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, 1997
|_| 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
ALLOU HEALTH & BEAUTY CARE, INC.
(Exact name of registrant as specified in its charter)
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
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 273-4000
Securities registered pursuant to Section 12(b) of the Act:
Name Of Each Exchange
Title Of Each Class On Which Registered
- ------------------- ------------------
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 25, 1997, 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
$30,321,823 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 25, 1997, 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 1997
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. (the "Company" or "Allou"), 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 34%, 33% and
33% of the Company's revenues, respectively, during the fiscal years ended March
31, 1995, 1996 and 1997.
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, 1995, 1996 and 1997 fragrance and cosmetic sales accounted for
approximately 32%, 32% and 36% 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 1%, 1% and 1% of revenues during the fiscal years ended March 31,
1995, 1996 and 1997, 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, 1995, 1996
and 1997, food items accounted for approximately 18%, 17% and 13%, 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, 1995, 1996 and 1997, pharmaceuticals accounted for approximately 15%, 18%
and 17%, 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. For
the fiscal years ended March 31, 1996 and 1997, revenues generated from the
sales of such products were not material.
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 leases 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 care 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 Company 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 financial
and other resources than the Company. The Company also competes with these
companies
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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, 1997, 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 leases 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, 1997 (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
- ------------------
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, 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
FISCAL YEAR ENDED MARCH 31, 1997
Quarter ending June 28, 1996..................... 7-1/2 6 5/8
Quarter ending September 30, 1996................ 6-7/8 4-7/8
Quarter ending December 31, 1996................. 7-5/16 5 3/4
Quarter ending March 31, 1997.................... 6-15/16 6-1/8
Holders
- -------
As of June 25, 1997, there were 126 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
- ---------
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.
(In thousands, except for share and per share data)
<TABLE>
<CAPTION>
INCOME STATEMENT DATA:
Year Ended March 31,
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues $285,311 $273,322 $237,542 $205,520 $161,914
-------- -------- -------- -------- --------
Costs of revenues 250,843 241,734 208,906 181,372 142,533
-------- -------- -------- -------- --------
Gross profit 34,468 31,588 28,636 24,148 19,381
Warehouse and delivery expense 8,592 8,063 6,864 5,391 4,417
Selling, general and
administrative expense 12,766 11,894 10,250 10,226 8,055
-------- -------- -------- -------- --------
Income from operations 13,110 11,631 11,522 8,531 6,909
Interest and other 6,567 5,513 3,956 2,609 1,943
-------- -------- -------- -------- --------
Income before income taxes 6,543 6,118 7,566 5,922 4,966
-------- -------- -------- -------- --------
Net income (1) $ 4,059 $ 3,757 $ 4,681 $ 3,738 $ 3,015
======== ======== ======== ======== ========
Net income per common share
primary & fully diluted $ .70 $ .65 $ .80 $ .73 $ .60
======== ======== ======== ======== ========
Dividends $ 0 $ 0 $ 0 $ 0 $ 0
======== ======== ======== ======== ========
Balance Sheet Data:
As of March 31,
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
Working capital $ 42,052 $ 37,557 $ 36,193 $ 32,094 $ 19,732
Total assets 161,348 126,185 106,214 84,770 63,777
Total long-term liabilities 1,841 560 814 895 410
Total liabilities 113,121 82,016 66,038 50,743 43,311
Stockholders' equity 48,227 44,168 40,176 34,027 20,465
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FISCAL 1997 AS COMPARED TO FISCAL 1996
--------------------------------------
Revenues for the fiscal year ended March 31, 1997 ("fiscal 1997")
were $285,311,441, representing a 4.4% increase over revenues of $273,322,102
for the fiscal year ended March 31, 1996 ("fiscal 1996"), which resulted from
increased revenues from certain segments of the Company's business as described
below. The increased demand for the Company's products resulted from an expanded
customer base and increases in same store sales.
Contributions to this increase in revenues by product segment is as
follows: Health and beauty aids increased 5.4% in fiscal 1997 compared to fiscal
1996 due to increases in same store sales. Prestige designer fragrances grew
18.8% in fiscal 1997 compared to fiscal 1996 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 decreased 24%
in fiscal 1997, when compared to fiscal 1996. This segment of Allou's business
is categorized by the Company's ability to purchase off-price, non-perishable
branded foods. During fiscal 1997 demand out-paced supply resulting in an
increase in the price that Allou would have to pay for merchandise which it
would distribute. Management decided to limit sales in this segment of its
business to a level which would result in improved profit margins. Sales of
prescription pharmaceuticals remain relatively constant when compared to the
prior year. 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 87.9% for
fiscal 1997 from 88.4% for fiscal 1996. This decrease in the cost of goods sold
results from improved profit margins associated with the distribution of
fragrance products.
Toward the end of fiscal 1997, 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
1997, neither inventory valuation nor cost of goods sold was affected for the
period.
Warehouse and delivery expenses, selling and general and
administrative expenses increased as a percentage of revenues to 7.5% for fiscal
1997 from 7.3% for fiscal 1996. This increase was due, in part, to increased
expenses associated with the Company's purchase of its wholly-owned subsidiary
Allou Personal Care.
Inventories increased by approximately $25.0 million or 35% in fiscal
1997 from $72.0 million in fiscal 1996. This increase in inventory is
attributable to merchandise purchased in anticipation of increased sales.
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Interest expense as a percentage of revenues increased to 2.3% for
fiscal 1997 from 2.0% for fiscal 1996 due to increased borrowings at a higher
rate.
Net income for fiscal 1997 was $4,058,535, which is an 8.0% increase
over the net income for fiscal 1996 of $3,756,686, due primarily to the factors
discussed above.
FISCAL 1996 AS COMPARED TO FISCAL 1995
--------------------------------------
Revenues for fiscal 1996 were $272,322,102, 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, M. Sobol,
Inc., 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.
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.
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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 2.0% 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% decrease
over the net income for fiscal 1995 of $4,681,301, due primarily to the factors
discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company meets its working capital requirements from internally
generated funds and from a revolving credit facility with the First National
Bank of Boston (the "Agent"), IBJ Schroder Bank & Trust Company, Sanwa Business
Credit Corporation, LaSalle Business Credit, Inc. and Bank of Tokyo-Mitsubishi
Trust Company for financing the Company's accounts receivable and inventory. 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
(the "Revolving Credit Facility"). The Revolving Credit Facility provides, among
other things, for a maximum availability of $105,000,000, interest on
outstanding loans, at the Company's option, at .375% above the Agent's base rate
or 2.00% above the Eurodollar rate, overadvances of up to $6,500,000 in the
aggregate and letters of credit of up to $7,500,000 in the aggregate. The
Company must comply with certain financial covenants such as maintaining its
consolidated tangible net worth, its interest coverage ratio, its current ratio
and its leverage ratio at the levels prescribed in the Revolving Credit
Facility. The obligations of the Company under the Revolving Credit Facility are
secured by, among other things, the Company's inventory and accounts receivable.
As of March 31, 1997, the Company had $96,740,253 outstanding under the
Revolving Credit Facility. The effective interest rate charged to the Company at
March 31, 1997 was 8.37%, which was based on a combination of 2.0% above the
Eurodollar rate and 3/8% above the prime rate of the First National Bank of
Boston. The Company uses 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 28, 1996, the Revolving Credit Facility was amended to, among
other things, include in the Borrowing Base a percentage of outstanding
documentary letters of credit and to revise the definition of "Operating Cash
Flow" to exclude from the reduction from Net Income, capital expenditures
financed by third parties. On October 15, 1996, the Revolving Credit Agreement
was amended to increase from $47,500,000 to $55,000,000 the amount equal to the
borrowing base percentage of the "Net Security Value of Base Inventory" in
determining the borrowing base. On December 6, 1996, the Revolving Credit
Facility was amended to permit the Company to purchase certain inventory from
fragrance suppliers. On February 14, 1997, the Revolving Credit Facility was
amended to, among other things, revise the definition of "Inventory Turn
Average" and to change the level of the current ratio for the quarter ending
March 31, 1997. On May 21, 1997, the Revolving Credit Agreement was amended to
increase the maximum availability from $105,000,000 to $110,000,000 and to add
Bank Leumi Trust Company of New York as an additional lender.
The Company's accounts receivable increased to $48,424,882 for fiscal
1997 from $33,963,830 for fiscal 1996 representing an increase of 43% due to an
increase in sales and due to customers
-15-
<PAGE>
which had previously paid the Company in an average of 49 days at March 31, 1996
and have been paying the Company in an average of 60 days at March 31, 1997. 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 its current and future bank line of credit will
be sufficient to meet its anticipated cash and capital needs through the fiscal
year ending March 31, 1998.
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.
-16-
<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-2
Consolidated Balance Sheet -
March 31, 1997 and 1996 F-3
Consolidated Statement of Operations -
Years ended March 31, 1997,
1996 and 1995 F-4
Consolidated Statement of Shareholders' Equity -
Years ended March 31, 1997,
1996 and 1995 F-5
Consolidated Statement of Cash Flows - Years
ended March 31, 1997, 1996
and 1995 F-6
Notes to Consolidated Financial Statements F-7
F-1
<PAGE>
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, 1997 and 1996 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, 1997. 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 audits
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of Allou Health and Beauty Care, Inc.
at March 31, 1997 and 1996, and the results of its operations and cash flows for
each of the years in the three-year period ended March 31, 1997, 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, 1997
New York, New York
F-2
<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS
------
March 31, March 31,
1997 1996
------------ ------------
<S> <C> <C>
Current Assets
- --------------
Cash $ 76,531 $ 144,118
Accounts Receivable (less allowance for
doubtful accounts of $555,682 at March 31,
1997 and $373,890 at March 31, 1996 (Notes 1 & 5) 48,424,882 33,963,830
Inventories (Notes 1 & 5) 96,661,103 71,690,321
Other Current Assets (Note 2) 8,168,603 13,215,004
------------ ------------
Total Current Assets $153,331,119 $119,013,273
Fixed Assets, Less Accumulated Depreciation
(Notes 1 & 3) 3,642,758 3,625,147
Other Assets (Note 4) 4,373,918 3,546,285
------------ ------------
TOTAL ASSETS $161,347,795 $126,184,705
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
Current Liabilities
Amounts Due Bank (Note 5) $ 96,740,253 $ 70,809,101
Current Portion of Long-Term Debt (Note 6) 540,500 222,393
Accounts Payable and Accrued Expenses (Note 7) 13,998,641 10,425,003
------------ ------------
Total Current Liabilities $111,279,394 $ 81,456,497
------------ ------------
Long Term Liabilities
- ---------------------
Long-Term Debt, Less Current Portion (Note 6) 1,841,470 529,390
Deferred Income Taxes (Note 1) - 0 - 30,422
------------ ------------
Total Long Term Liabilities 1,841,470 559,812
------------ ------------
TOTAL LIABILITIES $113,120,864 $ 82,016,309
------------ ------------
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 issued and outstanding at
March 31, 1997 and 1996 $ 4,552 $ 4,552
Class B Common Stock, $.001 par value; 2,200,000 and
1,700,000 authorized at March 31, 1997 and March
31, 1996 respectively, 1,200,000 issued and
outstanding at March 31, 1997 and 1996 1,200 1,200
Additional Paid-In Capital 23,476,508 23,476,508
Retained Earnings 24,744,671 20,686,136
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 48,226,931 44,168,396
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $161,347,795 $126,184,705
============ ============
</TABLE>
The accompanying notes are an integral part
of this financial statement.
