SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended March 31, 1996
|_| Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _____ to _____
Commission file number 1-10340
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ALLOU HEALTH & BEAUTY CARE, INC.
(Exact name of registrant as specified in its charter)
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Delaware 11-2953972
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
50 Emjay Boulevard, Brentwood, New York 11717
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 273-4000
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Securities registered pursuant to Section 12(b) of the Act:
Name Of Each Exchange
Title Of Each Class On Which Registered
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Class A Common Stock, $.001 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
On June 27, 1996, the aggregate market value of the voting stock of
Allou Health & Beauty Care, Inc., held by non-affiliates of the Registrant
(consisting of Class A Common Stock, $.001 par value) was approximately
$31,865.575 based upon the closing sales price for such Common Stock on said
date as reported by the American Stock Exchange. For purposes of this
calculation, the Registrant has excluded the Class B Common Stock which is held
only by affiliates.
As of June 27, 1996, the Registrant had 4,552,225 shares of Class A
Common Stock and 1,200,000 shares of Class B Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Certain portions of the Registrant's definitive Proxy Statement for the 1996
Annual Meeting of Stockholders are incorporated by reference in Part III of this
Form 10-K.
<PAGE>
PART I
ITEM 1. BUSINESS
Allou Health & Beauty Care, Inc., was incorporated under the laws of
the State of Delaware in January 1989 as the successor to Allou Distributors,
Inc. As used herein, unless the context otherwise requires, the term "Company"
refers to Allou Health & Beauty Care, Inc. and its wholly-owned subsidiaries
Allou Distributors, Inc., M. Sobol, Inc. ("Sobol") and Allou Personal Care Corp.
("Allou Personal Care")
The Company distributes national brand name health and beauty aid
("HBA") products, fragrances and cosmetics, non-perishable packaged food items
and prescription pharmaceuticals primarily to independent retailers in the New
York, New Jersey, Connecticut, Philadelphia and Miami area. The Company
purchases approximately 8,000 HBA products from such manufacturers as Procter &
Gamble Co., Johnson & Johnson and Gillette Co. and 7,000 fragrance and cosmetic
products directly from manufacturers such as Revlon, Inc. and Coty (a Division
of Pfizer Inc.) and from secondary sources for sale to more than 4,200 retail
outlets including small discount chains, individual HBA suppliers and non-chain
supermarkets. Fragrance and cosmetic products are also marketed nationally to
discount chain stores such as Wal-Mart Stores, Inc. and Sears, Roebuck & Co.,
independent retail stores and pharmacies directly or through Company catalogues.
The Company also distributes approximately 50 HBA products under the trademark
"Allou Brands." Although this activity has accounted for only a small percentage
of revenues to date, the Company is expanding its marketing efforts in this
area.
In addition, the Company, through its wholly-owned subsidiary Sobol,
serves as a direct manufacturers' distributor of branded prescription
pharmaceuticals. Sobol is positioned to bolster its market share and gross
profit margins by diversifying its product mix to include generic prescription
pharmaceuticals and HBA products to an expanded customer base.
In October 1995, the Company purchased selected assets of Russ
Kalvin's, Inc. ("Russ Kalvin's"). The Russ Kalvin's acquisition has enabled the
Company to manufacture and distribute salon quality hair and skin care products
through its wholly-owned subsidiary, Allou Personal Care.
PRODUCTS
The Company distributes five general categories of products: name
brand health and beauty aids, fragrances and cosmetics, Allou Brands health and
beauty aids, food and prescription pharmaceuticals.
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Name Brand HBA Products
-----------------------
The Company distributes approximately 8,000 national name brand HBA
products. Set forth below are some of the 76 different types of products
available from the Company in the national HBA line. However, specific products
may vary depending upon the merchandise which the Company is able to acquire at
a given time:
Allergy Relief Insecticides
Adhesive Strips and Bandages Liniments and Rubs
Antacids Lip Balms and Medication
Baby Needs Nail Care
Bath Preps, Talcs, Colognes Nasal Sprays, Drops & Vapors
Batteries and Flashlights Oral Antiseptics and Sprays
Candy, Gum, Mints & Food Oral Hygiene
Cotton Products and Swabs Pain Relief
Cough and Cold Remedies Razor and Blades
Denture Products Rubber Products and Gloves
Deodorants Sedatives and Awakeners
Depilatories, Ladies Shave Preparations Shampoos
Feminine Hygiene Products Shave Creams
Film, Cameras, Flashbulbs Shave Lotions and Colognes
First Aid Needs Shoe Care
Foot Care Skin Care Products
Hair Accessories Soaps
Hair Coloring Stationery and School Supplies
Hair Sprays Toothbrushes
Hosiery Toothpaste and Powders
Household Light Bulbs Vitamins and Tonics
Household Paper Products
The sales of these products accounted for approximately 36%, 34% and
33% of the Company's revenues, respectively, during the fiscal years ended March
31, 1994, 1995 and 1996.
Fragrances and Cosmetics
------------------------
Fragrances distributed by the Company include those produced by
Faberge, Inc., Chanel, Inc. and Revlon, Inc. Among the cosmetic products are
eyeshadows, lipsticks, mascaras and skin care products produced by Revlon, Inc.,
Coty (a Division of Pfizer Inc.), Lancome (a Division of Cosmair, Inc.) and
Estee Lauder, Inc. See "Manufacturers and Suppliers." During the fiscal years
ended March 31, 1994, 1995 and 1996 fragrance and cosmetic sales accounted for
approximately 34%, 32% and 32% of the Company's revenues, respectively. The
profit margins on such sales are typically greater than those on name brand
health and beauty aids, and accordingly, the Company has
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sought to increase its sales and marketing efforts in this area. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Allou Brands
------------
The Company currently markets approximately 50 health and beauty aid
products under the "Allou Brands" tradename. Sales of its own products account
for only a small percentage of the Company's business, representing
approximately 2%, 1% and 1% of revenues during the fiscal years ended March 31,
1994, 1995 and 1996, respectively. The Company believes that many of its
customers want the opportunity to purchase a portion of their supply
requirements at a substantial savings which they can pass on to their customers.
Such savings are afforded by the more "generic" Allou Brands products. The
Company has found that sales of Allou Brands products are more profitable than
those of name brand products, and accordingly, is expanding its sales and
marketing efforts in this area by adding new items to its product line and by
increasing advertising activities.
FOOD
The Company added the sale of non-perishable packaged food items to
its product line in fiscal 1991. These food items, which are purchased almost
exclusively at discount prices from the major food companies, are sold to
existing customers. This product line requires little additional operating costs
to the Company since sales of food are pre-sold and drop-shipped directly to the
customers from the vendors. During the fiscal years ended March 31, 1994, 1995
and 1996, food items accounted for approximately 20%, 18% and 17%, respectively,
of the Company's revenues.
PRESCRIPTION PHARMACEUTICALS
During fiscal 1994, the Company acquired the capital stock of Sobol,
a manufacturers' distributor of branded prescription pharmaceuticals. Sobol was
founded in 1928 and currently distributes pharmaceuticals to approximately 700
independent pharmacies in the Northeast. The Company intends to expand Sobol's
customer base to include many of the Company's pharmacy accounts as well as to
develop a national mail-order business to include both generic and branded
pharmaceutical products. The Company also plans to offer Sobol's customers
health and beauty aids and fragrances, which should serve to boost Sobol's
profitability. The Company purchases approximately 4,000 branded pharmaceuticals
from such manufacturers as Eli Lilly and Company, Glaxo Holdings p.l.c.,
Burroughs Wellcome Co. and Merck Sharp and Dohme, Inc. Additionally, the Company
distributes 3,000 generic prescription pharmaceutical products which are
purchased from manufacturers such as Schein Pharmaceuticals, Inc., Barre
National, Inc., and Sidmak Laboratories, Inc. For the fiscal years ended March
31, 1994, 1995 and 1996, pharmaceuticals accounted for approximately 8%, 15% and
18%, respectively, of the Company's revenues.
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HAIR AND SKIN CARE PRODUCTS
During fiscal 1996, the Company purchased the selected assets of Russ
Kalvin's, which assets included accounts receivable, inventory, equipment and
intellectual property (patents, trademarks, etc.). This acquisition has enabled
the Company to manufacture and distribute salon quality hair and skin care
products to convenience stores, pharmacies and national mass merchandisers.
Revenues generated from the sales of such products were not material during
fiscal 1996.
MANUFACTURERS AND SUPPLIERS
The products the Company distributes are manufactured and supplied by
independent foreign and domestic companies, many of which also manufacture and
supply HBA products, fragrances and cosmetics for many of the Company's
competitors. The Company purchases approximately 8,000 HBA products from such
manufacturers as Procter & Gamble Co., Johnson & Johnson and Gillette Co. and
approximately 7,000 fragrance and cosmetic products directly from manufacturers
such as Coty (a division of Pfizer Inc.) and Revlon, Inc. and from secondary
sources with access to close-out purchases from retailers. The Company contracts
with manufacturers to produce the Allou Brands products and manufactures it
proprietary line of Russ Kalvin's generic brand hair and skin care products
through its wholly-owned subsidiary, Allou Personal Care.
The Company typically purchases goods from manufacturers on open
accounts which are payable in 30 days and may receive discounts of up to 2% for
early payments.
As is customary in the industry, the Company does not have any
licensing or other supply agreements with its manufacturers or suppliers.
Therefore, any of these companies could terminate their relationship with the
Company at any time. Management believes the absence of such agreements between
the Company and its suppliers does not have a material adverse impact on the
Company, since the Company has experienced no difficulty to date in obtaining
products as needed and believes there are a number of alternate sources of
supply for virtually all of the products that it sells. However, there can be no
assurance the Company will not experience difficulties with its present
manufacturers or suppliers, such as delays in obtaining products, which could
materially adversely affect its operations or relationship with customers.
MARKETING AND SALES
The Company markets national brand and Allou Brand HBA products
primarily to retail outlets including small discount chains, individual HBA
suppliers and non-chain supermarkets in the New York metropolitan area,
Philadelphia, Pennsylvania and Miami, Florida. In addition, the Company markets
fragrances and cosmetics to these customers and nationally to independent
retailers, pharmacies and chain stores, including Wal-Mart Stores, Inc. and
Sears, Roebuck & Co. The Company currently has approximately 4,200 active
accounts. No single customer accounted for 10% or more of the Company's sales
during the last two fiscal years.
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Sales are made by the Company's in-house sales staff of telemarketing
professionals. In-house sales persons are paid a base salary plus a commission
based on sales.
The Company publishes an HBA and a fragrance catalogue each month
containing order forms, descriptions of all products carried by the Company, the
manufacturer's suggested retail price and net cost per unit or per dozen which
are mailed to each of the Company's active customers. The catalogues also help
serve the advertising needs of the manufacturers which provide the Company with
rebates to pay for the cost of preparing, printing and mailing the catalogues.
In addition to the monthly catalogues, the Company frequently supplies its
customers with flyers advising them of items being sold at a discount. The sale
of fragrances nationally to independent stores is handled exclusively by mail
order through the catalogues.
The Company holds an annual exclusive trade show in New York City for
HBA retailers which is subsidized by manufacturers who display their wares,
introduce products and meet with customers. The Company also coordinates a
program sponsored by approximately 80 HBA retailers whereby the retailers are
provided with circulars to send to their customers, point-of-sale promotional
materials and product samples supplied by the manufacturers.
OPERATIONS
The Company maintains a 143,894 square foot warehouse facility with
sales and administrative offices in Brentwood, New York. The warehouse contains
inventory for approximately three months of distribution to customers. The
Company uses a computerized data base system which enables management to monitor
sales, purchases and inventory status. The Company has not experienced problems
with product shelf lives, as most products it sells are not perishable. HBA
products that are perishable generally can be returned to the manufacturer if
they are not sold by the expiration date.
The Company's trucking agent has a trailer which makes bi-weekly
deliveries to Florida as well as delivers certain fragrances to the Company's
Brentwood, New York warehouse on return trips from Florida, as many fragrance
vendors are located in southeast Florida. All other deliveries are made daily by
trucks subleased from the Company by an entity which is paid on a per load basis
and delivers exclusively for the Company. From the time it is placed, a
customer's order will be delivered within 48 hours if within the metropolitan
New York City area, and within five days if out-of-state.
Work in the warehouse is cyclical and workers are trained in several
tasks so that they can be rotated to fill the jobs where they are most needed.
Since the acquisition of the selected assets of Russ Kalvin's in
October 1995, the Company has been engaged in consolidating operations and
reducing overhead at Russ Kalvin's, as well as positioning itself to market
nationally the Russ Kalvin's generic brand hair and skin care products through
its wholly-owned subsidiary, Allou Personal Care. The Company has consolidated
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all administrative functions of Russ Kalvin's at the Company's Brentwood, New
York facility. In addition, the Company is currently negotiating a lease
regarding 80,000 square feet of space in Saugus, California, which is used to
manufacture and distribute its proprietary line of Russ Kalvin's generic brand
hair and skin care products.
MANAGEMENT INFORMATION AND CONTROL SYSTEM
The Company utilizes a proprietary, computerized data base management
system which collects, integrates and analyzes data concerning sales, order
processing, shipping, purchases, receiving, inventories and financial reporting.
At any given time, the Company is able to determine the quantity of each item in
inventory by brand, style, cost, list price and other characteristics.
The system enables the Company to better manage its inventories. The
system keeps a running inventory of goods on hand for each item it distributes.
When the inventory of any item drops to a certain pre-set level, a purchase
order for a set number of additional units of the item is automatically written
and after being reviewed by management, is sent to the manufacturer with the
weekly orders.
By eliminating much of the paper flow and dispensing comprehensive
information, this system has enabled the Company to reduce its
receipt-of-order-to-shipment time capability for New York City metropolitan area
customers to less than 48 hours, substantially reducing such customers need to
stock inventory, thereby saving the customer the cost of financing its inventory
requirements.
COMPETITION
The distribution of HBA products is extremely competitive. The
Company competes with pharmaceutical wholesalers that carry HBA products as an
accommodation for their customers. Many of such distributors have greater
financial and other resources than the Company. However, to the Company's
knowledge, there is no significant competitor which distributes to its customer
base of independent retail stores the assortment of HBA products that the
Company distributes. The Com pany believes it competes on the basis of services
rendered to its customer, including quick delivery and low minimum order
requirements.
The distribution of fragrance and high priced cosmetic items is very
competitive. The Company competes to obtain its fragrances and cosmetics from
manufacturers and middlemen who also supply competing distributors and sell
directly to retailers. It competes on the basis of price and services rendered
to its customers, including quick delivery and low minimum order requirements.
In addition, the Company faces intensive competition with respect to
marketing its own brand of HBA products and the Russ Kalvin's generic brand of
hair and skin care products. The Company competes with major HBA companies, as
well as hair and skin care companies, with well-established product lines, which
spend large sums for advertising and marketing and have far greater
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financial and other resources than the Company. The Company also competes with
these companies for shelf space and product placement in the various retail
outlets. Additionally, the Company competes for the manufacture of its products
from suppliers who also supply these and other companies. The Company believes
that it can offer customers substantial savings on its generic products.
EMPLOYEES
As of March 31, 1996, the Company employed approximately 250 persons
on a full time basis, including 5 in executive positions, 22 in purchasing, 65
in marketing and sales, 40 in administration and accounting, 118 in warehousing
and receiving. Certain of the sales personnel are partially paid on a commission
basis. During peak selling seasons the Company also employs part time personnel.
The Company is a party to a collective bargaining agreement expiring
December 14, 1997 with the National Organization of Industrial Trade Unions
covering all warehouse and receiving employees. The Company has not experienced
any work stoppages. The Company believes its relations with its employees are
satisfactory.
TRADENAMES AND TRADEMARKS
The Company uses the unregistered tradename "Allou Brand" on generic
products that it distributes. With the introduction of additional generic
products, the Company may adopt other unregistered tradenames and trademarks.
During fiscal 1996, the Company acquired the patents, trademarks and all other
intellectual property of Russ Kalvin's. The Company believes that no single
trademark, tradename or servicemark is material to the Company's business as a
whole.
GOVERNMENT REGULATION
The United States Food, Drug and Cosmetic Act and the Fair Packaging
and Labelling Act regulate, among other things, the purity and packaging of HBA
products and fragrances and cosmetic products. Similar statutes are in effect in
various states. Manufacturers and distributors of HBA products are also subject
to the jurisdiction of the Federal Trade Commission with respect to such matters
as advertising content and other trade practices. To the Company's knowledge, it
only deals with manufacturers and manufactured products in a manner which
complies with such regulations and who periodically submit their products to
independent laboratories for testing. However, the failure by the Company's
manufacturers or suppliers to comply with applicable government regulations
could result in product recalls that could adversely affect the Company's
relationships with its customers. In addition, the extent of potentially adverse
government regulations which might arise from future legislation or
administrative action cannot be predicted.
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ITEM 2. PROPERTIES
The Company leases approximately 143,894 square feet of space for its
principal executive offices, warehouse and distribution facilities and sales
headquarters in the Brentwood Industrial Park, 50 Emjay Boulevard, Brentwood,
New York 11717, under a ten-year lease which expires on May 31, 2005, and
includes a five-year option for renewal, at a base annual rental of $546,797.20,
with additional charges for insurance, fuel and taxes and increases during the
initial term of the lease.
The Company is currently negotiating a lease regarding 80,000 square
feet of space in Saugus, California, which is used to manufacture and distribute
hair and skin care products. The proposed term of the lease is five years with a
five-year option for renewal at a base annual rental of $300,000 with additional
charges for insurance, fuel, taxes and increases during the initial term of the
lease.
ITEM 3. LEGAL PROCEEDINGS
(a) The Company is a party to a number of legal proceedings as either
plaintiff or defendant in connection with claims made for goods sold, all of
which are considered routine litigation incidental to the business of the
Company.
(b) No legal proceedings were terminated during the fiscal quarter
ended March 31, 1996 (other than routine litigation incidental to the business
of the Company).
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this Report,
no matters were submitted to a vote of security holders through the solicitation
of proxies or otherwise.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market Information
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The Company's Class A Common Stock is listed on the American Stock
Exchange under the symbol "ALU". There is no established public trading market
for the Company's Class B Common Stock.
The following table sets forth the quarterly high and low sales
prices of the Class A Common Stock during the Company's last two fiscal years:
CLASS A
COMMON STOCK High Low
- ------------ ---- ---
FISCAL YEAR ENDED MARCH 31, 1995
Quarter ending June 30, 1994............................. 10-1/4 8-1/2
Quarter ending September 30, 1994........................ 9 7-7/8
Quarter ending December 31, 1994......................... 8-7/8 7
Quarter ending March 31, 1995............................ 9-1/4 7-1/2
FISCAL YEAR ENDED MARCH 31, 1996
Quarter ending June 30, 1995............................. 8-15/16 8-1/16
Quarter ending September 30, 1995........................ 8-1/4 5-1/4
Quarter ending December 31, 1995......................... 6-5/8 5-3/4
Quarter ending March 31, 1996............................ 7-1/4 5-15/16
Holders
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As of June 27, 1996, there were 143 holders of record of the
Company's Class A Common Stock and 4 holders of record of the Company's Class B
Common Stock. Based upon conversations with brokers, Management believes that
there are in excess of 1,000 beneficial owners of the Class A Common Stock.
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Dividends
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The Company has not paid a dividend on its shares of Class A Common
Stock or Class B Common Stock and has no present expectation of doing so in the
foreseeable future.
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ITEM 6. SELECTED FINANCIAL DATA
ALLOU HEALTH & BEAUTY CARE, INC.
<TABLE>
<CAPTION>
Income Statement Data:
Year Ended March 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(in thousands, except for share and per share data)
<S> <C> <C> <C> <C> <C>
Revenues $273,322 $237,542 $205,520 $161,914 $124,940
Costs of revenues 241,734 208,906 181,372 142,533 108,698
------- ------- -------- -------- --------
Gross profit 31,588 28,636 24,148 19,381 16,242
Warehouse and delivery expense 8,063 6,864 5,391 4,417 4,393
Selling, general and
administrative expense 11,894 10,250 10,226 8,055 6,296
------ ------ -------- -------- --------
Income from operations 11,631 11,522 8,531 6,909 5,553
Interest and other expense 5,513 3,956 2,609 1,943 2,352
----- ----- -------- -------- --------
Income before income taxes 6,118 7,566 5,922 4,966 3,201
----- ----- -------- -------- --------
Net income $ 3,757 $ 4,681 $ 3,738 $ 3,015 $ 1,875
========= ========= ======== ======== =========
Net income per share $ .65 $ .80 $ .73 $ .60 $ .50
=========== =========== ========== ========== ==========
Dividends $ -0- $ -0- $ - 0 - $ - 0 - $ - 0 -
=========== =========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Balance Sheet Data:
As of March 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C>
Working capital $ 37,557 $ 36,193 $ 32,094 $ 19,732 $ 11,784
Total assets 126,185 106,214 84,770 63,777 47,452
Total long-term liabilities 560 814 895 410 422
Total liabilities 82,016 66,038 50,743 43,311 34,191
Stockholder's equity 44,168 40,176 34,027 20,465 13,260
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Fiscal 1996 as Compared To Fiscal 1995
--------------------------------------
Revenues for the fiscal year ended March 31, 1996 ("fiscal 1996")
were $273,322,102, representing a 15% increase over revenues of $237,542,426 for
the fiscal year ended March 31, 1995 ("fiscal 1995), which resulted from
increased revenues from each segment of the Company's business. The increased
demand for the Company's products resulted from an expanded customer base,
increases in same store sales and the addition of prescription pharmaceuticals
distributed through its subsidiary, Sobol, which was acquired on April 1, 1993
and has resulted in an increase in the volume of products sold.
Contributions to this increase in revenues by product segment is as
follows: Health and beauty aids increased 10% in fiscal 1996, compared to fiscal
1995, due to increases in same store sales. Prestige designer fragrances grew
12% in fiscal 1996, compared to the same period in fiscal 1995, due to an
increase in same store sales and an expanded customer base, thus increasing the
volume of products sold. Nationally advertised branded non-perishable food
products grew 10% in fiscal 1996, compared to fiscal 1995, due to an expanded
customer base and increases in the volume of products sold. Sales of
prescription pharmaceuticals grew 37% in fiscal 1996, compared to the same
period in fiscal 1995, due to an increase in the volume of products sold. In
each segment of the Company's businesses, revenues are recognized at the time
merchandise is shipped to the customer, either directly by the Company, or in
the case of food products, drop-shipped by third parties on behalf of the
Company.
Cost of goods sold increased as a percentage of revenues to 88.4% for
fiscal 1996 from 88% for fiscal 1995. This increase in the cost of goods sold
results from increased revenues contributed by the distribution of
non-perishable food products and prescription pharmaceuticals and lower profit
margins associated with the distribution of fragrance products. The food and
drug distribution industries have lower gross profit margins when compared to
the Company's other business segments and, therefore, the Company expects gross
profit margins to contract in the foreseeable future as the market share of its
grocery and prescription businesses continue to expand.
Toward the end of fiscal 1996, certain opportunities arose for the
purchase of fragrance products which are only available to the Company at
unpredictable intervals. Fragrance products are purchased from secondary sources
of supply. This method of purchasing requires the Company to pre-pay for these
products in advance of delivery in order to ensure product delivery. Since the
merchandise corresponding to the pre-payments was not received during fiscal
1996, neither inventory valuation nor cost of goods sold was affected for the
period.
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Warehouse and delivery expenses, selling and general and
administrative expenses increased as a percentage of revenues to 7.3% for fiscal
1996 from 7.2% for fiscal 1995, which increase was due, in part, to lower gross
profit margins resulting from increased competition within segments of the
Company's business.
Inventories increased approximately $14.4 million for fiscal 1996
when compared to fiscal 1995. This increase in inventory is primarily
attributable to merchandise purchased in anticipation of increased sales.
Interest expense as a percentage of revenues increased to 2% for
fiscal 1996 from 1.7% for fiscal 1995 due to increased borrowings.
Net income for fiscal 1996 was $3,756,686, which is a 20% increase
over the net income for fiscal 1995 of $4,681,301, due primarily to the factors
discussed above.
Fiscal 1995 as Compared To Fiscal 1994
--------------------------------------
Revenues for the fiscal year 1995 were $237,542,426, representing a
16% increase over revenues of $205,519,590 for the fiscal year ended March 31,
1994 ("fiscal 1994"), which resulted from increased revenues from each segment
of the Company's business. The increased demand for the Company's products
resulted from an expanded customer base which sells the Company's prescription
pharmaceutical medications, thereby, increasing the volume of products sold.
Contributions to this increase in revenues by product segment is as
follows: Health and beauty aids increased 5% in fiscal 1995, compared to fiscal
1994 due to increases in same store sales. Prestige designer fragrances grew 11%
in fiscal 1995, compared to fiscal 1994, due to an increase in same store sales.
Nationally advertised branded non-perishable food products grew 1.8% in fiscal
1995, compared to fiscal 1994, due to an increase in the volume of products
sold. Sales of prescription pharmaceuticals grew 127% in fiscal 1995, compared
to the same period in fiscal 1994, due to an expanded customer base and
increases in products sold. In each segment of the Company's businesses,
revenues are recognized at the time merchandise is shipped to the customer,
either directly by the Company or, in the case of food products, drop-shipped by
third parties on behalf of the Company.
Cost of goods sold decreased as a percentage of revenues to 88% for
fiscal 1995 from 88.3% for fiscal 1994. This decrease reflects the Company's
continued commitment toward improving profit margins. The food and drug
distribution industries have lower gross profit margins when compared to the
Company's other business segments and, therefore, the Company expects gross
profit margins to contract in the foreseeable future as the market share of its
grocery and prescription businesses continue to expand.
Toward the end of fiscal 1995, certain opportunities arose for the
purchase of fragrance products which are only available to the Company at
unpredictable intervals. Fragrance
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products are purchased from secondary sources of supply. This method of
purchasing requires the Company to pre-pay for these products in advance of
delivery in order to ensure product delivery. Since the merchandise
corresponding to the pre-payments was not received during fiscal 1995, neither
inventories nor cost of goods sold was affected for the period.
Warehouse and delivery expenses, selling and general and
administrative expenses decreased as a percentage of revenues to 7.2% for fiscal
1995 from 7.6% for fiscal 1994. This decrease is due, in part, to three officers
of the Company waiving their rights to receive, during fiscal 1995, bonuses, in
the aggregate amount of $1,354,606 as provided in their employment agreements,
while Selling, General and Administrative expense during fiscal 1994 included
$994,062 for bonuses paid to such officers. The Company also benefited from
increased revenues during this period with out a proportional increase in
operating expenses. This is attributable to cost cuts and improved operating
efficiencies that have enabled the food business to impact favorably on income
from operations despite the lower gross profit margins contributed by this
segment of the business. Because the Company pre-sells food products and then
combines the food products with orders for the Company's other products which is
then delivered as one shipment, the Company incurs minimum overhead expenses and
realizes operating profit margins comparable to other segments of its business.
Operating efficiencies are further aided by a computerized data base management
system which enables the Company to better manage its inventories and more
closely align inventory purchases to sale of its products.
Inventories increased by approximately $10.3 million from $57,270,710
in fiscal 1995 when compared to $46,941,210 in fiscal 1994. This increase in
inventory is attributable to merchandise purchased in anticipation of increased
sales.
Although gross profit margins are generally higher in the fragrance
distribution business, the effect of higher gross profit margins is mitigated by
higher financing and warehousing costs due to the seasonability of this
business. The Allou Brands of generic health and beauty aids offer high profit
margins as compared to other segments of the business; however, the Company does
not consider revenues generated from the sales of these products to be material.
Interest expense as a percentage of revenues increased to 1.7% for
fiscal 1995 from 1.3% for fiscal 1994 due to higher borrowing costs.
Net income for fiscal 1995 was $4,681,301, representing a 25%
increase over the net income for fiscal 1994 of $3,738,289, and was due
primarily to the factors discussed above.
-15-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company meets its working capital requirements from internally
generated funds and from a financing arrangement with The First National Bank of
Boston, Bank Hapoalim, B.M., IBJ Schroder Bank & Trust Company, Sanwa Business
Credit Corporation, LaSalle Business Credit, Inc. and The Bank of Tokyo Trust
Company for financing the Company's accounts receivable and inventory. As of
March 31, 1996, the Company had $70,809,101 outstanding under its $85,000,000
bank line of credit. The loan is collateralized by the Company's inventory and
accounts receivable. Interest on the loan balance is payable monthly at 3/8%
above the prime rate or 2-1/8% above the Eurodollar rate, at the option of the
Company. The effective interest rate charged to the Company at March 31, 1996
was 7.55%, which was based on a combination of 2-1/8% above the Eurodollar rate
and 3/8% above the prime rate. The Company utilizes cash generated from
operations to reduce short term borrowings which in turn acts to increase loan
availability consistent with the Company's financing agreement.
On June 6, 1996, the Company and its subsidiaries entered into a
Second Restated and Amended Revolving Credit and Security Agreement with The
First National Bank of Boston, IBJ Schroder Bank & Trust Company, Sanwa Business
Credit Corporation, Lasalle Business Credit, Inc. and The Bank of Tokyo -
Mitsubishi Trust Company, which restated and amended the Company's bank
financing arrangement to, among other things, increase the maximum available
under the facility from $85,000,000 to $105,000,000, provide for interest at
.375% above the prime rate or 2.00% above the Eurodollar rate, at the Company's
option, permit its wholly-owned subsidiary Allou Distributors, Inc. to enter
into the Lease Financing Facility (as defined below) and release any security
interest of the banks in the property conveyed pursuant to the Lease Financing
Facility.
Allou Distributors, Inc., a wholly-owned subsidiary of the Company,
entered into a Master Lease Finance Agreement dated April 24, 1996 (the "Lease
Financing Facility") with BancBoston Leasing Inc. (the "Lessor"). Pursuant to
the Lease Financing Facility, each of the Company and Allou Distributors, Inc.
conveyed its title in and to certain equipment to the Lessor and leased such
equipment back from the Lessor. The Lease Financing Facility closed on June 14,
1996.
The Company's accounts receivable increased to $33,963,380 for fiscal
1996 from $28,473,020 for fiscal 1995 representing an increase of 19% due to an
increase in sales and due to customers which had previously paid the Company in
an average of 46 days at March 31, 1995 have been paying the Company in an
average of 49 days at March 31, 1996. The Company believes the slowness in
collection of accounts receivable is primarily a symptom of the poor regional
economy. The Company does not anticipate this trend to continue once economic
conditions improve.
The Company has minimal capital investment requirements and any
significant capital expenditures are financed through long-term lease agreements
and would not adversely impact cash flow. The Company believes that its
internally generated funds and bank line of credit will be sufficient to meet
its currently anticipated cash and capital needs through the fiscal year ending
March 31, 1997.
-16-
<PAGE>
INFLATION AND SEASONALITY
Inflation has not had any significant adverse effects on the
Company's business and the Company does not believe it will have any significant
effect on its future business. The Company's fragrance business is seasonal,
with greater sales during the Christmas season than in other seasons. The
Company's other product lines are not seasonal.
-17-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements of the Company identified below are
contained in this Report on the pages indicated:
Page
----
Report of Independent Auditor F-1
Consolidated Balance Sheet -
March 31, 1996 and 1995 F-2
Consolidated Statement of Operations -
Years ended March 31, 1996,
1995 and 1994 F-3
Consolidated Statement of Shareholders' Equity -
Years ended March 31, 1996,
1995 and 1994 F-4
Consolidated Statement of Cash Flows - Years
ended March 31, 1996, 1995
and 1994 F-5
Notes to Consolidated Financial Statements F-6
-18-
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-19-
<PAGE>
PART III
The information called for by Part III (Items 10,11,12 and 13) is
incorporated by reference to such information as it will be included in the
Registrant's definitive Proxy Statement with respect to the Registrant's 1996
Annual Meeting of Stockholders to be filed pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended.
-20-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this Report:
1. Financial Statements
--------------------
The following financial statements of the Company are contained in
Item 8 of this Report on the pages indicated:
Page
----
Report of Independent Auditors F-1
Consolidated Balance Sheet -
March 31, 1996 and 1995 F-2
Consolidated Statement of Operations -
Years ended March 31, 1996,
1995 and 1994 F-3
Consolidated Statement of Shareholders' Equity -
Years ended March 31, 1996,
1995 and 1994 F-4
Consolidated Statement of Cash Flows - Years
ended March 31, 1996, 1995
and 1994 F-5
Notes to Consolidated Financial Statements F-6
-21-
<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
FINANCIAL STATEMENTS
MARCH 31, 1996
<PAGE>
[MAYER RISPLER & COMPANY, P.C. LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors:
Allou Health & Beauty Care, Inc.
Brentwood, New York
We have audited the accompanying consolidated balance sheet of Allou
Health & Beauty Care, Inc. as of March 31, 1996 and 1995 and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the years in the three-year period ended March 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of Allou Health and Beauty Care, Inc.
at March 31, 1996 and 1995, and the results of its operations and cash flows for
each of the years in the three-year period ended March 31, 1996, in conformity
with generally accepted accounting principles.
Respectfully submitted,
/s/ MAYER RISPLER & COMPANY, P.C.
-------------------------------
Mayer Rispler & Company, P.C.
Certified Public Accountants
June 17, 1996
New York, New York
<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS
------
March 31, March 31,
1996 1995
---- ----
<S> <C> <C>
Current Assets
- --------------
Cash $ 144,118 $ 126,237
Accounts Receivables (less allowance for
doubtful accounts of $373,890 at March 31,
1996 and $286,165 at March 31, 1995 (Note 5) 33,963,830 28,473,020
Inventories (Notes 1 & 5) 71,690,321 57,270,710
Other Current Assets (Note 2) 13,215,004 15,546,524
------------ ------------
Total Current Assets $119,013,273 $101,416,491
Fixed Assets, Less Accumulated Depreciation
(Notes 1 & 3) 3,625,147 2,186,968
Other Assets (Note 4) 3,546,285 2,610,504
------------ ------------
TOTAL ASSETS $126,184,705 $106,213,963
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
Current Liabilities
- -------------------
Amounts Due Bank (Note 5) $ 70,809,101 $ 54,128,480
Current Portion of Long-Term Debt (Note 6) 222,393 245,116
Accounts Payable and Accrued Expenses (Note 7) 10,425,003 10,326,065
Income Taxes Payable (Note 10) 0 524,187
------------ ------------
Total Current Liabilities $ 81,456,497 $ 65,223,848
------------ ------------
Long Term Liabilities
- ---------------------
Long-Term Debt, Less Current Portion (Note 6) 529,390 751,783
Deferred Income Taxes (Note 1) 30,422 62,122
------------ ------------
Total Long Term Liabilities 559,812 813,905
------------ ------------
TOTAL LIABILITIES $ 82,016,309 $ 66,037,753
------------ ------------
Commitments & Contingencies (Note 8)
Stockholders' Equity (Notes 1 & 9)
- --------------------
Preferred Stock, $.001 par value, 1,000,000
shares authorized, none issued and outstanding
Class A Common Stock, $.001
par value; 10,000,000 shares authorized and
4,552,225 and 4,461,725 issued and outstanding at
March 31, 1996 and 1995, respectively $ 4,552 $ 4,462
Class B Common Stock, $.001 par value; 1,700,000
authorized, 1,200,000 issued and outstanding at
March 31, 1996 and 1995 1,200 1,200
Additional Paid-In Capital 23,476,508 23,241,098
Retained Earnings 20,686,136 16,929,450
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 44,168,396 40,176,210
------------ ------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $126,184,705 $106,213,963
============ ============
</TABLE>
The accompanying notes are an integral part of this financial statement.
<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the years ended March 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues $273,322,102 $237,542,426 $205,519,590
Costs of Revenues 241,734,316 208,906,041 181,372,370
------------ ------------ ------------
Gross Profit 31,587,786 28,636,385 24,147,220
------------ ------------ ------------
Operating Expenses
- ------------------
Warehouse & Delivery 8,062,827 6,864,463 5,390,953
Selling, General & Administrative 11,893,687 10,250,475 10,225,695
------------ ------------ ------------
Total Operating Expenses 19,956,514 17,114,938 15,616,648
------------ ------------ ------------
Income From Operations 11,631,272 11,521,447 8,530,572
------------ ------------ ------------
Other Charges (Credits)
Interest Expense 5,524,543 3,978,453 2,633,014
Other (11,204) (22,454) (23,927)
------------ ------------ ------------
Total 5,513,339 3,955,999 2,609,087
------------ ------------ ------------
Income Before Income Taxes 6,117,933 7,565,448 5,921,485
Provision for Income Taxes (Note 10) 2,361,247 2,884,147 2,183,196
------------ ------------ ------------
NET INCOME $ 3,756,686 $ 4,681,301 $ 3,738,289
------------ ------------ ------------
Net Income Per Common Share (Note 1):
Primary & Fully Diluted $ .65 $ .80 $ .73
======= ======= =======
</TABLE>
The accompanying notes are an integral part of this financial statement.
<PAGE>
ALLOU HEALTH & BEAUTY CARE INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended March 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash Flows From Operating Activities
- ------------------------------------
Net Income $ 3,756,686 $ 4,681,301 $ 3,738,289
Adjustments to Reconcile Net Income to Net Cash
Used in Operating Activities:
Depreciation and Amortization 524,665 412,532 371,113
Decrease (Increase) In Assets:
Accounts Receivable (5,490,810) (4,525,406) 1,917,115
Inventory (14,419,611) (10,329,500) (13,365,182)
Other Assets 1,380,739 (5,774,910) (5,519,602)
Increase (Decrease) In Liabilities:
Accounts Payable & Accrued Expenses 98,938 803,184 1,982,332
Income Taxes Payable (555,887) 363,187 (636,532)
------------- ------------- -------------
Net Cash Used In Operating Activities (14,705,280) (14,369,612) (11,512,467)
------------- ------------- -------------
Cash Flows From Investing Activities
- ------------------------------------
Acquisition of Fixed Assets (1,947,844) (1,451,966) (446,880)
------------- ------------- -------------
Cash Flows From Financing Activities
- ------------------------------------
Net Increase In Amounts Due Bank 16,680,621 14,044,169 1,869,320
Borrowings 0 211,284 1,371,546
Repayment of Debt (245,116) (126,683) (868,382)
Net Proceeds from Exercise of
Warrants & Options 235,500 1,467,998 9,823,158
------------- ------------- -------------
Net Cash Provided by Financing Activities 16,671,005 15,596,768 12,195,642
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH 17,881 (224,810) 236,295
CASH AT BEGINNING OF YEAR 126,337 351,047 114,752
------------- ------------- -------------
CASH AT END OF YEAR $ 144,118 $ 126,237 $ 351,047
============= ============= =============
Supplemental Disclosures of Cash Flow Information:
Cash Paid for:
Interest $ 5,464,832 $ 3,844,593 $ 2,580,779
Income Taxes $ 3,243,631 $ 2,520,960 $ 3,389,496
</TABLE>
The Company issued equipment notes for $211,284 during the year ended March 31,
1995.
The accompanying notes are an integral part of this financial statement.
<PAGE>
ALLOU HEATH & BEAUTY CARE, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Additional Retained
Stock Paid In Capital Earnings Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance March 31, 1993 $ 3,952 $11,951,652 $ 8,509,860 $20,465,464
Net Proceeds from Exercise
of Warrants & Options 1,391 9,669,892 0 9,671,283
Common Stock Issued 15 151,860 0 151,875
Net Income 0 0 3,738,289 3,738,289
----------- ----------- ----------- -----------
Balance March 31, 1994 $ 5,358 $21,773,404 $12,248,149 $34,026,911
----------- ----------- ----------- -----------
Net Proceeds from Exercise
of Warrants and Options 304 1,467,694 0 1,467,998
Net Income 0 0 4,681,301 4,681,301
----------- ----------- ----------- -----------
Balance March 31, 1995 $ 5,662 $23,241,098 $16,929,450 $40,176,210
Net Proceeds from Exercise
of Options 90 235,410 235,500
Net Income 3,756,686 3,756,686
----------- ----------- ----------- -----------
Balance March 31, 1996 $ 5,752 $23,476,508 $20,686,136 $44,168,396
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A. Organization
Allou Health & Beauty Care, Inc. (the "Company") was incorporated on
January 20, 1989 under the laws of the state of Delaware, on which date it
acquired all of the outstanding shares of Allou Distributors, Inc. in exchange
for 2,400,000 shares of (1,200,000 post-split) its Class B common stock, thus
making it a wholly-owned subsidiary.
