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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
REPORT ON FORM 10-KSB
|X| Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended November 30, 1996.
|_| Transition Report pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934
For the transition period from ___________________ to ___________________.
Commission File No. 0-19121
PDK LABS INC.
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(Exact name of registrant as specified in its charter)
New York 11-2590436
- --------------------------------- ---------------------------------
(State of or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
145 Ricefield Lane
Hauppauge, New York 11788
- --------------------- ----------
(Address of Principal (Zip Code)
Executive Officers)
Registrant's telephone number, including area code: (516) 273-2630
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
--------------------------------------
(Title of Class)
Units consisting of One (1) share of Series A convertible Preferred Stock, one
redeemable Class B Warrant and one (1) redeemable Class C Warrant
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(Title of Class)
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Series A convertible Preferred Stock, $.01 par value per share
--------------------------------------------------------------
(Title of Class)
Redeemable Class B Warrant
--------------------------
(Title of Class)
Redeemable Class C Warrant
--------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 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 the Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10K-SB
or any amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year were $46,563,000.
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, computed by reference to the closing price of such stock as of
February 21, 1997, was approximately $13,505,000.
Number of shares outstanding of the issuers common stock, as of February 21,
1997, was 3,191,986.
DOCUMENTS INCORPORATED BY REFERENCE: None.
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PART I
Item 1. BUSINESS.
General
PDK Labs Inc. ("PDK" or "Company") manufactures and distributes
over-the-counter nonprescription pharmaceutical products and vitamins. The
Company's line of products primarily consists of nonprescription caffeine
products, pain relievers, decongestants, diet aids, and a broad line of
vitamins, nutritional supplements and cosmetics. The Company markets its
products through direct mail, regional distributors, and private label
manufacturing.
Products
The Company markets its nonprescription products under its MaxAlert(TM),
HeadsUp(TM), Reach(TM), PDK(R), Compare Generiks, Inc.(R) , and Energex Plus
brand names. On October 31, 1995, the Company sold to Compare Generiks, Inc., an
unaffiliated third party, the Energex Plus and Compare Generiks(R) product
lines. The Company has retained the rights relating to the sale by direct mail
of the Compare Generiks(R) products. On October 16, 1995, the Company licensed
its MaxAlert(TM) and HeadsUp(TM) brand names to an unaffiliated third party.
(See Item 12. Certain Relationships and Related Transactions.) The Company's
nonprescription pharmaceutical products contain active ingredients which are
identical to those contained in nonprescription products sold under national and
regional brand names, private label brands, local or regional products, and
products sold by other national and regional direct mail marketers. For
instance, the Company's acetaminophen tablets and capsules are similar to
Tylenol(R); its sleeping aids are similar to Sominex 2(R); the Company's
antihistamine tablets are similar to Benadryl ; its antihistamine-decongestant
products are similar to Actifed(R) and Sudafed(R); and its caffeine based
tablets are similar to Vivarin(R) and NO-DOZ(R).
The Company also sells products to its majority owned subsidiary,
Futurebiotics, Inc. ("Futurebiotics"). Futurebiotics' primary product line
consists of more than 125 items, including multi-vitamin/mineral formulas, green
superfood powders, herbal/mineral tonics and herbal complexes, and specific
specialty supplements. All of Futurebiotics' products are supplied by the
Company. Futurebiotics currently sells products in 32 international markets,
including South America, Central Europe, Hong Kong, Malaysia, Japan, and
Scandinavia.
The Company only sells over-the-counter products, which have been proven to
be generally recognized to be safe and effective for the intended uses. Proposed
rules by the Food and Drug Administration have established, after an expanded
review of all over-the counter
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products, those over-the-counter drugs that will be generally recognized as safe
and effective and non-misbranded. See "Business - Government Regulations."
The Company was incorporated under the laws of the State of New York on
July 6, 1982.
Marketing
The Company markets its products to customers through direct salespersons
and manufacturers representatives. Approximately 27.3% of the Company's total
revenue for the fiscal year ended November 30, 1996 was from sales by its
Futurebiotics, Inc. subsidiary. Private label sales accounted for 61.7% of the
Company's total revenue for the fiscal year ended November 30, 1996. The Company
sells a complete mail order line of over-the-counter pharmaceutical products
under its Compare Generiks brand name.
On October 16, 1995, the Company entered into an Exclusive Supply and
Licensing Agreement with a non-affiliated customer pursuant to which the Company
agreed to supply the customer with all of its requirements for vitamins,
non-prescription pharmaceutical products and health and fitness products
manufactured in tablet, capsule, caplet, liquid or equivalent form commencing on
the date of the agreement. The term of the agreement is for five years,
renewable for successive one year periods thereafter. Sales to this customer
accounted for 54.7% of total revenue for the fiscal year ended November 30,
1996.
In addition, the Company granted the same customer an exclusive license to
use the trademarks "MaxAlert" and "Heads Up", and its trademarks for its ginseng
products, and the exclusive right to distribute products bearing such names,
using the components listed in the agreement. The Company recognized license
fees of $500,000 for the fiscal year ended November 30, 1996 in connection with
this agreement.
The Company markets its various over-the-counter and vitamin products under
various brand names to various stores including drug store chains, health food
stores, health food store wholesalers, convenience stores, and other retailers.
On July 24, 1995, the Company sold a customer list, trademarks, and
inventory related to its mail order vitamin line of products. The Company is no
longer engaged in the marketing of its vitamin product through mail order.
Manufacturing
The Company's manufacturing facility is located in Hauppauge, New York.
Approximately 85% to 90% of the sales volume of the Company's products are
manufactured and/or packaged by the Company. Manufacturing and packaging
equipment has been dramatically increased in fiscal 1996. The Company believes
that the expanded capacity of its manufacturing facility is adequate to meet the
requirements of its current and future business.
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The Company's manufacturing process is specifically designed to insure the
strictest quality control. All raw materials used in production are initially
held in quarantine. Prior to being placed into production, the manufacturers
certificate of analysis is compared with an assay performed by the Company in
its own in-house laboratory. The Company's FDA approved laboratory continues its
testing to insure quality control throughout the manufacturing and packaging
process.
The manufacture of all of the Company's products is subject to current Good
Manufacturing Practices prescribed by the FDA and by the Company's own quality
control procedures. See "Business - Government Regulation" below. The Company
uses tamper resistant caps on all of its over-the-counter products with an inner
seal that indicates whether the container has been opened prior to sale. In
addition, the Company seal wraps each container for added protection.
The Company's manufacturing facility contains equipment which in one
operation can produce the tablets, package the products, and label the
containers. The Company also has equipment for filling capsules and wrapping
each container with heat sealed plastic wrap.
Material Suppliers
Substantially all of the Company's products are manufactured from readily
available raw material. In addition to manufacturing many of its own products,
the Company purchases finished goods from suppliers in the United States. The
Company has not encountered any significant difficulties in purchasing supplies
of principal raw material or finished goods. The Company believes that if any
source of a product's ingredients becomes unavailable, alternative sources of
supply are available at comparable prices and delivery schedules. In the event
the Company were unable to find such alternate sources at a competitive price
and on a timely basis for its principal products, the Company could be
materially adversely affected.
On May 14, 1996, the Company entered into a supply agreement with Superior
Supplements, Inc., a Delaware corporation ("SSI"), pursuant to which SSI agreed
to supply the Company with vitamins and dietary supplements manufactured to the
Company's specifications in bulk tablet form for a three (3) year period,
renewable for successive one (1) year periods thereafter. The Company agreed to
purchase products at a price equal to 115% of SSI's material cost having a
minimum aggregate sales price of $2,500,000 per annum during the term of the
agreement and to pay liquidated damages of $100,000 to SSI (pro-rated based on
purchases) in the event the Company does not meet that minimum purchase
requirement. Prior to the full commencement of manufacturing operations, SSI is
operating as a wholesale supplier to the Company. All wholesale purchases made
by the Company are to offset the minimum aggregate sales per annum under the
Supply Agreement dated May 14, 1996. As of November 30, 1996, the Company made
purchases of approximately $1,796,000 under this agreement. The Company supplies
certain management and personnel to SSI and Reginald Spinello, the Company's
Executive Vice President, is also a director of SSI. Reginald Spinello and two
other directors of
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SSI have more than fifty percent (50%) voting power of the common stock and the
preferred stock of the Company pursuant to a Voting Trust Agreement.
Although raw materials are available from numerous sources, two suppliers
currently provide approximately 14% and 12% of the Company's purchases, and no
other supplier accounts for more than 10% of the Company's raw material
purchases.
Acquisitions/Disposals
In January 1995, the Company sold 300,000 shares of common stock of
Futurebiotics for net proceeds of approximately $2,155,000.
On March 1, 1995, PDK Labs Inc. acquired all assets and rights relating to
the "Energex Plus" product line ("Energex") from Nu-Tek Laboratories, Inc.
("Nu-Tek") pursuant to a sale of assets agreement (the "Nu-Tek Agreement"). The
Energex Assets included all of Nu-Tek's interest in its Energex business, all
customer lists, trademarks, tradenames, licenses, trade secrets, know-how, and
use of the name "Energex Plus." The aggregate consideration for this transaction
was $300,000.
On July 24, 1995, the Company sold a customer list, trademarks, and
inventory related to a mail order vitamin line of products for approximately
$50,000. The Company recognized a loss of approximately $612,000 in connection
with this disposition.
On October 31, 1995, all of the Energex Assets and the Compare Generiks
Assets were transferred from PDK to Compare Generiks, Inc. ("CGI") for a
purchase price of approximately $1,700,000. In exchange (i) PDK was issued
500,000 shares of CGI common stock, representing $1,200,000 of the purchase
price ($2.40 per share), (ii) CGI delivered to PDK a promissory note in the
aggregate principal amount of $500,000 together with interest at the rate of
eight percent (8%) per annum, payable to PDK on October 31, 1996, and (iii) CGI
agreed to purchase PDK's Energex Plus inventory at the cost specified in the
Supply Agreement (defined and referred to below). CGI agreed to assume certain
liabilities associated with the Energex Assets. Since October 31, 1995, CGI has
purchased all of its products and materials from PDK at PDK's cost, plus one
hundred (100%) percent, pursuant to a supply agreement between PDK and CGI (the
"Supply Agreement"). The term of the Supply Agreement is for a period of five
(5) years, automatically renewable for successive one (1) year terms.
In January 1996, the $500,000 promissory note payable to PDK was converted
to 500,000 shares of Series B Preferred Stock. The Series B Preferred Stock
earns cumulative annual dividends of 12% or $.12 per share and is redeemable by
CGI after one year from the date of issuance.
In March 1996, the Company sold 500,000 shares of common stock of CGI for
gross proceeds of $1,875,000.
On December 30, 1996, Futurebiotics, Inc. effected a one-for-ten reverse
stock split with respect to its shares of common stock outstanding on December
30, 1996 and, accordingly, the
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Company owns 700,000 shares of common stock of Futurebiotics, Inc. (post-reverse
split) and continues to own 8,335,000 shares of preferred stock of
Futurebiotics, Inc.
Product Liability
The Company may potentially be exposed to product liability claims by
consumers. Such claims arise as the result of, among other things, the misuse of
a Company product or the tampering of a product. In an event, such as a
successful suit against the Company, insufficiency of insurance coverage or
inadequacy of indemnification, the results could have a material adverse effect
on the Company.
Competition
The industry in which the Company is engaged is characterized by intense
competition. The Company competes against established pharmaceutical and
consumer product companies that currently market products which have identical
active ingredients or are equivalent or functionally similar to or in
competition with those the Company markets. Moreover, many of the Company's
competitors and their products have national and regional name brand
recognition. In addition, numerous companies are developing or may, in the
future, engage in the development of products competitive with the Company's
products. Examples of the many products which have achieved significant brand
name recognition which are competitive with the Company's products include
Tylenol(R), Advil(R) , Nuprin(R), Benadryl(R), Actifed(R), Sudafed(R),
No-Doz(R), Vivarin(R), and Dexatrim(R). The Company believes it competes
effectively against its competitors on the basis of price and service.
Trademarks
The Company owns numerous trademarks that have been registered with the
United States Patent and Trademark Office ("PTO"). To the Company's knowledge,
the Company has the common law right to use such service marks on its products
and in the marketing of its services. The Company has retained trademark counsel
and presently intends to make appropriate filings and registrations and take all
other actions necessary, to protect all of its intellectual property rights. The
Company views its trademarks and other proprietary rights as valuable assets and
believes they have significant value in the marketing of its products.
Government Regulation
The processing, formulation, packaging, labeling and advertising of the
Company's products are subject to regulation by one or more federal agencies,
including the Food and Drug Administration ("FDA"), the Federal Trade Commission
("FTC"), the Consumer Product Safety Commission, the United States Department of
Agriculture and the Environmental Protection Agency ("EPA"). These activities
may also be regulated by various agencies of the states and localities in which
the Company's products are sold and the Department of Health for the State
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of New York monitors the facility used by the Company, checks for cleanliness,
audits the record keeping and observes the control and labeling. It is this
latter agency that issues the Company the license which allows the Company to
carry out its operations.
Nutritional Supplements
The FDA, in particular, regulates the manufacturing, advertising, labeling
and sales of those vitamin and mineral supplements which the FDA determines are
unapproved drugs or food additives rather than food supplements.
Partially in response to the enactment of the Nutrition Labeling and
Education Act of 1990 (the "NLBA"), the FDA, in November 1991, issued proposed
regulations designed to amend its food labeling regulations, establish specific
regulations for the nutrition labeling of vitamins and mineral supplements,
establish up-to-date reference standards for nutrients and food components and
establish procedures of FDA approval of health claim messages. The legislation
required that final regulations be published by November 8, 1992. The proposed
regulations met with substantial opposition from a number of sources, including
the dietary supplement industry. Principally through the efforts of that
industry, the Dietary Supplement Act was passed in October 1992 which prohibited
the issuance of final regulations, as they applied to nutrition supplements,
until December 15, 1993 and, further, required that certain studies be conducted
in the interim concerning the manner in which supplements are regulated in this
country and in foreign countries.
The FDA issued on June 18, 1993 proposed regulations and adopted on
December 30, 1993 final regulations concerning the nutrition labeling of and use
of health claims on dietary supplements. The regulations require, effective July
1, 1995, nutrition labeling on all dietary supplements and, effective July 5,
1994, prohibit the use of any health claim on a dietary supplement unless the
supplement is consumed as a food, its components have been demonstrated to be
safe, and the health claim is supported by significant scientific agreement and
approved by the FDA. Presently, the FDA has approved only the use of health
claims for calcium in connection with osteoporosis, dietary fat in connection
with cancer and folic acid in connection with certain birth defects.
Accordingly, most dietary supplements will be precluded from bearing most health
claims. The Company cannot determine at this time the effect of the new
regulations on its future operations although it believes they will not have a
material adverse effect.
On June 18, 1993, the FDA published an Advance Notice of Proposed
Rulemaking ("ANPR") soliciting comments on the concept of the overall regulatory
strategy to assure the safety of vitamins, minerals, herbs, amino acids and
other supplements. This follows a study by an internal FDA committee of the
current regulatory framework for dietary supplements and an FDA commissioned
study by the Federation of American Societies for Experimental Biology ("FASEB")
on the safety of amino acids. Although the internal FDA report has not yet been
issued, agency representatives have indicated that it will include a
recommendation that certain manufactured amino acids be available by
prescription only. The FASEB report, published in
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September 1992, concluded that there was insufficient research and information
on amino acids to allow them to assert that single or incomplete mixtures of
amino acids were safe and, therefore, recommended that further research be
conducted. The internal FDA report, issued in conjunction with the publication
of the ANPR, contains recommendations concerning the possible regulation of
dietary supplements by category including the regulation of single and
incomplete mixtures of amino acids either as drugs, "food additives" or
"generally recognized as safe" substances with potencies low enough to ensure
safety. The ANPR has requested input and comments from interested parties. Sales
by the Company of such products did not constitute more than 5% of the Company's
sales during 1994. Whether regulations will or will not be recommended and
adopted and, if adopted, on what dietary supplements, is presently unclear.
Implementation of ANPRs normally involves longer time periods than those cited
above in connection with the proposed NLEA regulations. The legislation
sponsored by the dietary supplement industry would impact the FDA's ability to
issue and implement any such regulations.
The Company cannot determine what effect the proposed rule making referred
to above, or other governmental regulations or administrative orders, when and
if promulgated, would have on its business in the future. They could, however,
require the reformulation of certain products to meet new standards, require the
recall or discontinuance of certain products not capable of reformulation, or
impose additional record keeping, expanded or different labeling, and scientific
substantiation. Any or all of such requirements could adversely affect the
Company's operations and its financial conditions.
Over-the-Counter Pharmaceuticals
On December 17, 1993, Congress enacted the Domestic Chemical Diversion
Control Act ("DCDCA"). The DCDCA, which became effective April 16, 1994, amended
a provision of the Chemical Diversion and Trafficking Act of 1988, which
permitted drugs that were marketed or distributed lawfully in the United States
in accordance with the Federal Food, Drug, and Cosmetic Act ("FDCA") and which
contained a list chemical to be sold without the record keeping or reporting
otherwise required for transactions involving list chemicals in amounts over
specified quantitative thresholds.
In terms of list chemicals contained in drugs marketed or distributed
lawfully in accordance with the FDCA, the DCDCA removed all the exemptions for
drug products which contain ephedrine as the only active medicinal ingredient,
or with only therapeutically insignificant quantities of another active
medicinal ingredient ("single-entity ephedrine"). The DCDCA also allows the
Attorney General to remove exemptions for other list chemicals contained in
drugs marketed or distributed lawfully in accordance with the FDCA, upon a
showing that such products are being diverted.
On March 17, 1994, the Drug Enforcement Administration ("DEA") issued a
proposal to eliminate the threshold for bulk ephedrine and single-entity
ephedrine drug products, thereby requiring reporting and record keeping for all
transactions involving single-entity ephedrine
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products in any amount. This regulation became effective in final form on
November 10, 1994.
The Company has complied with the record keeping and reporting requirements
in the above mentioned regulations.
On October 12, 1995, the DEA issued final regulations requiring all
companies engaged in transactions involving single-entity ephedrine drug
products to file an application for registration with the DEA on or before
November 13, 1995. Any Company which did not file for registration with the DEA
on or before the deadline can no longer import, export, manufacture, or
distribute single-entity ephedrine products. Companies which timely filed an
application may continue in transactions unless the DEA ultimately denies the
application, at which time the applicant would have the opportunity for a
hearing on the issue.
Although the Company filed a timely application for registration with the
DEA for the manufacture and distribution of single-entity ephedrine, the Company
may not sell to customers who have not complied with the requirement to file. As
a result of the above, the Company has realized a significant decline in its
single-entity ephedrine customer base and has recognized an inventory write off
of approximately $2,374,000 on single-entity ephedrine products for the year
ending November 30, 1995.
The Company believes that it is in compliance with all environmental
regulations affecting the Company.
Employees
As of February 18, 1997, the Company employed 157 full-time persons,
including 16 persons in sales, marketing and related activities, 123 persons in
manufacturing and production and 18 persons in general administration and
finance. The Company has experienced no work stoppages and considers its
employee relations to be satisfactory. The Company's employees are not
represented by a labor union.
Item 2. PROPERTIES.
The Company leases a 44,000 square foot facility in Hauppauge, New York.
This facility serves as the Company's corporate headquarters and
manufacturing/production center. The annual rent is $242,000 and increases up to
$286,000 in the final year. The current lease has four years remaining.
In 1995, the Company leased a second property in Hauppauge, New York. This
30,000 square foot property serves as the Company's distribution center. This
lease is for a term of five years with an annual rental of $172,500.
The Company also leases additional space in Hauppauge, New York on a
month-to-month basis which is being utilized for storage.
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Item 3. LEGAL PROCEEDINGS.
Except as set forth below, management is not aware of any material legal
proceeds pending against the Company.
On February 4, 1994 the Company was named as a defendant in a litigation
entitled Hillary L. Dufficy v. PDK Labs Inc in the Superior Court of the State
of Connecticut, alleging a product liability claim pursuant to Section 52-572m
of the Connecticut General Statutes. The action seeks unspecified monetary
damages. The Company intends to vigorously defend the lawsuit and has referred
the action to its product liability insurer. See "Business - Product Liability."
On July 29, 1996, the Company served a complaint (the "Complaint") against
a former executive. The Complaint alleges, in pertinent part, that the former
executive breached his employment agreement with PDK by competing with PDK and
soliciting PDK's customers in violation of the terms of the agreement. The
complaint further alleges that the executive has defaulted on payments due to
PDK pursuant to a promissory note and that while serving as an officer of PDK
made inappropriate investments for PDK's Profit Sharing Plan and Trusts. By
virtue of the foregoing, PDK alleges that the executive has breached his
Employment Agreement and the Amendment, engaged in unfair competition breached
the terms of the personal guarantee, defaulted upon the promissory note,
converted funds belonging to PDK and breached his fiduciary duty to the Company.
In his Answer and Counterclaim (the "Counterclaim"), the executive offers
general denials of these allegations and interposes both personal counterclaims
and claims. The executive's counterclaims, assert in pertinent part, that the
company and certain officers and directors have breached their fiduciary duty to
him and that the Restrictive Covenant and agreement is unenforceable and should
be deemed a nullity. PDK and the directors deny that they engaged in any
improper conduct which would support the executive's counterclaims. Each intends
to vigorously defend against such claims and PDK intends to proceed with its
action against the executive.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to the Company's shareholders for vote during the
last quarter of its fiscal year.
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PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's securities commenced trading in the over-the-counter market
on the effectiveness of the Company's Initial Public Offering on May 8, 1990 in
the form of Units each consisting of one (1) share of Common Stock and one (1)
Old Warrant. Effective July 12, 1990 the Common Stock and Old Warrant component
parts of the Units were separated and began trading under the symbols PDKL and
PDKLW. The Common Stock is regularly quoted and traded on the NASDAQ system.
Since November 8, 1995, the Old Warrants are not quoted or traded on the NASDAQ
system.
On April 14, 1992 the Company Units each consisting of one (1) share of
Preferred Stock, one (1) Class B warrant and one (1) Class C Warrant commenced
trading on the NASDAQ System as Units and separately under the symbols PDKLP,
PDKLZ and PDKLM.
The Company invested $335,575 in its own stock in fiscal 1996, repurchasing
73,500 shares at an average price of $4.57. In addition, the Company repurchased
47,000 shares at an average price of $6.05 between December 1, 1996 and February
21, 1997. As of February 21, 1997, the Company had authorization to repurchase
an additional $380,000 worth of its own stock.
The following table indicates the high and low bid prices for the Company's
Common Stock, Preferred Stock, Old Warrants, Class B Warrants and Class C
Warrants for the period up to November 30, 1996 based upon information supplied
by the NASDAQ system. Prices represent quotations between dealers without
adjustments for retail markups, markdowns or commissions, and may not represent
actual transactions. All of the prices have been adjusted to reflect the
Company's 1 for 10 reverse stock split which became effective in the Third
Quarter of 1995.
Common Stock
- ------------
1994 Calendar Year
------------------
First Quarter 11 1/4 9 1/16
Second Quarter 16 1/4 10
Third Quarter 18 3/4 10
Fourth Quarter 13 3/4 9 3/8
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1995 Calendar Year
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First Quarter 7 1/2 5
Second Quarter 6 9/16 3 3/4
Third Quarter 6 9/16 3 3/4
Fourth Quarter 5 1/8 2 3/8
1996 Calendar Year
------------------
First Quarter 4 3/4 3 1/2
Second Quarter 3 7/8 3 1/8
Third Quarter 4 7/8 3 1/4
Fourth Quarter 6 3/8 3 7/8
Preferred Stock
- ---------------
1994 Calendar Year
------------------
First Quarter 3 1/2 2 7/8
Second Quarter 4 3/4 3 1/4
Third Quarter 5 3/8 3 1/2
Fourth Quarter 4 3 1/8
1995 Calendar Year
------------------
First Quarter 3 1/4 3 1/8
Second Quarter 3 3/4 3 1/8
Third Quarter 4 3 1/4
Fourth Quarter 4 3/4 3 1/4
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1996 Calendar Year
------------------
First Quarter 4 1/2 3 3/4
Second Quarter 5 3/8 4
Third Quarter 5 4
Fourth Quarter 5 3/4 4 1/2
Old Warrants
------------
Quoted Bid Price
----------------
High Low
---- ---
1994 Calendar Year
------------------
First Quarter 1/8 1/8
Second Quarter 1/8 1/8
Third Quarter 1/8 1/8
Fourth Quarter 1/8 1/8
1995 Calendar Year
------------------
First Quarter 1/18 1/8
Second Quarter 1/8 1/32
Third Quarter DID NOT TRADE
Fourth Quarter DID NOT TRADE
Class B Warrants
----------------
1994 Calendar Year
------------------
First Quarter 15/32 5/6
Second Quarter N/A N/A
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Third Quarter 3/16 5/32
Fourth Quarter 3/16 1/8
1995 Calendar Year
------------------
First Quarter 3/32 1/16
April 1/16 1/32
Third Quarter DID NOT TRADE
Fourth Quarter DID NOT TRADE
1996 Calendar Year
------------------
First Quarter DID NOT TRADE
Second Quarter DID NOT TRADE
Third Quarter DID NOT TRADE
Fourth Quarter DID NOT TRADE
Class C Warrants
----------------
1994 Calendar Year
------------------
First Quarter 1/4 3/16
Second Quarter 1/4 1/8
Third Quarter 3/32 1/16
Fourth Quarter DID NOT TRADE
1995 Calendar Year
------------------
First Quarter 1/16 1/16
Second Quarter 1/16 1/32
Third Quarter 3/32 1/32
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Fourth Quarter 1/32 1/32
1996 Calendar Year
------------------
First Quarter DID NOT TRADE
Second Quarter DID NOT TRADE
Third Quarter DID NOT TRADE
Fourth Quarter DID NOT TRADE
On February 21, 1997, the closing price of the Common Stock as reported on
the NASDAQ System was $6.625. On February 21, 1997, the closing price of the
Preferred Stock reported on the NASDAQ System was $5.75. On February 21, 1997,
there were 807 holders of record of Common Stock.
On April 22, 1996, the Company paid $.25 per share of Preferred Stock
dividend to holders of record on April 16, 1996 payable in cash. On October 15,
1996, the Company paid $.24 per share of Preferred Stock dividend to holders of
record on October 11, 1996 payable in cash.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Results of Operations
Fiscal Year 1996 compared to Fiscal Year 1995
Net sales for fiscal year ended 1996 were approximately $46,563,000 as
compared to net sales in 1995 of $31,904,000. This represents a 46% increase
over sales in 1995. The increase is principally attributable to increased volume
in private label sales resulting from an exclusive supply and licensing
agreement with a major customer, continued expansion of advertising and
marketing efforts of the Futurebiotics product line, and the introduction of new
products.
Gross profits amounted to $19,275,000 or 41% of sales in 1996 as compared
with $14,796,000 or 46% of sales in 1995. The decrease in the gross margin is
principally attributable to an increase in wholesale private label sales which
yield lower gross profit margins as well as competitive pricing.
Selling, general and administrative expenses were $16,918,000 in 1996 and
$13,115,000 in 1995. As a percentage of sales, selling, general and
administrative expenses were 36% in 1996 and 41% in 1995. The overall decrease
as a percentage of sales is primarily attributable to the
16
<PAGE>
Company having entered into an Exclusive Supply and License Agreement with a
major non-affiliated customer in October 1995. Under this agreement, the Company
supplies the customer with all of its requirements for vitamins,
non-prescription pharmaceutical products and health and fitness products
manufactured in tablet, capsule, caplet, liquid or equivalent form commencing on
the date of the agreement. The term of the agreement is for five years,
renewable for successive one year periods thereafter. Sales to this customer
accounted for 55% of total revenue for the fiscal year ended November 30, 1996.
As a result of this agreement, the Company manufactures and sells products under
this contract with minimal sales and marketing expenses.
On May 14, 1996, the Company entered into a supply agreement with Superior
Supplements, Inc. ("Superior"), pursuant to which Superior agreed to supply PDK
with vitamins and dietary supplements manufactured to PDK's specifications in
bulk tablet form for a three (3) year period, renewable for successive one (1)
year periods thereafter. PDK has agreed to pay a purchase price of 115% of
Superior's actual material expenses incurred in the manufacture of certain of
the products. PDK agreed to purchase products having a minimum aggregate sales
price of $2,500,000 per annum during the term of the agreement and to pay
liquidated damages of $100,000 to the Company in the event PDK does not meet the
minimum purchase requirement. As of November 30, 1996, PDK purchased
approximately $1,796,000 of product from Superior under this supply agreement.
Interest expenses, net of interest income, was $490,000 in 1996, as
compared to $27,000 in 1995. The increase in interest expense in 1996 is a
result of greater borrowings to finance the purchase of additional machinery and
equipment, make necessary plant modifications, and meet working capital needs.
The provision for income taxes reflects an effective tax rate of 41% in
1996 and 83% in 1995. The rate for 1996 was lower as a result of the Company
recognizing a tax benefit on its proportionate share of Futurebiotics' loss and
the effect of certain permanent differences.
Management believes that inflation did not have a material effect on
operations or the financial condition in 1996 and 1995. Management also believes
that its business is not seasonal; however, significant promotional activities
have a direct impact on sales volume in any given quarter.
Fiscal Year 1995 compared to Fiscal Year 1994
Net sales for fiscal year ended 1995 were approximately $31,904,000 as
compared to net sales in 1994 of $21,152,000. This represents a 51% increase
over sales for 1994. The increase is principally attributable to increased sales
volume resulting from continued expansion of advertising and marketing efforts,
increased wholesale sales, and the introduction of new products.
Gross profits amounted to approximately $14,796,000 in 1995 compared with
$9,802,000 in 1994. Gross profit as a percentage of sales was 46% in 1995 and
1994.
In December 1994, the Company entered into an "Amended Sales and Management
Agreement" with its subsidiary Futurebiotics, Inc. The Company manufactured
Futurebiotics entire product line at a price equal to PDK's cost and provided
certain administrative services on behalf of Futurebiotics.
17
<PAGE>
Selling, general and administrative expenses were $13,115,000 in 1995 and
$8,366,000 in 1994. As a percentage of sales, selling, general and
administrative expenses were 41% in 1995 and 40% in 1994. The increase is
attributable to expanded advertising and promotion of the Futurebiotics product
line, including increased cooperative advertising with large distributors and
greater attendance at trade shows.
In October 1995, the Company entered into an agreement to transfer certain
assets, liabilities, and the on-going business of its Energex/Compare division
product lines to Compare Generiks, Inc. ("CGI"). The transfer consisted of
certain assets and rights relating to the "Energex Plus" and "Compare Generiks"
product lines, including customer lists, trade secrets, trademarks and trade
names, and the assumption of a $50,000 obligation under a promissory note.
Consideration consisted of 500,000 shares of CGI common stock (valued at
$1,200,000) and a $500,000 promissory note. CGI also agreed to pay the
obligation under royalty and commission agreements relating to the Energex
product lines. The Company realized a gain of approximately $1,170,000 on this
transaction.
In addition, CGI entered a five year "Supply Agreement" with the Company
under which CGI will purchase all of its products from PDK at a price equal to
PDK's material cost plus 100%.
In July 1995, the Company sold a customer list, trademarks, and inventory
related to a mail order vitamin line of products for approximately $50,000. The
Company is no longer engaged in the marketing of its vitamin products through
mail order. A loss of approximately $612,000 was recognized in connection with
this disposal.
In October 1995 the Company entered into an exclusive supply and licensing
agreement with a non-affiliated company. Sales to this customer accounted for
17% of total revenue for the year ended November 30, 1996.
On October 12, 1995, the Drug Enforcement Administration ("DEA") issued
final regulations requiring all companies engaged in transactions involving
single-entity ephedrine drug products to file an application for registration
with the DEA on or before November 13, 1995. Any company which did not file for
registration with the DEA on or before the deadline can no longer import,
export, manufacture, or distribute single-entity ephedrine products. Companies
which timely filed an application may continue in transactions unless DEA
ultimately denies the application, at which time the applicant would have the
opportunity for a hearing on the issue.
Although the Company filed a timely application for registration with the
DEA for the manufacture and distribution of single-entity ephedrine, the Company
may not sell to customers
18
<PAGE>
who have not complied with the requirement to file. As a result of the above,
the Company has realized a significant decline in its single-entity ephedrine
customer base and has recognized an inventory write off of approximately
$2,374,000 on single-entity ephedrine products. Sales of single-entity ephedrine
drug products were approximately $1,733,000 or 5% of total sales for fiscal year
end 1995 and $5,052,000 or 24% of total sales for fiscal year ended 1994. These
sales have been replaced by sales of other approved multiple ingredient over the
counter ephedrine drug products.
Interest expenses, net of interest income, was $27,000 in 1995, as compared
to $309,000 in 1994. The decrease in interest expense in 1995 is a result of
greater investment balances in 1995.
The provision for income taxes reflects an effective tax rate of 83% in
1995 and 46% for 1994. The rate for 1995 was higher as a result of the Company
recognizing a deferred tax liability on its proportionate share of
Futurebiotics' earnings and the effect of certain permanent differences.
Management believes that inflation did not have material effect on
operations or the financial condition in 1995 and 1994. Management also believes
that its business is not seasonal; however, significant promotional activities
have a direct impact on sales volume in any given quarter.
Liquidity and Capital Resources
The Company had working capital of approximately $31,855,000 and
$23,084,000 at the end of 1996 and 1995, respectively.
The Company's statement of cash flows for 1996 reflects cash used in
operating activities of approximately $1,819,000. The use of cash is primarily
attributable to an increase in inventory ($10,025,000), accounts receivable
($1,688,000) and prepaid income taxes ($417,000), offset by a decrease in other
assets ($1,088,000) and an increase in accounts payable ($3,197,000). The change
in inventory, accounts receivable and accounts payable is a result of increased
sales and operations as well as anticipated future growth.
Net cash used in investing activities approximated $839,000 representing
the purchase of property, plant and equipment ($2,440,000) and the acquisition
of intangible assets ($2,532,000), offset by net proceeds from PDK's sale of
500,000 shares of Compare Generiks, Inc. common stock ($1,775,000) and the sale
and maturity of government securities ($2,358,000).
The statement also reflects net cash provided by financing activities of
approximately $4,615,000, representing bank borrowings net of repayments
($5,313,000), offset by payment of cash dividends ($362,000) and the purchase of
treasury stock ($336,000).
The Company invested $335,575 in its own stock in fiscal 1996, repurchasing
73,500
19
<PAGE>
shares at an average price of $4.57. In addition, the Company repurchased 47,000
shares at an average price of $6.05 between December 1, 1996 and February 21,
1997. As of February 21, 1997, the Company had authorization to repurchase an
additional $380,000 worth of its own stock.
On March 28, 1996, the Company entered into a second term loan with its
bank. The term loan aggregating $1,500,000, is payable in 19 quarterly principal
installments of $75,000, plus interest at prime. Payments commenced on the last
business day of May 1996 and continue through February 2001 when the remaining
prinicpal amount is due. The proceeds of the loan were used to finance the
purchase of additional machinery and equipment.
On September 15, 1996,the Company entered into a Revolving Credit Agreement
with its bank. The agreement provides for aggregate borrowings of up to
$15,000,000 with a sub-limit of $11,000,000 for the Company and $4,000,000 for
its subsidiary and expires September 1999. This agreement replaces the existing
revolving credit facility. Borrowings under this agreement bear interest at the
prime rate or 2% above the Eurodollar rate (at the Company's option) and are
collateralized by all of the Company's assets. The Company and its subsidiary
are jointly and severally liable for the unpaid balance of this credit line.