F-3
<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the years ended March 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenues $ 285,311,441 $ 273,322,102 $ 237,542,426
Costs of Revenues 250,843,851 241,734,316 208,906,041
------------- ------------- -------------
Gross Profit 34,467,590 31,587,786 28,636,385
------------- ------------- -------------
Operating Expenses
Warehouse & Delivery 8,592,051 8,062,827 6,864,463
Selling, General & Administrative 12,765,898 11,893,687 10,250,475
------------- ------------- -------------
Total Operating Expenses 21,357,949 19,956,514 17,114,938
------------- ------------- -------------
Income From Operations 13,109,641 11,631,272 11,521,447
------------- ------------- -------------
Other Charges (Credits)
Interest Expenses 6,614,797 5,524,543 3,978,453
Other (47,804) (11,204) (22,454)
------------- ------------- -------------
Total 6,566,993 5,513,339 3,955,999
------------- ------------- -------------
Income Before Income Taxes 6,542,648 6,117,933 7,565,448
Provision for Income Taxes (Note 10) 2,484,113 2,361,247 2,884,147
------------- ------------- -------------
NET INCOME $ 4,058,535 $ 3,756,686 $ 4,681,301
============= ============= =============
Net Income Per Common Share (Note 1):
Primary & Fully Diluted $ .70 $ .65 $ .80
============= ============= =============
</TABLE>
The accompanying notes are an integral part
of this financial statement.
F-4
<PAGE>
ALLOU HEALTH & BEAUTY CARE INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended March 31,
1997 1996 1995
---- ---- ----
Cash Flows From Operating Activities
- ------------------------------------
<S> <C> <C> <C>
Net Income $ 4,058,535 $ 3,756,686 $ 4,681,301
Adjustments to Reconcile Net Income to
Net Cash Used in Operating Activities:
Depreciation and Amortization 666,508 562,529 450,396
Decrease (Increase) In Assets:
Accounts Receivable (14,461,052) (5,490,810) (4,525,406)
Inventory (24,970,782) (14,419,611) (10,329,500)
Other Assets 4,160,904 1,342,875 (5,812,774)
Increase (Decrease) In Liabilities:
Accounts Payable & Accrued Expenses 3,573,638 98,938 803,184
Income Taxes Payable (30,422) (555,887) 363,187
------------ ------------ ------------
Net Cash Used In Operating
Activities (27,002,671) (14,705,280) (14,369,612)
------------ ------------ ------------
Cash Flows From Investing Activities
- ------------------------------------
Acquisition of Fixed Assets (626,255) (1,947,844) (1,451,966)
------------ ------------ ------------
Cash Flows From Financing Activities
- ------------------------------------
Net Increase in Amounts Due Bank 25,931,152 16,680,621 14,044,169
Borrowings 2,010,376 -0- 211,284
Repayment of Debt (380,189) (245,116) (126,683)
Net Proceeds from Exercise of
Warrants & Options -0- 235,500 1,467,998
------------ ------------ ------------
Net Cash Provided By Financing
Activities 27,561,339 16,671,005 15,596,768
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH (67,587) 17,881 (224,810)
CASH AT BEGINNING OF YEAR 144,118 126,237 351,047
------------ ------------ ------------
CASH AT END OF YEAR $ 76,531 $ 144,118 $ 126,237
============ ============ ============
Supplemental Disclosures of Cash Flow
Information:
Cash Paid For:
Interest 6,438,593 $ 5,464,832 $ 3,844,593
Income Taxes $ 2,302,293 $ 3,243,631 $ 2,520,960
</TABLE>
The Company issued equipment notes for $2,010,376 and $211,284 during the years
ended March 31, 1997 and 1995, respectively.
The accompanying notes are an integral part
of this financial statement.
F-5
<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Additional
Common Paid Retained
Stock In Capital Earnings Total
------ ----------- ----------- -----------
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 -0- -0- 3,756,686 3,756,686
------ ----------- ----------- -----------
Balance March 31, 1996 $5,752 $23,476,508 $20,686,136 $44,168,396
Net Income -0- -0- 4,058,535 4,058,535
------ ----------- ----------- -----------
Balance March 31, 1997 $5,752 $23,476,508 $24,744,671 $48,226,931
====== =========== =========== ===========
The accompanying notes are an
integral part of this financial statement.
F-6
<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
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 (1,200,000 post-split) of 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 $2,296,735. These assets included accounts receivable, inventory, equipment
and intangibles. The Company has incorporated wholly-owned subsidiaries that
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-7
<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
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.
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.
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.
J. Stock Based Compensation:
The Company accounts for stock options as prescribed by APB
opinion No. 25 and includes pro forma information in the stock options footnote,
as permitted by statement of financial accounting standard No. 123.
2. OTHER CURRENT ASSETS:
Included in other current assets at March 31, 1997 are $6,091,422 of
prepayments on merchandise and $689,560 of interest bearing loans to officers.
F-8
<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
3. PROPERTY AND EQUIPMENT:
March 31, March 31, Estimated
1997 1996 Useful Lives
-------- -------- ------------
Machinery & Equipment $1,765,908 $1,639,480 5 years
Furniture, Fixtures &
Office Equipment 2,295,084 2,015,415 5-10 years
Transportation Equipment 96,750 96,750 3-5 years
Leasehold Improvements 2,578,957 2,358,799 10-33 years
---------- -----------
6,736,699 6,110,444
Less: Accumulated Depreciation 3,093,941 2,485,297
---------- -----------
$3,642,758 $ 3,625,147
========== ===========
Depreciation expense for the years ended March 31, 1997, 1996 and
1995 amounted to $608,644, $509,665 and $412,532, respectively.
4. OTHER ASSETS:
Included in other assets is $1,763,143 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 $2,056,364 of interest-bearing officers' loans.
The goodwill is being amortized over forty years and fifteen years,
respectively. Amortization expense for the years ended March 31, 1997, 1996 and
1995 amounted to $57,864, $52,864 and $37,864, respectively.
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 inventories with aggregate maximum advances
which have been increased as of May 21, 1997 to $110,000,000, including a
$6,500,000 sublimit for overadvances. Interest on the loan balance is payable
monthly at 3/8% above the prime rate or 2% above the Eurodollar rate, at the
option of the Company. 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, 1997 was 8.37%, which was based on a combination of 2% 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 and
leasehold improvements, payable in aggregate monthly installments of
approximately $45,000, which include interest at rates varying from 3/8% above
the prime rate to 3.36% above the treasury 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.
F-9
<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
The aggregate long-term debt is payable as follows:
Year Ending
March 31,
1998 $ 540,500
1999 575,497
2000 595,072
2001 572,914
2002 97,987
----------
$2,381,970
==========
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
March 31, March 31,
1997 1996
---- ----
Cost of Revenues $12,066,836 $ 8,471,396
Selling, General & Administrative 928,967 1,245,841
Interest - Bank 550,433 374,229
Payroll 452,405 333,537
----------- -----------
$13,998,641 $10,425,003
=========== ===========
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, 1997, total
minimum annual rentals, excluding additional payments for real estate taxes and
certain expenses, are as follows:
Year Ending
March 31,
1998 $ 855,197
1999 852,797
2000 858,797
2001 768,749
2002 625,939
2003-2006 1,982,139
Rent expense for the years ended March 31, 1997, 1996 and 1995
amounted to $896,910, $744,505 and $490,052, 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.
F-10
<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
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. Defined Contribution Plan
Effective April 1, 1996, the Company established a non-contributory
defined contribution plan (401K) for substantially all employees not covered
under collective bargaining agreements.
E. Stock Option Plans:
Prior to 1995, the Company adopted three stock option plans, which
provide for the granting of stock options to certain employees and directors. An
aggregate of 1,300,000 shares of Class A and Class B Common Stock are reserved
for issuance under these three plans. On September 11, 1996, the stockholders of
the Company approved the Company's 1995 Non-Qualified Stock Option Plan (the
"1995 Plan") and the 1996 Stock Option Plan (the "1996 Plan") which provide for
the granting of stock options to certain employees and directors. An aggregate
of 500,000 shares of Class B Common Stock are reserved for issuance under the
1995 Plan and an aggregate of 1,000,000 shares of Class A Common Stock, are
reserved for issuance under the 1996 Plan.
Incentive stock options are granted at no less than fair market value
of the shares on the date of grant and options granted to individuals owning
more than 10% of the voting power of the Company's capital stock must be granted
at 110% of the fair market value at the date of grant.