Effective April 1, 1993, the Company acquired all of the outstanding
shares of M. Sobol, Inc., a wholesaler of pharmaceutical products in a
transaction accounted for under the purchase method. The price for the stock
was $1,472,382.
On October 2, 1995, the Company purchased certain assets of Russ
Kalvin Inc., a manufacturer of hair care products located in southern California
for $2,254,150. These assets included accounts receivable, inventory, equipment
and intangibles. The Company has incorporated wholly-owned subsidiaries which
manufacture and distribute these products.
These financial statements include the consolidated operations of the
Company and its subsidiaries. All intercompany transactions have been
eliminated.
B. Description of Operations:
The Company is engaged in the business of distributing brand name
health and beauty aids, cosmetics, fragrances, grocery products and
pharmaceuticals. The Company also distributes generic brand health and beauty
aids and hair care products. The Company sells these products to retailers
throughout the United States.
C. Revenue Recognition
The Company recognizes revenue on its entire product line at the time
the products are shipped to the customer.
D. Concentration of Credit Risk:
The Company extends credit based on an evaluation of the customer's
financial condition, generally without requiring collateral. Exposure to losses
on receivables is principally dependent on each customer's financial condition.
The Company monitors its exposure for credit losses and maintains allowances for
anticipated losses.
E. Inventories:
Inventories, which consist of finished goods, are stated at the lower
of average cost or market.
F. Fixed Assets:
Property and equipment are stated at cost. Depreciation is provided
for over the estimated useful lives of the assets by use of straight-line and
accelerated methods.
<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
G. Deferred Taxes:
Deferred taxes represent the amount due on the cumulative effect of
change of inventory valuation from LIFO to Average Cost Method. As permitted by
applicable tax regulations, this amount can be included in income for tax
purposes ratably over six years.
H. Earnings Per Share:
Primary and fully diluted earnings per share are computed on weighted
average number of shares actually outstanding, plus the shares that would be
outstanding assuming the exercise of the Company's outstanding stock warrants
and stock options, which are considered to be common stock equivalents, in
accordance with the treasury stock method for the years ended March 31, 1996 and
1995 and the modified treasury stock method for the year ended March 31, 1994.
I. 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 the revenues and expenses during the
reported period. Actual results could differ from those estimates.
2. OTHER CURRENT ASSETS:
Included in other current assets at March 31, 1996 are $11,251,093 of
prepayments on merchandise and $700,000 of interest bearing officers' loans.
3. PROPERTY AND EQUIPMENT:
March 31, March 31, Estimated
1996 1995 Useful Lives
---- ---- ------------
Machinery & Equipment $1,639,480 $ 954,380 5 years
Furniture, Fixtures &
Office Equipment 2,015,415 1,782,192 5-10 years
Transportation Equipment 96,750 96,750 3-5 years
Leasehold Improvements 2,358,799 1,370,095 10-33 years
----------- -----------
6,110,444 4,203,417
Less: Accumulated Depreciation 2,485,297 2,016,449
----------- -----------
$3,625,147 $2,186,968
=========== ===========
Depreciation expense for the years ended March 31, 1996, 1995 and
1994 amounted to $509,665, 412,532 and $371,113, respectively.
4. OTHER ASSETS:
Included in other assets is $1,686,007 of goodwill, net of
amortization, created upon the purchase of the shares of M. Sobol Inc., the
Company's wholly-owned subsidiary and the purchase of selected assets of Russ
Kalvin Inc. (see note 1-A), and $1,487,572 of interest bearing officers' loans.
The goodwill is being amortized over forty years and ten years respectively.
<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. AMOUNTS DUE BANK:
The Company has a secured line of credit with a consortium of banks.
The financing agreement provides for advances of up to 85% of eligible
receivables and 60% of eligible inventory with aggregate maximum advances which
have been increased as of June 7, 1996 from $85,000,000 to $105,000,000,
including a $6,500,000 sublimit for overadvances. Interest on the loan balance
which was payable monthly at 3/8% above the prime rate or 2 1/8% above the
Eurodollar rate, at the option of the Company has been reduced by 1/8%. The loan
is collateralized by the Company's accounts receivable and inventory and the
overadvances are guaranteed by the Company's principal stockholders. In
addition, the Company is required to abide by certain financial covenants. The
effective interest rate charged to the Company at March 31, 1996 was 7.55%,
which was based on a combination of 2 1/8% above the Eurodollar rate and 3/8%
above the prime rate.
6. LONG-TERM DEBT:
Long-term debt consists of:
(a) notes collateralized by certain of the Company's equipment,
payable in aggregate monthly installments of approximately $11,000, which
include interest at rates varying from 1% above the prime rate to 3.36% above
the treasury bill rate.
(b) a loan payable to the previous stockholder of M. Sobol, Inc. (see
note 1-A). Interest payable on the declining principal balance has been
calculated at 5.45% per annum, through April 1, 2000.
The aggregate long-term debt is payable as follows:
Year Ended
March 31,
1997 $222,393
1998 154,230
1999 140,333
2000 125,786
2001 109,041
---------
$751,783
=========
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
March 31, March 31,
1996 1995
---- ----
Cost of Revenues $ 8,471,396 $9,016,485
Selling, General & Administrative 1,236,841 621,734
Interest - Bank 374,229 313,525
Payroll 333,537 374,321
-------------- --------------
$10,416,003 $10,326,065
============== ==============
<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES:
A. Operating Leases:
Effective April 1995, the Company's lease was renegotiated to include
additional space and the lease term was extended to May 2005. Commencing on
October 2, 1995, in connection with the operations of its wholly-owned hair care
products subsidiaries, the Company entered into a five year real property
operating lease for space located in California. As of March 31, 1996, total
minimum annual rentals, excluding additional payments for real estate taxes and
certain expenses, are as follows:
Year Ended
March 31,
---------
1997 $864,797
1998 846,797
1999 852,797
2000 858,797
2001 768,749
2002-2006 2,608,078
Rent expense for the years ended March 31, 1996, 1995 and 1994
amounted to $744,505, $490,052 and $308,252, respectively.
B. The Company uses an entity for its deliveries using the Company's
leased trucks and is charged on a per load basis. The Company assigned the truck
lease to this non-affiliated entity, however, the Company has guaranteed payment
and performance on all terms of the lease through its expiration in 1997.
The Company owns a trailer truck which has been assigned to an entity
in exchange for such entity assuming the loan payments for such truck, which
remain an obligation of the Company.
C. Union:
The Company has an agreement with the National Organization of
Industrial Trade Unions which terminates on December 14, 1997. The agreement
covers all warehouse and receiving employees, excluding supervisory personnel.
D. Stock Option Plans:
The Company has adopted Stock Option Plans which provide for the
granting of stock options to certain key employees and directors. An aggregate
of 1,300,000 shares of common stock are reserved for issuance under the Plans.
Incentive stock options are granted at no less than fair market value of the
shares on the date of grant. Options granted to individuals owning more than 10%
of the voting power of the Company's capital stock are granted at 110% of the
fair market value at the date of grant.
<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Option activity for the years ended March 31, 1996, 1995 and 1994 was
as follows:
1996 1995 1994
---- ---- ----
Options outstanding
at beginning of year 1,176,950 790,000 714,000
Granted 136,550 415,450 80,000
Exercised (90,500) (21,000) (4,000)
Cancelled (38,500) (7,500) 0
---------- ---------- ----------
Outstanding at
end of year 1,184,500 1,176,950 790,000
========== ========== ==========
Option price range $5.75 to $10.00 $2.50 to $10.00 $2.50 to $10.00
at end of year =============== =============== ===============
E. The Company's three year employment agreements with four of its
officers, which expired on August 1, 1995, provided for annual salaries of
$150,000 each for three of the officers and $225,000 for the fourth. In
addition, three of the officers received bonuses based on the Company's earnings
before interest and taxes. For the year ended March 31, 1994, officers' bonus
expense amounted to $1,054,774. For the year ended March 31, 1995, three of the
officers waived their rights to a bonus of $1,354,606 and the fourth officer
received a bonus of $40,000.
Effective August 1, 1995, the Company entered into three year
employment agreements with three of its officers. These agreements provide for
each to receive annual salaries of $300,000 and a bonus of 3% of the first
$2,000,000, 2% on the next $1,000,000 and 1% on the remaining increase over the
Company's prior year earnings before interest and taxes. For the year ended
March 31, 1996, these three officers received no bonus.
F. Letter of Credit:
The Company has irrevocable standby letters of credits in the sum of
$475,000 expiring thru February 28, 1997.
9. STOCKHOLDERS' EQUITY:
During the year ended March 31, 1994, the stockholders of the Company
voted to reduce the number of shares of authorized Class A common stock from
15,000,000 to 10,000,000 shares and increase the number of authorized Class B
common stock from 1,200,000 to 1,700,000 shares, both $.001 par value per share.
The Company is also authorized to issue 1,000,000 shares of preferred stock.
Holders of Class A and Class B common stock share pro rata in all dividends
declared by the Board of Directors. The holders of Class A and Class B common
stock are entitled to one and five votes per share, respectively, for every
matter on which the stockholders of the Company are entitled to vote. Each share
of Class B common stock is convertible at the option of the holder into one
share of Class A common stock. Additionally, each share of Class B common stock
shall be automatically converted into one share of Class A common stock upon its
sale or transfer (including its transfer upon the death of the holder thereof),
except if such sale or transfer is to one or more other holders of Class B
common stock, certain family members of the holders of Class B common stock or
certain trusts for their benefit.
<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During the year ended March 31, 1990, the Company's public offering
became effective, whereby 460,000 units, each consisting of three shares of the
Company's Class A common stock and three redeemable Class A warrants were sold.
Additionally, the underwriters were granted 40,000 units of purchase warrants,
each consisting of three shares Class A common stock and three redeemable Class
A and Class B warrants.
During the years ended March 31, 1992, 1993 and 1994, 1,367,726 Class
A warrants and 1,355,516 Class B warrants were exercised, and 12,274 Class A
warrants and 12,200 Class B warrants were redeemed and cancelled.
The Company also issued 36,000 warrants which were exercised for
36,000 shares of Class A common stock. In connection with the purchase of its
wholly-owned subsidiary M. Sobol, Inc., the Company issued 15,000 shares of
Class A common stock.
During the year ended March 31, 1995, the underwriters exercised
their 40,000 unit purchase warrants which consisted of 120,000 shares of Class A
common stock, 120,000 Class A warrants and 42,483 Class B warrants. The
remaining 77,517 of unexercised Class B warrants expired and were cancelled on
July 11, 1994.
10. PROVISION FOR INCOME TAXES:
March 31,
1996 1995 1994
---- ---- ----
Income Before Income Taxes $6,117,933 $7,565,448 $5,921,485
========== ========== ==========
Federal Income Tax $1,959,880 $2,372,572 $1,848,055
State Income Taxes 401,367 511,575 335,141
---------- ---------- ----------
Total Provision for Income Taxes $2,361,247 $2,884,147 $2,183,196
========== ========== ==========
The following is a reconciliation of the statutory income tax rate to
the total effective tax rates:
March 31,
1996 1995 1994
---- ---- ----
Federal Statutory Income Tax Rate 34% 34% 34%
Increase in Tax Rates Resulting from:
State Income Taxes, Net of Federal Tax
Benefits 6.0% 5.6% 4.7%
Net Operating Loss Carryforward from subsidiary (1.4%) (1.5%) -0-
(Over) Under Accrual of Prior Year Tax Provision -0- -0- (1.8%)
----- ----- -----
Total Effective Tax Rates 38.6% 38.1% 36.9%
===== ===== =====
<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At March 31, 1996, net operating loss carryforwards of approximately
$289,000 are available to offset future earnings. These losses were generated by
the Company's subsidiary M. Sobol Inc., prior to its acquisition by the Company,
and as such are limited to $85,000 per year as per Internal Revenue Service
regulations.
11. RELATED PARTY TRANSACTIONS:
The Company purchases from, and on occasion, sells to, various
entities that are controlled by some of the Company's officers.
For the years ended March 31, 1996, and 1995, there were no sales to
related parties during or outstanding receivables at the end of the period.
Purchases from related parties amounted to $1,735,661 and $1,357,687
respectively, with no outstanding amounts payable at the end of each period.
12. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
Gross Net Earnings Per
Quarters Ended Revenues Profit Income Common Share
-------------- -------- ------ ------ ------------
June 30, 1995 $64,432,369 $ 7,225,913 $ 1,156,829 $.20
June 30, 1994 $55,345,135 $ 6,408,157 $ 972,551 $.17
September 30, 1995 $66,913,389 $ 7,219,879 $ 676,572 $.12
September 30, 1994 $57,469,223 $ 7,221,893 $ 983,274 $.17
December 31, 1995 $76,715,466 $ 9,157,762 $ 1,198,267 $.21
December 41, 1994 $68,984,920 $ 8,384,852 $ 1,431,914 $.24
March 31, 1996 $65,260,878 $ 7,984,232 $ 725,008 $.12
March 31, 1995 $55,743,148 $ 6,621,483 $ 1,293,562 $.22
<PAGE>
SCHEDULE VIII
ALLOU HEALTH & BEAUTY CARE, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- Additions Deductions --------
--------- ----------
Balance at Charged to Write off of Balance
Beginning costs and uncollectible at end
Description of period expenses accounts of period
----------- --------- -------- -------- ---------
<S> <C> <C> <C> <C>
March 31, 1994
Allowance for Doubtful Accounts $240,955 $446,221 $325,923 $361,253
March 31, 1995
Allowance for Doubtful Accounts $361,253 $294,000 $369,088 $286,165
March 31, 1996 $286,165 $412,000 $324,275 $373,890
Allowance for Doubtful Accounts
</TABLE>
<PAGE>
SCHEDULE IX
ALLOU HEALTH & BEAUTY CARE, INC.
SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F(a)
-------- -------- -------- -------- -------- -----------
Maximum Average Weighted
Category of Weighted amount amount average
aggregate Balance at average outstanding outstanding interest rate
short-term end interest during during during
borrowings of period rate the period the period the period
---------- --------- ---- ---------- ---------- ----------
(Daily (Daily
Basis) Basis)
<S> <C> <C> <C> <C> <C>
March 31, 1992
Bank Loan $26,362,880 6.875% $29,524,536 $26,820,253 8.535%
March 31, 1993
Bank Loan $36,114,991 5.55% $35,079,883 $32,569,571 5.864%
March 31, 1994
Bank Loan $40,084,311 5.82% $50,060,899 $45,141,816 5.53%
March 31, 1995
Bank Loan $54,128,480 8.45% $60,387,121 $52,642,369 7.23%
March 31, 1996 $70,809,101 8.50% $73,365,424 $67,206,057 8.14%
Bank Loan
</TABLE>
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
ALLOU HEALTH & BEAUTY CARE INC.
(In thousands, except for share and per share data)
<TABLE>
<CAPTION>
Income Statement Data:
Year Ended March 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $273,322 $237,542 $205,520 $161,914 $124,940
Costs of revenues 241,734 208,906 181,372 142,533 108,698
-------- -------- -------- -------- --------
Gross profit 31,588 28,636 24,148 19,381 16,242
Warehouse and delivery expense 8,063 6,864 5,391 4,417 4,393
Selling, general and
administrative expense 11,894 10,250 10,226 8,055 6,296
-------- -------- -------- -------- --------
Income from operations 11,631 11,522 8,531 6,909 5,553
Interest and other 5,513 3,956 2,609 1,943 2,352
-------- -------- -------- -------- --------
Income before income taxes 6,118 7,566 5,922 4,966 3,201
-------- -------- -------- -------- --------
Net income (1) $ 3,757 $ 4,681 $ 3,738 $ 3,015 $ 1,875
======== ======== ======== ======== ========
Net income per common share
primary & fully diluted $ .65 $ .80 $ .73 $ .60 $ .50
======== ======== ======== ======== ========
Dividends $ 0 $ 0 $ 0 $ 0 $ 0
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Balance Sheet Data:
As of March 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Working capital $ 37,557 $ 36,193 $ 32,094 $ 19,732 $ 11,784
Total assets 126,185 106,214 84,770 63,777 47,452
Total long-term liabilities 560 814 895 410 422
Total liabilities 82,016 66,038 50,743 43,311 34,191
Stockholders' equity 44,168 40,176 34,027 20,465 13,260
</TABLE>
<PAGE>
2. Financial Statement Schedules
The following financial statement schedules are contained in this
Report on the pages indicated:
Page
----
Schedule VIII- Valuation and Qualifying Accounts and Reserve S-1
Schedule IX - Short-Term Borrowings S-2
Schedules other than those listed above have been omitted as they are
either not required, are not applicable, or the information called for is shown
in the financial statements or notes thereto.
3. Exhibits: The following Exhibits are filed as a part of this
Report:
Exhibit No. Description
3.1 Certificate of Incorporation of the Registrant (filed as Exhibit
3a to Registration Statement No. 33-26981 on Form S-1
("Registrant's Form S-1"), and incorporated herein by reference).
3.1.1 Certificate of Amendment to Certificate of Incorporation of
Registrant dated July 7, 1989 (filed as Exhibit 3(a)(1) to
Registrant's Annual Report on Form 10-K for the fiscal year ended
March 31, 1990 ("1990 Form 10-K") and incorporated herein by
reference).
3.1.2 Certificate of Amendment to Certificate of Incorporation of
Registrant dated September 9, 1993 (filed as Exhibit 3(a)(2) to
Registrant's Annual Report on Form 10-K for the fiscal year ended
March 31, 1994 ("1994 Form 10-K") and incorporated herein by
reference).
3.2 By-Laws of the Registrant (filed as Exhibit 3b to Registrant's
Form S-1, and incorporated herein by reference).
*10.1 Employment Contract dated as of August 1, 1995 between the
Registrant and Victor Jacobs.
*10.2 Employment Contract dated as of August 1, 1995 between Registrant
and Herman Jacobs.
-22-
<PAGE>
*10.3 Employment Contract dated as of August 1, 1995 between the
Registrant and Jack Jacobs.
10.4 Amended and Restated 1989 Incentive Stock Option Plan (filed as
Exhibit 10(e) to Registrant's 1990 Form 10-K and incorporated
herein by reference).
10.5 1991 Stock Option Plan (filed as Exhibit 10(e)(1) to Registrant's
Post-Effective Amendment No. 1 to Registrant's Form S-1 and
incorporated herein by reference).
10.6 1992 Stock Option Plan (filed as Exhibit 10(e)(2) to Registrant's
1993 Form 10-K and incorporated herein by reference).
10.7 Lease Agreement dated December 8, 1993 between Allou
Distributors, Inc. and Brentwood Distribution Co. (filed as
Exhibit 10(f) to Registrant's Annual Report on Form 10-K for the
fiscal year ended March 31, 1995 ("1995 Form 10-K") and
incorporated herein by reference).
10.8 Lease Agreement dated March 4, 1980 between Registrant and Pueblo
Supermarkets, Inc. (filed as Exhibit 10g to Registrant's Form S-1
and incorporated herein by reference).
10.9 Lease Agreement dated January 1, 1993 between M. Sobol, Inc. and
Simon and Barbara J. Mandell (filed as Exhibit 10(g) to
Registrant's 1993 Form 10-K and incorporated herein by
reference).
10.10 Agreement dated December 13, 1994 between Allou Distributors,
Inc. and the National Organization of Industrial Trade Unions
(filed as Exhibit 10(i) to the Registrant's 1995 Form 10-K and
incorporated herein by reference).
10.11 Restated and Amended Revolving Credit and Security Agreement
among the First National Bank of Boston, Bank Hapoalim B.M., v
dated as of May 9, 1994 (filed as Exhibit 10(n) to Registrant's
1994 Form 10-K and incorporated herein by reference).
10.12 First Amendment to Restated and Amended Revolving Credit and
Security Agreement among the First National Bank of Boston, Bank
Hapoalim B.M., IBJ Schroder Bank & Trust Company, Sanwa Business
Credit Corporation, LaSalle Business Credit, Inc., The Bank of
Tokyo Trust Company, the Registrant and Allou Distributors, Inc.
dated August 24, 1994 (filed as Exhibit 10(l) to
-23-
<PAGE>
the Registrant's 1995 Form 10-K and incorporated herein by
reference).
*10.13 Second Restated and Amended Revolving Credit and Security
Agreement dated as of June __, 1996 among Allou Health & Beauty
Care, Inc., Allou Distributors, Inc., The First National Bank of
Boston, IBJ Schroder Bank & Trust Company, Sanwa Business Credit
Corporation, LaSalle Business Credit, Inc. and The Bank of Tokyo
- Mitsubishi Trust Company.
*10.14 Master Lease Finance Agreement dated as of April 24, 1996 between
BancBoston Leasing Inc. and Allou Distributors, Inc.
*11 Computation of Earnings Per Common Stock.
*21 Subsidiaries of the Registrant.
*23 Consent of Mayer Rispler & Co.
*27 Financial Data Schedule
- ----------------
* Filed herewith
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last
quarter of the period covered by this Report.
-24-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
ALLOU HEALTH & BEAUTY CARE, INC.
By: /s/ VICTOR JACOBS
----------------------------------
Victor Jacobs,
Chairman of the Board and
Chief Executive Officer
Dated: June 28, 1996
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
<TABLE>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ VICTOR JACOBS Chairman of the Board and Chief June 28, 1996
- ---------------------------- Executive Officer
Victor Jacobs
/s/ HERMAN JACOBS President and Director June 28, 1996
- ----------------------------
Herman Jacobs
/s/ DAVID SHAMILZADEH Chief Financial Officer, Chief June 28, 1996
- ---------------------------- Accounting Officer and Director
David Shamilzadeh
/s/ JACK JACOBS Director June 28, 1996
- ----------------------------
Jack Jacobs
/s/ RAMON MONTES Director June 28, 1996
- ----------------------------
Ramon Montes
/s/ SOL NAIMARK Director June 28, 1996
- ----------------------------
Sol Naimark
/s/ JEFFREY BERG Director June 28, 1996
- ----------------------------
Jeffrey Berg
</TABLE>
-25-
<PAGE>
Index to Exhibits
Exhibit No. Description Page
- ----------- ----------- ----
3.1 Certificate of Incorporation of the Registrant
(filed as Exhibit 3a to Registration Statement No.
33-26981 on Form S-1 ("Reg istrant's Form S-1"),
and incorporated herein by reference).
3.1.1 Certificate of Amendment to Certificate of
Incorporation of Registrant dated July 7, 1989
(filed as Exhibit 3(a)(1) to Registrant's Annual
Report on Form 10-K for the fiscal year ended
March 31, 1990 ("1990 Form 10-K") and incorporated
herein by reference).
3.1.2 Certificate of Amendment to Certificate of
Incorporation of Registrant dated September 9,
1993 (filed as Exhibit 3(a)(2) to Registrant's
Annual Report on Form 10-K for the fiscal year
ended March 31, 1994 ("1994 Form 10-K") and
incorporated herein by reference).
3.2 By-Laws of the Registrant (filed as Exhibit 3b to
Registrant's Form S-1, and incorporated herein by
reference).
*10.1 Employment Contract dated as of August 1, 1995
between the Registrant and Victor Jacobs.
*10.2 Employment Contract dated as of August 1, 1995
between Registrant and Herman Jacobs.
*10.3 Employment Contract dated as of August 1, 1995
between the Registrant and Jack Jacobs.
10.4 Amended and Restated 1989 Incentive Stock Option
Plan (filed as Exhibit 10(e) to Registrant's 1990
Form 10-K and incorporated herein by reference).
10.5 1991 Stock Option Plan (filed as Exhibit 10(e)(1)
to Registrant's Post-Effective Amendment No. 1 to
Registrant's Form S-1 and incorporated herein by
reference).
10.6 1992 Stock Option Plan (filed as Exhibit 10(e)(2)
to Registrants 1993 Form 10-K and incorporated
herein by reference).
10.7 Lease Agreement dated December 8, 1993 between
Allou Distributors, Inc. and Brentwood
Distributors Co. (filed as Exhibit 10(f) to
Registrant's Annual Report on Form 10-K for the
fiscal year ended March 31, 1995 ("1995 Form
10-K") and incorporated herein by reference).
-26-
<PAGE>
Exhibit No. Description Page
- ----------- ----------- ----
10.8 Lease Agreement dated March 4, 1980 between
Registrant and Pueblo Supermarkets, Inc. (filed as
Exhibit 10g to Registrant's Form S-1 and
incorporated herein by reference).
10.9 Lease Agreement dated January 1, 1993 between M.
Sobol, Inc. and Simon and Barbara J. Mandell.
(Filed as Exhibit 10(g) to Registrant's 1993 Form
10-K and incorporated herein by reference).
10.10 Agreement dated December 13, 1994 between Allou
Distributors, Inc. and the National Organization
of Industrial Trade Unions (filed as Exhibit 10(i)
to Registrant's 1995 Form 10-K and incorporated
herein by reference.
10.11 Restated and Amended Revolving Credit and Security
Agreement among the First National Bank of Boston,
Bank Hapoalim B.M., IBJ Schroder Bank & Trust
Company, Sarwa Business Credit Corporation,
LaSalle Business Credit, Inc., The Bank of Tokyo
Trust Company, the Registrant and Allou
Distributors, Inc. dated as of May 9, 1994 (filed
as Exhibit 10(n) to Registrant's 1994 Form 10-K
and incorporated herein by reference).
10.12 First Amendment to Restated and Amended Revolving
Credit and Security Agreement among the First
National Bank of Boston, Bank Hapoalim B.M., IBJ
Schroder Bank & Trust Company, Sanwa Business
Credit Corporation, LaSalle Business Credit, Inc.,
The Bank of Tokyo Trust Company, the Registrant
and Allou Distributors, Inc. dated August 24, 1994
(filed as Exhibit 10(l) to Registrant's 1995 Form
10-K and incorporated herein by reference).
*10.13 Second Restated and Amended Revolving Credit and
Security Agreement dated as of June __, 1996 among
Allou Health & Beauty Care, Inc., Allou
Distributors, Inc., The First National Bank of
Boston, IBJ Schroder Bank & Trust Company, Sanwa
Business Credit Corporation, LaSalle Business
Credit, Inc. and The Bank of Tokyo - Mitsubishi
Trust Company.
*10.14 Master Lease Finance Agreement dated as of April
24, 1996 between BancBoston Leasing Inc. and Allou
Distributors, Inc.
*11 Computation of Earnings Per Common Share.
*21 Subsidiaries of the Registrant.
*23 Consent of Mayer Rispler & Co.
*27 Financial Data Schedule
- ----------------
* Filed herewith
-27-
EMPLOYMENT AGREEMENT
AGREEMENT made as of August 1, 1995 between ALLOU HEALTH &
BEAUTY CARE, INC., a Delaware corporation with offices at 50 Emjay Boulevard,
Brentwood, New York 11717 ("Company"), and VICTOR JACOBS, residing at 176 Penn
Street, Brooklyn, New York 11211 ("Employee").
W I T N E S S E T H :
WHEREAS, Employee has been employed by the Company and has
rendered substantial services to the Company; and
WHEREAS, the Company believes that the contributions that have
been made and can continue to be made by Employee toward the success of the
business of the Company are valuable and wishes to retain the services of
Employee for its benefit; and
WHEREAS, the Company desires to continue to retain the
services of Employee as its Chairman of the Board and Chief Executive Officer;
and
WHEREAS, Employee is willing to continue as such upon the terms
and conditions herein set forth;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements herein contained, the Company and Employee agree
as follows:
1. TERM. The Company hereby employs Employee, and Employee
hereby accepts employment by the Company, on the terms and conditions herein
contained for a term commencing August 1, 1995 (the "Commencement Date") and
terminating on July 31, 1998 ("Original Term") unless sooner terminated as
herein provided (the "Term").
<PAGE>
2. EMPLOYMENT DUTIES.
(a) During the Term, Employee shall serve as the
Chairman of the Board and Chief Executive Officer of the Company and Employee
shall have such responsibilities, powers and duties as are substantially
consistent with his present responsibilities, powers and duties. Employee shall
be subject to the reasonable direction of the Board of Directors of the Company.
Employee agrees that during the Term he will devote his full time and attention
during regular business hours to the business and affairs of the Company except
during vacation periods and periods of illness or incapacity. Notwithstanding
the foregoing and so long as his activities do not interfere with the
performance of his duties hereunder, Employee will be permitted to acquire, own
or deal in securities or other investments except that, without the prior
written consent of the Company's Board of Directors, Employee may not invest in
any business which has business relations or competes with the Company or any of
its subsidiaries or affiliates unless the securities of such business are listed
on a national securities exchange or traded in the over-the-counter market and
the interest of Employee does not exceed one (1%) percent of the outstanding
securities of any class of that business. In addition, nothing contained herein
shall prevent Employee from serving as a director or trustee of any corporation
or other organization, and in any other capacity with any non-commercial
enterprise, provided that such service does not materially interfere with the
performance of his duties hereunder and such business or organization does not
compete with the Company or any of its subsidiaries or affiliates.
(b) It is understood that, except for limited
business travel which shall be only such as is reasonably required for him to
perform his duties hereunder, Employee's duties under this paragraph 2 are
performed at the Company's principal executive office in Brentwood, New York.
- 2 -
<PAGE>
3. COMPENSATION AND BENEFITS.
(a) For the full, prompt and faithful performance
of all of the duties and services to be performed by Employee hereunder, the
Company agrees to pay Employee a salary ("Base Salary") at the rate of Three
Hundred Thousand Dollars ($300,000) per year, payable in equal semi-monthly
installments or in such other manner as shall be mutually agreeable to Employee
and the Company. The Company's Board of Directors may, in its discretion, at any
time and from time to time, increase such Base Salary for Employee and grant
Employee other compensation, including bonuses, in addition to that provided for
hereunder. Employee's compensation shall be reviewed at least once each year.
Any increase in Base Salary or other compensation shall in no way limit or
reduce any other obligation of the Company under this Agreement.
(b) As additional compensation, Employee shall
receive a sum equal to: (i) three percent (3%) of the amount of any increase in
the Company's earnings before interest and taxes ("EBIT") (as hereinafter
defined) at the end of each fiscal year during the term of this Agreement as
compared to the EBIT for the prior fiscal year (an "Increase") for amounts of
such Increase up to $2,000,000; (ii) two percent (2%) of the amount of any
Increase that is greater than $2,000,000 but less than or equal to $3,000,000;
and (iii) one percent (1%) of the amount of any Increase exceeding $3,000,000.
For the purposes of this Agreement, "EBIT" shall be the annual earnings of the
Company for the fiscal year computed before any charges for interest expense and
any federal, state or other taxes relating to income, and shall be determined in
accordance with generally accepted accounting principles by the certified public
accountants regularly employed by the Company whose determination shall be
binding on the parties.
The computation of "EBIT" shall be made as soon as practicable
after the end of each fiscal year and may be paid in full after the end of each
fiscal year. If at the end of any fiscal year, the
- 3 -
<PAGE>
Company's EBIT does not exceed the EBIT for the prior fiscal year, Employee
shall not receive any additional compensation as set forth in this section 3(b).
(c) In addition to the compensation provided for
herein, Employee shall be entitled to participate in any bonus, incentive
compensation, retirement, profit-sharing, medical payment, disability, health or
life insurance and other benefit arrangements which may be or become available
to executives of the Company.
(d) The Company agrees to grant to Employee as
of the Commencement Date, an option to purchase, for a period of ten (10) years
from the date of grant, an aggregate of One Hundred Thousand (100,000) shares of
the Company's authorized Class B Common Stock pursuant to the terms of the
Company's 1995 Stock Option Plan (the "Plan"), a copy of which shall be
delivered to Employee contemporaneously with the execution of this Agreement,
and any related stock option agreements required to be executed by optionees in
connection therewith. Such grant shall be subject to approval of the Plan by the
shareholders of the Company. All of such options shall become exercisable as to
one hundred percent (100%) of such shares on the earlier of the seventh
anniversary of the date hereof or as of end of any fiscal year in which the
Company's EBIT increases at least fifteen percent (15%) over the Company's EBIT
for the fiscal year ended March 31, 1995. Employee shall also be entitled to any
additional stock options or stock related rights or similar benefits which may
be granted to Employee by the Company.
(e) Throughout the Original Term, the Company
shall continue to provide Employee with life insurance with the beneficiary
thereof to be designated by Employee in an amount not less than that in effect
for Employee at the date hereof and shall pay all premiums due thereunder.
(f) Employee shall be entitled to reimbursement,
not less frequently than monthly, for expenses reasonably incurred by him in
furtherance of the business of the Company and
- 4 -
<PAGE>
in the performance of his duties hereunder, on an accountable basis with such
substantiation as the Company may at the time require from its senior executive
officers.
(g) During the Term, Employee shall be entitled
to continue to receive the fringe benefits and perquisites presently provided
for him by the Company. In order to enable Employee to most effectively perform
his duties hereunder, the Company will provide Employee with the use of an
automobile to be comparable and equivalent to the price category car presently
used by Employee, under a two-year replacement program, and payment of all
expenses associated therewith.
(h) Employee shall be entitled to four (4) weeks
of vacation in each twelve (12) month period during the Term, to be taken at
such times as may be mutually and reasonably agreed upon by the Company and
Employee.
4. TERMINATION UPON DEATH. The Term shall terminate on the
date of Employee's death, except that Employee's Base Salary shall be paid to
his estate for a period of one (1) year after the date of his death. If Employee
was entitled to receive any bonus, incentive or similar form of compensation
under any arrangement with the Company which was to be based upon a period
extending beyond the date of Employee's death, payment of a portion thereof,
equal to the amount which would have been payable for the full period in which
death occurs, multiplied by a fraction, the numerator of which is the number of
days in such period through the date of death and the denominator of which is
the total number of days in the full period, shall be made at the time it would
have been made in accordance with such arrangement.
5. Disability. If, during the Term, Employee shall, because of
physical or mental illness or incapacity, become totally unable to perform, or
in the judgment of the Company evidenced by a resolution adopted in good faith
by a majority of its Board of Directors unable adequately to perform, the duties
and services required of him pursuant to paragraph 2(a) for a period of one
- 5 -
<PAGE>
hundred eighty (180) consecutive days, the Company may, upon at least ninety
(90) days prior written notice given at any time after the expiration of such
one hundred eighty (180) day period to Employee of its intention to do so,
accelerate the end of the Term to such date as may be set forth in such notice;
provided, however, that the end of the Term shall not be accelerated and the
Term shall remain in full force and effect if Employee shall have resumed the
full-time performance of his duties hereunder prior to the effective date of
such proposed termination of the Term. In case of such acceleration of the end
of the Term, Employee shall be entitled to receive, and the Company agrees to
pay, his Base Salary for a period of one (1) year after the date of his
termination due to disability and a pro rata portion of the amount of any bonus,
incentive or similar form of compensation which he would have otherwise been
entitled to for the period in which the acceleration of the end of the Term
occurs.
6. CONFIDENTIAL INFORMATION. All confidential information
which Employee may now know or which hereby may become known to Employee
relating to the business of the Company or any customer or supplier of the
Company shall not be disclosed by Employee to any other person or entity either
during the Term or thereafter. Such confidential information shall be returned
to the Company upon termination of Employee's employment.
7. NON-COMPETITION.
(a) Employee agrees that during the Term and for
a period of one (1) year after the termination of his employment with the
Company, he will not (i) engage in or have any interest in any person, firm or
corporation which engages, directly or indirectly, in competition with the
Company or its subsidiaries or affiliates in the United States, in the sale of
products or services of the type in which Employee has been directly involved
during the Term in or have any interest in any person, firm or company which
engages, directly or indirectly, in competition with the Company
- 6 -
<PAGE>
or its subsidiaries or affiliates in the United States for the business of any
entity which was a customer of the Company or its subsidiaries or affiliates at
any time during the Term or (ii) solicit any employees of the Company or any of
its parents, subsidiaries or affiliates to leave their employ.
(b) For the purposes of this paragraph 7, Employee
will be deemed directly or indirectly engaged in a business if he participates
in such business as a proprietor, partner, joint venturer, shareholder,
director, officer, lender, manager, employee, consultant, adviser or agent or if
he in any way controls such business. Employee shall not for purposes of this
paragraph 7 be deemed a shareholder or lender if he holds less than one (1%) of
the outstanding securities of any class of any publicly- or privately-owned
corporation engaged in the same or similar business to that of the Company or
its subsidiaries or affiliates, provided that Employee shall not be in a control
position (individually or as part of a group) with regard to such corporation.
(c) In the event of a breach or threatened breach
by Employee of any of the provisions of this paragraph 7, the Company shall be
entitled, upon establishing the existence of such breach or threatened breach,
to an injunction to be issued by any tribunal of competent jurisdiction to
restrain Employee from committing or continuing any such violation. In any
proceeding for an injunction and upon any motion for temporary or permanent
injunction, Employee agrees that his ability to answer in damages shall not be a
bar or be interposed as a defense to the granting of such temporary or permanent
injunction against him. Employee acknowledges that the Company will not have an
adequate remedy at law in the event of any breach by him as aforesaid and that
the Company may suffer irreparable damage and injury in the event of such a
breach by him. Nothing contained herein shall be construed as prohibiting the
Company from pursuing any other remedy or remedies available to the Company,
including, without limitation, the recovery of damages from Employee.
- 7 -
<PAGE>
8. REPRESENTATION BY EMPLOYEE. Employee represents and warrants
that he has not entered into any other agreement or understanding which is
inconsistent with the execution of this Agreement or which in any way will
prevent full compliance by him with the terms of this Agreement.
9. ASSIGNABILITY. This Agreement may not be assigned by
Employee and all of its terms and conditions shall be binding upon and inure to
the benefit of Employee and his heirs and legal representatives and the Company
and its successors and assigns. Successors of the Company shall include, without
limitation, any corporation or corporations acquiring directly or indirectly all
or substantially all of the assets of the Company whether by merger,
consolidation, purchase, lease or otherwise and such successor shall thereafter
be deemed the "Company" for purposes hereof.
10. NOTICES. All notices, requests, demands and other
communications provided for hereby shall be in writing and shall be deemed to
have been duly given when delivered personally, sent by facsimile transmission
(with receipt confirmed) or two days after being sent by registered or certified
mail, return receipt requested, to the party entitled thereto at the address
first above written or to such changed address as the addressee may have given
by a similar notice.
11. MODIFICATION. This Agreement may be modified or amended
only by an instrument in writing signed by Employee and the Company and any
provision hereof may be waived only by an instrument in writing signed by the
party hereto against whom any such waiver is sought to be enforced.
12. SEVERABILITY. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision contained herein.
13. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
- 8 -
<PAGE>
14. CAPTIONS. The captioned headings here convenience of
reference only and are not intended to be construed to have any substantive
effect.
IN WITNESS WHEREOF, the parties hereto have this Agreement as
of the date first above written.
ALLOU HEALTH & BEAUTY CARE, INC.
By: /s/ DAVID SHAMILZADEH
----------------------------
Name: David Shamilzadeh
Title: SVP of Finance & CFO
/s/ VICTOR JACOBS
----------------------------
VICTOR JACOBS
- 9 -
EMPLOYMENT AGREEMENT
AGREEMENT made as of August 1, 1995 between ALLOU HEALTH &
BEAUTY CARE, INC., a Delaware corporation with offices at 50 Emjay Boulevard,
Brentwood, New York 11717 ("Company"), and HERMAN JACOBS, residing at 116
Rutledge Street, Brooklyn, New York 11211 ("Employee").
W I T N E S S E T H :
WHEREAS, Employee has been employed by the Company and has
rendered substantial services to the Company; and
WHEREAS, the Company believes that the contributions that have
been made and can continue to be made by Employee toward the success of the
business of the Company are valuable and wishes to retain the services of
Employee for its benefit; and
WHEREAS, the Company desires to continue to retain the service
of Employee as its President and Chief Operating Officer; and
WHEREAS, Employee is willing to continue as such upon the terms
and conditions herein set forth;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements herein contained, the Company and Employee agree
as follows:
1. TERM. The Company hereby employs Employee, and Employee
hereby accepts employment by the Company, on the terms and conditions herein
contained for a term commencing August 1, 1995 (the "Commencement Date") and
terminating on July 31, 1998 ("Original Term") unless sooner terminated as
herein provided (the "Term").