The revolving line of credit and term loan agreements as amended, contain
various covenants pertaining to the maintenance of certain financial ratio
restrictions, limitations on dividends and restrictions on borrowings.
On November 22, 1996, the Company entered into a term loan with its bank.
The term loan, aggregating $348,000, is payable in 60 monthly principal
installments of $5,800 plus interest at prime. Payments commenced January 1,
1997 and continue through December 2001 when the remaining principal amount is
due. The proceeds of the loan were used to finance machinery and equipment
purchases.
The Company expects to meet its cash requirements from operations, current
cash reserves, and existing financial arrangements.
Item 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See financial statements following Item 13 of this Annual Report on Form
10-KSB.
Item 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None.
20
<PAGE>
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT OF THE REGISTRANT.
The following persons are the current executive officers and directors.
Name Age Position
- ---- --- --------
Michael B. Krasnoff 42 Chairman of the Board,
President, Chief Executive
Officer, Chief Financial
Officer and Secretary
Stanley Krasnoff (1) 69 Director
Ira Helman 65 Director
Hartley T. Bernstein 45 Director, Assistant Secretary
Robin Marks-Kaufman 43 Director
- ----------
(1) Stanley Krasnoff is the father of Michael Krasnoff.
All directors hold office until the next annual meeting of stockholders and
the election and qualification of their successors. Officers are elected
annually by the Board of Directors and, subject to existing employment
agreements, serve at the discretion of the Board.
Outside directors shall receive $10,000 per year as compensation for their
services. Directors who are also officers of the Company do not receive any
compensation for serving on the Board of Directors. All Directors are reimbursed
by the Company for any expenses incurred in attending Director's meetings.
Background of Executive Officers and Directors
Michael B. Krasnoff has been the President, Chief Executive Officer and
Chief Financial Officer of the Company since July 31, 1991. Mr. Krasnoff had
been Executive Vice President of the Company since July 1989, and has been a
director since August 1, 1989. Mr. Krasnoff has been the Secretary of the
Company since April 1, 1990. Prior to joining the Company in 1988,
21
<PAGE>
Mr. Krasnoff was an independent financial and marketing consultant to the
Company. From September 1982 to September 1988, Mr. Krasnoff was President and
Chairman of the Board of M-D Natural Vitamins, Inc., a company which was engaged
in the mail order and retail distribution of natural vitamins and food
supplements. Mr. Krasnoff received a B.A. degree from State University of New
York at Buffalo and an M.B.A. degree in Accounting and Finance from New York
University Graduate School of Business Administration. Mr. Krasnoff will
continue to devote substantially all of his business time to the Company.
Stanley Krasnoff has served as a director of the Company since January
1991. He was a founder and Executive Vice President of Nature's Bounty, Inc.
from 1961 through 1982. Since 1982, Mr. Krasnoff has been a private investor.
Mr. Krasnoff is a graduate of the New York University School of Business
Administration. Mr. Krasnoff is the father of Michael Krasnoff, who is a
director of the Company and President, Chief Executive Officer and Secretary of
PDK.
Ira Helman has served as a director of the Company since August 1989. For
the past 22 years, Mr. Helman has been an independent investor and financial
consultant as well as a breeder and owner of harness horses. Mr. Helman
currently serves as a financial consultant to National Raceline, Inc., a
corporation which provides race results information. From 1967 to 1970 Mr.
Helman was President and Chief Executive Officer of Cryplex Industries, Inc., a
publicly traded company which manufactured electronic components. Mr. Helman was
from 1957 to 1967 engaged in the practice of law in New York City specializing
in real estate and professional sports related matters. Mr. Helman received his
B.A. degree from Princeton University and his law degree from Brooklyn Law
School.
Hartley T. Bernstein has been a Director since September 1991 and is a
member of the law firm of Bernstein & Wasserman specializing in corporate and
securities law. He was associated with the firm of Parker Chapin Flattau &
Klimpl from 1976-1977, served as an Assistant District Attorney for New York
County from 1977-1979 and was associated with the law firm of Guggenheimer &
Untermyer from 1979-1982. In 1982, Mr. Bernstein formed his own law practice
which subsequently merged with his present firm. Mr. Bernstein also serves as a
director of Futurebiotics, Inc. and Bev-Tyme, Inc. (formerly New Day Beverage,
Inc.). Mr. Bernstein is a member of the adjunct faculty of Yale Law School where
he teaches a course in corporate negotiations and has served previously on the
adjunct faculties of New York Law School and Mercy College. He is also an
instructor at the National Institute of Trial Advocacy and a member of the
Boards of Arbitration of the National Association of Securities Dealers and the
New York Stock Exchange. Mr. Bernstein serves as a commentator on securities law
matters on the nationally syndicated Business Radio Network and Money Radio. Mr.
Bernstein graduated from Columbia University with a B.A. and received his J.D.
from New York University School of Law.
Ms. Marks-Kaufman is an assistant professor of psychology at Tufts
University. Ms. Marks-Kaufman has a degree in biology from Cornell University
and received her Ph.D. in psychology from Tufts University. She is on the
faculty at the Institute of Human Nutrition at
22
<PAGE>
Columbia University where she conducted research on diet and metabolism, diet
selection, and drug addition. She has published numerous scientific articles,
and is co-editor of The Columbia University Encyclopedia of Nutrition.
23
<PAGE>
Item 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
--------------------------------
Annual Compensation Awards Payouts
------------------------------------- ------------ ----------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Restricted All
Other Stock LTIP Other
Annual Awards Options/ Payouts Compensation
Name and Principal Position Year Salary($) Bonus($) Compensation($) ($) SARs(#) ($) ($)
- ---------------------------- ---- --------- ------- ---------------- ------------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael Krasnoff, CEO 1996 $400,000 $250,000 $200,000(1) $ -0- -0- $ -0- $ -0-
1995 $400,000 $250,000 $125,000(1) $650,000(2) -0- $ -0- $ -0-
1994 $300,000 $200,000 $445,000(1) $ -0- -0- $ -0- $ -0-
Reginald Spinello, V.P. of
Operations 1996 $200,000(3) $150,000 $ -0- $ -0- -0- $ -0- $ -0-
1995 $200,000(3) $125,000 $75,000(1) $325,000(5) -0- $ -0- $ -0-
1994 $150,000(4) $ 75,000 -0- $ -0- -0- $ -0- $ -0-
</TABLE>
- ----------
(1) Represents reimbursements to pay taxes resulting from stock grants.
(2) Represents issuance of 400,000 shares in accordance with October 1995
employment agreement. Shares were valued at $1.625 per share.
(3) Represents salary of $150,000 paid by the Company and $50,000 paid by its
subsidiary.
(4) Represents salary of $100,000 paid by the Company and $50,000 paid by its
subsidiary.
(5) Represents issuance of 200,000 shares in accordance with October 1995
employment agreement. Shares were valued at $1.625 per share.
24
<PAGE>
Employment Agreements
On October 6, 1995, the Company entered into an amended employment
agreement with Michael Krasnoff, the Company's Chief Executive Officer, in
recognition of Mr. Krasnoff's leadership and services which have constituted a
major factor in the growth and development of the Company (the "Krasnoff
Agreement"). The Krasnoff Agreement provides for Mr. Krasnoff's employment by
the Company through December 31, 2005 at a minimum salary of $400,000 per year
with cost of living increases. The Krasnoff Agreement also provides for a
discretionary bonus as the Board of Directors may determine from time to time
and the issuance of 400,000 shares of the Company's Common Stock. The Krasnoff
Agreement also provides for the issuance to Mr. Krasnoff of options to purchase
250,000 shares of Common Stock at $2.63 per share. As of November 30, 1996, Mr.
Krasnoff owed the Company the sum of $627,000.00 pursuant to the loan provisions
of his employment agreement. The loan bears interest at the prime rate plus 1/2
of 1% per annum. In the event any sums are outstanding upon termination or
expiration of the employment agreement, such sums shall be automatically
converted to a five (5) year loan which shall be fully amortized over sixty (60)
months.
On October 6, 1995, the Company entered into an amended employment
agreement with Reginald Spinello, the Company's Executive Vice President, which
provides for a minimum salary of $200,000 per year and the issuance of 200,000
shares of Common Stock (the "Spinello Agreement"). The agreement terminates in
October 2002. The Spinello Agreement may be terminated by the Company, at its
sole discretion, on ninety days notice at any time after October 5, 1996.
25
<PAGE>
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information, as of February 21, 1997
with respect to the beneficial ownership of the outstanding Common Stock by (i)
any holder of more than five (5%) percent; (ii) each of the Company's officers
and directors; and (iii) the directors and officers of the Company as a group:
AMOUNT AND
NATURE OF
NAME AND ADDRESS BENEFICIAL APPROXIMATE
OF BENEFICIAL OWNER OWNERSHIP PERCENT OF CLASS (3)
- ------------------- --------- --------------------
Perry D. Krape 205,488 6.8%
c/o PDK Labs Inc.
145 Ricefield Lane
Hauppauge, NY 11788
Michael B. Krasnoff 950,000 (1) 31.2
c/o PDK Labs Inc.
145 Ricefield Lane
Hauppauge, NY 11788
Ira Helman -0- -0-
c/o PDK Labs Inc.
145 Ricefield Lane
Hauppauge, NY 11788
Hartley T. Bernstein, Esq. 100,000 (2) 3.3
c/o PDK Labs Inc.
145 Ricefield Lane
Hauppauge, NY 11788
Stanley K. Krasnoff -0- -0-
c/o PDK Labs Inc.
145 Ricefield Lane
Hauppauge, NY 11788
Robin Marks-Kaufman -0- -0-
c/o PDK Labs Inc.
145 Ricefield Lane
Hauppauge, NY 11788
26
<PAGE>
Reginald Spinello 200,000 6.6
c/o PDK Labs Inc.
145 Ricefield Lane
Hauppauge, NY 11788
Dune Holdings, Inc. 200,000 6.6
132 Dune Road
Westhampton Beach, NY 11978
All officers and directors as a
group (5 persons) 1,050,000 (3) 34.5%
(1) Includes (i) 400,000 shares of common stock issued in accordance with the
October 1995 Employment Agreement,(ii) 200,000 shares of common stock owned
by Reginald Spinello, (iii) 200,000 shares of common stock owned by Dune
Holdings, Inc., (iv) 50,000 shares of common stock owned by Karine
Hollander and (v) 100,000 shares of Common Stock owned by Michael Lulkin.
All of the Spinello, Dune, Hollander and Lulkin shares of common stock are
subject to a ten (10) year voting trust held by the Company's Chief
Executive Officer, Mr. Krasnoff.
(2) Includes 100,000 shares of common stock owned by Bernstein & Wasserman,
LLP, a law firm which Mr. Bernstein is a partner.
(3) Includes shares beneficially owned by Michael Krasnoff, Ira Helman, Stanley
Krasnoff, Reginald Spinello, Hartley Bernstein, and Robin Marks-Kaufman.
Neither Hollander, Dune or Lulkin are officers or directors of the Company.
27
<PAGE>
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
As of November 30, 1996, Mr. Krape owed the Company the sum of $61,000
pursuant to a promissory note dated as of May 1, 1994 (the "Krape Note"). The
Krape Note bears interest at 9.0% per annum.
As of November 30, 1996, Mr. Krasnoff owed the Company the sum of $627,000,
pursuant to the loan provisions in his Employment Agreement. The Loan bears
interest at the prime rate plus 1/2 of 1% per annum. In the event any sums are
outstanding upon termination or expiration of the employment agreement, such
sums shall be automatically converted to a five (5) year loan which shall be
fully amortized over sixty (60) months.
In October 1995, the Company entered into a two (2) year consulting
agreement with Bernstein & Wasserman for legal services. As consideration for
the agreement, the Company paid BW 100,000 shares of its restricted common
stock.
In January 1995, the Company sold 3,000,000 common shares (pre-reverse
stock split) of Futurebiotics to a non-affiliated third party for gross proceeds
of $2,250,000. After the sale, the Company owns 7,000,000 shares (pre-reverse
stock split) of Common Stock of Futurebiotics, Inc. representing 51.9% of the
outstanding shares of Futurebiotics. The Company owns 8,335,000 shares of
Preferred Stock of Futurebiotics representing 100% of the outstanding Preferred
Stock. Each share of Preferred Stock has one vote.
On November 7, 1995, the Company completed a binding Exclusive Supply and
Licensing Agreement with Body Dynamics, Inc. ("BDI") pursuant to which the
Company agreed to supply BDI with all of its requirements for vitamins,
non-prescription pharmaceutical products and health and fitness products
manufactured in tablet, capsule, caplet, liquid or equivalent form commencing on
the date of the agreement. The term of the agreement is for five (5) years,
renewable for successive one (1) year periods thereafter. In addition, the
Company granted BDI an exclusive license to use the trademarks "Max Alert" and
"Heads Up", and its trademarks for its ginseng products, and the exclusive right
to distribute products bearing such names, using the components listed in the
agreement.
On July 24, 1995, the Company sold a customer list, trademarks, and
inventory related to a mail order vitamin line of products for approximately
$50,000. The Company recognized a loss of approximately $612,000 in connection
with this disposition.
In October 1995, the Company signed a consulting agreement with Dune
Holdings, Inc. in consideration for the issuance of 200,000 shares of Common
Stock.
Miscellaneous
For the year ended November 30, 1996, legal fees of approximately $129,000
were incurred for services from the law firm of Bernstein and Wasserman, LLP.
For the year ended November 30, 1995, legal fees of approximately $178,000 were
incurred for services from the
28
<PAGE>
same firm. The Company also issued 300,000 shares of its Common Stock
(pre-reverse stock split) to the law firm in January 1994, and 100,000 shares of
its Common Stock in October 1995, in consideration for legal services. Hartley
T. Bernstein, a partner in the firm, is a Director of the Company hereunder.
In October 1995, the Company entered into a five (5) year employment
agreement with Mr. Lulkin which provides for Mr. Lulkin to act as Vice
President-Legal. The agreement provides for Mr. Lulkin to be paid a minimum
salary of $100,000 per annum and for Mr. Lulkin to receive 100,000 shares of the
Company's Common Stock.
General
The Company believes that material affiliated transactions and loans
between the Company and its directors, officers, principal shareholders or any
affiliates thereof have been and will be in the future on terms no less
favorable than could be obtained from unaffiliated third parties.
29
<PAGE>
PART IV
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
(a)(1) Financial Statements.
The following financial statements are included in Part II, Item 8:
Index to Financial Statements and Schedules F-1
Report of Independent Certified Public Accountants F-2
Balance sheets as of November 30, 1996 F-3
Statements of operations for the years ended
November 30, 1996 and 1995 F-4
Statements of stockholders' equity for the years
ended November 30, 1996 and 1995 F-5
Statements of cash flows for the years ended
November 30, 1996 and 1995 F-6
Notes to financial statements F-7 - F-16
30
<PAGE>
(a)(3) Exhibits.
*3.1 Restated Certificate of Incorporation
*3.2 Amended and Restated By-Laws of Registrant
*4.1 Warrant Agreement
**10.1 Stock Option Plan and form of Stock Option Agreement
**10.2 Employment Agreement with Perry D. Krape dated August 1, 1989
**10.3 Employment Agreement with Michael B. Krasnoff dated August 1, 1989
**10.4 Term Loan Agreement between Manufacturers Hanover Trust Company
("Bank") and the Company
**10.5 Mortgage between the Bank and the Company
**10.6 Securities Agreement and promissory notes between the Bank,
Registrant and Perry Krape in connection with a $500,000 loan from
Bank
**10.7 Consulting Agreement between the Company and LIDCO
**10.14 Promissory Note between Perry Krape and the Company.
**10.15 Letter Agreements between the Company and Perry Krape.
**10.16 Profit Sharing Plan
**10.19 Form of Financial Consulting Agreement between Hibbard Brown & Co.,
Inc. and the Company
+10.21 Unsigned purchase agreement dated of November 8, 1990 by and among
the Company, Sturdee Health Products, Inc. and Sturdee Company, with
all exhibits thereto
+10.22 Unsigned purchase agreement dated as of November 8, 1990 by and
between the Company, and Bi Organic Brands, Inc., with all exhibits
thereto
+10.23 Agreement dated as of November 5, 1990 by and among the Company, and
Sturdee Health Products, Inc. and Sturdee Company, Bi Organic
Brands, Inc.
*10.24 Conformed, execution copy of Asset Purchase Agreement dated as of
October 1, 1990 by and among Reach Pharmaceuticals, the Company and
Robert A. Hardin.
31
<PAGE>
*10.25 Conformed, execution copy of Employment Agreement dated as of
October 1, 1990 by and between the Company and Robert A. Hardin
*10.26 Conformed, execution copy of Voting Trust Agreement dated as of
October 1, 1990 by and among Robert A. Hardin, the Company and Perry
D. Krape.
*10.27 Conformed, execution copy of Escrow Agreement dated as of October 1,
1990 by and among Robert A. Hardin, the Company and Grant,
Konvalinka & Grubbs.
++10.28 Asset Purchase Agreement among the Company, Silver Streak Vitamin
List Company, Inc. and Arthur Fishbein dated February 25, 1991.
++10.29 Consulting Agreement between the Company and KAM Group, Inc. dated
February 15, 1991.
++10.30 Amendment Agreement dated February 7, 1991 to employment agreement
between Michael B. Krasnoff and the Company.
+++10.31 Michael Krasnoff's Employment Agreement dated as of December 1,
1991.
+++10.32 Perry Krape's Amendment to Employment Agreement dated as of July 31,
1991.
***10.33 Amendment dated as of March 6, 1992 to Consulting Agreement between
Reginald Spinello and the Company
***10.34 Amendment date March 11, 1992 to Consulting Agreement between KAM
Group, Inc. and the Company
***10.35 Asset Purchase Agreement dated as of March 12, 1992 between Gannon
Lists, Inc. and the Company.
*10.36 Revolving Credit Agreement by and between PDK Labs, Inc. and
Manufacturers Hanover Trust Company dated as of February 25, 1992.
#10.37 Term Loan Agreement by and between PDK Labs Inc. and Manufacturers
Hanover Trust Company dated as of November 30, 1992.
#10.38 Promissory Notes and Security Agreement by and between PDK Labs Inc.
and Coast to Coast Generics, Inc. dated November 30, 1992.
##10.39 Asset Purchase Agreement by and among Futurebiotics, the Company and
Donald Zinman dated December 16, 1992.
##10.40 Consulting Agreement by and between Donald Zinman and the Company
dated December 16, 1992.
32
<PAGE>
##10.41 Non-Competition Agreement by and between the Company and Donald
Zinman dated December 16, 1992.
##10.42 Amendment to Consulting Agreement dated December 16, 1992 by and
between Donald Zinman and the Company dated January 12, 1994.
##10.43 Voting Trust Agreement by and among Donald Zinman, Michael Krasnoff
and the Company dated as of January 12, 1994.
##10.44 Stock Option Agreement by and between Donald Zinman and the Company
dated January 12, 1994.
##10.45 Promissory note from Donald Zinman to the Company dated January 1,
1994.
##10.46 Employment Agreement with Michael Krasnoff dated as of October 18,
1993.
##10.47 Employment Agreement with Reginald Spinello dated as of October 18,
1993.
##10.48 Amendment of Consulting Agreement by and between K.A.M. Group, Inc.
and the Company dated January 19, 1994.
###10.49 Sales and Management Agreement by and between the Company and
Futurebiotics dated April 14, 1994.
###10.50 Amendment of Sales and Management Agreement by and between the
Company and Futurebiotics dated December 8, 1994.
###10.51 Consulting Agreement by and between the Company and Carico, Inc.
dated April 4, 1994.
####10.52 Supply and Licensing Agreement with Body Dynamics, Inc. dated
October 16, 1995.
####10.53 Asset Purchase Agreement with Compare Generiks, Inc. dated October
31, 1995.
####10.54 Supply Agreement with Compare Generiks, Inc. dated October 31, 1995.
33
<PAGE>
10.55 Third Amendment to Revolving Credit Agreement by and between PDK
Labs Inc. and Chemical Bank dated as of July 6, 1995.
10.56 Term Loan Agreement by and between PDK Labs Inc. and Chemical Bank
dated as of March 28, 1996.
10.57 Supply Agreement with Superior Supplements, Inc. dated May 14,
1996.
10.58 Revolving Credit Agreement by and among PDK Labs Inc.,
Futurebiotics, Inc., PDI Labs Inc. and The Chase Manhattan Bank
dated September 25, 1996.
10.59 First Amendment and Waiver to Revolving Credit Agreement between PDK
Labs Inc., Futurebiotics, Inc., PDI Labs Inc., and The Chase
Manhattan Bank dated February 26, 1997.
- ----------
* Incorporated by Reference to the Company's Registration Statement on
Form S-1, No. 33-46454
** Incorporated by Reference to the Company's Registration Statement on
Form S-18, No. 22-31006 NY.
+ Incorporated by Reference to the Company's Report on Form 8-K dated
November 14, 1990.
++ Incorporated by Reference to the Company's Registration Statement on
Form S-1, No. 33-39250
+++ Incorporated by Reference to the Company's Form 10-K for the year
ended November 30, 1991
# Incorporated by Reference to the Company's Form 10-KSB for the year
ended November 30, 1992.
## Incorporated by Reference to the Company's Form 10-KSB for the year
ended November 30, 1993.
### Incorporated by Reference to the Company's Form 10-KSB for the year
ended November 30, 1994.
#### Incorporated by Reference to the Company's Form 10-KSB for the year
ended November 30, 1995.
(B) Reports on Form 8-K.
None.
34
<PAGE>
FINANCIAL STATEMENTS
Index to Financial Statements and Schedules F-1
Report of Independent Certified Public Accountants F-2
Balance sheets as of November 30, 1996 F-3
Statements of operations for the years ended
November 30, 1996 and 1995 F-4
Statements of stockholders' equity for the years
ended November 30, 1996 and 1995 F-5
Statements of cash flows for the years ended
November 30, 1996 and 1995 F-6
Notes to financial statements F-7 - F-16
F-1
<PAGE>
Independent Auditors' Report
Board of Directors and Stockholders
PDK Labs Inc. and Subsidiary
Hauppauge, New York
We have audited the consolidated balance sheet of PDK Labs Inc. and Subsidiary
as of November 30, 1996 and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the two years in the period
ended November 30, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PDK Labs Inc. and Subsidiary as
of November 30, 1996 and the results of its operations and its cash flows for
each of the two years in the period ended November 30, 1996, in conformity with
generally accepted accounting principles.
HOLTZ RUBENSTEIN & CO., LLP
Melville, New York
February 7, 1997
F-2
<PAGE>
PDK LABS INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
NOVEMBER 30, 1996
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,885,517
Investment in marketable securities, at fair value 3,463,596
Accounts receivable - less allowance for doubtful accounts of $42,000 8,015,159
Inventories (Note 4) 23,272,516
Prepaid income taxes (Note 10) 416,685
Prepaid expenses and other current assets 1,043,313
Deferred income tax asset (Note 10) 383,211
--------------
Total current assets 39,479,997
INVESTMENT IN MARKETABLE SECURITIES 1,650,512
PROPERTY, PLANT AND EQUIPMENT, net (Notes 5 and 8) 5,132,548
INTANGIBLE ASSETS, net (Note 6) 3,552,696
INVESTMENT IN COMPARE GENERIKS (Note 15) 500,000
OTHER ASSETS (Note 7) 2,938,755
--------------
$ 53,254,508
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 5,750,701
Dividends payable (Note 9) 45,223
Income taxes payable (Note 10) 500,611
Current portion of long-term debt (Note 8) 1,328,509
--------------
Total current liabilities 7,625,044
LONG-TERM DEBT (Note 8) 13,602,768
--------------
DEFERRED INCOME TAX LIABILITY (Note 10) 1,251,117
--------------
INTERESTS OF MINORITY HOLDERS IN SUBSIDIARY 4,114,371
--------------
COMMITMENTS AND CONTINGENCIES (Notes 11 and 12)
STOCKHOLDERS' EQUITY: (Notes 9 and 12)
Common stock, $.01 par value; authorized 30,000,000 shares;
3,191,986 issued and outstanding 31,919
Preferred stock, $.01 par value; authorized 5,000,000 shares;
739,555 issued and outstanding 7,396
Additional paid-in capital 27,754,634
Unearned compensation (4,939,907)
Retained earnings 4,442,741
Treasury stock, at cost; 103,500 shares (635,575)
--------------
26,661,208
--------------
$ 53,254,508
==============
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
PDK LABS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended
November 30,
------------------------------------
1996 1995
------------- --------------
<S> <C> <C>
NET SALES (Notes 14 and 15) $ 46,562,870 $ 31,903,558
-------------- --------------
COSTS AND EXPENSES: (Notes 5, 6, 11, 12 and 13)
Cost of sales 27,288,130 17,107,396
Selling, general and administrative 16,918,362 13,114,980
-------------- --------------
44,206,492 30,222,376
-------------- --------------
OPERATING INCOME 2,356,378 1,681,182
-------------- --------------
OTHER EXPENSES (INCOME):
Interest income (432,300) (565,544)
Interest expense 922,464 592,773
Gain on sale of subsidiary stock (Note 2) - (219,531)
Other (Note 15) (624,954) 1,812,991
-------------- --------------
(134,790) 1,620,689
-------------- --------------
EARNINGS BEFORE PROVISION FOR INCOME
TAXES AND MINORITY INTEREST 2,491,168 60,493
PROVISION FOR INCOME TAXES (Note 10) 1,018,000 50,000
-------------- --------------
EARNINGS BEFORE MINORITY INTEREST 1,473,168 10,493
MINORITY INTEREST IN NET (LOSS)
EARNINGS OF SUBSIDIARY (139,638) 190,594
-------------- --------------
NET EARNINGS (LOSS) $ 1,612,806 $ (180,101)
============== ==============
EARNINGS (LOSS) PER SHARE (Note 9) $.40 $(.24)
==== =====
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING (Note 9) 3,088,486 2,259,232
========= =========
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
PDK LABS INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Preferred Stock
--------------------- ------------------ Paid-In
Total Shares Amount Shares Amount Capital
----------- --------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT NOVEMBER 30, 1994 $22,440,061 2,105,359 $ 21,054 739,555 $ 7,396 $ 24,832,500
ISSUANCE OF STOCK FOR SERVICES
(Notes 9 and 12) - 1,050,000 10,500 - - 1,695,750
AMORTIZATION OF UNEARNED
COMPENSATION 1,319,335 - - - - -
UNEARNED MANAGEMENT FEE FROM
ISSUANCE OF SUBSIDIARY STOCK
FOR SERVICES (Note 2) 1,427,500 - - - - 1,427,500
AMORTIZATION OF UNEARNED
MANAGEMENT FEE (142,750) - - - - (142,750)
DIVIDENDS (Note 9) (177,513) 36,627 365 - - 184,506
ISSUANCE OF STOCK BY SUBSIDIARY
TO MINORITY HOLDERS (Note 2) (249,580) - - - - (249,580)
NET (LOSS) (180,101) - - - - -
----------- --------- ------- ------- ------- -----------
BALANCE AT NOVEMBER 30, 1995 24,436,952 3,191,986 31,919 739,555 7,396 27,747,926
AMORTIZATION OF UNEARNED
COMPENSATION 1,302,699 - - - - -
ACQUISITION OF TREASURY STOCK (335,575) - - - - -
AMORTIZATION OF UNEARNED
MANAGEMENT FEE (142,750) - - - - (142,750)
AMORTIZATION OF SUBSIDIARY
UNEARNED MANAGEMENT FEE 149,458 - - - - 149,458
DIVIDENDS (Note 9) (362,382) - - - - -
NET EARNINGS 1,612,806 - - - - -
------------- ---------- -------- --------- -------- ------------
BALANCE AT NOVEMBER 30, 1996 $ 26,661,208 3,191,986 $ 31,919 739,555 $ 7,396 $ 27,754,634
============= ========== ======== ========= ======== ============
</TABLE>
<TABLE>
<CAPTION>
Treasury Stock
Unearned Retained ---------------------
Compensation Earnings Shares Amount
------------ ---------- -------- ---------
<S> <C> <C> <C> <C>
BALANCE AT NOVEMBER 30, 1994 $ (5,855,691) $ 3,734,802 30,000 $ (300,000)
ISSUANCE OF STOCK FOR SERVICES
(Notes 9 and 12) (1,706,250) - - -
AMORTIZATION OF UNEARNED
COMPENSATION 1,319,335 - - -
UNEARNED MANAGEMENT FEE FROM
ISSUANCE OF SUBSIDIARY STOCK
FOR SERVICES (Note 2) - - - -
AMORTIZATION OF UNEARNED
MANAGEMENT FEE - - - -
DIVIDENDS (Note 9) - (362,384) - -
ISSUANCE OF STOCK BY SUBSIDIARY
TO MINORITY HOLDERS (Note 2) - - - -
NET (LOSS) - (180,101) - -
----------- ---------- -------- ---------
BALANCE AT NOVEMBER 30, 1995 (6,242,606) 3,192,317 30,000 (300,000)
AMORTIZATION OF UNEARNED
COMPENSATION 1,302,699 - - -
ACQUISITION OF TREASURY STOCK - - 73,500 (335,575)
AMORTIZATION OF UNEARNED
MANAGEMENT FEE - - - -
AMORTIZATION OF SUBSIDIARY
UNEARNED MANAGEMENT FEE - - - -
DIVIDENDS (Note 9) - (362,382) - -
NET EARNINGS - 1,612,806 - -
------------ ----------- -------- ---------
BALANCE AT NOVEMBER 30, 1996 $ (4,939,907) $ 4,442,741 103,500 $ (635,575)
============ =========== ======== ==========
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
PDK LABS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended
November 30,
-------------------------------------
1996 1995
--------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 1,612,806 $ (180,101)
--------------- --------------
Adjustments to reconcile net earnings (loss) to
net cash used in operating activities:
Depreciation and amortization 4,802,639 3,381,776
Minority interest in (loss) earnings of subsidiary (139,638) 190,594
Loss on regulatory action - 2,373,516
Gain on sale on subsidiary stock - (219,531)
Gain on sale of investment in Compare Generiks (574,954) -
Gain on sale of assets - (560,525)
Deferred income tax (benefit) (91,000) (77,637)
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (1,687,794) (1,453,086)
Inventories (10,025,371) (7,187,396)
Prepaid income taxes (416,971) -
Prepaid expenses and other current assets 33,061 (388,512)
Other assets 1,088,611 (738,490)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 3,196,539 801,001
Income taxes payable 382,792 (240,978)
--------------- --------------
Total adjustments (3,432,086) (4,119,268)
--------------- --------------
Net cash used in operating activities (1,819,280) (4,299,369)
--------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in marketable securities 2,358,210 (7,472,318)
Purchase of property, plant and equipment (2,440,251) (908,825)
Acquisition of intangible assets (2,532,318) (2,413,719)
Proceeds from sale of subsidiary stock - 2,155,300
Net proceeds from sale of assets - 37,500
Net proceeds from sale of investment in Compare Generiks 1,774,954 -
--------------- -------------
Net cash used in investing activities (839,405) (8,602,062)
--------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds of revolving credit line 4,750,000 1,250,000
Proceeds from term loan 1,848,000 4,000,000
Repayment of debt (1,284,602) (562,495)
Payment of cash dividends (362,382) (177,513)
Purchase of treasury stock (335,575) -
--------------- -------------
Net cash provided by financing activities 4,615,441 4,509,992
--------------- --------------
Net increase (decrease) in cash and cash equivalents 1,956,756 (8,391,439)
Cash and cash equivalents at beginning of year 928,761 9,320,200
--------------- --------------
Cash and cash equivalents at end of year $ 2,885,517 $ 928,761
=============== ==============
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE>
PDK LABS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 1996 AND 1995
1. Summary of Significant Accounting Policies:
a. Description of business
The Company manufactures and distributes non-prescription
pharmaceutical products, vitamins and food supplement products, and cosmetics
and beauty aids.
b. Principles of consolidation
The consolidated financial statements include the accounts of PDK Labs
Inc. and its 52% owned subsidiary, Futurebiotics, Inc. ("Futurebiotics"). Upon
consolidation, all significant intercompany accounts and transactions are
eliminated.
c. Investment in marketable securities
Investments in debt and equity securities are designated as trading,
held-to-maturity, or available for sale. Management considers the Company's
marketable securities, consisting principally of government and
government-backed debt securities, to be available-for-sale. Available-for-sale
securities are reported at amounts which approximate fair value. A decline in
the market value of any available-for-sale security below cost that is deemed
other than temporary is charged to earnings resulting in the establishment of a
new cost basis for the security.
At November 30, 1996, debt securities classified as non-current have
contractual maturities within 1-5 years.
d. Inventories
Inventories are valued at the lower of cost (first-in, first-out
method) or market.
e. Deferred catalog costs
Costs related to mail order catalogs and promotional material are
amortized over their estimated productive lives, based on historical results,
generally not exceeding one year.
f. Depreciation and amortization
Depreciation is computed using the straight-line method over the
estimated useful lives of the related assets. Amortization of leasehold
improvements is computed using the straight-line method over the estimated
useful lives of the related assets or the remaining term of the lease, whichever
is shorter. Maintenance and repairs of property and equipment are charged to
operations and major improvements are capitalized. Upon retirement, sale or
other disposition of property and equipment, the cost and accumulated
depreciation are eliminated from the accounts and gain or loss is included in
operations.
Intangible assets are amortized using the straight-line method over
the following periods:
Customer lists 3-7 years
Trademarks 7-10 years
Covenants not to compete 5-7 years
Deferred loan costs Term of related debt
Goodwill 10 years
Distribution rights 1-5 years
F-7
<PAGE>
1. Summary of Significant Accounting Policies: (Cont'd)
g. Income taxes
Deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities,
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
The Company and its subsidiary file separate tax returns.
h. Statement of cash flows
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
i. Reclassifications
Certain reclassifications have been made to the prior year financial
statements to conform with the classifications used in 1996.
j. Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
k. Advertising
The Company charges to expense, advertising costs as incurred.
Advertising costs amounted to $1,818,000 and $1,735,000 for the years ended 1996
and 1995, respectively.
2. Futurebiotics Stock Transactions:
On December 30, 1996, Futurebiotics effected a one for ten reverse
stock split of common stock outstanding. All Futurebiotics share amounts have
been restated to reflect this stock split.
In January 1995, the Company sold 300,000 shares of common stock of
Futurebiotics for net proceeds of approximately $2,155,000. The Company realized
a gain of approximately $220,000.
In January 1995, Futurebiotics entered into two separate multi-year
consulting agreements. As consideration for these services, the Company issued
60,000 shares of common stock to each of the companies and a consulting fee of
$210,000 to one company. Consideration paid, including the value of the common
stock granted, is being charged to operations ratably over the lives of the
consulting agreements.
3. Supplementary Information - Statement of Cash Flows:
Cash paid during the years for:
Years Ended
November 30,
-----------------------------------
1996 1995
------------- -----------
Interest $ 922,000 $ 593,000
============= ===========
Income taxes $ 1,252,000 $ 270,000
============= ===========
F-8
<PAGE>
3. Supplementary Information - Statement of Cash Flows: (Cont'd)
During the year ended November 30, 1996, the Company incurred capital
lease obligations of approximately $193,000 for the acquisition of various
property and equipment. Further, the Company and its majority-owned subsidiary
issued stock and/or options to various parties in consideration of services
provided (see Note 12).
