consultant agree as follows:
1. CONSULTANT'S DUTIES: The Corporation hereby engages the Consultant
as its business and financial consultant. The Consultant by Vercillo shall
continue to serve as a director
1
<PAGE> 2
of the Corporation. Subject at all times to the control and direction of the
Board of Directors and the Chief Executive Officer of the Corporation, the
Consultant shall have the duties as the general advisor and consultant to
management on all matters pertaining to the business and to render all other
services relevant thereto. The Consultant, by Vercillo, shall perform all other
duties that may be assigned to it by the Board of Directors provided said duties
be consistent with the prestige or responsibility of Vercillo's position. The
Consultant shall, through its agents, servants and employees, devote its best
efforts at all times necessary to perform its duties and to advance the
Corporation's best interests, subject to reasonable vacations. The Consultant
and the Corporation acknowledge that the Consultant and its agents, servants and
employees has other business interests and shall not be required to devote its
exclusive time and attention to the performance of its duties hereunder.
2. TERM: Unless sooner terminated as provided in Section 4 below, this
Agreement shall be for a term of three (3) years commencing as of June 1, 1997
and ending on May 31, 2000; provided however, that the term of this Agreement
shall be automatically extended on the same terms and conditions for a one year
period from year to year thereafter unless either the Corporation or the
Consultant shall give written notice of the termination of this Agreement to the
other at least ninety (90) days prior to the expiration of said term
2
<PAGE> 3
or extended term.
3. COMPENSATION: For all services rendered by the Consultant under this
Agreement, the Corporation shall pay to Consultant as compensation the sum of
$65,000 per annum, payable in equal bi-weekly installments of $2,500.
4. HEALTH AND LIFE INSURANCE: The Corporation shall, at no cost to the
Consultant or Vercillo, provide Vercillo with full health insurance, basic,
major medical and dental as well as group life insurance. Said coverage shall be
identical to that afforded the Corporations's top executives.
5. EXPENSES: Consultant will be reimbursed by the Corporation for all
reasonable business expenses incurred by the Consultant in the performance of
its duties. Said reimbursement shall be made no less frequently than monthly
upon submission by the Consultant of a written request for same.
6. EARLY TERMINATION: The Consultant's engagement under this Agreement
may be terminated prior to the expiration or termination of this Agreement as
set forth in Section 2 above only as follows:
a. The Consultant's engagement under this Agreement shall
automatically terminate upon the death of Vercillo.
b. If Vercillo shall be disabled because of illness, injury, mental
incapacity or other
3
<PAGE> 4
reason and is substantially unable to perform the duties of the Consultant
duties under this Agreement for a period of six consecutive calendar months, the
Corporation may, by written notice given after the end of the sixth month, elect
to terminate the Consultant's engagement under this Agreement.
c. The Consultant's engagement under this Agreement may be terminated
by the Corporation for Cause (as defined below) by giving written notice thereof
to the Consultant. Such termination shall be effective as of the termination
date specified in such notice. "Cause" shall mean only (i) the breach or
violation of any of the terms, covenants or conditions of this Agreement in any
respect, (ii) the failure or refusal of the Consultant to perform the duties
reasonably assigned to it under this Agreement or by the Board of Directors of
the Corporation, and (iii) the filing of a voluntary petition in bankruptcy by
the Consultant or Vercillo (which petition shall not have been discharged within
30 days after its filing), an assignment by the Consultant or Vercillo for the
benefit of creditors, or any proceeding under any law for
4
<PAGE> 5
the relief or readjustment of indebtedness shall have been commenced involving
the Consultant or Vercillo (which proceeding involving the Consultant shall not
have been vacated or discharged within 60 days after its commencement).
7. SAVINGS CLAUSE: The determination that any provision of this
Agreement is unenforceable shall not terminate this Agreement or otherwise
affect the other provisions of this Agreement, it being the intention of the
parties hereto that this Agreement shall be construed to permit the equitable
reformation of such provision to permit the enforcement thereof, if possible,
and otherwise to permit the enforcement of the remaining provisions of this
Agreement as if such unenforceable provision were not included herein.
8. EQUITABLE RELIEF: The parties hereto agree and declare that legal
remedies may be inadequate to enforce the provisions of this Agreement and that
equitable relief, including specific performance and injunctive relief, may be
used to enforce the provisions of this Agreement.
9. NOTICES: Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given and
received on the date when personally delivered or deposited in the United States
Mail,
5
<PAGE> 6
registered postage prepaid, addressed:
a. if the Corporation to:
Mr. Ilia Lekach
Parlux Fragrances, Inc.
3725 S.W. 30th Avenue
Fort Lauderdale, FL 33312
b. if to the Consultant or Vercillo to:
Mr. Albert Vercillo
74 Summit Road
Port Washington, NY 11050
or to such other address as the Corporation or the Consultant may designate in
writing.
10. AMENDMENTS: This Agreement may be amended or modified only by a writing.
11. GOVERNING LAW: This Agreement shall be governed and construed under the laws
of the State of Florida.
12. ENTIRE AGREEMENT: Effective June 1, 1997, this Agreement constitutes the
entire Agreement between the Consultant and the Corporation, with respect to its
subject matter, and all prior and other agreements between them, oral or written
concerning the same subject matter are merged into this Agreement and thus
extinguished.
13. SURVIVAL OF COVENANTS: Any of the provisions which would by their terms
continue after the termination of this Agreement shall be deemed to survive such
termination.
14. ASSIGNABILITY AND BINDING EFFECT: This Agreement shall be binding upon and
inure to the benefit of the Corporation and its successors and assigns. This
Agreement may not be
6
<PAGE> 7
assigned by either party without the written consent of the other party hereto,
provided, however, that the Corporation at its option, may assign this Agreement
in connection with any sale or transfer of its stock, assets or business or that
of its affiliates or subsidiaries.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
as of the date first written above.
PARLUX FRAGRANCES, INC.
By: /s/ Ilia Lekach
----------------------------------
Ilia Lekach, Chief
Executive Officer
Consultant:
CAMBRIDGE DEVELOPMENT CORPORATION
By: /s/ Albert Vercillo
----------------------------------
Albert Vercillo, President
and Albert Vercillo
Individually
7
<PAGE> 1
Exhibit 23
----------
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-49884) of Parlux Fragrances, Inc. of our report
dated June 26, 1997 appearing on Page F-2 of this Annual Report on Form 10-K.
PRICE WATERHOUSE LLP
Miami, Florida
June 26, 1997
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<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 191,486
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<ALLOWANCES> (2,493,880)
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