<PAGE>
2. EMPLOYMENT DUTIES.
(a) During the Term, Employee shall serve as the
President and Chief Operating Officer of the Company and Employee shall have
such responsibilities, powers and duties as are substantially consistent with
his present responsibilities, powers and duties. Employee shall be subject to
the reasonable direction of the Board of Directors of the Company. Employee
agrees that during the Term he will devote his full time and attention during
regular business hours to the business and affairs of the Company except during
vacation periods and periods of illness or incapacity. Notwithstanding the
foregoing and so long as his activities do not interfere with the performance of
his duties hereunder, Employee will be permitted to acquire, own or deal in
securities or other investments except that, without the prior written consent
of the Company's Board of Directors, Employee may not invest in any business
which has business relations or competes with the Company or any of its
subsidiaries or affiliates unless the securities of such business are listed on
a national securities exchange or traded in the over-the-counter market and the
interest of Employee does not exceed one (1%) percent of the outstanding
securities of any class of that business. In addition, nothing contained herein
shall prevent Employee from serving as a director or trustee of any corporation
or other organization, and in any other capacity with any non-commercial
enterprise, provided that such service does not materially interfere with the
performance of his duties hereunder and such business or organization does not
compete with the Company or any of its subsidiaries or affiliates.
(b) It is understood that, except for limited
business travel which shall be only such as is reasonably required for him to
perform his duties hereunder, Employee's duties under this paragraph 2 are
performed at the Company's principal executive office in Brentwood, New York.
39409-2
- 2 -
<PAGE>
3. COMPENSATION AND BENEFITS.
(a) For the full, prompt and faithful performance
of all of the duties and services to be performed by Employee hereunder, the
Company agrees to pay Employee a salary ("Base Salary") at the rate of Three
Hundred Thousand Dollars ($300,000) per year, payable in equal semi-monthly
installments or in such other manner as shall be mutually agreeable to Employee
and the Company. The Company's Board of Directors may, in its discretion, at any
time and from time to time, increase such Base Salary for Employee and grant
Employee other compensation, including bonuses, in addition to that provided for
hereunder. Employee's compensation shall be reviewed at least once each year.
Any increase in Base Salary or other compensation shall in no way limit or
reduce any other obligation of the Company under this Agreement.
(b) As additional compensation, Employee shall
receive a sum equal to: (i) three percent (3%) of the amount of any increase in
the Company's earnings before interest and taxes ("EBIT") (as hereinafter
defined) at the end of each fiscal year during the term of this Agreement as
compared to the EBIT for the prior fiscal year (an "Increase") for amounts of
such Increase up to $2,000,000; (ii) two percent (2%) of the amount of any
Increase that is greater than $2,000,000 but less than or equal to $3,000,000;
and (iii) one percent (1%) of the amount of any Increase exceeding $3,000,000.
For the purposes of this Agreement, "EBIT" shall be the annual earnings of the
Company for the fiscal year computed before any charges for interest expense and
any federal, state or other taxes relating to income, and shall be determined in
accordance with generally accepted accounting principles by the certified public
accountants regularly employed by the Company whose determination shall be
binding on the parties.
The computation of "EBIT" shall be made as soon as practicable
after the end of each fiscal year and may be paid in full after the end of each
fiscal year. If at the end of any fiscal year, the
39409-2
- 3 -
<PAGE>
Company's EBIT does not exceed the EBIT for the prior fiscal year, Employee
shall not receive any additional compensation as set forth in this section 3(b).
(c) In addition to the compensation provided for
herein, Employee shall be entitled to participate in any bonus, incentive
compensation, retirement, profit-sharing, medical payment, disability, health or
life insurance and other benefit arrangements which may be or become available
to executives of the Company.
(d) The Company agrees to grant to Employee as
of the Commencement Date, an option to purchase, for a period of ten (10) years
from the date of grant, an aggregate of One Hundred Thousand (100,000) shares of
the Company's authorized Class B Common Stock pursuant to the terms of the
Company's 1995 Stock Option Plan (the "Plan"), a copy of which shall be
delivered to Employee contemporaneously with the execution of this Agreement,
and any related stock option agreements required to be executed by optionees in
connection therewith. Such grant shall be subject to approval of the Plan by the
shareholders of the Company. All of such options shall become exercisable as to
one hundred percent (100%) of such shares on the earlier of the seventh
anniversary of the date hereof or as of end of any fiscal year in which the
Company's EBIT increases at least fifteen percent (15%) over the Company's EBIT
for the fiscal year ended March 31, 1995. Employee shall also be entitled to any
additional stock options or stock related rights or similar benefits which may
be granted to Employee by the Company.
(e) Throughout the Original Term, the Company
shall continue to provide Employee with life insurance with the beneficiary
thereof to be designated by Employee in an amount not less than that in effect
for Employee at the date hereof and shall pay all premiums due thereunder.
(f) Employee shall be entitled to reimbursement,
not less frequently than monthly, for expenses reasonably incurred by him in
furtherance of the business of the Company and
-4-
<PAGE>
in the performance of his duties hereunder, on an accountable basis with such
substantiation as the Company may at the time require from its senior executive
officers.
(g) During the Term, Employee shall be entitled
to continue to receive the fringe benefits and perquisites presently provided
for him by the Company. In order to enable Employee to most effectively perform
his duties hereunder, the Company will provide Employee with the use of an
automobile to be comparable and equivalent to the price category car presently
used by Employee, under a two-year replacement program, and payment of all
expenses associated therewith.
(h) Employee shall be entitled to four (4) weeks
of vacation in each twelve (12) month period during the Term, to be taken at
such times as may be mutually and reasonably agreed upon by the Company and
Employee.
4. TERMINATION UPON DEATH. The Term shall terminate on the
date of Employee's death, except that Employee's Base Salary shall be paid to
his estate for a period of one (1) year after the date of his death. If Employee
was entitled to receive any bonus, incentive or similar form of compensation
under any arrangement with the Company which was to be based upon a period
extending beyond the date of Employee's death, payment of a portion thereof,
equal to the amount which would have been payable for the full period in which
death occurs, multiplied by a fraction, the numerator of which is the number of
days in such period through the date of death and the denominator of which is
the total number of days in the full period, shall be made at the time it would
have been made in accordance with such arrangement.
5. DISABILITY. If, during the Term, Employee shall, because
of physical or mental illness or incapacity, become totally unable to perform,
or in the judgment of the Company evidenced by a resolution adopted in good
faith by a majority of its Board of Directors unable adequately to perform, the
duties and services required of him pursuant to paragraph 2(a) for a period of
one
-5-
<PAGE>
hundred eighty (180) consecutive days, the Company may, upon at least ninety
(90) days prior written notice given at any time after the expiration of such
one hundred eighty (180) day period to Employee of its intention to do so,
accelerate the end of the Term to such date as may be set forth in such notice;
provided, however, that the end of the Term shall not be accelerated and the
Term shall remain in full force and effect if Employee shall have resumed the
full-time performance of his duties hereunder prior to the effective date of
such proposed termination of the Term. In case of such acceleration of the end
of the Term, Employee shall be entitled to receive, and the Company agrees to
pay, his Base Salary for a period of one (1) year after the date of his
termination due to disability and a pro rata portion of the amount of any bonus,
incentive or similar form of compensation which he would have otherwise been
entitled to for the period in which the acceleration of the end of the Term
occurs.
6. CONFIDENTIAL INFORMATION. All confidential information
which Employee may now know or which hereby may become known to Employee
relating to the business of the Company or any customer or supplier of the
Company shall not be disclosed by Employee to any other person or entity either
during the Term or thereafter. Such confidential information shall be returned
to the Company upon termination of Employee's employment.
7. NON-COMPETITION.
(a) Employee agrees that during the Term and for
a period of one (1) year after the termination of his employment with the
Company, he will not (i) engage in or have any interest in any person, firm or
corporation which engages, directly or indirectly, in competition with the
Company or its subsidiaries or affiliates in the United States, in the sale of
products or services of the type in which Employee has been directly involved
during the Term in or have any interest in any person, firm or company which
engages, directly or indirectly, in competition with the Company
- 6 -
<PAGE>
or its subsidiaries or affiliates in the United States for the business of any
entity which was a customer of the Company or its subsidiaries or affiliates at
any time during the Term or (ii) solicit any employees of the Company or any of
its parents, subsidiaries or affiliates to leave their employ.
(b) For the purposes of this paragraph 7, Employee
will be deemed directly or indirectly engaged in a business if he participates
in such business as a proprietor, partner, joint venturer, shareholder,
director, officer, lender, manager, employee, consultant, adviser or agent or if
he in any way controls such business. Employee shall not for purposes of this
paragraph 7 be deemed a shareholder or lender if he holds less than one (1%) of
the outstanding securities of any class of any publicly- or privately-owned
corporation engaged in the same or similar business to that of the Company or
its subsidiaries or affiliates, provided that Employee shall not be in a control
position (individually or as part of a group) with regard to such corporation.
(c) In the event of a breach or threatened breach
by Employee of any of the provisions of this paragraph 7, the Company shall be
entitled, upon establishing the existence of such breach or threatened breach,
to an injunction to be issued by any tribunal of competent jurisdiction to
restrain Employee from committing or continuing any such violation. In any
proceeding for an injunction and upon any motion for temporary or permanent
injunction, Employee agrees that his ability to answer in damages shall not be a
bar or be interposed as a defense to the granting of such temporary or permanent
injunction against him. Employee acknowledges that the Company will not have an
adequate remedy at law in the event of any breach by him as aforesaid and that
the Company may suffer irreparable damage and injury in the event of such a
breach by him. Nothing contained herein shall be construed as prohibiting the
Company from pursuing any other remedy or remedies available to the Company,
including, without limitation, the recovery of damages from Employee.
- 7 -
<PAGE>
8. REPRESENTATION BY EMPLOYEE. Employee represents and
warrants that he has not entered into any other agreement or understanding which
is inconsistent with the execution of this Agreement or which in any way will
prevent full compliance by him with the terms of this Agreement.
9. ASSIGNABILITY. This Agreement may not be assigned by
Employee and all of its terms and conditions shall be binding upon and inure to
the benefit of Employee and his heirs and legal representatives and the Company
and its successors and assigns. Successors of the Company shall include, without
limitation, any corporation or corporations acquiring directly or indirectly all
or substantially all of the assets of the Company whether by merger,
consolidation, purchase, lease or otherwise and such successor shall thereafter
be deemed the "Company" for purposes hereof.
10. NOTICES. All notices, requests, demands and other
communications provided for hereby shall be in writing and shall be deemed to
have been duly given when delivered personally, sent by facsimile transmission
(with receipt confirmed) or two days after being sent by registered or certified
mail, return receipt requested, to the party entitled thereto at the address
first above written or to such changed address as the addressee may have given
by a similar notice.
11. MODIFICATION. This Agreement may be modified or amended
only by an instrument in writing signed by Employee and the Company and any
provision hereof may be waived only by an instrument in writing signed by the
party hereto against whom any such waiver is sought to be enforced.
12. SEVERABILITY. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision contained herein.
13. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
- 8 -
<PAGE>
14. CAPTIONS. The captioned headings here convenience of
reference only and are not intended to be construed to have any substantive
effect.
IN WITNESS WHEREOF, the parties hereto have this Agreement as
of the date first above written.
ALLOU HEALTH & BEAUTY CARE, INC.
By: /s/ DAVID SHAMILZADEH
----------------------------
Name: David Shamilzadeh
Title: SVP of Finance & CFO
/s/ HERMAN JACOBS
------------------------------
HERMAN JACOBS
- 9 -
EMPLOYMENT AGREEMENT
AGREEMENT made as of August 1, 1995 between ALLOU HEALTH &
BEAUTY CARE, INC., a Delaware corporation with offices at 50 Emjay Boulevard,
Brentwood, New York 11717 ("Company"), and JACK JACOBS, residing at 562 Bedford
Avenue, Brooklyn, New York 11211 ("Employee").
W I T N E S S E T H :
WHEREAS, Employee has been employed by the Company and has
rendered substantial services to the Company; and
WHEREAS, the Company believes that the contributions that have
been made and can continue to be made by Employee toward the success of the
business of the Company are valuable and wishes to retain the services of
Employee for its benefit; and
WHEREAS, the Company desires to continue to retain the services
of Employee as its Vice President of Purchasing and Secretary; and
WHEREAS, Employee is willing to continue as such upon the terms
and conditions herein set forth;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements herein contained, the Company and Employee agree
as follows:
1. TERM. The Company hereby employs Employee, and Employee
hereby accepts employment by the Company, on the terms and conditions herein
contained for a term commencing August 1, 1995 (the "Commencement Date") and
terminating on July 31, 1998 ("Original Term") unless sooner terminated as
herein provided (the "Term").
<PAGE>
2. EMPLOYMENT DUTIES.
(a) During the Term, Employee shall serve as the
Vice President of Purchasing and Secretary of the Company and Employee shall
have such responsibilities, powers and duties as are substantially consistent
with his present responsibilities, powers and duties. Employee shall be subject
to the reasonable direction of the Board of Directors of the Company. Employee
agrees that during the Term he will devote his full time and attention during
regular business hours to the business and affairs of the Company except during
vacation periods and periods of illness or incapacity. Notwithstanding the
foregoing and so long as his activities do not interfere with the performance of
his duties hereunder, Employee will be permitted to acquire, own or deal in
securities or other investments except that, without the prior written consent
of the Company's Board of Directors, Employee may not invest in any business
which has business relations or competes with the Company or any of its
subsidiaries or affiliates unless the securities of such business are listed on
a national securities exchange or traded in the over-the-counter market and the
interest of Employee does not exceed one (1%) percent of the outstanding
securities of any class of that business. In addition, nothing contained herein
shall prevent Employee from serving as a director or trustee of any corporation
or other organization, and in any other capacity with any non-commercial
enterprise, provided that such service does not materially interfere with the
performance of his duties hereunder and such business or organization does not
compete with the Company or any of its subsidiaries or affiliates.
(b) It is understood that, except for limited
business travel which shall be only such as is reasonably required for him to
perform his duties hereunder, Employee's duties under this paragraph 2 are
performed at the Company's principal executive office in Brentwood, New York.
- 2 -
<PAGE>
3. COMPENSATION AND BENEFITS.
(a) For the full, prompt and faithful performance
of all of the duties and services to be performed by Employee hereunder, the
Company agrees to pay Employee a salary ("Base Salary") at the rate of Three
Hundred Thousand Dollars ($300,000) per year, payable in equal semi-monthly
installments or in such other manner as shall be mutually agreeable to Employee
and the Company. The Company's Board of Directors may, in its discretion, at any
time and from time to time, increase such Base Salary for Employee and grant
Employee other compensation, including bonuses, in addition to that provided for
hereunder. Employee's compensation shall be reviewed at least once each year.
Any increase in Base Salary or other compensation shall in no way limit or
reduce any other obligation of the Company under this Agreement.
(b) As additional compensation, Employee shall
receive a sum equal to: (i) three percent (3%) of the amount of any increase in
the Company's earnings before interest and taxes ("EBIT") (as hereinafter
defined) at the end of each fiscal year during the term of this Agreement as
compared to the EBIT for the prior fiscal year (an "Increase") for amounts of
such Increase up to $2,000,000; (ii) two percent (2%) of the amount of any
Increase that is greater than $2,000,000 but less than or equal to $3,000,000;
and (iii) one percent (1%) of the amount of any Increase exceeding $3,000,000.
For the purposes of this Agreement, "EBIT" shall be the annual earnings of the
Company for the fiscal year computed before any charges for interest expense and
any federal, state or other taxes relating to income, and shall be determined in
accordance with generally accepted accounting principles by the certified public
accountants regularly employed by the Company whose determination shall be
binding on the parties.
The computation of "EBIT" shall be made as soon as practicable
after the end of each fiscal year and may be paid in full after the end of each
fiscal year. If at the end of any fiscal year, the
- 3 -
<PAGE>
Company's EBIT does not exceed the EBIT for the prior fiscal year, Employee
shall not receive any additional compensation as set forth in this section 3(b).
(c) In addition to the compensation provided for
herein, Employee shall be entitled to participate in any bonus, incentive
compensation, retirement, profit-sharing, medical payment, disability, health or
life insurance and other benefit arrangements which may be or become available
to executives of the Company.
(d) The Company agrees to grant to Employee as of
the Commencement Date, an option to purchase, for a period of ten (10) years
from the date of grant, an aggregate of One Hundred Thousand (100,000) shares of
the Company's authorized Class B Common Stock pursuant to the terms of the
Company's 1995 Stock Option Plan (the "Plan"), a copy of which shall be
delivered to Employee contemporaneously with the execution of this Agreement,
and any related stock option agreements required to be executed by optionees in
connection therewith. Such grant shall be subject to approval of the Plan by the
shareholders of the Company. All of such options shall become exercisable as to
one hundred percent (100%) of such shares on the earlier of the seventh
anniversary of the date hereof or as of end of any fiscal year in which the
Company's EBIT increases at least fifteen percent (15%) over the Company's EBIT
for the fiscal year ended March 31, 1995. Employee shall also be entitled to any
additional stock options or stock related rights or similar benefits which may
be granted to Employee by the Company.
(e) Throughout the Original Term, the Company
shall continue to provide Employee with life insurance with the beneficiary
thereof to be designated by Employee in an amount not less than that in effect
for Employee at the date hereof and shall pay all premiums due thereunder.
(f) Employee shall be entitled to reimbursement,
not less frequently than monthly, for expenses reasonably incurred by him in
furtherance of the business of the Company and
- 4 -
<PAGE>
in the performance of his duties hereunder, on an accountable basis with such
substantiation as the Company may at the time require from its senior executive
officers.
(g) During the Term, Employee shall be entitled
to continue to receive the fringe benefits and perquisites presently provided
for him by the Company. In order to enable Employee to most effectively perform
his duties hereunder, the Company will provide Employee with the use of an
automobile to be comparable and equivalent to the price category car presently
used by Employee, under a two-year replacement program, and payment of all
expenses associated therewith.
(h) Employee shall be entitled to four (4) weeks
of vacation in each twelve (12) month period during the Term, to be taken at
such times as may be mutually and reasonably agreed upon by the Company and
Employee.
4. TERMINATION UPON DEATH. The Term shall terminate on the
date of Employee's death, except that Employee's Base Salary shall be paid to
his estate for a period of one (1) year after the date of his death. If Employee
was entitled to receive any bonus, incentive or similar form of compensation
under any arrangement with the Company which was to be based upon a period
extending beyond the date of Employee's death, payment of a portion thereof,
equal to the amount which would have been payable for the full period in which
death occurs, multiplied by a fraction, the numerator of which is the number of
days in such period through the date of death and the denominator of which is
the total number of days in the full period, shall be made at the time it would
have been made in accordance with such arrangement.
5. DISABILITY. If, during the Term, Employee shall, because
of physical or mental illness or incapacity, become totally unable to perform,
or in the judgment of the Company evidenced by a resolution adopted in good
faith by a majority of its Board of Directors unable adequately to perform, the
duties and services required of him pursuant to paragraph 2(a) for a period of
one
- 5 -
<PAGE>
hundred eighty (180) consecutive days, the Company may, upon at least ninety
(90) days prior written notice given at any time after the expiration of such
one hundred eighty (180) day period to Employee of its intention to do so,
accelerate the end of the Term to such date as may be set forth in such notice;
provided, however, that the end of the Term shall not be accelerated and the
Term shall remain in full force and effect if Employee shall have resumed the
full-time performance of his duties hereunder prior to the effective date of
such proposed termination of the Term. In case of such acceleration of the end
of the Term, Employee shall be entitled to receive, and the Company agrees to
pay, his Base Salary for a period of one (1) year after the date of his
termination due to disability and a pro rata portion of the amount of any bonus,
incentive or similar form of compensation which he would have otherwise been
entitled to for the period in which the acceleration of the end of the Term
occurs.
6. CONFIDENTIAL INFORMATION. All confidential information
which Employee may now know or which hereby may become known to Employee
relating to the business of the Company or any customer or supplier of the
Company shall not be disclosed by Employee to any other person or entity either
during the Term or thereafter. Such confidential information shall be returned
to the Company upon termination of Employee's employment.
7. NON-COMPETITION.
(a) Employee agrees that during the Term and for
a period of one (1) year after the termination of his employment with the
Company, he will not (i) engage in or have any interest in any person, firm or
corporation which engages, directly or indirectly, in competition with the
Company or its subsidiaries or affiliates in the United States, in the sale of
products or services of the type in which Employee has been directly involved
during the Term in or have any interest in any person, firm or company which
engages, directly or indirectly, in competition with the Company
- 6 -
<PAGE>
or its subsidiaries or affiliates in the United States for the business of any
entity which was a customer of the Company or its subsidiaries or affiliates at
any time during the Term or (ii) solicit any employees of the Company or any of
its parents, subsidiaries or affiliates to leave their employ.
(b) For the purposes of this paragraph 7, Employee
will be deemed directly or indirectly engaged in a business if he participates
in such business as a proprietor, partner, joint venturer, shareholder,
director, officer, lender, manager, employee, consultant, adviser or agent or if
he in any way controls such business. Employee shall not for purposes of this
paragraph 7 be deemed a shareholder or lender if he holds less than one (1%) of
the outstanding securities of any class of any publicly- or privately-owned
corporation engaged in the same or similar business to that of the Company or
its subsidiaries or affiliates, provided that Employee shall not be in a control
position (individually or as part of a group) with regard to such corporation.
(c) In the event of a breach or threatened breach
by Employee of any of the provisions of this paragraph 7, the Company shall be
entitled, upon establishing the existence of such breach or threatened breach,
to an injunction to be issued by any tribunal of competent jurisdiction to
restrain Employee from committing or continuing any such violation. In any
proceeding for an injunction and upon any motion for temporary or permanent
injunction, Employee agrees that his ability to answer in damages shall not be a
bar or be interposed as a defense to the granting of such temporary or permanent
injunction against him. Employee acknowledges that the Company will not have an
adequate remedy at law in the event of any breach by him as aforesaid and that
the Company may suffer irreparable damage and injury in the event of such a
breach by him. Nothing contained herein shall be construed as prohibiting the
Company from pursuing any other remedy or remedies available to the Company,
including, without limitation, the recovery of damages from Employee.
- 7 -
<PAGE>
8. REPRESENTATION BY EMPLOYEE. Employee represents and warrants
that he has not entered into any other agreement or understanding which is
inconsistent with the execution of this Agreement or which in any way will
prevent full compliance by him with the terms of this Agreement.
9. ASSIGNABILITY. This Agreement may not be assigned by
Employee and all of its terms and conditions shall be binding upon and inure to
the benefit of Employee and his heirs and legal representatives and the Company
and its successors and assigns. Successors of the Company shall include, without
limitation, any corporation or corporations acquiring directly or indirectly all
or substantially all of the assets of the Company whether by merger,
consolidation, purchase, lease or otherwise and such successor shall thereafter
be deemed the "Company" for purposes hereof.
10. NOTICES. All notices, requests, demands and other
communications provided for hereby shall be in writing and shall be deemed to
have been duly given when delivered personally, sent by facsimile transmission
(with receipt confirmed) or two days after being sent by registered or certified
mail, return receipt requested, to the party entitled thereto at the address
first above written or to such changed address as the addressee may have given
by a similar notice.
11. MODIFICATION. This Agreement may be modified or amended
only by an instrument in writing signed by Employee and the Company and any
provision hereof may be waived only by an instrument in writing signed by the
party hereto against whom any such waiver is sought to be enforced.
12. SEVERABILITY. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision contained herein.
13. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
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14. CAPTIONS. The captioned headings here convenience of
reference only and are not intended to be construed to have any substantive
effect.
IN WITNESS WHEREOF, the parties hereto have this Agreement as
of the date first above written.
ALLOU HEALTH & BEAUTY CARE, INC.
By: /s/ DAVID SHAMILZADEH
----------------------------
Name: David Shamilzadeh
Title: SVP of Finance & CFO
/s/ JACK JACOBS
------------------------
JACK JACOBS
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SECOND RESTATED AND AMENDED
REVOLVING CREDIT AND SECURITY AGREEMENT
AMONG
THE FIRST NATIONAL BANK OF BOSTON,
IBJ SCHRODER BANK & TRUST COMPANY,
SANWA BUSINESS CREDIT CORPORATION,
LASALLE BUSINESS CREDIT, INC.,
THE BANK OF TOKYO - MITSUBISHI TRUST COMPANY,
ALLOU HEALTH & BEAUTY CARE, INC.
AND
ALLOU DISTRIBUTORS, INC.
Dated: June __, 1996
<PAGE>
TABLE OF CONTENTS
SECTION 1. DEFINITIONS,
SECTION 2. BORROWER'S LOAN ACCOUNT; REVOLVING LOANS.
2.1 LOANS
2.2 LOAN ACCOUNT
2.3 PAYMENT
2.4 LETTERS OF CREDIT
2.5 INTEREST ON REVOLVING LOANS
2.6 EURODOLLAR INTEREST RATE OPTION
2.7 OVERADVANCES
2.8 FEES
SECTION 3. REPRESENTATIONS AND WARRANTIES
3.1 ORGANIZATION AND QUALIFICATION
3.2 CORPORATE AUTHORITY
3.3 VALID OBLIGATIONS
3.4 APPROVALS
3.5 TITLE TO PROPERTIES; ABSENCE OF LIENS
3.6 COMPLIANCE
3.7 FINANCIAL STATEMENTS
3.8 SOLVENCY
3.9 EVENTS OF DEFAULT
3.10 TAXES
3.11 LITIGATION
3.12 MARGIN RULES
3.13 RESTRICTIONS ON THE BORROWERS
3.14 ERISA
3.15 INTELLECTUAL PROPERTY; TRADENAMES
3.16 ENVIRONMENTAL AND REGULATORY COMPLIANCE
3.17 EMPLOYMENT CONTRACTS
SECTION 4. CONDITIONS OF LOANS
4.1 CONDITIONS OF INITIAL LOANS
4.2 CONDITIONS TO ALL REVOLVING LOANS
4.3 CONDITIONS TO RESTATEMENT AND AMENDMENT
4.4 EVIDENCE OF TAX GOOD STANDING
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SECTION 5. COVENANTS.
5.1 FINANCIAL REPORTING
5.2 CONDUCT OF BUSINESS
5.3 MAINTENANCE AND INSURANCE
5.4 TAXES
5.5 LIMITATION OF INDEBTEDNESS
5.6 GUARANTIES
5.7 RESTRICTIONS ON LIENS
5.8 MERGER, ACQUISITIONS AND PURCHASE AND SALE OF
ASSETS
5.9 INVESTMENTS AND LOANS
5.10 CAPITAL EXPENDITURES
5.11 SALE OF NOTES
5.12 DIVIDENDS, ETC.
5.13 ERISA COMPLIANCE
5.14 PENSION PLANS
5.15 NOTIFICATION OF DEFAULT
5.16 NOTIFICATION OF MATERIAL LITIGATION
5.17 NOTIFICATION OF MATERIAL ADVERSE CHANGE
5.18 INSPECTION BY THE AGENT
5.19 MAINTENANCE OF BOOKS AND RECORDS
5.20 USE OF PROCEEDS
5.21 TRANSACTIONS WITH AFFILIATES
5.22 ENVIRONMENTAL REGULATIONS
5.23 FISCAL YEAR
5.24 LOSS OR DEPRECIATION OF COLLATERAL
5.25 CONSOLIDATED TANGIBLE NET WORTH
5.26 INTEREST COVERAGE
5.27 QUICK RATIO
5.28 LEVERAGE
5.29 JOINT AND SEVERAL LIABILITY
5.30 INTEREST RATE PROTECTION
SECTION 6 SECURITY.
6.1 SECURITY INTEREST
6.2 NO OTHER LIENS
6.3 LOCATION OF RECORDS AND COLLATERAL
6.4 STATUS OF COLLATERAL
6.5 NAME CHANGE
6.6 COLLECTION OF ACCOUNTS RECEIVABLE
SECTION 7. EVENTS OF DEFAULT; ACCELERATION
SECTION 8. SET OFF; PARTICIPATIONS
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SECTION 9. CONCERNING THE AGENT AND THE BANKS
9.1 APPOINTMENT AND AUTHORIZATION
-----------------------------
9.2 AGENT AND AFFILIATES
--------------------
9.3 FUTURE ADVANCES
---------------
9.4 PAYMENTS
--------
9.5 INTEREST, FEES AND OTHER PAYMENTS
---------------------------------
9.6 ACTION BY AGENT
---------------
9.7 CONSULTATION WITH EXPERTS
-------------------------
9.8 LIABILITY OF AGENT
------------------
9.9 INDEMNIFICATION
---------------
9.10 INDEPENDENT CREDIT DECISION
---------------------------
9.11 CONSENTS OF ALL LENDERS
-----------------------
9.12 SUCCESSOR AGENT
---------------
9.13 AGENT'S MINIMUM REVOLVING CREDIT COMMITMENT
-------------------------------------------
SECTION 10. MISCELLANEOUS
-------------
10.1 WRITTEN NOTICES
---------------
10.2 TERM OF AGREEMENT
-----------------
10.3 NO WAIVERS
----------
10.4 FURTHER ASSURANCES
------------------
10.5 GOVERNING LAW
-------------
10.6 PAYMENTS IN IMMEDIATELY AVAILABLE FUNDS
---------------------------------------
10.7 EXPENSES, TAXES AND INDEMNIFICATION
-----------------------------------
10.8 AMENDMENTS, WAIVERS, ETC.
------------------------
10.9 BINDING EFFECT OF AGREEMENT
---------------------------
10.10 COMPUTATION OF INTEREST AND FEES
--------------------------------
10.11 ENTIRE AGREEMENT
----------------
10.12 WAIVER OF JURY TRIAL
--------------------
10.13 CAPTIONS
--------
10.14 COUNTERPARTS
------------
10.15 SEVERABILITY
------------
EXHIBIT A SECOND RESTATED AND AMENDED REVOLVING CREDIT NOTE
EXHIBIT B DISCLOSURE
EXHIBIT C EXISTING INDEBTEDNESS
EXHIBIT D CLOSING CERTIFICATE
EXHIBIT E CERTIFICATE OF CHIEF FINANCIAL OFFICERS
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SECOND RESTATED AND AMENDED
REVOLVING CREDIT AND SECURITY AGREEMENT
THIS SECOND RESTATED AND AMENDED REVOLVING CREDIT AND SECURITY
AGREEMENT is made as of June __, 1996, among ALLOU HEALTH & BEAUTY CARE, INC.
(the "Parent"), a Delaware corporation having its principal place of business
and a chief executive office at 50 Emjay Boulevard, Brentwood, New York 11717;
ALLOU DISTRIBUTORS, INC. ("Distributors"), a New York corporation having its
principal place of business and chief executive office at 50 Emjay Boulevard,
Brentwood, New York 11717; THE FIRST NATIONAL BANK OF BOSTON ("BKB"), a national
bank with its head office at 100 Federal Street, Boston, Massachusetts 02110;
IBJ SCHRODER BANK & TRUST COMPANY ("IBJS"), One State Street, Attention: Middle
Market Division, New York, New York 10004; SANWA BUSINESS CREDIT CORPORATION
("SBC"), 500 Glenpointe Center W., Teaneck, NJ 07666; LASALLE BUSINESS CREDIT,
INC. ("LBC"), 477 Madison Avenue, 20th Floor, New York, New York 10022; THE BANK
OF TOKYO - MITSUBISHI TRUST COMPANY ("BOT"), Metropolitan Banking Division, 1251
Avenue of the Americas, New York, New York 10116-3138; and BKB as agent for the
Lenders (the "Agent"). The Parent and
Distributors are hereafter referred to individually as a "Borrower" and
collectively (also with Subsidiaries executing and delivering the Subsidiary
Tie-In Agreement from time to time) as the "Borrowers". BKB, IBJS, SBC, LBC and
BOT are hereafter referred to collectively as the "Lenders".
Reference is made to the following facts:
A. The Borrowers and certain of the Lenders have previously executed
and delivered that certain Revolving Credit and Security Agreement, dated
December 10, 1991, as amended and restated by the Restated and Amended Revolving
Credit and Security Agreement, dated as May 9, 1994, as further amended as of
August 24, 1994, March 23, 1995, August 7, 1995, October 2, 1995, February 27,
1996 and March 12, 1996 (as so amended, the "Prior Loan Agreement");
B. The Borrowers have requested that the Prior Loan Agreement be
further amended to increase the Maximum Amount hereunder to $105,000,000, to
reflect the withdrawal of Bank Hapoalim B.M. as one of the Lenders, to extend
the Maturity Date, and to make certain other changes to the Prior Loan
Agreement; and
C. The Borrowers and the Lenders have deemed it advisable to
consolidate all of the prior amendments to the Prior Loan Agreement, and the
amendments to be effected hereby, by restating and amending the Loan Agreement
as set forth in this Second Restated and Amended Revolving Credit and Security
Agreement (hereinafter, as previously amended, and as amended hereby, the "Loan
Agreement").
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SECTION 1. DEFINITIONS. As used herein, the following terms shall have the
following meanings:
1.1 "Account" and "Account Receivable" include all rights to payment
for goods sold or leased or for services rendered, all sums of money or other
proceeds due or becoming due thereon, all instruments pertaining thereto, all
guaranties and security therefor, and all goods giving rise thereto and the
rights pertaining to such goods, including the right of stoppage in transit, and
all related insurance.
1.2 "Affiliate" means, with reference to any Person, (i) any
director, officer or employee of that Person, (ii) any other Person controlling,
controlled by or under direct or indirect common control of that Person, (iii)
any other Person directly or indirectly holding 5% or more of any class of the
capital stock or other equity interests (including options, warrants,
convertible securities and similar rights) of that Person and (iv) any other
Person 5% or more of any class of whose capital stock or other equity interests
(including options, warrants, convertible securities and similar rights) is held
directly or indirectly by that Person. For purposes of Sections 3.14, 5.13 and
5.14 hereof, "Affiliate" shall mean, within the meaning of Section 414(b), (c),
(m) or (o) of the Code, (i) any member of a controlled group of corporations
which includes any of the Borrowers, (ii) any trade or business, whether or not
incorporated, under common control with any of the Borrowers, (iii) any member
of an affiliated service group which includes any of the Borrowers, and (iv) any
member of a group including any of the Borrowers treated as a single employer by
regulation.
1.3 "Agent" shall mean BKB acting in the capacity of agent for the
Lenders under this Agreement, and includes (where the context so admits) any
other Person or Persons succeeding to the functions of the Agent hereunder.
1.4 "Base Accounts" shall mean the aggregate Accounts Receivable of
the Borrowers as to which the Agent has a perfected first security interest as
agent for and on behalf of the Lenders and the Borrowers have furnished to the
Agent information as required by Section 5.1 (viii) and (ix). If and when a Base
Account exists by virtue of constituting proceeds of Base Inventory, the
Inventory giving rise to the Base Account automatically loses its status as Base
Inventory.
1.5 "Base Inventory" shall mean Inventory (other than "California
Base Inventory" as defined below) consisting solely of national brand name
products, as to which any of the Borrowers has acquired title, the Agent has
acquired a perfected first security interest as agent for and on behalf of the
Lenders and the Borrowers have furnished to the Agent information as required by
Section 5.1 (viii) and (ix), but shall not include any Inventory consisting of
Allou label goods, or any goods, merchandise or other personal property owned by
any other Person and held by any of the Borrowers on consignment or otherwise.
Inventory immediately loses the status of Base Inventory if and when one of the
Borrowers sells it, otherwise passes title thereto or consumes it or the Agent
releases or transfers its security interest therein.
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1.6 "Base Rate" shall mean the greater of (i) that rate of interest
announced from time to time by BKB at its head office as its Base Rate, and (ii)
the rate of interest equal to the sum of (A) 150 basis points and (B) the rate
of interest equal to the average of the rates on overnight federal funds
transactions with members of the Federal Reserve System arranged by federal
funds brokers (the "Overnight Rates"), as published by the Federal Reserve Bank
of New York or, if the overnight Rates are not so published for any day, the
average of the quotations for the Overnight Rates received by the Agent from
three federal funds brokers of recognized standing selected by the Agent, as the
same may be changed from time to time.
1.7 "Borrowers" or "Borrower" shall mean the Parent and Distributors
jointly and severally, and on a consolidated and individual basis as the context
may require in the sole judgment of the Agent, with any Subsidiary either
executing and delivering to the Lenders and the Agent a Subsidiary Tie-In
Agreement pursuant to the terms of Section 4.1.1 hereof or hereafter becoming a
party to such Subsidiary Tie-In Agreement.
1.8 "Borrowers' Accountants" shall mean independent certified public
accountants reasonably acceptable to the Agent. The Agent hereby acknowledges
that the Borrowers' Accountants currently may include Mayer Rispler and Company.
1.9 "Borrowing Base" shall mean an amount equal to the sum of (x) the
Borrowing Base Percentage of the Net Outstanding Amount of Base Accounts, and
(y) the Borrowing Base Percentage of the Net Security Value of Base Inventory
(provided that for purposes of this clause (y), the amount determined by such
percentage shall not exceed $47,500,000). Whenever the Borrowing Base is used as
a measure of loans it shall be computed as of, and the loans referred to shall
be those reflected in the Loan Account at, the time in question.
1.10 "Borrowing Base Percentage of the Net Outstanding Amount of Base
Accounts" shall mean (i) 85% of the Net Outstanding Amount of Base Accounts with
respect to Base Accounts other than California Base Accounts, and (ii) 75% of
the Net Outstanding Amount of Base Accounts with respect to California Base
Accounts; provided, however, in the event that, and for so long as, the
percentage of the Borrowers' Base Accounts remaining past due for more than
thirty (30) days from their original due date exceeds fifteen (15) percent of
the Borrowers' Base Accounts, the Borrowing Base Percentage of the Net
Outstanding Amount of Base Accounts with respect to Base Accounts other than
California Base Accounts shall be reduced from 85% to 80%.
1.11 "Borrowing Base Percentage of the Net Security Value of Base
Inventory" shall mean (i) 60% of the Net Security Value of Base Inventory with
respect to Base Inventory, and (ii) 50% of the Net Security Value of Base
Inventory with respect to California Base Inventory; provided, however, in the
event that, and for so long as, the Borrowers' collective Inventory Turn Average
equals or is less than 3.0 as reflected in quarterly financial statements
provided by the Borrowers to the Lenders in accordance
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<PAGE>
with the terms of Section 5.1 of this Agreement, the Borrowing Base Percentage
of the Net Security Value of Base Inventory with respect to Base Inventory shall
be reduced from 60% to 50%.
1.12 "Business" shall mean the assets of and the existing business
now operated by the Borrowers as wholesale distributor of brand name and private
label health and beauty aid products, cosmetics and fragrances, non-narcotic
prescription drugs, nonperishable sundries consisting of items typically sold in
pharmacies or convenience stores, and non-perishable packaged food items.
1.13 "Business Day" shall mean any day other than a Saturday, Sunday
or Jewish holiday, on which the head office of the Agent is open for
transactions of all of its
normal and customary business, it being recognized that a Business Day relating
to interest calculated or a portion of the Loan payable by reference to the
Eurodollar Rate shall be any such day, other than a Saturday, Sunday or Jewish
Holiday, on which dealings are carried on in the Eurodollar interbank market and
dollar settlements of such dealings may be effected in New York, New York.
1.14 "California Base Accounts" shall mean Base Accounts of any of
the Borrowers who have informed the Agent that its principal place of business
is located in Saugus, California. California Base Accounts shall exclude any
Accounts that do not constitute typical trade accounts in the ordinary course of
the Borrowers' business, including among such Accounts to be so excluded
Accounts due from "Foothill Capital" and "Byron Moldo."
1.15 "California Base Inventory" shall mean Inventory consisting
solely of raw materials, generic chemicals and finished goods, as to which any
of the Borrowers, who have informed the Agent that its principal place of
business is in Saugus, California, has acquired title which are located at such
Borrowers' facilities in Saugus, California, and as to which the Agent has
acquired a perfected first security interest as Agent for and on behalf of the
Lenders and the Borrowers have furnished to the Agent information as required by
Section 5.1(viii) and (ix), but shall not include any Inventory consisting of
work-in-process, bottles, packaging and discontinued goods, or any goods,
merchandise or other personal property owned by any other Persons and held by
any of such Borrowers on consignment or otherwise. Inventory immediately loses
the status of California Base Inventory if and when one of the Borrowers sells
it, or otherwise passes title thereto or consumes it or the Agent releases or
transfers its security interests therein.
1.16 "Capital Expenditures" shall mean any expenditure for fixed
assets, leasehold improvements, capital leases under GAAP, installment purchases
of machinery and equipment, acquisitions of real estate and other similar
expenditures including expenditures in the construction in progress account of
the Borrowers.