4. Inventories:
Inventories consist of the following at November 30, 1996:
Raw materials $ 5,829,483
Work-in-process 9,211,383
Finished goods 8,231,650
--------------
$ 23,272,516
==============
5. Property, Plant and Equipment:
Property, plant and equipment, at cost, consist of the following at
November 30, 1996:
Land $ 493,448
Manufacturing equipment 5,248,902
Vehicles 245,518
Office equipment and fixtures 2,112,413
Leasehold improvements 1,408,867
--------------
9,509,148
Less accumulated depreciation and amortization 4,376,600
--------------
$ 5,132,548
==============
Depreciation and amortization of plant and equipment for the years ended
1996 and 1995 was $909,000 and $654,000, respectively.
6. Intangible Assets:
Intangible assets acquired at various dates consist of the following at
November 30, 1996:
Customer lists $ 4,430,104
Trademarks 250,098
Covenants not to compete 2,039,000
Deferred loan costs 258,436
Goodwill 300,000
Distribution rights 2,587,133
-------------
9,864,771
Less accumulated amortization 6,312,075
-------------
$ 3,552,696
=============
Amortization expense for the years ended 1996 and 1995 was $2,445,000 and
$1,527,000, respectively.
The Company acquired a customer list for approximately $320,000 during
the year ended November 30, 1996. During the year ended November 30, 1995, the
Company acquired customer lists and covenants not to compete for an aggregate
price of approximately $908,000. Approximately $315,000 of these assets were
subsequently disposed of in the sale of a product line (see Note 15).
F-9
<PAGE>
6. Intangible Assets: (Cont'd)
Futurebiotics has implemented a marketing program with select retail
stores and distributors in order to obtain premium shelf space. Contracts with
retailers are for a fixed period of not less than one year. Costs associated
with these distribution rights are being charged to operations ratably over the
lives of the agreements.
7. Other Assets:
Included in other assets is a loan to an officer approximating $763,000,
including $136,000 of accrued interest. The employment agreement with this
officer includes a provision under which the officer may borrow from the Company
under a credit line. Borrowings under the line bear interest at prime plus 1/2%.
In the event of the termination of employment, any amounts outstanding shall be
converted into a term loan payable over a specified period.
8. Long-Term Debt:
Long-term debt consists of the following:
Revolving lines of credit (a)(b) $ 10,000,000
Term loan, payable in quarterly installments of
$200,000, plus interest at prime, through August
2000; collateralized by the Company's assets (b) 3,000,000
Term loan, payable in quarterly principal installments
of $75,000, plus interest at prime, through February
2001; collateralized by the Company's assets (b) 1,350,000
Term loan, payable in monthly installments of
$5,800 plus interest at prime; collateralized
by certain equipment (c) 348,000
Capital lease obligations, expiring in various years
through 2001, payable in monthly installments
approximating $3,750 196,277
Other 37,000
--------------
14,931,277
Less current portion 1,328,509
--------------
$ 13,602,768
==============
(a) The Company and its subsidiary as co-borrowers have secured a
revolving credit agreement with a bank. The agreement provides for aggregate
borrowings of up to $15,000,000, with a sublimit of $11,000,000 for the Company
and $4,000,000 for its subsidiary. Interest is charged monthly on the
outstanding balance at prime. Unpaid interest and principal is due on September
29, 1999. This loan agreement is secured by all the assets of the Company and
its subsidiary. The Company and its subsidiary are jointly and severally liable
for the unpaid balance of this credit line.
(b) The revolving line of credit and term loan agreements as amended,
contain various covenants pertaining to the maintenance of certain financial
ratio restrictions, limitations on dividends, and restrictions on borrowings.
The prime rate at November 30, 1996 was 8 1/4%.
F-10
<PAGE>
8. Long-Term Debt: (Cont'd)
Maturities of long-term debt are as follows:
Years Ending
November 30,
------------
1997 $ 1,329,000
1998 1,211,000
1999 11,213,000
2000 1,009,000
2001 164,000
Thereafter 5,000
9. Stockholders' Equity:
a. Capitalization
The Company's authorized capital consists of 30,000,000 shares of
common stock and 5,000,000 shares of preferred stock. All stock has a $.01 par
value.
The Board of Directors has the authority to issue preferred stock
in one or more series and to fix the rights, voting rights and other terms. The
preferred shares issued and outstanding at November 30, 1996 have no voting
rights and, in the event of any liquidation of the Company, are entitled to
$7.00 per share plus accrued dividends before any distribution to other
stockholders. Each share of preferred stock may be converted into .3 shares of
common stock. Preferred shareholders are entitled to cumulative dividends of
$.49 per share, payable at the election of the Company in cash, common stock, or
a combination thereof. Dividends are payable semi-annually on or about April 15
and October 15 of each year.
b. Earnings (loss) per share
Earnings (loss) per common share were computed by dividing net
income (loss) available to common shareholders by the weighted average number of
shares of common stock outstanding during the period. The effect of common stock
equivalents on the computation of earnings (loss) per share was anti-dilutive in
1996 and 1995. Treasury shares have been excluded from the weighted average
number of shares.
Net earnings (loss) available to common shareholders was computed
as follows:
<TABLE>
<CAPTION>
Years Ended
November 30,
-----------------------------------
1996 1995
------------- -------------
<S> <C> <C>
Net earnings (loss) $ 1,612,806 $ (180,101)
Dividends on preferred shares (362,382) (362,384)
------------- -------------
Net income (loss) available to common shareholders $ 1,250,424 $ (542,485)
============= =============
</TABLE>
c. Stock option plan
The Company's Non-Qualified Stock Option Plan provides for the
granting of options to purchase not more than 23,250 shares of common stock to
employees, directors, and consultants of the Company. Pursuant to the Plan, and
at the Board's discretion, the options expire up to ten years from the date of
grant, and the exercise price will be determined by the Board. At November 30,
1996, no options have been granted under the Plan.
At November 30, 1996, the Company has approximately 949,000 shares
of common stock reserved for future issuances.
F-11
<PAGE>
10. Income Taxes:
The provision (benefit) for income taxes consists of the following:
Years Ended
November 30,
-----------------------------------
1996 1995
------------- -----------
Current:
Federal $ 1,012,000 $ (4,500)
State 97,000 (19,500)
------------- -----------
1,109,000 (24,000)
------------- -----------
Deferred:
Federal (10,000) 85,000
State (81,000) (11,000)
------------- -----------
(91,000) 74,000
------------- -----------
$ 1,018,000 $ 50,000
============= ===========
Net deferred income tax asset (liability) are comprised of the following
at November 30, 1996:
Net Deferred Net Deferred
Income Income Tax
Tax Asset (Liability)
----------- -------------
Inventories $ 357,825 $ -
Prepaid salaries (57,731) -
Property, plant and equipment - (66,667)
Intangible assets - 763,117
Investment in subsidiary - (522,000)
Unearned compensation - (1,375,340)
Tax carryforwards 54,000 -
Accrued commissions 65,290 -
Other (36,173) (227)
Valuation allowance - (50,000)
----------- -------------
$ 383,211 $ (1,251,117)
=========== =============
A reconciliation of the federal statutory rate to the Company's effective
tax rate is as follows:
% of Pre-Tax Earnings
-----------------------
1996 1995
--------- -------
U. S. Federal statutory income tax rate 34.0 34.0
State income tax, net of federal tax benefit .4 4.0
Other .7 10.5
Adjustment to prior year liability - (51.3)
Permanent differences 5.8 85.5
----- ------
40.9 82.7
===== ======
In accordance with the provisions of Financial Accounting Standards Board
Statement No. 109, "Accounting for Income Taxes", the Company recognized a
deferred tax (benefit) provision on its proportionate share of Futurebiotics'
(loss) earnings.
F-12
<PAGE>
11. Retirement Plans:
a. The Company has a voluntary, non-contributory defined contribution
profit sharing plan which covers substantially all of its employees.
Contributions to the profit sharing plan are based on a percentage of eligible
compensation up to a maximum of 15%, at the discretion of the Board of
Directors. There was no contribution made in 1996 or 1995.
b. Qualified employees are eligible to participate in a salary reduction
plan under Section 401(k) of the Internal Revenue Code. Participation in the
plan is voluntary, and any participant may elect to contribute up to 17% of
earnings. The Company may, at its discretion, contribute up to 3% of an
employee's earnings. The Company contributed $58,000 and $47,000 to the Plan for
the years ended November 30, 1996 and 1995, respectively.
12. Commitments and Contingencies:
a. Employment agreements
Pursuant to employment agreements with certain key executives, which
expire at various dates through October 2005, the Company has granted 1,002,000
shares of common stock which are earned by the executives and charged to
operations ratably over the respective terms of their employment. The shares
have been valued at prices ranging from $1.625 to $15.00 per share, dependent
upon their date of grant (aggregating approximately $3,349,000). One employment
agreement provides for reimbursement of any tax liability arising from the
officer's stock grant, and also a payment of two times his aggregate unpaid
compensation in the event of a change in control of the Company (as defined). In
1995, the Company granted an executive options to purchase 250,000 shares of
common stock at an exercise price of $2.63 per share.
The Company's remaining aggregate commitment at November 30, 1996
under such contracts is approximately $5,760,000.
b. Consulting agreements
The Company is a party to a nine year consulting agreement with the
former president/stockholder of Futurebiotics, Ltd. ("Consultant"). Under the
terms of the Agreement, as amended, the Consultant is providing consulting
services through December 2001 for consideration consisting of 500,000 shares of
the Company's common stock, fixed cash payments ranging from $50,000 to $62,500
through 1998, and an annual bonus equal to 2.75% of annual net sales of
Futurebiotics' products in excess of $7,000,000. The Company also issued to the
Consultant warrants to purchase an additional 20,000 shares of the Company's
common stock at $20.00 per share, exercisable through January 1999.
During 1995, the Company entered into a two year consulting agreement
with a law firm and a seven year agreement with a third party. As consideration
for these services the Company issued an aggregate of 300,000 shares, valued at
$487,500. Additionally, included in operations are charges approximating
$200,000 in each of the years ended 1996 and 1995, respectively, representing
the compensatory value of the Company's common stock issued in connection with
two separate consulting agreements entered into in 1994.
c. Lease commitment
The Company is obligated under two non-cancellable operating leases
for its manufacturing and office facilities. The leases, as extended, require
minimum future rental payments of $438,000, $456,000, $489,000 and $436,000 in
1997, 1998, 1999 and 2000, respectively and provide for the payment of real
estate taxes.
The Company subleases warehouse and office space to Compare Generiks
(see Note 15) at a rate of $5,000 per month.
F-13
<PAGE>
12. Commitments and Contingencies: (Cont'd)
c. Lease commitment (Cont'd)
Rent expense, net of rental income, approximated $419,000 and $279,000
for 1996 and 1995, respectively.
d. Purchase commitment
On May 14, 1996, the Company entered into a supply agreement with
Superior Supplements, Inc. ("Superior"), pursuant to which Superior agreed to
supply PDK with vitamins and dietary supplements manufactured to PDK's
specifications in bulk tablet form for a three (3) year period, renewable for
successive one (1) year periods thereafter. PDK has agreed to pay a purchase
price of 115% of Superior's actual material expenses incurred in the manufacture
of the products. PDK agreed to purchase products having a minimum aggregate
sales price of $2,500,000 per annum during the term of the agreement and to pay
liquidated damages of $100,000 to the Company in the event PDK did not meet that
minimum purchase requirement. Purchases from Superior approximated $1,796,000
for the year ended November 30, 1996.
e. Litigation
On July 29, 1996, the Company served a complaint against a former
executive citing that he, among other things, breached his agreement with PDK by
competing with PDK and soliciting PDK's customers in violation of his separation
agreement.
The former executive has denied the Company's allegations and, through
a counterclaim, asserts that the Company, an officer and an outside director
have breached their fiduciary duty to the Company and its stockholders. PDK, the
officer, and the director deny that they engaged in any improper conduct which
would support the former executive's counterclaim. Each intends to vigorously
defend against such claims and PDK intends to proceed with its action against
the former executive.
13. Related Party Transactions:
In December 1994, the Company amended its "Sales and Management
Agreement" with Futurebiotics. The revised agreement is for a fixed ten (10)
year term under which the Company, in exchange for 600,000 shares of
Futurebiotics' unregistered common stock, will provide Futurebiotics' entire
line of products at the Company's cost (as defined). The agreement provides PDK
with registration rights for up to 60,000 shares of the stock per year in order
to effect transfers of such shares.
In the event that the Company is unable to supply products having a cost
of at least $2,000,000 during any fiscal year (such shortage being defined as
the "PDK Deficiency") then the Company shall forfeit to Futurebiotics either (i)
fifteen percent (15%) of the PDK Deficiency in cash, or (ii) a portion of the
60,000 shares of stock, determined by multiplying the 60,000 shares of stock by
a percentage which is arrived at by dividing the PDK Deficiency by $2,000,000.
14. Exclusive Supply and Licensing Agreement:
On October 16, 1995, the Company entered into an Exclusive Supply and
Licensing Agreement with a non-affiliated customer pursuant to which the Company
agreed to supply the customer with all of its requirements for vitamins,
non-prescription pharmaceutical products and health and fitness products
manufactured in tablet, capsule, caplet, liquid or equivalent form commencing on
the date of the agreement. The term of the agreement is for five years,
renewable for successive one year periods thereafter.
F-14
<PAGE>
14. Exclusive Supply and Licensing Agreement: (Cont'd)
In addition, the Company granted the customer an exclusive license to use
the trademarks "Max Alert" and "Heads Up", and its trademarks for its ginseng
products, and the exclusive right to distribute products bearing such names,
using the components listed in the agreement. The Company recognized license fee
income of $500,000 for each of the fiscal years ended November 30, 1996 and 1995
in connection with this agreement.
Revenues from this customer accounted for 55% and 18% of total revenue in
1996 and 1995, respectively.
15. Other Expense (Income):
Other expense consists of the following:
Years Ended
November 30,
---------------------------------
1996 1995
------------ ------------
Loss on regulatory action (a) $ - $ 2,373,516
Gain on sale of product lines (b) - (560,525)
Gain on sale of securities (b) (574,954) -
Dividend income (50,000) -
------------ ------------
$ (624,954) $ 1,812,991
============ =============
(a) On October 12, 1995, the Drug Enforcement Administration ("DEA")
issued final regulations requiring all companies engaged in transactions
involving single-entity ephedrine drug products to file an application for
registration with the DEA on or before November 13, 1995. Any company which did
not file for registration with the DEA on or before the deadline could no longer
import, export, manufacture, or distribute single-entity ephedrine products.
Although the Company filed a timely application for registration, it may
not sell to customers who have not complied with the requirement to file. As a
result of the above, the Company has realized a significant decline in its
single-entity ephedrine customer base and has recognized an inventory write off
of approximately $2,374,000 on single-entity ephedrine products during the
fourth quarter of the year ended November 30, 1995.
(b) On October 31, 1995, the Company entered into an agreement to
transfer certain assets, liabilities and the on-going business of its
Energex/Compare Division product lines to Compare Generiks, Inc. ("CGI"). The
transfer consisted of certain assets and rights relating to the "Energex Plus"
and "Compare Generiks" product lines, including customer lists, trade secrets,
trademarks and tradenames and the assumption of a $50,000 obligation under a
promissory note. Consideration consisted of 500,000 shares of CGI common stock
(valued at $1,200,000) and a $500,000 promissory note. CGI also agreed to pay
the obligation under royalty and commission agreements relating to the Energex
product lines.
In addition, CGI entered into a five-year "Supply Agreement" with
the Company under which CGI will purchase certain of its products from PDK at a
price equal to PDK's material cost plus 100%. Sales under this agreement
approximate $1,459,000 in 1996.
On January 30, 1996, the $500,000 promissory note was converted to
500,000 shares of CGI's Series B Preferred Stock. The Series B Preferred Stock
earns cumulative annual dividends of 12% or $.12 per share, and is redeemable by
CGI after one year from the date of issuance. Dividend income for the year ended
November 30, 1996 totaled $50,000.
F-15
<PAGE>
15. Other Expense (Income): (Cont'd)
In March 1996, the Company sold the 500,000 shares of CGI common
stock for net proceeds of approximately $1,775,000.
On July 24, 1995, the Company sold a customer list, trademarks, and
inventory related to a mail order vitamin line of products. The Company
recognized a loss of approximately $610,000 in connection with this disposition.
16. Fair Value of Financial Instruments:
In 1996, the Company adopted Financial Accounting Standards Board
Statement No. 107, which requires disclosures about the fair value of the
Company's financial instruments. The methods and assumptions used to estimate
the fair value of the following classes of financial instruments were:
Current Assets and Current Liabilities: The carrying amount of cash and
temporary cash investments, current receivables and payables and certain
other short-term financial instruments approximate their fair value.
The carrying amount and fair value of the Company's financial instruments
at November 30, 1996 are as follows:
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
------------- --------------
<S> <C> <C>
Cash and cash equivalents $ 2,885,500 $ 2,885,500
Investments in marketable securities, at fair value 5,114,100 5,114,100
Accounts receivable 8,015,200 8,015,200
Investment in Compare Generiks 500,000 500,000
Accounts payable and accrued expenses 5,750,700 5,750,700
Dividends payable 45,200 45,200
Current and long-term debt 14,931,300 14,931,300
</TABLE>
F-16
<PAGE>
SIGNATURE
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.
Dated: New York, New York
February 26, 1997
PDK LABS INC.
By:/s/ Michael B. Krasnoff
----------------------------------
Michael B. Krasnoff, President
Chief Executive Officer
Chief Financial Officer and
Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Michael B. Krasnoff President, Chief February 26, 1997
- --------------------------- Executive Officer
Michael B. Krasnoff and Chief Financial
Officer
/s/ Stanley Krasnoff
- ---------------------------
Stanley Krasnoff Director February 26, 1997
/s/ Ira Helman
- ---------------------------
Ira Helman Director February 26, 1997
/s/ Hartley T. Bernstein
- ---------------------------
Hartley T. Bernstein Director February 26, 1997
/s/ Robin Marks-Kaufman
- ---------------------------
Robin Marks-Kaufman Director February 26, 1997
35
<PAGE>
THIRD AMENDMENT DATED AS OF
JULY 6, 1995 TO THE AMENDED AND
RESTATED REVOLVING CREDIT AGREEMENT
DATED AS OF JULY 15, 1994
This Third Amendment Agreement (the "Amendment") is dated as of July 6,
1995 by and among PDK LABS INC., a New York corporation having its principal
place of business at 145 Ricefield Lane, Hauppauge, New York 11788 (the
"Company"), PDI LABS, INC. ("PDI"), a New York corporation having its principal
place of business at 145 Ricefield Lane, Hauppauge, New York 11788, C&C
Enterprises, Inc. ("C&C"), a Delaware corporation, having its principal place of
business at 145 Ricefield Lane, Hauppauge, New York 11788 (PDI and C&C, each a
"Guarantor" and collectively, the "Guarantors") and CHEMICAL BANK, a New York
banking corporation, having an office at 395 North Service Road, Melville, New
York 11747 (the "Bank").
WHEREAS, the Bank, the Company and PDI entered into an Amended and
Restated Revolving Credit Agreement dated as of July 15, 1994, which has been
amended from time to time (the "Agreement"); and
WHEREAS, the Bank has extended credit to the Company on a revolving
credit basis as evidenced by a promissory note of the Company, in the original
principal amount of $6,000,000.00 dated July 15, 1994 (the "Revolving Credit
Note"); and
WHEREAS, the Company has requested that the Agreement be further
amended by the Bank to (i) increase the Commitment to $7,000,000.00 and extend
the Termination Date to May 31, 1998 and (ii) extend up to a $4,000,000 Term
Loan to the Company and the Bank has agreed to such amendments provided that the
Company and the Guarantors enter into this Amendment, and provided that certain
other provisions contained herein are met.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the Bank, the Company and the
Guarantors agree as follows:
1. Definitions. As used in this Amendment, capitalized terms, unless
otherwise defined, shall have the meanings ascribed to them in the Agreement.
2. Representations and Warranties. As an inducement for the Bank to
enter into this Amendment, the Company and the Guarantors each represent and
warrant as follows:
That with respect to the Agreement and the Loan Documents:
(i) On the date hereof, there are no defenses, offsets or
counterclaims to the Company's or PDI's obligations under the Agreement, the
Revolving Credit Note, the Guaranty, the Security Agreement or any of the other
Loan Documents.
<PAGE>
(ii) All of the representations and warranties made by the
Company and PDI in the Agreement or in the other Loan Documents are true and
correct in all material respects as if made on the date hereof.
(iii) On the date hereof, no Default or Event of Default is
existing under the Agreement or the other Loan Documents.
(iv) The outstanding aggregate principal balance of the
Revolving Credit Loans evidenced by the Revolving Credit Note delivered pursuant
to the Agreement is $6,000,000.00 and interest has been paid on $5,500,000.00
through the payment due June 30, 1995 and interest has been paid on $500,000.00
through the payment due July 1, 1995.
3. Conditions. This Amendment, and the Agreement as amended and
restated below, shall be effective upon (i) the fulfillment of the conditions
precedent described in Sections 3.1 and 3.3 of the Amended and Restated Loan
Agreement to the reasonable satisfaction of the Bank, and (ii) receipt by the
Bank of a facility fee of $50,000.00.
4. Amendment. The Agreement is hereby amended and restated to read as
follows:
AMENDED AND RESTATED LOAN AGREEMENT
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following terms shall
have the following meanings, unless the context otherwise requires:
"Accumulated Funding Deficiency" shall have the meaning set
forth in Section 302 of ERISA.
"Affiliate" shall mean any Person which, directly or
indirectly, is in control of, is controlled by, or is under common
control with, the Company. For purposes of this definition "control" of
a Person means the power, direct or indirect, either (i) to vote 10% or
more of the securities having ordinary voting power for the election of
directors of such Person or (ii) to direct or cause the direction of
the management and policies of such Person whether by contract or
otherwise.
"Agreement" shall mean this Amended and Restated Loan
Agreement and any amendments or supplements thereto.
"Board of Governors" shall mean the Board of Governors of the
Federal Reserve System of the United States of America.
-2-
<PAGE>
"Business Day" shall mean a day other than a Saturday, Sunday
or other day on which the Bank is authorized to close under the laws of
the State of New York.
"Capital Expenditures" shall mean, for any Person, for a
particular period, the aggregate amount of any expenditures during such
period (including purchase money Liens) made by such Person for assets
(including fixed assets acquired under Capital Leases) which it is
contemplated will be used or usable in fiscal years subsequent to the
year of acquisition.
"Capital Lease" shall mean all leases which have been or
should be capitalized on the books of the lessee in accordance with
GAAP.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
"Commitment" shall have the meaning set forth in Section 2.1.
"Commonly Controlled Entity" shall mean an entity, whether or
not incorporated, which is under common control with the Company within
the meaning of Section 4001 of ERISA.
"Consolidated Coverage Ratio" shall mean, for any twelve month
period, the ratio of (i) the sum of Consolidated Net Income (excluding
extraordinary gains), tax expense, depreciation expense, amortization
of intangibles, other non-cash charges and interest expense, minus any
unfunded Capital Expenditures, minus any cash dividends paid (common or
preferred) to (ii) the sum of interest expense during the preceding
four fiscal quarters plus installments of principal on all long term
Consolidated Indebtedness scheduled during the subsequent four fiscal
quarters. For purposes of this definition, all long term Consolidated
Indebtedness consisting of amounts outstanding under any revolving
credit facility shall be considered as having a seven year straight
line amortization.
"Consolidated Indebtedness" shall mean, at a particular date,
the aggregate amount of the Company's and its Subsidiaries' (i)
indebtedness or liability for borrowed money; (ii) indebtedness for the
deferred purchase price of property or services (including trade
obligations); (iii) obligations of a lessee under Capital Leases; (iv)
current liabilities in respect of unfunded vested benefits under any
Plan; (v) obligations under letters of credit issued for the account of
the Company or any Subsidiary; (vi) obligations arising under
acceptance facilities; (vii) all guaranties, endorsements (other than
for collection or deposit in the
-3-
<PAGE>
ordinary course of business) and other contingent obligations to
purchase, to provide funds for payment, to supply funds to invest in
any Person, or otherwise to assure a creditor against loss; (viii)
obligations secured by any Lien on property owned by the Company or any
Subsidiary whether or not the obligations have been assumed; and (ix)
all other liabilities recorded as such, or which should be recorded as
such, on the consolidated financial statements of the Company and its
Subsidiaries in accordance with GAAP.
"Consolidated Intangibles" shall mean at a particular date,
the aggregate amount of all assets of the Company and its Subsidiaries,
determined on a consolidated basis at such date, that would be
classified as intangible assets in accordance with GAAP, but in any
event including, without limitation,customer lists, unamortized debt
discount expense, unamortized organization and reorganization expense,
costs in excess of the net asset value of acquired companies, patents,
trade or service marks, franchises, trade names, goodwill and the
amount of any write-up in the book value of any assets resulting from
the revaluation (other than revaluations arising out of foreign
currency valuations in accordance with GAAP) thereof.
"Consolidated Net Income" shall mean, at a particular date,
the aggregate amount which would, in accordance with GAAP, be
classified as consolidated net income, after taxes, in a consolidated
income statement of the Company and its Subsidiaries as at such date.
"Consolidated Tangible Net Worth" shall mean, at any time
outstanding, the amount by which (i) the par value (or value stated on
the books) of the capital stock of all classes of the Company plus (or
minus in the case of a deficit) the amount of the consolidated surplus,
whether capital or earned, of the Company and any Subsidiaries exceeds
(ii) the sum of the amount of Consolidated Intangibles, plus treasury
stock, plus leasehold improvements, plus loans and advances to
officers, stockholders, and employees of the Company or any Subsidiary
plus loans to, or Investments in any other Person which is not a
Guarantor.
"Default" shall mean any of the events specified in Section 7
hereof, whether or not any requirement for the giving of notice or the
lapse of time or both or any other condition has been satisfied.
"Drawdown" means a request by the Company and the funding by
the Bank of all or a portion of the Term Loan in accordance with
Section 3.3 and 3.4 of this Agreement.
-4-
<PAGE>
"Drawdown Date" or "Drawdown Dates" shall mean one or more
(but not more than four) of the dates selected by the Company, none of
which shall be later than November 30, 1995, when the Term Loan (or
portions thereof) shall be funded by the Bank.
"ERISA" shall mean the Employee Retirement Income Security act
of 1974, as amended from time to time.
"ERISA Affiliate" shall mean any trade or business (whether or
not incorporated) which together with any other Person would be
treated, with such Person, as a single employer under Section 4001 of
ERISA.
"Eurodollar Loan" shall mean a loan hereunder at such time as
it is made or maintained at a rate of interest based on the Eurodollar
Rate.
"Eurodollar Rate" shall mean for each Interest Period the rate
per annum, adjusted as provided in the following sentence, at which
U.S. dollar deposits are offered to the Bank's Eurodollar lending
office (the "Lending office") in the interbank eurodollar market in
which such Lending office customarily deals as at the relevant local
time of such Lending office, two (2) Working Days prior to the first
day of such Interest Period for delivery on the first day of such
Interest Period, for the number of days in such Interest Period in an
amount equal to, for each Eurodollar Loan, the amount of such
Eurodollar Loan which will be outstanding during such Interest Period.
The interest rate determined under this paragraph shall be adjusted by
dividing such interest rate by the number equal to 1.00 minus the
blended rate (expressed as a decimal fraction) of reserves which are
required to be maintained (or which will be required to be maintained),
under Regulation D as in effect on the date of determination of such
interest rate, against "Eurocurrency liabilities" (as defined in
Regulation D) from time to time during the period for which the
interest is determined. As used in this definition, "relevant local
time" shall mean 11:00 A.M. local time in London, England when the
Lending office operates on London time or 10:00 A.M. New York time when
the Lending office operates on New York time.
"Event of Default" shall mean any of the events specified in
Section 7 hereof, provided that any requirement for the giving of
notice or the lapse of time or both has been satisfied.
"Existing Term Loan" shall mean the existing loan between the
Company and the Bank dated November 30, 1992, as amended from time to
time.
-5-
<PAGE>
"Existing Term Loan Note" shall mean the promissory note of
the Company evidencing the Existing Term Loan.
"Fixed Rate Loans" shall mean Eurodollar Loans and Match Rate
Loans.
"GAAP" shall mean Generally Accepted Accounting Principles.
"Generally Accepted Accounting Principles" shall mean those
generally accepted accounting principles and practices which are
recognized as such by the American Institute of Certified Public
Accountants acting through the Financial Accounting Standards Board
("FASB") or through other appropriate boards or committees thereof and
which are consistently applied for all periods so as to properly
reflect the financial condition, operations and cash flows of the
Company and its Subsidiaries, except that any accounting principle or
practice required to be changed by the FASB (or other appropriate board
or committee of the FASB) in order to continue as a generally accepted
accounting principle or practice may be so changed. Any dispute or
disagreement between the Company and the Bank relating to the
determination of Generally Accepted Accounting Principles shall, in the
absence of manifest error, be conclusively resolved for all purposes
hereof by the written opinion with respect thereto, delivered to the
Bank, of the independent accountants selected by the Company and
approved by the Bank for the purpose of auditing the periodic financial
statements of the Company.
"Guarantor" or "Guarantors" shall mean PDI, C&C, any
Subsidiary hereafter formed and Futurebiotics, Inc. if required to
guaranty the obligations of the Company pursuant to Section 6.5(h).
"Guaranty" or "Guaranties" shall mean the guaranty or
guaranties executed and delivered by the Guarantors pursuant to this
Agreement.
"Hazardous Materials" shall mean, without limit, any flammable
explosives, radioactive materials, hazardous materials, hazardous
wastes, hazardous or toxic substances, or related materials defined in
the Comprehensive Environmental Response, Compensation, and Liability
Act of 1980, as amended (42 U.S.C. Sections 9601, et. seq.), the
Hazardous Materials Transportation Act, as amended (49 U.S.C. Section
1801 et. seq.), the Resource Conservation and Recovery Act, as amended
(42 U.S.C. Sections 9601 et. seq.), and in the regulations adopted and
publications promulgated pursuant thereto, or any other federal, state
or local environmental law, ordinance, rule or regulation.
-6-
<PAGE>
"Insolvency" shall mean with respect to any Multiemployer
Plan, the condition that such Plan is insolvent within the meaning of
such term as used in Section 4245 of ERISA.
"Insolvent" shall pertain to the condition of Insolvency.
"Interest Period" shall mean (i) with respect to any
Eurodollar Loan, initially, the period commencing on the date of
borrowing with respect to such Eurodollar Loan and ending one, two or
three months thereafter as selected by the Company in its notice of
borrowing as provided in Section 2.3 or 2A.2 and thereafter, each
period commencing on the last day of the next preceding Interest Period
applicable to such Eurodollar Loan and ending one, two or three months
thereafter, as selected by the Company by irrevocable notice to the
Bank not less than three (3) Working Days prior to the last day of the
then current Interest Period with respect to such Eurodollar Loan; and
(ii) with respect to any Match Rate Loan the period commencing
on the date of such Match Rate Loan and ending on such date as the
Company may elect after being advised by the Bank as to what maturities
are available with respect to the Match Rate Loan being requested at
that time;
provided that, all of the foregoing provisions relating to the
Interest Periods are subject to the following:
(A) no Interest Period shall end later than the
Termination Date or the Maturity Date, as applicable;
(B) if any Interest Period pertaining to a Match Rate
Loan would end on a day that is not a Business Day, such
Interest Period shall be extended to the next Business Day;
(C) if any Interest Period pertaining to a Eurodollar
Loan would end on a day which is not a Working Day, that
Interest Period shall be extended to the next succeeding
Working Day unless the result of such extension would be to
carry such Interest Period into another calendar month in
which event such Interest Period shall end on the immediately
preceding Working Day;
(D) any Interest Period pertaining to a Eurodollar
Loan that begins on the last Working Day of a calendar month
(or on a day for which there is no numerically corresponding
day in the calendar month at the end of such Interest Period)
shall end on the last Working Day of a calendar month;
-7-
<PAGE>
(E) if any requested Interest Period includes a day
on which an installment of principal of the Eurodollar Loan or
Match Rate Loan is due and payable but does not begin or end
on such date, then the requested Eurodollar Loan or Match Rate
Loan shall have an Interest Period (if available) ending on or
before such payment date.
"Investment" shall mean any stock, evidence of debt or other
security of any Person, any loan, advance, contribution of capital,
extension of credit or commitment therefor, including without
limitation the guaranty of loans made to others (except for current
trade and customer accounts receivable for services rendered in the
ordinary course of business and payable in accordance with customary
trade terms in the ordinary course of business), to another Person, and
any purchase of (i) any security of another Person or (ii) any business
or undertaking of any Person or any commitment or option to make any
such purchase, or any other investment.
"Letter of Credit Outstandings" shall mean the aggregate sum
of the amounts available to be drawn under letters of credit issued by
the Bank for the account of the Company and any Guarantor and the
amounts of unreimbursed drawings under such letters of credit.
"Lien" shall mean any mortgage, deed of trust, pledge,
security interest, hypothecation, assignment, deposit arrangement,
encumbrance, lien (statutory or other), or preference, priority, or
other security agreement or preferential arrangement, charge or
encumbrance of any kind or nature whatsoever, including, without
limitation, any conditional sale or other title retention agreement,
any financing lease having substantially the same economic effect as
any of the foregoing, and the filing of any financing statement under
the Uniform Commercial Code or comparable law of any jurisdiction to
evidence any of the foregoing.
"Loan" or "Loans" shall mean one or more of the Revolving
Credit Loans or the Term Loan as the context may require and includes
Prime Rate Loans, Eurodollar Loans and Match Rate Loans.
"Loan Documents" shall mean any and all of the Agreement, the
Notes, the Security Agreement, the Guaranty, any agreements or
documents referred to in Section 3 hereof and all other documents and
instruments executed in connection herewith.
"Match Funded Rate" shall mean, with respect to any Match Rate
Loan for any Interest Period, that rate which is quoted to the Company
by the Bank, upon the Company's inquiry therefore, as the Bank's match
funded rate for the Loan.
-8-
<PAGE>
"Match Rate Loan" shall mean a Loan which is bearing interest
at a rate based on the Match Funded Rate in accordance with the
provisions of Section 2A.5(c) hereof.
"Material Adverse Change" shall mean, with respect to any
Person, (i) a material adverse change in the financial condition,
business, operations, properties or assets of such Person or (ii) the
occurrence of any event with respect to such Person which could have a
material adverse effect on the ability of such Person to perform its
obligations under the Loan Documents.
"Maturity Date" shall mean the last Business Day of August,
2000.
"Multiemployer Plan" shall mean a Plan which is a
multiemployer plan as defined in Section 4001(a)(3) of ERISA.
"Note" or "Notes" shall mean either or both of the Revolving
Credit Note or the Term Loan Note (as the context may require) and all
attachments thereto described in Section 2.2 and 2A.3 hereof,
respectively.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA.
"Person" shall mean an individual, partnership, corporation,
business trust, joint stock company, limited liability company, trust,
unincorporated association, joint venture, government authority or
other entity of whatever nature.
"Plan" shall mean at any particular time, any employee benefit
plan which is covered by ERISA and in respect of which the Company or a
Commonly Controlled Entity is (or, if such plan were terminated at such
time, would under Section 4069 of ERISA be deemed to be) an employer as
defined in Section 3(5) of ERISA.