Option activity for the years ended March 31, 1997, 1996, and 1995
was as follows:
1997 1996 1995
---- ---- ----
Options outstanding
at beginning of year 1,184,500 1,176,950 790,000
Granted 375,000 136,550 415,450
Exercised -0- (90,500) (21,000)
Cancelled (178,350) (38,500) (7,500)
---------- ---------- ----------
Outstanding at
end of year 1,381,150 1,184,500 1,176,950
========== ========== ==========
Option price range
at end of year $5.80 to $10.00 $5.75 to $10.00 $2.50 to $10.00
===== ====== ===== ====== ===== ======
The Company has adopted the disclosure only provisions of SFAS No. 123
"Accounting for Stock-Based Compensation." If the Company had elected to
recognize compensation costs based on the fair value at the date of grant for
awards in fiscal 1997 and 1996 consistent with the provisions of SFAS No. 123,
net income per common share would have been reduced to the following pro forma
amounts:
F-11
<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
March 31, March 31,
1997 1996
--------- ---------
Net Income - Pro Forma $3,582,793 $3,196,406
Earnings Per Common Share - Pro Forma $ .62 $ .56
The pro forma amounts are not indicative of anticipated future
disclosures because SFAS 123 does not apply to options granted before fiscal
1996.
The fair value of each option at date of grant for options granted
during fiscal 1997 and 1996 was $1.50 and $2.07, respectively, and were
estimated using the Black-Scholes option pricing model. The following
assumptions were applied:
No dividend yield; expected volatility rates of 25% and 32%; Risk
free interest rates approximating 5 % and expected lives of 3.3 years and 4.3
years, respectively.
F. 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, 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, 1997, these three officers received a total bonus of $145,221. For the
year ended March 31, 1996, these three officers received no bonus.
Effective June 30, 1996, the Company entered into a three year
employment agreement with a fourth officer, providing for an annual salary of
$225,000 and a $75,000 bonus.
G. Letters of Credit:
The Company has irrevocable standby letters of credits in the sum of
$425,000 expiring thru February 28, 1998.
H. Legal Proceedings:
The Company is a party to a number of legal proceedings as either
plaintiff or defendant, all of which are considered routine litigation
incidental to the business of the Company.
9. STOCKHOLDERS' EQUITY:
On September 11, 1996, the stockholders of the Company approved an
increase of the number of authorized shares of Class B Common Stock from
1,700,000 to 2,200,000 shares. The number of authorized shares of Class A Common
Stock is currently 10,000,000 shares. The Company is also authorized to issue
1,000,000 shares of preferred stock. Holders of Class A Common Stock and Class B
Common Stock share pro rata in all dividends declared by the Board of Directors.
The holders of Class A Common Stock 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
F-12
<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
of Class A Common Stock. All outstanding shares of Class A Common Stock and
Class B Common Stock are freely transferable, subject to applicable law.
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:
December 31,
1997 1996 1995
---- ---- ----
Income Before Income Taxes $6,542,648 $6,117,933 $7,565,448
========== ========== ==========
Federal Income Tax $2,072,291 $1,959,880 $2,372,572
State Income Taxes 411,822 401,367 511,575
---------- ---------- ----------
Total Provision for Income Taxes $2,484,113 $2,361,247 $2,884,147
========== ========== ==========
The following is a reconciliation of the statutory income tax rate to
the total effective tax rates:
March 31,
1997 1996 1995
---- ---- ----
Federal Statutory Income Tax Rate 34% 34% 34%
Increase in Tax Rates Resulting from:
State Income Taxes, Net of Federal Tax
Benefits (5.3%) 6.0% 5.6%
Net Operating Loss Carryforward from
Subsidiary (1.3%) (1.4%) (1.5%)
----- ----- -----
Total Effective Tax Rates 38.0% 38.6% 38.1%
===== ===== =====
At March 31, 1997, net operating loss carryforwards of approximately
$140,000 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.
F-13
<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
11. RELATED PARTY TRANSACTIONS:
For the years ended March 31, 1997, 1996 and 1995, purchases from
related parties amounted to $1,705,355, $1,735,661 and $1,357,687 respectively,
with $15,952 outstanding at March 31, 1997.
12. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
Earnings Per
Gross Net Common
Quarters Ended Revenues Profit Income Share
- -------------- ----------- ---------- ---------- -------
June 30, 1996 $68,958,061 $8,130,446 $ 802,667 $ .14
June 30, 1995 $64,432,369 $7,225,913 $1,156,829 $ .20
September 30, 1996 $76,838,439 $8,372,060 $1,076,844 $ .19
September 30, 1995 $66,913,389 $7,219,879 $ 676,572 $ .12
December 31, 1996 $65,657,248 $8,358,715 $ 934,315 $ .16
December 31, 1995 $76,715,466 $9,157,762 $1,198,267 $ .21
March 31, 1997 $73,857,693 $9,606,369 $1,244,709 $ .21
March 31, 1996 $65,260,878 $7,984,232 $ 725,008 $ .12
F-14
<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, 1995
Allowance for Doubtful Accounts $361,253 $294,000 $369,088 $286,165
March 31, 1996
Allowance for Doubtful Accounts $286,165 $412,000 $324,275 $373,890
March 31, 1997
Allowance for Doubtful Accounts $373,890 $560,000 $378,208 $555,682
</TABLE>
S-1
<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
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, 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
Bank Loan $70,809,101 8.50% $73,365,424 $67,206,057 8.14%
March 31, 1997
Bank Loan $96,740,253 8.37% $97,125,175 $84,393,253 7.67%
</TABLE>
S-2
<PAGE>
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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 1997
Annual Meeting of Stockholders to be filed pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended.
-17-
<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, 1997 and 1996 F-2
Consolidated Statement of Operations -
Years ended March 31, 1997,
1996 and 1995 F-3
Consolidated Statement of Shareholders' Equity -
Years ended March 31, 1997,
1996 and 1995 F-4
Consolidated Statement of Cash Flows - Years
ended March 31, 1997, 1996
and 1995 F-5
Notes to Consolidated Financial Statements F-6
-18-
<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 Restated Certificate of Incorporation of the Registrant (filed
as Exhibit 3.1 to Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended September 30, 1996 Commission
File No. 1-10340 and incorporated herein by reference).
3.2 By-Laws of the Registrant (filed as Exhibit 3b to Registration
Statement No. 33-26981 on Form S-1 ("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 (filed as Exhibit 10.1 to
Registrant's Annual Report on Form 10-K for the fiscal year
ended March 31, 1996 Commission File No. 1-10340 ("1996 10-K")
and incorporated herein by reference).
-19-
<PAGE>
10.2 Employment Contract dated as of August 1, 1995 between
Registrant and Herman Jacobs (filed as Exhibit 10.2 to
Registrant's 1996 10-K and incorporated herein by reference).
10.3 Employment Contract dated as of August 1, 1995 between the
Registrant and Jack Jacobs (filed as Exhibit 10.3 to
Registrant's 1996 10-K and incorporated herein by reference).
10.4 Employment Contract dated as of June 30, 1996 between the
Registrant and Ramon Montes (filed as Exhibit 10.3 to
Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 1996 Commission File No. 1-10340 and
incorporated herein by reference).
10.5 Amended and Restated 1989 Incentive Stock Option Plan (filed
as Exhibit 10(e) to Registrant's Annual Report on From 10-K
for the fiscal year ended March 31, 1990 Commission File No.
1-10340 and incorporated herein by reference).
10.6 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).
10.7 1992 Stock Option Plan (filed as Exhibit 10(e)(2) to
Registrant's Annual Report on From 10-K for the fiscal year
ended March 31, 1993 Commission File No. 1-10340 and
incorporated herein by reference).
10.8 1995 Nonqualified Stock Option Plan (filed as Exhibit A to
Registrant's 1996 Definitive Proxy Statement on Schedule 14A
Commission File No. 1-10340 and incorporated herein by
reference).
10.9 1996 Stock Option Plan (filed as Exhibit B to Registrant's
1996 Definitive Proxy Statement on Schedule 14A Commission
File No. 1-10340 and incorporated herein by reference).
-20-
<PAGE>
10.10 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 Commission File No.
1-10340 ("1995 Form 10-K") and incorporated herein by
reference).
10.11 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).
10.12 Lease Agreement dated January 1, 1993 between M. Sobol, Inc.
and Simon and Barbara J. Mandell (filed as Exhibit 10(g) to
Registrant's Annual Report on Form 10-K for the fiscal year
ended March 31, 1994 Commission File No. 1-10340 ("1994 Form
10- K") and incorporated herein by reference).
10.13 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).
10.14 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).
10.15 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 the Registrant's 1995 Form 10-K and incorporated
herein by reference).
10.16 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
-21-
<PAGE>
Boston, IJB Schroder Bank & Trust Company, Sanwa Business
Credit Corporation, La Salle Business Credit, Inc., and The
Bank of Tokyo - Mitsubishi Trust Company (filed as Exhibit
10.3 to Registrant's 1996 10-K and incorporated herein by
reference).
*10.17 First Amendment to Second Restated and Amended Revolving
Credit and Security Agreement dated as of June 28, 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.
*10.18 Second Amendment to Second Restated and Amended Revolving
Credit and Security Agreement, dated October 15, 1996 among
the Borrowers, the Agent and the Lenders.
*10.19 Third Amendment to Second Restated and Amended Revolving
Credit and Security Agreement, dated December 6, 1996.
*10.20 Fourth Amendment to Second Restated and Amended Revolving
Credit and Security Agreement, dated as of February 14, 1997
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.
*10.21 Fifth Amendment to Second Restated and Amended Revolving
Credit and Security Agreement, dated May 21, 1997 among Allou
health and Beauty Care, Inc., Allou Distributors, Inc.,
BankBoston, IBJ Schroder Bank and Trust Company, Sanwa
Business Credit Corporation, LaSalle Business Credit, Inc.,
and The Bank of Tokyo-Mitsubishi Trust company, to reflect the
addition of Bank Leumi Trust company of New York as a Lender.
*10.22 Amendment to Guaranty and Subsidiary Tie-In Agreement, dated
as of May 1997 among Borrowers and Guarantors.
-22-
<PAGE>
10.23 Master Lease Finance Agreement dated as of April 24, 1996
between BankBoston Leasing Inc. and Allou Distributors, Inc.
(filed as Exhibit 10-14 to Registrant's 1996 10-K and
incorporated herein by reference).
21 Subsidiaries of the Registrant (filed as Exhibit 21 to
Registrant's 1996 10-K and incorporated herein by reference).
*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.