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1.17 "Cash Equivalents" shall mean for the Borrowers on a consolidated basis the
aggregate amount of cash and cash equivalents, as determined in accordance with
GAAP, plus the then Net Outstanding Amount of Base Accounts.
1.18 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.19 "Collateral" shall mean any and all real and personal property
of the Borrowers, whether tangible or intangible, in which the Agent now has, is
granted by this Agreement or otherwise, or hereafter acquires a security
interest or any other lien (including, without limitation, by way of mortgage,
pledge or assignment) to secure the Obligations.
1.20 "Commitment Percentage" shall mean in relation to each Lender
the percentage set forth opposite its name below:
LENDER PERCENTAGE
BKB 33.3333333%
SBC 25.7142857%
IBJS 13.3333333%
LBC 19.0476191%
BOT 8.5714285%
------------
100%
1.21 "Consolidated Tangible Net Worth" shall mean the amount which is
equal to the consolidated net worth of the Borrowers, computed in accordance
with GAAP and with Inventory and cost of goods sold determined on the average
cost basis consistent with the method of inventory valuation used in the
preparation of the Initial Financial Statement, minus (i) to the extent not
otherwise approved in advance by the Agent, any write-up in the book value of
any asset of the Borrowers or any Subsidiary resulting from revaluation thereof
after the date of the Initial Financial Statement, (ii) the book value, net of
applicable reserves, of all intangible assets of the Borrowers and any
Subsidiaries, including, without limitation, goodwill, trademarks, trade names,
copyrights, patents and any similar rights, and unamortized debt discount and
expense, (iii) the value, if any, attributable to any capital stock of the
Borrowers or any Subsidiary held in treasury, (iv) the value, if any,
attributable to any notes or subscriptions receivable due from stockholders in
respect of capital stock, and (v) intercompany accounts with Subsidiaries and
Affiliates (including receivables due from any Subsidiaries and Affiliates).
1.22 "Credit Notes" shall have the meanings set forth in Section 2.1
hereof.
1.23 "Current Assets" shall mean the current assets of the Borrowers
as determined in accordance with GAAP.
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1.24 "Current Liabilities" shall mean the aggregate amount of
Indebtedness of the Borrowers which may properly be classified as current
liabilities in accordance with GAAP and in any event including, without
limitation, the portion of any direct or indirect Indebtedness and other
liabilities of the Borrowers which are payable on demand, within one year from
the creation thereof or within one year from the date as of which any such
calculation of Current Liabilities is made.
1.25 "Disclosure Letter" shall mean that certain letter of even date
herewith from the Borrowers to the Agent and the Lenders disclosing information
as contemplated by the terms of this Agreement.
1.26 "EBIT" for any period shall mean an amount equal to Net Income
for such period, (a) plus the following, to the extent deducted in computing
such Net Income: (i) interest on Indebtedness for borrowed money and (ii) taxes;
and (b) minus, to the extent added in computing such Net Income, all
extraordinary items net of any tax effect caused by such items (to the extent
not already reflected in clause (a)(ii) above).
1.27 "Encumbrances" shall have the meaning set forth in Section 5.7
hereof.
1.28 "ERISA" shall have the meaning set forth in Section 3.14 hereof.
1.29 "Eurodollar Rate" means, with respect to any Interest Period, in
the case of any Euroloan Rate Amount, the annual rate of interest determined by
the Agent, at or before 11:00 a.m. (Boston time) (or as soon thereafter as
practicable) on the second Business Day prior to the first day of such Interest
Period, to be the annual rate of interest at which deposits of U.S. dollars are
offered to the Agent by prime banks in whatever Eurodollar interbank market may
be selected by the Agent in its sole discretion, acting in good faith, at or
about the time of determination and in accordance with the usual practice in
such market for delivery on the first day of such Interest Period in immediately
available funds and having a maturity equal to such Interest Period in an amount
equal (as nearly as may be) to such Euroloan Rate Amount. Each such
determination by the Agent shall be conclusive absent manifest computational
error.
1.30 "Euroloan Rate" shall have the meaning set. forth in Section
2.6(i) hereof.
1.31 "Euroloan Rate Amount" means, in relation to any Interest
Period, any portions of the principal amount of any Revolving Loans on which the
Borrowers elect pursuant to Section 2.6(i) hereof to pay interest at a rate
determined by reference to the Euroloan Rate.
1.32 "Event of Default" shall have the meaning set forth in Section
7.1 hereof.
1.33 "GAAP" shall mean generally accepted accounting principles
consistently applied.
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1.34 "Guarantors" shall have the meaning set forth in Section 4.3 hereof.
1.35 "Indebtedness" with respect to any Person shall mean and
include, without duplication, (i) all items which, in accordance with GAAP,
would be included as a liability on the balance sheet of such Person, but
excluding anything in the nature of capital stock, surplus capital and retained
earnings, (ii) the face amount of all banker's acceptances and of all letters of
credit issued by any bank for the account of such Person and all drafts drawn
thereunder, (iii) the total amount of all indebtedness secured by any
Encumbrances to which any property or asset of such Person is subject, whether
or not the indebtedness secured thereby shall have been assumed, and (iv) the
total amount of all indebtedness and obligations of others which such Person has
directly or indirectly guaranteed, endorsed (otherwise than for collection or
deposit in the ordinary course of business), discounted with recourse or agreed
(contingently or otherwise) to purchase or repurchase or otherwise acquire,
including, without limitation, any agreement (a) to advance or supply funds to
such other Person to maintain working capital, equity capital, net worth or
solvency, or (b) otherwise to assure or hold harmless such other Person against
loss in respect of its obligations.
1.36 "Initial Financial Statement" shall have the meaning set forth
in Section 3.7 hereof.
1.37 "Insolvent" or "Insolvency" shall mean that there shall have
occurred one or more of the following events with respect to a Person:
dissolution; termination of existence; insolvency within the meaning of the
United States Bankruptcy Code or other applicable statute; such Person's
inability to pay its debts as they come due; appointment of a receiver of any
part of the property of, execution of a trust mortgage or an assignment for the
benefit of creditors by, or the filing of a petition in bankruptcy or the
commencement of any proceedings under any bankruptcy or insolvency laws, or any
laws relating to the relief of debtors, readjustment of indebtedness or
reorganization of debtors, or the offering of a plan to creditors for
composition or extension, except for any such involuntary proceeding commenced
against such Person which is dismissed within 60 days after the commencement
thereof without the entry of an order for relief or the appointment of a
trustee.
1.38 "Interest Period" means, any period relating to a Euroloan Rate
Amount, the commencement and duration of which shall be determined in accordance
with Section 2.6 hereof.
1.39 "Inventory" shall mean goods, merchandise and other personal
property, now owned or hereafter acquired by any of the Borrowers, which are
held for sale or lease
or are furnished or to be furnished under a contract of service or are raw
materials, work in process or materials used or consumed or to be used or
consumed in the business of any of the Borrowers.
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1.40 "Inventory Turn Average" shall mean the Borrowers' aggregate cost of goods
sold on a consolidated basis for the 12 month period ending at a particular
point in time divided by the value of the Borrowers' aggregate Inventory on a
consolidated basis as reflected on the Borrowers' consolidated balance sheet as
at such point in time, all determined in accordance with GAAP.
1.41 "Jewish Holiday" shall mean any of the Jewish holidays specified
on EXHIBIT B.
1.42 "Leases" shall mean any agreement granting any of the Borrowers
the right to occupy space in a structure or real estate for any period of time
or any capital lease or other lease of or agreement to use personal property
including, but not limited to, machinery, equipment, furniture and fixtures,
whether evidenced by written or oral lease, contract, sales agreement or other
agreement no matter how characterized.
1.43 "Lease Financing Facility" shall mean the Master Lease Finance
Agreement dated as of April 24, 1996, and Equipment Schedule No. 1 thereto,
between Distributors and BancBoston Leasing Inc., related lease documents and
the transactions contemplated thereby.
1.44 "Letters of Credit" shall mean letters of credit issued at sight
or at time (including documentary bankers acceptances) in the form customarily
issued by the Agent as standby or documentary or commercial letters of credit,
issued by the Agent at the request of any of the Borrowers and for the account
of any of the Borrowers.
1.45 "Loan" and "Loans" shall mean the Revolving Loans, as defined in
Section
2.1.
1.46 "Loan Account" shall mean the account on the books of the Agent
in which will be recorded Revolving Loans and overadvances, if any, made by each
of the Lenders to the Borrowers pursuant to this Agreement, payments made on
such Loans and Overadvances, if any, and other appropriate debits and credits as
provided by this Agreement.
1.47 "Machinery and Equipment" shall mean any tangible personal
property
which is not Inventory.
1.48 "Maturity Date" shall mean the earlier of (a) September 30,
1999, or in the event that such date is not a Business Day, the Maturity Date
shall mean the first Business Day immediately following September 30, 1999, or
(b) as such Maturity Date may be otherwise accelerated under the terms of
Section 7.1 hereof.
1.49 "Maximum Amount" shall mean $105,000,000.00.
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1.50 "Net Income" shall mean the consolidated gross revenues of the
Borrowers, for the period in question, less all expenses and other proper
charges (including taxes on income), all determined in accordance with GAAP, and
with inventory and cost of goods sold determined on the average cost basis
consistent with the method of inventory valuation used in the preparation of the
Initial Financial Statement, but in any event , excluding from Net Income: (i)
any gain or loss arising from any write-up of assets, except the extent
inclusion thereof shall be approved in writing by the Agent; (ii) earnings of
any Subsidiary (other than a Borrower), or of any business entity (other than a
Subsidiary) in which any of the Borrowers has an ownership interest, except to
the extent such net earnings shall have actually been received by the Borrowers
in the form of cash distributions; (iii) any gains or losses on the sale or
other disposition of investments or fixed or capital assets, any taxes on any
such excluded gains, and tax deductions or credits on account of any such
excluded losses (iv) the proceeds of any life insurance policy; (v) any deferred
or other credit representing any excess of the equity of any Subsidiary at the
date of acquisition thereof over the amount invested in such Subsidiary; and
(vi) any reversal of any contingency reserve, except to the extent that
provision for such contingency reserve shall be made from income arising during
such period; and (vii) except to the extent already deducted from gross revenues
in the calculation of Net Income, all salaries, bonuses, dividends or any other
payments or compensation of any kind paid or distributed to any employees and/or
Affiliates of the Borrowers.
1.51 "Net Outstanding Amount of Base Accounts" shall mean the net
amount of Base Accounts (including without limitation California Base Accounts)
outstanding after (a) eliminating from the aggregate amount of outstanding Base
Accounts such Accounts, past due under the original terms of sale or unpaid more
than 60 days after original due date or, if subject to specific dating programs
approved by the Agent, eliminating from the aggregate amount of outstanding Base
Accounts such Accounts more than 150 days after the original invoice date; and
(b) deducting from the aggregate face amount of the remaining Base Accounts (i)
Accounts owing from Affiliates; (ii) all Accounts owing from any account debtor
in the event that 20% or more of the Accounts due from such account debtor to
any of the Borrower are more than 30 days past due after the original due date,
if subject to specific dating programs approved by the Agent, more than 120 days
after the original invoice date; and (iii) all payments, adjustments, and
credits applicable thereto and all amounts due thereon considered by the Agent
to be difficult to collect or uncollectible by reason of return, rejection,
repossession, loss or damage of or to the merchandise giving rise thereto, a
merchandise or other dispute, insolvency of the account debtor or any other
reason; all as determined by the Agent in its discretion, which determination
shall be final and binding upon the Borrowers absent manifest error.
1.52 "Net Security Value of Base Inventory" shall mean the net value
of Base Inventory and California Base Inventory, calculated at the lesser of
fair market value or cost determined on the average cost basis consistent with
the method of inventory valuation used in the preparation of the Initial
Financial Statement, after subtracting the value of any Base Inventory and
California Base Inventory which is damaged or defective and after taking into
account charges and liens, other than those of the Agent, of all kinds
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against the Base Inventory and California Base Inventory, changes in the market
value thereof, and transportation, processing and other handling charges
affecting the value thereof, all as determined by the Agent in its sole and
unrestricted discretion, which determination shall be final and binding upon the
Borrowers absent manifest computational error.
1.53 "Obligations" shall mean any and all obligations of any of the
Borrowers to the Agent or to any of the Lenders of every kind and description,
direct or indirect, absolute or contingent, primary or secondary, due or to
become due, now existing or hereafter arising, regardless of how they arise or
by what agreement or instrument they may be evidenced or whether evidenced by
any agreement or instrument, and includes obligations to perform acts and to
refrain from acting as well as obligations to pay money.
1.54 "Operating Cash Flow" shall mean for any fiscal period an amount
equal to (i) Net Income for such period, (ii) plus interest, taxes and all
depreciation, amortization and other non-cash charges taken in accordance with
GAAP and deducted in computing Net Income for such periods, (iii) minus taxes
actually paid during such periods, and, (iv) minus Capital Expenditures made
during such period.
1.55 "Overadvance" and "Overadvances" shall have the meanings set
forth in
Section 2.7 hereof.
1.56 "Overadvance Guaranty" shall have the meaning set forth in
Section 4.1.1 hereof.
1.57 "Parent" shall mean Allou Health & Beauty Care, Inc., a Delaware
corporation of which Distributors is a wholly-owned subsidiary.
1.58 "Pension Plan" and "Pension Plans" shall have the meanings set
forth in Section 3.14 hereof.
1.59 "Person" includes an individual, a company, a corporation, an
association, a partnership, a joint venture, and unincorporated trade or
business enterprise, a trust, and estate, or a government (national, regional or
local) or an agency, instrumentality or official thereof.
1.60 "PBGC" shall have the meaning set forth in Section 3.14 hereof.
1.61 "Plan" and "Plans" shall in Section 3.14 hereof.
1.62 "Prohibited Transactions" shall have the meaning set forth in
Section 3.14 hereof.
1.63 "Reserve Charge" means, for each day on which any Euroloan Rate
Amount is outstanding, a reserve charge in an amount equal to the product of:
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(i) the outstanding principal amount of the Euroloan Rate
Amount, multiplied by
(ii) (a) the Eurodollar Rate (expressed as a decimal)
divided by one minus the Reserve Rate, minus (b) the
Eurodollar Rate (expressed as a decimal),
multiplied by
(iii) 1/360.
1.64 "Reserve Rate" means the rate in effect from time to time,
expressed as a decimal, at which each Lender would be required to maintain
reserves under Regulation D of the Board of Governors of the Federal Reserve
System (or any successor or similar regulation relating to such reserve
requirements) against its respective Commitment Percentage of "Eurocurrency
Liabilities" (as such term is used in such Regulation Date) if such liabilities
were outstanding.
1.65 "Revolving Credit Commitment" shall mean, in relation to each of
the Lenders, the maximum amount of Revolving Loans that such Lender shall be
committed to make to the Borrowers upon the terms and subject to the conditions
contained in this Agreement, which amount shall be equal to the product of the
Maximum Amount times such Lender's Commitment Percentage (i.e. for BKB:
$105,000,000 x 33.3333333% = $35,000,000; for SBC: $105,000,000 x
25.7142857%=$27,000,000; for IBJS:
$105,000,000 x 13.3333333% = $14,000,000; for LBC
$105,000,000 x 19.0476191% = $20,000,000 and for BOT: $105,000,000 x
8.5714285% = $9,000,000.
1.66 "Revolving Loan" shall have the meaning set forth in Section 2.1
hereof.
1.67 "Subsidiary" shall mean, with reference to any Person, any
corporation, association, joint stock company, business trust or other similar
organization of whose total capital stock or voting stock such Person directly
or indirectly owns or controls more than 50% thereof or any partnership or other
entity in which such Person directly or indirectly has more than a 50% interest
or which is controlled directly or indirectly by such Person.
1.68 "Subsidiary Tie-In Agreement" shall mean the Subsidiary Tie-In
Agreement, as originally executed and delivered on December 10, 1991 and as
amended from time to time, referred to in Section 4.1.1 hereof. Such Subsidiary
Tie-In Agreement may be amended from time to time to add additional Borrowers or
otherwise.
1.69 "Total Interest" shall mean for any fiscal period an aggregate
amount equal to all expenses incurred, accrued or actually paid by any of the
Borrowers constituting
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interest expense, as determined in accordance with GAAP, plus payments included
in any rental payments under equipment leases constituting implicit interest
payments not otherwise included in such interest expense under GAAP.
1.70 "Total Liabilities" shall mean all of the liabilities of the
Borrowers as determined in accordance with GAAP.
1.71 "Working Capital" shall mean an amount for the Borrowers,
determined in accordance with GAAP, equal to the excess of Current Assets over
Current Liabilities.
For purposes of this Agreement, except as otherwise expressly
provided herein or unless the context otherwise requires:
(i) references to any Person defined in this Section 1 refer to such
Person and its successor in title and assigns or (as the case may be) his
successors, assigns, heirs, executors, administrators and other legal
representatives;
(ii) references to this Agreement refer to such document as
originally executed, or if subsequently varied or supplemented from time to
time, as so varied or supplemented and in effect at that relevant time of
reference thereof;
(iii) words importing the singular only shall include the plural and
vice versa, and words importing the masculine gender shall include the feminine
gender and vice versa, and all references to dollars shall be to United States
Dollars; and
(iv) accounting terms not otherwise defined in this Agreement or any
of the other documents, instruments or agreements executed and delivered in
connection herewith or contemplated hereby shall have the meanings assigned to
them in accordance with GAAP.
SECTION 2. BORROWERS' LOAN ACCOUNT; REVOLVING LOANS.
2.1 LOANS. Upon the terms and subject to the conditions of this
Agreement, and in reliance upon the representations, warranties and covenants of
the Borrowers made herein, each of the Lenders severally agrees to make loans
(excluding Overadvances) ("Revolving Loans") to the Borrowers at the Borrowers'
request from time to time, from and after the date hereof and prior to the
Maturity Date up to a maximum aggregate principal amount outstanding (after
giving effect to all amounts requested) at any one time equal to such Lender's
Revolving Credit Commitment; PROVIDED that the aggregate principal amount of
Revolving Loans outstanding at any time plus the aggregate face amount of
Letters of Credit outstanding at such time shall not exceed the lesser of (i)
the Maximum Amount and (ii) the Borrowing Base at such time, and PROVIDED,
further, that at the time the Borrowers request a Revolving Loan and after
giving effect to the making thereof there has not occurred and is not continuing
an Event of Default or any event which, with the giving of notice or the passage
of time, or both, would constitute an Event
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of Default. The Revolving Loans shall be made pro rata in accordance with each
Lender's Commitment Percentage in accordance with the terms of this Agreement,
including, without limitation Section 9 hereof. Except as otherwise permitted
under Section 2.7 hereof for certain Overadvances, the Borrowers jointly and
severally agree that it shall be a payment Event of Default under Section 7.1(i)
hereof, without notice or demand of any kind, if at any time the aggregate debit
balance of the Loan Account plus the aggregate face amount of Letters of Credit
outstanding at such time shall exceed the lesser of (i) the Maximum Amount and
(ii) the Borrowing Base, unless the Borrowers shall, upon demand by the Agent,
promptly pay cash to the Agent to be credited to the Loan Account in such amount
as shall be necessary to eliminate the excess. All requests for Revolving Loans
shall be in such form and shall be made in such manner as is consistent with the
Agent's customary practices. The Revolving Loans shall be evidenced by Second
Restated And Amended Revolving Credit Notes (collectively, the "Credit Notes")
in the form of EXHIBIT A attached hereto.
2.2 LOAN ACCOUNT. The Agent shall enter Revolving Loans and
Overadvances as debits in the Loan Account for each of the Lenders. The Agent
shall also record in the Loan Account all payments made by the Borrowers on
account of Revolving Loans and Overadvances, and may also record therein, in
accordance with customary accounting practices, other debits and credits,
including customary banking charges and all interest, fees, charges and expenses
chargeable to the Borrowers under this Agreement. The debit balance of the Loan
Account shall reflect the aggregate amount of the Borrowers' Obligations to the
Lenders from time to time by reason of Revolving Loans and Overadvances and
other appropriate charges hereunder. At least once each month the Agent shall
render a statement of account showing as of its date the debit balance of the
Loan Account for each of the Lenders and in the aggregate which, unless within
thirty (30) days of such date notice to the contrary is received by the Agent
from the Borrowers or any Lender, shall be considered correct and accepted by
the Borrowers and the Lenders and conclusively binding upon them absent manifest
error.
2.3 PAYMENT. Subject to the terms of Section 2.6 and 2.8.3 hereof the
Borrowers may prepay outstanding Revolving Loans, Overadvances and the
Obligations evidenced by the Credit Notes in whole or in part at any time
without premium or penalty. Amounts so paid and other amounts may be borrowed
and reborrowed from time to time as provided in Section 2.1. On the Maturity
Date, the Borrowers shall repay to the Agent all outstanding Revolving Loans,
Overadvances and the Credit Notes, together with all unpaid interest thereon and
all fees and other amounts due hereunder. All of the other indebtedness
evidenced by the Credit Notes, shall, if not sooner paid, also be absolutely due
and payable on the Maturity Date. In the case of any partial payment of the
Credit Notes, the total amount of such partial payment shall be allocable among
the Credit Notes, subject to adjustment as provided in Section 9.4 hereof, pro
rata in accordance with the Commitment Percentage of each of the Lenders.
2.4 LETTERS OF CREDIT. Upon the terms and subject to the conditions
of this Agreement, and in reliance upon the representations, warranties and
covenants of the
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Borrowers made herein, the Agent agrees to issue, as agent for and under the
joint responsibilities of the Lenders, to the extent permitted by law or the
Uniform Customs Practices of the International Chamber of Commerce governing
Letters of Credit (Publication No. 400 or any successor thereto), Letters of
Credit upon the application of the Borrowers during the period from the date
hereof to the Maturity Date; provide that the aggregate principal amount of
Letters of Credit outstanding for the account of the Borrowers at any time shall
not (i) exceed $7,500,000, or (ii) cause the aggregate debit balance in the Loan
Account at such time plus the aggregate face amount of Letters of Credit then
outstanding to exceed the lesser of the Maximum Amount or the Borrowing Base
(subject to the terms of Section 2.7 hereof); and provided, further that at the
time the Borrowers request the issuance of a Letter of Credit and after giving
effect to the issuance thereof, there has not occurred and is not continuing any
Event of Default or any event which, with the giving of notice or the passage of
time, or both, would constitute an Event of Default. All Letters of Credit shall
expire not later than the Maturity Date. Without limiting the foregoing, if any
Letter of Credit would by its terms expire after the Maturity Date, the
Borrowers shall, on the Maturity Date, cause another letter of credit issued by
another bank to be substituted therefor or cause another bank satisfactory to
the Agent to indemnify the Agent for the benefit of the Lenders to its
satisfaction against any and all liabilities and obligations in respect to such
Letter of Credit and, in such event, this Agreement shall continue in full force
and effect until all of the Obligations under any such Letters of Credit have
been paid in full to the Agent for the account of the Lenders.
Amounts drawn under the Letters of Credit shall become immediately
due and payable, jointly and severally, by the Borrowers to the Agent and, if
not paid in accordance with the terms of any such Letter of Credit, shall be
added to the Loan Account as Revolving Loans as of the date funds are advanced
under such Letter of Credit and shall be immediately due and payable upon the
maturity of the Credit Notes.
In order to evidence such Letters of Credit, each of the Borrowers
shall enter into, with the Agent, such agreements and execute such instruments
and document as the Agent customarily requires in like transactions, including,
but not limited to, a letter of credit application and agreement. The Borrowers
hereby acknowledge and agree that each of their presidents, vice presidents and
chief financial officers is authorized to sign applications for the issuance of
Letters of Credit and that the execution and submission thereof to the Agent by
any such officer for the account of any of the Borrowers shall be for the
benefit and liability hereunder of each of the Borrowers.
2.5 INTEREST ON REVOLVING LOANS. Subject to the terms of Section 2.6
hereof, the Revolving Loans shall bear interest at a rate per annum equal to
.375% above the Base Rate in effect from time to time; PROVIDED that if any Loan
or any portion thereof is not paid when due, so long as any overdue amount
remains unpaid, then the unpaid balance of such Loan shall bear interest, in
lieu of interest otherwise payable, to the extent permitted by law, compounded
monthly at an interest rate equal to 4% above the Base Rate in effect from time
to time after such Loan or any portion thereof becomes overdue. Interest on
Loans based on the Base Rate shall be payable, jointly and severally, by the
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Borrowers to the Agent monthly in arrears on the first Business Day of each
month. Any change in the Base Rate shall result in a change on the same day in
the rate of interest to accrue from and after such day on the unpaid balance of
principal of the Loans. Interest accruing on the unpaid balance of Loans from
time to time shall be calculated an the basis of a 360-day year for the actual
number of days elapsed.
2.6 EURODOLLAR INTEREST RATE OPTION.
(i) At the option of the Borrowers, so long as no Event of Default
has occurred and is then continuing and no event which, with the giving of
notice or the passage of time, or both, would constitute an Event of Default has
occurred and is then continuing, the Borrowers may elect from time to time prior
to three months before the Maturity Date to have all or a portion of the unpaid
principal amount of any Revolving Loan bear interest during any particular
Interest Period at the Euroloan Rate (as hereinafter defined); PROVIDED that:
(i) the number of any such portions with respect to which such an election has
been made remaining outstanding at any point in time does not exceed three, and
(ii) any such portion of any Revolving Credit Loan shall be in an amount not
less than $5,000,000 or some greater integral multiple of $500,000 with respect
to any single Interest Period. Any election by the Borrowers to have interest
calculated at the Euroloan Rate shall be made by notice (which shall be
irrevocable) to the Agent at least three (3) Business Days prior to the first
day of the proposed Interest Period, specifying the Euroloan Rate Amount and the
duration of the proposed Interest Period (which must be for one, two or three
full months). Any such election of a Euroloan Rate shall lapse at the end of the
expiring Interest Period unless extended by a further election notice as
hereinbefore provided. Each Euroloan Rate Amount shall bear interest during each
Interest Period relating thereto at an annual rate (the "Euroloan Rate") equal
to the Eurodollar Rate plus 2.00%. Interest on each Euroloan Rate Amount shall
be payable on the last day of each Interest Period relating thereto.
(ii) The Borrowers shall jointly and severally pay to the Agent the
Reserve Charge, if any, with respect to Euroloan Rate Amounts of the Revolving
Loans outstanding from time to time on the dates interest is payable on such
Euroloan Rate Amounts.
(iii) The Agent shall forthwith upon determining any Euroloan Rate
provide notice thereof to the Borrowers. Each such notice shall be conclusive
and binding upon the Borrowers absent manifest computational error.
(iv) If, with respect to any Interest Period, the Agent is unable to
determine the Euroloan Rate relating thereto, or adverse or unusual conditions
in or changes in applicable law relating to the applicable Eurodollar interbank
market make it illegal or, in the reasonable judgment of the Agent,
impracticable, to fund therein the Euroloan Rate Amount or make the projected
Euroloan Rate unreflective of the actual costs of funds therefor to the Agent,
or if it shall become unlawful for the Agent to charge interest on the Loan on a
Euroloan Rate basis, then in any of the foregoing events the Agent shall so
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notify the Borrowers and interest will be calculated and payable in respect of
such projected Interest Period (and thereafter for so long as the conditions
referred to in this sentence shall continue) by reference to the Base Rate in
accordance with Section 2.5 hereof.
(v) No Interest Period may be selected by the Borrowers for any
Euroloan Rate Amount which ends beyond the Maturity Date. If any Interest Period
would otherwise end on a day which is not a Business Day for Euroloan Rate
purposes, that Interest Period shall end on the Business Day next preceding or
next succeeding such day as determined by the Agent in accordance with its usual
practices and notified to the Borrowers at the beginning of such Interest
Period.
(vi) If for any reason any payment or prepayment of principal of a
Euroloan Rate Amount is made on any day prior to the last day of an Interest
Period, then the Borrowers shall reimburse the Agent for the loss, if any,
computed pursuant to the following formula:
L = (R-T) X P X D + RC
360
L = amount of loss to be reimbursed to the Agent.
R = the Euroloan Rate at the time of the payment.
T = effective interest rate in which United States
Treasury bills maturing on the last day of the
then current Interest Period and in the same
amount as the unpaid principal amount of the Loan
can be purchased by the Agent on the day of such
payment of principal.
D = the number of days remaining in the Interest
Period as of the date of such payment.
P = the amount of principal paid.
RC = the Reserve Charge due through the date of payment.
The Borrowers shall pay to the Agent the amount of loss, computed in accordance
with the foregoing formula, upon presentation by the Agent of a statement
setting forth the Agent's calculation of the amount of such loss, which notice
shall be conclusive and binding upon the Borrowers absent manifest computational
error.
2.7 OVERADVANCES.
(i) The Borrowers may request of the Agent in writing from time to
time that the Lenders make loans to the Borrowers at a time, or the Agent may
permit loans, when
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the debit balance in the Loan Account plus the aggregate face amount of Letters
of Credit outstanding exceeds the Borrowing Base or which loans will cause the
debit balance in the Loan Account plus the aggregate face amount of Letters of
Credit outstanding to exceed the Borrowing Base under any of the following
circumstances: (a) the Borrowers have identified an opportunity to make a
special one-time purchase of inventory in bulk in the Borrowers' existing line
of business; (b) the Borrowers will be closed for business on account of one of
the Jewish Holidays; or (c) the Agent permits such loans to be incurred for
purposes of administrative convenience. Any such written notice from the
Borrowers to the Agent as contemplated by clauses (a) and (b) of the immediately
preceding sentence shall set forth the dollar amount of such contemplated
overadvance, and (y) in the case of such a notice for an overadvance described
in such clause (a), such notice shall be provided to the Agent at least five (5)
Business Days prior to the Borrower's intended borrowing creating the
overadvances, and (z) in the case of such a notice for an overadvance described
in such clause (b), such notice shall be provided to the Agent at least thirty
(30) days prior to the commencement of such Jewish Holiday. The Agent, as agent
for and on behalf of the Lenders, shall consider any such request pursuant to
such clauses (a) and (b) and may determine to make such loan or loans pursuant
to such clauses (a) or (b), or clause (c) of the first sentence of this
paragraph, in its sole and unrestricted discretion. Any such overadvances shall
be made for the debit account of each of the Lenders and the Lenders shall
reimburse the Agent for the making of any such loan as though such loan were a
Loan duly made in accordance with the terms of this Agreement (any such loan or
loans being herein referred to individually as an "Overadvance" and collectively
as "Overadvances"). The Agent shall enter such Overadvances, along with all
interest, expenses and charges relating thereto, as debits in the Loan Account.
All Overadvances shall bear interest at a rate per annum equal to 1.50% above
the Base Rate in effect from time to time provided that if any Overadvance or
any portion thereof is not paid when due, then the unpaid balance of such
overadvance shall bear interest, in lieu of interest otherwise payable, to the
extent permitted by law, compounded monthly at an interest rate equal to 4%
above the Base Rate in effect from time to time after such overadvance or any
portion thereof becomes overdue. Interest on Overadvances shall be payable by
the Borrowers, to the Agent for the account of the Lenders at such time as the
Overadvance becomes due and payable in full. Any change in the Base Rate shall
result in a change on the same day in the rate of interest to accrue from and
after such date on the unpaid balance of principal of any Overadvance. Interest
accruing on the unpaid balance of overadvances from time to time shall be
calculated on the basis of a 360-day year for the actual number of days elapsed.
(ii) Although it will be within the discretion of the Agent to
approve or reject requests from the Borrowers for Overadvances under this
Agreement, and Overadvances shall otherwise only be permitted as contemplated
hereby, in no event shall: (a) the aggregate amount of Overadvances pursuant to
clauses (a), (b) and (c) of Section 2.7(i) at any one time outstanding exceed
the maximum aggregated amount of $6,500,000; (b) Overadvances pursuant to
Section 2.7(i)(a) at any one time outstanding exceed the maximum aggregated
amount of $6,500,000; (c) Overadvances pursuant to Section 2.7(i)(b) at any one
time outstanding exceed $2,500,000; (d) Overadvances pursuant to
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Section 2.7(i)(c) at any one time outstanding exceed $1,000,000; (e) the debit
balance in the Loan Account at any one time outstanding exceed the Maximum
Amount minus the aggregate face amount of Letters of Credit outstanding; (f) any
Overadvance made pursuant to Sections 2.7(i)(a) and (b) remain unpaid in whole
or in part thirty (30) Business Days following the date on which such
Overadvance is made; (g) any Overadvance made pursuant to Section 2.7(i)(c)
remain unpaid in whole or in part greater than two Business Days following the
date on which such Overadvance is made or occurs; (h) Overadvances be
outstanding for more than 120 days during any 12 consecutive calendar months;
and (i) any Overadvance be made at such time as there exists an Event of Default
or an event that with the passage of time, the giving of notice, or both, will
become an Event of Default. Failure of the Borrowers to maintain any of the
foregoing conditions shall constitute a payment Event of Default pursuant to
Section 7.1(i), and shall be deemed to be a failure to perform an obligation
hereunder.
2.8 FEES.
2.8.1 The Borrowers shall pay to the Agent for the benefit of the
Lenders pro rata in proportion to their respective Commitment Percentages a
commitment fee, computed on the average daily debit balance in the Loan Account
for the prior month and payable monthly in arrears on the first Business Day of
each month, equal to 1/48 of 1% of the excess of (i) the Maximum Amount at the
time over (ii) the principal amount of Revolving Loans outstanding from time to
time.
2.8.2 The Borrowers shall pay to the Agent for the benefit of the
Lenders in proportion to their respective Commitment Percentages for issuance of
Letters of Credit a fee quarterly in arrears that is either (i) a fee equal to
the greater of 1 1/2% per annum of the face amount of each standby Letter of
Credit or such minimum fee for each such Letter of Credit as may be generally in
effect from time to time, or (ii) a fee equal to the greater of 1/4% of the face
amount of each sight documentary Letter of Credit or such minimum fee for each
such Letter of Credit as may be generally in effect from time to time, or (iii)
a fee equal to the greater of 1 1/2% per annum of the face amount of each time
documentary Letter of Credit or such minimum fee for each such Letter of Credit
as may be generally in effect from time to time; plus such fees and charges as
are customarily charged by the Agent.
2.8.3 If prepayment and termination of the Revolving Loans, the
Credit Notes and this Agreement are made, utilizing any funds for such
prepayment other than funds internally generated by the operation of the
Business prior to such prepayment and termination (and other than in the event
the Agent requests that the Borrowers make any such prepayment to any of the
Lenders), on or prior to (i) September 30, 1997, the Borrowers shall pay to the
Agent for the account of the Lenders (pro rata in proportion to their respective
Commitment Percentages) 3/4 of 1% of the Maximum Amount; and (ii) September 30,
1998, and after September 30, 1997, the Borrowers shall pay to the Agent for the
account of the Lenders (pro rata in proportion to their respective Commitment
Percentages) 1/2 of 1% of the Maximum Amount.
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2.8.4 The Borrowers shall pay to the Agent any and all charges
customarily made by the Agent against Borrowers.
2.8.5 If after the date hereof, the Agent or any of the Lenders shall
have determined that the adoption of any applicable law, rule, regulation,
guideline, directive or request (whether or not having the force of law)
regarding capital requirements for banks or bank holding companies, or any
change therein, or any change in the interpretation or administration thereof by
any governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by the Agent or any of
the Lenders with any of the foregoing effective after the date hereof, imposes
or increases a requirement by the Agent or any of the Lenders to allocate
capital resources to the Lenders' commitment to make Loans or issue and maintain
Letters of Credit hereunder which has or would have the effect of reducing the
return on the Agent's or such Lender's capital to a level below that which the
Agent or such Lender could have achieved (taking into consideration the Agent's
or such Lender's then existing policies with respect to capital adequacy and
assuming full utilization of the Agent's or such Lender's capital) but for such
adoption, change or compliance by any amount deemed by the Agent to be material,
then: (i) the Agent shall promptly after its determination of such occurrence
give notice thereof to the Borrowers; and (ii) the Borrowers shall pay to the
Agent, for the benefit of such Lender bearing such reduced return as an
additional fee from time to time within thirty (30) days after the Borrowers
receive written notice thereof such amount as the Agent or such Lender certifies
to be the amount that will compensate it for such reduction. A certificate of
the Agent or such Lender claiming compensation under this Section shall be
conclusive absent manifest computational error. Such certificate shall set forth
in reasonable detail 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,
the Agent and each Lender may use any reasonable averaging and attribution
methods. In lieu of the payments provided for in clause (ii) of this Section,
the Borrowers may, within 120 days of the Agent's notice pursuant to clause (i)
of this Section, prepay such Lender all Obligations then accruing to such Lender
and terminate all of such Lender's rights and obligations pursuant to this
Agreement without payment of any fee pursuant to Section 2.8.3 hereof, if
applicable, on account of such prepayment. In the event of any such prepayment,
the Maximum Amount shall be reduced by the amount of such Lender's Revolving
Credit Commitment or an additional bank satisfactory to the Borrowers and the
Agents may be included as a Lender hereunder.
2.8.6 Anything hereinbefore to the contrary notwithstanding, if any
future applicable law or any future amendment to any present applicable law
(which expression, as used in this Agreement, includes statutes and rules and
regulations thereunder and interpretations thereof by any competent court or by
any governmental or other regulatory body or official charged with the
administration or the interpretation thereof and requests, directives,
instructions and notices at any time or from time to time heretofore or
hereafter made upon or otherwise issued to the Agent or any Lender by any
central bank or other
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fiscal, monetary or other authority, whether or not having the force of law)
becoming effective after the date hereof shall (i) subject the Agent or any
Lender to any tax, levy, impost, duty, charge, fee, deduction or withholding of
any nature with respect to this Agreement, the Maximum Amount of the Revolving
Loans or the payment to the Agent or such Lender of any amounts due to it
hereunder, or (ii) materially change the basis of taxation of payments to the
Agent or such Lender of the principal or the interest on or any other amounts
payable to the Agent or such Lender hereunder, or (iii) impose or increase or
render applicable any special or supplemental special deposit or reserve or
similar requirements or assessment against assets held by, or deposits in or for
the account of, or any liabilities of, or loans by an office of the Agent or any
Lender in respect of the transactions contemplated herein, or (iv) impose on the
Agent or any Lender any other conditions or requirements with respect to this
Agreement, the Maximum Amount or any Loan, and the result of any of the
foregoing is (A) to increase the cost to the Agent or such Lender of making,
funding or maintaining all or any part of the Loans, or (B) to reduce the amount
of principal, interest or other amount payable to the Agent or such Lender
hereunder, or (C) to require the Agent or such Lender to make any payment or to
forego any interest or other sum payable hereunder, the amount of which payment
or foregoing interest or other sum is calculated by reference to the gross
amount of any sum receivable or deemed received by the Asset or such Lender from
the Borrowers hereunder, then, and in each such case not otherwise provided for
hereunder, the Borrowers will, within thirty (30) days after receipt of written
notice from the Agent accompanied by calculations thereof in reasonable detail,
pay to the Agent or such Lender such additional amounts as will be sufficient to
compensate the Agent or such Lender for such additional cost, reduction, payment
or foregoing interest or other sum, provided that the foregoing provisions of
this sentence shall not apply in the case of any additional cost, reduction,
payment or foregoing interest or other sum resulting from any taxes charged upon
or by reference to the overall net income, profits or gains of the Agent or any
Lender.
2.8.7 The Borrowers authorize the Agent to charge to the Loan Account
or to any deposit account which any of the Borrowers may maintain with the Agent
or any Lender the interest, fees, charges, taxes and expenses provided for in
this Agreement or any other document executed or delivered in connection
herewith and any payments due to the Agent in respect of Letters of Credit.
SECTION 3. REPRESENTATIONS AND WARRANTIES.
Each of the Borrowers jointly and severally represents, warrants and
covenants, as to itself and as to each of the other Borrowers, individually and
on a consolidated basis as the context may require, to the Agent and the Lenders
as follows:
3.1 ORGANIZATION AND QUALIFICATION. Each of the Borrowers (i) is a
corporation duly organized, validly existing and in good standing under the laws
of the State of its incorporation as indicated on EXHIBIT B attached hereto;
(ii) has all requisite corporate power and authority to own its property and
conduct its business as now conducted and as presently contemplated; (iii) is
duly qualified and in good standing in each jurisdiction
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(which jurisdictions are listed on EXHIBIT B attached hereto) where the nature
of its properties or its business (present or proposed) requires such
qualification, except where the failure to do so would not have a materially
adverse effect on the business, properties or condition (financial or otherwise)
of such Borrower individually or all of the Borrowers taken as a whole; and (iv)
has no Subsidiaries other than those listed in the Disclosure Letter.