"Prime Rate" shall mean the rate of interest announced from
time to time by the Bank at its principal office in New York as its
prime rate.
"Prime Rate Loan" shall mean a loan hereunder at such time as
it is made or maintained at a rate of interest based on the Prime Rate.
"Prohibited Transaction" shall mean any transaction set forth
in Section 406 of ERISA or Section 4975 of the Internal Revenue Code of
1986, as amended from time to time.
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"Regulation D" shall mean Regulation D of the Board of
Governors, as the same may be amended and in effect from time to time.
"Regulation G" shall mean Regulation G of the Board of
Governors, as the same may be amended and in effect from time to time.
"Regulation T" shall mean Regulation T of the Board of
Governors, as the same may be amended and in effect from time to time.
"Regulation U" shall mean Regulation U of the Board of
Governors, as the same may be amended and in effect from time to time.
"Regulation X" shall mean Regulation X of the Board of
Governors, as the same may be amended and in effect from time to time.
"Reorganization" shall mean, with respect to any Multiemployer
Plan, the condition that such Plan is in reorganization within the
meaning of such term as used in Section 4241 of ERISA.
"Reportable Event" shall mean any of the events set forth in
Section 4043(b) of ERISA, other than those events as to which the
thirty-day notice period is waived under subsections .13, .14, .16,
.18, .19 or .20 of PBGC Reg. ss.2615.
"Revolving Credit Loan" shall mean each and any of the
revolving credit loans referred to in Section 2.1 hereof.
"Revolving Credit Note" shall mean a promissory note of the
Company payable to the order of the Bank, in substantially the form of
Exhibit A annexed hereto, evidencing the indebtedness of the Company to
the Bank resulting from the Revolving Credit Loans made by the Bank to
the Company pursuant to this Agreement.
"Security Agreement" shall mean the security agreement
referred to in Section 3.1(c) and Section 3.3(c) hereof.
"Single Employer Plan" shall mean any Plan which is covered by
Title IV of ERISA, but which is not a Multiemployer Plan.
"Subordinated Debt" shall mean all indebtedness of a Person,
the repayment of which the obligee has agreed in writing, on terms
approved in advance by the Bank in writing, shall be subordinated in
right of payment to all indebtedness of such Person to the Bank.
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"Subsidiary" shall mean with respect to any Person, any
corporation, partnership or joint venture whether now existing or
hereafter organized or acquired: (i) in the case of a corporation, of
which a majority of the securities having ordinary voting power for the
election of directors (other than securities having such power only by
reason of the happening of a contingency) are at the time owned by such
Person and/or one or more Subsidiaries of such Person or (ii) in the
case of a partnership or joint venture, of which a majority of the
partnership or other ownership interests are at the time owned by such
Person and/or one or more of its Subsidiaries.
"Termination Date" shall mean the earlier of May 31, 1998 or
the date the Commitment may be terminated.
"Term Loan" shall have the meaning assigned in Section 2A.1
hereof.
"Term Loan Note" means a promissory note of the Company
payable to the order of the Bank, in substantially the form of Exhibit
B annexed hereto, evidencing the indebtedness of the Company to the
Bank resulting from the Term Loan made by the Bank to the Company
pursuant to this Agreement.
"Working Day" shall mean any day on which dealings in foreign
currencies and exchange between banks may be carried on in the places
where the Bank's eurodollar lending office is located and in New York.
1.2 Use of Defined Terms. All terms defined in this Agreement shall
have the defined meanings when used in the Notes, the Loan Documents,
certificates, reports or other documents made or delivered pursuant to this
Agreement unless the context shall otherwise require.
1.3 Accounting Terms. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP.
SECTION 2. AMOUNT AND TERMS OF THE REVOLVING CREDIT LOANS
2.1 Revolving Credit Loans. Subject to the terms and conditions of this
Agreement, the Bank agrees to make Revolving Credit Loans to the Company at any
time and from time to time on or after the date hereof, to and including the
Termination Date, in an aggregate principal amount outstanding at any one time
up to but not exceeding the difference between (i) $7,000,000.00 (herein, as the
same may be reduced from time to time pursuant to Section 2.5 hereof, called the
"Commitment") and (ii) the Letter of Credit Outstandings. The Company may use
the Commitment by borrowing,
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repaying and reborrowing, all in accordance with the terms and conditions of
this Agreement.
2.2 The Revolving Credit Note. The Company shall execute and deliver to
the Bank a restated Note in substitution and exchange for, but not in payment of
the preceding revolving credit note, substantially in the form annexed hereto as
Exhibit A, with appropriate insertions therein. The restated Note shall be used
to evidence each borrowing, repayment and reborrowing hereunder. Interest on the
restated Note shall be payable as follows:
(a) Each Prime Rate Loan shall bear interest on the unpaid
principal amount thereof at a rate per annum equal to the Prime Rate.
Interest on Prime Rate Loans shall be payable monthly on the first
Business Day of each month commencing on the first such date after a
Prime Rate Loan is made and upon payment or prepayment in full of the
unpaid principal amount thereof.
(b) Each Eurodollar Loan shall bear interest on the unpaid
principal amount thereof at a rate per annum equal to 2% above the
Eurodollar Rate. Interest on each Eurodollar Loan shall be payable on
the last day of each Interest Period applicable thereto, and upon
payment or prepayment in full of the unpaid principal amount thereof.
If applicable, interest on each Eurodollar Loan with an Interest Period
greater than one month shall also be payable on the first Business Day
of each month from the date of such Eurodollar Loan, and on the first
Business Day of each month thereafter.
(c) The unpaid principal amount of all Prime Rate Loans and
Eurodollar Loans shall be payable on the Termination Date. If all or a
portion of any principal amount of any loan shall not be paid when due
(whether as stated, by acceleration or otherwise), such loan, if a
Eurodollar Loan, shall be converted to a Prime Rate Loan at the end of
the relevant Interest Period applicable thereto, and any such overdue
principal amount shall bear interest at a rate per annum which is 2%
above the rate which would otherwise be applicable pursuant to the
terms of this Section 2.2.
2.3 Notice of Borrowing. The Company shall give the Bank prior
telephonic notice followed by written, telegraphic or tested telex confirmation
of the date, the borrowing option, the applicable Interest Period, if any, and
the amount of each borrowing pursuant to the Commitment at least by 11:00 a.m.
on the borrowing date of any Prime Rate Loan, and at least three (3) Working
Days prior to the borrowing date of any Eurodollar Loan. On the date specified
in such notice, the Bank will make the amount then to be loaned by it available
to the Company by credit to an account of the Company maintained with the Bank,
in immediately available funds. Each borrowing pursuant to the Commitment shall
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be in an aggregate principal amount of $100,000 or any whole multiple thereof
for Prime Rate Loans, and $250,000 or any whole multiple thereof for Eurodollar
Loans. At least two (2) Working Days prior to the last day of any Interest
Period with respect to such Eurodollar Loan, the Company may give the Bank
notice of its election to continue such Eurodollar Loan, specifying the
resulting Interest Period. If the Company shall fail to give such notice, any
loan affected thereby shall be automatically converted to a Prime Rate Loan at
the end of such Interest Period. Upon at least three (3) Working Days' prior
written notice, the Company may give the Bank notice of its election to convert
a Prime Rate Loan to a Eurodollar Loan, specifying the resulting Interest
Period. No Eurodollar Loan may be continued as such and no Prime Rate Loan may
be converted to a Eurodollar Loan when any Default or Event of Default has
occurred and is continuing, but any such Eurodollar Loan shall be automatically
converted to a Prime Rate Loan on the last day of the Interest Period applicable
thereto, and any such Prime Rate Loan shall be continued as a Prime Rate Loan,
as the case may be.
2.4 Commitment. The Company agrees to pay to the Bank a commitment fee
for the period from and including the date hereof to and including the
Termination Date, computed at the rate of 1/4 of 1% per annum on the average
daily unused portion of the Commitment in effect during the period for which
payment is made. Such commitment fee shall be payable to the Bank on the last
day of each March, June, September and December, and on the Termination Date.
2.5 Termination or Reduction of Commitment; Acceleration of Termination
Date. The Company shall have the right, upon not less than three (3) Business
Days prior written notice to the Bank, to terminate the Commitment in whole at
any time or to reduce the Commitment in part from time to time, or to accelerate
the Termination Date, provided that (a) any reduction of the Commitment shall be
accompanied by prepayment, together with accrued interest on the amount so
prepaid and any payment required by Section 2.12(iv), to the extent, if any,
that the aggregate unpaid principal amount of the Revolving Credit Note exceeds
the Commitment as then reduced, (b) any termination of the Commitment shall be
accompanied by payment in full of the unpaid principal amount of the Revolving
Credit Note, together with accrued interest thereon and any payment required by
Section 2.12(iv), and the payment of any commitment fee then accrued hereunder,
and (c) any acceleration of the Termination Date shall be accompanied by the
payment of any commitment fee then accrued hereunder and any payment required by
Section 2.12(iv). Any partial reduction shall be in an aggregate principal
amount of $50,000 or a multiple thereof and shall reduce permanently the
Commitment then in effect hereunder. The Commitment, once reduced or terminated,
shall not be increased or reinstated, as the case may be.
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2.6 Changes in Capital Requirements. If after the date hereof, the Bank
shall have determined that the adoption of any applicable law, rule or
regulation regarding capital adequacy, or any change therein, or any change in
the interpretation or administration thereof, by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by the Bank with any request or directive
regarding capital adequacy (whether or not having the force of law) of any such
authority, central bank or comparable agency, has or would have the effect of
reducing the rate of return on the Bank's capital as a consequence of its
obligations hereunder to a level below that which the Bank could have achieved
but for such adoption, change or compliance (taking into consideration the
Bank's policies with respect to capital adequacy) by an amount deemed by the
Bank to be material, then from time to time, within 15 days after demand by the
Bank, the Company shall pay to the Bank such additional amount or amounts as
will compensate the Bank for such reduction. The Bank will promptly notify the
Company of any event of which it has knowledge, occurring after the date hereof,
which will entitle the Bank to compensation pursuant to this Section 2.6.
2.7 Voluntary Prepayments. (a) The Company may prepay any Prime Rate
Loan without premium or penalty in whole at any time or in part from time to
time, and any Eurodollar Loan without premium or penalty in whole or in part on
the last day of any Interest Period applicable thereto. Eurodollar Loans may not
be prepaid during an Interest Period without the prior written consent of the
Bank. Partial prepayments of the Revolving Credit Note shall be in the principal
amount of $25,000 or multiples thereof if repayment is of a Prime Rate Loan, and
$250,000 or multiples thereof if repayment is of a Eurodollar Loan, together
with payment of accrued interest thereon to the date of the prepayment (and, if
applicable, the payment required by Section 2.12 (iv)).
(b) The Company shall give to the Bank at least three (3) Business Days
prior written, telegraphic or tested telex notice of any repayment or
prepayment, specifying the date and the amount thereof.
2.8 Computation of Interest and Commitment Fee; Payments. Commitment
fees, if any, and interest shall be calculated on the basis of a 360 day year
for the actual days elapsed. Any change in the interest rate on the Revolving
Credit Note resulting from a change in the Prime Rate shall become effective as
of the opening of business on the day on which such change in the Prime Rate
shall become effective. All payments (including prepayments) by the Company on
account of principal and interest on the Loans and the commitment fee and
balance deficiency fee hereunder shall be made to the Bank at its office located
at 395 North Service Road, Melville, New York 11747 in lawful money of the
United States of America in immediately available funds. If any payment
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on a Prime Rate Loan becomes due and payable on a day other than a Business Day
the maturity thereof shall be extended to the next succeeding Business Day and
interest thereon shall be payable at the then applicable rate during such
extension. If any payment on a Eurodollar Loan becomes due and payable on a day
other than a Working Day, the maturity thereof shall be extended to the next
succeeding Working Day unless the result of such extension would be to extend
such payment into another calendar month in which event such payment shall be
made on the immediately preceding Working Day.
2.9 Inability to Determine Rate. If with respect to any Interest Period
pertaining to a Eurodollar Loan, the Bank determines that extraordinary
circumstances affecting the relevant market make it impracticable to ascertain
the interest rate applicable for such Interest Period, the Bank shall promptly
notify the Company of such determination and no additional Eurodollar Loans
shall be made nor shall there be any conversions thereto until such notice is
withdrawn. If any Eurodollar Loan is outstanding on the date of such notice and
such notice has not been withdrawn on the last day of the then current Interest
Period applicable thereto, the Company may on the last day of such Interest
Period either convert such Eurodollar Loan to a loan maintained at an alternate
rate of interest available hereunder or prepay the outstanding principal balance
thereof and accrued interest thereon in full.
2.10 Illegality. Notwithstanding any other provisions herein, if any
law, regulation, treaty or directive or any change therein or in the
interpretation or application thereof, shall make it unlawful for the Bank to
make or maintain Eurodollar Loans as contemplated by this Agreement, (a) the
Commitment hereunder to make Eurodollar Loans or convert Prime Rate Loans to
Eurodollar Loans shall forthwith be canceled and (b) loans then outstanding as
Eurodollar Loans, if any, shall be converted to Prime Rate Loans on the last day
of the Interest Period applicable thereto or within such earlier period as
required by law. The Company hereby agrees to promptly pay to the Bank, upon its
demand, any amounts required by Section 2.12(iv) resulting from a prepayment of
a Eurodollar Loan.
2.11 Requirements of Law. In the event that any law, regulation, treaty
or directive or any change therein or in the interpretation or application
thereof or compliance by the Bank with any request or directive (whether or not
having the force of law) from any central bank or other governmental authority,
agency or instrumentality:
(i) does or shall subject the Bank to any tax of any kind
whatsoever with respect to this Agreement, its Commitment, the
Revolving Credit Note or any Loans made hereunder, or change the basis
of taxation of payments to the Bank of principal,
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commitment fee, interest or any other amount payable hereunder
(except for changes in the rate of any tax presently imposed
on the Bank);
(ii) does or shall impose, modify or hold applicable any
reserve, special deposit, compulsory loan or similar requirement
against assets held by, or deposits or other liabilities in or for the
account of, advances or loans by, or other credit extended by, or any
other acquisition of funds by, any office of the Bank which are not
otherwise included in the determination of the Eurodollar Rate
hereunder;
(iii) does or shall impose on the Bank any other
condition;
and the result of any of the foregoing is to increase the cost to the Bank of
making, renewing or maintaining commitments, advances or extensions of credit to
the Company or to reduce any amount receivable from the Company thereunder then,
in any such case, the Company shall promptly pay to the Bank, upon its demand,
any additional amounts necessary to compensate the Bank for such additional cost
or reduced amount receivable which the Bank deems to be material as determined
by the Bank with respect to this Agreement, its Commitment, the Note or the
Loans made hereunder. If the Bank becomes entitled to claim any additional
amounts pursuant to this Section 2.11, it shall promptly notify the Company of
the event by reason of which it has become so entitled. A certificate setting
forth calculations as to any additional amounts payable pursuant to the
foregoing sentence submitted by the Bank to the Company shall be conclusive in
the absence of manifest error.
2.12 Indemnification. The Company agrees to indemnify the Bank and to
hold the Bank harmless from any loss or expense which the Bank may sustain or
incur as a consequence of (i) default by the Company in payment when due of the
principal amount of or interest on any Eurodollar Loan, (ii) default by the
Company in making a borrowing of, conversion into or continuation of Eurodollar
Loans after the Company has given a notice requesting the same in accordance
with the provisions of this Agreement, (iii) default by the Company in making
any prepayment after the Company has given a notice thereof in accordance with
the provisions of this Agreement, or (iv) the making of a prepayment of
Eurodollar Loans on a day which is not the last day of an Interest Period with
respect thereto, including, without limitation, in each case, any such loss
(including lost profits) or expense arising from the reemployment of funds
obtained by it or from fees payable to terminate the deposits from which such
funds were obtained. This covenant shall survive the termination of this
Agreement and the payment of the Revolving Credit Note and all other amounts
payable hereunder.
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2.13 Use of Proceeds. (a) No part of the proceeds of any borrowing
hereunder will be used to purchase or carry any margin stock or to extend credit
to others for the purpose of purchasing or carrying any margin stock. If
requested by the Bank, the Company will furnish to the Bank a statement in
conformity with the requirements of Federal Reserve Form U-1 referred to in
Regulation U and to the foregoing effect. No part of the proceeds of the
Revolving Credit Loans will be used for any purpose which violates, or which is
inconsistent with, the provisions of Regulation G, T, U or X.
(b) The proceeds of the Revolving Credit Loans shall be used for
working capital purposes (and not for acquisitions).
2.14 Balance Deficiency Fees. (a) The Company agrees to pay to the Bank
a balance deficiency fee equal to the average daily balance deficiency
percentage (as hereinafter defined) of the amount, if any, by which the average
daily amount of free available balances in non-interest bearing accounts
maintained by the Company and its Subsidiaries with the Bank is less than
$100,000; provided, that the amount of any balance deficiency fee payable
hereunder which is deemed to be interest under applicable law shall not exceed
an amount which, when taken together with any other amounts of interest under
applicable law, will exceed an amount equal to interest on the loans hereunder
computed as provided in this Agreement at the maximum rate of interest permitted
by such applicable law. Such balance deficiency fee shall be payable quarterly
on the last day of each March, June, September and December, commencing on the
first such date after the date of this Agreement, and on the last day of the
calendar month following the calendar month in which payment or prepayment in
full is made under this Agreement, for the three-month period or portion thereof
ending on the last day of the calendar month next preceding the calendar month
in which such payment is due.
(b) The term "balance deficiency percentage" as used herein shall mean
a fluctuating rate per annum equal to 3/4% above the Prime Rate.
(c) It is understood that nothing in this Agreement shall obligate the
Company to maintain balances with the Bank.
2.15 Authorization to Debit Company's Account. The Bank is hereby
authorized to debit the Company's account maintained with the Bank for (i) all
scheduled payments of principal and/or interest under the Revolving Credit Note,
and (ii) the commitment fee, the balance deficiency fee and all other amounts
due hereunder; all such debits to be made on the days such payments are due in
accordance with the terms hereof.
2.16 Default Interest. Upon the occurrence and during the continuation
of a Default, the Company shall pay interest on all
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amounts owing under the Revolving Credit Note and this Agreement (after as well
as before judgment) at a rate per annum (computed on the basis of the actual
number of days elapsed and a year of 360 days) equal to 2% in excess of the
interest rate otherwise in effect hereunder.
2.17 Interest Adjustments. (a) If the provisions of this Agreement or
the Revolving Credit Note would at any time otherwise require payment by the
Company to the Bank of any amount of interest in excess of the maximum amount
then permitted by applicable law the interest payments shall be reduced to the
extent necessary so that the Bank shall not receive interest in excess of such
maximum amount. To the extent that, pursuant to the foregoing sentence, the Bank
shall receive interest payments hereunder or under the Revolving Credit Note in
an amount less than the amount otherwise provided, such deficit (hereinafter
called the "Interest Deficit") will cumulate and will be carried forward
(without interest) until the termination of this Agreement. Interest otherwise
payable to the Bank hereunder and under the Revolving Credit Note for any
subsequent period shall be increased by such maximum amount of the Interest
Deficit that may be so added without causing the Bank to receive interest in
excess of the maximum amount then permitted by applicable law.
(b) To the extent permitted by law, the amount of the Interest Deficit
shall be treated as a prepayment penalty and paid in full at the time of any
optional prepayment by the Company to the Bank of all outstanding Loans. The
amount of the Interest Deficit relating to the Revolving Credit Note at the time
of any complete payment of the Revolving Credit Note at that time outstanding
(other than an optional prepayment thereof) shall be canceled and not paid.
2.18 Participations, Etc. The Bank shall have the right at any time,
with or without notice to the Company, to sell, assign, transfer or negotiate
all or any part of the Revolving Credit Note or the Commitment or grant
participations therein to one or more banks (foreign or domestic, including an
affiliate of the Bank), insurance companies or other financial institutions,
pension funds or mutual funds. The Company and the Guarantors agree and consent
to the Bank providing financial and other information regarding their business
and operations to prospective purchasers or participants and further agree that
to the extent that the Bank should sell, assign, transfer or negotiate all or
any part of the Revolving Credit Note or the Commitment, the Bank shall be
forever released and discharged from its obligations under the Revolving Credit
Note, the Commitment and this Agreement to the extent same is sold, assigned,
transferred or negotiated. The Bank shall have the right, at any time and from
time to time, to pledge the Revolving Credit Note to any Federal Reserve Bank.
SECTION 2A. AMOUNT AND TERMS OF THE TERM LOAN
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2A.1 The Term Loan. (a) The Bank agrees, on the Drawdown Dates, and on
the terms and conditions and in reliance upon the representations and warranties
hereinafter set forth in this Agreement, to lend to the Company the maximum
principal amount of Four Million ($4,000,000.00) Dollars, and the Company agrees
to borrow such amount from the Bank by executing and delivering to the Bank the
Term Loan Note. The Term Loan, or portions thereof, shall be a Prime Rate Loan
or a Fixed Rate Loan (or a combination thereof) as the Company may request
subject to and in accordance with Section 2A.2 hereof. The Bank may at its
option make any Eurodollar Loan by causing a foreign branch or affiliate to make
such Loan, provided that any exercise of such option shall not affect the
obligation of the Company to repay such Loan in accordance with the terms of the
Term Loan Note.
(b) The Company shall give the Bank irrevocable written telex,
telephonic (immediately confirmed in writing) or facsimile notice at least three
(3) Business Days prior to any Drawdown. On the date specified in such notice,
and provided the Company has satisfied all of the conditions of Sections 3.3 and
3.4, the Bank will make the Drawdown available to the Company by credit to an
account of the Company maintained with the Bank, in immediately available funds.
Each Drawdown shall be in the minimum amount of $100,000 or the remaining
available principal amount of the Term Loan, if less.
2A.2 Notice of Term Loan Designations. (a) The Company may elect to
designate the Term Loan (or a portion thereof) as a Prime Rate Loan or a Fixed
Rate Loan by so specifying in the irrevocable notice given pursuant to this
Section 2A.2; provided, however, that each Fixed Rate Loan for any specific
Interest Period shall be in the minimum principal amount of $500,000.00.
(b) The Company shall give the Bank irrevocable written, telex,
telephonic (immediately confirmed in writing) or facsimile notice (i) at least
three (3) Business Days' prior to each election to designate the Term Loan (or a
portion thereof) as a Eurodollar Loan, (ii) such notice as the Bank may, in its
sole discretion require from time to time, to designate the Term Loan (or a
portion thereof) as a Match Rate Loan (subject to availability) and (iii) prior
to 11:00 a.m. on the day of such Loan of each election to designate the Term
Loan (or a portion thereof) as a Prime Rate Loan, in each case specifying the
date (which shall be a Business Day) thereof and the aggregate principal amount
and, if any portion thereof is to consist of one or more Fixed Rate Loans, the
respective principal amounts and Interest Periods for each such Fixed Rate Loan;
provided that:
(i) if the Company shall fail to specify the duration of an
Interest Period with regard to any Eurodollar Loan in its notice, the Interest
Period shall be for a period of one month; and
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(ii) if the Company shall request a Match Rate Loan when such
Loans are not available, fail to specify the duration of the Interest Period
with regard to a requested Match Rate Loan or fail to specify the type of Loan
requested, the request shall be deemed to be a request for a Prime Rate Loan.
2A.3 Term Loan Note. The Term Loan shall be evidenced by the Term Loan
Note of the Company. The Term Loan Note shall be dated as of the first Drawdown
Date and shall mature on the Maturity Date at which time the entire outstanding
principal balance and all interest thereon shall be due and payable. The Bank
shall record on the Term Loan Note the date and amount of each Drawdown, which
absent manifest error, shall be conclusive evidence of each Drawdown. The Term
Loan Note shall be entitled to the benefits and subject to the provisions of
this Agreement.
2A.4 Repayment of Term Loan Note. The principal balance of the Term
Loan Note shall be payable in twenty (20) quarterly installments, each due on
the last Business Day of each November, February, May and August of each year,
beginning on the last Business Day of November, 1995. Each of the first nineteen
(19) such quarterly principal installments shall be in the amount of Two Hundred
Thousand ($200,000.00) Dollars and the twentieth (20th) such quarterly principal
installment shall be in an amount equal to the then outstanding principal
balance of the Term Loan Note.
2A.5 Payment of Interest on the Term Loan Note. (a) In the case of a
Prime Rate Loan, interest shall be payable at a rate per annum (computed on the
basis of the actual number of days elapsed over a year of 360 days) equal to the
Prime Rate. Such interest shall be payable on the first Business Day of each
month commencing on the first such date after the date of such Prime Rate Loan,
on the Maturity Date and upon payment or prepayment of such Prime Rate Loan. Any
change in the rate of interest on the Term Loan Note due to a change in the
Prime Rate shall take effect as of the date of such change in the Prime Rate.
(b) In the case of a Eurodollar Loan, interest shall be payable at a
rate per annum (computed on the basis of the actual number of days elapsed over
a year of 360 days) equal to 2% above the Eurodollar Rate. Such interest shall
be payable on the last day of each Interest Period applicable thereto, on the
first Business Day of each month and on the Maturity Date. The Bank shall
determine the rate of interest applicable to each requested Eurodollar Loan for
each Interest Period at 11:00 a.m., New York City time, or as soon as
practicable thereafter, two (2) Working Days prior to the commencement of such
Interest Period and shall notify the Company of the rate of interest so
determined. Such determination shall be conclusive absent manifest error.
(c) In the case of a Match Rate Loan, interest shall be payable at a
rate per annum (computed on the basis of the actual
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number of days elapsed over a year of 360 days) equal to the Match Funded Rate.
Such interest shall be payable on the first Business Day of each month,
commencing with the first such date after the date of such Match Rate Loan, on
the Maturity Date and on the last day of each Interest Period applicable
thereto. In the event Match Rate Loans are available, the Bank shall determine
the Match Funded Rate applicable to each requested Match Rate Loan for each
Interest Period at 11:00 a.m., New York City time, or as soon as practicable
thereafter, on the day of the making of such Match Rate Loan, and shall notify
the Company of the Match Funded Rate so determined. Such determination shall be
conclusive absent manifest error.
2A.6 Conversion and Continuation of Loans. The Company shall have the
right, at any time, on three (3) Business Days or three (3) Working Days, as
applicable, prior irrevocable written notice to the Bank (which notice, to be
effective, must be received by the Bank not later than 10:00 a.m., New York City
time, on the third (3rd) Business Day or Working Date, as applicable, preceding
the date of any continuation or conversion), (i) to continue any Fixed Rate Loan
or portion thereof into a subsequent Interest Period (subject to availability)
or (ii) to convert any Fixed Rate Loan or portion thereof at the expiration of
an Interest Period with respect thereto into a Fixed Rate Loan of a different
type (subject to availability), and (iii) to convert a Prime Rate Loan into a
Fixed Rate Loan (subject to availability), subject to the following:
(a) no Event of Default shall have occurred and be continuing at the
time of any proposed conversion or continuation;
(b) in the case of a continuation or conversion of fewer than all
Loans, the aggregate principal amount of each Fixed Rate Loan continued or
converted shall be in the minimum amount of $500,000.00;
(c) each continuation or conversion shall be effected by the Bank
applying the proceeds of the new Loan to the Loan (or portion thereof) being
continued or converted;
(d) if the new Loan made as a result of a continuation or conversion
shall be a Fixed Rate Loan, the first Interest Period with respect thereto shall
commence on the date of continuation or conversion;
(e) each request for a Eurodollar Loan which shall fail to state an
applicable Interest Period shall be deemed to be a request for an Interest
Period of one month;
(f) unless sufficient Prime Rate Loans are outstanding or other Fixed
Rate Loans are outstanding with Interest Periods expiring prior to the next
scheduled installment payment of the Term Loan Note, and are sufficient to
enable the Company to make
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such installment payment, any Fixed Rate Loan, a portion of which is required to
be repaid on any such installment payment date shall be automatically converted
at the end of such Interest Period into a Prime Rate Loan;
(g) any request for a Match Rate Loan which shall fail to state an
Interest Period or which shall be made when such Loans are not available shall
be deemed to be a request for a Prime Rate Loan; and
(h) in the event that the Company shall not give notice to continue a
Fixed Rate Loan as provided above, such Loan shall automatically be converted
into a Prime Rate Loan at the expiration of the then current Interest Period.
2A.7 Use of Proceeds. The proceeds of the Term Loan shall be used by
the Company to (i) partially refinance existing indebtedness of $3,000,000.00 of
the Revolving Credit Loan; (ii) finance leasehold improvements to be made to 300
Oser Avenue, Hauppauge, New York and 145 Ricefield Lane, Hauppauge, New York;
(iii) partially finance the purchase of a packaging line; and (iv) replenish
approximately $250,000.00 of the Company's working capital utilized by the
Company in connection with the purchase of capital equipment. No part of the
proceed of the Term Loan will be used for any purpose which violates, or which
is inconsistent with, the provisions of Regulation G, T, U, or X.
2A.8 Voluntary Prepayment. (a) The Company shall have the right at any
time and from time to time to prepay any Prime Rate Loan, in whole or in part,
without premium or penalty on the same day on which telephonic notice is given
to the Bank (immediately confirmed in writing) of such prepayment provided,
however, that each such prepayment shall be on a Business Day and shall be in an
aggregate principal amount which is an integral multiple of $25,000.00.
(b) The Company shall have the right at any time and from time to time,
subject to the provisions hereof and of Section 2A.9, to prepay any Eurodollar
Loan, in whole or in part, on three (3) Business Days prior irrevocable written
notice to the Bank, provided, however, that such prepayment may only be made on
the last day of the applicable Interest Period and shall be in an aggregate
principal amount which is an integral multiple of $25,000.00.
(c) The Company shall have the right at any time and from time to time,
subject to the provisions hereof and of Section 2A.9, to prepay any Match Rate
Loan, in whole or in part upon at least three (3) Business Days prior
irrevocable written notice to the Bank; provided, however, that each such
prepayment shall be on a Business Day and shall be in an aggregate principal
amount which is an integral multiple of $25,000.00.
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(d) The notice of prepayment under this Section 2A.8 shall set forth
the prepayment date and the principal amount of the Loan being prepaid and shall
be irrevocable and shall commit the Company to prepay such Loan by the amount
and on the date stated therein. All prepayments shall be accompanied by accrued
interest on the principal amount being prepaid to the date of prepayment. Each
prepayment under this Section 2A.8 shall be applied first towards unpaid
interest on the amount being prepaid and then towards the principal in whole or
partial prepayment of Loans by the Company. In the absence of such
specification, amounts being prepaid shall be applied first to any Prime Rate
Loan then outstanding and then to Match Rate Loans in the order of the
expiration of their respective Interest Periods. Eurodollar Loans may be prepaid
only in accordance with the provisions of paragraph (b) above. All partial
prepayments of the Term Loan shall be applied to installments of principal in
the inverse order of maturity.
2A.9 Reimbursement by Company. (a) The Company shall reimburse the Bank
upon the Bank's demand for any loss incurred or to be incurred by it in the
reemployment of the funds released by any prepayment or conversion of any Match
Rate Loan required or permitted by this Agreement, if such Loan is prepaid or
converted (whether voluntarily or by acceleration) other than on the last day of
the Interest Period for such Loan, or if the Company fails to borrow the Match
Rate Loan (or is not able to borrow because of an Event of Default or for any
other reason hereunder) after having given the irrevocable notice provided by
Sections 2A.2 and 2A.6 of this Agreement. Such loss shall be the product of (i)
the difference as determined by the Bank between (x) the rate of interest
applicable to such Match Rate Loan being prepaid or converted for the remainder
of the Interest Period and (y) the rate of interest payable on United States
Treasury obligations in an amount and with a maturity similar to such Loan or
Loans times (ii) the aggregate amount of principal so prepaid or converted times
(iii) the number of days remaining in the applicable Interest Period divided by
360 days.
(b) The Company shall reimburse the Bank upon the Bank's demand for any
loss, cost or expense incurred or to be incurred by it (in the Bank's
determination) as a result of any prepayment or conversion (whether voluntarily
or by acceleration) of any Eurodollar Loan other than on the last day of the
Interest Period for such Loan, or if the Company fails to borrow the Eurodollar
Loan (or is not able to borrow because of an Event of Default or for any other
reason hereunder) after having given the irrevocable notice provided by Sections
2A.2 or 2A.6 of this Agreement. Such reimbursement shall include, but not be
limited to, any loss, cost or expense incurred by the Bank in obtaining,
liquidating or redeploying any funds used or to be used in making or maintaining
the Eurodollar Loan.
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2A.10 Requirements of Law. In the event that any law, regulation,
treaty or directive or any change therein or in the interpretation or
application thereof or compliance by the Bank with any request or directive
(whether or not having the force of law) from any central bank or other
governmental authority, agency or instrumentality:
(i) does or shall subject the Bank to any tax of any kind
whatsoever with respect to this Agreement, the Term Loan Note or the
Term Loan made hereunder, or change the basis of taxation of payments
to the Bank of principal, interest or any other amount payable
hereunder (except for changes in the rate of any tax presently imposed
on the Bank);
(ii) does or shall impose, modify or hold applicable any
reserve, special deposit, compulsory loan or similar requirement
against assets held by, or deposits or other liabilities in or for the
account of, advances or loans by, or other credit extended by, or any
other acquisition of funds by, any office of the Bank which are not
otherwise included in the determination of the Eurodollar Rate or Match
Funded Rate hereunder;
(iii) does or shall impose on the Bank any other condition;
and the result of any of the foregoing is to increase the cost to the Bank of
making, renewing or maintaining advances or extensions of credit to the Company
or to reduce any amount receivable from the Company thereunder then, in any such
case, the Company shall promptly pay to the Bank, upon its demand, any
additional amounts necessary to compensate the Bank for such additional cost or
reduced amount receivable which the Bank deems to be material as determined by
the Bank with respect to this Agreement, the Term Loan Note or the Term Loan
made hereunder. If the Bank becomes entitled to claim any additional amounts
pursuant to this Section 2A.10, it shall promptly notify the Company of the
event by reason of which it has become so entitled. A certificate setting forth
calculations as to any additional amounts payable pursuant to the foregoing
sentence submitted by the Bank to the Company shall be conclusive in the absence
of manifest error.
2A.11 Changes in Capital Requirements. If after the date hereof, the
Bank shall have determined that the adoption of any applicable law, rule or
regulation regarding capital adequacy, or any change therein, or any change in
the interpretation or administration thereof, by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by the Bank with any request or directive
regarding capital adequacy (whether or not having the force of law) of any such
authority, central bank or comparable agency, has or would have the effect of
reducing the rate of return
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on the Bank's capital as a consequence of its obligations hereunder to a level
below that which the Bank could have achieved but for such adoption, change or
compliance (taking into consideration the Bank's policies with respect to
capital adequacy) by an amount deemed by the Bank to be material, then from time
to time, within 15 days after demand by the Bank, the Company shall pay to the
Bank such additional amount or amounts as will compensate the Bank for such
reduction. The Bank will promptly notify the Company of any event of which it
has knowledge, occurring after the date hereof, which will entitle the Bank to
compensation pursuant to this Section 2A.11.
2A.12 Illegality. Notwithstanding any other provisions herein, if any
law, regulation, treaty or directive or any change therein or in the
interpretation or application thereof, shall make it unlawful for the Bank to
make or maintain Fixed Rate Loans as contemplated by this Agreement, (a) the
Bank's obligation hereunder to make Fixed Rate Loans or convert Prime Rate Loans
to Fixed Rate Loans shall forthwith be canceled and (b) loans then outstanding
as Fixed Rate Loans, if any, shall be converted to Prime Rate Loans on the last
day of the Interest Period applicable thereto or within such earlier period as
required by law. The Company hereby agrees to promptly pay to the Bank, upon its
demand, any amounts required by Section 2A.9 resulting from a prepayment of a
Fixed Rate Loan.