-23-
<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 30, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signatures Title Date
/s/ VICTOR JACOBS Chairman of the Board and Chief June 30, 1997
- ----------------------- Executive Officer
Victor Jacobs
/s/ HERMAN JACOBS President and Director June 30, 1997
- -----------------------
Herman Jacobs
/s/ DAVID SHAMILZADEH Chief Financial Officer, Chief June 30, 1997
- ----------------------- Accounting Officer and Director
David Shamilzadeh
/s/ JACK JACOBS Director June 30, 1997
- -----------------------
Jack Jacobs
/s/ RAMON MONTES Director June 30, 1997
- -----------------------
Ramon Montes
/s/ SOL NAIMARK Director June 30, 1997
- -----------------------
Sol Naimark
/s/ JEFFREY BERG Director June 30, 1997
- -----------------------
Jeffrey Berg
<PAGE>
Index to Exhibits
-----------------
Exhibit
No. Description Page
- ------- ----------- ----
3.1 Restated Certificate of Incorporation of the
Registrant (filed as Exhibit 3.1 to Registrant's
Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1996 Commission File
No. 1-10340 and incorporated herein by reference).
3.2 By-Laws of the Registrant (filed as Exhibit 3b to
Registration Statement No. 33-26981 on Form S-1
("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 (filed as
Exhibit 10.1 to Registrant's Annual Report on Form
10-K for the fiscal year ended March 31, 1996
Commission File No. 1-10340 ("1996 10-K") and
incorporated herein by reference).
10.2 Employment Contract dated as of August 1, 1995
between Registrant and Herman Jacobs (filed as
Exhibit 10.2 to Registrant's 1996 10-K and
incorporated herein by reference).
10.3 Employment Contract dated as of August 1, 1995
between the Registrant and Jack Jacobs (filed as
Exhibit 10.3 to Registrant's 1996 10-K and
incorporated herein by reference).
10.4 Employment Contract dated as of June 30, 1996
between the Registrant and Ramon Montes (filed as
Exhibit 10.3 to Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended June 30,
1996 Commission File No. 1-10340 and incorporated
herein by reference).
10.5 Amended and Restated 1989 Incentive Stock Option
Plan (filed as Exhibit 10(e) to Registrant's
Annual Report on From 10-K for the fiscal year
ended
<PAGE>
Exhibit
No. Description Page
- ------- ----------- ----
March 31, 1990 Commission File No. 1-10340 and
incorporated herein by reference).
10.6 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).
10.7 1992 Stock Option Plan (filed as Exhibit 10(e)(2)
to Registrant's Annual Report on From 10-K for the
fiscal year ended March 31, 1993 Commission File
No. 1-10340 and incorporated herein by reference).
10.8 1995 Nonqualified Stock Option Plan (filed as
Exhibit A to Registrant's 1996 Definitive Proxy
Statement on Schedule 14A Commission File No. 1-
10340 and incorporated herein by reference).
10.9 1996 Stock Option Plan (filed as Exhibit B to
Registrant's 1996 Definitive Proxy Statement on
Schedule 14A Commission File No. 1-10340 and
incorporated herein by reference).
10.10 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 Commission File
No. 1-10340 ("1995 Form 10-K") and incorporated
herein by reference).
10.11 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).
10.12 Lease Agreement dated January 1, 1993 between M.
Sobol, Inc. and Simon and Barbara J. Mandell
(filed as Exhibit 10(g) to Registrant's Annual
Report on Form 10-K for the fiscal year ended
March 31, 1994 Commission File No. 1-10340 ("1994
Form 10-K") and incorporated herein by reference).
<PAGE>
Exhibit
No. Description Page
- ------- ----------- ----
10.13 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).
10.14 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).
10.15 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 the Registrant's 1995
Form 10-K and incorporated herein by reference).
10.16 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, IJB Schroder Bank & Trust Company, Sanwa
Business Credit Corporation, La Salle Business
Credit, Inc., and The Bank of Tokyo - Mitsubishi
Trust Company (filed as Exhibit 10.3 to
Registrant's 1996 10-K and incorporated herein by
reference).
*10.17 First Amendment to Second Restated and Amended
Revolving Credit and Security Agreement dated as
of June 28, 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.
*10.18 Second Amendment to Second Restated and Amended
Revolving Credit and Security Agreement, dated
October 15, 1996 among the Borrowers, the Agent
and the Lenders.
<PAGE>
Exhibit
No. Description Page
- ------- ----------- ----
*10.19 Third Amendment to Second Restated and Amended
Revolving Credit and Security Agreement, dated
December 6, 1996.
*10.20 Fourth Amendment to Second Restated and Amended
Revolving Credit and Security Agreement, dated as
of February 14, 1997 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.
*10.21 Fifth Amendment to Second Restated and Amended
Revolving Credit and Security Agreement, dated May
21, 1997 among Allou health and Beauty Care, Inc.,
Allou Distributors, Inc., BankBoston, IBJ Schroder
Bank and Trust Company, Sanwa Business Credit
Corporation, LaSalle Business Credit, Inc., and
The Bank of Tokyo-Mitsubishi Trust company, to
reflect the addition of Bank Leumi Trust company
of New York as a Lender.
*10.22 Amendment to Guaranty and Subsidiary Tie-In
Agreement, dated as of May 1997 among Borrowers
and Guarantors.
10.23 Master Lease Finance Agreement dated as of April
24, 1996 between BankBoston Leasing Inc. and Allou
Distributors, Inc. (filed as Exhibit 10- 14 to
Registrant's 1996 10-K and incorporated herein by
reference).
21 Subsidiaries of the Registrant (filed as Exhibit
21 to Registrant's 1996 10-K and incorporated
herein by reference).
*23 Consent of Mayer Rispler & Co.
*27 Financial Data Schedule
- ----------------
* Filed herewith
THE FIRST NATIONAL BANK OF BOSTON, as Agent
100 Federal Street
Boston, MA 02110
Allou Health & Beauty Care, Inc. as of June 28, 1996
and its Subsidiaries
50 Emjay Boulevard
Brentwood, NY 11717
Re: First Amendment to Second Restated and Amended Revolving
Credit and Security Agreement, dated as of June 6, 1996
----------------------------------------------------------
Gentlemen:
Reference is made to the Second Restated and Amended Revolving Credit
and Security Agreement (the "Agreement"), dated as of June 6, 1996 among Allou
Health & Beauty Care, Inc. (the "Parent") and Allou Distributors, Inc.
("Distributors") (collectively, including Subsidiaries of the Parent and
Distributors who have executed and delivered that certain Subsidiary Tie-In
Agreement dated December 10, 1991, as amended from time to time, the
"Borrowers"), 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 (collectively the "Lenders"), and
The First National Bank of Boston as Agent for the Lenders (the "Agent").
Capitalized terms used and not otherwise defined herein shall have the same
respective meanings as set forth in the Agreement.
You have requested that (a) the Agreement be amended (i) to include
in the Borrowing Base a percentage of outstanding documentary Letters of Credit,
and (ii) to revise the definition of Operating Cash Flow, to exclude from the
reduction from Net Income, Capital Expenditures financed by third parties; and
(b) the failure to comply with Section 5.26 of the Agreement for the fiscal
quarter ending March 31, 1996 be waived.
Accordingly, in consideration of these premises, the promises, mutual
covenants and agreements contained in this letter agreement, and fully intending
to be legally bound by this letter agreement, we hereby agree with you as
follows:
1. Amendments to Agreement. In compliance with the terms of Section 10.8
of the Agreement:
1.1. Sections 1.9 and 1.54 of the Agreement are hereby amended to
read in their entirety as follows:
"1.9 'Borrowing Base' shall mean an amount equal to the sum of (w)
the Borrowing Base Percentage of the Net Outstanding Amount of Base Accounts,
(x) the Borrowing Base Percentage of the Net Security Value of Base Inventory,
(y) 55% of the Eligible Documentary Letters of Credit (Base Inventory), and (z)
50% of the Eligible Documentary Letters of Credit (California Base Inventory)
(provided that for purposes of clauses (x), (y) and (z) of this Section the
aggregate amount determined by such percentages
<PAGE>
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."
"1.54 '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 period, (iii) minus
taxes actually paid during such period, and, (iv) minus Capital Expenditures
made during such period (excluding Capital Expenditures financed by any third
party which is not one of the Lenders)."
1.2. Sections 1.26.1 and 1.26.2 are hereby added to the Agreement to
read in their entirety as follows:
"1.26.1 'Eligible Documentary Letters of Credit (Base Inventory)'
shall mean documentary Letters of Credit issued by the Agent solely to the
extent such Letters of Credit are issued for the importation or other purchase
of finished goods Inventory that would otherwise constitute Base Inventory at
such time as the Agent acquires a perfected first security interest therein,
provided that such Inventory is not otherwise included in the Borrowing Base."
1.26.2 'Eligible Documentary Letters of Credit (California Base
Inventory)' shall mean documentary Letters of Credit issued by the Agent solely
to the extent such Letters of Credit are issued for the importation or other
purchase of finished goods Inventory that would otherwise constitute California
Base Inventory at such time as the Agent acquires a perfected first security
interest therein, provided that such Inventory is not otherwise included in the
Borrowing Base."
2. WAIVER. In compliance with the terms of Section 10.8 of the
Agreement, compliance by the Borrowers with the terms of Section 5.26 of the
Agreement as measured at the end of the calendar quarter ending on March 31,
1996 is hereby waived.
3. FEE. Simultaneously with the execution and delivery hereof, the
Borrowers shall pay to the Agent, for the ratable benefit of each of the Lenders
executing and delivering this Letter Agreement, an amendment fee in the
aggregate sum of $17,500.
4. GENERAL.
4.1 The Agreement is hereby ratified and confirmed and shall continue
in full force and effect as amended hereby.
4.2 The Borrowers hereby represent and warrant that there is no
default or Event of Default outstanding or continuing under the Agreement or any
instrument or document executed in connection with the Agreement, or any event
or condition which with the giving of notice or the passage of time, or both,
would result in a default or an
-2-
<PAGE>
Event of Default under the Agreement or any instrument or document executed in
connection with the Agreement.