3.2 CORPORATE AUTHORITY. The execution, delivery and performance of
this Agreement and the Credit Notes and the transactions and other documents
contemplated hereby and thereby (including the granting of the security interest
hereunder) are within each Borrower's corporate authority, have been authorized
by all necessary corporate proceedings on the part of each Borrower, and do not
and will not contravene any provision of law, or any provision of each
Borrower's charter document or its by-laws, or contravene any provisions of, or
constitute an Event of Default hereunder or a default under, or an event which
with the lapse of time or the giving of notice, or both, would constitute an
Event of Default hereunder or a default under any other material agreement,
instrument, judgment, order, decree, permit, license or undertaking binding upon
or applicable to the Borrowers or any of their properties, or result in the
creation, other than in favor of the Agent, of any mortgage, pledge, security
interest, lien, encumbrance or charge upon any of the properties or assets of
the Borrowers.
3.3 VALID OBLIGATIONS. This Agreement and all of its terms and
provisions (including the security interest granted hereunder) are, and the
Obligations of the Borrowers under each of the Credit Notes, when each Credit
Note is duly executed and delivered for value, will be, legal, valid and binding
Obligations of each of the Borrowers enforceable in accordance with their terms,
subject to bankruptcy, insolvency and similar laws affecting creditors' rights
in general and the availability of equitable remedies.
3.4 APPROVALS. The execution, delivery and performance of this
Agreement and the Credit Notes and the transactions and other documents
contemplated hereby and thereby do not require any approval or consent of, or
filing or registration with, any governmental or other agency or authority or
any other Person, except as disclosed on EXHIBIT B attached hereto.
3.5 TITLE TO PROPERTIES; ABSENCE OF LIENS. As of the date of this
Agreement, the Borrowers have good and marketable title to all of their
respective properties, assets and rights of every name and nature now purported
to be owned by it, including without limitation the Collateral, the Business and
the properties, assets and rights reflected in the Initial Financial Statement,
in each case free from all liens, charges and encumbrances whatsoever except as
set forth in the Disclosure Letter. All real property owned or leased by the
Borrowers is described in EXHIBIT B.
3.6 COMPLIANCE. The Borrowers have all necessary permits, approvals,
authorizations, consents, licenses, franchises, registrations and other rights
and privileges (including patents, trademarks, trade names and copyrights) to
allow it to own and operate
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their business without any violation of law or the rights of others; and the
Borrowers are duly authorized, qualified and licensed under and in compliance
with all applicable laws, regulations, authorizations and orders of public
authorities.
3.7 FINANCIAL STATEMENTS. The Borrowers have furnished to the Agent
the audited consolidated and unaudited consolidating balance sheet and statement
of income of the Business as at March 31, 1995 and December 31, 1995 and for the
12 month periods then ended separating out the Parent and its Subsidiaries on
the one hand from Distributors and its Subsidiaries on the other hand (the
"Initial Financial Statement"), which was prepared in accordance with GAAP,
certified (as to the audited statements) by Mayer Rispler and Company and fairly
presents the financial position of the Business with respect to its assets and
liabilities as at the close of business on such date and the results of
operations for the 12 month period then ended. The Borrowers have also furnished
to the Agent projections, dated on or about February 19, 1996, of the Borrowers'
future results of operations on a consolidated basis for five fiscal years,
which represent the Borrowers' good faith estimates as of the date thereof and
as of the date hereof based upon the assumptions stated therein which assumption
the Borrowers believe were and continue to be fair, reasonable and proper in
light of current and reasonably foreseeable business conditions. At the date
hereof, none of the Borrowers have any Indebtedness or other liabilities, debts
or obligations, whether accrued, absolute, contingent or otherwise, and whether
due or to become due, including, but not limited to, liabilities or obligations
on account of taxes or other governmental charges, that are not set forth on
EXHIBIT C attached hereto. Since the Initial Financial Statement there have been
no changes in the assets, liabilities, financial condition or business of the
Borrowers or the Business the effect of which has, individually or in the
aggregate, been materially adverse, except as set forth on EXHIBIT B attached
hereto.
3.8 SOLVENCY. Each of the Borrowers has and, after giving effect to
the Loans, will have, assets (both tangible and intangible) having a fair
saleable value in excess of the amount required to pay the probable liability on
its then-existing debts (whether matured or unmatured, liquidated or
unliquidated, fixed or contingent); each of the Borrowers has and will have
access to adequate capital for the conduct of its business and the discharge of
its debts incurred in connection therewith as such debts mature; none of the
Borrowers was Insolvent immediately prior to the consummation of the Loans and
immediately after giving effect thereto none of the Borrowers will be Insolvent.
3.9 EVENTS OF DEFAULT. As of the date of this Agreement, no Event of
Default exists, and no event or condition exists which with the passage of time
or the giving of notice, or both, would constitute an Event of Default.
3.10 TAXES. Each of the Borrowers and their respective Subsidiaries,
if any, have filed all federal, state and other tax returns required to be
filed, and all taxes, assessments and other such governmental charges due from
such Person have been fully paid, except those being contested in good faith
legal proceedings and with respect to which adequate reserves have been
established, are being maintained and are fully
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reflected in such Person's financial statements. Neither any Borrower nor any
Subsidiary has executed any waiver that would have the effect of extending the
applicable statute of limitations in respect of tax liabilities. Each of the
Borrower's and their respective Subsidiaries, if any, have established on their
books reserves adequate for the payment of all federal, state and other tax
liabilities.
3.11 LITIGATION. Except as set forth on EXHIBIT B attached hereto,
there is no litigation, proceeding or governmental investigation, administrative
or judicial, pending or threatened against, the Borrowers, any Subsidiary or the
Business which, if decided adversely to any of Borrowers or a Subsidiary might
have a materially adverse effect on the business, properties or condition
(whether financial or otherwise) of such Person individually, the Borrowers
taken as a whole, Subsidiaries or the Business or on the ability of such Person
or Persons to perform its or their obligations hereunder, under the Credit Notes
or under any other agreement or document contemplated hereby.
3.12 MARGIN RULES. No portion of any Loan is to be used for the
purpose of purchasing or carrying any "margin security" or "margin stock" as
such terms are used in Regulations G, T, U or X of the Board of Governors of the
Federal Reserve System.
3.13 RESTRICTIONS ON THE BORROWERS. None of the Borrowers is party to
or bound by any contract, agreement or instrument, or subject to any charter or
other corporate restriction, materially and adversely affecting its business,
property, assets, operations or conditions, financial or otherwise.
3.14 ERISA. (i) Each "Employee Pension Benefit Plan" (as such term is
defined in Section 3 of the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations thereunder ("ERISA")) now or heretofore
maintained by any of the Borrowers or any Affiliate (individually the "Pension
Plan" and collectively the "Pension Plans") and any "Employee Welfare Benefit
Plan" (as such term is defined in Section 3 of ERISA) now or heretofore
maintained by any of the Borrowers or any Affiliate (individually the "Plan" and
collectively the "Plans") is listed on EXHIBIT B attached hereto and is in
substantial compliance with ERISA (to the extent that ERISA is applicable); (ii)
except as set forth on EXHIBIT B attached hereto, there are no benefits vested
under any Pension Plan; (iii) no Pension Plan, Plan or trust created thereunder,
no trustee thereof, no administrator or fiduciary (other than an unrelated third
party administrator or fiduciary) thereof, and neither any of the Borrowers nor
any Affiliate has engaged in a "Prohibited Transaction" (as such term is defined
in Section 406 of ERISA and Section 4975 of the Code ("Prohibited Transaction"))
which would subject any such Pension Plan, Plan, trust created thereunder,
trustee, administrator or fiduciary thereof or any of the Borrowers or any
Affiliate or any party dealing with any such Pension Plan, Plan or trust to a
material tax or penalty on a "Prohibited Transaction" imposed under Section 4975
of the Code or Section 502 of ERISA; (iv) no Pension Plan or trust created
thereunder has been the subject of a Reportable Event (as such term is defined
in Section 4043 of ERISA), including, without limitation, the termination of any
Pension Plan or trust, (v) if and to the extent that either any of the Borrowers
or any Affiliate is a party to
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a multi-employer Plan (as defined in Section 4001 of ERISA), then neither any
such Borrower nor any Affiliate has incurred withdrawal liability, within the
meaning of Section 4201 of ERISA, with respect to any such multi-employer Plan
and neither any of the Borrowers nor any Affiliate has any knowledge that any
such multi-employer plan to which such Borrower or any Affiliate thereof is
required to contribute is in reorganization or is insolvent pursuant to Section
4241 or 4245 of ERISA; (vi) no Pension Plan which is not a multi-employer Plan
is insolvent or in reorganization; (vii) neither any of the Borrowers nor any
Affiliate has ceased operations at a facility with the result that such Borrower
or any Affiliate thereof is to be treated as a substantial employer as provided
in Section 4062(e) of ERISA, or has withdrawn from a Pension Plan with respect
to which it was a "substantial employer"; (viii) neither any of the Borrowers
nor any Affiliate and no Pension Plan or trust created thereunder has incurred
any "accumulated funding deficiency" (as such term is defined in Section 412 of
the Code and Section 302 of ERISA) whether or not waived, since the effective
date of ERISA; (ix) no condition exists which presents a material risk to any of
the Borrowers or any Affiliate of incurring a liability to or on account of a
Pension Plan or Plan pursuant to any of the foregoing sections of the Code and
ERISA; (x) the aggregate current value of all assets of each Pension Plan which
is a single-employer plan (i.e., a plan which is not referred to in clause (v)
hereof), based upon actuarial assumptions, each of which is reasonable (taking
into
account the experience of the plans and reasonable expectations), is at least
equal to the aggregate current value of all accrued benefits under such Pension
Plan, and each such Pension Plan is fully funded on a termination basis; and
(xi) no Pension Plan and neither any of the Borrowers nor any Affiliate has
incurred any liability to the Pension Benefit Guaranty Corporation or any
governmental authority succeeding to any and all of the functions of said
corporation (the "PBGC") over and above premiums required by law.
3.15 INTELLECTUAL PROPERTY; TRADENAMES. All (i) patent and patent
applications in any country or jurisdiction and (ii) trademarks and service
marks and United States, state and foreign registrations thereof and
applications therefor in which any of the Borrowers has an ownership interest
are listed on EXHIBIT B attached hereto. All tradenames of the Borrowers are
listed in the Disclosure Letter.
3.16 ENVIRONMENTAL AND REGULATORY COMPLIANCE. As to each of the real
properties owned or leased by any of the Borrowers, all as described on EXHIBIT
B, each such property is presently in compliance in all material respects with
and has in full force and effect all material permits or approvals required by
all applicable building, zoning, anti-pollution, hazardous substance, hazardous
material, oil, environmental, health, safety or other laws, ordinances or
regulations and the Borrowers have not received notification that any of the
foregoing properties is in violation of any of the foregoing provisions, except
for any non-compliance with respect to or lack of possession of the foregoing
which does not have or will not have a material adverse effect on the business
or properties of the Borrowers. Except as set forth on EXHIBIT B, none of the
Borrowers has ever generated, stored, or disposed of any hazardous substances,
hazardous materials, or oil on any of such properties or any portion thereof and
none of the Borrowers is aware of the presence, generation, storage or disposal
of such substances on any of such properties
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or any portion thereof by any of the Borrowers or any prior owner or prior
occupant or prior user thereof or by anyone else, nor is any of the Borrowers
aware of any spill or release of a hazardous or toxic waste, substance or
constituent, or other substance, into the environment on or, from any of such
properties. Except as set forth on EXHIBIT B, no inquiry, notice or threat to
give notice by any governmental authority has been received by any of the
Borrowers with respect to the generation, storage or disposal or release or
threat of release thereof, or with respect to any violation of any federal,
state or local environmental, health or safety statute or regulation. Except as
set forth on EXHIBIT B, no underground storage tanks or surface impoundments are
on any of the properties owned or leased by any of the Borrowers. For the
purposes of this Section, (i) "hazardous substances" shall mean "hazardous
substances" as defined in the Comprehensive Environmental Response, Compensation
and Liability Act, as amended, 42 U.S.C. ss.9601, ET SEQ., and regulations
thereunder or under the provisions of any other applicable state, county or
municipal law, ordinance, rule or regulation, (ii) "hazardous material" and
"oil" shall mean "hazardous material" and "oil", respectively, as defined in the
Massachusetts Oil and Hazardous Material Release Prevention and Response Act, as
amended, M.G.L. Chapter 21E, and regulations thereunder or under the provisions
of any other applicable state, county or municipal law, ordinance, rule or
regulation, and (iii) release" or "threat of release" shall mean such terms as
they are defined in any of the foregoing laws, ordinances, rules or regulations,
as applicable.
3.17 EMPLOYMENT CONTRACTS. Set forth on EXHIBIT B is a list of all
written and oral employment and similar contracts, agreements and understandings
between any of the Borrowers and any of their employees and/or Affiliates
currently binding upon any of the Borrowers, copies or summaries of which have
been provided to the Agent prior to the date hereof (other than contracts,
agreements and understandings between any of the Borrowers and its employees who
are not Affiliates, whose employment was entered into in the ordinary course of
business, whose employment is terminable at will by either party and who is not
entitled to any special bonus or other compensation measured or determined by or
directly contingent upon the economic performance of the Borrowers individually
or taken as a whole).
SECTION 4. CONDITIONS OF LOANS.
4.1 CONDITIONS OF INITIAL LOANS, The obligations of the Lenders to
make the initial Revolving Loan under the original Loan Agreement were subject
to the fulfillment on or prior to the date thereof of the following conditions
precedent:
4.1.1 Receipt by the Agent of the following documents, certificates
and opinions in form and substance satisfactory to the Agent and duly executed
and delivered by the parties thereto:
(a) This Agreement;
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(b) The Credit Notes, substantially in the form of
EXHIBITS A-1 AND A-2 hereto;
(c) Subsidiary Tie-In Agreement from Subsidiaries
of Distributors listed on the Disclosure Letter
("Subsidiary Tie-In Agreement");
(d) Joint and Several Guaranties from Victor
Jacobs, Herman Jacobs and Jacob Jacobs,
guarantying the Obligations incurred by the
Borrowers with respect to any Overadvances
pursuant to Section 2.7 hereof (the
"Overadvance Guaranty");
(e) Pledge from the Parent of all of the issued and
outstanding capital stock of Distributors to
secure the Obligations hereunder;
(f) Pledge from Distributors of all of the issued
and outstanding capital stock of the
Subsidiaries of Distributors executing and
delivering the Subsidiary Tie-In Agreement to
secure the Obligations;
(g) UCC-11 Search Reports;
(h) UCC-1 Financing Statements;
(i) Personal financial statements of Victor Jacobs,
Herman Jacobs and Jacob Jacobs (also known as
Victor Jacobowitz, Herman Jacobowitz and Jacob
Jacobowitz);
(j) A certified copy of resolutions of each of the
Borrowers' Boards of Directors evidencing the
due authorization, execution and delivery of
this Agreement, the documents referred to
herein and the transactions contemplated hereby
to which each is a party;
(k) Certificates as of the date hereof signed by
the Secretary of each of the Borrowers
regarding the incumbency and true signature of
the officers authorized to sign the documents
referred to in this Section 4.1.1 and all other
documents and instruments related to the Loans
and the transactions contemplated hereby;
(1) Certificates of insurance or insurance binders
evidencing compliance with Section 5.3 hereof;
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(m) A favorable legal opinion addressed to the
Agent and each of the Lenders from Parker
Chapin Flattau and Klimpl, LLP, counsel to the
Borrowers, Victor Jacobs, Herman Jacobs and
Jacob Jacobs;
(n) Certifications from governmental officials
evidencing the legal existence and corporate
and tax good standing of each of the Borrowers
as of the most recent practicable date;
(o) Certified copies of each of the Borrowers'
Certificate of Incorporation and Bylaws;
(p) Closing Certificate executed by the chief
financial officer of each of the Borrowers
substantially in the form of EXHIBIT D hereto;
(q) Waiver from each of the Borrowers' landlords in
form satisfactory to the Agent;
(r) Payout Letters from The Bank of New York and
any other financial institutions currently
lending to the Borrowers which are listed on
EXHIBIT B, and delivery of discharges, releases
and terminations of all existing liens of any
nature on the Collateral, except such liens as
are expressly permitted by the terms of this
Agreement; and
(s) Borrowing Base Certificate.
4.1.2 The representations and warranties contained in Section 3 shall
be true and accurate in all material respects on and as of the date of the
initial Revolving Loan, the Borrowers shall have performed and complied in all
material respects with all covenants and conditions required in this Agreement
to be performed or complied with by them prior to the making of such Loan, and
no event shall have occurred and be continuing and no condition shall exist, or
would result from the Loans to be made on the date hereof or the transactions
contemplated hereby, which would constitute, or with the passage of time or the
giving of notice, or both, would constitute, an Event of Default.
4.1.3 The Borrowers shall have provided the Agent with such
additional instruments, certificates, opinions and other documents as the Agent
or its counsel shall reasonably request.
4.1.4 There shall not have been any material adverse change in any of
the Borrowers' business, properties or condition (financial or otherwise).
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4.1.5 The Borrowers shall have reimbursed the Agent for all of the
fees and disbursements of Messrs. Goulston & Storrs, counsel to the Agent, which
shall have been incurred by the Agent in connection with the preparation,
negotiation, execution and delivery of this Agreement and the closing of the
transactions contemplated hereby.
4.2 CONDITIONS TO ALL REVOLVING LOANS. The obligation of the Lenders
to make any Revolving Loan is subject to the fulfillment to the satisfaction of
the Agent immediately prior to or contemporaneously with such Revolving Loan of
each of the following conditions:
4.2.1 The representations and warranties contained in this Agreement
or otherwise made in writing by or on behalf of the Borrowers pursuant hereto or
in Connection with the transactions contemplated hereby shall be true and
correct in all material respects at the time of each such Revolving Loan (except
for representations and warranties limited as to time or with respect to a
specific event, which representations and warranties shall continue to be
limited to such time or event) with and without giving effect to the Revolving
Loans to be made at such time and the application of the proceeds thereof. The
Agent may without waiving this condition consider it fulfilled, and a
representation by each of the Borrowers to such effect made, if no written
notice to the contrary, dated the date of such Revolving Loan, is received from
the Borrowers. In the event that the Borrowers submit a written notice as
contemplated by the preceding sentence, the conditions set forth in this Section
4.2.1 will be considered fulfilled if such notice specifies in reasonable detail
the exceptions to the representations and warranties as of the date of such
Revolving Loan, the exceptions as stated in such notice are satisfactory to the
Agent and the Agent so notifies the Borrowers.
4.2.2 At the time of each such Revolving Loan:
(a) the Borrowers shall have performed and complied
in all material respects with all agreements
and conditions contained in this Agreement
required to be performed or complied with by it
prior to or at such time;
(b) no condition or event that constitutes an Event
of Default or that, after notice or lapse of
time or both, would constitute an Event of
Default shall have occurred and be continuing;
and
(c) there shall have been no material adverse
change in the condition (financial or
otherwise), business or properties of any of
the Borrowers since December 31, 1995.
4.3 CONDITIONS TO RESTATEMENT AND AMENDMENT. The willingness of the
Lenders to enter into this Loan Agreement is subject to the receipt by the Agent
and certain of the Lenders, as specified below, of the following in form and
substance satisfactory to the Agent and such Lenders:
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(a) Each of the Lenders shall have received Credit Notes
substantially in the form of Exhibit A to this Agreement signed by the
Borrowers;
(b) The Agent shall have received an Acknowledgment, Agreement and
Amendment regarding: (i) this restatement of and amendment to the Loan Agreement
from all Subsidiaries of Distributors and the Guarantors in sufficient numbers
for itself and each of the Lenders; and (ii) amendments to the Subsidiary Tie-In
Agreement and to the Overadvance Guaranties.
(c) The Agent shall have received certified copies of resolutions of
the Borrowers' respective Boards of Directors, in sufficient numbers for itself
and each of the Lenders, evidencing the due authorization of this Agreement and
the entering into of the transactions contemplated hereby;
(d) The Agent shall have received a favorable legal opinion addressed
to the Agent and each of the Lenders from Parker Chapin Flattau & Klimpl, LLP,
counsel to the Borrowers, in sufficient quantities for itself and each of the
other Lenders;
(e) The Agent shall have received certifications from governmental
officials evidencing the legal existence and corporate good standing of each of
the Borrowers as of the most recent practicable date;
(f) The Agent shall have received a Second Restated and Amended
Closing Certificate executed by the Chief Financial Officer of each of the
Borrowers substantially in the form of Exhibit D hereto, in sufficient numbers
for itself and each of the other Lenders; and
(g) The Borrowers shall have provided the Agent with such additional
instruments, certificates and other documents as the Agent shall reasonably
request.
4.4 EVIDENCE OF TAX GOOD STANDING. As soon as practicable following
the date hereof, the Agent shall receive certification from governmental
officials evidencing the tax good standing of each of the Borrowers in the State
of New York and, to the extent qualified to do business therein, California.
SECTION 5. COVENANTS.
During the term of this Agreement and so long as any Indebtedness of
the Borrowers in respect of any Loan or overadvance remains outstanding:
5.1 FINANCIAL REPORTING. The Borrowers shall furnish to the Agent in
sufficient copies for distribution to each of the Lenders:
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(i) as soon as available to the Borrowers, but in any
event within 90 days after each fiscal year-end, consolidated and
consolidating balance sheets of the Borrowers separating out the
Parent and its Subsidiaries on the one hand from Distributors and its
Subsidiaries on the other hand, as at the end of, and related
consolidated and consolidating statements of income, retained
earnings and cash flow for, such year prepared in accordance with
GAAP and, in the case of such consolidated statements, certified by
the Borrowers' Accountants; and concurrently with such financial
statements, a written statement by the Borrowers' Accountants that,
in the making of the audit necessary for their report and opinion
upon such financial statements, they have obtained no knowledge of
any Event of Default, or knowledge of any event which, with the
passage of time, the giving of notice, or both, will constitute such
Event of Default, or, if in the opinion of such accountant such Event
of Default or event exists, they shall disclose in such written
statement the nature and status thereof;
(ii) as soon as available to the Borrowers, but in any
event within 45 days after the end of each fiscal quarter of the
Borrowers consolidated and consolidating balance sheets of the
Borrowers separating out the Parent and its Subsidiaries on the one
hand from Distributors and its Subsidiaries on the other hand, as at
the end of, and related consolidated and consolidating statements of
income, retained earnings and cash flow for, the portion of the year
then ended, for the fiscal quarter then ended and for the twelve
months then ended, prepared in accordance with GAAP and, in the case
of such consolidated statements, certified by the principal financial
officer of each of the Borrowers;
(iii) promptly as they become available, a copy of each
report (including any so-called management letters) submitted to any
of the Borrowers or any Subsidiary by independent certified public
accountants in connection with each annual audit of the books of such
Borrower or such Subsidiary by such accountants or in connection with
any interim audit thereof pertaining to any phase of the business of
the Borrowers or any Subsidiary;
(iv) promptly as they become available, copies of all such
financial statements, proxy material and reports as any of the
Borrowers or any Subsidiaries shall send to or make available to
stockholders or holders of any Indebtedness of any of the Borrowers
or any Subsidiaries or shall file with the United States Securities
and Exchange Commission, or announcements made to the general public
by any of the Borrowers or any Subsidiary;
(v) from time to time, such other financial data and
information about any of the Borrowers, any Subsidiaries and the
Collateral as the Agent may reasonably request;
(vi) concurrently with each delivery of financial
statements pursuant to clause (i) and clause (ii) of this Section
5.1, a report in substantially the form of
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EXHIBIT E hereto signed on behalf of the Borrowers by the chief
financial officer of each of the Borrowers;
(vii) within 60 days prior to the beginning of each fiscal
year, consolidated and consolidating projections for the Borrowers
separating out the Parent and its Subsidiaries on the one hand from
Distributors and its Subsidiaries on the other hand, for the next
three fiscal years beginning with such fiscal year, including
projected balance sheets, income statements, cash flow statements and
such other statements as the Agent may reasonably request and in form
and substance satisfactory to the Agent, all prepared on a basis
consistent with the financial statements required by clause (i);
(viii) as soon as available to the Borrowers, reports (in
form satisfactory to the Agent) of the value of the Borrowing Base
including without limitation (a) Account Receivable reports daily
within one Business Day; (b) Inventory reports monthly within three
(3) Business Days of the end of each calendar month (provided,
however, such reports shall be provided semimonthly as of the lst and
15th of each month within three days of each such date during any
period commencing with the notice of a projected Overadvance and
ending with the final elimination of such Overadvance); and (c)
Account Receivable aging reports monthly within three Business Days
of the end of each month; and
(ix) for the purposes of computing the Borrowing Base,
information adequate to identify Inventory and Accounts Receivable at
times and in form and substance as may be requested by the Agent, and
if requested by the Agent, accompanied by pledges or designations of
Inventory and agings or assignments of Accounts in form and substance
satisfactory to the Agent, which assignments shall give Agent full
power to collect, compromise or otherwise deal with the assigned
Accounts as the sole owner thereof on behalf of the Lenders.
5.2 CONDUCT OF BUSINESS. Each of the Borrowers hereby covenants and
agrees, jointly and severally, for itself individually and on behalf of all of
the Borrowers individually and taken as a whole, that it and they will:
(i) duly observe and comply in all material respects with
all applicable laws and all requirements of any governmental
authorities relative to its corporate existence, rights and
franchises, to the conduct of its business and to its property and
assets; and will maintain and keep in full force and effect all
licenses and permits necessary to the proper conduct of its business,
except where the failure to do so would not have a material adverse
effect on the business, properties or condition (financial or
otherwise) of the Borrowers and any Subsidiaries, individually or
taken as a whole;
(ii) maintain its and their corporate existence and
existing corporate structure, and remain or engage in substantially
the same business as the Business
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and in no unrelated business, except that the Borrowers may, upon
notice to the Agent, withdraw from any business activity which their
respective Boards of Directors deem unprofitable or unsound.
5.3 MAINTENANCE AND INSURANCE. The Borrowers will maintain and keep
their properties in good repair, working order and condition, and from time to
time make all needful and proper repairs, renewals, replacements, additions and
improvements thereto so that their business may be properly and advantageously
conducted at all time. The Borrowers at all times will maintain insurance, in
such amounts (including, without limitation, so-called "all-risk" coverage at
replacement value and "broad form" liability coverage), against such hazards and
liabilities and for such purposes as the Agent shall determine is reasonable to
insure the value of the Collateral and as is customary in the industry for
companies of established reputation engaged in the same or similar businesses
and owning or operating similar properties. The Agent, as agent for and on
behalf of the Lenders, shall be named as loss payee and additional insured and
shall be given 30 days advance notice of any cancellation of or failure to renew
insurance. If the Borrowers fail to provide or cause to be provided such
insurance, the Agent, in its sole discretion, may provide such insurance and
charge the cost to the Loan Account or to any of the Borrowers' deposit accounts
with any of the Lenders. Any payment not recovered from the Borrowers shall bear
interest at the then rate of interest under the Credit Notes from such time as
the Agent incurs such expense. Neither the Agent nor the Lenders shall, by the
fact of the Agent's approving, disapproving, accepting, obtaining or failing to
obtain any such insurance, incur any liability for the form or legal sufficiency
of insurance contracts, solvency of insurance companies or payment of lawsuits,
and the Borrowers hereby expressly assume full joint and several responsibility
therefor and liability if any, thereunder.
5.4 TAXES. The Borrowers will pay or cause to be paid all taxes,
assessments or governmental charges on or against any of them, or their
properties prior to such taxes becoming delinquent; except for any tax,
assessment or charge (other than any charge for environmental cleanup costs
referred to in Section 5.22) which is being contested in good faith by proper
legal proceedings and with respect to which adequate reserves have been
established and are being maintained.
5.5 LIMITATION OF INDEBTEDNESS. Except with the prior written consent
of the Agent, none of the Borrowers will create, incur, assume or suffer to
exist, or in any manner become or be liable directly or indirectly with respect
to, any Indebtedness except: (i) the Obligations; (ii) Indebtedness existing on
the date of this Agreement and set forth on EXHIBIT C hereto; (iii) Indebtedness
for the purchase price of capital assets incurred in the ordinary course of
business, to the extent such purchase is permitted by Section 5.10, and
Indebtedness arising as a result of the Borrowers' guaranty of obligations of
Radash Trucking Corporation's leasing of up to seven trucks having a purchase
price in the aggregate not to exceed $350,000 to replace existing trucks leased
by Radash Trucking Corporation; (iv) Indebtedness for taxes, assessments or
governmental charges to the extent that payment therefor shall at the time not
be required to be made in accordance
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with Section 5.4; and (v) Indebtedness on open account for the purchase price of
services, materials and supplies incurred by any of the Borrowers in the
ordinary course of business (not as a result of borrowing), so long as all of
such open account Indebtedness shall be promptly paid and discharged when due or
in conformity with customary trade terms and practices, except for any such open
account Indebtedness which is being contested in good faith by the Borrowers, as
to which adequate reserves required by GAAP have been established and are being
maintained and as to which no encumbrance has been placed on any property of any
of the Borrowers.
5.6 GUARANTIES. None of the Borrowers shall become or be liable by
way of guaranty, surety or other arrangement for the Indebtedness or obligations
of any nature or kind of any other Person (including any Subsidiary), except for
endorsement of instruments for collection in the ordinary course of business.
5.7 RESTRICTIONS ON LIENS. None of the Borrowers will create, incur,
assume or suffer to exist any mortgage, pledge, security interest, lien or other
charge or encumbrance including the lien or retained security title of a
conditional vendor ("Encumbrances") upon or with respect to any property or
assets, real or personal, of any such Persons, or assign or otherwise convey any
right to receive income, except:
(i) Encumbrances existing on the date of this Agreement
and set forth in the Disclosure Letter, including liens in connection
with the Lease Financing Facility; or
(ii) Liens for taxes, fees, assessments and other
governmental charges to the extent that payment of the same is not
required in accordance with the provisions of Section 5.4; or
(iii) Encumbrances in favor of the Agent; or
(iv) Encumbrances securing Indebtedness for the purchase
price of capital assets to the extent such Indebtedness is permitted
by Section 5.5 (iii), provided that (a) each such Encumbrance is
given solely to secure the purchase price of such property, does not
extend to any other property and is given at the time of acquisition
of the property, and (b) the Indebtedness secured thereby does not
exceed the lesser of the cost of such property or its fair market
value at the time of acquisition; or
(v) Liens of mechanics, laborers, materialmen, carriers
and warehousemen arising by operation of law to secure payment for
labor, materials, supplies or services incurred in the ordinary
course of the Borrowers' business, but only if the payment thereof is
not at the time required and such liens do not, individually or in
the aggregate, materially detract from the value or limit the use of
any property subject thereto; or
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(vi) Deposits made in the ordinary course of the
Borrowers' business in connection with workmen's compensation,
unemployment insurance, social security and other similar laws.
5.8 MERGER, ACQUISITIONS AND PURCHASE AND SALE OF ASSETS. None of the
Borrowers will consolidate or merge with or into any other corporation or other
entity, will acquire the assets or stock of any entity nor will sell, lease,
transfer or otherwise dispose of any portion of its assets other than in the
ordinary course of business.
5.9 INVESTMENTS AND LOANS. None of the Borrowers will make or have
outstanding at any time any investments in or loans to any other Person
(including any Subsidiary other than one of the Borrowers), whether by way of
advance, guaranty, extension of credit, capital contribution, purchase of
stocks, notes, bonds or other securities or evidences of Indebtedness, or
acquisition of limited or general partnership interests, other than: (i) in
direct obligations of the United States of America, maturing within one year of
their issuance; (ii) in time certificates of deposit or repurchase agreements,
maturing within one year of their issuance, from banks in the United States
having capital, surplus and undivided profits in excess of $200,000,000; (iii)
in short term commercial paper with the highest rating by Moody's or Standard
and Poor's rating services and issued by corporations headquartered in the
United States, in currency of the United States of America; (iv) stock of
Subsidiaries owned on the date hereof as set forth in the Disclosure Letter; and
(v) other short term loans to any other Person (subject to the terms of Section
5.21 hereof) in aggregate principal amount not in excess of $250,000 at any one
time outstanding.
5.10 CAPITAL EXPENDITURES.
(a) The Borrowers shall not make any Capital Expenditures in excess
of $1,500,000 in the aggregate during any fiscal year period of the Borrowers
from and after the date hereof, commencing with the fiscal year period beginning
on April 1, 1996: (i) except with the prior written consent of the Agent, and
(ii) other than up to $2,010,500.00 in Capital Expenditures contemplated by the
Lease Financing Facility.
(b) Notwithstanding any other provisions in connection with the Lease
Financing Facility, the Agent and the Lenders acknowledge and agree that both
the Agent and the Lenders have no security interest, and hereby release any
security interest that may have been held, in the property described in the
Lease Financing Facility
5.11 SALE OF NOTES. The Borrowers shall not sell, discount or dispose
of any note, instrument, account, or other obligation owing to the Borrowers,
except to the Agent.
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5.12 DIVIDENDS, ETC.
(a) None of the Borrowers shall pay, make or declare any cash or
property dividend or distribution to any Person who holds an equity interest in
any of the Borrowers, whether evidenced by a security or not, other than (i)
regular compensation and bonuses paid to employees of the Borrowers in the
ordinary course of business consistent with past practices, and (ii) dividends
payable solely in common stock of any of the Borrowers.
(b) None of the Borrowers will purchase, redeem, retire or otherwise
acquire for value any of their capital stock, whether now or hereafter
outstanding, or any options, warrants or similar rights to purchase such stock
or any security convertible into or exchangeable for such stock; provided,
however, the Borrowers may redeem from time to time for an aggregate price not
to exceed $69,000 warrants outstanding on the date hereof at a price per warrant
not to exceed $.05.
5.13 ERISA COMPLIANCE. None of the Borrowers and their Affiliates, if
any, no Pension Plan, Plan or trust created thereunder, and no trustee,
administrator or fiduciary thereof shall engage in any Prohibited Transaction;
none of the Borrowers and their Affiliates and no Pension Plan or trust created
thereunder shall incur any "accumulated funding deficiency" (as defined in
Section 412 of the Code and Section 302 of ERISA) whether or not waived, or
shall fail to satisfy any additional funding requirements set forth in Section
412 of the Code and Section 302 of ERISA; none of the Borrowers and their
Affiliates, no trustee thereof and no administrator or fiduciary thereof shall
terminate any Pension Plan in a manner which could result in the imposition of a
lien on any property of any of the Borrowers or any of their Affiliates; and
each Plan and Pension Plan shall comply in all material respects with ERISA.
5.14 PENSION PLANS.
(a) With respect to any Pension Plan, the Borrowers shall,
or shall cause their Affiliates to:
(i) fund on a timely basis each Pension Plan as
required by the provisions of Section 412 of the Code and
Section 302 of ERISA;
(ii) cause each Pension Plan to pay all
benefits when due in accordance with applicable law; and
(iii) furnish to the Agent (A) written notice
of the occurrence of a Reportable Event (as such term is
defined in Section 4043 of ERISA), given within thirty
(30) days after any of the Borrowers or any Affiliate
knows or has reason to know that a Reportable Event has
occurred with respect to a Pension Plan; (B) a copy of any
request or waiver of the funding standards or an extension
of the amortization periods required
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under Section 412 of the Code and Section 302 of ERISA,
such copy to be furnished no later than the date of
submission of the request to the Department of Labor or to
the Internal Revenue Service (the "IRS"), as the case may
be; (C) a copy of any notice of intent to terminate any
Pension Plan such copy to be furnished no later than the
date of submission to the PBGC or, if earlier, the date on
which those participating in the Pension Plan are notified
of the intended termination; and (D) notice that any of
the Borrowers or any Affiliate, will or may incur any
liability to or on account of a Pension Plan under Section
4062, 4063, 4064, 4201 or 4204 of ERISA, such notice to be
given within ten (10) days after any of the Borrowers or
any Affiliate knows or has reason to know thereof. Any
notice to be provided to the Agent under this Section
shall include a certificate of the chief financial officer
of the Borrower giving such notice setting forth details
as to such occurrence and the action, if any, which such
Borrower or the Affiliate is required or proposes to take,
together with any notices required or proposed to be filed
with or by such Borrower, any Affiliate, the PBGC, the
IRS, the trustee or the plan administrator with respect
hereto.
(b) The Borrowers shall furnish to the Agent, no later
than fifteen (15) days after the date of filing, a copy of the annual
report of each Pension Plan or Plan (Form 5500 or comparable form)
required to be filed with the IRS and/or the Department of Labor.
(c) Promptly after the adoption of any Plan or Pension Plan
subject to ERISA, or of any amendment to any Pension Plan which
results in a significant underfunding within the meaning of Section
401(a)(29) of the Code and Section 307 of ERISA, the Borrowers shall
notify the Agent of such adoption and of the vesting and funding
schedules and other principal provisions thereof.
5.15 NOTIFICATION OF DEFAULT. Upon becoming aware of the existence of
any condition or event which would cause an Event of Default, or any condition
or event which would upon notice or passage of time, or both, constitute an
Event of Default, the Borrowers shall promptly give the Agent written notice
thereof specifying the nature and duration thereof and the action being or
proposed to be taken with respect thereto.
5.16 NOTIFICATION OF MATERIAL LITIGATION, The Borrowers will promptly
notify the Agent in writing of any litigation or of any investigative
proceedings of a governmental agency or authority commenced or threatened
against it or any of their respective Subsidiaries which would or might be
materially adverse to the business or the financial condition of any of the
Borrowers or the Business.
5.17 NOTIFICATION OF MATERIAL ADVERSE CHANGE. The Borrowers will
notify the Agent of any occurrence, condition or event affecting any of the
Borrower or any Subsidiary which might constitute a material adverse change in
or which might have a
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material adverse effect on the Collateral, the Business or the business,
properties or condition (financial or otherwise) of any of the Borrowers.
5.18 INSPECTION BY THE AGENT. The Borrowers will permit the Agent or
its designees, at any reasonable time during normal business hours and from time
to time, to visit and inspect the properties of the Borrowers and their
Subsidiaries, if any, to examine and make copies of and take abstracts from the
books and records of the Borrowers and any Subsidiaries and to discuss the
affairs, finances and accounts of the Borrowers and any Subsidiaries with
appropriate officers. Without in any way limiting the foregoing, the Borrowers
understand that the Agent intends to conduct field audits of the Borrowers at
least three (3) times per year. The Borrowers shall also permit the Agent to
arrange for verification of Accounts Receivable, under reasonable procedures,
directly with account debtors or by other methods.
5.19 MAINTENANCE OF BOOKS AND RECORDS. The Borrowers and their
Subsidiaries, if any, will keep adequate books and records of account in which
true and complete entries will be made reflecting all of their business and
financial transactions, and such entries will be made in accordance with GAAP
and applicable law including, without limitation, laws with respect to
questionable, improper or corrupt payments.
5.20 USE OF PROCEEDS. The Borrowers will use the proceeds of the
Loans solely for the working capital needs of the Borrowers.
5.21 TRANSACTIONS WITH AFFILIATES. The Borrowers will not, and will
not permit their Subsidiaries, if any, to, directly or indirectly enter into any
purchase, sale, lease or other transaction with any Affiliate except in the
ordinary course of business on terms that are no less favorable to the Borrowers
than those which might be obtained at the time in a comparable arm's length
transaction with any Person who is not an Affiliate, other than loans to
employees of the Borrowers (other than the Guarantors) not exceeding in
aggregate principal amount $200,000 at any one time outstanding.
5.22 ENVIRONMENTAL REGULATIONS.
(a) The Borrowers will, and will cause their Subsidiaries, if any,
to, comply in all material respects with all applicable laws and regulations
relating to pollution control, hazardous materials and hazardous wastes in all
jurisdictions in which any of them operates now or in the future, and the
Borrowers will, and will cause their Subsidiaries, if any, to, comply in all
material respects with all such laws and regulations that may in the future be
applicable to the Business, the Borrowers, the Subsidiaries and their properties
and assets.