2A.13 Indemnification. The Company agrees to indemnify the Bank and to
hold the Bank harmless from any loss or expense which the Bank may sustain or
incur as a consequence of (i) default by the Company in payment when due of the
principal amount of or interest on any Fixed Rate Loan, (ii) default by the
Company in making a borrowing of, conversion into or continuation of Fixed Rate
Loans after the Company has given a notice requesting the same in accordance
with the provisions of this Agreement or (iii) default by the Company in making
any prepayment after the Company has given a notice thereof in accordance with
the provisions of this Agreement. This covenant shall survive the termination of
this Agreement and the payment of the Term Loan Note and all other amounts
payable hereunder.
2A.14 Inability to Determine Rate. If with respect to any Interest
Period pertaining to a Fixed Rate Loan, the Bank determines that extraordinary
circumstances affecting the relevant market make it impracticable to ascertain
the interest rate applicable for such Interest Period, the Bank shall promptly
notify the Company of such determination and no additional Fixed Rate Loans
shall be made nor shall there be any conversions thereto until such notice is
withdrawn. If any Fixed Rate Loan is outstanding on the date of such notice and
such notice has not been withdrawn on the last day of the then current Interest
Period applicable thereto, the Company may on the last day of such Interest
Period either convert such Fixed Rate Loan to a loan maintained at an alternate
rate of interest available hereunder or
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prepay the outstanding principal balance thereof and accrued interest thereon in
full.
2A.15 Authorization to Debit Company's Account. The Bank is hereby
authorized to debit the Company's account maintained with the Bank for (i) all
scheduled payments of principal and/or interest under the Term Loan Note, and
(ii) all other amounts due hereunder; all such debits to be made on the days
such payments are due in accordance with the terms hereof.
2A.16 Default Interest. Upon the occurrence and during the continuation
of a Default, the Company shall pay interest on all amounts owing under the Term
Loan Note and this Agreement (after as well as before judgment) at a rate per
annum (computed on the basis of the actual number of days elapsed over a year of
360 days) equal to two (2%) percent in excess of the interest rate otherwise in
effect hereunder.
2A.17 Payments. All payments by the Company hereunder or under the Term
Loan Note shall be made in U.S. dollars in immediately available funds at the
office of the Bank by 12:00 noon, New York City time on the date on which such
payment shall be due. Interest on the Term Loan Note shall accrue from and
including the date of each Loan to but excluding the date on which such Loan is
paid in full or refinanced with a Loan of a different type.
2A.18 Interest Adjustments. (a) If the provisions of this Agreement or
the Term Loan Note would at any time otherwise require payment by the Company to
the Bank of any amount of interest in excess of the maximum amount then
permitted by applicable law the interest payments shall be reduced to the extent
necessary so that the Bank shall not receive interest in excess of such maximum
amount. To the extent that, pursuant to the foregoing sentence, the Bank shall
receive interest payments hereunder or under the Term Loan Note in an amount
less than the amount otherwise provided, such deficit (hereinafter called the
"Interest Deficit") will cumulate and will be carried forward (without interest)
until the termination of this Agreement. Interest otherwise payable to the Bank
hereunder and under the Term Loan Note for any subsequent period shall be
increased by such maximum amount of the Interest Deficit that may be so added
without causing the Bank to receive interest in excess of the maximum amount
then permitted by applicable law.
(b) To the extent permitted by law, the amount of the Interest Deficit
shall be treated as a prepayment penalty and paid in full at the time of any
optional prepayment by the Company to the Bank of all or part of the Term Loan.
The amount of the Interest Deficit relating to the Term Loan Note on the
Maturity Date shall be cancelled and not paid.
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2A.19 Participations, Etc. The Bank shall have the right at any time,
with or without notice to the Company, to sell, assign, transfer or negotiate
all or any part of the Term Loan Note or grant participations therein to one or
more banks (foreign or domestic, including an affiliate of the Bank), insurance
companies or other financial institutions, pension funds or mutual funds. The
Company and the Guarantor agree and consent to the Bank providing financial and
other information regarding their business and operations to prospective
purchasers or participants and further agree that to the extent that the Bank
should sell, assign, transfer or negotiate all or any part of the Term Loan
Note, the Bank shall be forever released and discharged from its obligations
under the Term Loan Note and this Agreement to the extent same is sold,
assigned, transferred or negotiated. Nothing herein shall prevent the Bank from
pledging the Term Loan Note with a Federal Reserve Bank.
SECTION 3. CONDITIONS OF BORROWING
3.1 Conditions of Initial Revolving Credit Loan. The obligation of the
Bank to make the initial Revolving Credit Loan hereunder shall be subject to the
fulfillment of the following conditions precedent:
(a) Legal Opinion. There shall have been delivered to the Bank
on the date of such loan an opinion of Bernstein and Wasserman, Esqs.,
counsel to the Company, in form and substance satisfactory to the Bank,
dated the date of the initial loan, to the same effect as Sections 4.1,
4.2, 4.3 and 4.4 hereof and to the further effect that this Agreement,
the Revolving Credit Note, the Security Agreements, the Guaranties and
any other Loan Document have been duly authorized, executed and
delivered by a duly authorized officer of the Company and each
Guarantor and, assuming due authorization and execution by the Bank,
constitute valid obligations of the Company and the Guarantors, where
applicable, legally binding upon them and enforceable (except as may be
limited by any applicable bankruptcy, reorganization, insolvency,
moratorium or other similar laws affecting creditors' rights generally)
in accordance with their terms. The opinion shall also cover such other
matters incident to the matters contemplated by this Agreement as the
Bank shall reasonably require.
(b) Corporate Proceedings. The Company shall have furnished to
the Bank (in form and substance satisfactory to the Bank) (i) a copy,
certified by appropriate officers of the Company and the Guarantors on
the date of such loan, of the resolutions of the respective Boards of
Directors of the Company and the Guarantors authorizing all borrowings
herein provided for, the Guaranties, and the execution, delivery and
performance of this Agreement, the Revolving Credit Note, the Security
Agreement, the Guaranties and any other Loan
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Document, (ii) copies of the by-laws and the certificates of
incorporation of the Company and the Guarantors; (iii) copies of the
good standing certificates for the Company and the Guarantors from the
Secretary of State or equivalent officer of their respective states of
incorporation and of each state in which the conduct of the Company's
or such Guarantor's business requires qualification; and (iv) evidence
of the authority of the Persons executing the Loan Documents on behalf
of the Company and the Guarantors.
(c) Security Agreement. The Company and the Guarantors shall
have each executed and delivered to the Bank a security agreement in
form and substance satisfactory to the Bank and appropriate UCC
financing statements as reasonably requested by Bank.
(d) Intentionally omitted.
(e) Guaranties. The Guarantors shall each have executed and
delivered to the Bank its Guaranty.
(f) Customer List. The Company shall have delivered to the
Bank a copy of the Company's customer list, certified by the President
or Chief Financial Officer of the Company to be complete and accurate
as of a date reasonably acceptable to the Bank.
3.2 Conditions of All Revolving Credit Loans. The obligation of the
Bank to make all Revolving Credit Loans to be made by it hereunder shall be
subject to the following conditions precedent:
(a) Representations and Warranties; No Default. The
representations and warranties contained in Section 4 hereof shall be
true and correct on and as of the date of the making of such Loans, and
no Default or Event of Default or event which with the passage of time
or the giving of notice of both would constitute a Default or Event of
Default shall have occurred and be continuing on such date. Each
borrowing by the Company hereunder shall constitute a representation by
the Company as of the date of each such borrowing that the conditions
contained in the foregoing sentence have been satisfied.
(b) Legal Matters. All other instruments and legal and
corporate proceedings in connection with the transactions contemplated
by this Agreement shall be satisfactory in form and substance to the
Bank and its counsel, and counsel to the Bank shall have received
copies of all documents which it may have reasonably requested in
connection therewith.
3.3 Conditions of the Initial Drawdown of the Term Loan. The
obligation of the Bank to make the initial Drawdown of the Term
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Loan hereunder shall be subject to the fulfillment of the following conditions
precedent:
(a) Legal Opinion. There shall have been delivered to the Bank
on the date of this Agreement or the date of such initial Drawdown an
opinion of Bernstein and Wasserman, Esqs., counsel to the Company, in
form and substance satisfactory to the Bank, dated such date, to the
same effect as Sections 4.1, 4.2, 4.3 and 4.4 hereof and to the further
effect that this Agreement, the Term Loan Note, the Security
Agreements, the Guaranties and any other Loan Document have been duly
authorized, executed and delivered by a duly authorized officer of the
Company and each Guarantor and, assuming due authorization and
execution by the Bank, constitute valid obligations of the Company and
the Guarantors, where applicable, legally binding upon them and
enforceable (except as may be limited by any applicable bankruptcy,
reorganization, insolvency, moratorium or other similar laws affecting
creditors' rights generally) in accordance with their terms. The
opinion shall also cover such other matters incident to the matters
contemplated by this Agreement as the Bank shall reasonably require.
(b) Corporate Proceedings. The Company shall have furnished to
the Bank (in form and substance satisfactory to the Bank) (i) a copy,
certified by appropriate officers of the Company and the Guarantors on
such date, of the resolutions of the respective Boards of Directors of
the Company and the Guarantors authorizing all borrowings herein
provided for, the Guaranties, and the execution, delivery and
performance of this Agreement, the Term Loan Note, the Security
Agreements, the Guaranties and any other Loan Document, (ii) copies of
the by-laws and the certificates of incorporation of the Company and
the Guarantors; (iii) copies of the good standing certificates for the
Company and the Guarantors from the Secretary of State or equivalent
officer of their respective states of incorporation and of each state
in which the conduct of the Company's or such Guarantor's business
requires qualification; and (iv) evidence of the authority of the
Person executing the Loan Documents on behalf of the Company and the
Guarantors.
(c) Security Agreements. The Company and the Guarantors shall
have each executed and delivered to the Bank a security agreement in
form and substance satisfactory to the Bank and appropriate UCC
financing statements as reasonably requested by Bank.
(d) Guaranties. The Guarantors shall each have executed and
delivered to the Bank its Guaranty.
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(e) Customer List. The Company shall have delivered to the
Bank a copy of the Company's customer list, certified by the President
or Chief Financial Officer of the Company to be complete and accurate
as of a date reasonably acceptable to the Bank.
(f) Intentionally omitted.
(g) Personal Property Insurance. The Company shall have
delivered to the Bank evidence of property damage insurance acceptable
to the Bank covering the replacement value of all personal property of
the Company and the Guarantors, in an amount satisfactory to the Bank
and naming the Bank as "loss payee".
(h) Invoices, Bills and Contracts. The Company shall have
delivered copies of all invoices, bills, contracts and paid receipts in
connection with the capital expenditures and the leasehold improvements
to be purchased, made or refinanced with the proceeds of the initial
Drawdown of the Term Loan.
(i) Leases. The Bank shall have received and satisfactorily
reviewed all lease agreements entered into by the Company and the
Guarantors, including but not limited to, the lease agreement entered
into by the Company and Park Associates in connection with the leased
property located at 300 Oser Avenue, Hauppauge, New York.
(j) Amendment to Existing Term Loan. The Bank shall have
received a properly executed amendment to the Existing Term Loan
Agreement or other documentation satisfactory to the Bank which
conforms the covenants therein to those contained in Article V, Article
VI and Article VII herein.
(k) Quarterly Financial Statement. The Bank shall have
received the management prepared consolidated financial statement of
the Company for the three (3) month period ended February 28, 1995,
prepared in accordance with GAAP.
(l) Intentionally omitted.
(m) Representations and Warranties; No Default. The
representations and warranties contained in Section 4 hereof shall be
true and correct on and as of the date of this Agreement and as of each
Drawdown Date, and no Default or Event of Default or event which with
the passage of time or the giving of notice of both would constitute a
Default or Event of Default shall have occurred and be continuing on
any of such dates.
(n) Legal Matters. All other instruments and legal and
corporate proceedings in connection with the transactions
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contemplated by this Agreement, shall be satisfactory in form and
substance to the Bank and its counsel, and counsel to the Bank shall
have received copies of all documents which it may have reasonably
requested in connection therewith.
3.4 Conditions of all Drawdowns. The obligation of the Bank to make all
Drawdowns to be made by it hereunder shall be subject to the following
conditions precedent:
(a) Representations and Warranties; No Default. The
representations and warranties contained in Section 4 hereof shall be true and
correct on and as of the date of the making of such Drawdown, and no Default or
Event of Default or event which with the passage of time or the giving of notice
of both would constitute a Default or Event of Default shall have occurred and
be continuing on such date. Each request for a Drawdown by the Company hereunder
shall constitute a representation by the Company as of the date of each such
Drawdown that the conditions contained in the foregoing sentence have been
satisfied.
(b) Invoices. The Bank shall have received copies of invoices,
bills, contracts and paid receipts in connection with the capital expenditures
and the leasehold improvements to be purchased, made or refinanced with the
proceeds of the requested Drawdown.
(c) Legal Matters. All other instruments and legal and
corporate proceedings in connection with the transactions contemplated by this
Agreement shall be satisfactory in form and substance to the Bank and its
counsel, and counsel to the Bank shall have received copies of all documents
which it may have reasonably requested in connection therewith.
SECTION 4. REPRESENTATIONS AND WARRANTIES
In order to induce the Bank to enter into this Agreement and to make
the Loans herein provided for, the Company and the Guarantors hereby represent
and warrant to the Bank that:
4.1 Corporate Existence. The Company and the Guarantors are each duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and each has the corporate power to own its
assets and to transact the business in which it is presently engaged, and is
duly qualified as a foreign corporation and in good standing under the laws of
each jurisdiction in which failure to so qualify or be in good standing could
result in a Material Adverse Change in the Company or such Guarantor.
4.2 Corporate Power and Authorization. The Company and each Guarantor
have the corporate power, authority and legal right to make, deliver and perform
the Loan Documents to which it is a party
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and, with respect to the Company, to borrow hereunder and has taken all
necessary corporate action to authorize the borrowings hereunder and the
Guaranties on the terms and conditions of this Agreement, the Notes, and the
Guaranties. No consent of any other party (including stockholders of the Company
or the Guarantors), and no consent, license, approval or authorization of, or
registration or declaration with, any governmental authority, bureau or agency
is required in connection with the execution, delivery, performance, validity or
enforceability of the Loan Documents. The Loan Documents when delivered
hereunder will have been duly executed and delivered on behalf of the Company
and the Guarantors, as the case may be, and will be legal, valid and binding
obligations of the Company and the Guarantors, as the case may be, enforceable
against the Company or the Guarantors in accordance with their respective terms.
4.3 No Legal Bar to Loans. The execution, delivery and performance of
the Loan Documents will not violate any provision of any existing law or
regulation or of any order or decree of any court or governmental
instrumentality, or of the certificates of incorporation or by-laws of the
Company or the Guarantors, or of any mortgage, indenture, contract or other
agreement to which the Company or any of the Guarantors is a party or by which
the Company or any of the Guarantors or any of their property or assets may be
bound, and will not result in the creation or imposition of any Lien on any of
its properties pursuant to the provisions of such mortgage, indenture, contract
or other agreement.
4.4 No Material Litigation. Except as set forth on Schedule 4.4 hereto,
no litigation or administrative proceedings of or before any court, tribunal or
governmental body is presently pending, or, to the knowledge of the Company,
threatened against the Company or any of the Guarantors or any of its or their
properties or with respect to the Loan Documents which, if adversely determined,
could result in, in the opinion of the Company, a Material Adverse Change in the
Company or any of the Guarantors.
4.5 No Default. Except as set forth on Schedule 4.5 hereto, neither the
Company nor any of the Guarantors is in default in any material manner in the
payment or performance of any of their obligations or in the performance of any
contract, agreement or other instrument to which any of them is a party or by
which any of them or any of their assets may be bound, and no Default hereunder
has occurred and is continuing.
4.6 Ownership of Properties; Liens. The Company and each of the
Guarantors has good and marketable title to all of their properties and assets,
real and personal, and none of such properties and assets are subject to any
Lien except as permitted in Section 6.2 hereof and except as set forth on
Schedule 4.6 hereto.
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4.7 Taxes. The Company, each of the Guarantors and each Subsidiary has
filed or caused to be filed all tax returns which to the knowledge of the
Company are required to be filed, and has paid all taxes shown to be due and
payable on said returns or on any assessments made against them (other than
those being contested in good faith by appropriate proceedings for which
adequate reserves have been provided on the books of the Company, such Guarantor
or such Subsidiary, as the case may be), and no tax liens have been filed and,
to the best of the knowledge of the Company, no claims are being asserted with
respect to any taxes.
4.8 Financial Condition. The consolidated balance sheet of the Company
and its Subsidiaries as of November 30, 1994 and the related statements of
income and retained earnings for the fiscal year ended on said date, certified
by independent certified public accountants, heretofore furnished to the Bank,
and the consolidated balance sheet of the Company and its Subsidiaries as of
February 28, 1995, and the related statements of income and retained earnings
for the fiscal quarter ended on such date, heretofore furnished to the Bank,
each present fairly the financial condition of the Company and its Subsidiaries
as at the dates of said balance sheets, and the results of their operations for
such periods. All such financial statements have been prepared in accordance
with GAAP and since the date of the annual financial statement mentioned above,
there has been no Material Adverse Change in the Company or any of the
Guarantors from that shown by said statement as of said date and since the date
of the quarterly financial statement mentioned above, there has been no material
increase in liabilities of the Company and its Subsidiaries. Neither the Company
nor any of the Guarantors has any material obligation, liability or commitment,
direct or contingent, which is not reflected in the foregoing financial
statements (and the related notes thereto) as of said dates.
4.9 Filing of Statements and Reports. The Company and each of the
Guarantors have filed copies of all material statements and reports which, to
the knowledge of the Company or each of the Guarantors, are required to be filed
with any governmental authority, agency, commission, board or bureau.
4.10 ERISA. The Company, each of the Guarantors, each Subsidiary and
each ERISA Affiliate are in compliance in all material respects with all
applicable provisions of ERISA. Neither a Reportable Event nor a Prohibited
Transaction has occurred and is continuing with respect to any Plan; no notice
of intent to terminate a Plan has been filed nor has any Plan been terminated;
no circumstances exist which constitute grounds under Section 4042 of ERISA
entitling the PBGC to institute proceedings to terminate, or appoint a trustee
to administrate, a Plan, nor has the PBGC instituted any such proceedings;
neither the Company, any of the Guarantors, any Subsidiary, nor any ERISA
Affiliate has completely or partially withdrawn under Sections 4201 or 4204 of
ERISA from a
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Multiemployer Plan; the Company, each of the Guarantors, each Subsidiary and
each ERISA Affiliate have met their minimum funding requirements under ERISA
with respect to all of their Plans and the present fair market value of all Plan
assets exceeds the present value of all vested benefits under each Plan, as
determined on the most recent valuation date of the Plan in accordance with the
provisions of ERISA for calculating the potential liability of the Company, each
of the Guarantors, any Subsidiary or any ERISA Affiliate to PBGC or the Plan
under Title IV of ERISA; and neither the Company, any of the Guarantors, any
Subsidiary nor any ERISA Affiliate has incurred any liability to the PBGC under
ERISA.
4.11 Environmental Matters. The Company, each of the Guarantors and
each Subsidiary are in compliance with all federal, state or local laws,
ordinances, rules, regulations or policies governing Hazardous Materials and
neither the Company, any Guarantor nor any Subsidiary has used Hazardous
Materials on, from, or affecting any property now owned or occupied or hereafter
owned or occupied by the Company, any Guarantor or any Subsidiary in any manner
which violates federal, state or local laws, ordinances, rules, regulations or
policies governing the use, storage, treatment, transportation, manufacture,
refinement, handling, production or disposal of Hazardous Materials, and that to
the best of the Company's, Guarantors' and Subsidiaries' knowledge, no prior
owner of any such property or any tenant, subtenant, prior tenant or prior
subtenant have used Hazardous Materials on, from or affecting such property in
any manner which violates federal, state or local laws, ordinances, rules,
regulations, or policies governing the use, storage, treatment, transportation,
manufacture, refinement, handling, production or disposal of Hazardous
Materials.
4.12 Licenses, Permits, etc. The Company, each of the Guarantors and
each Subsidiary possess all licenses, permits, franchises, patents, copyrights,
trademarks and trade names, or rights thereto, to conduct their respective
businesses substantially as now conducted and as presently proposed to be
conducted, and neither the Company, any of the Guarantors nor any Subsidiary are
in violation of any similar rights of others.
4.13 Material Agreements. Neither the Company nor any of the Guarantors
is a party to any indenture, loan or credit agreement or any other agreement,
lease or instrument or subject to any charter or corporate restriction the
violation of which could result in a Material Adverse Change in the Company or
such Guarantor.
4.14 Margin Credit. The Company is not engaged in the business of
extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulation U), and no proceeds of any Loan will be used to
purchase or carry any margin stock or to extend credit to others for the purpose
of purchasing or
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carrying any margin stock or in any other way which will cause the Company to
violate the provisions of Regulations G, T, U or X.
4.15 Use of Proceeds. The proceeds of each Loan shall be used for the
purposes set forth in Section 2.13 and Section 2A.7 of this Agreement.
4.16 Properties Affected. Neither the business nor the properties of
the Company, any of the Guarantors or any Subsidiary are affected by any fire,
explosion, accident, strike, hail, earthquake, embargo, act of God or of the
public enemy, or other casualty (whether or not covered by insurance), which
could result in a Material Adverse Change in the Company, such Guarantor or any
Subsidiary.
4.17 Guarantors. The liability of each Guarantor as a result of the
execution of its Guaranty and the execution of this Agreement shall not cause
the liabilities (including contingent liabilities) of such Guarantor to exceed
the fair saleable value of its assets. Each Guarantor acknowledges it has
derived or expects to derive a financial or other advantage from the Loans
obtained by the Company from the Bank.
4.18 Subsidiaries. As of the date hereof, the Guarantors and
Futurebiotics, Inc. are the only existing Subsidiaries of the
Company.
SECTION 5. AFFIRMATIVE COVENANTS
The Company and each of the Guarantors hereby covenant that so long as
the Notes remain outstanding and unpaid or so long as the Commitment remains
unterminated, the Company and each of the Guarantors will, and shall cause any
Subsidiary to, unless otherwise consented to in writing by the Bank:
5.1 Financial Statements. Furnish to the Bank:
(a) as soon as available, but in any event not later than 120
days after the close of each fiscal year of the Company, a copy of the
annual audit report for such fiscal year of the Company and its
Subsidiaries, including therein the consolidated and consolidating
balance sheets of the Company and its Subsidiaries as at the end of
such fiscal year, and related consolidated and consolidating statements
of income and retained earnings of the Company and its Subsidiaries for
such fiscal year, setting forth in each case in comparative form the
corresponding figures for the preceding fiscal period, all in
reasonable detail, prepared in accordance with GAAP, such consolidated
financial statements being certified by independent certified public
accountants of recognized standing selected by the Company and
acceptable to
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the Bank and such consolidating financial statements being prepared by
the chief financial officer of the Company;
(b) as soon as available, but in any event not later than 60
days after the end of each of the first three quarterly periods of each
fiscal year of the Company, the Company's 10Q reports for such fiscal
quarter;
(c) concurrently with the delivery of the financial statements
referred to in clause (a) above, a certificate of such independent
certified public accountants stating that in making the examination
necessary for certifying such financial statements no knowledge was
obtained of any Events of Default or Defaults hereunder, except as
specifically indicated;
(d) concurrently with the delivery of the financial statements
referred to in clauses (a) and (b) above, a certificate of the chief
financial officer of the Company stating that, to the best of his
knowledge, the Company during such period has kept, observed, performed
and fulfilled each and every covenant and condition contained in this
Agreement and in the Notes and that he has obtained no knowledge of any
Events of Default or Defaults hereunder except as specifically
indicated, with computations evidencing compliance with the covenants
set forth in Sections 6.10, 6.11 and 6.12;
(e) promptly after the same are sent, copies of all financial
statements and reports which the Company sends to its stockholders, and
promptly after the same are filed, copies of all financial statements
and reports which the Company may make to, or file with, any
governmental authority, agency, commission, board or bureau;
(f) as soon as possible and in any event within 30 days after
the Company knows or has reason to know of the following events: (i)
the occurrence or expected occurrence of any Reportable Event with
respect to any Plan or any withdrawal from, or the termination,
Reorganization or Insolvency of, any Multiemployer Plan or (ii) the
institution of proceedings or the taking of any other action by the
PBGC, the Company or any Commonly Controlled Entity, or any
Multiemployer Plan with respect to the withdrawal from, or the
terminating, Reorganization or Insolvency of, any Plan the Company
shall deliver to the Bank a certificate of the chief financial officer
of the Company setting forth the details thereof and the action the
Company or the Commonly Controlled Entity proposes to take with respect
thereto;
(g) within 30 days of the expiration date of each policy,
updated copies of all insurance coverage binders; and
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(h) promptly upon receipt thereof, copies of any reports
submitted to the Company or any of the Guarantors by independent
certified public accountants in connection with examination of the
financial statements of the Company and its Subsidiaries made by such
accountants;
(i) promptly after the furnishing thereof, copies of any
statement or report furnished to any other party pursuant to the terms
of any indenture, loan, or credit or similar agreement and not
otherwise required to be furnished to the Bank pursuant to any other
clause of this Section 5.1;
(j) no later than 30 days after the end of each fiscal quarter
of the Company, an accounts receivable aging schedule, in form and
substance satisfactory to the Bank;
(k) promptly, copies of all financial, legal or other
information and/or documentation as the Bank may require pertaining to
any acquisitions permitted under Section 6.5(d) of this Agreement in
excess of $500,000; and
(l) promptly, such additional financial and other information
as the Bank may from time to time reasonably request;
5.2 Payment and Performance of Obligations. Perform and comply with
each of the provisions of each and every agreement of which the failure to
perform or comply could result in a Material Adverse Change in the Company or
any of the Guarantors. Pay and discharge, and cause their Subsidiaries to pay
and discharge, at or before maturity all of their respective obligations and
liabilities, including without limitation tax liabilities, except where the same
may be contested in good faith, and maintain, in accordance with GAAP,
appropriate reserves for the accrual of any of the same.
5.3 Maintenance of Properties; Insurance. Keep, and cause their
Subsidiaries to keep, all properties useful and necessary in the business of the
Company, the Guarantors and their Subsidiaries in good working order and
condition; maintain, and cause their Subsidiaries to maintain, with financially
sound and reputable insurance companies, insurance on all their properties in
such amounts as are proper in accordance with sound business practices against
such risks as are usually insured against in the same general area and by
companies engaged in the same or a similar business, including but without
limitation, product liability insurance in an aggregate amount not less than (i)
$5,000,000.00 at any time, such insurance to be in form and substance
satisfactory to the Bank; pay, and cause their Subsidiaries to pay, all
insurance premiums, and, upon written request, any other information as to the
insurance carried.
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5.4 Notices. Promptly give notice in writing to the Bank of (a) the
occurrence of any Default under this Agreement or of any default under any
material instrument or other agreement of the Company, any of the Guarantors or
any Subsidiary, (b) any litigation, proceeding, investigation or dispute which
may exist at any time between the Company, any of the Guarantors or any
Subsidiary and any governmental regulatory body which could result in a Material
Adverse Change in the Company, any of the Guarantors or any Subsidiary, (c) all
litigation and proceedings affecting the Company, any of the Guarantors or any
Subsidiary in which the amount involved is $50,000 in excess of applicable
insurance coverage or in which injunctive or similar relief is sought, and (d)
the Company or any of the Guarantors establishing or contributing to any Plan.
5.5 Conduct of Business and Maintenance of Existence. Continue, and
cause their Subsidiaries to continue, to engage in business of the same general
type as now conducted by the Company, the Guarantors and their Subsidiaries, and
preserve, renew and keep in full force and effect their corporate existence and
take all reasonable action to maintain their rights, privileges and franchises
necessary or desirable in the normal conduct of business; provided that nothing
herein contained shall prevent the Company, the Guarantors or any Subsidiary
from discontinuing a part of its business which is not a substantial part of the
business of the Company, such Guarantor or such Subsidiary if such
discontinuance is in the opinion of the Board of Directors of the Company in the
interest of the Company, such Guarantor or Subsidiary, and not disadvantageous
to the Bank.
5.6 Inspection of Property, Books and Records. Permit, and cause their
Subsidiaries to permit, any representatives of the Bank to (a) visit and inspect
any of their respective properties, (b) conduct an environmental audit of any of
their respective properties and (c) except as otherwise provided in the Security
Agreement with respect to Customer Lists (as defined in the Security Agreement),
examine and make abstracts from any of the books and records of the Company, any
of the Guarantors and any Subsidiary at any reasonable time during normal
business hours and as often as may reasonably be desired.
5.7 Hazardous Material. The Company, each of the Guarantors and each
Subsidiary shall not cause or permit any property owned or occupied by the
Company, the Guarantors or any Subsidiary to be used to generate, manufacture,
refine, transport, treat, store, handle, dispose, transfer, produce or process
Hazardous Materials, except in compliance with all applicable federal, state and
local laws or regulations nor shall the Company, the Guarantors or any
Subsidiary cause or permit, as a result of any intentional or unintentional act
or omission on the part of the Company, any of the Guarantors or any Subsidiary
or any tenant or subtenant, a release of Hazardous Materials onto any property
owned or occupied
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by the Company, the Guarantors or any Subsidiary or onto any other property. The
Company, each of the Guarantors and each Subsidiary shall comply with all
applicable federal, state and local laws, ordinances, rules and regulations,
whenever and by whomever triggered, and shall obtain and comply with, any and
all approvals, registrations or permits required thereunder. The Company and
each of the Guarantors shall execute any documentation required by the Bank in
connection with the covenants contained herein. The Company and each of the
Guarantors shall indemnify the Bank against any liability, loss, cost, damage or
expense (including, without limitation, reasonable attorneys' fees) arising from
(a) the imposition or recording of a Lien by any local, state, or federal
governments or governmental agency or authority pursuant to any federal, state
or local statute or regulation relating to Hazardous Materials or the removal
thereof; (b) claims of any private parties regarding violations of laws
regulating Hazardous Materials; and (c) costs and expenses (including, without
limitation, reasonable attorneys' fees and fees incidental to the securing of
repayment of such costs and expenses) incurred by the Company, any of the
Guarantors, a Subsidiary or the Bank in connection with the removal of any such
Lien or in connection with compliance by the Company, any of the Guarantors, a
Subsidiary or the Bank with any statute, regulation or order regulating
Hazardous Materials.
5.8 Subsidiary Guarantees. Cause any Subsidiary of the
Company or any Guarantor hereafter formed to execute and deliver to
the Bank a guarantee substantially in the form of Exhibit C hereto.
5.9 Pension Funding. Comply with the following and cause each ERISA
Affiliate of the Company, each Guarantor or any Subsidiary to comply with the
following:
(i) engage solely in transactions which would not subject any
of such entities to either a civil penalty assessed pursuant to Section
502(i) of ERISA or a tax imposed by Section 4975 of the Internal
Revenue Code in either case in an amount in excess of $25,000.00;
(ii) make full payment when due of all amounts which, under
the provisions of any Plan or ERISA, the Company, either of any
Guarantors, any Subsidiary or any ERISA Affiliate of any of same is
required to pay as contributions thereto;
(iii) all applicable provisions of the Internal Revenue Code
and the regulations promulgated thereunder, including but not limited
to Section 412 thereof, and all applicable rules, regulations and
interpretations of the Accounting Principles Board and the Financial
Accounting Standards Board;
(iv) not fail to make any payments in an aggregate amount
greater than $25,000.00 to any Multiemployer Plan that the Company, any
of the Guarantors, any Subsidiary or any ERISA
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Affiliate may be required to make under any agreement relating
to such Multiemployer Plan, or any law pertaining thereto; or
(v) not take any action regarding any Plan which could result
in the occurrence of a Prohibited Transaction.
5.10 Good Standing Certificate. Deliver to the Bank, within twenty (20)
days of the date of this Agreement, a good standing certificate for C&C
Enterprises, Inc. from the State of Delaware.
SECTION 6. NEGATIVE COVENANTS
The Company and each of the Guarantors hereby covenant that so long as
the Notes remain outstanding and unpaid or so long as the Commitment remains
unterminated, neither the Company nor any of the Guarantors will, nor will they
permit any Subsidiary to, directly or indirectly, without the prior written
consent of the Bank:
6.1 Limitation on Indebtedness. Create, incur, assume or suffer to
exist, any Consolidated Indebtedness, except (a) the Notes; (b) accounts payable
(other than for borrowed money) incurred in the ordinary course of business as
presently conducted, provided that the same shall not be overdue or, if overdue,
are being contested in good faith and by appropriate proceedings; (c)
indebtedness between Guarantors and between a Guarantor and the Company; (d)
other indebtedness owing by the Company, any Guarantor or any Subsidiary on the
date of this Agreement and which was reflected in the balance sheet referred to
in Section 4.8 hereof provided same is not extended, renewed or refinanced; (e)
Subordinated Debt; (f) other borrowings from the Bank; (g) indebtedness which
constitutes the deferred purchase price of any property or assets, not in excess
of $250,000.00 in any fiscal year of the Company (computed on a non-cumulative
basis), (h) purchase money indebtedness incurred to finance specific Capital
Expenditures, subject to the limitations of Section 6.2(g) of this Agreement
with respect to purchase money mortgages and purchase money security interests;
and (i) indebtedness resulting from notes issued by the Company in connection
with and subject to the limitations of Section 6.5(d) of this Agreement,
provided, however, that said indebtedness shall not exceed $6,000,000.00 in the
aggregate at any time.
6.2 Limitation on Liens. Create, incur, assume or suffer to exist, any
Lien of any kind upon any of their property or assets, income or profits,
whether now owned or hereafter acquired, except (a) the Liens existing as of the
date of this Agreement referred to in the financial statements referred to in
Section 4.8 hereof, provided, however, that such Liens are not spread to cover
other or additional indebtedness or property of the Company, any Guarantor or
any Subsidiary; (b) Liens for taxes not yet due or which are being contested in
good faith and by appropriate proceedings if adequate reserves with respect
thereto are maintained on the books
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of the Company, a Guarantor or a Subsidiary, as the case may be, in accordance
with GAAP; (c) carriers', warehousemen's, mechanics', materialmen's, repairmen's
or other like Liens arising in the ordinary course of business for sums which
are not overdue for a period of more than 45 days or which are being contested
in good faith and by appropriate proceedings; (d) pledges or deposits in
connection with worker's compensation, unemployment insurance and other social
security legislation; (e) deposits to secure the performance of bids, trade
contracts (other than for borrowed money), leases, statutory obligations, surety
and appeal bonds, performance bonds and other obligations of a like nature
incurred in the ordinary course of business; (f) easements, rights-of-way,
restrictions and other similar encumbrances incurred in the ordinary course of
business which, in the aggregate, are not substantial in amount, and which do
not in any case materially detract from the value of the property subject
thereto or interfere with the ordinary conduct of the business of the Company, a
Guarantor or a Subsidiary; (g) Liens covering real or personal property in
existence at the time of acquisition thereof by the Company, a Guarantor or a
Subsidiary, and purchase money mortgages and purchase money security interests
(including the Lien or retained security title of a conditional vendor) covering
real or personal property hereafter acquired by the Company, a Guarantor or a
Subsidiary in the ordinary course of business, provided such Lien shall not
exceed 100% of the purchase price of the property so encumbered and no such Lien
covers, or is extended to cover, any other property owned by the Company, a
Guarantor or a Subsidiary; (h) Liens in favor of the Bank; and (i) Liens granted
in connection with Section 6.1(i), provided, however, that said Liens are
granted solely on customer lists hereafter acquired by the Company and do not
exceed a value of $6,000,000.00 in the aggregate during the term of this
Agreement.