4.3 This Letter 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.
If the foregoing sets forth your understanding of the matters
addressed herein, please evidence your agreement by countersigning this letter
Agreement in the space set forth below, whereupon this Letter Agreement shall
take effect as an agreement under seal as of the day first written above.
THE FIRST NATIONAL BANK OF BOSTON
By:/s/Brent E. Shay
----------------------------------
Title:
IBJ SCHRODER BANK & TRUST COMPANY
By:/s/ May McLaughlin
----------------------------------
Title: Vice President
SANWA BUSINESS CREDIT CORPORATION
By:/s/
----------------------------------
Title: Vice President
LASALLE BUSINESS CREDIT, INC.
By:/s/ Lawrence P. Garni
----------------------------------
Title: Vice President
THE BANK OF TOKYO - MITSUBISHI TRUST
COMPANY
By:/s/
----------------------------------
Title:
(Signatures continued on next page)
-3-
<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
ALLOU DISTRIBUTORS, INC.
ALLOU PERSONAL CARE CORPORATION
M. SOBOL, INC.
SUPERBUY OF NEW YORK, INC.
RONA BEAUTY SUPPLIES, INC.
HEMPSTEAD HEALTH & BEAUTY AIDS, INC.
PASTEL COSMETIC AND BEAUTY AIDS, INC.
HBA NATIONAL SALES CORP.
HBA DISTRIBUTORS, INC.
RUSS KALVIN PERSONAL CARE CORP.
STANFORD PERSONAL CARE MANUFACTURING, INC.
By: /s/
----------------------------------
Title:
Consent of Guarantors
---------------------
Each of Victor Jacobs, Herman Jacobs and Jacob Jacobs (collectively,
the "Guarantors") has guaranteed certain of the Obligations under the Agreement
by executing separate Limited Guaranties dated as of December 10, 1991
(collectively, as amended, the "Guaranties"). By executing this letter, each of
the Guarantors hereby absolutely and unconditionally reaffirms the Guaranty to
which it is a party, and acknowledges and agrees to the terms and conditions of
this letter and the Agreement as so amended.
/s/ Victor Jacobs
- ----------------------------------
Victor Jacobs
/s/ Jacob Jacobs
- ----------------------------------
Jacob Jacobs
/s/ Herman Jacobs
- ----------------------------------
Herman Jacobs
-4-
THE FIRST NATIONAL BANK OF BOSTON, as Agent
100 Federal Street
Boston, MA 02110
October 15, 1996
Allou Health & Beauty Care, Inc.
and its Subsidiaries
50 Emjay Boulevard
Brentwood, NY 11717
Re: Second Amendment to Second Restated and Amended
Revolving Credit and Security Agreement
-----------------------------------------------
Gentlemen:
Reference is made to the Second Restated and Amended Revolving Credit
and Security Agreement, dated as of June 6, 1996, among the Borrowers, the Agent
and Lenders (the "Loan Agreement"). Capitalized terms defined in the Loan
Agreement shall have the meanings herein ascribed to them therein unless
otherwise defined herein.
As you requested, and pursuant to the terms of Section 10.8(ii) of
the Loan Agreement effective as of the date hereof, the dollar amount set forth
in Section 1.9 is increased from $47,500,000 to $55,000,000, until further
amended in accordance with the terms of the Loan Agreement. Pursuant to the
terms of said Section 10.8(ii), and as evidenced by the signature of the Agent
appearing below, such amendment is hereby consented to in writing by the Agent.
Very truly yours,
THE FIRST NATIONAL BANK OF BOSTON,
As Agent
By: /s/ Brent E. Shay
------------------------------
Title: Director
(Signatures Continued on Next Page)
<PAGE>
Acknowledged this 15th day of
October, 1996
BORROWERS:
ALLOU HEALTH & BEAUTY CARE, INC.
ALLOU DISTRIBUTORS, INC.
ALLOU PERSONAL CARE CORPORATION
M. SOBOL, INC.
SUPERBUY OF NEW YORK, INC.
RONA BEAUTY SUPPLIES, INC.
HEMPSTEAD HEALTH & BEAUTY AIDS, INC.
PASTEL COSMETIC AND BEAUTY AIDS, INC.
NBA NATIONAL SALES CORP.
NBA DISTRIBUTORS, INC.
RUSS KALVIN PERSONAL CARE CORP.
STANFORD PERSONAL CARE MANUFACTURING, INC.
By: /s/ David Shamilzadeh
------------------------------
Title SVP & CFO
GUARANTORS:
/s/ Victor Jacobs
- ------------------------------
Victor Jacobs, Guarantor
/s/ Herman Jacobs
- ------------------------------
Herman Jacobs, Guarantor
/s/ Jack Jacobs
- ------------------------------
Jacob Jacobs, Guarantor
Copies sent to the following Lenders:
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
THIRD AMENDMENT
TO
SECOND RESTATED AND AMENDED
REVOLVING CREDIT AND SECURITY AGREEMENT
This Third Amendment to the Second Restated and Amended Revolving
Credit and Security Agreement (this "Amendment"), made as of December 6, 1996,
among the undersigned amends that certain Second Restated and Amended Revolving
Credit and Security Agreement, dated June 6, 1996, as previously amended as of
June 28, 1996 and October 15, 1996, (as amended previously and hereby, the
"Agreement"), among the Borrowers and the Lenders (as such terms are defined in
the Agreement).
WITNESSETH:
WHEREAS, the Borrowers and the Lenders entered into the Agreement
pursuant to which the Lenders have, on the terms and subject to the conditions
stated therein, made Loans to Borrowers;
WHEREAS, the Borrowers have identified an opportunity to make a
$13,000,000 special purchase of inventory consisting of Ralph Lauren Fragrances
from Cosmair, Inc., such acquisition to be paid for in several installments (the
"Special RL Purchase");
WHEREAS, the Borrowers have requested that Lenders consent to the
Special RL Purchase and that the Agreement be amended in certain respects as set
forth in this Amendment, including, without limitation, so as to extend usage
beyond the 30 day limit imposed in the Agreement under the Borrowers' $6,500,000
Overadvance sublimit in order to accommodate the Special RL Purchase;
WHEREAS, in furtherance of the Special RL Purchase, the Borrowers
have requested that the Loan Agreement be amended to include in the definition
of the Borrowers an additional Subsidiary; and
WHEREAS, the Lenders have agreed to add the Subsidiary to the
definition of the Borrowers solely in accordance with the terms and conditions
of this Amendment;
NOW, THEREFORE, in consideration of the premises and of good and
valuable consideration, the receipt and sufficiency of which are hereby
severally acknowledged, the parties hereto agree as follows:
Section 1. Definitions. All capitalized terms used herein which are
defined in the Agreement shall have the same meanings herein as therein, except
as otherwise specifically provided herein.
SECTION 2. CONSENT TO SPECIAL RL PURCHASE. Notwithstanding the terms
of the Agreement, including without limitation Section 5.8 thereof, the Lenders
hereby consent
<PAGE>
to the Special RL Purchase solely in accordance with and to the extent
consistent with the terms of this Amendment.
SECTION 3. AMENDMENTS TO THE AGREEMENT. From and after the date
hereof, the Agreement is hereby amended as follows:
3.1 The $55,000,000 ceiling for the value of the Borrowing
Base Percentage of the Net Security Value of Base Inventory set forth in Section
1.11 is hereby increased to $64,000,000 solely for the period commencing on the
date hereof and ending on the earlier to occur of (i) such time as the Special
RL Purchase Overadvance is reduced to $0, or (ii) July 1, 1997. From and after
such time as such period shall end, such ceiling shall cease to be $64,000,000
and shall revert to $55,000,000, unless further modified in accordance with the
terms of the Agreement.
3.2 Section 2.7 of the Agreement is hereby amended by the
addition of the following clause (iii):
"(iii) In order to facilitate the Borrowers accomplishing
the Special RL Purchase, the Borrowers and Lenders hereby establish
the 'Special RL Purchase Overadvance Period.' The Special RL Purchase
Overadvance Period shall commence on the date hereof and extend until
ninety (90) days (the "Ninety Day Period") following the earlier to
occur of (i) such time as the Overadvance outstanding from and after
the date hereof is reduced to $0, and (ii) July 1, 1997. Pursuant to
clause (ii) of Section 2.7 hereof, the Agent hereby consents to the
Borrowers' requests for Overadvances in connection with the
Borrowers' consummation of the Special RL Purchase, and such
Overadvances shall constitute Overadvances made pursuant to clause
(i)(a) of this Section 2.7. For the entire duration of the Special RL
Purchase Overadvance Period, no other Overadvances shall be permitted
pursuant to Sections 2.7(i)(a), (b) or (c), provided, however,
Overadvances not to exceed $2,000,000 at any time outstanding may be
made pursuant to Section 2.7(i)(b) during the Ninety Day Period.
Notwithstanding Section 2.7(ii)(f), Overadvances made pursuant to
Section 2.7(i)(a) to facilitate the Special RL Purchase during the
Special RL Purchase Overadvance Period may remain outstanding until
July 1, 1997 and shall not exceed the maximum aggregate amount of
$6,500,000 for the period from the date hereof through March 31,
1997; shall not exceed $4,500,000 during the month of April, 1997;
-2-
<PAGE>
shall not exceed $3,500,000 during the month of May, 1997; shall not
exceed $2,500,000 during the month of June, 1997; and shall not
exceed $0 during the period commencing on July 1, 1997 and ending on
September 29, 1997. Notwithstanding the immediately preceding
sentence, from and after such time as the Special RL Purchase
Overadvance balance has been reduced to $0 prior to July 1, 1997, the
maximum aggregate amount of Overadvances pursuant to Section
2.7(i)(a) shall not exceed $0 for the duration of the Special RL
Purchase Overadvance Period."
3.3 Notwithstanding the terms of Sections 2.8.2(ii) and
(iii) of the Agreement, 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 issued in connection with the Special RL Purchase
a fee quarterly in arrears that is either in accordance with the terms of
Section 2.8.2(i) or (y) a fee equal to the greater of 1/2% 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 affect from time to time, or (z) a fee equal to
the greater of 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.
SECTION 4. FEE. Simultaneously with the execution and delivery
hereof, the Borrowers shall pay to the Agent for the benefit of the Lenders pro
rata in proportion to their respective Commitment Percentages an administrative
fee of $20,000 in the aggregate.