(b) If any of the Borrowers shall (i) receive notice that any
violation of any federal, state or local environmental law or regulation may
have been committed or is about to be committed by a Borrower, (ii) receive
notice that any administrative or judicial complaint or order has been filed or
is about to be filed against a Borrower alleging a
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violation of any federal, state or local environmental law or regulation or
requiring a Borrower to take any action in connection with the release of toxic
or hazardous wastes or materials into the environment or (iii) receive any
notice from a federal, state, or local governmental agency or private party
alleging that a Borrower may be liable or responsible for any costs associated
with a response to or cleanup of a release of hazardous wastes or materials into
the environment or any damages caused thereby, the Borrowers shall provide the
Agent with a copy of such notice within five (5) business days after a
Borrower's receipt thereof. Within fifteen (15) business days after a Borrower
has learned of the enactment or promulgation of any federal, state or local
environmental law/or regulation which may result in any material adverse change
in the business, properties or condition (financial or otherwise) of any of the
Borrowers, the Borrowers shall provide the Agent with notice thereof.
(c) From and after the Agent's request, not later than thirty (30)
days following the end of each calendar quarter, the Borrowers shall deliver to
the Agent a written report, in a form and with such specificity as is
satisfactory to the Agent, describing the Borrowers' actions taken during such
calendar quarter to assure their compliance with this Section and all applicable
environmental laws and regulations (including the receipt of any notice that any
administrative or judicial complaint or order has been filed or is about to be
filed against any of the Borrowers, regardless of whether such notice is
required to be delivered by the Borrowers pursuant to subparagraph (b) above) as
well as the status of any pending environmental matters described in EXHIBIT B
attached hereto.
5.23 FISCAL YEAR. The Borrower and their Subsidiaries, if any, shall
have fiscal years ending on March 31 of each year and shall not change such
fiscal years without the prior written consent of the Agent.
5.24 LOSS OR DEPRECIATION OF COLLATERAL. In the event that any of the
following events alone or in the aggregate has an adverse impact on the
Borrowers in excess of $100,000, the Borrowers shall notify the Agent
immediately of the occurrence of each of the following events: (i) loss or
depreciation in value of Base Inventory and the amount of the loss or
depreciation; (ii) rejection, return repossession or loss of any goods giving
rise to any Base Account; (iii) damage to any such goods; (iv) any request by an
account debtor for credit or adjustment of an Account; (v) any adjustment by any
of the Borrowers on the amount owing on an account; (vi) any merchandise or
other dispute; (vii) any other event affecting Base Inventory or Base Accounts
or the value or amount thereof. All loss or depreciation in value of Base
Inventory shall be immediately reflected in the Net Security value of Base
Inventory, and all payments on Base Accounts and all adjustments and credits
with respect hereto, whether unilateral, negotiated or otherwise, shall be
immediately reflected in the Net Outstanding Amount of Base Accounts.
5.25 CONSOLIDATED TANGIBLE NET WORTH. The Borrowers will maintain
Consolidated Tangible Net Worth of not less than $32,700,000 plus one-half of
the Net Income (greater than zero) of the Borrowers for each calendar quarter
ending after
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December 31, 1995, plus 75% of all additional capital paid into the Borrowers,
on account of any sale of capital stock or the exercise of any option or warrant
or otherwise.
5.26 INTEREST COVERAGE. The Borrowers will not permit their
respective ratios of Operating Cash Flow divided by Total Interest at the end of
each calendar quarter following the date hereof for the period of four
consecutive calendar quarters then ending to be less than 1.50 to 1.
5.27 QUICK RATIO. The Borrower will not permit the ratio of Cash
Equivalents divided by the sum of Current Liabilities plus the then debit
balance in the Loan Account as of the end of each fiscal quarter to be less than
.40 to 1.
5.28 LEVERAGE. The Borrowers will not permit the ratio of Total
Liabilities divided by Consolidated Tangible Net Worth as of the end of each
fiscal quarter to be more than 2.75 to 1.
5.29 JOINT AND SEVERAL LIABILITY. Each of the Borrowers shall be
jointly and severally liable for all obligations and any other liability or
obligations of any of the Borrowers to the Agent or the Lenders under this
agreement. The Agent may, on behalf of the Lenders, pursue any remedies at law
or in equity, or exercise or enforce any rights hereunder against any of the
Borrowers or any group of the Borrowers in its unrestricted discretion without
any obligation to pursue any other remedies or rights against any of the other
Borrowers.
5.30 INTEREST RATE PROTECTION. The Borrowers at their option may
maintain in effect interest rate protection arrangements, in form and in
substance satisfactory to the Agent and with a counterparty satisfactory to the
Agent, at all times from the date hereof to the Maturity Date, or such earlier
date upon which the Loan and this Agreement are terminated. The Borrowers shall
not, without approval from the Agent, modify, terminate or transfer such
arrangements during such period.
SECTION 6. SECURITY.
6.1 SECURITY INTEREST. As security for the payment and performance of
all Obligations (including without limitation the Loans, other advances and
Letters of Credit), the Agent, as agent for and on behalf of the Lender, shall
have and each of the Borrowers hereby grants to the Agent, as agent for and on
behalf of the Lenders, a continuing security interest in all personal property
and fixtures of the Borrowers of every kind and description, tangible or
intangible, whether now or hereafter existing, whether now owned or hereafter
acquired, and wherever located, including, but not limited to the following: all
Inventory of the Borrowers; all furniture, fixtures and similar property of the
Borrowers; all Machinery and Equipment of the Borrowers; all accounts of the
Borrowers; all contract rights of the Borrowers; all other rights of the
Borrowers to the payment of money, including without limitation amounts due from
Affiliates, tax refunds, and insurance proceeds; all interest of the Borrowers
in goods as to which an Account shall have arisen;
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all files, records (including without limitation computer programs, tapes and
related electronic data processing software) and writings of the Borrowers or in
which any of the Borrowers has an interest in any way relating to the foregoing
property; all goods, instruments, documents of title, policies and certificates
of insurance, securities, chattel paper, deposits, cash or other property owned
by any of the Borrowers or in which any of the Borrowers has an interest which
are now or may hereafter be in the possession of the Agent or any of the Lenders
or as to which the Agent or any of the Lenders may now or hereafter control
possession by documents of title or otherwise; all general intangibles of the
Borrower (including without limitation all patents, trademarks, trade names,
service marks, copyrights and applications for any of the foregoing; all rights
to use patents, trademarks, trade names, service marks and copyrights of any
Person; and any rights of the Borrowers to retrieval from third parties of
electronically processed and recorded information pertaining to any of the types
of collateral referred to in this Section 6.1); any other property of the
Borrowers, real or personal, tangible or intangible, in which the Agent or any
of the Lenders now has or hereafter acquires a security interest or which is now
or may hereafter be in the possession of the Agent or any of the Lenders; any
sums at any time credited by or due from the Agent or any of the Lenders to any
of the Borrowers, including deposits; and proceeds and products of and
accessions to all of the foregoing.
6.2 NO OTHER LIENS. None of the Borrowers shall sell, assign,
transfer, set over to, or grant a security interest to any Person in or
otherwise encumber the property and sums described in Section 6.1, except (i) in
favor of the Agent or as otherwise specifically permitted in Section 5.7 of this
Agreement, and (ii) the sale of Inventory and obsolete machinery and equipment
in the ordinary course of business consistent with past practices.
6.3 LOCATION OF RECORDS AND COLLATERAL. The Borrowers shall give the
Agent written notice of each location at which Collateral is now or hereafter
kept and of each office of the Borrowers at which the records of the Borrowers
pertaining to Accounts Receivable and contract rights are kept. Except as such
notice is given or as is otherwise set forth on EXHIBIT B, all Collateral is and
shall be kept, and all records of the Borrowers pertaining to Accounts
Receivable and contract rights are and shall be kept, at the Borrowers'
addresses as they appear at the beginning of this Agreement.
6.4 STATUS OF COLLATERAL. At the time any Account, Inventory or other
property of the Borrowers becomes subject to a security interest in favor of the
Agent hereunder, one of the Borrowers shall be the lawful owner thereof and
shall have good right to pledge, sell, assign, transfer or grant a security
interest in the same to the Agent. Each such Account shall be a valid Account
representing indebtedness incurred by the account debtor for goods held subject
to delivery instructions or theretofore shipped or delivered pursuant to a
contract of sale or for services theretofore performed by a Borrower in the
ordinary course of the Borrowers' business; there shall be no setoffs or
counterclaims against the account; no agreement under which any goods may be
returned shall have been made with the account debtor except in the ordinary
course of business and consistent with the Borrowers' past practices; and no
agreement under which any discount may be
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claimed shall have been made with the account debtor unless written notice has
theretofore been or is concurrently given to the Agent.
6.5 NAME CHANGE. The Borrowers shall give the Agent thirty (30) days
prior written notice of any change in the name or corporate form of any of the
Borrowers or in the name under which the Business is transacted.
6.6 COLLECTION OF ACCOUNTS RECEIVABLE.
(a) Subject to the terms of Section 6.6(b), until the Agent
requests that debtors on Accounts Receivable be notified
of the Agent's security interest, the Borrower shall
continue to collect them. Subject to the terms of Section
6.6(b) until the making of such a request, the Borrowers
shall hold proceeds received from collection as trustee
for the Agent and the Lenders without commingling the same
with other funds of the Borrowers and shall turn the same
over to the Agent, as agent for and on behalf of the
Lenders, or to such bank as may be approved by the Agent,
immediately upon receipt in the identical form received.
The Borrowers shall, at the request of the Agent
(following the occurrence and during the continuation of
an Event of Default), notify the Account debtors of the
security interest of the Agent in any Account and that
payment thereof is to be made directly to the Agent, and
the Agent may itself at anytime (following the occurrence
and during the continuation of an Event of Default),
without notice to or demand upon the Borrowers, so notify
account debtors. The making of such a request or the
giving of any such notification shall not affect the
duties of the Borrowers described above or in Section
6.6(b) with respect to proceeds of collection of Accounts
Receivable received by the Borrowers.
(b) The Borrowers hereby acknowledge that the Agent has
requested and hereby Borrowers notify their account
debtors to pay all Accounts directly into a so called
"lock box" maintained with the Agent for application as
provided in Section 6.6(c). This request and the giving of
any such notification shall not affect the duties of the
Borrowers described above in Section 6.6(a) or this
Section 6.6(b) with respect to proceeds of collection of
Accounts Receivable received by the Borrowers.
(c) The Agent shall credit the proceeds of collection of
Accounts Receivable received by the Agent to the Loan
Account in respect of outstanding loans and other amounts
due, such credits to be entered as of the second Business
Day after receipt thereof by the Agent. Such credits shall
be conditional upon final payment in cash or solvent
credits of the items giving rise to them. If any item is
not so paid, the Agent, in its discretion, whether or not
the item is returned, may either reverse any credit given
for the item or charge the amount of the item against the
deposits or other sums which
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may be due to the Borrowers from the Agent or any Lender.
Upon elimination of any debit balance of the Loan Account,
proceeds of collection and other receipts may then, except
as otherwise provided in Section 7.3, be credited to any
deposit account which any of the Borrowers may maintain
with the Agent or, if there is no such account, held
pending instructions from the Borrowers.
SECTION 7. EVENTS OF DEFAULT; ACCELERATION.
7.1 Any or all of the obligations of the Borrowers to the Agent and
the Lenders shall, at the option of those Lenders whose Commitment Percentages
equal in the aggregate 60% or more of the Commitment Percentages held by all the
Lenders, and notwithstanding the provisions of an instrument evidencing an
obligation, be immediately due and payable without notice or demand upon the
occurrence and continuation of any of the following events of default
(individually, an "Event of Default"): (i) default in the payment or
performance, when due or payable, of any obligation (other than obligations for
which notice and an opportunity to cure are provided in Section 7.1(iv) hereof)
by the Borrowers or by any endorser, guarantor or surety for any Obligation, or
of any payment obligation under any Letter of Credit application or Letter of
Credit issued by the Agent; (ii) the making by the Borrowers of any
misrepresentation to the Agent and the Lenders contained in this Agreement or
otherwise, whether or not for the purpose of obtaining credit or an extension of
credit; (iii) failure by the Borrower to comply in every material respect or
maintain material compliance with any covenant set forth in Section 5 hereof
(other than Sections 5.1, 5.2, 5.3 (other than the failure to maintain insurance
as required by Section 5.3 or unless any insurance policy required by Section
5.3 will lapse, terminate or expire during any grace period), 5.4, 5.5, 5.6,
5.9, 5.13, 5.14, 5.15, 5.16, 5.17, 5.19, 5.21 and 5.22); (iv) the Borrowers'
failure to comply in every material respect or maintain material compliance with
any one or more of the covenants set forth in Sections 5.1, 5.2, 5.3 (other than
the failure to maintain insurance as required by Section 5.3 or unless any
insurance policy required by Section 5.3 will lapse, terminate or expire during
any grace period), 5.4, 5.5, 5.6, 5.9, 5.13, 5.14, 5.15, 5.16, 5.17, 5.19, 5.21
and 5.22 which failure to comply shall continue uncured ten Business Days after
the officers of any of the Borrowers have knowledge or the Borrowers receive
written notice from the Agent of such failure; (v) issuance of an injunction or
attachment for an aggregate amount in excess of $250,000, against property of
any of the Borrowers or any endorser, guarantor or surety for any obligation
which is not dismissed or bonded, to the satisfaction of the Agent, within sixty
(60) days after issuance; (vi) calling of a meeting of creditors, appointment of
a committee of creditors or liquidating agents or offering of a composition or
extension to creditors by, for or with the consent or acquiescence of any of the
Borrowers or any endorser, guarantor or surety for an Obligation; (vii)
Insolvency of any of the Borrowers or any endorser, guarantor or surety for any
Obligation; (viii) the occurrence of any material default under any agreement,
note or other instrument evidencing or relating to any obligation of any of the
Borrowers to any other Person or entity for the payment of money; or (ix) any
money judgment or judgments aggregating in excess of $250,000 are entered
against any of the Borrowers or any endorser, guarantor
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or surety of any Obligation which is not dismissed within sixty (60) days; (x)
Victor Jacobs, Herman Jacobs and Jacob Jacobs no longer owning in the aggregate
on a fully diluted basis capital stock of the Parent entitling them to vote
greater than 50% of the votes attributable to the issued and outstanding voting
securities of the Parent, or any two of them no longer being actively involved
in the management of the Borrowers because of death, disability or any other
reason; or (xi) the occurrence of any material change in the condition or
affairs (financial or otherwise) of the Borrowers or any endorser, guarantor or
surety for any Obligation which causes the Agent in its reasonable judgment to
deem itself and the Lenders insecure.
7.2 The term "obligation of any of the Borrowers to any other Person
or entity" as used in Section 7.1 includes the liabilities and obligations of
the Borrowers to any other Person or entity to the same extent as if the
definition of "Obligations" set forth in Section 1 were recited here with "Agent
and the Lenders" changed to "any other Person or entity."
7.3 Upon the occurrence of any Event of Default and at any time
thereafter (such default not having been cured), the Agent shall have the right
to take immediate possession of the Collateral, and for that purpose the agent
may, so far as the Borrowers can give authority therefor enter upon any premises
on which Collateral may be situated and remove the same therefrom. The Borrowers
waive demand and notice with respect to and assent to any repossession of
Collateral. The Agent may dispose of Collateral in any order and in any manner
it chooses and may refrain from the sale of any real property, held as
Collateral, until the sale of personal property. Except for Collateral which is
perishable or threatens to decline speedily in value or which is of a type
customarily sold on a recognized market, the Agent shall give to the Borrowers
at least ten (10) Business Days' prior written notice of the time and place of
any public sale of Collateral or of the time after which any private sale or any
other intended disposition is to be made. The residue of any proceeds of
collection or sale, after satisfying all Obligations in such order of preference
as the Agent may determine and making proper allowance for interest on
obligations not then due, shall be credited to any deposit account which any of
the Borrowers may maintain with the Agent, or, if there is no such account, held
pending instructions from the Borrowers. The Borrowers shall remain liable for
any deficiency.
7.4 The Agent may at any time in its sole discretion (whether or not
an Event of Default has occurred) transfer any securities or other property
constituting Collateral into its own name or that of its nominee and receive the
income thereon and hold the same as security for Obligations or apply it on
principal or interest due on obligations. Insofar as Collateral shall consist of
Accounts or instruments, the Agent may, without notice to or demand on the
Borrowers, demand and collect such Collateral as the Agent may determine,
whether or not Obligations are then due and whether or not an Event of Default
has occurred, and for the purpose of realizing the Agent's rights therein as
agent for and on behalf of the Lenders, the Agent may receive, open and dispose
of mail addressed to a Borrower and endorse notes, checks, drafts, money orders,
documents of title or other evidences of payment, shipment or storage or any
form of Collateral on
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behalf of and in the name of any of the Borrowers. The powers conferred on the
Agent by this Section are solely to protect the interest of the Agent and the
Lenders and shall not impose any duties on the Agent to exercise any powers.
7.5 In addition to all other rights and remedies provided hereunder
or by law, the Agent and the Lenders shall have in any jurisdiction where
enforcement hereof is sought the rights and remedies of a secured party under
the Uniform Commercial Code of Massachusetts.
SECTION 8. SET OFF; PARTICIPATIONS. Regardless of the adequacy of
Collateral:
8.1 Any deposits or other sums at any time credited by or due from
the Agent or any Lender to any of the Borrowers may at any time be applied to or
set off against obligation on which any Borrower is primarily liable and may at
or after the maturity thereof be applied to or set off against Obligations on
which a Borrower is secondarily liable.
8.2 The Borrowers invite any bank or other financing institution
which may consider investing or participating in the Loans (each such financing
institution being referred to in this Section as a "Participant") to rely upon
all of the representations, warranties, covenant and other provisions of this
Agreement, the Credit Note and the other agreements, instruments and documents
referred to herein or contemplated hereby in making such investment or
participation and agree that its becoming a Participant in the Loans shall
constitute an acceptance of such offer and shall make the Participant a creditor
of the Borrowers. Any bank or other financing institution investing in the Loans
so as to become one of the Lenders shall be required to have a Revolving Credit
Commitment of at least $5,000,000.
8.3 Any deposits or other sums which at any time may be credited to
any of the Borrowers by or due to it from any Participant may at any time be
applied to or set off by such Participant against the then outstanding
indebtedness of the Borrowers hereunder.
SECTION 9. CONCERNING THE AGENT AND THE BANKS.
9.1 APPOINTMENT AND AUTHORIZATION. Each of the Lenders hereby
appoints BKB, acting through its head office, to serve as Agent under this
Agreement and to other documents, instruments and agreements executed and
delivered in connection with the transactions contemplated by this Agreement and
irrevocably authorizes the Agent to take such action as agent on such Lender's
behalf under this Agreement and such other documents, instruments and agreement
and to exercise such powers and to perform such duties under this Agreement and
such other documents, instruments and agreements as are delegated to the Agent
by the terms hereof or thereof, together with all such powers as are reasonably
incidental thereto.
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9.2 AGENT AND AFFILIATES. BKB shall have the same rights and powers under this
Agreement and documents, instruments and agreements executed and delivered in
connection with the transactions contemplated by this Agreement as each other
Lender and may exercise or refrain from exercising the same as though it were
not the Agent, and BKB and its Affiliates may accept deposits from, lend money
to, and generally engage in
any kind of business with the Borrowers or any Affiliate of the Borrowers as if
it were not the Agent hereunder and under such other documents, instruments or
agreements. Except as otherwise provided by the terms of this Agreement, nothing
herein shall prohibit any of the Lenders from accepting deposits from, lending
money to or generally engaging in any kind of business with the Borrowers or any
Affiliate of the Borrowers.
9.3 FUTURE ADVANCES.
(a) In order to more conveniently administer the Loans, each
Lender does hereby authorize the Agent and BKB to make all
Loans and advances, subject to the terms and conditions of
this Agreement and not to exceed in the aggregate the sum
of all of the Lenders' Revolving Credit Commitments, to
the Borrowers, which are requested by the Borrowers during
any Business Day. Each Lender does hereby further
irrevocably agree, subject to the terms of Section 9.3(b),
whether or not this Agreement has been terminated, an
Event of Default has occurred, the Agent has accelerated
the Obligations or the Agent is proceeding to liquidate
the Collateral, to transfer to the Agent by 2:00 p.m. on
the last Business Day of each calendar week sufficient
immediately available federal funds to reimburse BKB for
its respective Commitment Percentage of all Loans and
other advances (not to exceed each Lender's Revolving
Credit Commitment) made through the close of business on
the last Business Day of the immediately preceding
calendar week after taking into account payments received
by the Agent and applied to the Loan Account under Section
9.4 hereof.
(b) Notwithstanding the terms of Section 9.3(a), at such time
as (i) the Lenders have exercised their option pursuant to
Section 7.1 to cause all of the obligations to be
immediately due and payable and there is then no
irrevocable prior commitment to fund any additional Loans
or other advances hereunder, or (ii) there has occurred
and is continuing the occurrence of an Event of Default
with respect to any of the Borrowers under clause (i) or
(vii) of Section 7.1, each of the Lenders shall be
obligated to fund additional Loans or other advances
hereunder in accordance with the terms of Section 9.3(a)
solely upon the written consent or approval of those
Lenders whose Commitment Percentages equal in the
aggregate 60% or more of the Commitment Percentages held
by all the Lenders. In no event shall a Lender be required
to advance any amount in excess of its Commitment
Percentage of the Maximum Amount.
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(c) Funds provided by the Agent as payment upon a sight or
time draft presented to the Agent under a Letter of Credit
issued pursuant to the terms of Section 2.4 hereof, and any
payments made by the Agent on behalf of the Borrowers,
including, without limitation, pursuant to the terms of
Section 5.3 hereof, shall constitute Loans or other
advances initially made by the Agent at such time as such
funds are actually provided, or such payments are made, by
the Agent. All Loans and other advances made by the Agent
on behalf of any Lender shall be, for purposes of interest
income and other charges, considered loans from such Lender
to the Borrowers and reflected in the Loan Account at such
time as the Agent receives from such Lender funds as
provided in this Section 9.3, and prior to such time such
Loans and advances shall be considered, for purposes of
interest income and other charges, loans from BKB and so
reflected in the Loan Account. In addition, any collection
of Collateral, including, but not limited to, any
collections of Accounts shall be applied to reduce any
debit balance in the Loan Account so that the debit balance
of the Loan Account equals each Lender's respective
Commitment Percentages. The Agent may at any time upon
notice to any Lender (i) refuse to make Loans and advances
on behalf of such Lender unless such Lender shall have
provided to the Agent immediately available federal funds
sufficient to cause to Loan Account to equal and reflect
such Lender's respective Commitment Percentage; (ii)
require such Lender to fund such Loans and advances before
making such Loans and advances to the Borrowers requesting
the same; or (iii) require that such Lender immediately
transfer to the Agent prior to the time such funds would
otherwise be required hereunder immediately available
federal funds sufficient to cause the Loan Account to equal
each Lender's respective Commitment Percentage (it being
acknowledged, however, that the Agent will attempt to
require any Lender to fund its share of any Loan or advance
prior to the time such funding would otherwise be required
hereunder to the extent such share exceeds $100,000,
PROVIDED that the foregoing shall in no way diminish the
Agent's rights under clauses (i) through (iii), inclusive,
of this sentence, which rights it may exercise in its sole
discretion). Notwithstanding the provisions hereof, the
obligations to make Loans and advances under the terms of
this Agreement shall be the several and not joint
obligation of each Lender, and any advances made by the
Agent on behalf of a Lender are strictly for the
administrative convenience of the parties and shall in no
way diminish such Lender's liability to the Agent, subject
to the terms of Section 9.3(b), to repay the Agent for such
Loans and advances.
9.4 PAYMENTS. All payments and prepayments of principal of Loans or
other advances received by the Agent shall be paid promptly to each of the
Lenders pro rata in accordance with their respective Commitment Percentages. All
such payments from the Borrowers or as proceeds of Collateral received by the
Agent shall be held in trust for the benefit of the Lenders. As each such
payment is received by the Agent, the Agent shall
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promptly charge or credit each of the Lenders to the extent necessary to ensure
that as between them, each of the Lenders holds its respective Commitment
Percentage of outstanding Loans or other advances, based on the then unpaid
aggregate principal amounts of the Loans or other advances outstanding.
9.5 INTEREST, FEES AND OTHER PAYMENTS. (i) All payments of interest
received by the Agent in respect of Loans or other advances, except as otherwise
provided by the terms of this Agreement, and all other fees and premiums
received by the Agent hereunder or in respect of Loans or other advances shall
be shared by the Lenders pro rata in accordance with their respective Commitment
Percentages. (ii) All payments received by
the Agent pursuant to Section 10.7 of this Agreement shall be applied by the
Agent to reimburse each Lender, on account of the tax, charge or expense in
respect of which such payment is made.
9.6 ACTION BY AGENT.
(i) The obligations of the Agent hereunder are only those
expressly set forth herein. The Agent shall have no duty to exercise
any right, power or remedy hereunder or under any other document,
instrument or agreement executed and delivered in connection with or
as contemplated by this Agreement or to take any affirmative action
hereunder or thereunder.
(ii) The Agent shall keep the Loan Account and other
records of the Loans, other advances and payments hereunder, and
shall give and receive notices and other communications to be given
or received by the Agent hereunder on behalf of the Banks.
(iii) Upon the occurrence and during the continuation of an
Event of Default, the Agent and those Lenders whose Commitment
Percentages equal in the aggregate 60% or more of the Commitment
Percentages held by all the Lenders may exercise their option on
behalf of the Lenders pursuant to Section 7.1 hereof to declare all
Obligations immediately due and payable, and the Agent may exercise
its option to take such action as may appear necessary or desirable
to collect the Obligations and enforce the rights and remedies of the
Agent or the Lenders with respect to the Collateral.
(iv) Whether or not an Event of Default shall have
occurred, the Agent may from time to time exercise the rights of the
Agent and Lenders hereunder or under the other documents, instrument
or agreements executed or delivered in connection with or as
contemplated by this Agreement as it may deem necessary or desirable
to protect the Collateral and the interests of the Agent and the
Lenders therein.
9.7 CONSULTATION WITH EXPERTS. The Agent shall be entitled to retain
and consult with legal counsel, independent public accountants and other experts
selected by it
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and shall not be liable to the Lenders for any action taken, omitted to be taken
or suffered in good faith by it in accordance with the advice of such counsel,
accountants or experts. The Agent may employ agents and attorneys-in-fact and
shall not be liable to the Lenders for the default or misconduct of any such
agents or attorneys.
9.8 LIABILITY OF AGENT. The Agent shall exercise the same care to
protect the interests of each Lender as it does to protect its own interests, so
that so long as the Agent exercises such care it shall not be under any
liability to any Lender, except for the Agent's gross negligence or willful
misconduct with respect to anything it may do or refrain from doing. Subject to
the immediately proceeding sentence, neither the Agent nor any of its directors,
officers, agents or employees shall be liable for any action taken or not taken
by it in connection herewith in its capacity as Agent. Without limiting the
generality of the foregoing, neither the Agent nor any of its directors,
officers, agents or employees shall be responsible for or have any duty to
ascertain, inquire into or verify: (i) any statement, warranty representation
made in connection with this Agreement or any other document, instrument or
agreement executed and delivered in connection with the transactions
contemplated by this Agreement; (ii) the performance or observance of any of the
covenants or agreements of the Borrowers; (iii) the satisfaction of any
condition specified in Sections 4.1, 4.2 or 4.3 hereof, except receipt of items
required to be delivered to the Agent; (iv) the validity, effectiveness,
enforceability or genuineness of this Agreement, the Credit Notes or any other
document, instrument or agreement executed and delivered in connection with or
as contemplated by this Agreement; or (v) the existence, value, collectibility
or adequacy of the Collateral or any part thereof or the validity,
effectiveness, perfection or relative priority of the liens and security
interests of the Lenders (through the Agent) therein. The Agent shall not incur
any liability by acting in reliance upon any notice, consent, certificate,
statement or other writing (which may be a bank wire, telex or similar writing)
believed by it to be genuine or to be signed by the proper party or parties.
9.9 INDEMNIFICATION. Each Lender agrees to indemnify the Agent (to
the extent the Agent is not reimbursed by the Borrowers), ratably in accordance
with its Commitment Percentage, from and against any cost, expense (including
attorneys' fees and disbursements), claim, demand, action, loss or liability
which the Agent may suffer or incur in connection with this Agreement or any
document, instrument or agreement executed and delivered in connection with or
as contemplated by this Agreement, or any action taken or omitted by the Agent
hereunder or thereunder, or the Agent's relationship with the Borrowers
hereunder, including, without limitation, the costs and expenses of defending
itself against any claim or liability in connection with the exercise or
performance of any of its powers and duties hereunder and of taking or
refraining from taking any action hereunder, except for any such cost, expense,
claim, demand, action, loss or liability arising out of the Agent's gross
negligence or willful misconduct. No payment by any Lender under this Section
shall in any way relieve the Borrowers of their obligations under this Agreement
with respect to the amounts so paid by any Lender, and the Lenders shall be
subrogated to the rights of the Agent, if any, in respect thereto.
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9.10 INDEPENDENT CREDIT DECISION. Each of the Lenders represents and warrants to
the Agent that it has, independently and without reliance upon the Agent or any
other Lender and based on the financial statements referred to in Section 3.7
and such other documents and information as it has deemed appropriate, made its
own independent credit analysis and decision to enter into this Agreement. Each
of the Lenders acknowledges that it has not relied upon any representation by
the Agent and that the Agent shall not be responsible for any statements in or
omissions from any documents or information concerning the Borrowers, this
Agreement, the Credit Notes or any other document or instrument executed and
delivered in connection with or as contemplated by this Agreement or the
Original Loan Agreement. Each of the Lenders acknowledges that it will,
independently and without reliance upon the 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 decision in taking or not taking action under
this Agreement.
9.11 CONSENTS OF ALL LENDERS. Under any circumstances where the
consent, waiver, approval or similar decision of all of the Lenders must be
requested by the Borrowers under the terms of this Agreement, in the event that
BKB, acting on its own account and not as Agent, has given any such consent,
waiver, approval or otherwise, each of the other Lenders hereby agrees with BKB,
and the Borrowers, for the benefit of the Borrowers, that any such consent,
waiver, approval or otherwise will not be unreasonably withheld or delayed by
such Lender.
9.12 SUCCESSOR AGENT. BKB, or any successor Agent, may resign as
Agent at any time by giving written notice thereof to the Lenders and the
Borrowers, or may be removed with or without cause upon at least 30 days prior
written notice by and from Lenders whose Commitment Percentages equal in the
aggregate at least 67% of the Commitment Percentages of all of the Lenders
(including the Agent). Upon any such resignation, the Lenders shall have the
right to appoint a successor Agent, and upon any such removal, such removal
shall be of no force or effect until a successor Agent has been appointed by
Lenders other than the Agent then being removed whose Commitment Percentages
equal in the aggregate greater than 50% of the Commitment Percentages held by
all Lenders other than the Agent then being removed, and such successor Agent
has accepted such appointment. In the event of such a resignation, if no
successor Agent shall have been so appointed by the Lenders, and shall have
accepted such appointment, within 30 days after the retiring Agent's giving of
notice of resignation, then the retiring Agent may, on behalf of the Lenders,
appoint a successor Agent, which shall be a commercial bank (or Affiliate
thereof) or savings and loan association organized under the laws of the United
States of America or any State thereof or under the laws of another country
which is doing business in the United States of America or any State thereof and
having a combined capital, surplus and undivided profits of at least
$200,000,000. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent,
and the retiring Agent shall be discharged from all further duties and
obligations under this Agreement. After any retiring Agent's resignation or
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removal hereunder as Agent, 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.
9.13 AGENT'S MINIMUM REVOLVING CREDIT COMMITMENT. BKB agrees with,
and solely for the benefit of, the Lenders that for so long as it continues as
Agent hereunder it shall maintain a Revolving Credit Commitment hereunder of at
least $10,000,000.
SECTION 10. MISCELLANEOUS.
10.1 WRITTEN NOTICES. Any notices, expressly required by this
Agreement to be in writing, to any party hereto shall be deemed to have been
given when delivered by hand, when sent by confirmed telecopier, one (1)
Business Day after it is delivered to any overnight delivery service freight
pre-paid or five (5) Business Days after deposit in the United States mails,
postage prepaid, certified mail, return receipt requested and addressed to such
party at its address given at the beginning of this Agreement or at any other
address specified in writing. Written notices to the Borrowers shall be sent to
the attention of David Shamilzadeh, Director and Chief Financial Officer, or to
such other officer as may be designated by the Borrowers, with a courtesy copy
to Henry I. Rothman, Esquire, Parker Chapin Flattau & Klimpl, LLP, 1211 Avenue
of the Americas, New York, New York 10036. Written notices to the Agent or the
Lenders shall be sent to them as follows:
(i) if to BKB or the Agent, to it at 100 Federal Street,
Boston, Massachusetts 02110 Attn: Brent E. Shay, Director
(ii) if to IBJS, to it at One State Street, 9th Floor New York,
New York 10004 Attn: Merily McLaughlin, Vice President
(iii) if to SBC, to it at 500 Glenpointe Center W. Teaneck, New
Jersey 07666 Attn: Mr. Philip Carfora
(iv) if to LBC, to it at 477 Madison Avenue, 20th Floor New
York, New York 10022 Attn: Mr. Lawrence P. Garni
(v) if to BOT, to it at Metropolitan Banking Division, 1251
Avenue of the Americas New York, New York 10116-3138 Attn:
Christopher Young, Vice President
or such other officer as may be designated by the Agent or the Lenders. Any
notice, unless otherwise specified, may be given orally or in writing.
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10.2 TERM OF AGREEMENT. This Agreement shall continue in force and effect so
long as any commitment, any portion of the Loans or any Obligation of the
Borrowers for any interest, fee, charge or expense shall be outstanding.
10.3 NO WAIVERS. No failure or delay by the Agent or any Lender in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies herein provided are cumulative and not exclusive of any
rights or remedies otherwise provided by law.
10.4 FURTHER ASSURANCES. The Borrowers shall do, make, execute and
deliver all such additional and further acts, things, assurances, and
instruments as the Agent or any Lender may reasonably require more completely to
vest in and assure to the Agent and the Lenders their rights hereunder and under
the Credit Notes, in the Collateral and to carry into effect the provisions and
intent of this Agreement and the Credit Notes.
10.5 GOVERNING LAW. This Agreement and the Credit Notes shall be
deemed to be contracts made under seal and shall be construed in accordance with
and governed by the laws of the Commonwealth of Massachusetts (without regard to
conflicts of laws rules). Any legal action or proceeding arising out of or
relating to this Agreement or any Obligation may be instituted in the courts of
the Commonwealth of Massachusetts or of
the United States of America for the District of Massachusetts, and the
Borrowers hereby irrevocably submit to the jurisdiction of each such court in
any such action or proceeding; provided, however, that the foregoing shall not
limit the Agent's or any Lender's rights to bring any legal action or proceeding
in any other appropriate jurisdiction in which event the laws of the
Commonwealth of Massachusetts shall apply notwithstanding any rules regarding
conflicts of laws to the contrary.
10.6 PAYMENTS IN IMMEDIATELY AVAILABLE FUNDS. All payments required
of the Borrowers hereunder or under the Credit Notes shall be made in lawful
money of the United States of America in federal or other funds immediately
available to the recipient thereof at the prescribed place of payment.
10.7 EXPENSES, TAXES AND INDEMNIFICATION.
(a) The Borrowers will pay all taxes (other than taxes on the income
of the Agent or any Lender), charges and expenses of every kind or description,
including without limitation reasonable attorneys' fees and expenses, and fees
and expenses related to commercial finance examinations (consistent with the
Agent's current practices from time to time of passing such expenses on to
borrowers), reasonably incurred or expended by the Agent or any Lender in
connection with or in any way related to the Agent's or such Lender's
relationship with the Borrowers, whether hereunder or otherwise, including,
without limitation, those incurred or expended in connection with the
preparation, execution, delivery, interpretation or amendment of this Agreement,
the Credit Note and any related agreement, instrument or document, the making of
the Loans, the supervision,
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protection and collection of and realization upon any Collateral, and the
protection or enforcement of the Agent's and such Lender's rights hereunder. The
Borrowers authorize the Agent to charge the Loan Account or any deposit account
which any of the Borrowers may maintain with any Lender for any of the
foregoing.
(b) The Borrowers shall jointly and severally absolutely and
unconditionally indemnify and hold the Agent and each Lender harmless against
any and all claims, demands, suits, actions, causes of action, damages, losses,
settlement payments, obligations, costs, expenses and all other liabilities
whatsoever which shall at any time or times be incurred or sustained by the
Agent or such Lender or by any of their shareholders, directors, officers,
employees, subsidiaries, affiliates or agents on account of, or in relation to,
or in any way in connection with, any of the arrangements or transactions
contemplated by, associated with or ancillary to either this Agreement or any of
the other documents executed or delivered in connection herewith, whether or not
all or any of the transactions contemplated by, associated with or ancillary to
this Agreement or any of such documents are ultimately consummated, except those
resulting from the gross negligence or willful misconduct of the Agent or any
Lender.
10.8 AMENDMENTS, WAIVERS, ETC. Except as otherwise expressly provided
in this Agreement or any of the other documents, instruments or agreements
executed and delivered in connection with or as contemplated by this Agreement:
(i) each of this Agreement or such documents, instruments or agreements may be
modified, amended or supplemented in any respect whatever only with the prior
written consent or approval of Distributors and the Agent; (ii) the performance
or observance by the Borrowers of any of their covenants, agreements or
obligations under any of this Agreement or such documents, instruments or
agreements (other than those arising pursuant to Sections 5.5, 5.25, 5.26, 5.27,
5.28 and 7.1(x) hereof) may be waived and the dollar amount set forth in Section
1.9 may be increased (to the extent such dollar amount would not exceed
$55,000,000) only with the written consent of the Agent; (iii) the performance
or observance by the Borrowers of any of their covenants, agreements or
obligations arising pursuant to Sections 5.5, 5.25, 5.26, 5.27, 5.28 and 7.1(x)
hereof may be waived, and any of the Overadvance Guarantees may be released, in
each case only with the written consent of those Lenders whose Commitment
Percentages equal in the aggregate 60% or more of the Commitment Percentages
held by all of the Lenders; and (iv)(x) the percentage "75%" set forth in
Section 1.10 relating to California Base Accounts may be increased up to the
then applicable percentage applicable to the Net Outstanding Amount of Base
Accounts with respect to Base Accounts other than California Base Accounts, and
the percentage 50% set forth in Section 1.11 relating to California Base
Inventory may be increased up to the then applicable percentage applicable to
Base Inventory, in each case only with the written consent of those Lenders
whose Commitment Percentages equal in the aggregate 60% or more of the
Commitment Percentages held by all of the Lenders, and (y) the percentage "75%"
set forth in Section 1.10 relating to California Base Accounts may be increased
above the then applicable percentage applicable to the Net Outstanding Amount of
Base Accounts with respect to Base Accounts other than California Base Accounts,
and the percentage 50% set forth in Section 1.11 relating to
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<PAGE>
California Base Inventory may be increased above the then applicable percentage
applicable to Base Inventory, in each case only with the written consent of
those Lenders whose Commitment Percentages equal in the aggregate 100% of the
Commitment Percentages held by all of the Lenders; PROVIDED, HOWEVER, that the
following changes shall require the written consent, agreement or approval of
all of the Lenders: (A) any other increase in the percentages set forth in
Sections 1.10 and 1.11 not specifically addressed above in this Section, (B) any
change in the amount or the due date of the Obligations; (C) any change in the
interest rates prescribed in this Agreement or the Credit Notes and the fees
prescribed in Sections 2.8.1 and 2.8.3 hereof; (D) any change in the Commitment
Percentage of any of the Lenders (other than as a result of any assignment or
participation of a Lender's interest hereunder permitted by the terms of this
Agreement); (E) any release of Collateral with a fair liquidation value of more
than $1,000,000; and (F) any increase in the dollar amount set forth in Section
1.9 (to the extent such dollar amount would exceed $55,000,000); and (G) any
change in the terms of this Section 10.8. The Agent shall, solely for the
benefit of the Lenders, provide promptly to each of the Lenders a copy of each
such written consent or approval arising in accordance with the terms of clauses
(i) and (ii) of this Section 10.8. Notwithstanding the foregoing, the terms of
Section 9 (other than Section 9.13) hereof may be modified, amended or
supplemented without the consent or approval of any of the Borrowers upon the
prior written consent or approval of Lenders whose Commitment Percentages equal
in the aggregate 67% or more, and the terms of Section 9.13 hereof may be
modified, amended or supplemented without the (consent or approval of any of the
Borrowers upon the prior written consent or approval of BKB and of Lenders
(including BKB) whose Commitment Percentages equal in the aggregate 67% or more.