6.3 Limitation on Contingent Obligations. Assume, guarantee, indorse or
otherwise in any way be or become responsible or liable for the obligations of
any Person (all such transactions being herein called "guarantees"), whether by
agreement to purchase or repurchase obligations, or by agreement to supply funds
for the purpose of paying, or enabling such entity to pay, any obligations
(whether through purchasing stock, making a loan, advance or capital
contributions or by means or agreeing to maintain or cause such Person to
maintain, a minimum working capital or net worth of any such Person, or
otherwise) in an aggregate amount exceeding $1,000,000.00, provided, however,
that the aggregate amount permitted under this Section 6.3 and Section 6.5(e) of
this Agreement shall not exceed $1,000,000.00 with respect to any one Person and
$1,500,000.00 in the aggregate at any time, except (a) guarantees by indorsement
of instruments for deposit or collection in the ordinary course of business, and
(b) guarantees in respect of indebtedness of Subsidiaries, provided that the
indebtedness in respect of which such guarantees are given is permitted by
subsection 6.1 hereof; and guarantees in favor of the Bank.
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6.4 Prohibition of Fundamental Changes. Enter into any transaction of
merger or consolidation or liquidate or dissolve itself (or suffer any
liquidation or dissolution) or convey, sell, lease, transfer or otherwise
dispose of, in one transaction or a series of related transactions, all or a
substantial part of its property, business, or assets, including its accounts
receivable, or stock or securities convertible into stock of any Subsidiary, or
make any material change in the present method of conducting business, except
that: (a) any Guarantor may be merged into, or consolidated with, the Company
(provided that the Company shall be the continuing or surviving corporation) or
with any one or more Guarantors and (b) any Subsidiary may sell, lease, transfer
or otherwise dispose of any of its assets to the Company.
6.5 Limitation on Investments, Loans and Advances. Make or suffer to
exist any advances or loans to, or Investments (by way of transfers of property,
contributions to capital, acquisitions of stock, or securities or evidences of
indebtedness, acquisitions of businesses or acquisitions of assets other than in
the ordinary course of business, or otherwise), in, any Person except (a)
Investments in certificates of deposit issued by any domestic commercial bank
with a capital and surplus of at least $250,000,000.00 provided, however, that
such certificates of deposit shall have a maturity of one year or less from the
date of purchase; (b) investments in direct obligations of the United States of
America or any agency thereof, or marketable obligations directly and fully
guaranteed by the United States of America, provided, however, that any such
obligations shall have a maturity of five years or less from the date of
acquisition; (c) investments in money market mutual funds having assets in
excess of $2,500,000,000.00; (d) investments in commercial paper, provided,
however, that any such commercial paper shall have a maturity of one year or
less from the date of acquisition and shall be rated at least "A-1" or the
equivalent thereof by Standard & Poors Corporation (or has a similar rating by
any similar organization which rates commercial paper); (e) investments in
repurchase obligations with a term of not more than seven days for underlying
securities of the type described in clause (b); (f) stock or obligations issued
in settlement of claims against any other Person by reason of any event of
bankruptcy or composition or readjustment of debt or reorganization of any
debtor of the Company, any Guarantor or any Subsidiary; (g) purchases or
acquisitions of the stock or assets of companies in the similar type of business
as the Company and which after giving effect to the acquisition thereof, the
nature and scope of the Company's business shall not have been materially
changed, provided, however, (i) that all such purchases shall not exceed
$6,000,000 in the aggregate during any fiscal year of the Company, and (ii) that
the purchase price of any given acquisition does not exceed $5,000,000.00 and
that not more than $5,000,000.00 of the purchase price for all such acquisitions
in
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the aggregate during any fiscal year of the Company shall be paid in cash; (h)
loans and advances to any other Person not to exceed $1,500,000.00, provided,
however, that the aggregate amount permitted under this Section 6.5(h) and
6.5(k) and Section 6.3 of this Agreement shall not exceed $1,500,000.00 with
respect to any one Person and $2,500,000.00 in the aggregate at any time, and
further provided however that the Company may make loans or advances to
Futurebiotics, Inc. ("Future") in amounts not to exceed $1,500,000.00 provided
that if (i) any such loan or advance to Future causes the aggregate of all loans
or advances made hereunder to exceed $4,000,000.00, or (ii) the aggregate
amounts of all loans made by the Company and Future exceeds $5,500,000.00,
Future shall become a Guarantor of all obligations of the Company to the Bank
and the Company shall become a Guarantor of all obligations of Future to the
Bank; (i) loans or advances to a Guarantor; (j) purchases of securities publicly
traded on a national exchange in an aggregate amount not to exceed $250,000.00;
(k) any other Investments in any Person(s) not to exceed $1,000,000.00,
provided, however, that the aggregate amount permitted under this Section 6.5(k)
and 6.5(h) and Section 6.3 of this Agreement shall not exceed $1,000,000.00 with
respect to any one Person and $1,750,000.00 in the aggregate at any time; and
(l) tax exempt securities rated A or better by Standard & Poors or Moody's
Investors Service.
6.6 Prohibition of Certain Prepayments. Make any prepayment of
principal of any debt, with a maturity of more than one year, for borrowed money
(except the Notes and the Existing Term Loan Note) or for the deferred purchase
price of property or services, except (i) at the stated maturity of such debt,
(ii) as required by mandatory prepayment provisions relating thereto (subject to
any subordination provisions applicable thereto), and (iii) with respect to
existing loans made by the Bank to the Company, according to the terms of said
loans.
6.7 Limitation on Leases. Enter into any agreement, or be or become
liable under any agreement, for the lease, hire or use of any personal property
(other than the presently outstanding lease for the Company's headquarters in
Hauppauge, New York, provided that such lease is not amended, modified or
supplemented) which would cause the aggregate maximum amount of all obligations
of the Company, the Guarantors and their Subsidiaries pursuant to such
agreements in any fiscal year of the Company to exceed $500,000. This provision
shall not apply to Capital Leases.
6.8 Sale and Leaseback. Enter into any arrangement with any person
whereby the Company, any Guarantor or any Subsidiary shall sell or transfer any
property, real or personal, whether now owned or hereafter acquired, and
thereafter rent or lease such property or other property which the Company, such
Guarantor or such Subsidiary intends to use for substantially the same purpose
or purposes as the property being sold or transferred.
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6.9 Prohibitions Regarding Subordinated Debt. Make any optional
prepayment of, or purchase, redeem or otherwise acquire, or amend any provision
pertaining to the subordination or the terms of payment of, any Subordinated
Debt.
6.10 Maintenance of Consolidated Indebtedness to Consolidated Tangible
Net Worth Ratio. Permit the ratio of Consolidated Indebtedness to Consolidated
Tangible Net Worth to exceed 1.0 to 1.0 at any time.
6.11 Maintenance of Consolidated Coverage Ratio. Permit the
Consolidated Coverage Ratio to fall below 1.25 to 1.00 at any time.
6.12 Consolidated Net Income. Permit Consolidated Net Income (excluding
extraordinary gains) to be less than $250,000 in any fiscal year.
6.13 Transactions with Affiliates. Enter into any transaction,
including, without limitation, the purchase, sale, or exchange of property or
the rendering of any service, with any Affiliate, except in the ordinary course
of business and pursuant to the reasonable requirements of the Company's or a
Guarantor's business and upon fair and reasonable terms no less favorable to the
Company or a Guarantor than would obtain in a comparable arm's length
transaction with a Person not an Affiliate.
6.14 Management. Fail to retain Michael B. Krasnoff in a reasonably
active full time capacity in the management of the Company.
6.15 Change in Control. At any time from the date hereof (i) a majority
of the members of the Board of Directors of the Company have been elected,
having been nominated other than by the management or preceding Board of
Directors or (ii) fail or cease to maintain the voting control by the Company of
such classes of voting stock of Futurebiotics, Inc. which at all times will
entitle the holder thereof to elect a majority of the members of the Board of
Directors of Futurebiotics, Inc..
SECTION 7. EVENTS OF DEFAULT
7.1 Events of Default
Upon the occurrence of any of the following:
(a) failure by the Company to pay the principal of or any
installment of the principal of the Notes when due, or failure to pay
any interest on the Notes or any commitment fee or any other amount
owing hereunder or under the Security Agreement within five days after
any such interest or commitment fee becomes due;
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(b) if any representation or warranty made by the Company or
any Guarantor in this Agreement, any other Loan Document or in any
certificate, financial or other statement furnished at any time under
or in connection with this Agreement shall prove to have been untrue or
misleading in any material respect;
(c) default by the Company or any Guarantor in an observance
or performance of any of the covenants or agreements contained in
Section 6 of this Agreement, in any other Loan Document or in any other
document delivered to the Bank in connection herewith;
(d) default by the Company or any Guarantor in the observance
or performance of any other covenant or agreement contained in this
Agreement, and the continuance of the same for 30 days after the
earlier of (i) the Company having knowledge of such default or (ii)
notice of such default is given to the Company by the Bank;
(e) if the Company, any Guarantor or any Subsidiary shall (i)
default in the payment of principal or interest on any obligation in
excess of $100,000 for borrowed money (other than the Notes), or for
the deferred purchase price of property, beyond the period of grace, if
any, provided with respect thereto or (ii) default in the performance
or observance of any other term, condition or agreement contained in
any such obligation or in any agreement relating thereto if the effect
thereof is to cause, or permit the holder or holders of such obligation
(or a trustee on behalf of such holder or holders) to cause, such
obligation to become due prior to its stated maturity;
(f) (i) the Company, any Guarantor or any of their
Subsidiaries shall commence any case, proceeding or other action (A)
under any existing or future law of any jurisdiction, domestic or
foreign, relating to bankruptcy, insolvency, reorganization or relief
of debtors, seeking to have an order for relief entered with respect to
it, or seeking to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, liquidation, dissolution,
composition or other relief with respect to it or its debts, or (B)
seeking appointment of a receiver, trustee, custodian or other similar
official for it or for all or any substantial part of its property, or
the Company, any Guarantor or any of their Subsidiaries shall make a
general assignment for the benefit of its creditors; or (ii) there
shall be commenced against the Company, any Guarantor or any of their
Subsidiaries any case, proceeding or other action of a nature referred
to in clause (i) above or seeking issuance of a warrant of attachment,
execution, distraint or similar process against all or any substantial
part of its property,
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<PAGE>
which case, proceeding or other action (x) results in the entry of an
order for relief or (y) remains undismissed, undischarged or unbonded
for a period of 60 days; or (iii) the Company, any Guarantor or any of
their Subsidiaries shall take any action indicating its consent to,
approval of, or acquiescence in, or in furtherance of, any of the acts
set forth in clause (i) or (ii) above; or (iv) the Company, any
Guarantor or any of their Subsidiaries shall generally not, or shall be
unable to, pay its debts as they become due or shall admit in writing
its inability to pay its debts;
(g) (i) any Person shall engage in any "prohibited
transaction" (as defined in Section 406 or ERISA or Section 4975 of the
Code) involving any Plan, (ii) any "accumulated funding deficiency" (as
defined in Section 302 of ERISA), whether or not waived, shall exist
with respect to any Plan, (iii) a Reportable Event shall occur with
respect to, or proceedings shall commence to have a trustee appointed,
or a trustee shall be appointed, to administer or to terminate, any
Single Employer Plan, which Reportable Event or commencement of
proceedings or appointment of a trustee is, in the reasonable opinion
of the Bank, likely to result in the termination of such Plan for
purposes of Title IV of ERISA, (iv) any Single Employer Plan shall
terminate for purposes of Title IV of ERISA, (v) the Company or any
Commonly Controlled Entity shall, or is, in the reasonable opinion of
the Bank, likely to, incur any liability in connection with a
withdrawal from, or the Insolvency or Reorganization of, a
Multiemployer Plan or (vi) any other event or condition shall occur or
exist with respect to a Plan; and in each case in clauses (i) through
(vi) above, such event or condition, together with all other such
events or conditions, if any, could subject the Company or any of its
Subsidiaries to any tax, penalty or other liabilities in the aggregate
material in relation to the business, operations, property or financial
or other condition of the Company or any of its Subsidiaries;
(h) default by any Guarantor upon its guarantee pursuant to
the terms thereof or if such guarantee shall cease to be in full force
and effect or shall be declared to be null and void, or the validity or
enforceability thereof shall be contested by any such Guarantor or such
party shall deny that it has any further liability to the Bank with
respect thereto; or
(i) final judgment for payment of money in excess of
$50,000.00 shall be rendered against the Company, any Guarantor or any
Subsidiary, and the same shall remain undischarged for a period of 30
days during which execution of such judgment shall not be effectively
stayed.
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7.2 Remedies on Default. Upon the occurrence and continuance of an
Event of Default the Bank may by notice to the Company, (i) terminate the
Commitment, (ii) declare the Notes, all interest thereon and all other amounts
payable under this Agreement to be forthwith due and payable, whereupon the
Notes, all such interest and all such amounts shall become and be forthwith due
and payable, without presentment, demand, protest or further notice of any kind,
all of which are hereby expressly waived by the Company and (iii) proceed to
enforce its rights whether by suit in equity or by action at law, whether for
specific performance of any covenant or agreement contained in this Agreement or
any Loan Document, or in aid of the exercise of any power granted in either this
Agreement or any Loan Document or proceed to obtain judgment or any other relief
whatsoever appropriate to the enforcement of its rights, or proceed to enforce
any other legal or equitable right which the Bank may have by reason of the
occurrence of any Event of Default hereunder or under any Loan Document,
provided, however, that upon the occurrence of an Event of Default referred to
in Section 7.1(f), the Commitment shall be automatically terminated, the Notes,
all interest thereon and all other amounts payable under this Agreement shall be
immediately due and payable without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived by the Company. Any
amounts collected pursuant to action taken under this Section 7.2 shall be
applied first, to the payment of any costs incurred by the Bank in taking such
action, including but without limitation attorneys fees, second, to the payment
of the accrued interest on the Notes, and third, to the payment of the unpaid
principal of the Notes.
SECTION 8. MISCELLANEOUS
8.1 Limited Role of Bank. The relationship between the Company and the
Bank shall be solely that of borrower and lender, respectively. The Bank shall
not have any fiduciary responsibilities to the Company and no joint venture
exists between the Company and the Bank. The Company and the Bank each hereby
severally acknowledge that there are no representations, warranties, covenants,
undertakings or agreements by the parties hereto as to the Loan Documents except
as specifically provided herein and therein.
8.2 Choice of Law Construction. The Loan Documents (other than those
containing a contrary express choice of law provision) shall be construed in
accordance with the internal laws (and not the law of conflicts) of the State of
New York. If any provision of the Loan Documents shall be or become
unenforceable or illegal under any law, the other provisions shall remain in
full force and effect.
8.3 Consent to Jurisdiction. (a) The Company hereby irrevocably submit
to the non-exclusive jurisdiction of any United
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States federal or New York state court sitting in New York City in any action or
proceedings arising out of or relating to any Loan Documents and the Company and
the Guarantors hereby irrevocably agree that all claims in respect of such
action or proceeding may be heard and determined in any such court and
irrevocably waives any objection it may now or hereinafter have as to the venue
of any such action or proceeding brought in such a court or the fact that such
court is an inconvenient forum.
(b) The Company and the Guarantors irrevocably and unconditionally
consent to the service of process in any such action or proceeding in any of the
aforesaid courts by the mailing of copies of such process to it, by certified or
registered mail at its address specified in Section 8.5.
8.4 WAIVER OF JURY TRIAL. THE COMPANY, THE GUARANTORS AND THE BANK
HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING INVOLVING DIRECTLY OR
INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY
WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT OR THE
RELATIONSHIP ESTABLISHED THEREUNDER.
8.5 Notices. All notices, requests and demands to or upon the
respective parties hereto shall be deemed to have been given or made when
deposited to the mail, postage prepaid, in the case of telegraphic notice, when
delivered to the telegraph company, or in the case of tested telex, upon
confirmation of receipt, addressed as set forth below or to such other address
as may be hereafter designated in writing by the respective parties hereto:
The Bank: Chemical Bank
395 North Service Road
Melville, New York 11747
Attention: PDK Labs Inc. Account Officer
The Company or the Guarantors:
PDK LABS INC.
145 Ricefield Lane
Hauppauge, New York 11788
with a copy to: Hartley Bernstein, Esq.
Brandels, Bernstein & Wasserman
950 Third Avenue
New York, New York 10022
8.6 Entire Agreement; No Waiver; Cumulative Remedies; Amendments;
Setoff. (a) This Agreement and the other Loan Documents constitute the entire
agreement among the parties hereto and thereto as to the subject matter hereof
and thereof and
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<PAGE>
supersede any previous agreement, oral or written, as to such subject matter.
(b) No failure to exercise and to delay in exercising, on the part of
the Bank or the Company, any right, power or privilege hereunder or under the
Notes, shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, power or privilege hereunder preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies herein provided are cumulative and not exclusive of any
rights or remedies provided by law. No modification or waiver of any provision
of this Agreement, or the Notes, nor consent to any departure by the Company or
the Guarantors from the provisions hereof or thereof, shall be effective unless
the same shall be in writing from the Bank and then such waiver or consent shall
be effective only in the specific instance and for the purpose for which it is
given. No notice to the Company or the Guarantors shall entitle the Company or
the Guarantors to any other or further notice in other or similar circumstances
unless expressly provided for herein. No course of dealing between the Company
or the Guarantors and the Bank shall operate as a waiver of any of the rights of
the Bank under this Agreement.
(c) In addition to any rights or remedies of the Bank provided by law,
upon the occurrence of any Event of Default, the Bank is hereby authorized
without notice to the Company or the Guarantors to setoff and appropriate and
apply all deposits (general and special) and other indebtedness at any time held
or owing by the Bank to or for the credit or the account of the Company or the
Guarantors against and on account of all obligations, liabilities and claims of
the Company or the Guarantors to the Bank, and in such amounts as the Bank may
elect, although such obligations, liabilities and claims may be contingent or
unmatured.
8.7 Reference to Subsidiaries and Guarantors. If the Company has no
Subsidiaries and/or if there are no Guarantors, then the provisions of this
Agreement relating to Subsidiaries and/or Guarantors shall be deemed surplusage
without affecting the applicability of the provisions of this Agreement to the
Company alone.
8.8 Captions. The captions of the various sections and subsections of
this Agreement have been inserted only for the purposes of convenience, and
shall not be deemed in any manner to modify, explain, enlarge or restrict any of
the provisions of this Agreement.
8.9 Exhibits. All Exhibits and all Schedules annexed hereto shall
constitute integral parts of this Agreement.
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<PAGE>
8.10 Payment of Fees. (a) The Company agrees to pay or reimburse the
Bank for all of its reasonable costs and expenses incurred, in connection with
any subsequent amendment, supplement or modification of the Loan Documents
including, without limitation, the fees and disbursements of counsel to the
Bank, and in the case of internal counsel, allocated costs of such internal
counsel, provided that the Company shall not be responsible for any legal fees,
costs or disbursements in connection with the preparation and execution of this
Agreement. The allocated costs for the Bank's use of internal counsel shall be
an hourly rate representing salary and other overhead items. The Bank shall
request such payment or reimbursement in writing.
(b) The Company agrees to pay all costs and expenses of the Bank in
enforcing or preserving any of the rights and remedies available to the Bank
under this Agreement, the Notes, or under any other Loan Documents, instruments
or writings executed and delivered to the Bank in connection herewith including,
without limitation, reasonable legal fees, costs and disbursements.
8.11 Survival of Agreements. All agreements, representations and
warranties made herein and in any certificates delivered pursuant hereto shall
survive the execution and delivery of this Agreement, the Notes, and the making
and renewal of loans hereunder, and shall continue in full force and effect
until the indebtedness of the Company under the Notes has been paid in full.
8.12 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the Company, the Guarantors and the Bank and their
respective successors and assigns, except that the Company and the Guarantors
may not transfer or assign any of its rights or interests hereunder without the
prior written consent of the Bank.
8.13 Interest. Anything in this Agreement or in the Notes to the
contrary notwithstanding, the Bank shall not charge, take or receive, and the
Company shall not be obligated to pay interest in excess of the maximum rate
from time to time permitted by applicable law.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their proper and duly authorized officers as of the
day and year first above written.
PDK LABS INC.
By: /s/ Michael B. Krasnoff
--------------------------------------
Michael B. Krasnoff
Chief Executive Officer
PDI LABS, INC.
By: /s/ Michael B. Krasnoff
--------------------------------------
Michael B. Krasnoff
Chief Executive Officer
C&C ENTERPRISES, INC.
By: /s/ Michael B. Krasnoff
--------------------------------------
Michael B. Krasnoff
Chief Executive Officer
CHEMICAL BANK
By: /s/ Vincent J. Cassidy
--------------------------------------
Vincent J. Cassidy
Vice President
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<PAGE>
SECOND AMENDMENT DATED AS OF
MARCH 28, 1996 TO THE AMENDED AND
RESTATED LOAN AGREEMENT
DATED AS OF JULY 6, 1995
This Second Amendment (the "Second Amendment") is dated as of March 28,
1996 by and among PDK LABS INC., a New York corporation having its principal
place of business at 145 Ricefield Lane, Hauppauge, New York 11788 (the
"Company"), PDI LABS, INC. ("PDI"), a New York corporation having its principal
place of business at 145 Ricefield Lane, Hauppauge, New York 11788, C&C
ENTERPRISES, INC. ("C&C"), a Delaware corporation, having its principal place of
business at 145 Ricefield Lane, Hauppauge, New York 11788 (PDI and C&C, each a
"Guarantor" and collectively, the "Guarantors") and CHEMICAL BANK, a New York
banking corporation, having an office at 395 North Service Road, Melville, New
York 11747 (the "Bank").
WHEREAS, the Bank, the Company and PDI entered into an Amended and
Restated Revolving Credit Agreement dated as of July 15, 1994 (the "Prior
Agreement"); and
WHEREAS, the Prior Agreement was amended and restated pursuant to that
certain third amendment ("Third Amendment") to the Prior Agreement dated as of
July 6, 1995, which Third Amendment, among other things, set forth the terms of
an Amended and Restated Loan Agreement dated July 6, 1995 (the "Amended and
Restated Loan Agreement"); and
WHEREAS, the Amended and Restated Loan Agreement has heretofore been
amended pursuant to that certain First Amendment dated as of August 31, 1995 (as
so amended the "Agreement"); and
WHEREAS, the Bank has heretofore extended credit to the Company on a
revolving credit basis as evidenced by a promissory note of the Company, in the
original principal amount of $7,000,000.00 dated July 6, 1995 (the "Revolving
Credit Note"); and
WHEREAS, the Bank has made a Term Loan to the Company in the original
maximum principal amount of $4,000,000.00 pursuant to the Agreement as evidenced
by a promissory note of the Company, in the original principal amount of
$4,000,000.00 dated July 6, 1995 (the "Term Loan Note"); and
WHEREAS, the Company has requested that the Bank make a term loan to
the Company in the principal amount of $1,500,000.00 and the Bank has agreed to
make such term loan provided that the Company and the Guarantors enter into this
Second Amendment, and provided that certain other provisions contained herein
are met.
<PAGE>
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the Bank, the Company and the
Guarantors agree as follows:
1. Definitions. As used in this Second Amendment, capitalized terms,
unless otherwise defined, shall have the meanings ascribed to them in the
Agreement.
2. Representations and Warranties. As an inducement for the Bank to
enter into this Second Amendment, the Company and the Guarantors each represent
and warrant as follows:
That with respect to the Agreement and the Loan Documents:
(i) On the date hereof, there are no defenses, offsets or
counterclaims to the Company's or the Guarantors' obligations under the
Agreement, the Revolving Credit Note, the Term Loan Note, the Guaranty, the
Security Agreements or any of the other Loan Documents.
(ii) All of the representations and warranties made by the
Company and the Guarantors in the Agreement or in the other Loan Documents are
true and correct in all material respects as if made on the date hereof,
provided that the representations made in Section 4.8 of the Agreement shall
relate to the November 30, 1995 consolidated financial statements of the Company
and its Subsidiary and are subject to any information in the Company's Form 10-K
for November 30, 1995.
(iii) On the date hereof, no Default or Event of Default is
existing under the Agreement or the other Loan Documents or will be caused by
the making of Term Loan II (as defined below).
(iv) As of the date of this Second Amendment, the outstanding
aggregate principal balance of the Revolving Credit Loans evidenced by the
Revolving Credit Note is $5,500,000.00.00, and interest has been paid through
February 29, 1996.
(v) As of the date of this Second Amendment, the outstanding
aggregate principal balance of the Term Loan evidenced by the Term Loan Note is
$3,600,000.00, and interest has been paid through February 29, 1996.
(vi) As of the date of this Second Amendment, the outstanding
aggregate principal balance of the Existing Term Loan evidenced by the Existing
Term Loan Note is $269,777.12, and interest has been paid through March 1, 1996.
3. Conditions. This Second Amendment shall be effective upon (i) the
fulfillment of the conditions precedent described in
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<PAGE>
Section 4(I) hereof to the reasonable satisfaction of the Bank, and (ii) receipt
by the Bank of a facility fee of $15,000.00.
4. Amendments. (A) The definition of Interest Period contained in
Section 1.1 of the Agreement is hereby deleted in its entirety and replaced as
follows:
"'Interest Period' shall mean (i) with respect to any
Eurodollar Loan, initially, the period commencing on the date of
borrowing with respect to such Eurodollar Loan and ending one, two or
three months thereafter as selected by the Company in its notice of
borrowing as provided in Section 2.3, 2A.2 or 2B.2 and thereafter, each
period commencing on the last day of the next preceding Interest Period
applicable to such Eurodollar Loan and ending one, two or three months
thereafter, as selected by the Company by irrevocable notice to the
Bank not less than three (3) Working Days prior to the last day of the
then current Interest Period with respect to such Eurodollar Loan; and
(ii) with respect to any Match Rate Loan the period commencing
on the date of such Match Rate Loan and ending on such date as the
Company may elect after being advised by the Bank as to what maturities
are available with respect to the Match Rate Loan being requested at
that time;
provided that, all of the foregoing provisions relating to the
Interest Periods are subject to the following:
(A) no Interest Period shall end later than the
Termination Date or the Maturity Date, as applicable;
(B) if any Interest Period pertaining to a Match Rate
Loan would end on a day that is not a Business Day, such
Interest Period shall be extended to the next Business Day;
(C) if any Interest Period pertaining to a Eurodollar
Loan would end on a day which is not a Working Day, that
Interest Period shall be extended to the next succeeding
Working Day unless the result of such extension would be to
carry such Interest Period into another calendar month in
which event such Interest Period shall end on the immediately
preceding Working Day;
(D) any Interest Period pertaining to a Eurodollar
Loan that begins on the last Working Day of a calendar month
(or on a day for which there is no numerically corresponding
day in the calendar month at the end of such Interest Period)
shall end on the last Working Day of a calendar month;
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<PAGE>
(E) if any requested Interest Period includes a day
on which an installment of principal of the Eurodollar Loan or
Match Rate Loan is due and payable but does not begin or end
on such date, then the requested Eurodollar Loan or Match Rate
Loan shall have an Interest Period (if available) ending on or
before such payment date. "
(B) The definition of Loan or Loans contained in Section 1.1 of the
Agreement is hereby deleted in its entirety and replaced as follows:
"'Loan' or 'Loans' shall mean one or more of the Revolving
Credit Loans, the Term Loan or the Term Loan II as the context may
require and includes Prime Rate Loans, Eurodollar Loans and Match Rate
Loans."
(C) The definition of Match Rate Loan contained in Section 1.1 of the
Agreement is hereby deleted in its entirety and replaced as follows:
"'Match Rate Loan' shall mean a Loan which is bearing interest
at a rate based on the Match Funded Rate in accordance with the
provisions of Section 2A.5(c) or 2B.5(c) hereof."
(D) The definition of Maturity Date contained in Section 1.1 of the
Agreement is hereby deleted in its entirety and replaced as follows:
"'Maturity Date' shall mean in the case of the Term Loan and
the provisions of this Agreement, the Term Loan Note and the other Loan
Documents relating thereto, the last Business Day of August, 2000, and
in the case of Term Loan II and the provisions of this Agreement, the
Term Loan II Note and the other Loan Documents relating thereto, the
last Business Day of February, 2001."
(E) The definition of Note or Notes contained in Section 1.1 of the
Agreement is hereby deleted in its entirety and replaced as follows:
"'Note' or 'Notes' shall mean either or all of the Revolving
Credit Note, the Term Loan Note or the Term Loan II Note (as the
context may require) and all attachments thereto described in Section
2.2, 2A.3 and 2B.3 hereof, respectively."
(F) The following definition is hereby added to Section 1.1 of the
Agreement:
"'Term Loan II' shall have the meaning assigned in
Section 2B.1 hereof."
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<PAGE>
(G) The following definition is hereby added to Section 1.1 of the
Agreement:
"'Term Loan II Note' means a promissory note of the Company
payable to the order of the Bank, in substantially the form of Exhibit
D annexed hereto, evidencing the indebtedness of the Company to the
Bank resulting from the Term Loan II made by the Bank to the Company
pursuant to this Agreement."
(H) The following Section 2B is hereby added to the Agreement:
"SECTION 2B. AMOUNT AND TERMS OF TERM LOAN II
2B.1 The Term Loan II. The Bank agrees, on the date of the Second
Amendment, and on the terms and conditions and in reliance upon the
representations and warranties hereinafter set forth in this Agreement, to lend
to the Company the principal amount of One Million Five Hundred Thousand
($1,500,000.00) Dollars, and the Company agrees to borrow such amount from the
Bank by executing and delivering to the Bank the Term Loan II Note. The Term
Loan II, or portions thereof, shall be a Prime Rate Loan or a Fixed Rate Loan
(or a combination thereof) as the Company may request subject to and in
accordance with Section 2B.2 hereof. The Bank may at its option make any
Eurodollar Loan by causing a foreign branch or affiliate to make such Loan,
provided that any exercise of such option shall not affect the obligation of the
Company to repay such Loan in accordance with the terms of Term Loan II Note.
2B.2 Notice of Term Loan II Designations. (a) The Company may elect to
designate the Term Loan II (or a portion thereof) as a Prime Rate Loan or a
Fixed Rate Loan by so specifying in the irrevocable notice given pursuant to
this Section 2B.2; provided, however, that each Fixed Rate Loan for any specific
Interest Period shall be in the minimum principal amount of $500,000.00.
(b) The Company shall give the Bank irrevocable written, telex,
telephonic (immediately confirmed in writing) or facsimile notice (i) at least
three (3) Business Days' prior to each election to designate the Term Loan II
(or a portion thereof) as a Eurodollar Loan, (ii) such notice as the Bank may,
in its sole discretion require from time to time, to designate the Term Loan II
(or a portion thereof) as a Match Rate Loan (subject to availability), and (iii)
prior to 11:00 a.m. on the day of each election to designate the Term Loan II
(or a portion thereof) as a Prime Rate Loan, in each case specifying the date
(which shall be a Business Day) thereof and the aggregate principal amount and,
if any portion thereof is to consist of one or more Fixed Rate Loans, the
respective principal amounts and Interest Periods for each such Fixed Rate Loan;
provided that:
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(i) if the Company shall fail to specify the duration of an
Interest Period with regard to any Eurodollar Loan in its notice, the Interest
Period shall be for a period of one month; and
(ii) if the Company shall request a Match Rate Loan when such
Loans are not available, fail to specify the duration of the Interest Period
with regard to a requested Match Rate Loan or fail to specify the type of Loan
requested, the request shall be deemed to be a request for a Prime Rate Loan.
2B.3 Term Loan II Note. The Term Loan II shall be evidenced by the Term
Loan II Note of the Company. The Term Loan II Note shall be dated the date of
the Second Amendment to this Agreement and shall mature on the Maturity Date at
which time the entire outstanding principal balance and all interest thereon
shall be due and payable. The Term Loan II Note shall be entitled to the
benefits and subject to the provisions of this Agreement.
2B.4 Repayment of the Term Loan II Note. The principal balance of the
Term Loan II Note shall be payable in twenty (20) quarterly installments, each
due on the last Business Day of each May, August, November and February of each
year, beginning on the last Business Day of May, 1996. Each of the first
nineteen (19) such quarterly principal installments shall be in the amount of
Seventy Five Thousand ($75,000.00) Dollars and the twentieth (20th) such
quarterly principal installment shall be in an amount equal to the then
outstanding principal balance of the Term Loan II Note.
2B.5 Payment of Interest on the Term Loan II Note. (a) In the case of a
Prime Rate Loan, interest shall be payable at a rate per annum (computed on the
basis of the actual number of days elapsed over a year of 360 days) equal to the
Prime Rate. Such interest shall be payable on the first Business Day of each
month commencing on the first such date after the date of such Prime Rate Loan,
on the Maturity Date and upon payment or prepayment of such Prime Rate Loan. Any
change in the rate of interest on the Term Loan II Note due to a change in the
Prime Rate shall take effect as of the date of such change in the Prime Rate.
(b) In the case of a Eurodollar Loan, interest shall be payable at a
rate per annum (computed on the basis of the actual number of days elapsed over
a year of 360 days) equal to 2% above the Eurodollar Rate. Such interest shall
be payable on the last day of each Interest Period applicable thereto, on the
first Business Day of each month and on the Maturity Date. The Bank shall
determine the rate of interest applicable to each requested Eurodollar Loan for
each Interest Period at 11:00 a.m., New York City time, or as soon as
practicable thereafter, two (2) Working Days prior to the commencement of such
Interest Period and shall notify the Company of the rate of interest so
determined. Such determination shall be conclusive absent manifest error.
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<PAGE>
(c) In the case of a Match Rate Loan, interest shall be payable at a
rate per annum (computed on the basis of the actual number of days elapsed over
a year of 360 days) equal to the Match Funded Rate. Such interest shall be
payable on the first Business Day of each month, commencing with the first such
date after the date of such Match Rate Loan, on the Maturity Date and on the
last day of each Interest Period applicable thereto. In the event Match Rate
Loans are available, the Bank shall determine the Match Funded Rate applicable
to each requested Match Rate Loan for each Interest Period at 11:00 a.m., New
York City time, or as soon as practicable thereafter, on the day of the making
of such Match Rate Loan, and shall notify the Company of the Match Funded Rate
so determined. Such determination shall be conclusive absent manifest error.