SECTION 5. Conditions Precedent to this Amendment. The Agreements of
the Lenders set forth in this Amendment are subject to the satisfaction of the
conditions precedent to the Agreements set forth in that certain Third Amendment
to Subsidiary Tie-In Agreement, of even date herewith, among the Borrowers and
the Lenders.
SECTION 6. ADDITIONAL REPORTING. In addition to such information as
is required from time to time pursuant to Section 5 of the Agreement, the
Borrowers shall provide to the Agent by the 15th day of each calendar month
reports of sales and gross profits on a divisional basis for the immediate
preceding month.
SECTION 7. GENERAL.
7.1 The Agreement is hereby ratified and confirmed and
shall continue in full force and effect as amended hereby.
7.2 The Borrowers hereby represent and warrant that there
is no default or Event of Default outstanding or continuing under the Agreement
or any instrument or document executed in connection with the Agreement, or any
event or
-3-
<PAGE>
condition which with the giving of notice or the passage of time, or both, would
result in a default or an Event of Default under the Agreement or any instrument
or document executed in connection with the Agreement.
7.3 This Letter 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.
7.4 Allou Personal Care Corporation, M. Sobol, Inc.,
Superbuy of New York, Inc., Rona Beauty Supplies, Inc., Hempstead Health &
Beauty Aids, Inc., Pastel Cosmetic and Beauty Aids, Inc., HBA National Sales
Corp., HBA Distributors, Inc., Russ Kalvin Personal Care Corp., Stanford
Personal Care Manufacturing, Inc., and Cosmetic Plus Two, Inc. are each
executing and delivering this Amendment as a Borrower pursuant to the terms of
the Subsidiary Tie-In Agreement, as amended through the date hereof.
7.5 All of the Obligations undertaken hereunder by the
Borrowers are hereby undertaken by each of them jointly and severally.
If the foregoing sets forth your understanding of the matters
addressed herein, please evidence your agreement by countersigning this
Amendment in the space set forth below, whereupon this Amendment shall take
effect as an agreement under seal as of the day first written above.
THE FIRST NATIONAL BANK OF BOSTON
By:/s/Brent E. Shay
---------------------------------
Title: Director
IBJ SCHRODER BANK & TRUST COMPANY
By:/s/ Mary McLaughlin
---------------------------------
Title: Vice President
SANWA BUSINESS CREDIT CORPORATION
By: /s/
---------------------------------
Title: Vice President
LASALLE BUSINESS CREDIT, INC.
By: /s/ Lawrence P. Garni
---------------------------------
Title: Vice President
(Signatures continued on next page)
-4-
<PAGE>
THE BANK OF TOKYO - MITSUBISHI TRUST
COMPANY
By:/s/ G Stewart
---------------------------------
Title: SVP and Manager
ALLOU & BEAUTY CARE, INC.
ALLOU DISTRIBUTORS, INC.
ALLOU PERSONAL CARE CORPORATION
M. SOBOL, INC.
SUPERBUY OF NEW YORK, INC.
RONA BEAUTY SUPPLIES, INC.
HEMPSTEAD HEALTH & BEAUTY AIDS, INC.
PASTEL COSMETIC AND BEAUTY AIDS, INC.
HBA NATIONAL SALES CORPORATION
HBA DISTRIBUTORS, INC.
RUSS KALVIN PERSONAL CARE
CORPORATION
STANFORD PERSONAL CARE
MANUFACTURING, INC.
COSMETIC PLUS TWO, INC.
By:./s/ David Shamilzadeh
---------------------------------
Title: SVP and CFO
CONSENT OF GUARANTORS
Each of Victor Jacobs, Herman Jacobs and Jacob Jacobs (collectively,
the "Guarantors") has guaranteed certain of the Obligations under the Agreement
by executing separate Limited Guaranties dated as of December 10, 1991
(collectively, as amended, the "Guaranties"). By executing this letter, each of
the Guarantors hereby absolutely and unconditionally reaffirms the Guaranty to
which he is a party, and acknowledges and agrees to the terms and conditions of
this Amendment and the Agreement as so amended.
/s/ Victor Jacobs
---------------------------------
Victor Jacobs
/s/ Jacob Jacobs
---------------------------------
Jacob Jacobs
/s/ Herman Jacobs
---------------------------------
Herman Jacobs
-5-
THE FIRST NATIONAL BANK OF BOSTON, as Agent
100 Federal Street
Boston, MA 02110
Allou Health & Beauty Care, Inc. as of February 14, 1997
and its Subsidiaries
50 Emjay Boulevard
Brentwood, NY 11717
Re: Fourth Amendment to Second Restated and Amended Revolving
Credit and Security Agreement, dated as of June 6, 1996
---------------------------------------------------------
Gentlemen:
Reference is made to the Second Restated and Amended Revolving Credit
and Security Agreement (the "Agreement"), dated as of June 6, 1996 among Allou
Health & Beauty Care, Inc. (the "Parent") and Allou Distributors, Inc.
("Distributors") (collectively, including Subsidiaries of the Parent and
Distributors who have executed and delivered that certain Subsidiary Tie-In
Agreement dated December 10, 1991, as amended from time to time, the
"Borrowers"), 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 (collectively the "Lenders"), and
The First National Bank of Boston as Agent for the Lenders (the "Agent").
Capitalized terms used and not otherwise defined herein shall have the same
respective meanings herein as set forth in the Agreement.
You have requested that (a) the Agreement be amended to (i) revise
the definition of Inventory Turn Average and (ii) change the ratio test set
forth in Section 5.27 of the Agreement as measured at the end of the calendar
quarter ending on March 31, 1997; and (b) the Borrower's failure to comply for
the fiscal quarter ending December 31, 1996 with the terms of Section 5.27 of
the Agreement be waived.
Accordingly, in consideration of these premises, the promises, mutual
covenants and agreements contained in this letter agreement, and fully intending
to be legally bound by this letter agreement, we hereby agree with you as
follows:
1. AMENDMENT TO AGREEMENT. In compliance with the terms of Section 10.8
of the Agreement;
1.1 Effective as of December 31, 1996, Section 1.40 of the Agreement
is hereby amended to read in its entirety as follows:
"1.40 'Inventory Turn Average' shall mean (i) the Borrowers'
aggregate cost of goods sold on a consolidated basis for the twelve month period
ending at a particular point in time, divided by (ii) the aggregate sum of the
Borrowers' Inventory on a consolidated basis as reflected on the Borrowers'
consolidated balance sheet as at the end
<PAGE>
of each of the twelve months in such twelve month period divided by twelve, all
determined in accordance with GAAP."
1.2 Section 5.27 of the Agreement is hereby amended to read in its
entirety as follows:
"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 (i) .30 to 1 as of
the end of the fiscal quarter ending on March 31, 1997, and (ii) .40 to 1 as of
the end of each fiscal quarter ending on or after June 30, 1997."
2. WAIVER. In compliance with the terms of Section 10.8 of the
Agreement, and expressly conditioned upon representations that have been made by
the Borrowers to the Agent that the ratio of Cash Equivalents divided by the sum
of Current Liabilities plus the then debit balance on the Loan Account as of the
end of the fiscal quarter ending December 31, 1996 is greater than .30 to 1,
compliance by the Borrowers with the terms of Section 5.27 of the Agreement as
measured at the end of the calendar quarter ending on December 31, 1996 is
hereby waived.
3. GENERAL.
3.1 The Agreement is hereby ratified and confirmed and shall continue
in full force and effect as amended hereby.
3.2 The Borrowers hereby represent and warrant that there is no
default or Event of Default outstanding or continuing under the Agreement or any
instrument or document executed in connection with the Agreement, or any event
or condition which with the giving of notice or the passage of time, or both,
would result in a default or an Event of Default under the Agreement or any
instrument or document executed in connection with the Agreement.
3.3 This Letter 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.
If the foregoing sets forth your understanding of the matters
addressed herein, please evidence your agreement by countersigning this letter
Agreement in the space set forth below, whereupon this Letter Agreement shall
take effect as an agreement under seal as of the day first written above.
THE FIRST NATIONAL BANK OF BOSTON
By:/s/Brent E. Shay
--------------------------------
Title: Director
(Signatures continued on next page)
-2-
<PAGE>
IBJ SCHRODER BANK & TRUST COMPANY
By:/s/Mary McLaughlin
--------------------------------
Title
SANWA BUSINESS CREDIT CORPORATION
By:/s/
--------------------------------
Title:
LASALLE BUSINESS CREDIT, INC.
By:/s/Lawrence P. Garni
--------------------------------
Title: Vice President
THE BANK OF TOKYO - MITSUBISHI TRUST
COMPANY
By:/s/ G. Stewart
--------------------------------
Title: SVP and Manager
ALLOU HEALTH & BEAUTY CARE, INC.
ALLOU DISTRIBUTORS, INC.
ALLOU PERSONAL CARE CORPORATION
M. SOBOL, INC.
SUPERBUY OF NEW YORK, INC.
RONA BEAUTY SUPPLIES, INC.
HEMPSTEAD HEALTH & BEAUTY AIDS, INC.
PASTEL COSMETIC AND BEAUTY AIDS, INC.
HBA NATIONAL SALES CORP.
HBA DISTRIBUTORS, INC.
RUSS KALVIN PERSONAL CARE CORP.
STANFORD PERSONAL CARE MANUFACTURING, INC.
By:/s/ David Shamilzadeh
- ------------------------------------
Title: Senior Vice President and CFO
(Signatures continued on next page)
-3-
<PAGE>
Consent of Guarantors
Each of Victor Jacobs, Herman Jacobs and Jacob Jacobs (collectively,
the "Guarantors") has guaranteed certain of the Obligations under the Agreement
by executing separate Limited Guaranties dated as of December 10, 1991
(collectively, as amended, the "Guaranties"). By executing this letter, each of
the Guarantors hereby absolutely and unconditionally reaffirms the Guaranty to
which it is a party, and acknowledges and agrees to the terms and conditions of
this letter and the Agreement as so amended.