10.9 BINDING EFFECT OF AGREEMENT. This Agreement shall be binding
upon and inure to the benefit of the Borrowers, the Agent and the Lenders and
their respective successors and assigns. The Agent and each of the Lenders may
sell, assign or otherwise transfer all or any portion of its right, title and
interest in, and its Obligations under, this Agreement and the Loans made and to
be made hereunder, or grant participations in its right, title and interest
herein and therein. The Borrowers may not assign or transfer their rights or
obligations hereunder.
10.10 COMPUTATION OF INTEREST AND FEES. Interest, fees and charges
shall be computed daily on the basis of a year of 360 days and paid for the
actual number of days for which due. If the due date for any payment of
principal is extended by operation of law, interest shall be payable for such
extended time. If any payment required by this Agreement becomes due on a day
that is not a Business Day, such payment may be made on the next succeeding
Business Day, and such extension shall be included in computing interest in
connection with such payment.
10.11 ENTIRE AGREEMENT. This Agreement, including the exhibits
hereto, sets forth the entire agreement and understanding of the parties hereto
in respect of the subject matter contained herein, and supercedes all prior
agreements, promises, covenants,
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GS1
<PAGE>
arrangements, communications, representations, warranties, whether oral or
written, by any officer, employee or representative of any party hereto.
10.12 WAIVER OF JURY TRIAL. EACH OF THE BORROWERS HEREBY IRREVOCABLY
WAIVES TRIAL BY JURY IN ANY JURISDICTION AND IN ANY COURT WITH RESPECT TO, IN
CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT, THE OBLIGATIONS, OR ANY
INSTRUMENT OR DOCUMENT DELIVERED PURSUANT HERETO OR THERETO, OR ANY CLAIM OR
DISPUTE HOWSOEVER ARISING, BETWEEN ANY OF THE BORROWERS, THE AGENT AND ANY OF
THE LENDERS. THIS WAIVER OF JURY TRIAL SHALL BE EFFECTIVE FOR EACH AND EVERY
DOCUMENT EXECUTED BY ANY OF THE BORROWERS, THE AGENT OR ANY OF THE LENDERS AND
DELIVERED TO THE AGENT, ANY LENDER OR ANY OF THE BORROWERS, AS THE CASE MAY BE,
WHETHER OR NOT SUCH DOCUMENT SHALL CONTAIN A WAIVER OF JURY TRIAL. EACH OF THE
BORROWERS FURTHER ACKNOWLEDGES THAT ALL DOCUMENTS DELIVERED BY THE AGENT, ANY
LENDER OR ANY OF THE BORROWERS ARE SUBJECT TO THIS WAVIER OF JURY TRIAL AS TO
ANY ACTION THAT MAY BE BROUGHT AS TO ANY OF SUCH DOCUMENTS, INSTRUMENTS OR
LETTERS OR THE LIKE. EACH OF THE BORROWERS FURTHER CONFIRMS THAT THE FOREGOING
WAIVERS ARE INFORMED AND FREELY MADE.
10.13 CAPTIONS. The captions for the sections of this Agreement are
for ease of reference only and are not an integral part of this Agreement.
10.14 COUNTERPARTS. This Agreement may be signed in any number of
counterparts with the same effect as if the signatures hereto and thereto were
upon the same instrument.
10.15 SEVERABILITY. The provisions of this Agreement are severable,
and if any of these provisions shall be held by any court of competent
jurisdiction to be unenforceable, such holdings shall not affect or impair any
other provision hereof.
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GS1
<PAGE>
WITNESS the execution hereof under seal on the day and year first
above written.
ALLOU HEALTH & BEAUTY CARE, INC.
By: __________________________________
Title:
ALLOU DISTRIBUTORS, INC.
By: ___________________________________
Title:
THE FIRST NATIONAL BANK OF BOSTON
By:____________________________________
Title:
IBJ SCHRODER BANK & TRUST COMPANY
By: _____________________________________
Title
SANWA BUSINESS CREDIT CORPORATION
By: __________________________________
Title:
LASALLE BUSINESS CREDIT, INC.
By: __________________________________
Title:
THE BANK OF TOKYO - MITSUBISHI TRUST
COMPANY
By: __________________________________
Title:
-55
GS1
<PAGE>
EXHIBIT A
SECOND RESTATED AND AMENDED REVOLVING CREDIT NOTE
$[Maximum Amount x Lender's Boston, Massachusetts
Commitment Percentage] June __, 1996
FOR VALUE RECEIVED, the undersigned hereby absolutely and
unconditionally, jointly and severally, promise to pay to [a Lender] (the
"Lender"), or order, on the Maturity Date, the principal amount of (Maximum
Amount x Lender's Commitment Percentage] Dollars ($________________) or, if
less, the aggregate unpaid principal amount of all Revolving Loans and other
advances made by the Lender to the Borrowers pursuant to the Agreement (as
hereinafter defined) and noted on the records of the Agent in accordance with
the terms of the Agreement, together with interest (computed on the basis of the
actual number of days elapsed over a 360-day year) on the unpaid principal
amount hereof until paid in full at the times and rates set forth in the
Agreement referred to below.
All payments under this Note shall be made at the head office of the
Agent at 100 Federal Street, Boston, Massachusetts 02110 (or at such other place
as the Agent may designate from time to time in writing) in lawful money of the
United States of America in federal or other immediately available funds. The
Borrowers may prepay this Note in whole or in part at any time subject to the
terms and conditions set forth in the Agreement. Amounts so paid and other
amounts may be borrowed and reborrowed by the Borrowers hereunder from time to
time as provided in the Agreement.
This Note is issued pursuant to, is entitled to the benefits of, and
is subject to the provisions of a certain Second Restated and Amended Revolving
Credit and Security Agreement of even date herewith among the undersigned, the
Lender, [additional Lenders] and The First National Bank of Boston as Agent
(herein, as the same may from tine to time be amended or extended, referred to
as the "Agreement"), but neither this reference to the Agreement nor any
provision thereof shall affect or impair the absolute and unconditional joint
and several obligation of each of the undersigned makers of this Note to pay the
principal of and interest on this Note as herein provided. All capitalized terms
used herein shall have the meanings set forth herein or in the Agreement.
Upon an Event of Default, the aggregate unpaid balance of principal
plus accrued interest may become or may be declared to be due and payable in the
manner and with the effect provided in the Agreement.
Except as may otherwise be provided in the Agreement, each of the
undersigned makers of this Note, hereby waives presentment, demand, notice of
dishonor, protest and
<PAGE>
all other demands and notices in connection with the delivery, acceptance,
performance and enforcement of this Note.
WITNESS the execution of this Note under seal on the date written
above.
ALLOU DISTRIBUTORS, INC.
By: ___________________________
Title:
ALLOU HEALTH & BEAUTY CARE, INC.
By: ___________________________
Title:
<PAGE>
EXHIBIT B
DISCLOSURE SCHEDULE
This Disclosure Schedule amends and supplements the information which
has been previously disclosed to the Lenders under the Loan Agreement.
1. Schedule 3.5(b) of the Loan Agreement is hereby amended to read in
its entirety as follows:
REAL PROPERTY OWNED OR LEASED BY BORROWER:
OWNERSHIP OF REAL ESTATE:
The Borrowers do not own any real property.
LEASEHOLD INTEREST IN REAL PROPERTY:
A. Distributors is obligated under a real property operating lease
agreement dated March 4, 1980 between Distributors and Pueblo
Supermarkets, Inc., which lease has been assigned by Pueblo
Supermarkets Inc. to Brentwood Distribution Co. and by amendment
dated December 8, 1993 is expiring in 2005, relating to certain real
property constituting a warehouse and offices located in Brentwood
New York. As of June __, 1996, the minimum annual rentals, including
additional payments for real estate taxes and certain expenses, are
as follows:
1996 $577,500
1997 $577,500
1998 $577,500
1999 $577,500
2000 $577,500
2001 $630,000
2002 $630,000
2003 $630,000
2004 $630,000
2005 $630,000
<PAGE>
B. Lease dated as of ___, 1996 between TMC Properties, Inc., as
lessor, and Allou Personal Care Corporation, as lessee. The minimum
monthly rentals are as follows:
[TO BE PROVIDED]
2. Schedule 3.11 of the Loan Agreement is hereby amended to read in
its entirety as follows:
SCHEDULE 3.11
PENDING OR THREATENED LITIGATION OR PROCEEDINGS:
None
3. Schedule 3.17 of the Loan Agreement is hereby amended to read in
its entirety as follows:
EMPLOYMENT CONTRACTS:
1. Employment Contract, dated as of January 24, 1989,
between Allou Health & Beauty Care, Inc. and Victor Jacobs.
2. Employment Contract, dated as of January 24, 1989,
between Allou Health & Beauty Care, Inc. and Herman Jacobs.
3. Employment Contract, dated as of January 24, 1989,
between Allou Health & Beauty Care, Inc. and Jack Jacobs.
4. Employment Contract, dated as of April 1, 1994, between
Allou Health & Beauty Care, Inc. and Robert Crivell.
5. Employment Contract, dated as of April 1, 1994 between
Allou Health & Beauty Care, Inc. and Steven Friedman.
6 Oral "at will" employment agreements in the ordinary
course of business.
<PAGE>
4. Schedule 4.1.1(r) of the Loan Agreement is hereby amended to read
in its entirety as follows:
SCHEDULE 4.1.1(R)
FINANCIAL INSTITUTIONS CURRENTLY LENDING TO BORROWERS:
1. The First National Bank of Boston
2. IBJ Schroder Bank & Trust Company
3. Sanwa Business Credit Corporation
4. Lasalle Business Credit, Inc.
5. The Bank of Tokyo - Mitsubishi Trust Company
6. Schedule 6.3 of the Loan Agreement is hereby amended to
read in its entirety as follows:
SCHEDULE 6.3
ADDITIONAL COLLATERAL LOCATION:
1. Sole Collateral Location of Collateral owned by Russ
Kalvin Personal Care Corp. and Stanford Personal Care
Manufacturing, Inc.:
25644 Springbook Avenue, No. 6
Saugus, California 91350
2. Sole Collateral Location of Collateral owned by all of the
other Borrowers:
50 Emjay Boulevard
Brentwood, NY 11717
<PAGE>
EXHIBIT C
EXISTING INDEBTEDNESS
[To be revised by Borrowers and their Counsel]
INDEBTEDNESS OR OTHER LIABILITIES, DEBTS OR OBLIGATIONS:
Distributors is obligated under a real property operating lease
agreement expiring in 2005. As of June __, 1996, the minimum annual rentals,
including additional payments for real estate taxes and certain expenses, are as
follows:
1996 $577,500
1997 $577,500
1998 $577,500
1999 $577,500
2000 $577,500
2001 $630,000
2002 $630,000
2003 $630,000
2004 $630,000
2005 $630,000
During the current period, Distributors hired a non-affiliated entity
to do its deliveries using the Distributors' trucks and is charged on a per load
basis, less the Distributors' delivery equipment lease and insurance costs. On
June 1, 1990, Distributors assigned its delivery equipment lease to this
non-affiliated entity, however, the Borrower has guaranteed payment and
performance on all terms of the lease.
In connection with the acquisition of M. Sobol, Inc. on April 1,
1993, the Parent owes Simon Mandell $750,000 as of April 1, 1994, with a balance
outstanding of $480,000 as of April 1, 1996:
1. Schedule 3.5(b) of the Subsidiary Tie-In Agreement is hereby amended
to read in its entirety as follows: SCHEDULE 3.5(B)
REAL PROPERTY OWNED OR LEASED BY BORROWERS:
OWNERSHIP OF REAL ESTATE:
The Borrowers do not own any real property.
LEASEHOLD INTEREST IN REAL PROPERTY:
None
<PAGE>
EXHIBIT D
SECOND RESTATED AND AMENDED CLOSING CERTIFICATE
This Closing Certificate is delivered pursuant to Section 4.3 of the
Second Restated and Amended Revolving Credit and Security Agreement of even date
herewith (the "Agreement") among the undersigned and certain of their
Affiliates, (collectively, the "Borrowers"), IBJ Schroder Bank & Trust Company,
Sanwa Business Credit, LaSalle Business Credit, Inc., The Bank of Tokyo -
Mitsubishi Trust Company, The First National Bank of Boston (collectively, the
"Lenders") and The First National Bank of Boston as Agent for the Lenders. All
capitalized terms shall have the meanings set forth in the Agreement.
The undersigned does hereby certify as follows:
1. I am the officer in charge of financial affairs of the undersigned
on behalf of whom I have executed this Certificate below.
2. I have reviewed the Agreement, and to the best of my knowledge
each representation contained in the Agreement is true and correct in all
material respects as of the date hereof.
3. To the best of my knowledge, the Borrowers have performed,
satisfied, or complied in all material respects with all covenants, warranties
and representations and conditions to be performed, satisfied or complied with
by it under the Agreement on or before the date hereof, and to the best of my
knowledge no event has occurred and is continuing and no condition exists which
constitutes, or with the passage of time or the giving of notice, or both, would
constitute an Event of Default.
4. I have reviewed the books and records of the Borrowers and their
business and the financial statements and projections of the Borrowers' business
furnished to the Agent; and I have consulted with counsel for the Borrowers as
to the meaning of terms used in this Certificate. Based upon the foregoing, the
Borrowers have and, after giving effect to any borrowings under the Agreement on
the date hereof, will have tangible and intangible assets having a present fair
saleable value in excess of the amount required to pay the probable liability on
their then-existing debts (whether matured or unmatured, liquidated or
unliquidated, fixed or contingent); the Borrowers have and will have access to
adequate capital for the conduct of their business and the discharge of their
debts incurred in connection therewith as such debts mature; none of the
Borrowers is Insolvent; and, immediately after giving effect to the borrowings
under the Agreement on the date hereof, none of the Borrowers will be Insolvent.
<PAGE>
5. There has not been any material adverse chance in the business of
the Borrowers since the date of the Initial Financial Statement, including,
without limitation, any material adverse change from the business plan of the
Borrowers as previously presented to the Agent.
WITNESS the execution of this Certificate as of this __th day of
June, 1996.
[EACH BORROWER]
By:_____________________________
Title:
<PAGE>
EXHIBIT E
CERTIFICATE OF CHIEF FINANCIAL OFFICERS
(Pursuant to Section 5.1(vi) of the Second Restated and Amended
Revolving Credit and Security Agreement dated June __, 1996.)
[Certificate for each Borrower] (the "Borrower") HEREBY CERTIFIES
THAT:
This Report is furnished pursuant to Section 5.1(vi) of the Second
Restated and Amended Revolving Credit and Security Agreement dated June __, 1996
among the Borrowers, IBJ Schroder Bank & Trust Company, Sanwa Business Credit,
LaSalle Business Credit, Inc., The Bank of Tokyo - Mitsubishi Trust Company, The
First National Bank of Boston (collectively, the "Lenders") and The First
National Bank of Boston as Agent for the Lenders (the "Agreement"). Unless
otherwise defined herein, the terms used in this Report and Schedule 1 hereto
have the meanings described in the Agreement.
As required by Section 5.1(i) or (ii) of the Agreement, financial
statements of the Borrowers and any Subsidiaries for the (year) (quarter) ended
_________, 19__ (the "Financial Statements") prepared in accordance with GAAP
(subject, in the case of quarterly statements, to year-end audit adjustments)
accompany this Report. The Financial Statements present fairly the consolidated
financial position of the Borrowers and any Subsidiaries as at the date thereof
and the consolidated results of operations of the Borrowers and any Subsidiaries
for the period covered thereby.
Schedule 1 attached hereto sets forth financial data and computations
evidencing the Borrowers' compliance with the covenants of the Agreement set
forth in Sections 5.25 through 5.28, inclusive, all of which data and
computations, to the best of the knowledge and belief of the chief financial
officers ("Chief Financial Officers") executing and delivering this Report on
behalf of the Borrowers, are true, complete and correct.
The activities of the Borrowers and any Subsidiaries during the
period covered by the Financial Statements have been reviewed by the Chief
Financial Officers and by employees or agents under their immediate supervision.
Based on such review, to the best knowledge and belief of the Chief Financial
Officers, during the period covered by the Financial Statements, and as of the
date of this Report, (a) the Borrowers have, or have caused to have, kept,
observed, performed and fulfilled in all material respects each and every
covenant and condition of the Agreement (except to the extent waived by the
Agent or the Lenders, as the case may be, and noted on Schedule 1 attached
hereto) and the Credit Notes, and (b) no Event of Default and no event which
with notice or lapse of time, or both, would become an Event of Default, has
occurred or is occurring.
-72-
GS1
<PAGE>
Witness my hand this ______ day of _____________199__.
[Each Borrower]
By:_____________________________
Title:
[BANCBOSTON LEASING LOGO]
MASTER LEASE FINANCE AGREEMENT
This MASTER LEASE FINANCE AGREEMENT, dated as of the 24th day of
April, 1996, ("Lease Agreement") is made at Boston, Massachusetts by and between
BancBoston Leasing Inc. ("Lessor"), a Massachusetts corporation with its
principal place of business at 100 Federal Street, Boston, Massachusetts 02110
and Allou Distributors, Inc. ("Lessee"), a New York corporation with its
principal place of business at 50 Emjay Boulevard, Brentwood, NY 11717.
IN CONSIDERATION OF the mutual promises and covenants contained
herein, Lessor and Lessee hereby agree as follows:
1. Property Leased. At the request of Lessee and subject to the
terms and conditions of this Lease Agreement, Lessor shall lease to Lessee and
Lessee shall lease from Lessor such personal property ("Equipment") as may be
mutually agreed upon by Lessor and Lessee. The Equipment shall be selected by or
ordered at the request of Lessee, identified in one or more equipment schedules
substantially in the form of Exhibit A attached hereto ("Equipment Schedule")
and accepted by Lessee in one or more certificates of acceptance ("Certificate
of Acceptance") in the form of Exhibit B attached hereto. Each Equipment
Schedule executed by Lessor and Lessee and each Certificate of Acceptance
executed by Lessee shall constitute a part of this Lease Agreement.
2. Certain Definitions.
2.1 The "Commencement Date" shall mean the date on which the
Equipment identified in the applicable Equipment Schedule is accepted by Lessee
under this Lease Agreement. Each Commencement Date shall be evidenced by the
Certificate of Acceptance applicable to such Equipment Schedule.
2.2 The "Rent Start Date" shall mean either (i) the first day of
the month following the month in which the Commencement Date occurs or (ii) the
Commencement Date, if the Commencement Date occurs on the first day of the
month.
2.3 The "Monthly Rent" shall mean the amount set forth in the
applicable Equipment Schedule as Monthly Rent for the Equipment identified on
such Equipment Schedule.
2.4 The "Daily Rent" shall mean one-thirtieth (1/30) of the
Monthly Rent.
2.5 The words "herein", "hereof", and "hereunder" shall refer to
this Lease Agreement as a whole and not to any particular section. All other
capitalized terms defined in this Lease Agreement shall have the meanings
assigned thereto.
3. Term of Lease; Payment of Rent.
3.1 The term of lease for the Equipment ("Lease Term") shall
begin on the Commencement Date set forth in the applicable Certificate of
Acceptance and shall continue during and until the expiration of the number of
full calendar months set forth in the applicable Equipment Schedule, measured
from the Rent Start Date. The Lease Term may not be cancelled or terminated
except as set forth in Section 10.2 below.
3.2 Aggregate Daily Rent shall be due and payable by Lessee on
the Rent Start Date in an amount equal to the Daily Rent multiplied by the
actual number of days elapsed from, and including, the Commencement Date to, but
excluding, the Rent Start Date. The Monthly Rent shall be due and payable on the
Rent Start Date and, thereafter on the first day of each month of the Lease
Term. All Daily Rents and Monthly Rents shall be paid to Lessor at its office in
Boston, Massachusetts.
4. Acceptance of Equipment; Exclusion of Warranties.
4.1 Lessee shall signify its acceptance of the Equipment
identified in the applicable Equipment Schedule by promptly executing and
delivering to Lessor a Certificate of Acceptance. Lessee acknowledges that its
execution and delivery of the Certificate of Acceptance shall conclusively
establish, as between Lessor and Lessee, that the Equipment has been inspected
by Lessee, is in good repair and working order, is of the design, manufacture
and capacity selected by Lessee, and is accepted by Lessee under this Lease
Agreement.
4.2 In the event the Equipment is ordered by Lessor from a
manufacturer or supplier at the request of Lessee, Lessor shall not be required
to pay the purchase price for such Equipment unless and until the applicable
Certificate of Acceptance has been received by Lessor. Lessee hereby agrees to
indemnify, defend and hold Lessor harmless from any liability to any
manufacturer or supplier arising from the failure of Lessee to lease any
Equipment which is ordered by Lessor at the request of Lessee or for which
Lessor has assumed an obligation to purchase.
4.3 Lessor leases the Equipment to Lessee and Lessee leases the
Equipment from Lessor "AS IS" and "WITH ALL FAULTS". Lessee hereby acknowledges
that (i) Lessor is not a manufacturer, supplier or dealer of such Equipment nor
an agent thereof; and (ii) LESSOR HAS NOT MADE, DOES NOT MAKE, AND HEREBY
DISCLAIMS ANY REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH
RESPECT TO THE EQUIPMENT INCLUDING, BUT NOT LIMITED TO, ITS DESIGN, CAPACITY,
CONDITION, MERCHANTABILITY, OR FITNESS FOR USE OR FOR ANY PARTICULAR PURPOSE.
Lessee further acknowledges that Lessor is not responsible for any repairs,
maintenance, service, latent or other defects in the Equipment or in the
operation thereof, or for compliance of any Equipment with requirements of any
laws, ordinances, governmental rules or regulations including, but not limited
to, laws with respect to environmental matters, patent, trademark, copyright or
trade secret infringement, or for any direct or consequential damages arising
out of the use of or inability to use the Equipment.
4.4 Provided no Event of Default, as defined in Section 15 below,
has occurred and is continuing, Lessor agrees to cooperate with Lessee, at the
<PAGE>
sole cost and expense of Lessee, in making any claim against a manufacturer or
supplier of the Equipment arising from a defect in such Equipment. At the
request of Lessee, Lessor shall assign to Lessee all warranties on the Equipment
available from any manufacturer or supplier to the full extent permitted by the
terms of such warranties and by applicable law.
5. Ownership; Inspection; Maintenance and Use.
5.1 Title to the Equipment shall at all times be in the name of
Lessor. Any Equipment subject to titling and registration laws shall be titled
and registered by Lessee on behalf of and in the name of Lessor at the sole cost
and expense of Lessee. Lessee shall cooperate with and provide Lessor with any
information or documents necessary for titling and registration of the
Equipment. Upon the request of Lessor, Lessee shall execute any documents or
instruments which may be necessary or appropriate to confirm, to record or to
give notice of the interest of Lessor in the Equipment including, but not
limited to, financing statements under the Uniform Commercial Code. Lessee, at
the request of Lessor, shall affix to the Equipment, in a conspicuous place, any
label, plaque or other insignia supplied by Lessor designating the interest of
Lessor in the Equipment.
5.2 The Equipment shall be located at the address specified in
the applicable Equipment Schedule and shall not be removed therefrom without the
prior written consent of Lessor. Lessor, its agents or employees shall have the
right to enter the premises of Lessee, upon reasonable notice and during normal
business hours, for the purpose of inspecting the Equipment.
5.3 Lessee shall pay all costs, expenses, fees and charges
whatsoever incurred in connection with the use and operation of the Equipment.
Lessee shall, at all times and at its own expense, keep the Equipment in good
repair and working order, reasonable wear and tear excepted. Any maintenance
contract required by a manufacturer or supplier for the care and upkeep of the
Equipment shall be entered into by Lessee at its sole cost and expense. Lessee
shall permit the use and operation of the Equipment only by personnel authorized
by Lessee and shall comply with all laws, ordinances or governmental rules and
regulations relating to the use and operation of the Equipment.
6. Alterations and Modifications. Lessee may make, or cause to be
made on its behalf, any improvement, modification or addition to the Equipment
with the prior written consent of Lessor, provided, however, that such
improvement, modification or addition is readily removable without causing
damage to or impairment of the functional effectiveness of the Equipment. To the
extent that such improvement, modification or addition is not so removable, it
shall immediately become the property of Lessor and thereupon shall be
considered Equipment for all purposes of this Lease Agreement.
7. Equipment Use; No Defense, Set-Offs or Counterclaims.
7.1 Provided no Event of Default, as defined in Section 15 below,
has occurred and is continuing, Lessee shall have the use of the Equipment in
the ordinary course of its business during the Lease Term without interruption
by Lessor or any person or entity claiming through or under Lessor.
7.2 Lessee acknowledges and agrees that ANY DAMAGE TO OR LOSS,
DESTRUCTION, OR UNFITNESS OF, OR DEFECT IN THE EQUIPMENT, OR THE INABILITY OF
LESSEE TO USE THE EQUIPMENT FOR ANY REASON WHATSOEVER, SHALL NOT (i) GIVE RISE
TO ANY DEFENSE, COUNTERCLAIM, OR RIGHT OF SET-OFF AGAINST LESSOR, OR (ii) PERMIT
ANY ABATEMENT OR RECOUPMENT OF, OR REDUCTION IN DAILY OR MONTHLY RENT, OR (iii)
RELIEVE LESSEE OF THE PERFORMANCE OF ITS OBLIGATIONS UNDER THIS LEASE AGREEMENT
INCLUDING, BUT NOT LIMITED TO, ITS OBLIGATION TO PAY THE FULL AMOUNT OF DAILY
RENT AND MONTHLY RENT, WHICH OBLIGATIONS ARE ABSOLUTE AND UNCONDITIONAL, unless
and until this Lease Agreement is terminated with respect to such Equipment in
accordance with the provisions of Section 10.2 below. Any claim that Lessee may
have which arises from a defect in or deficiency of the Equipment shall be
brought solely against the manufacturer or supplier of the Equipment and Lessee
shall, notwithstanding any such claim, continue to pay Lessor all amounts due
and to become due under this Lease Agreement.
8. Adverse Claims and Interests.
8.1 Except for any liens, claims, mortgages, pledges,
encumbrances or security interests created by Lessor, Lessee shall keep the
Equipment, at all times, free and clear from all liens, claims, mortgages,
pledges, encumbrances and security interests and from all levies, seizures and
attachments. Without limitation of the covenants and obligations of Lessee set
forth in the preceding sentence, Lessee shall immediately notify Lessor in
writing of the imposition of any prohibited lien, claim, levy or attachment on
or seizure of the Equipment at which time Lessee shall provide Lessor with all
relevant information in connection therewith.
8.2 Lessee agrees that the Equipment shall be and at all times
shall remain personal property. Accordingly, Lessee shall take such steps as may
be necessary to prevent any person from acquiring, having or retaining any
rights in or to the Equipment by reason of its being affixed or attached to real
property.
9. Indemnities; Payment of Taxes.
9.1 Lessee hereby agrees to indemnify, defend and hold harmless
Lessor, its agents, employees, successors and assigns from and against any and
all claims, actions, suits, proceedings, costs, expenses, damages and
liabilities whatsoever arising out of or in connection with the manufacture,
ordering, selection, specifications, availability, delivery, titling,
registration, rejection, installation, possession, maintenance, ownership, use,
leasing, operation or return of the Equipment including, but not limited to, any
claim or demand based upon any STRICT OR ABSOLUTE LIABILITY IN TORT and upon any
infringement or alleged infringement of any patent, trademark, trade secret,
license, copyright or otherwise. All costs and expenses incurred by Lessor in
connection with any of the foregoing including, but not limited to, reasonable
legal fees, shall be paid by Lessee on demand.
9.2 Lessee hereby agrees to indemnify, defend and hold Lessor
harmless against all Federal, state and local taxes, assessments, licenses,
withholdings, levies, imposts, duties, assessments, excise taxes, registration
fees and other governmental fees and charges whatsoever, which are imposed,
assessed or levied on or with respect to the Equipment or its use or related in
any way to this Lease Agreement ("Tax Assessments"), except for taxes on or
measured by the net income of Lessor determined substantially in the same manner
as under the Internal Revenue Code of 1986, as amended. Lessee shall file all
returns, reports or other such documents required in connection with the Tax
Assessments and shall provide Lessor with copies thereof. If, under local law or
custom, Lessee is not authorized to make the filings required by a taxing
authority, Lessee shall notify Lessor in writing and Lessor shall thereupon
undertake to file such returns, reports or documents. Without limiting any of
the foregoing, Lessee shall indemnify, defend and hold Lessor harmless from all
penalties, fines, interest payments, claims and expenses including, but not
limited to, reasonable legal fees, arising from any failure of Lessee to comply
with the requirements of this Section 9.2.
9.3 The obligations and indemnities of Lessee under this Section
9 for events occurring or arising during the Lease Term shall continue in full
force and effect, notwithstanding the expiration or other termination of this
Lease Agreement.
<PAGE>
10. Risk of Loss; Loss of Equipment.
10.1 Lessee hereby assumes and shall bear the entire risk of loss
for theft, damage, seizure, condemnation, destruction or other injury whatsoever
to the Equipment from any and every cause whatsoever. Such risk of loss shall be
deemed to have been assumed by Lessee from and after such risk passes from the
manufacturer or supplier by agreement or pursuant to applicable law.
10.2 In the event of any loss, seizure, condemnation or
destruction of the Equipment or damage to the Equipment which cannot be repaired
by Lessee, Lessee shall immediately notify Lessor in writing. Within thirty (30)
days of such notice, during which time Lessee shall continue to pay Monthly
Rent, Lessee shall, at the option of Lessor, either (i) replace the Equipment
with equipment of the same type and manufacture and in good repair, condition
and working order, transfer title to such equipment to Lessor free and clear of
all liens, claims and encumbrances, whereupon such equipment shall be deemed
Equipment for all purposes of this Lease Agreement, or (ii) pay to Lessor an
amount equal to the present value of the aggregate of the remaining unpaid
Monthly Rents plus any other costs actually incurred by Lessor. The present
value shall be determined by discounting the aggregate of the remaining unpaid
Monthly Rents to the date of payment by Lessee at the rate of five (5) percent
per annum. Any insurance or condemnation proceeds received by Lessor shall be
credited to the obligation of Lessee under this Section 10.2 and the remainder
of such proceeds, if any, shall be paid to Lessee by Lessor in full compensation
for the loss of the leasehold interest in the Equipment by Lessee.
10.3 Upon any replacement of or payment for the Equipment as
provided in Section 10.2 above, this Lease Agreement shall terminate only with
respect to the Equipment so replaced or paid for, and Lessor shall transfer to
Lessee title only to such Equipment "AS IS", "WITH ALL FAULTS", and WITH NO
WARRANTIES WHATSOEVER, EITHER EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION,
ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR USE OR FOR ANY PARTICULAR
PURPOSE. Lessee shall pay any sales or use taxes due on such transfer.
11. Insurance.
11.1 Lessee shall keep the Equipment insured against all risks of
loss or damage from every cause whatsoever occurring during the Lease Term, for
an amount not less than the higher of the full replacement value of the
Equipment or the aggregate of unpaid Daily Rent and Monthly Rent for the balance
of the Lease Term. Lessee shall also carry public liability insurance, both
personal injury and property damage, covering the Equipment, and Lessee shall be
liable for any deductible portions of all required insurance.
11.2 All insurance required under this Section 11 shall name
Lessor as additional insured and loss payee. Such insurance shall also be with
such insurers and shall be in such forms and amounts as are satisfactory to
Lessor. All applicable policies shall provide that no act, omission or breach of
warranty by Lessee shall give rise to any defense against payment of the
insurance proceeds to Lessor. Lessee shall pay the premiums for such insurance
and, at the request of Lessor, deliver to Lessor duplicates of such policies or
other evidence satisfactory to Lessor of such insurance coverage. In any event,
Lessee shall provide Lessor with endorsements upon the policies issued by the
insurers which evidence the existence of insurance coverage required by this
Section 11 and by which the insurers agree to give Lessor written notice at
least twenty (20) days prior to the effective date of any expiration,
modification, reduction, termination or cancellation of any such policies.
11.3 The proceeds of insurance required under this Section 11 and
payable as a result of loss or damage to the Equipment shall be applied as set
forth in Section 10.2 above. Upon the occurrence of an Event of Default as
defined in Section 15 below, Lessee hereby irrevocably appoints Lessor as its
attorney-in-fact, which power shall be deemed coupled with an interest, to make
claim for, receive payment of, execute and endorse all documents, checks or
drafts received in payment for loss or damage under any insurance policies
required by this Section 11.
11.4 Notwithstanding anything herein, Lessor shall not be under
any duty to examine any evidence of insurance furnished hereunder, or to
ascertain the existence of any policy or coverage, or to advise Lessee of any
failure to comply with the provisions of this Section 11.
12. Surrender to Lessee. Upon the expiration of the Lease Term
and provided that no Event of Default, as defined in Section 15 below, has
occurred and is continuing, Lessor shall transfer title to the Equipment to
Lessee "AS IS", "WITH ALL FAULTS". and WITH NO WARRANTIES WHATSOEVER, EITHER
EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR USE OR FOR PARTICULAR PURPOSE.
13. Financial Statements. Lessee shall annually, within ninety
(90) days after the close of the fiscal year for Lessee, furnish to Lessor
financial statements of Lessee, including a balance sheet as of the close of
such year and statements of income and retained earnings for such year, prepared
in accordance with generally accepted accounting principles, consistently
applied from year to year, and certified by independent public accountants for
Lessee. If requested by Lessor, Lessee shall also provide quarterly financial
statements of Lessee, similarly prepared for each of the first three quarters of
each fiscal year, certified (subject to normal year-end audit adjustments) by
the chief financial officer of Lessee and furnished to Lessor within sixty (60)
days following the end of the quarter, and such other financial information as
may be reasonably requested by Lessor.
14. Delayed Payment Charge. Lessee shall pay to Lessor interest
upon the amount of any Daily Rent, Monthly Rent or other sums not paid by Lessee
when due and owing under this Lease Agreement, from the due date thereof until
paid, at the rate of one and one half (1-1/2) percent per month, but if such
rate violates applicable law, then the maximum rate of interest allowed by such
law.
15. Default.
15.1 The occurrence of any of the following events shall
constitute an event of default ("Event of Default") under this Lease Agreement.
(a) Lessee fails to pay any Daily Rent or any
Monthly Rent when due and such failure to pay continues for ten
(10) consecutive days; or
(b) Lessee fails to pay any other sum required
hereunder, and such failure continues for a period of ten (10)
days following written notice from Lessor; or
(c) Lessee fails to maintain the insurance as
required by Section 11 above and such failure continues for ten
(10) days after written notice from Lessor; or
(d) Lessee violates or fails to perform any other
term, covenant or condition of this Lease Agreement or any other
document, agreement or instrument executed pursuant hereto or in
connection herewith, which failure is not cured within thirty
(30) days after written notice from Lessor; or
(e) Lessee ceases to exist or terminates its
independent operations by reason of any discontinuance,
dissolution, liquidation, merger, sale of substantially all of
its assets, or otherwise ceases doing business as a going
concern; or
<PAGE>
(f) Lessee (i) applies for or consents to the
appointment of, or the taking of possession by, a receiver,
custodian, trustee, liquidator or similar official for itself or
for all or a substantial part of its property, (ii) is generally
not paying its debts as such debts become due, (iii) makes a
general assignment for the benefit of its creditors, (iv)
commences a voluntary case under the United States Bankruptcy
Code, as now or hereafter in effect, seeking liquidation,
reorganization or other relief with respect to itself or its
debts, (v) files a petition seeking to take advantage of any
other law providing for the relief of debtors, (vi) takes any
action under the laws of its jurisdiction of incorporation or
organization similar to any of the foregoing, or (vii) takes any
corporate action for the purpose of effecting any of the
foregoing; or
(g) A proceeding or case is commenced, without the
application or consent of Lessee, in any court of competent
jurisdiction, seeking (i) the liquidation, reorganization,
dissolution, winding up of Lessee or composition or readjustment
of the debts of Lessee, (ii) the appointment of a trustee,
receiver, custodian, liquidator or similar official for Lessee or
for all or any substantial part of its assets, or (iii) similar
relief with respect to Lessee, under any law providing for the
relief of debtors; or an order for relief is entered with respect
to Lessee in an involuntary case under the United States
Bankruptcy Code, as now or hereafter in effect; or an action
under the laws of the jurisdiction of incorporation or
organization of Lessee, similar to any of the foregoing, is taken
with respect to Lessee without its application or consent; or
(h) Lessee makes any representation or warranty
herein or in any statement or certificate at any time given in
writing pursuant to or in connection with this Lease Agreement,
which is false or misleading in any material respect; or
(i) Lessee defaults under any promissory note,
credit agreement, loan agreement, conditional sales contract,
guaranty, lease, indenture, bond, debenture or other material
obligation whatsoever, and a party thereto or a holder thereof is
entitled to accelerate the obligations of Lessee thereunder; or
Lessee defaults in meeting any of its trade, tax or other current
obligations as they mature, unless such obligations are being
contested diligently and in good faith; or
(j) Any party to any guaranty, letter of credit,
subordination or credit agreement or other undertaking, given for
the benefit of Lessor and obtained in connection with this Lease
Agreement, breaches, fails to continue, contests, or purports to
terminate or to disclaim such guaranty, letter of credit,
subordination or credit agreement or other undertaking; or such
guaranty, letter of credit, subordination agreement or other
undertaking becomes unenforceable; or a guarantor of this Lease
Agreement shall die, cease to exist or terminate its independent
operations.
15.2 No waiver by Lessor of any Event of Default shall constitute
a waiver of any other Event of Default or of the same Event of Default at any
other time.
16. Remedies.
16.1 Upon the occurrence of an Event of Default and while such
Event of Default is continuing, Lessor, at its sole option, upon its
declaration, and to the extent not inconsistent with applicable law, may
exercise any one or more of the following remedies:
(a) Lessor may terminate this Lease Agreement
whereupon all rights of Lessee to the use of the Equipment shall
cease;
(b) Whether or not this Lease Agreement is
terminated, Lessor may cause Lessee, at the sole cost and expense
of Lessee, to return any or all of the Equipment promptly to the
possession of Lessor in good repair and working order, reasonable
wear and tear excepted. Lessor, at its sole option and through
its employees, agents or contractors, may peaceably enter upon
the premises where the Equipment is located and take immediate
possession of and remove the Equipment, all without liability to
Lessor, its employees, agents or contractors for such entry.
LESSEE HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW,
ANY AND ALL RIGHTS TO NOTICE AND/OR HEARING PRIOR TO THE
REPOSSESSION OR REPLEVIN OF THE EQUIPMENT BY LESSOR, ITS
EMPLOYEES, AGENTS OR CONTRACTORS;
(c) Lessor may proceed by court action to enforce
performance by Lessee of this Lease Agreement or pursue any other
remedy Lessor may have hereunder, at law, in equity or under any
applicable statute including, without limitation, the rights and
remedies of a secured party under the Uniform Commercial Code of
The Commonwealth of Massachusetts or of any other jurisdiction,
and recover such other actual damages as may be incurred by
Lessor;
(d) Lessor may recover from Lessee damages, not as
a penalty but as liquidation for all purposes and without
limitation of any other amounts due from Lessee under this Lease
Agreement, in an amount equal to the sum of (i) any unpaid Daily
Rents and/or Monthly Rents due and payable for periods prior to
the repossession of the Equipment by Lessor plus any interest due
thereon pursuant to Section 14 above, (ii) the present value of
all future Monthly Rents required to be paid over the remaining
Lease Term after repossession of the Equipment by Lessor,
determined by discounting such future Monthly Rents to the date
of payment by Lessee at a rate of five (5) percent per annum, and
(iii) all costs and expenses incurred in searching for, taking,
removing, storing, repairing, restoring, refurbishing and leasing
or selling such Equipment; or
(e) Lessor may sell, lease or otherwise dispose of
any or all of the Equipment, whether or not in the possession of
Lessor, at public or private sale and with or without notice to
Lessee, which notice is hereby expressly waived by Lessee, to the
extent permitted by and not inconsistent with applicable law.
Lessor may sell, lease or dispose of the Equipment in such order
and manner as Lessor may determine. Lessor shall then apply
against the obligations of Lessee hereunder the net proceeds of
such sale, lease or other disposition, after deducting all costs
incurred by Lessor in connection with such sale, lease or other
disposition including, but not limited to, costs of
transportation, repossession, storage, refurbishing, advertising
or other fees and Lessee shall remain liable for any deficiency.