2B.6 Conversion and Continuation of Loans. The Company shall have the
right, at any time, on three (3) Business Days or three (3) Working Days, as
applicable, prior irrevocable written notice to the Bank (which notice, to be
effective, must be received by the Bank not later than 10:00 a.m., New York City
time, on the third (3rd) Business Day or Working Date, as applicable, preceding
the date of any continuation or conversion), (i) to continue the Term Loan II or
a portion thereof as a Fixed Rate Loan into a subsequent Interest Period
(subject to availability), or (ii) to convert the Term Loan II or a portion
thereof to a Fixed Rate Loan at the expiration of an Interest Period with
respect thereto into a Fixed Rate Loan of a different type (subject to
availability), and (iii) to convert the Term Loan II or a portion thereof which
is a Prime Rate Loan into a Fixed Rate Loan (subject to availability), subject
to the following:
(a) no Event of Default shall have occurred and be continuing
at the time of any proposed conversion or continuation;
(b) in the case of a continuation or conversion of less than the total
principal amount of the Term Loan II Note, the aggregate principal amount of the
Term Loan II continued or converted shall be in the minimum amount of
$500,000.00;
(c) each continuation or conversion shall be effected by the Bank
applying the proceeds of the new Loan to the Loan (or portion thereof) being
continued or converted;
(d) if the new Loan made as a result of a continuation or conversion
shall be a Fixed Rate Loan, the first Interest Period with respect thereto shall
commence on the date of continuation or conversion;
(e) each request for a Eurodollar Loan which shall fail to state an
applicable Interest Period shall be deemed to be a request for an Interest
Period of one month;
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(f) unless sufficient Prime Rate Loans are outstanding or other Fixed
Rate Loans are outstanding with Interest Periods expiring prior to the next
scheduled installment payment of the Term Loan II Note, and are sufficient to
enable the Company to make such installment payment, any Fixed Rate Loan, a
portion of which is required to be repaid on any such installment payment date
shall be automatically converted at the end of such Interest Period into a Prime
Rate Loan;
(g) any request for a Match Rate Loan which shall fail to state an
Interest Period or which shall be made when such Loans are not available shall
be deemed to be a request for a Prime Rate Loan; and
(h) in the event that the Company shall not give notice to continue a
Fixed Rate Loan as provided above, such Loan shall automatically be converted
into a Prime Rate Loan at the expiration of the then current Interest Period.
2B.7 Use of Proceeds. The proceeds of Term Loan II shall be used by the
Company to repay outstanding Revolving Credit Loans. No part of the proceeds of
Term Loan II will be used for any purpose which violates, or which is
inconsistent with, the provisions of Regulation G, T, U, or X.
2B.8 Voluntary Prepayment. (a) The Company shall have the right at any
time and from time to time to prepay any Prime Rate Loan, in whole or in part,
without premium or penalty on the same day on which telephonic notice is given
to the Bank (immediately confirmed in writing) of such prepayment provided,
however, that each such prepayment shall be on a Business Day and each partial
prepayment shall be in an aggregate principal amount which is an integral
multiple of $25,000.00.
(b) The Company shall have the right at any time and from time to time,
subject to the provisions hereof and of Section 2B.9, to prepay any Eurodollar
Loan, in whole or in part, on three (3) Business Days prior irrevocable written
notice to the Bank, provided, however, that such prepayment may only be made on
the last day of the applicable Interest Period and each partial prepayment shall
be in an aggregate principal amount which is an integral multiple of $25,000.00.
(c) The Company shall have the right at any time and from time to time,
subject to the provisions hereof and of Section 2B.9, to prepay any Match Rate
Loan, in whole or in part upon at least three (3) Business Days prior
irrevocable written notice to the Bank; provided, however, that each such
prepayment shall be on a Business Day and each partial prepayment shall be in an
aggregate principal amount which is an integral multiple of $25,000.00.
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<PAGE>
(d) The notice of prepayment under this Section 2B.8 shall set forth
the prepayment date and the principal amount of the Loan being prepaid and shall
be irrevocable and shall commit the Company to prepay such Loan by the amount
and on the date stated therein. All prepayments shall be accompanied by accrued
interest on the principal amount being prepaid to the date of prepayment. Each
prepayment under this Section 2B.8 shall be applied first towards unpaid
interest on the amount being prepaid and then towards the principal in whole or
partial prepayment of Loans by the Company. In the absence of such
specification, amounts being prepaid shall be applied first to any Prime Rate
Loan then outstanding and then to Match Rate Loans in the order of the
expiration of their respective Interest Periods. Eurodollar Loans may be prepaid
only in accordance with the provisions of paragraph (b) above. All partial
prepayments of the Term Loan II shall be applied to installments of principal in
the inverse order of maturity.
2B.9 Reimbursement by Company. (a) The Company shall reimburse the Bank
upon the Bank's demand for any loss incurred or to be incurred by it in the
reemployment of the funds released by any prepayment or conversion of any Match
Rate Loan required or permitted by this Agreement, if such Loan is prepaid or
converted (whether voluntarily or by acceleration) other than on the last day of
the Interest Period for such Loan, or if the Company fails to borrow the Match
Rate Loan (or is not able to borrow because of an Event of Default or for any
other reason hereunder) after having given the irrevocable notice provided by
Sections 2B.2 and 2B.6 of this Agreement. Such loss shall be the product of (i)
the difference as determined by the Bank between (x) the rate of interest
applicable to such Match Rate Loan being prepaid or converted for the remainder
of the Interest Period and (y) the rate of interest payable on United States
Treasury obligations in an amount and with a maturity similar to such Loan or
Loans times (ii) the aggregate amount of principal so prepaid or converted times
(iii) the number of days remaining in the applicable Interest Period divided by
360 days.
(b) The Company shall reimburse the Bank upon the Bank's demand for any
loss, cost or expense incurred or to be incurred by it (in the Bank's
determination) as a result of any prepayment or conversion (whether voluntarily
or by acceleration) of any Eurodollar Loan other than on the last day of the
Interest Period for such Loan, or if the Company fails to borrow the Eurodollar
Loan (or is not able to borrow because of an Event of Default or for any other
reason hereunder) after having given the irrevocable notice provided by Sections
2B.2 or 2B.6 of this Agreement. Such reimbursement shall include, but not be
limited to, any loss, cost or expense incurred by the Bank in obtaining,
liquidating or redeploying any funds used or to be used in making or maintaining
the Eurodollar Loan.
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<PAGE>
2B.10 Requirements of Law. In the event that any law, regulation,
treaty or directive or any change therein or in the interpretation or
application thereof or compliance by the Bank with any request or directive
(whether or not having the force of law) from any central bank or other
governmental authority, agency or instrumentality:
(i) does or shall subject the Bank to any tax of any kind
whatsoever with respect to this Agreement, the Term Loan II Note or the
Term Loan II made hereunder, or change the basis of taxation of
payments to the Bank of principal, interest or any other amount payable
hereunder (except for changes in the rate of any tax presently imposed
on the Bank);
(ii) does or shall impose, modify or hold applicable any
reserve, special deposit, compulsory loan or similar requirement
against assets held by, or deposits or other liabilities in or for the
account of, advances or loans by, or other credit extended by, or any
other acquisition of funds by, any office of the Bank which are not
otherwise included in the determination of the Eurodollar Rate or Match
Funded Rate hereunder;
(iii) does or shall impose on the Bank any other condition;
and the result of any of the foregoing is to increase the cost to the Bank of
making, renewing or maintaining advances or extensions of credit to the Company
or to reduce any amount receivable from the Company thereunder then, in any such
case, the Company shall promptly pay to the Bank, upon its demand, any
additional amounts necessary to compensate the Bank for such additional cost or
reduced amount receivable which the Bank deems to be material as determined by
the Bank with respect to this Agreement, the Term Loan II Note or the Term Loan
II made hereunder. If the Bank becomes entitled to claim any additional amounts
pursuant to this Section 2B.10, it shall promptly notify the Company of the
event by reason of which it has become so entitled. A certificate setting forth
calculations as to any additional amounts payable pursuant to the foregoing
sentence submitted by the Bank to the Company shall be conclusive in the absence
of manifest error.
2B.11 Changes in Capital Requirements. If after the date of the Second
Amendment to this Agreement, the Bank shall have determined that the adoption of
any applicable law, rule or regulation regarding capital adequacy, or any change
therein, or any change in the interpretation or administration thereof, by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by the Bank with any
request or directive regarding capital adequacy (whether or not having the force
of law) of any such authority, central bank or comparable agency, has or would
have the effect of
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reducing the rate of return on the Bank's capital as a consequence of its
obligations hereunder to a level below that which the Bank could have achieved
but for such adoption, change or compliance (taking into consideration the
Bank's policies with respect to capital adequacy) by an amount deemed by the
Bank to be material, then from time to time, within 15 days after demand by the
Bank, the Company shall pay to the Bank such additional amount or amounts as
will compensate the Bank for such reduction. The Bank will promptly notify the
Company of any event of which it has knowledge, occurring after the date of the
Second Amendment to this Agreement, which will entitle the Bank to compensation
pursuant to this Section 2B.11.
2B.12 Illegality. Notwithstanding any other provisions herein, if any
law, regulation, treaty or directive or any change therein or in the
interpretation or application thereof, shall make it unlawful for the Bank to
make or maintain Fixed Rate Loans as contemplated by this Agreement, (a) the
Bank's obligation hereunder to make Fixed Rate Loans or convert Prime Rate Loans
to Fixed Rate Loans shall forthwith be canceled and (b) loans then outstanding
as Fixed Rate Loans, if any, shall be converted to Prime Rate Loans on the last
day of the Interest Period applicable thereto or within such earlier period as
required by law. The Company hereby agrees to promptly pay to the Bank, upon its
demand, any amounts required by Section 2B.9 resulting from a prepayment of a
Fixed Rate Loan.
2B.13 Indemnification. The Company agrees to indemnify the Bank and to
hold the Bank harmless from any loss or expense which the Bank may sustain or
incur as a consequence of (i) default by the Company in payment when due of the
principal amount of or interest on any Fixed Rate Loan, (ii) default by the
Company in making a borrowing of, conversion into or continuation of Fixed Rate
Loans after the Company has given a notice requesting the same in accordance
with the provisions of this Agreement or (iii) default by the Company in making
any prepayment after the Company has given a notice thereof in accordance with
the provisions of this Agreement. This covenant shall survive the termination of
this Agreement and the payment of the Term Loan II Note and all other amounts
payable hereunder.
2B.14 Inability to Determine Rate. If with respect to any Interest
Period pertaining to a Fixed Rate Loan, the Bank determines that extraordinary
circumstances affecting the relevant market make it impracticable to ascertain
the interest rate applicable for such Interest Period, the Bank shall promptly
notify the Company of such determination and no conversions to or continuations
of the Fixed Rate shall be made until such notice is withdrawn. If any Fixed
Rate Loan is outstanding on the date of such notice and such notice has not been
withdrawn on the last day of the then current Interest Period applicable
thereto, the Company may on the last day of such Interest Period either convert
such Fixed Rate Loan to a loan maintained at an alternate rate of
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interest available hereunder or prepay the outstanding principal balance thereof
and accrued interest thereon in full.
2B.15 Authorization to Debit Company's Account. The Bank is hereby
authorized to debit the Company's account maintained with the Bank for (i) all
scheduled payments of principal and/or interest under the Term Loan II Note, and
(ii) all other amounts due hereunder; all such debits to be made on the days
such payments are due in accordance with the terms hereof.
2B.16 Default Interest. Upon the occurrence and during the continuation
of a Default, the Company shall pay interest on all amounts owing under the Term
Loan II Note and this Agreement (after as well as before judgment) at a rate per
annum (computed on the basis of the actual number of days elapsed over a year of
360 days) equal to two (2%) percent in excess of the interest rate otherwise in
effect hereunder.
2B.17 Payments. All payments by the Company hereunder or under the Term
Loan II Note shall be made in U.S. dollars in immediately available funds at the
office of the Bank by 12:00 noon, New York City time on the date on which such
payment shall be due. Interest on the Term Loan II Note shall accrue from and
including the date thereof to but excluding the date on which such Loan is paid
in full or refinanced with a Loan of a different type.
2B.18 Interest Adjustments. (a) If the provisions of this Agreement or
the Term Loan II Note would at any time otherwise require payment by the Company
to the Bank of any amount of interest in excess of the maximum amount then
permitted by applicable law the interest payments shall be reduced to the extent
necessary so that the Bank shall not receive interest in excess of such maximum
amount. To the extent that, pursuant to the foregoing sentence, the Bank shall
receive interest payments hereunder or under the Term Loan II Note in an amount
less than the amount otherwise provided, such deficit (hereinafter called the
"Interest Deficit") will cumulate and will be carried forward (without interest)
until the termination of this Agreement. Interest otherwise payable to the Bank
hereunder and under the Term Loan II Note for any subsequent period shall be
increased by such maximum amount of the Interest Deficit that may be so added
without causing the Bank to receive interest in excess of the maximum amount
then permitted by applicable law.
(b) To the extent permitted by law, the amount of the Interest Deficit
shall be treated as a prepayment penalty and paid in full at the time of any
optional prepayment by the Company to the Bank of all or part of the Term Loan
II. The amount of the Interest Deficit relating to the Term Loan II Note on the
Maturity Date shall be cancelled and not paid.
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<PAGE>
2B.19 Participations, Etc. The Bank shall have the right at any time,
with or without notice to the Company, to sell, assign, transfer or negotiate
all or any part of the Term Loan II Note or grant participations therein to one
or more banks (foreign or domestic, including an affiliate of the Bank),
insurance companies or other financial institutions, pension funds or mutual
funds. The Company and the Guarantors agree and consent to the Bank providing
financial and other information regarding their business and operations to
prospective purchasers or participants and further agree that to the extent that
the Bank should sell, assign, transfer or negotiate all or any part of the Term
Loan II Note, the Bank shall be forever released and discharged from its
obligations under the Term Loan II Note and this Agreement to the extent same is
sold, assigned, transferred or negotiated. Nothing herein shall prevent the Bank
from pledging the Term Loan II Note with a Federal Reserve Bank."
(I) A new Section 3.5 is hereby added to the Agreement as follows:
"3.5 Conditions of the Making of Term Loan II. The obligation of the
Bank to make Term Loan II hereunder shall be subject to the fulfillment of the
following conditions precedent:
(a) Legal Opinion. There shall have been delivered to the Bank
on the date of the Term Loan II Note an opinion of Bernstein and
Wasserman, Esqs., counsel to the Company, in form and substance
satisfactory to the Bank, dated such date, to the same effect as
Sections 4.1, 4.2, 4.3 and 4.4 hereof and to the further effect that
the Second Amendment to this Agreement, the Term Loan II Note and any
other Loan Document have been duly authorized, executed and delivered
by a duly authorized officer of the Company and each Guarantor and,
assuming due authorization and execution by the Bank, constitute valid
obligations of the Company and the Guarantors, where applicable,
legally binding upon them and enforceable (except as may be limited by
any applicable bankruptcy, reorganization, insolvency, moratorium or
other similar laws affecting creditors' rights generally) in accordance
with their terms. The opinion shall also cover such other matters
incident to the matters contemplated by this Agreement as the Bank
shall reasonably require.
(b) Corporate Proceedings. The Company shall have furnished to
the Bank (in form and substance satisfactory to the Bank) (i) a copy,
certified by appropriate officers of the Company and the Guarantors on
such date, of the resolutions of the respective Boards of Directors of
the Company and the Guarantors authorizing the Term Loan II herein
provided for, and the execution, delivery and performance of the Second
Amendment to this Agreement, the Term Loan II Note and any other Loan
Document, (ii) a statement that the by-laws and the
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certificates of incorporation of the Company and the Guarantors have
not changed since the date of the Third Amendment; (iii) copies of the
good standing certificates for the Company and the Guarantors from the
Secretary of State or equivalent officer of their respective states of
incorporation and of each state in which the conduct of the Company's
or such Guarantor's business requires qualification; and (iv) evidence
of the authority of the Person executing the Loan Documents on behalf
of the Company and the Guarantors.
(c) Personal Property Insurance. The Company shall have
delivered to the Bank evidence of property damage insurance acceptable
to the Bank covering the replacement value of all personal property of
the Company and the Guarantors, in an amount satisfactory to the Bank
and naming the Bank as "loss payee".
(d) Invoices, Bills and Contracts. The Company shall have
delivered copies of all invoices, bills, contracts and paid receipts in
connection with the capital expenditures made by the Company, which are
being replenished with the proceeds of the Term Loan II.
(e) Annual Financial Statement. The Bank shall have received
the audited consolidated financial statement of the Company and its
Subsidiary for the fiscal year ended November 30, 1995, prepared by
independent certified public accountants satisfactory to the Bank in
accordance with GAAP.
(f) Representations and Warranties; No Default. The
representations and warranties contained in Section 2 of this Second
Amendment shall be true and correct on and as of the date of the Term
Loan II Note, and no Default or Event of Default or event which with
the passage of time or the giving of notice of both would constitute a
Default or Event of Default shall have occurred and be continuing on
such date or will be caused by the making of the Term Loan II Note.
(g) Legal Matters. All other instruments and legal and
corporate proceedings in connection with the transactions contemplated
by the Second Amendment to this Agreement, shall be satisfactory in
form and substance to the Bank and its counsel, and counsel to the Bank
shall have received copies of all documents which it may have
reasonably requested in connection therewith.
(h) UCC-1 Financing Statements. The Bank shall have received
duly executed UCC-1 financing statements in recordable form covering
all of the assets and personal property of the Company located at 300
Oser Avenue, Hauppauge, New York."
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<PAGE>
(J) Section 4.15 of the Agreement is hereby deleted in its entirety and
replaced as follows:
"4.15 Use of Proceeds. The proceeds of each Loan shall
be used for the purposes set forth in Section 2.13, Section
2A.7 and Section 2B.7 of this Agreement."
(K) The following sentence is hereby added to the end of Section 5.3 of
the Agreement:
"The Company shall cause the Bank to be named at all times as
loss payee and as an additional insured on all such insurance policies
covering the Collateral (as such term is defined in the Security
Agreement)."
(L) Section 6.5 of the Agreement is hereby amended by adding the word
"and" after the ";" following clause (k), by deleting the "; and" at the end of
the clause (l), by deleting clause (m) in its entirety and by inserting a period
at the end of clause (l).
(M) A new Section 6.16 is hereby added to the Agreement as follows:
"6.16 Limitation on Capital Expenditures. Make any Capital
Expenditures (excluding Capital Expenditures resulting from
acquisitions of property, plant and equipment described in Section
6.5(g) of this Agreement) including purchase money indebtedness if,
after giving effect thereto, the aggregate amount of such expenditures
by the Company and its Subsidiaries would exceed $1,500,000.00 during
any fiscal year."
(N) A new Section 6.17 is hereby added to the Agreement as follows:
"6.17 Limitation on Dividends and Stock Acquisitions. Declare
or pay any dividends or make any other distribution (whether in cash or
property) on any shares of its capital stock now or hereafter
outstanding, or purchase, redeem, retire or otherwise acquire for value
any shares of its capital stock or warrants or options therefor now or
hereafter outstanding (all such dividends, distributions, purchases and
other actions being hereinafter collectively called "Stock Payments",
except that (a) a Subsidiary (other than Future) may make Stock
Payments to the Company; (b) the Company may declare stock splits and
pay dividends payable solely in shares of any class of its capital
stock; and (c) the Company may declare or pay dividends on its
preferred stock in an aggregate amount not to exceed $362,000 in the
aggregate in each fiscal year of the Company.
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5. Collateral. It is expressly understood and agreed that all
collateral security for the Loans as set forth in the Agreement prior to this
Second Amendment is and shall continue to be collateral security for the Loans
provided for in the Agreement as herein amended. Without limiting the generality
of the foregoing, the Company and the Guarantors hereby absolutely and
unconditionally confirm that the Loan Documents and any other document or
instrument executed by the Company and the Guarantors pursuant to the Agreement
continue in full force and effect, are ratified and confirmed and are and shall
continue to be applicable to the Agreement, as herein amended.
6. No Waiver. No modification or waiver of any of the provisions of
this Second Amendment or any other agreement or instrument made or issued
pursuant to this Second Amendment or contemplated hereby, nor consent to any
departure by the Company therefrom shall, in any event, be effective unless made
in writing and signed by the Bank and the Company, and then any such
modification or waiver shall be effective only in the specific instance and
purpose for which given unless otherwise specified therein. No notice to, or
demand on, the Company in any case shall, of itself, entitle it to further
notice or demand in similar circumstances.
7. Limits of Amendment. The amendments set forth herein are limited
precisely as written and shall not be deemed to (a) be a consent to or waiver of
any other term or condition of the Agreement or of any of the documents referred
to therein, or (b) prejudice any right or rights which the Bank may now have or
may have in the future or in connection with the Agreement or any of the
documents referred to therein.
8. Governing Law. This Second Amendment shall be governed by the laws
of the State of New York.
9. Waiver of Jury Trial. EACH OF THE COMPANY, THE GUARANTORS AND THE
BANK WAIVE TRIAL BY JURY IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN
CONNECTION WITH, OR ARISING OUT OF THIS SECOND AMENDMENT, ANY OF THE OTHER LOAN
DOCUMENTS, OR ANY INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED IN CONNECTION WITH
THIS SECOND AMENDMENT, OR THE VALIDITY, PROTECTION, INTERPRETATION, COLLECTION
OR ENFORCEMENT THEREOF.
10. Counterparts. This Second Amendment may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which, when so executed by the party against whom enforcement thereof is
sought, shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
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11. Ratification of Guaranties. The Guarantors, by their execution
hereof, hereby ratify and confirm all of the terms of the Guaranties and
expressly agree and acknowledge that their Guaranties extend to the Term Loan II
Note, the Term Loan II and all other amounts due under this Second Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to be executed by their respective officers thereunto duly authorized,
as of the date first above written.
PDK LABS INC.
By: /s/ Michael B. Krasnoff
------------------------
Michael B. Krasnoff
Chief Executive Officer
PDI LABS, INC.
By: /s/ Michael B. Krasnoff
------------------------
Michael B. Krasnoff
Chief Executive Officer
C&C ENTERPRISES, INC.
By: /s/ Michael B. Krasnoff
------------------------
Michael B. Krasnoff
Chief Executive Officer
CHEMICAL BANK
By: /s/ Frank Arceri
------------------------
Name: Frank Arceri
Title: Vice President
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NON-EXCLUSIVE SUPPLY AGREEMENT
This Non-Exclusive Supply Agreement (the "Agreement") is made and entered
into as of the 14th day of May, 1996 by and between Superior Supplements, Inc.,
a Delaware corporation ("SSI"), and PDK Labs Inc., a New York corporation
("PDK").
W I T N E S S E T H:
WHEREAS, SSI is engaged in the business of manufacturing and distributing
certain vitamins and food supplements in bulk tablet form; and
WHEREAS, SSI owns and operates a factory for the manufacture of vitamins
and food supplements in bulk tablet form; and
WHEREAS, PDK is engaged in the business of marketing and distributing
vitamin and food supplement products.
NOW, THEREFORE, the parties for good and valuable consideration the receipt
and sufficiency of which is hereby acknowledged, agree as follows:
1. Purchase and Sale of Products.
(a) During the term hereof (the "Term"), as defined at paragraph 3
hereof, PDK, its successors, assigns, subsidiaries and affiliates (collectively,
"PDK") shall purchase from SSI, non-exclusively, all "Pills" (the "Pills") which
PDK distributes, markets or otherwise sells within the United States ("US"). For
purposes of this Agreement, the term "Pills" shall include all vitamins and food
supplements manufactured in bulk tablet form.
(b) SSI shall use its best efforts to fulfill all of PDK's orders on a
timely basis. SSI shall comply with applicable laws and regulations regarding
the manufacture and delivery of Pills for and on behalf of PDK.
(c) SSI will supply all materials used in connection with the
manufacture of the Pills. All Pills shall meet PDK's specifications.
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(d) All sales by SSI to PDK will be FOB, SSI's manufacturing facility
in Hauppauge, New York or such other manufacturing facility of SSI of SSI's
choice. Title to and risk of loss of the products shall pass from SSI to PDK
upon acceptance by the carrier of PDK's choice.
(e) Nothing herein shall restrict or limit in any manner the right of
SSI to sell Pills, or any other products, to any party other than PDK.
2. Purchase Price and Payment. PDK will pay for the Pills as follows:
(a) PDK will pay to SSI, SSI's material cost ("Material Cost") plus
fifteen percent (15%). For purposes of this Agreement "Material Cost" shall mean
SSI's actual material expenses incurred in the manufacture of the Pills. Such
expenses shall not exceed the fair market value of materials used in production
at the time of purchase by SSI. PDK reserves the right to supply any and all
materials used in production; provided that PDK shall notify SSI of the material
expenses incurred in PDK's purchase of such materials and SSI shall be entitled
to fifteen percent (15%) of such expenses as payment for the manufacture of the
related Pills.
(b) SSI shall invoice PDK upon delivery of each order and all invoices
shall be paid by PDK within thirty (30) days of the date of shipment. PDK shall
pay all costs and expenses, including reasonable attorney's fees, reasonably
incurred by SSI in the collection of any sum payable hereunder by PDK to SSI. In
addition to paying the price in effect under this Agreement, PDK shall pay all
sales or use taxes applicable to the sale or delivery by SSI or the subsequent
use by PDK of any items delivered hereunder.
3. Term of Agreement.
(a) The term of this Agreement (the "Term") shall commence on the date
hereof (the "Effective Date") and shall continue for a period of three (3)
years, and thereafter will be automatically renewed for successive one (1) year
terms unless either party provides written notice of intent to terminate the
Agreement at least ninety (90) days prior to the end of any Agreement Year, as
defined below.
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<PAGE>
(b) For purposes of this Agreement, an "Agreement Year" shall commence
on the Effective Date and on each anniversary thereof and shall end on the day
before the first anniversary of each such Agreement Year.
4. Placement and Acceptance of Orders; Delivery Schedule.
(a) Written Orders. PDK will place all orders for the purchase of
Pills from SSI, by written purchase order executed by an authorized agent of
PDK, no less than forty-five (45) days in advance. Such orders shall be filled
by SSI, within such forty-five (45) day period, unless an order is significantly
in excess of previous orders, in which case SSI will use its best efforts to
process the order, or a substantial portion thereof, within a forty-five (45)
day period or a reasonable time period (subject to raw material availability).
(b) Rejection of Orders. SSI shall not be obligated to manufacture or
distribute to PDK any item, and shall have the right to reject any order, in
whole or in part, based upon SSI's determination that such manufacture or
distribution might violate existing regulatory standards, requirements,
regulations, or concerns.
(c) Resale of Products. PDK will not sell or distribute any product
purchased from SSI hereunder to any party or entity that PDK knows, or has
reason to know, will utilize such product in any manner that is inconsistent
with or contrary to prevailing federal and state regulations or laws, including
the rules and regulations of any state or federal regulatory organization.
(d) Obligation for Cost of Raw Materials. Upon placement of any order,
PDK shall become liable for all costs incurred by SSI in connection with the
purchase of raw materials to be used in fulfilling such order.
5. Force Majeure. SSI shall not be liable for any delay or failure to
perform in accordance with this Agreement if such delay or failure to perform is
a result of a strike, lock-out or other labor dispute; riot, insurrection, civil
disturbance or other hostility; embargo; inability or delay in obtaining fuel,
energy, equipment or power; inability or delay in obtaining labor or materials;
inability or delay in obtaining government approvals, permits or licenses;
inability or delay in obtaining transportation or other services; fire, flood,
lightning, storm, earthquake, or other Act of God; or is a result of causes
beyond SSI's reasonable control (each of the foregoing being hereinafter
referred to as an "Event of Force Majeure"). In
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such event, SSI's obligation to perform hereunder shall be suspended for the
duration of such Event of Force Majeure. SSI will use reasonable efforts to
promptly notify PDK, either orally or in writing, upon learning of the
occurrence or potential occurrence of such Event of Force Majeure.
6. Indemnification.
6.1 Indemnification. PDK hereby agrees to indemnify and hold SSI, its
officers, directors, agents, servants, employees, subsidiaries and affiliates,
harmless from and against any and all claims, suits, demands, losses,
liabilities, damages, court costs, (including reasonable attorneys' fees),
whether based in contract or in tort, arising out of or related to, or as a
consequence of any act or omission of PDK relating to the Pills.
6.2 Termination of this Agreement.
(a) SSI shall have the right to terminate this Agreement at its sole
discretion, at any time, upon being advised that any regulatory authority
objects to the sale of the Pills by SSI to PDK.
(b) Upon the termination of this Agreement any then unpaid accounts
receivable fees shall accrue and become immediately due and payable.
7. Minimum Annual Purchase by PDK. PDK hereby covenants with SSI, and
agrees to purchase from SSI during each year of the Term hereof Pills having a
minimum aggregate sales price of $2,500,000 per annum (the "Minimum Sales
Amount"). In the event that PDK fails to purchase the Minimum Sales Amount
during any year falling during the Term hereof, PDK shall pay SSI the sum of
$100,000 (or such lesser sum pro-rated by reference to the percentage of the
Minimum Sales Amount actually purchased by PDK during such year) as liquidated
damages. PDK's obligations pursuant to this Section 7 shall be terminated in the
event that (a) the Pills do not meet PDK's specifications, (b) SSI is unable to
purchase materials for production at fair market value unless PDK supplies the
materials used in production pursuant to Section 2, or (c) in the event that
this Agreement is terminated pursuant to Section 8 below.
8. Termination of Agreement.
(a) In the event of the occurrence of any of the following events: (i)
insolvency or the making by a party hereto of an assignment for the benefit of
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creditors; (ii) the filing by or against a party hereto of, or the entry of an
order for relief against a party hereto in, a voluntary or involuntary
proceeding under any bankruptcy, insolvency, reorganization or receivership law;
(iii) the appointment of a receiver for all or a substantial portion of PDK's
property; (iv) the assumption of custody, attachment or sequestration by a court
of competent jurisdiction of all or a significant portion of a party's property;
(v) a party hereto or any principal thereof is charged with a felony or crime of
moral turpitude; (vi) notification to a party hereto from the United States Drug
Enforcement Administration, or any other federal or state regulatory agency,
that such party should discontinue business relations with the other party; or
(vii) fraudulent conduct by a party hereto in any of its dealings with the other
party, the non-defaulting party shall have the right to terminate this
Agreement, by written notice to the other party. No assignee for the benefit of
creditors, receiver, liquidator, trustee in bankruptcy, sheriff or any other
officer of the court or official charged with taking over custody of the assets
or business or a party shall have any right to continue performance of this
Agreement, and this Agreement may not be assigned by PDK by operation of law.
(b) Any failure by either party to terminate this Agreement by reason
of one or more of the foregoing acts or events shall not constitute a waiver of
the right to terminate this Agreement upon reoccurrence or continuance of such
acts or events.
9. Representations and Warranties of PDK. PDK (including all of its
subsidiaries and affiliates) represents and warrants to SSI as follows:
9.1 Organization and Qualification. PDK is a corporation validly existing
and in good standing under the laws of the State of New York, and has all
requisite corporate power and authority to (a) own, lease and operate its
properties and assets as they are now owned, leased and operated and (b) carry
on its business as now presently conducted. PDK is duly qualified to do business
in each jurisdiction in which the nature of its business or properties makes
such qualification necessary, except where the failure to do so would not have a
material adverse effect on the business of PDK.
9.2 Subsidiaries and Affiliates. Except as set forth on Schedule 9.2
hereof, PDK has no subsidiaries or affiliates.
5
<PAGE>
9.3 Validity and Execution of Agreement. PDK has the full legal right,
capacity and power and all requisite corporate authority and approval required
to enter into, execute and deliver this Agreement and any other agreement or
instrument contemplated hereby, and to perform fully its obligations hereunder
and thereunder. The stockholders and the board of directors of PDK has approved
the transactions contemplated pursuant to this Agreement. This Agreement has
been duly executed and delivered by PDK and constitutes the valid and binding
obligation of PDK enforceable against it in accordance with its terms.
9.4 No Conflict. Neither the execution and delivery of this Agreement nor
the performance by PDK of the transactions contemplated hereby will: violate or
conflict with (a) any of the provisions of the Certificate of Incorporation or
Bylaws or other organizational documents of PDK; (b) result in the acceleration
of, or entitle any party to accelerate the maturity or the cancellation of the
performance of any obligation under, or result in the creation or imposition of
any lien in or upon their respective assets or constitute a default (or an event
which might, with the passage of time or the giving of notice, or both,
constitute a default) under any contract, (c) any order, judgment, regulation or
ruling of any governmental or regulatory body to which PDK are a party or by
which any of its property or assets may be bound or affected or with any
provision of any law, rule, regulation, order, judgment, or ruling of any
governmental or regulatory body applicable to PDK.
9.5 Licenses and Permits. PDK maintains all governmental permits, licenses,
registrations and other governmental consents (federal, state and local) which
are necessary in connection with its operations and properties, and no others
are required. All such permits, licenses, registrations and consents are in full
force and effect and in good standing and shall continue to be in full force and
effect and in good standing following the consummation of the transactions
contemplated by this Agreement.
9.6 Compliance with Laws. PDK has complied in all respects with all
applicable federal, state and local laws, regulations and ordinances or any
requirement of any governmental or regulatory body, court or arbitrator
affecting the business or the assets the failure to comply with which could have
a material adverse effect on the business of PDK.
9.7 Products. There are no statements, citations or decisions by any
governmental or regulatory body that any product marketed or distributed at any
time by PDK is defective or fails to meet in any material respect any standards
promulgated by any such governmental or regulatory body. There have been no
6
<PAGE>
recalls ordered by any such governmental or regulatory body with respect to any
product. To the best knowledge of PDK, there is no (a) fact relating to any
product that may impose upon the Companies a duty to recall any product or a
duty to warn customers of a defect in any product, other than defects about
which PDK has issued appropriate and adequate warnings or (b) latent or overt
design, manufacturing or other defect in any product.
9.8 Survival. All of the representations and warranties of PDK contained
herein shall survive the date hereof until the date upon which the liability to
which any claim relating to any such representation or warranty is barred by all
applicable statutes of limitations.
10. Representations and Warranties of SSI.
10.1 Organization and Qualification. SSI is a corporation validly existing
and in good standing under the laws of the State of Delaware, and has all
requisite corporate power and authority to (a) own, lease and operate its
properties and assets as they are now owned, leased and operated and (b) carry
on its business as now presently conducted. SSI is duly qualified to do business
in each jurisdiction in which the nature of its business or properties makes
such qualification necessary, except where the failure to do so would not have a
material adverse effect on the business of SSI.
10.2 Subsidiaries and Affiliates. Except as set forth on Schedule 10.2
hereof, SSI has no subsidiaries or affiliates.
10.3 Validity and Execution of Agreement. SSI has the full legal right,
capacity and power and all requisite corporate authority and approval required
to enter into, execute and deliver this Agreement and any other agreement or
instrument contemplated hereby, and to perform fully its obligations hereunder
and thereunder. The stockholders and the board of directors of SSI has approved
the transactions contemplated pursuant to this Agreement. This Agreement has
been duly executed and delivered by SSI and constitutes the valid and binding
obligation of SSI enforceable against it in accordance with its terms.
10.4 No Conflict. Neither the execution and delivery of this Agreement nor
the performance by SSI of the transactions contemplated hereby will: violate or
conflict with (a) any of the provisions of the Certificate of Incorporation or
By-
7
<PAGE>
laws or other organizational documents of SSI; (b) result in the acceleration
of, or entitle any party to accelerate the maturity or the cancellation of the
performance of any obligation under, or result in the creation or imposition of
any lien in or upon their respective assets or constitute a default (or an event
which might, with the passage of time or the giving of notice, or both,
constitute a default) under any contract, (c) any order, judgment, regulation or
ruling of any governmental or regulatory body to which SSI are a party or by
which any of its property or assets may be bound or affected or with any
provision of any law, rule, regulation, order, judgment, or ruling of any
governmental or regulatory body applicable to SSI.