/s/Victor Jacobs
- ------------------------------------
Victor Jacobs
/s/Jacob Jacobs
- ------------------------------------
Jacob Jacobs
/s/ Herman Jacobs
- ------------------------------------
Herman Jacobs
-4-
BANKBOSTON, N.A. (f/k/a The First National Bank of Boston), as Agent
100 Federal Street
Boston, MA 02110
May 21, 1997
Allou Health & Beauty Care, Inc.
and its Subsidiaries
50 Emjay Boulevard
Brentwood, NY 11717
Re: Fifth Amendment to Second Restated and Amended Revolving
Credit and Security Agreement, dated as of June 6, 1996
-------------------------------------------------------
Gentlemen:
Reference is made to the Second Restated and Amended Revolving Credit
and Security Agreement (as amended from time to time, the "Agreement"), dated as
of June 6, 1996 among Allou Health & Beauty Care, Inc. (the "Parent") and Allou
Distributors, Inc. ("Distributors") (collectively, including Subsidiaries of the
Parent and Distributors who have executed and delivered that certain Subsidiary
Tie-In Agreement dated December 10, 1991, as amended from time to time, the
"Borrowers"), BankBoston, N.A. (f/k/a 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
(collectively the "Lenders"), and The First National Bank of Boston as Agent for
the Lenders (the "Agent"). Capitalized terms used and not otherwise defined
herein shall have the same respective meanings herein as set forth in the
Agreement.
You have requested that the Agreement be amended (i) to increase the
Maximum Amount set forth in Section 1.49 to $110,000,000.00, and (ii) to reflect
the addition of Bank Leumi Trust Company of New York ("BLT") as a Lender.
Accordingly, in consideration of these premises, the promises, mutual
covenants and agreements contained in this Amendment, and fully intending to be
legally bound by this Amendment, we hereby agree with you as follows:
1. AMENDMENTS TO AGREEMENT. In compliance with the terms of Section 10.8
of the Agreement:
<PAGE>
1.1 (i) The first sentence of the preamble to the Agreement is hereby
amended to read as follows after zip code "10116-3138": ",BANK LEUMI TRUST
COMPANY OF NEW YORK ('BLT'), 562 Fifth Avenue, New York, New York, 10036; and
BKB as agent for the Lenders (the 'Agent')."
(ii) The second sentence of the preamble to the Agreement
is hereby amended to read as follows after "LBC": ", BOT and BLT are hereafter
referred to collectively as the 'Lenders'."
1.2 Section 1.20 of the Agreement is hereby amended to read in its
entirety as follows:
"1.20 'Commitment Percentage' shall mean in relation to each Lender
the percentage set forth opposite its name below:
Lender Percentage
------ ----------
BKB 31.8181820%
SBC 24.5454545%
IBJS 12.7272728%
LBC 18.1818182%
BOT 8.1818181%
BLT 4.5454545%
----------
100%"
11.3 Section 1.49 of the Agreement is hereby amended to read in its
entirety as follows:
"1.49 'Maximum Amount' shall mean $110,000,000.00."
1.4 Section 1.65 of the Agreement is hereby amended to read in its
entirety as follows:
"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:
$110,000,000 x 31.8181820% = $35,000,000; for SBC: $110,000,000 x 24.5454545% =
$27,000,000; for IBJS: $110,000,000 x 12.7272728% = $14,000,000; for LBC
$110,000,000 x 18.1818182% = $ 20,000,000; for BOT: $110,000,000 x 8.1818181% =
$9,000,000 and for BLT $110,000,000 x 4.5454545% =$5,000,000)."
1.5 The Agreement is hereby amended to include Section 4.5 as follows:
-2-
<PAGE>
"4.5 Heter Iska. This Agreement is being entered into by BLT in accordance
with BLT's heter iska."
1.6 Section 10.1 of the Agreement is hereby amended to read as follows
after "Attn: Christopher Young, Vice President": "(vi) if to BLT to it at 562
Fifth Avenue, New York, New York 10036 Attn: Paul Tine, Vice President or such
other officers as may be designated by the Agreement or the Lenders. Any notice,
unless otherwise specified, may be given orally or in writing."
2. CONDITIONS PRECEDENT TO THIS AMENDMENT. The Agreements of the Lenders
set forth in this Amendment are subject to the receipt by (i) the Agent, on
behalf of the Lenders, and (ii) BLT, respectively, of the following in form and
substance satisfactory to the respective recipient and duly executed and
delivered by the Borrowers:
(a) BLT shall have received a Second Restated and Amended Revolving
Credit Note in the form of Exhibit A attached hereto;
(b) The Agent shall have received multiple counterparts of an
Amendment to Guaranty and Subsidiary Tie-In Agreement in the form of Exhibit B
attached hereto in sufficient numbers for itself and each of the other Lenders;
(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 other Lenders, evidencing the due authorization of this
Amendment and the entering into of the transactions contemplated hereby;
(d) The Agent shall have received 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 this Amendment in sufficient
numbers for itself and each of the other Lenders; and
(e) The Agent shall have received multiple counterparts of a
favorable legal opinion addressed to the Agent and each of the Lenders from
Parker Chapin, Flattau and Klimpl, LLP, counsel to the Borrowers, in sufficient
quantities for itself and each of the other Lenders.
3. GENERAL.
3.1 The Agreement is hereby ratified and confirmed and shall continue
in full force and effect as amended hereby.
3.2 The Borrowers hereby represent and warrant that there is no
default or Event of Default outstanding or continuing under the Agreement or any
instrument or document executed in connection with the Agreement, or any event
or condition which with the giving of notice or the passage of time, or both,
would result in a default or an
-3-
<PAGE>
Event of Default under the Agreement or any instrument or document executed in
connection with the Agreement.
3.3 This Amendment may be signed in any number of counterparts with
the same effect as if the signatures hereto and thereto were upon the same
instrument.
3.4 Allou Personal Care Corporation, M. Sobol, Inc., Superbuy of New
York, In., Rona Beauty Supplies, Inc., Hempstead Health & Beauty Aids, Inc.,
Pastel Cosmetic and Beauty Aids, Inc., HBA National Sales Corp., HBA
Distributors, Inc., Russ Kalvin Personal Care Corporation, Stanford Personal
Care Manufacturing, Inc., and Cosmetic Plus Two, Inc. are each executing and
delivering this Amendment as a Borrower pursuant to the terms of the Subsidiary
Tie-In Agreement, as amended through the date hereof.
If the foregoing sets forth your understanding of the matters
addressed herein, please evidence your agreement by countersigning this
Amendment in the space set forth
-4-
<PAGE>
below, whereupon this Amendment shall take effect as an agreement under seal as
of the day first written above.
THE FIRST NATIONAL BANK OF BOSTON
By:/s/
--------------------------------
Title: Vice President
IBJ SCHRODER BANK & TRUST COMPANY
By:/s/
--------------------------------
Title: Vice President
SANWA BUSINESS CREDIT CORPORATION
By:/s/
--------------------------------
Title: Vice President
LASALLE BUSINESS CREDIT, INC.
By:/s/
--------------------------------
Title: First Vice President
THE BANK OF TOKYO - MITSUBISHI TRUST
COMPANY
By:/s/ Amanda S. Ryan
--------------------------------
Title: Vice President
BANK LEUMI TRUST COMPANY OF NEW
YORK
By:/s/
--------------------------------
Title: First Vice President,
Vice President
(Signatures continued on next page)
-5-
<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
ALLOU DISTRIBUTORS, INC.
ALLOU PERSONAL CARE CORPORATION
M. SOBOL, INC.
SUPERBUY OF NEW YORK, INC.
RONA BEAUTY SUPPLIES, INC.
HEMPSTEAD HEALTH & BEAUTY AIDS, INC.
PASTEL COSMETIC AND BEAUTY AIDS, INC.
HBA NATIONAL SALES CORP.
HBA DISTRIBUTORS, INC.
RUSS KALVIN PERSONAL CARE CORP.
STANFORD PERSONAL CARE MANUFACTURING, INC.
COSMETIC PLUS TWO, INC.
By:/s/David Shamilzadeh
-----------------------------
Title: Senior Vice President, CFO
CONSENT OF GUARANTORS
Each of Victor Jacobs, Herman Jacobs and Jacob Jacobs (collectively,
the "Guarantors") has guaranteed certain of the Obligations under the Agreement
by executing separate Limited Guaranties dated as of December 10, 1991
(collectively, as amended, the "Guaranties"). By executing this letter, each of
the Guarantors hereby absolutely and unconditionally reaffirms the Guaranty to
which he is a party, and acknowledges and agrees to the terms and conditions of
this Amendment and the Agreement as so amended.
/s/ Victor Jacobs
--------------------------------
Victor Jacobs
/s/ Jacob Jacobs
--------------------------------
Jacob Jacobs
/s/ Herman Jacobs
--------------------------------
Herman Jacobs
-6-
<PAGE>
EXHIBIT A
---------
Second Restated and Amended Revolving Credit Note
-------------------------------------------------
$5,000,000.00 Boston, Massachusetts
May 21, 1997
FOR VALUE RECEIVED, the undersigned hereby absolutely and
unconditionally, jointly and severally, promise to pay to Bank Leumi Trust
Company of New York, a national bank with its head office at 562 Fifth Avenue,
NewYork, New York 10036 (the "Lender"), or order, on the Maturity Date, the
principal amount of Five Million and 00/100 Dollars ($5,000,000.00) 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, dated June 6, 1996 (as amended from time to
time), among the undersigned, the Lender, BankBoston, N.A. (f/k/a The First
National Bank of Boston), IBJ Schroder Bank and Trust Company, Sanwa Business
Credit Corporation, LaSalle Business Credit, Inc., Bank of Tokyo - Mitsubishi
Trust Company, and BankBoston, N.A. as Agent (herein, as the same may from time
to time have been or may be amended, restated 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.
-7-
<PAGE>
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 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:
-8-
<PAGE>
EXHIBIT B
---------
AMENDMENT TO GUARANTY AND SUBSIDIARY TIE-IN AGREEMENT
-----------------------------------------------------
THIS AMENDMENT TO GUARANTY AND SUBSIDIARY TIE-IN AGREEMENT, made as
of May 21 1997, among the undersigned Borrowers and Guarantors, is for the
benefit of the Lenders and Agent. All capitalized terms used herein which are
not otherwise defined herein shall have the same meanings herein as ascribed to
them in the Second Restated and Amended Revolving Credit and Security Agreement,
dated as of June 6, 1996, as amended from time to time, among the undersigned
Borrowers, the Agent and the Lenders (the "Loan Agreement").