Lessor shall account for any excess of such proceeds over the
total obligations owed by Lessee, which excess shall be
immediately paid over to Lessee. Unless the Equipment threatens
to decline speedily in value or is of the type customarily sold
on a recognized market, Lessor shall give to Lessee at least five
(5) days prior written notice of the time and place of any public
sale of the Equipment or of the time after which any private sale
or other disposition of the Equipment is to be made.
16.2 No failure on the part of Lessor to exercise, and no delay
in exercising, any right or remedy hereunder shall operate as a waiver thereof.
No single or partial exercise of any right or remedy hereunder shall preclude
any other or further exercise thereof or the exercise of any other right or
remedy. Each right and remedy provided hereunder is cumulative and not exclusive
of any other right or remedy including, without limitation, any right or remedy
available to Lessor at law, by statute or in equity.
16.3 Lessee shall pay all costs and expenses including, but not
limited to, reasonable legal fees incurred by Lessor arising out of or in
connection with any Event of Default or this Lease Agreement. Lessee shall also
be liable for any amounts due and payable to Lessor under any other provision of
this Lease Agreement.
<PAGE>
17. Assignment; Sublease.
17.1 Lessor may sell, assign or otherwise transfer all or any
part of its right, title and interest in and to the Equipment and/or this Lease
Agreement to a third-party assignee, subject to the terms and conditions of this
Lease Agreement including, but not limited to, the right to the use of the
Equipment by Lessee as set forth in Section 7.1 above. Such assignee shall
assume all of the rights and obligations of Lessor under this Lease Agreement
and shall relieve Lessor therefrom. Thereafter, all references to Lessor herein
shall mean such assignee. Notwithstanding any such sale, assignment or transfer,
the obligations of Lessee hereunder shall remain absolute and unconditional as
set forth in Section 7.2 above.
17.2 Lessor may also, to the extent of its interest therein,
pledge, mortgage or grant a security interest in the Equipment and assign this
Lease Agreement as collateral. Each such pledgee, mortgagee, lienholder or
assignee shall have any and all rights as may be assigned by Lessor but none of
the obligations of Lessor hereunder. Any pledge, mortgage or grant of security
interest in the Equipment or assignment of this Lease Agreement shall be subject
to the terms and conditions hereof including, but not limited to, the right to
the use of the Equipment by Lessee as set forth in Section 7.1 above. Lessor, by
reason of such pledge, mortgage, grant of security interest or collateral
assignment, shall not be relieved of any of its obligations hereunder which
shall remain absolute and unconditional as set forth in Section 7.2 above. Upon
the written request of Lessor, Lessee shall acknowledge such obligations to the
pledgee, mortgagee, lienholder or assignee.
17.3 LESSEE SHALL NOT SELL, TRANSFER, ASSIGN, SUBLEASE, CONVEY OR
PLEDGE ANY OF ITS INTEREST IN THIS LEASE AGREEMENT OR ANY OF THE EQUIPMENT,
WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR. Any such sale, transfer,
assignment, sublease, conveyance or pledge, whether by operation of law or
otherwise, without the prior written consent of Lessor, shall be void.
18. Compliance and Approvals. Lessee warrants and agrees that
this Lease Agreement and the performance by Lessee of all of its obligations
hereunder have been duly authorized, do not and will not conflict with any
provision of the charter or bylaws of Lessee or of any agreement, indenture,
lease or other instrument to which Lessee is a party or by which Lessee or any
of its property is or may be bound. Lessee warrants and agrees that this Lease
Agreement does -not and will not require any governmental authorization,
approval, license or consent except those which have been duly obtained and will
remain in effect during the entire Lease Term.
19. Miscellaneous.
19.1 The section headings are inserted herein for convenience of
reference and are not part of and shall not affect the meaning or interpretation
of this Lease Agreement.
19.2 Any provision of this Lease Agreement which is unenforceable
in whole or in part in any jurisdiction shall, as to such jurisdiction, be
ineffective only to the extent of such unenforceability without invalidating any
remaining part or other provision hereof and shall not be affected in any manner
by reason of such enforceability in any other jurisdiction. The validity and
interpretation of this Lease Agreement and the rights and obligations of the
parties hereto shall be governed in all respects by the laws of The Commonwealth
of Massachusetts without giving effect to the conflicts of laws provisions
thereof.
19.3 This Lease Agreement, including all Equipment Schedules and
Certificates of Acceptance, constitutes the entire agreement between Lessor and
Lessee. Lessor and Lessee agree that this Lease Agreement shall not be amended,
altered or changed except by a written agreement signed by the parties hereto.
LESSEE ACKNOWLEDGES THAT THERE HAVE BEEN NO REPRESENTATIONS, EXPRESS OR IMPLIED,
BY LESSOR OTHER THAN AS SET FORTH HEREIN AND LESSEE EXPRESSLY CONFIRMS THAT IT
HAS NOT RELIED UPON ANY REPRESENTATIONS BY LESSOR, EXCEPT THOSE SET FORTH
HEREIN, AS A BASIS FOR ENTERING INTO THIS LEASE AGREEMENT.
19.4 Any notice required to be given by Lessee or Lessor
hereunder shall be deemed adequately given if sent by registered or certified
mail, return receipt requested, to the other party at their respective addresses
stated herein or at such other place as either party may designate in writing to
the other.
19.5 Lessee agrees to execute and deliver such additional
documents and to perform such further acts as may be reasonably requested by
Lessor in order to carry out and effectuate the purposes of this Lease
Agreement. Upon the written request of Lessor, Lessee further agrees to execute
any instrument necessary for filing or recording this Lease Agreement or to
confirm the interest of Lessor in the Equipment. Lessor is hereby authorized to
insert in any Equipment Schedule the serial numbers of the Equipment and other
identifying marks or similar information and to sign, on behalf of Lessee, any
Uniform Commercial Code financing statements.
19.6 This Lease Agreement cannot be cancelled or terminated
except as expressly provided herein.
19.7 Whenever the context of this Lease Agreement requires, the
singular includes the plural and the plural includes the singular. Whenever the
word Lessor is used herein, it includes all assignees and successors in interest
of Lessor. If more than one Lessee are named in this Lease Agreement, the
liability of each shall be joint and several.
19.8 All agreements, indemnities, representations and warranties
of Lessee made herein and all rights and remedies of Lessor shall survive the
expiration or other termination of this Lease Agreement, whether or not
expressly provided herein.
19.9 Any waiver of any power, right, remedy or privilege of
Lessor hereunder shall not be effective unless in writing signed by Lessor.
19.10 This Lease Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee, each by its duly
authorized officer or agent, have duly executed and delivered this Lease
Agreement, which is intended to take effect as a sealed instrument, as of the
day and year first written above.
ALLOU DISTRIBUTORS, INC.
By: /s/ DAVID SHAMILZADEH
-------------------------
Title: SR VP CFO
Accepted at Boston, Massachusetts
BANCBOSTON LEASING INC.
By: /s/ SUSAN SINTROS
--------------------------------
Title: Assistant Vice President
<PAGE>
RIDER No. 1
To
MASTER LEASE FINANCE AGREEMENT
This Rider No.1 (the "Rider") is entered into between BancBoston
Leasing Inc. ("Lessor") and Allou Distributors, Inc. ("Lessee"), and is
contemporaneous with and amends the Master Lease Finance Agreement dated as of
April 24 1996 (the "Lease Agreement") between Lessor and Lessee. It is the
intention of Lessor and Lessee that, upon execution, this Rider shall constitute
a part of the Lease Agreement.
IN CONSIDERATION OF the mutual covenants and promises as
hereinafter set forth, Lessor and Lessee hereby agree as follows:
1. All capitalized terms used in this Rider shall, unless
otherwise defined, have the meanings set forth in the Lease Agreement.
2. Following section 19 of the Lease Agreement, a new section 20
is inserted as follows:
"20. LESSOR OPTION TO TERMINATE. If (a) that certain Restated and
Amended Revolving Credit Security Agreement (the "Revolver") dated as of May 9,
1994, and as it may be further amended from time to time, by and among Lessee as
borrower, and The First National Bank of Boston ("FNBB"), and certain other
banks set forth as parties, from time to time, as lenders, should cease to be in
effect, or (b) Lessee should refinance its existing debt to FNBB with another
lender, and if there should not be in effect any successor agreement for the
extension of credit by FNBB to Lessee taking the place of such Revolver, then
Lessor, at its option, upon thirty (30) days written notice to Lessee, may
terminate the Lease Agreement with respect to all Equipment ("Terminated
Equipment") set forth on any or all Equipment Schedules of the Lease Agreement
(in each case, a "Terminated Equipment Schedule"), and Lessee shall pay to
Lessor (i) all Monthly Rent and other amounts due from Lessee, including without
limitation, any Return Fee (if applicable) under the Lease Agreement and any
Terminated Equipment Schedule and (ii) the present value of an future Monthly
Rents required to be paid over the remaining Lease Term determined by
discounting such future Monthly Rents to the date of payment by Lessee at the
rate set forth on the applicable Equipment Schedule(s) as the "Lease Rate"; and
take title to such Terminated Equipment on the first day of the month following
the expiration of such notice period (the "Termination Date").
After the Termination Date, and provided that the foregoing
conditions have been met, Lessee shall be released and discharged from all
obligations with respect to a Terminated Equipment Schedule except for any
obligations which have accrued prior to the Termination Date. Any amounts
received by Lessor as a Termination Value under this Section 20 shall not be
available to Lessee for the leasing of additional Equipment under such lease
line. If either of the events referred to in (a) or (b) above should occur,
Lessee agrees to give Lessor written notice thereof within ten (10) days
following such occurrence."
<PAGE>
The terms and conditions of this Rider shall prevail where there
may be conflicts or inconsistencies with the terms and conditions of the Lease
Agreement.
IN WITNESS WHEREOF, Lessor and Lessee, each by its duly
authorized officer or agent, have duly executed and delivered this Rider which
is intended to take effect as a sealed instrument as of the date of the Lease
Agreement.
<PAGE>
ALLOU DISTRIBUTORS, INC.
By: /s/ DAVID SHAMILZADEH
------------------------
Title: SR VP CFO
Accepted at Boston, Massachusetts
BANCBOSTON LEASING INC.
By: /s/ SUSAN SINTROS
------------------------------
Title: Assistant Vice President
<PAGE>
[BANCBOSTON LEASING LOGO]
Lease Rate = 8.67%
EXHIBIT A
EQUIPMENT SCHEDULE NO. 1
This Equipment Schedule No. 1 is hereby made a part of the MASTER
LEASE FINANCE AGREEMENT dated as of April 24, 1996 between BancBoston Leasing
Inc., as Lessor, and Allou Distributors, Inc., as Lessee.
1. EQUIPMENT DESCRIPTION (including quantity, model/feature,
identification and/or serial number):
Warehouse Equipment and Leaseholds
For further description - please see attached Exhibit A.
2.FINANCE CHARGES: $456,355.27
3.LEASE TERM: 60 months
4.ACQUISITION COST: $2,010,376.13
5.MONTHLY RENT: $41,112.19 [X] in advance [_]in arrears
6.INSTALLATION SITE: 25655 Springbrook Ave., Units #6, #7 & #8
Address
Saugus Los Angeles California 91350
----------------------------------------------
City County State Zip Code
LESSOR:
BancBoston Leasing Inc.
By: ___________________________
Title: __________________________
LESSEE:
Allou Distributors, Inc.
By: ___________________________
Title: __________________________
<PAGE>
Allou Distributors, Inc.
Equipment Schedule No. 1
Exhibit A
(1) Keyboard Assembly
(1) Jet-A-Mark Linx
(1) Cabinet Yello 120 Gal Safe-T-Dr
(1) Hazard Rating Pocket Guide
(1) Fire Protection Guide/Haz Mat
(1) Haz Chemicals Desk Reference
(1) Bulk Cold Packs 5 /12" X 10"
(1) Standard Refill Pack
(2) Coated Palm Knit Gloves
(1) Refill Kit for #10430
(11) Support Belt, Large Black
(3) Cabinet Yello 120 Gal Safe-T-Dr
(175) Allsafe Prism Uni-Lens Spec Black/Hot Pink Brow Temple Clr
(24) Allsafe Clear Replacement Lens for the Prism Spec
(1) Speakman Saf-T-Zone Shower and Eyewash
(175) Allsafe Prism Uni-Lens Spec Black/Hot Pink Brow Temple Clr
(24) Allsafe Clear Replacement Lens for the Prism Spec
(109) Allsafe Prism Uni-Lens Spec Black/Hot Pink Brow Temple Clr
(24) Allsafe Clear Replacement Lens for the Prism Spec
(3) National MSDS Training Posters, English and Spanish
(2) Pacsafe Clear Vinyl Apron 30" X 36" X 012"
(1) Kishigo Non-Hemmed Vinyl Apron 36" X 45" .012"
(2) North Large First Aid Kit (24) Allsafe Replacement Lens
(3) Nat'l See Sign 7" X 17"
(2) Nat'l See Sign 7" X 7"
(3) Nat'l Rigid Safety First
(10) OK-1 Nylon Back Support Belt
(10) Protexall Super Hairnet
(1) Speakman Open Valve
(1) Nat'l See Sign 7" X 17"
(1) Speakman Open Valve
(2) 7" X 17"See Sign
66 Lin Ft. of 8' 4-7/8" Cornile High Plush Aluma-Wall Partitions Including
(1) 3'0" X 6'8" Door Frame and Jamb and 6 PN297 Ceiling Supports
(1) Sweeper BG 80, Serial #1696
(1) Window & Door 96 X 88 Aluminum Bracket 4MM Hex Tri-Handle
Spin Fixture & Nose Assembly For Air Mist Bottle
2 Lot Vacuum Bottles Cradles
2 Lots Bottle Rotators
(1) Screening Machine Serial #595785:
(1) 2 Color Cylinder Only Base Machine
(2) Suction Hold Down System
(1) Adjustable Infeed Conveyor
(1) Pick and Place Load W/Orientor
(1) Universal Flame Treat System
(1) Flame Treat Turning Station Cylinders
Page 1 of 10
<PAGE>
(2) Pre Registration Station
(2) Print Registration Station
(2) Four Way Micro Adjust Screen Mount
(2) UV Light Mount With Exhaust and Auto Lift
(2) Fusion 450 UV Unit 460 Volt
(2) Pick and Place Unload
(1) Adjustbale Unload Conveyor
(2) UV Turning Station
(1) 12OZ Cylinder Tooling Kit
(1) American Ultraviolet curing tunnel
(1) Advance Model 4-41705 screen washer with solvent filler
(1) Advance Ultraviolet curing tunnel
(1) Folder inserter
(1) Lawson Nova 3046 photographic enlarger
(1) Nuarc P1400 processor
(1) Convert 48" accumulation
(1) Lid for small piston filler
(1) Belt conveyor for piston filler to convert side plate
(1) 4" tandem shear pipeline mixer complete with swivel casters
(1) Autoroll A-10 modular automatic screen printing system for
cylinders SN: 585693 complete with suction holddown system for
highspeed operation, adjustable infeed conveyor, pick and place
load with neck/base orienter, universal flame treating system,
flame treating turning station for cylinders, cylinder
preregistration station, cylinder registration station, four way
micro adjust screen mount, UV light mount with exhause and
automatic lift, UV light (fusion systems F450 standard) UV
turning station, adjustable unload conveyor, bottle cleaning
station
(1) Two ink jet bottom coders mount on side, belt carriers
(1) Nordenmatic Model 700 Hot Air Filling & Sealing Machine W/One
Additional Set of Tooilng, S/N# 52140
(1) Model P-3-15, "Steel It" Explosion-Proof Motors and
Explosion-Proof On/Off at Machine
(1) Set of Change Parts Included for 16 Oz. @ 120 CPM
(1) Model 2D-3-4 W/(2) 15 Cubic Foot Hoppers, 76" Square Base
Assembly/Hardcoat Anodized Aluminum Top Plate
- Drive Chain-Heavy Gearing
- Allen-Bradley PLC-SLC 500
- Discharge Conveyor to the Edge of Base Frame
- Platform Decking and Ladder
(1) Set of Change Parts 8 Oz.
(2) Additional Sets of Change Parts for 12 Oz.
and 16 Oz.
(1) Model P-4-15, "Steel It"
(1) Set of Change Parts for 16 Oz. at 90 CPM
(1) Machine Direction L To R, Extended Chutes Built
to Send Bottles, Laying Down, Base
First Down Stream, 36" Conveyor Height
(2) Additional Sets of Change Parts for 2 Oz. and
32 Oz. Extended
(1) Model P-4-15, "Steel It"
(1) Set of Change Parts for 3 Oz. at 120 CPM
- Machine Direction L To R Extended Chute
Built to Send Bottles, Laying Down, Base
First Down Stream, 36"Conveyor Height
(1) Great Lakes Model TS-37 inline automatic horizontal wrapper with
NEMA 12 U.L. approved main control box, including but not limited
to the following standard features:
- Continuous motion operation;
- Programmable logic controller;
- Precision temperature control - hot knife
cross seal;
Page 2 of 10
<PAGE>
- Low voltage ribbon side sealer;
- Central lubrication;
- 10' Flighted infeed;
- Vertical drop tee-lugs;
- Rapid handwheel change over;
- Film mizer wheel;
- 8" Seal jaw with seal jaw bridge;
- Varible Speed Discharge
- 2 1/2" high Z-shaped paper guide
(1) Shrink Wrap Machine Model TS37 with Special 10 Ft. Infeed, T Lugs
Variable Speed Discharge Seal
(1) Belco ST 1608 High Speed Great Lakes 737-2 Bundler and HVP4-448
Tunnel
(1) Newbridge 3624 Mainstreet Channel Bank with Internal CSU
(1) Hydraulic Blow Molding System For Bottles
(1) Meg VLB Video Controller 1280 X 1024 S/N# 001079/AL1029-E
(1) Platinum Payroll Software System Manager-Single User X-Trieve
with Platinum Integration Implementation, System Set-Up
(1) 486DX-33MHZ at VLB System 486DX-33MHZ W/256K Writeback Cache,
S/N# VLB 421832, Intel Processor;UMC Chipset; AMI Bios Mid Tower
Chassis W/230 Watt UL Power Supply FCC Class B Approved &
JCE-PAM-4-VAT Dos 6.0, S/N# 1B-210050, 4 Meg Ram 200 Meg Ide Hard
Drive S/N# Bl19CZKS, Orchid VLB HD/FD at 1/O Controller S/N#
57213, 1.2/5/25" Teac Floppy S/N# N166064, 101 Enhanced Keyboard
S/N# 930504062, 14" VLB SVGA 1280 X 1024NI .28MM Monitor
(1) Omso Model RS37/UV Single Color Bottle Printer-Auto-Screen
Printing Machine Complete with Fusion F450 UV Curing System S/N#
G1470 Including (2) Sets of 160z. Tooling
(1) Counter Rotating Two Speed Agitator Assembly For 1360 Gallon Mix
Tank T-304 Stainless Steel
(1) Willett Labeljet Inc. Model 2300-45 Automatic Microprocessor
Controlled Airjet Pressure Sensitive Applicator
(2) Photo-Electric Product Detector With Mounting Hardware
(2) U-Arm to Mount Applicator to Existing T-Base Stand
(2) 3820 Mek Final Assy-Demo
(2) KID III
(2) Photocell Assembly 38XX
(1) 6500 Gallon Vert Tank
(2) Batch Controller
(2) Installation Tee
(2) Paddle Wbeel Flo Sensor
(3) 6500 Gallon Vert Tank
(1) 50 Ft. Kuritek Clear Suction Hose
(1) 60 Ft. Wht FDA Suction Hose
(1) Omso RS37 Two Colr Incline Automatic Silk Screening Machine
(3) Semi Auto Silk Screening Machines
(7) Evaporative Coolers
(1) 15' Ft. Drying Chamber For Semi Auto Screen Printers
(1) 25' Conveyor System
(2) Jacketed Mixing Tanks, Stainless Steel
(2) Variable Speed Mixers For Mixing Tanks
(4) Carton Coder
(1) Wastewater Discharge Control System Including Pumps, Filters and
Controls(l)
(1) High Speed Capper S/N: C-8-C-LC-LR-0340
(1) Capper Elevator for Rotary Shampoo Line S/N: C.E.0343
Page 3 of 10
<PAGE>
(1) Rebuild U.S. Rotary Filler - change from vacuum to pressure
system 480 transformer
(1) Wiring
(1) Post Surge Optics
(1) Level Control
(1) Allowance for 10% Window
(1) Set of 12 Ounce Container Parts
(15) Conveyor
(1) Infeed End Bracket
(1) Variable Speed Conveyer Drive
(1) Conveyer Support Legs
(1) Supports and Chain for Conveyor
(1) Set of 8 Ounce Change Parts for Rotary Filler
(7) Cavity Injection Blow Molds for a Jomar 85 Ton, Comprised of Two
Molding Stations
(1) 1,400 Gallon SS Single Wall Tank (Alcohol) S/N 36112706
(1) 5,000 Gallon Steel Tank W/Frame S/N 145148463
(1) Cooling Tower S/N 87-200444
(1) Clark Forklift S/N 355-726-4161
(1) 45 KVA Transaformer S/N 29-1/87-185609
(2) Ron Unger Single Head Filling Machine S/N 128874 & 018760
(1) Ron Unger 12 Head Filling Machine S/N 118724
(1) Pack West 6 Head Piston Filler S/N PF-6-0030
(1) Pack West Capper S/N C-6-0031
(1) E.L.F. 6 Hd Filler S/N ELF771
(2) Pack West Unscrambler S/N U-6-0032
(2) Wilton Carton Sealers S/N 113862 & 113863
(1) Alesco Piston Filler S/N 55773
(3) Waukeshau SS Pumps S/N D06754455, 1338855 & 891725
(1) Wilden M-8 SS S/N 31655
(2) 5,000 Gallon SS Single Wall Tank S/N 3911017
(1) 750 Gallon Jacketed SS Tank With Dual Motion Agitator S/N 49304
(1) 1,400 Gallon Jacketed Tank With Agitator S/N 49305
(1) 3,000 Gallon SS Tank W/Cooling Jacket S/N 3760852
(1) 1,400 Gallon SS Single Wall Tank (Alcohol) S/N 31728-9
(2) 1,900 Gallon Poly Tanks S/N 5T-1900
(1) 850 Gal SS Single Wall Tank S/N 5KS826GN239PE
(2) 60 Gal Legion Stm Jacketed Kettles S/N 5OZ-9E-03
(1) 120 Gal Jacketed Mix Tank S/N 49313
(1) 5,000 Gallon Steel Tank W/Frame S/N 7060
(2) SS Inline Filters S/N 060499
(1) Batch Controller For D.I. Water S/N CGT34FK38A
(3) Aro Drum Pump S/N A, B & C
(1) Parker Boiler 40 HP S/N 33454
(1) Parker Boiler 25 HP S/N 37118
(1) Cooling Tower S/N .89-200444
(1) Dalemark Coder S/N 874-137
(1) Toledo Digital Scale S/N N06016049
(1) Curtis 25 HP Compressor S/N C-17470
(1) Pallet Racks S/N 4431011889
(2) Pallet Jacks S/N 7006898319
(1) Clark Forklift S/N 356-116-514S
(1) Toyota Forklift S/N 355-726-4161
(2) ARC Welder S/N JG138740
(1) 45 KVA Transformer S/N 29-10/86-181793
Page 4 of 10
<PAGE>
(1) Telephone System S/N RJ21 X
(1) Alarm System S/N 87C0l62
(1) Willett 2610 Printer Applicator System S/N 9226-0037
Lighting Fixtures Glass Display - Front Window Neon Sign
Modular Racks Free-Standing Aisle Shelving - 8'
Free-Standing Aisle Shelving - 6' Free-Standing Aisle
Shelving - 64 Wire Dividers & Hardware For Shelving
Free-Standing Swivel Racks - 4 Sided Free-Standing Swivel
Racks - 2 Sided Display Cabinets Service Counters Glass
Shelving Modular Peg Boards and Hardware Mirrors - Back Wall
4x8 Sections Counter Displays - Glass Counter Displays -
Plastic Cash Registers and Calculators Wire and Plastic
Display Baskets HAVC
(19) Savin Fax I
(1) Savin Fax IV
(1) AT System, Amdex 1280 Monitor, AST Keyboard, Microsoft Mouse and
Printer Switch
(1) Desktop Publishing
(1) PC System With 60Meg NB, 640K, All Ports
(2) PC Systems With One Disk and One Port
(1) Order Entry System - Data General Mini-Computer SW
(1) Computer Equipment for Third Watson System
(1) Pallet Racks
(1) Wilden Pump M-8
(1) Manchester 200 Gal Receiver
(1) Rl00A Air Drive
(1) AH 125 Air Cooled After Coller
(1) F420BF00 5 Micron Air Filter W/Auto Drain 1 1/2"
(1) R40 OBOO 1 1/2" Regulator
(1) Tank Stand For Perm
(1) B/S Mixer
(1) Curtis 25HP Used Compressor
(2) 2 x l 1/2" SS Bushing
(1) 1 1/2" x Close
(2) 1 1/2" Type A
(1) Air Fittings
(1) 1 1/2 x 6"
(1) 1 1 /2" x 1 1 /4" SS Bushing
(1) 1 1/2" Type A Camlock
(1) 1 1/2" Type F Camlock
(1) 6" x l 1/2" SS Nipple
(1) 1 1/2" x 90 DEG SS EL
(1) Lot Brass Fittings
(150 Ft.) 3/4" Raided Nylon Hose (Alcohol Filler)
Page 5 of 10
<PAGE>
(1) Belts & Shives For Speed Increase on Cond Mix
(1) Belt For Cooling Tower
(1) Voltage Regulator
(2) Brass Needle Valves
(1) 5 Gal Dod Ink
(1) Pressure Switch (Cooling Tower)
(1) 5 Gal Dod Ink
(12) C.I.J. Solvent
(1) Fabricate SS Bridge For 40 Gal Kettle
(1) 1 1/2" Type C 90 Deg SS
(8) 1 1/2" Type C SS
(1) Mixer Stand
(20) Hose Clamp
(4) 1 1/2" Dust Cap SS
SS-12 Chain
2" Butterfly Valve With 1 1/2" Welded Kamlock
P/N 2001603012 Willett CIJ Nozzle
(10) Viton Crepaco 0 Rings
(10) Viton Crepaco Lipseals
OMSO RS37/UV One Color Screen Printing Machine With:
- Flaming Unit
- Pre-Register and Register Device
- 1 Print Station with One Cylinder Device Inflation and No
Bottle, No Print Device - 1 UV Walking Beam and Cabinet Including
Fusion F-450 Lamp Syst. - 360 Degree Wrap Around UV Shielding
with Safety Disconnects - Electrics 220v, 3 Phase, 60c
(1) Everex/Lasermaster Image Processing System Including:
Everex Step/AGI 486/33 33mhz PC/AT Compatible
Tower Case With 220W Power Supply
128K High Speed 25NS System Static Cache 16MB System Memory on
Board 160MB ESDI Winchester Disk With Controller 101 Key Enhanced
Keyboard 1.2MB 5.25" Floppy Disk Drive 1.44MB 3.5" Floppy Disk
Drive 1 Serial Port/l Parallel Port 60MB QIC-50 1/4" lnternal
Tape Drive Evervision VGA Color Monitor VGA Video Card, 256KB
Memory Microsoft Compatible Bus Mouse Lasermaster Turbores
Typeshop Which Includes: Turboview 19" Gray Scale Monitor
Turbosetter 1000 Laser Image Setter Including: 6MB Raster Imaging
Processor Card 2MB Video Controller Daughter Board Real Time
Panning and Zooming High Resolution Drivers 135 Vector Scalable
Fonts Postscript Interpreter All Required Cables, Paper and Toner
Cartridge
MS Windows V3.0 Menu Utility "PC Image", Correl Draw Syquest 44MB
Removable Hard Disk Drive, With Interface and Cables, Place of
60MB QIC-60 Tape Backup. Includes Appropriate Software, Cables,
SCSI Interface Adapter, (1) 44MB Removable Cartridge
Page 6 of 10
<PAGE>
(4) L Shaped Desks W/ Chair
(4) Lateral Files
(2) Folding Tables
(1) Sharp Copier W/Stand #SS8600
(2) Wood Finish Desk W/Chair
(1) Model 148 Latter Heat Shrink Tunnel S/N 867385
(1) Arenco Twin Tube Filler S/N 43680
(1) CPC Model M400 Bottom Coder W/Dennison Accuprint
(1) U.S. Bottlers Model VC-30LS Filling Line
(1) Fillamatic Model AB-5 Vial Filler
(1) 3000 Gal SS Jacketed Tank With Agitator
(1) Sullivan Lab Size Colloid Mill
(1) Victory Dbl Sided Commercial Refrig
(1) Paramount Fitness Trainer W/Rowing Machine
(1) Spincure UV Dryer With Fusion UV Curing System With 10"D Bulb
220V, 60C, 3 Phase
(1) 4S/131 Screen Printing Machine With: Speed Inverter/Cylindrical
Attachment/Tooling For 4 Oz. Cylindrical Bottle, With
Registration/Machine Base
(1) OMSO Orientmatic Unscrambler
(1) Palace Bottle Unscrambler
(1) Palace Bottle Unscrambler w/exp motors and remote mtd. control
panel
(1) Willet 3150 DOD Systems including carton feeder
(1) Motorola RISC System 8408 Including the Following:
Processor With 8 Megabyte of Memory
Master Terminal
60 Megabyte Disk Drive 150 Megabyte Streamer Tape Sussystem 32
Serial Ports (Users) 1 Printer Ports Uninteruptible Power Supply
Unix and Cdos License (For 32 Users) 1200 Baud Modem Application
Programs and Data Conversion
(2) Printronix 6040 Printers S/N A305243 & A305242
(1) Warehouse Demand Printer Facit S/N 562813
(1) Pack West FullynAutomatic Four Barrel Piston Filler#4BPFQSWRFG022
(1) Pack West Inline Auto 120 Capper S/N C6LRRC0225
(1) Pack West Model 48 Inch Rotary Unscrambler
(1) Pack West Model 48 Inch Rotary Accumulator (1 Lot) Connecting
Stainless Steel Conveyor
(1) Willet Model #3840 Small Character Ink Jet Printer #90060466105
(1) Pack West Bottom Coder Conveyor
(8) 525 Gallon Polyethelene Storage Tanks W/Ball Valves
(1) Willet Model #3150 Large Char. Ink Jet Printer W/Conveyor S/N
88370416001
(1) Carbon Steel Storage Tank 8200 Gallons (Including Stand) S/N
KTP12889
(1) Mixer Part #FGV075
(1) 2" Batch Controller (Meter) For Standapol (Includes PC100) S/N
122189
Page 7 of 10
<PAGE>
Construction and Leaseholds:
- ----------------------------
* Walls type I - Fire rated walls
Framing to be done with 3 5/8" x 1 5/8" steel studs 16 gage 30'
high with sound insulation with four ply 5/8" fire treated sheet
rock and laminated 12' high fire treated plywood
* Walls type II
Framing to be done with 3 5/8" x 1 5/8" steel studs 16 gage 12'
high with sound insulation two sided 5/8" x 10' sheet rock
* Walls type III
Framing to be done with 3 5/8' x 1 5/8' steel studs 20 gage 1 2'
high with sound insulation two sided 5/8" x 10' sheet rock
* Plumbing
Demolish and cap off 19 points. Furnish and install 19 new
fixtures in place of the old points. Prepare piping for 14 new
additional points. Furnish and install new fixtures with all new
piping.
* Sprinklers
Furnish and install new sprinkler heads throughout the following
areas: New offices, mezzanine/R/x department, inventory control,
traffic, warehouse management area, main entrance, receptionist
and waiting area, corridors, and warehouse lunch rooms. Also
install a new temper valve and shut off switch to main system.
* HVAC
Furnish and install new heating and cooling systems including a
supply and direct return ducts, fire dampers and diffusers and
all related hardware including necessary piping for condinsating
line and new high-pressure gas line for new heat pump for HVAC
system.
* Electrical
Remove all hazardous wiring and all receptacles and fixtures from
the warehouse due to frayed wiring, hazardous conditions and/or
inefficient lighting conditions.
* Warehouse
Install new 200 amp line and two new 75 kva transformers 480 to
277 volts. Relocate one transformer from loading doc into
warehouse #5. Reloacte battery charges for high-lows from
warehouse #1 to warehouse #5 opposite load doc wall. Furnish and
install new outlets for security alarm system in warehouse #5.
Furnish and install new wiring for exit lights in warehouse #5.
Furnish and install new circuit breakers for lighting systems.
Furnish and install new lights at a height of 28' f.f. Floor. 277
volts 400-watts mercury model ar22 prisms covered by 22'
reflected lenses to increase illumination to increase energy
efficiency ard decrease energy cost.
* Office
Furnish and install new 2' x 4' lay-in light fixtures 277 volts
with electronic ballasts and chrome reflectors. Outlets, light
switches emergency battery operated lights, lighted exit
Page 8 of 10
<PAGE>
signs above all exits and wherever necessary throughout all the
offices. Furnish and install two new panel boxes 200 amps each.
* Ceilings type I
Furnish and install new 2' x 2' revealed tiles soundproof in
executive offices.
* Ceilings type II
Furnish and install new 2' x 4' revealed 32 score tiles in the
office areas.
* Ceilings type III
Furnish and install new 2' x 4' fire-rated revealed 32 score
tiles in the office areas beneath R/x department.
* Ceilings type IV
Furnish and install new 2' x 4' lay-in standard ceiling tiles in
all other common areas.
* Doors & Hardware
Includes doors, frames, hinges, locks, automatic door closures,
and door stoppers. Doors and frames are to be steel and will meet
fire-standard ratings.
* Doors type I
Entry doors with welded frames into masonry walls.
* Doors type II
Interior doors with k/d frames to be installed in sheetrock
walls.
* Doors type III
Interior double doors single frame active and inactive doors with
built-in safety latches.
* Painting
Prepare all walls with plaster and/or compound to fill all holes,
cracks or voids in preparation for painting.
* Type I
All interior office walls to be Benjamin Moore semi-gloss.
* Type II
All doors and frames to be painted with Benjamin Moore semi-gloss
oil paint.
* Type III
Warehouse walls where needed to be painted with Benjamin Moore
industrial oil paint.
* Floors
All floors throughout the construction area are to be skim coated
and leveled with levellastic cement and 100% latex binder.
* Type I
Office area to be carpet tile 18" x 18" 40 oz. wt. with vinyl
backing manufactured by Interface Carpet Mills with releasavle
adhesive.
* Type II
Vinyl tile 12" x 12" x 1/8" thickness manufactured by Ezrock Tile
Mfg. 4" rubber cove base to be instaled throughout the
installation. Cove base manufactured by V.P.I. Rubber Products.
Page 9 of 10
<PAGE>
* Mezzanine
Furnish and install 200 beams 1 5/8" x 12" x 18" 10 gauge.
Furnish and install 2,100' of 20 gauge corrugated steel decks.
Furnish and install two layers half inch sound board two layers
of treated plywood.
* Renovation of old existing office space
Renovation Includes the following: removal of some old walls,
removal of old and shabby and stained ceilings, removal of old
light fixtures, removal of some old VAC ducts including
registers, removal of all old flooring and all data and
communication lines and jacks. Reinstall some new walls and new
ceilings, new electrical wiring and recepticals and fixtures.
Painting and flooring for all of the above. Install eight new 1
1/2 hour fire rated doors with new frames. Reinstall new HVAC
ducts. The following departments are included in the above scope
of work; executive offices, accounting, bookkeeping, data
processing, purchasing and adjustments.
BancBoston Leasing Inc.
By: ___________________________
Title: __________________________
Allou Distributors, Inc.
By: ___________________________
Title: __________________________
Page 10 of 10
<PAGE>
[BANCBOSTON LEASING LOGO]
EXHIBIT B
CERTIFICATE OF ACCEPTANCE
To: BancBoston Leasing Inc.
100 Federal Street
Boston, Massachusetts 02110
Pursuant to the MASTER LEASE FINANCE AGREEMENT dated as of April
24, 1996 (the "Lease Agreement") between BancBoston Leasing Inc. (the "Lessor")
and the undersigned (the "Lessee"), the equipment described on Equipment
Schedule No. 1 (the "Equipment") has been delivered to the location set forth in
such Equipment Schedule, has been tested and inspected by Lessee, and has been
found to be in good repair and working order.
The Equipment has been accepted and placed in service by Lessee
for all purposes under the Lease on __________ 19___ (the "Commencement Date").
The execution of this Certificate of Acceptance by Lessee shall
not be construed, in any way, to relieve or to waive the obligations of any
manufacturer or supplier for any warranties with respect to the Equipment
This Certificate of Acceptance applicable to Equipment Schedule
No. 1 shall constitute a part of the Lease Agreement.
IN WITNESS WHEREOF Lessee, by its duly authorized officer or
agent, has duly executed and delivered this Certificate of Acceptance which is
intended to take effect as a sealed instrument.
Allou Distributors, Inc.
By: ____________________________
Title: __________________________
ALLOU HEALTH & BEAUTY CARE, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
FOR THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Primary & Fully
Diluted Earnings Per Share
1996 1995 1994
<S> <C> <C> <C>
Reconciliation of net income per
consolidated statement of operations
to amount used in earnings per
share calculation:
Net Income $3,756,675 $4,681,301 $3,738,289
(B) Add: Reduction of interest on short
term debt, net of tax effect, on
application of assumed proceeds
from exercise of options and
warrants in excess of 20% limitation 0 0 191,134
---------- ---------- ----------
Net income as adjusted $3,756,675 $4,681,301 $3,929,423
========== ========== ==========
Reconciliation of weighted average
number of shares outstanding to amount
used in earnings per share calculation:
Weighted average number of
shares outstanding 5,669,907 5,582,128 3,997,703
Add: Shares issuable from assumed
exercise of options and warrants
in excess of 20% limitation 94,864 286,004 1,402,143
---------- ---------- ----------
Total Common Stock And Equivalents 5,764,771 5,868,132 5,399,846
========== ========== ==========
Earnings per common share $ .65 $ .80 $ .73
====== ====== ======
</TABLE>
(A) For the year ended March 31, 1994, fully diluted earnings per
share were antidulutive. For the year ended March 31, 1995, and
1996 fully diluted earnings per share equaled primary earnings
per share.
(B) For the year ended March 31, 1995, common stock equivalents have
been reduced to below 20% of outstanding shares.
SUBSIDIARIES OF
ALLOU HEALTH & BEAUTY CARE, INC.
NAME STATE OF INCORPORATION % OWNED
- ----- ---------------------- --------
Allou Distributors, Inc. New York 100%
M. Sobol, Inc. New York 100%
Allou Personal Care Corporation New York 100%
[MAYER RISPLER & COMPANY, P.C. LETTERHEAD]
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Allou Health & Beauty Care, Inc.
Brentwood, New York
We hereby consent to the incorporation by reference in
Registration Statements on Form S-8, Registration Numbers 33-65020 and 33-65022,
both as filed with the Securities and Exchange Commission on June 25, 1993 and
to the inclusion in the Allou Health & Beauty Care, Inc.'s Annual Report on Form
10-K for the year ended March 31, 1996 of our report dated June 17, 1996
relating to the consolidated financial statements and schedules of Allou Health
& Beauty Care, Inc. and subsidiaries.
/s/ MAYER RISPLER & COMPANY, P.C.
Mayer Rispler & Company, P.C.
Certified Public Accountants
June 27, 1996
New York, New York
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000846538
<NAME> ALLOU HEALTH & BEAUTY CARE, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 144,118
<SECURITIES> 0
<RECEIVABLES> 34,337,720
<ALLOWANCES> 373,890
<INVENTORY> 71,690,321
<CURRENT-ASSETS> 119,013,273
<PP&E> 6,110,444
<DEPRECIATION> 2,485,297
<TOTAL-ASSETS> 126,184,705
<CURRENT-LIABILITIES> 81,456,497
<BONDS> 0
0
0
<COMMON> 5,752
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 126,184,705
<SALES> 273,322,102
<TOTAL-REVENUES> 273,322,102
<CGS> 241,734,316
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 19,945,310
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,524,543
<INCOME-PRETAX> 6,117,933
<INCOME-TAX> 2,361,247
<INCOME-CONTINUING> 3,756,686
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,756,686
<EPS-PRIMARY> .65
<EPS-DILUTED> .65
</TABLE>