WITNESSETH:
WHEREAS, the Borrowers, the Agent and 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");
WHEREAS, as contemplated by the terms of the Prior Loan Agreement and
the Loan Agreement, the Borrowers executed and delivered with the Lenders that
certain Subsidiary Tie-In Agreement, dated as of December 10, 1991, as amended
from time to time (as amended, the "Subsidiary Tie-In Agreement");
WHEREAS, also as contemplated by the terms of the Prior Loan
Agreement and the Loan Agreement, the Guarantors executed and delivered those
certain Limited Guaranties, dated as of December 10, 1991, as amended from time
to time (as amended, individually, a "Guaranty" and collectively, the
"Guaranties"); and
WHEREAS, the Fifth Amendment to the Loan Agreement is a continuation
of the Loan Agreement and further amends the Loan Agreement to increase the
Maximum Amount to $110,000,000.00 and to reflect the addition of Bank Leumi
Trust Company of New York as one of the Lenders.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the Borrowers and the Guarantors
hereby agree as follows:
1. From and after the date hereof, each of the Guaranties are hereby
amended as follows:
(i) The first sentence of the preamble to the Guaranty is
hereby further amended to insert the following after the zip code
"10116-3138,": "; Bank
-9-
<PAGE>
Leumi Trust Company of New York ("BLT"), 562 Fifth Avenue, New York,
New York, 10036."; and
(ii) Section 12 of the Guaranty is hereby further amended
to insert the following immediately after the zip-code "10116-3138,
Attention Mr. Christopher Young, Assistant Vice President": ";
Attention: Mr. Paul Tine, Vice President, if to BLT, 562 Fifth
Avenue, New York, New York 10036.";
(iii) The Guaranty is hereby amended to include Section 15
as follows:
HETER ISKA. This Guaranty is being provided to BLT in
accordance with BLT's heter iska.
2. From and after the date hereof, the Subsidiary Tie-In Agreement is
hereby further amended as follows:
The first sentence of the preamble to the Subsidiary Tie-In
Agreement is hereby further amended to insert the following after the
zip code "10116-3138": "; Bank Leumi Trust Company of New York
('BLT'), with an address at 562 Fifth Avenue, New York, New York,
10036. (BKB, IBJS, SBC, LBC, BOT and BLT are hereafter referred to
collectively as the 'Lenders')".
IN WITNESS WHEREOF, the parties hereto have executed this
Acknowledgment and Agreement under seal on the day and year first above written.
THE BORROWERS:
--------------
ALLOU HEALTH & BEAUTY CARE, INC.
ALLOU DISTRIBUTORS, INC.
ALLOU PERSONAL CARE CORPORATION
M. SOBOL, INC.
SUPERBUY OF NEW YORK, INC.
RONA BEAUTY SUPPLIES, INC.
HEMPSTEAD HEALTH & BEAUTY AIDS, INC.
PASTEL COSMETIC AND BEAUTY AIDS, INC.
HBA NATIONAL SALES CORP.
HBA DISTRIBUTORS, INC.
RUSS KALVIN PERSONAL
CARE CORP.
STANFORD PERSONAL CARE
MANUFACTURING, INC.
COSMETIC PLUS TWO, INC.
By: ___________________________________
In his capacity as ________________
of each of the above-named entities
(Signatures continued on next page)
-10-
<PAGE>
GUARANTORS:
-----------
____________________________
Victor Jacobs
____________________________
Herman Jacobs
____________________________
Jacob Jacobs
ACKNOWLEDGED AS OF THE DATE
FIRST SET FORTH ABOVE
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:
-11-
<PAGE>
THE BANK OF TOKYO - MITSUBISHI TRUST COMPANY
By: ____________________________
Title:
BANK LEUMI TRUST COMPANY OF NEW YORK
By: ____________________________
Title:
-12-
AMENDMENT TO GUARANTY AND SUBSIDIARY TIE-IN AGREEMENT
-----------------------------------------------------
THIS AMENDMENT TO GUARANTY AND SUBSIDIARY TIE-IN AGREEMENT, made as
of May __, 1997, among the undersigned Borrowers and Guarantors, is for the
benefit of the Lenders and Agent. All capitalized terms used herein which are
not otherwise defined herein shall have the same meanings herein as ascribed to
them in the Second Restated and Amended Revolving Credit and Security Agreement,
dated as of June 6, 1996, as amended from time to time, among the undersigned
Borrowers, the Agent and the Lenders (the "Loan Agreement").
WITNESSETH:
WHEREAS, the Borrowers, the Agent and 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");
WHEREAS, as contemplated by the terms of the Prior Loan Agreement and
the Loan Agreement, the Borrowers executed and delivered with the Lenders that
certain Subsidiary Tie-In Agreement, dated as of December 10, 1991, as amended
from time to time (as amended, the "Subsidiary Tie-In Agreement");
WHEREAS, also as contemplated by the terms of the Prior Loan
Agreement and the Loan Agreement, the Guarantors executed and delivered those
certain Limited Guaranties, dated as of December 10, 1991, as amended from time
to time (as amended, individually, a "Guaranty" and collectively, the
"Guaranties"); and
WHEREAS, the Fifth Amendment to the Loan Agreement is a continuation
of the Loan Agreement and further amends the Loan Agreement to increase the
Maximum Amount to $110,000,000.00 and to reflect the addition of Bank Leumi
Trust Company of New York as one of the Lenders.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the Borrowers and the Guarantors
hereby agree as follows:
1. From and after the date hereof, each of the Guaranties are hereby
amended as follows:
(i) The first sentence of the preamble to the Guaranty is
hereby further amended to insert the following after the zip code
"10116-3138,": "; Bank Leumi Trust Company of New York ('BLT'), 562
Fifth Avenue, New York, New York, 10036."; and
<PAGE>
(ii) Section 12 of the Guaranty is hereby further amended
to insert the following immediately after the zip-code "10116-3138,
Attention Mr. Christopher Young, Assistant Vice President": ";
Attention: Mr. Paul Tine, Vice President, if to BLT, 562 Fifth
Avenue, New York, New York, 10036.";
(iii) The Guaranty is hereby amended to include Section 15
as follows:
HETER ISKA. This Guaranty is being provided to BLT in
accordance with BLT's heter iska.
2. From and after the date hereof, the Subsidiary Tie-In Agreement is
hereby further amended as follows:
The first sentence of the preamble to the Subsidiary
Tie-In Agreement is hereby further amended to insert the following
after the zip code "10116-3138": "; Bank Leumi Trust Company of New
York ("BLT"), with an address at 562 Fifth Avenue, New York, New
York, 10036. (BKB, IBJS, SBC, LBC, BOT and BLT are hereafter referred
to collectively as the "Lenders')".
IN WITNESS WHEREOF, the parties hereto have executed this
Acknowledgment and Agreement under seal on the day and year first above written.
THE BORROWERS:
--------------
ALLOU HEALTH & BEAUTY CARE, INC.
ALLOU DISTRIBUTORS, INC.
ALLOU PERSONAL CARE CORPORATION
M. SOBOL, INC.
SUPERBUY OF NEW YORK, INC.
RONA BEAUTY SUPPLIES, INC.
HEMPSTEAD HEALTH & BEAUTY AIDS, INC.
PASTEL COSMETIC AND BEAUTY AIDS, INC.
HBA NATIONAL SALES CORP.
HBA DISTRIBUTORS, INC.
RUSS KALVIN PERSONAL CARE CORP.
STANFORD PERSONAL CARE
MANUFACTURING, INC.
COSMETIC PLUS TWO, INC.
By: /s/ David Shamilzadeh
--------------------------------------
In his capacity as Senior V.P., C.F.O.
of each of the above-named entities
(Signatures continued on next page)
-2-
<PAGE>
GUARANTORS:
/s/ Victor Jacobs
---------------------------------
Victor Jacobs
/s/ Herman Jacobs
---------------------------------
Herman Jacobs
/s/ Jacob Jacobs
---------------------------------
Jacob Jacobs
ACKNOWLEDGED AS OF THE DATE
FIRST SET FORTH ABOVE
THE FIRST NATIONAL BANK OF BOSTON
By:/s/
--------------------------------
Title: Vice President
IBJ SCHRODER BANK & TRUST COMPANY
By:/s/
--------------------------------
Title:
SANWA BUSINESS CREDIT CORPORATION
By:/s/
--------------------------------
Title:
LASALLE BUSINESS CREDIT, INC.
By:/s/
--------------------------------
Title:
(Signatures continued on next page)
-3-
<PAGE>
THE BANK OF TOKYO - MITSUBISHI TRUST COMPANY
By:/s/
--------------------------------
Title:
BANK LEUMI TRUST COMPANY OF NEW YORK
By:/s/
--------------------------------
Title:
-4-
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
Registration Number 333-22545, as filed with the Securities and Exchange
Commission on February 28, 1997, 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, 1997 related 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 30, 1997
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-31-1998
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 76,531
<SECURITIES> 0
<RECEIVABLES> 48,980,564
<ALLOWANCES> 555,682
<INVENTORY> 96,661,103
<CURRENT-ASSETS> 153,321,119
<PP&E> 6,736,699
<DEPRECIATION> 3,093,941
<TOTAL-ASSETS> 161,347,795
<CURRENT-LIABILITIES> 111,279,394
<BONDS> 0
0
0
<COMMON> 5,752
<OTHER-SE> 48,221,179
<TOTAL-LIABILITY-AND-EQUITY> 161,347,795
<SALES> 285,311,441
<TOTAL-REVENUES> 285,311,441
<CGS> 250,843,851
<TOTAL-COSTS> 250,843,851
<OTHER-EXPENSES> 21,310,145
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,614,797
<INCOME-PRETAX> 6,542,648
<INCOME-TAX> 2,484,113
<INCOME-CONTINUING> 4,058,535
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,058,535
<EPS-PRIMARY> .70
<EPS-DILUTED> .70
</TABLE>