10.5 Licenses and Permits. SSI maintains all governmental permits,
licenses, registrations and other governmental consents (federal, state and
local) which are necessary in connection with its operations and properties, and
no others are required. All such permits, licenses, registrations and consents
are in full force and effect and in good standing and shall continue to be in
full force and effect and in good standing following the consummation of the
transactions contemplated by this Agreement.
10.6 Compliance with Laws. SSI has complied in all respects with all
applicable federal, state and local laws, regulations and ordinances or any
requirement of any governmental or regulatory body, court or arbitrator
affecting the business or the assets the failure to comply with which could have
a material adverse effect on the business of SSI.
10.7 Products. To SSI's knowledge, there are no statements, citations or
decisions by any governmental or regulatory body that any product marketed or
distributed at any time by SSI is defective or fails to meet in any material
respect any standards promulgated by an governmental or regulatory body. There
have been no recalls ordered by any such governmental or regulatory body with
respect to any product. To the knowledge of SSI, there is no (a) fact relating
to any product that may impose upon SSI a duty to recall any product or a duty
to warn customers or a defect in any product, other than defects about which SSI
has issued appropriate and adequate warning, or (b) latent or overt design,
manufacturing or other defect in any product.
10.8 Survival. All of the representations and warranties of SSI contained
herein shall survive the date hereof until the date upon which the liability to
which
8
<PAGE>
any claim relating to any such representation or warranty is barred by all
applicable statutes of limitations.
11. Nondisclosure. Neither party, nor any person controlled by it, shall
for any reason other than fulfilling its obligations hereunder, directly or
indirectly, for itself or any other person, use or disclose any trade secrets or
confidential information, know-how or proprietary information relating to the
other party, except to the extent (i) within the public domain; or (ii) pursuant
to a subpoena, court order or applicable law.
12. Relationship of the Parties. The relationship of the parties created
hereby is that of independent contractors, and neither party shall have any
right or authority to create or assume any obligation of any kind on behalf of
the other.
13. Disclaimer of Warranties. SSI makes no other representations or
warranties except as set forth in this Agreement, and SSI expressly disclaims
any implied warranties of merchantability, fitness for use or fitness for a
particular purpose.
14. Notices. All notices, requests, demands and other communications
required or permitted to be given hereunder shall be in writing and shall be
given personally, telegraphed, telefaxed, sent by facsimile transmission or sent
by prepaid air courier, same day or overnight messenger or certified, registered
or express mail, postage prepaid. Any such notice shall be deemed to have been
given (a) when received, if delivered in person, telegraphed, telexed, sent by
facsimile transmission and confirmed in writing within three (3) Business Days
thereafter or sent by prepaid air courier, same day or overnight messenger or
(b) three (3) Business Days following the mailing thereof, if mailed by
certified first class mail, postage prepaid, return receipt requested, in any
such case as follows (or to such other address or addresses as a party may have
advised the other in the manner provided in this Section 14):
If to SSI, to:
Superior Supplements, Inc.
270 Oser Avenue
Hauppauge, NY 11788
Attn: Lawrence D. Simon
9
<PAGE>
with copy to:
Bernstein & Wasserman, LLP
950 Third Avenue, 10th Floor
New York, NY 10022
Attn: Hartley T. Bernstein
If to PDK, to:
PDK Labs Inc.
145 Ricefield Lane
Hauppauge, NY 11788
Attn: Michael Krasnoff
15. Binding Effect; Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns. Neither party shall assign any of its rights or delegate any of its
duties or obligations hereunder without the prior written consent of the other
party. Notwithstanding the foregoing, the parties hereto do not intend to create
hereby, and this Agreement shall not be read or construed to create or grant,
any rights or benefits in or for any person or entity other than the parties
hereto and any and all such third party rights or benefits are hereby expressly
disclaimed and denied.
16. Governing Laws. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York, without regard to
principles of conflicts of law, and the parties irrevocably agree to submit any
controversy or claim arising out of or relating to this Agreement to a court of
competent jurisdiction located in the State of New York. The parties agree that
any proceedings arising out of, relating to, or brought for the purpose of
enforcing this Agreement, or remedying any breach thereof shall be instituted in
the courts of the State of New York, and in no other jurisdiction.
17. Counterparts. This Agreement may be executed simultaneously in
counterparts, each of which will be deemed to be an original but all of which
together will constitute one and the same instrument.
10
<PAGE>
18. Severability. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
19. Amendment. This Agreement may be amended only by a writing signed by
all parties hereto.
20. Entire Agreement. This Agreement contains the entire understanding of
the parties hereto with respect to its subject matter and supersedes any prior
arrangements or understandings (written or otherwise) between them.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the first date written above.
SUPERIOR SUPPLEMENTS, INC.
By: /s/ Lawrence D. Simon
----------------------------
PDK LABS INC.
By: /s/ Michael Krasnoff
----------------------------
11
<PAGE>
$15,000,000
REVOLVING CREDIT AGREEMENT
dated September 25, 1996
among
PDK LABS, INC. and
FUTUREBIOTICS, INC., as Co-Borrowers
and
THE CHASE MANHATTAN BANK, as Agent,
and
THE "BANKS" PARTY HERETO
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . 1
Section 1.1. Defined Terms . . . . . . . . . . 1
Section 1.2. Use of Defined Terms . . . . . . 12
Section 1.3. Accounting Terms . . . . . . . . 13
ARTICLE 2. AMOUNT AND TERMS OF THE REVOLVING CREDIT LOANS . . 13
Section 2.1. Revolving Credit Loans . . . . . 13
Section 2.2. The Notes . . . . . . . . . . . . 13
Section 2.3. Notice of Borrowing; Minimum
Amounts . . . . . . . . . . . . . . 14
Section 2.4. Commitment Fee . . . . . . . . . 15
Section 2.5. Termination or Reduction of
Commitment; Acceleration of
Termination Date . . . . . . . . . 15
Section 2.6. Changes in Capital Requirements . 15
Section 2.7. Voluntary Prepayments .. . . . . 16
Section 2.8. Computation of Interest and Commitment
Fee; Payments . . . . . . . . . 16
Section 2.9. Inability to Determine Rate . . . 16
Section 2.10. Illegality . . . . . . . . . . . 16
Section 2.11. Requirements of Law . . . . . . . 17
Section 2.12. Indemnification . . . . . . . . . 17
Section 2.13. Use of Proceeds . . . . . . . . . 18
Section 2.14. Authorization to Debit Co-Borrowers'
Accounts . . . . . . . . . . . . . 18
Section 2.15. Default Interest . . . . . . . . 18
Section 2.16. Interest Adjustments . . . . . . 18
Section 2.17. Participations, Etc . . . . . . . 19
ARTICLE 3. CONDITIONS OF BORROWING . . . . . . . . . . . . . . 19
Section 3.1. Conditions of Initial Revolving Credit
Loan . . . . . . . . . . . . . . 19
Section 3.2. Additional Conditions Precedent . 23
ARTICLE 4. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . 24
Section 4.1. Corporate Existence . . . . . . . 24
Section 4.2. Corporate Power and Authorization 24
Section 4.3. No Legal Bar to Loans . . . . . . 24
Section 4.4. No Material Litigation . . . . . 25
Section 4.5. No Default . . . . . . . . . . . 25
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<PAGE>
Section 4.6. Ownership of Properties; Liens . 25
Section 4.7. Taxes . . . . . . . . . . . . . . 25
Section 4.8. Financial Condition . . . . . . . 25
Section 4.9. Filing of Statements and Reports 25
Section 4.10. ERISA . . . . . . . . . . . . . . 26
Section 4.11. Environmental Matters . . . . . . 26
Section 4.12. Licenses, Permits, etc. . . . . . 26
Section 4.13. Material Agreements . . . . . . . 26
Section 4.14. Margin Credit . . . . . . . . . . 26
Section 4.15. Use of Proceeds . . . . . . . . . 27
Section 4.16. Properties Affected . . . . . . . 27
Section 4.17. Guarantors . . . . . . . . . . . 27
Section 4.18. Subsidiaries . . . . . . . . . . 27
Section 4.19. Solvency . . . . . . . . . . . . 27
ARTICLE 5. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . 27
Section 5.1. Financial Statements . . . . . . 27
Section 5.2. Payment and Performance of
Obligations . . . . . . . . . . . 29
Section 5.3. Maintenance of Properties;
Insurance . . . . . . . . . . . . 29
Section 5.4. Notices . . . . . . . . . . . . . 30
Section 5.5. Conduct of Business and
Maintenance of Existence . . . . . 30
Section 5.6. Inspection of Property, Books and
Records . . . . . . . . . . . . . 30
Section 5.7. Hazardous Material . . . . . . . 30
Section 5.8. Subsidiary Guaranties . . . . . . 31
Section 5.9. Pension Funding . . . . . . . . . 31
ARTICLE 6. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . 31
Section 6.1. Limitation on Indebtedness . . . 32
Section 6.2. Limitation on Liens . . . . . . . 32
Section 6.3. Limitation on Contingent
Obligations . . . . . . . . . . . 33
Section 6.4. Prohibition of Fundamental
Changes. . . . . . . . . . . . . . 33
Section 6.5. Limitation on Investments, Loans and
Advances . . . . . . . . . . . . 33
Section 6.6. Prohibition of Certain
Prepayments . . . . . . . . . . . 34
Section 6.7. Limitation on Leases . . . . . . 34
Section 6.8. Sale and Leaseback . . . . . . . 34
Section 6.9. Prohibitions Regarding Subordinated
Debt . . . . . . . . . . . . . . 34
Section 6.10. Maintenance of Consolidated
Indebtedness to Consolidated Tangible
Net Worth Ratio . . . . . . . . 35
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<PAGE>
Section 6.11. Maintenance of Consolidated Coverage
Ratio . .. . . . . . . . . . . . . 35
Section 6.12. Consolidated Net Income . . . . . 35
Section 6.13. Maintenance of Consolidated Quick
Ratio . . . . . . . . . . . . . . 35
Section 6.14. Transactions with Affiliates . . 35
Section 6.15. Management . . . . . . . . . . . 35
Section 6.16. Change in Control . . . . . . . . 35
Section 6.17. Limitation on Capital
Expenditures . . . . . . . . . . . 35
Section 6.18. Limitation on Dividends and Stock
Acquisitions . . . . . . . . . . 35
ARTICLE 7. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . 36
Section 7.1. Events of Default . . . . . . . . 36
Section 7.2. Remedies on Default . . . . . . . 38
ARTICLE 8. THE AGENT; RELATIONS AMONG BANKS . . . . . . . . . 38
Section 8.1. Appointment, Powers and Immunities of
Agent . . . . . . . . . . . . . . 38
Section 8.2 Reliance by Agent . . . . . . . . 39
Section 8.3 Defaults . . . . . . . . . . . . 39
Section 8.4 Rights of Agent as a Bank . . . . 39
Section 8.5 Indemnification of Agent . . . . 40
Section 8.6 Documents . . . . . . . . . . . . 40
Section 8.7 Non-Reliance on Agent and Other
Banks . . . . . . . . . . . . . . 40
Section 8.8 Failure of Agent to Act . . . . . 41
Section 8.9 Resignation or Removal of Agent . 41
Section 8.10 Amendments Concerning Agency
Function . . . . . . . . . . . . . 41
Section 8.11 Liability of Agent . . . . . . . 41
Section 8.12 Transfer of Agency Function . . . 41
Section 8.13 Non-Receipt of Funds by the Agent. 42
Section 8.14 Several Obligations and Rights of
Banks . . . . . . . . . . . . . . 42
Section 8.15 Pro Rata Treatment of Loans, Etc . 42
Section 8.16 Sharing of Payments Among Banks. . 42
ARTICLE 9. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . 43
Section 9.1. Limited Role of Banks . . . . . . 43
Section 9.2. Choice of Law Construction . . . 43
Section 9.3. Consent to Jurisdiction . . . . 43
Section 9.4. WAIVER OF JURY TRIAL . . . . . . 43
Section 9.5. Notices . . . . . . . . . . . . 43
Section 9.6. Entire Agreement; No Waiver; Cumulative
Remedies; Amendments; Setoff . . 44
Section 9.7. Reference to Subsidiaries and
Guarantors . . . . . . . . . . . . 45
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<PAGE>
Section 9.8. Joint and Several Obligations. . . 45
Section 9.9. Captions . . . . . . . . . . . . . 45
Section 9.10. Exhibits . . . . . . . . . . . . . 45
Section 9.11. Payment of Fees. . . . . . . . . . 45
Section 9.12. Survival of Agreements . . . . . . 46
Section 9.13. Successors and Assigns . . . . . . 46
Section 9.14. Interest . . . . . . . . . . . . . 46
-4-
<PAGE>
REVOLVING CREDIT AGREEMENT, dated as of September 25, 1996, among
PDK LABS INC., a New York corporation having its principal place of business at
145 Ricefield Lane, Hauppauge, New York 11788 ("PDK"), FUTUREBIOTICS, INC., a
Delaware corporation having its principal place of business at 145 Ricefield
Lane, Hauppauge, New York ("Futurebiotics"; collectively with PDK, the "Co-
Borrowers"), each of the Banks which is a party hereto and THE CHASE MANHATTAN
BANK, a New York banking corporation having an office at 395 North Service Road,
Suite 302, Melville, New York 11747 ("Chase"), as agent for the Banks (in such
capacity, together with its successors in such capacity, the "Agent").
RECITALS:
WHEREAS, Chase has previously extended credit to Futurebiotics
pursuant to the Futurebiotics Credit Agreement and to PDK pursuant to the PDK
Credit Agreement; and
WHEREAS, the Co-Borrowers have requested the Banks to extend credit
hereunder to replace the existing revolving credit made available by Chase to
Futurebiotics and to PDK and, in that connection, the Co-Borrowers have agreed
to use the proceeds of the initial borrowings hereunder to repay such revolving
credit indebtedness; and
WHEREAS, the Banks are willing to extend such credit to the
Co-Borrowers, on a joint and several basis, on the terms and conditions set
forth herein;
NOW, THEREFORE, the parties hereto agree as follows:
A1. DEFINITIONS
S1. Defined Terms. As used in this Agreement, the following terms
shall have the following meanings, unless the context otherwise requires:
"Accumulated Funding Deficiency" shall have the meaning set forth in
Section 302 of ERISA.
"Affiliate" shall mean, with respect to any Person, any Person which
(a) directly or indirectly, is in control of, is controlled by, or is under
common control with, such Person; (b) is a partnership in which such Person is
a general partner; or (c) is
<PAGE>
a limited liability company in which such Person is a member. For purposes of
this definition, "control" of a Person means the power, direct or indirect,
either (i) to vote 10% or more of the securities having ordinary voting power
for the election of directors of such Person or (ii) to direct or cause the
direction of the management and policies of such Person, whether by contract or
otherwise.
"Agreement" shall mean this Credit Agreement and any amendments or
supplements thereto.
"Alternate Base Rate" shall mean, for any day, a rate per annum
(rounded upwards, if necessary, to the next 1/6 of 1%) equal to the greatest of:
(a) the Prime Rate in effect on such day;
(b) the Base CD Rate in effect on such day plus 1%;
and
(c) the Federal Funds Effective Rate in effect on such day plus
1/2 of 1%.
For purposes of this definition:
"Prime Rate" shall mean the rate of interest per annum publicly
announced from time to time by the Agent as its prime rate in effect as its
principal office in New York City. The Prime Rate is not intended to be the
lowest rate of interest charged by the Agent in connection with extensions of
credit to debtors.
"Base CD Rate" shall mean the sum of (a) the product of (i) the
Three-Month Secondary CD Rate and (ii) a fraction, the numerator of which is
one and the denominator of which is one minus the CD Reserve Percentage and
(b) the CD Assessment Rate.
"CD Assessment Rate" shall mean, for any day, the net annual
assessment rate (rounded upwards, if necessary, to the next 1/100 of 1%)
determined by the Agent to be payable on such day to the Federal Deposit
Insurance Corporation or any successor ("FDIC") for FDIC's insuring time
deposits made in Dollars at office of the Agent in the United States.
- 2 -
<PAGE>
"CD Reserve Percentage" shall mean, for any day, as applied to any
calculation of the Base CD Rate, that percentage (expressed as a decimal) which
is in effect on such day, as prescribed by the Board for determining the maximum
reserve required for a Depositary Institution (as defined in Regulation D of the
Board) in respect of new non-personal time deposits in Dollars having a maturity
of 30 days or more.
"Three-Month Secondary CD Rate" shall mean for any day, the
secondary market rate for three-month certificates of deposit reported as being
in effect on such day (or, if such day is not a Business Day, the next preceding
Business Day) by the Board through the public information telephone line of the
Federal Reserve Bank of New York (which rate will, under the current practices
of the Board, be published in Federal Reserve Statistical Release H.15(519)
during the week following such day), or if such rate is not so reported, the
average (rounded upwards to the nearest 1/100 of 1%) of the secondary market
quotations for three-month certificates of deposit of major money center banks
in New York City received at approximately 10:00 a.m., New York City time, on
such day or next preceding Business Day by the Agent from three New York City
negotiable certificate of deposit dealers of recognized standing selected by it.
"Federal Funds Effective Rate" shall mean, for any day, the weighted
average of the rates on overnight Federal Funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published on the
next succeeding Business Day by the Federal Reserve Bank of New York, or, if
such rate is not so published for any day that is a Business Day, the average
quotations, for the day, of such transactions received by the Agent from three
Federal funds brokers of recognized standing selected by it.
If for any reason the Agent shall have determined (which determination shall be
conclusive absent clearly demonstrable error) that it is unable to ascertain the
Base CD Rate or the Federal Funds Effective Rate or both for any reason,
including the inability or failure of the Agent to obtain sufficient quotations
in accordance with the terms thereof, the Alternate Base Rate shall be
determined without regard to clause (b) or (c), or both, as appropriate, until
the circumstances giving rise to such inability
- 3 -
<PAGE>
no longer exist. Any change in the Alternate Base Rate due to a change in the
Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds Effective
Rate shall be effective as of the opening of business on the date of such
change.
"Banks" means each of Chase and the other Banks, if any, signatory
hereto and each Bank which hereinafter becomes a "Bank" pursuant to the terms
hereof.
"Base Rate Loan" shall mean a Loan at such time as it is made or
maintained at a rate of interest based on the Alternate Base Rate.
"Board of Governors" shall mean the Board of Governors of the Federal
Reserve System of the United States of America.
"Business Day" shall mean a day other than a Saturday, Sunday or
other day on which the Agent is authorized to close under the laws of the State
of New York.
"Capital Expenditures" shall mean, for any Person, for a particular
period, the aggregate amount of any expenditures during such period (including
purchase money Liens) made by such Person for assets (including fixed assets
acquired under Capital Leases) which it is contemplated will be used or usable
in fiscal years subsequent to the year of acquisition.
"Capital Lease" shall mean all leases which have been or should be
capitalized on the books of the lessee in accordance with GAAP.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"Commitment" means, with respect to each Bank, subject to the other
provisions of this Agreement, the obligation of such Bank to extend credit to
the Co-Borrowers hereunder in the following aggregate principal amounts, as
such amounts may be reduced or otherwise modified from time to time:
Bank Commitment
---- ----------
Chase $15,000,000
- 4 -
<PAGE>
"Commitment Proportion" shall mean with respect to each Bank, at the
time of determination, that portion that its Commitment bears to the Total
Commitment.
"Commonly Controlled Entity" shall mean an entity, whether or not
incorporated, which is under common control with the Co-Borrowers within the
meaning of Section 4001 of ERISA.
"Consolidated Coverage Ratio" shall mean, with respect to PDK and
its Subsidiaries, for any twelve month period, the ratio of (i) the sum of
Consolidated Net Income, tax expense, depreciation expense, amortization of
intangibles, other noncash charges and interest expense, minus any unfunded
Capital Expenditures, minus any cash dividends paid (common or preferred) as
permitted by this Agreement, minus any cash paid to purchase shares of the
Co-Borrowers' stock in accordance with Section 6.5(m) hereof minus cash taxes
paid, to (ii) the sum of interest expense during the preceding four fiscal
quarters plus installments of principal on all long term Consolidated
Indebtedness scheduled to be paid during the subsequent four fiscal quarters.
For purposes of this definition and the calculation of this ratio, long term
Consolidated Indebtedness shall include one-seventh (1/7) of the principal
amount outstanding under this revolving credit facility at the end of such
twelve month period.
"Consolidated Current Liabilities" shall mean, at a particular date,
all amounts which would, in conformity with GAAP, be included under current
liabilities on a consolidated balance sheet of PDK and its Subsidiaries as at
such date, including, without limitation, (a) all obligations payable on demand
or within one year after the date on which the determination is made and (b)
one-seventh (1/7) of the then outstanding principal amount hereunder.
"Consolidated Indebtedness" shall mean, at a particular date, the
aggregate amount for PDK and its Subsidiaries of (i) indebtedness or liability
for borrowed money; (ii) indebtedness for the deferred purchase price of
property or services (including trade obligations or trade letters of credit) ;
(iii) obligations of a lessee under Capital Leases; (iv) current liabilities in
respect of unfunded vested benefits under any Plan; (v) obligations under
stand-by letters of credit issued for the account of the Co-Borrowers, or either
of them, or any Subsidiary for purposes other than to support trade indebtedness
that would be included in clause
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(ii) above; (vi) obligations arising under acceptance facilities; (vii) all
guaranties, endorsements (other than for collection or deposit in the ordinary
course of business) and other contingent obligations to purchase, to provide
funds for payment, to supply funds to invest in any Person, or otherwise to
assure a creditor against loss; (viii) obligations secured by any Lien on
property owned by the Co-Borrowers, or any of them, or any Subsidiary whether or
not the obligations have been assumed; and (ix) all other liabilities recorded
as such, or which should be recorded as such, on the consolidated financial
statements of PDK and its Subsidiaries in accordance with GAAP.
"Consolidated Intangibles" shall mean at a particular date, the
aggregate amount of all assets of PDK and its Subsidiaries, determined on a
consolidated basis at such date, that would be classified as intangible assets
in accordance with GAAP, but in any event including, without limitation,
customer lists, unamortized debt discount expense, unamortized organization and
reorganization expense, costs in excess of the net asset value of acquired
companies, patents, trade or service marks, franchises, trade names, goodwill
and the amount of any write-up in the book value of any assets resulting from
the revaluation (other than revaluations arising out of foreign currency
valuations in accordance with GAAP) thereof.
"Consolidated Liquid Assets" shall mean, at a particular date, all
amounts which would, in conformity with GAAP, be included under cash, marketable
securities and accounts receivable on a consolidated balance sheet of PDK and
its Subsidiaries at such date.
"Consolidated Net Income" shall mean, at a particular date, the
aggregate amount which would, in accordance with GAAP, be classified as
consolidated net income, after taxes, in a consolidated income statement of PDK
and its Subsidiaries as at such date.
"Consolidated Quick Ratio" shall mean the ratio of (i) Consolidated
Liquid Assets to (ii) Consolidated Current Liabilities.
"Consolidated Tangible Net Worth" shall mean, at any time
outstanding, the amount by which (i) the par value (or value stated on the
books) of all classes of the capital stock of PDK plus (or
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minus in the case of a deficit) the amount of the consolidated surplus, whether
capital or earned, of PDK and its Subsidiaries exceeds (ii) the sum of the
amount of Consolidated Intangibles, plus treasury stock, plus leasehold
improvements, plus loans and advances to officers, stockholders, and employees
of the Co-Borrowers or their Subsidiaries plus loans to, or Investments in any
other Person which is not a Guarantor. For the purposes of this definition,
Investments shall be deemed to include only those types of investments described
in Section 6.5(g), Section 6.5(h), Section 6.5(k) and Section 6.5(m) hereto.
"Consolidated Total Assets" shall mean, at a particular date, all
amounts which would, in conformity with GAAP, be included under total assets on
a consolidated balance sheet of a Co-Borrower and its Subsidiaries at such date.
"Consolidated Total Liabilities" shall mean, at a particular date,
all amounts which would, in conformity with GAAP, be included under total
liabilities on a consolidated balance sheet of a Co-Borrower and its
Subsidiaries at such date.
"Default" shall mean any of the events specified in Section 7.1
hereof, whether or not any requirement for the giving of notice or the lapse of
time or both or any other condition has been satisfied.
"Dollars" or "$" shall mean United States Dollars.
"ERISA" shall mean the Employee Retirement Income act of 1974, as
amended from time to time.
"ERISA Affiliate" shall mean any trade or business (whether or not
incorporated) which together with any other Person would be treated, with such
Person, as a single employer under Section 4001 of ERISA.
"Eurodollar Loan" shall mean a Loan at such time as it is made or
maintained at a rate of interest based on the Eurodollar Rate.
"Eurodollar Rate" shall mean for each Interest Period the rate per
annum, adjusted as provided in the following sentence, at which U.S. dollar
deposits are offered to the Agent's Eurodollar lending office (the "Lending
Office") in the interbank eurodollar
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market in which such Lending Office customarily deals as at the relevant local
time of such Lending Office, two (2) Working Days prior to the first day of such
Interest Period for delivery on the first day of such Interest Period, for the
number of days in such Interest Period in an amount equal to, for each
Eurodollar Loan, the amount of such Eurodollar Loan which will be outstanding
during such Interest Period. The interest rate determined under this paragraph
shall be adjusted by dividing such interest rate by the number equal to 1.00
minus the Reserve Requirement. As used in this definition, "relevant local time"
shall mean 11:00 A.M. local time in London, England when the Lending Office
operates on London time or 10:00 A.M. New York time when the Lending Office
operates on New York time.
"Event of Default" shall mean any of the events specified in
Section 7.1 hereof, provided that any requirement for the giving of notice or
the lapse of time or both has been satisfied.
"Existing Term Loans" shall mean the existing term loans made by
Chase to PDK and evidenced by the Existing Term Notes.
"Existing Term Notes" shall mean the promissory notes of PDK in
favor of the Chase dated November 30, 1992, July 6, 1995 and March 28, 1996,
respectively, and evidencing the Existing Term Loans.
"Futurebiotics Credit Agreement" shall mean the Revolving Credit
Agreement dated as of December 13, 1994 by and between Futurebiotics and Chase
(formerly known as Chemical Bank), as amended by a First Amendment dated as of
February 27, 1995, a Second Amendment, dated as of July 6, 1995, a Third
Amendment, dated as of March 28, 1996 and a Fourth Amendment dated as of June
11, 1996.
"Futurebiotics Notes" shall mean the promissory notes of the
Co-Borrowers payable to the order of each Bank, in substantially the form of
Exhibit A-2 hereto, evidencing the indebtedness of the Co-Borrowers to such Bank
incurred in connection with Loans made for the benefit of Futurebiotics in
accordance with the terms hereof.
"Futurebiotics Sublimit" shall mean $4,000,000 or such lesser amount
as may be in effect from time to time hereunder.
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<PAGE>
"GAAP" shall mean Generally Accepted Accounting Principles.
"Generally Accepted Accounting Principles" shall mean those
generally accepted accounting principles and practices which are recognized as
such by the American Institute of Certified Public Accountants acting through
the Financial Accounting Standards Board ("FASB") or through other appropriate
boards or committees thereof and which are consistently applied for all periods
so as to properly reflect the financial condition, operations and cash flows of
PDK and its Subsidiaries, except that any accounting principle or practice
required to be changed by the FASB (or other appropriate board or committee of
the FASB) in order to continue as a generally accepted accounting principle or
practice may be so changed. Any dispute or disagreement between the
Co-Borrowers and the Banks relating to the determination of Generally Accepted
Accounting Principles shall, in the absence of manifest error, be conclusively
resolved for all purposes hereof by the written opinion with respect thereto,
delivered to the Agent, of the independent accountants selected by the
Co-Borrowers and approved by the Banks for the purpose of auditing the
periodic financial statements of the Co-Borrowers.
"Guarantor" or "Guarantors" shall mean PDI and all present and future
Subsidiaries of the Co-Borrowers and the Guarantors.
"Guarantor's Security Agreement" shall mean each Guarantor's Security
Agreement executed by a Guarantor in favor of the Agent for the benefit of the
Banks hereunder in substantially the form of Exhibit D annexed hereto.
"Guaranty" or "Guaranties" shall mean each guaranty executed and
delivered by a Guarantor hereunder in substantially the form of Exhibit C
annexed hereto.
"Hazardous Materials" shall mean, without limit, any flammable
explosives, radioactive materials, hazardous materials, hazardous wastes,
hazardous or toxic substances, or related materials defined in the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended (42
U.S.C. Sections 9601, et. seq.), the Hazardous Materials Transportation Act, as
amended (49 U.S.C. Section 1801 et. seq.), the Resource Conservation and
Recovery Act, as amended (42 U.S.C. Sections 9601
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<PAGE>
et. seq.), and in the regulations adopted and publications promulgated pursuant
thereto, or any other federal, state or local environmental law, ordinance, rule
or regulation.
"Insolvency" shall mean with respect to any Multiemployer Plan, the
condition that such Plan is insolvent within the meaning of such term as used in
Section 4245 of ERISA.
"Insolvent" shall pertain to the condition of Insolvency.
"Interest Period" shall mean with respect to any Eurodollar Loan,
initially, the period commencing on the date of borrowing with respect to such
Eurodollar Loan and ending one, two or three months thereafter as selected by
the Company in its notice of borrowing as provided in Section 2.3 and
thereafter, each period commencing on the last day of the next preceding
Interest Period applicable to such Eurodollar Loan and ending one, two or three
months thereafter, as selected by the Company by irrevocable notice to the Agent
not less than three (3) Working Days prior to the last day of the then current
Interest Period with respect to such Eurodollar Loan; provided that:
(A) no Interest Period shall end later than the
Termination Date;
(B) if any Interest Period would end on a day
which is not a Working Day, that Interest Period shall be
extended to the next succeeding Working Day unless the
result of such extension would be to carry such Interest
Period into another calendar month in which event such
Interest Period shall end on the immediately preceding
Working Day; and
(C) any Interest Period that begins on the last Working
Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the
end of such Interest Period) shall end on the last Working
Day of a calendar month.
"Investment" shall mean any stock, evidence of debt or other security
of any Person, any loan, advance, contribution of capital, extension of credit
or commitment therefor, including without limitation the guaranty of loans made
to others (except for current trade and customer accounts receivable for
services
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rendered in the ordinary course of business and payable in accordance with
customary trade terms in the ordinary course of business), to another Person,
and any purchase of (i) any security of another Person or (ii) any business or
undertaking of any Person or any commitment or option to make any such purchase,
or any other investment.
"Letter of Credit Outstandings" shall mean the aggregate sum of the
amounts available to be drawn under letters of credit issued by the Banks for
the account of the Co-Borrowers and any Guarantor and the amounts of
unreimbursed drawings under such letters of credit.
"Lien" shall mean any mortgage, deed of trust, pledge, security
interest, hypothecation, assignment, deposit arrangement, encumbrance, lien
(statutory or other), or preference, priority, or other security agreement or
preferential arrangement, charge or encumbrance of any kind or nature
whatsoever, including, without limitation, any conditional sale or other title
retention agreement, any financing lease having substantially the same economic
effect as any of the foregoing, and the filing of any financing statement under
the Uniform Commercial Code or comparable law of any jurisdiction to evidence
any of the foregoing.
"Loan" or "Loans" shall mean one or more of the revolving credit
loans made by the Banks to the Co-Borrowers pursuant to Section 2.1 hereof and
shall include Base Rate Loans and Eurodollar Loans.
"Loan Documents" shall mean any and all of the Agreement, the Notes,
the Security Agreements, the Guaranties, the Guarantor's Security Agreements,
any agreements or documents referred to in Article 3 hereof and all other
documents and instruments executed in connection herewith.
"Material Adverse Change" shall mean, with respect to any Person,
(i) a material adverse change in the financial condition, business, operations,
properties, or assets of such Person or (ii) the occurrence of any event with
respect to such Person which could have a material adverse effect on the ability
of such Person to perform its obligations under the Loan Documents.
"Multiemployer Plan" shall mean a Plan which is a multiemployer plan
as defined in Section 4001(a)(3) of ERISA.
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"Notes" shall mean the Futurebiotics Notes and the PDK Notes.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA.
"PDI" shall mean PDI Labs, Inc., a New York corporation having its
principal place of business at 145 Ricefield Lane, Hauppauge, New York 11788.
"PDK Credit Agreement" shall mean the Amended and Restated Revolving
Credit Agreement, dated July 6, 1995 by and between PDK and Chase (formerly
known as Chemical Bank), as amended by a First Amendment, dated as of August 31,
1995, a Second Amendment, dated as of March 28, 1996 and a Third Amendment,
dated as of June 11, 1996.
"PDK Notes" shall mean the promissory notes of the Co-Borrowers
payable to the order of each Bank, in substantially the form of Exhibit A-1
annexed hereto, evidencing the indebtedness of the Co-Borrowers to such Bank
resulting from loans made by such Bank made for the benefit of PDK in accordance
with the terms hereof.
"PDK Sublimit" shall mean $11,000,000 or such lesser amount as may be
in effect from time to time hereunder.
"Permitted Acquisition" means the acquisition by the Co-Borrowers,
or either of them, of the stock or assets of any Person engaged in a similar
type of business as the Co-Borrowers (an "Eligible Business") provided that: (i)
after giving effect thereto, the nature and scope of the business of the
Co-Borrowers shall not have been materially changed; (ii) the Permitted
Acquisition Purchase Price of all such purchases shall not exceed $6,000,000 in
the aggregate during any fiscal year of the Co-Borrowers, and that the
Permitted Acquisition Purchase Price of any such acquisition does not exceed
$5,000,000 and that not more than $5,000,000 of the Permitted Acquisition
Purchase Price of all such acquisitions in the aggregate during any fiscal year
of the Borrower shall be paid in cash; (iii) prior to giving effect to such
acquisition, the Agent shall be provided with satisfactory evidence that such
acquisition shall not be a "hostile" acquisition or other "hostile"
transaction (i.e., such transactions shall have
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been approved by the Board of Directors of the Eligible Business); or (iv) such
Eligible Business, in the case of a purchase of stock, shall be incorporated in
or organized under the laws of a State of the United States or, if such
acquisition is of assets, such assets shall be located in the United States. In
addition, no acquisition shall be a Permitted Acquisition hereunder unless on or
before the 30th day prior to the closing of such acquisition, the Agent shall
have been provided satisfactory evidence that:
(i) on a proforma basis, that the acquisition shall not (i) increase
by 100% or more the Consolidated Total Liabilities of the Co-Borrowers, or
either of them, and (ii) result in a leverage ratio as measured by Consolidated
Total Liabilities to Consolidated Total Assets (the "Leverage Ratio") higher
than 50% for PDK and its subsidiaries or for Futurebiotics and its Subsidiaries.
For purposes of this definition (x) Consolidated Total Liabilities shall include
all forms of Indebtedness reflected on a consolidated balance sheet of the
relevant entity and its Subsidiaries and claims including all Subordinated Debt
and non-perpetual preferred stock, which shall mean preferred stock that has a
maturity date and that can be redeemed at the option of the holder of the
instrument and (y) Consolidated Total Assets shall include intangible assets;
(ii) such acquisition shall not (A) result in a Leverage Ratio
higher than 75% for either Co-Borrower and its Subsidiaries and (B) cause 25% or
more of the Consolidated Total Liabilities of either Co-Borrower and its
Subsidiaries after the acquisition to be derived from past or present buyouts,
acquisitions or recapitalizations.
For purposes of clause (ii) (B) above, an acquisition shall be deemed to
result in more than 25% of the Consolidated Total Liabilities of a Co-Borrower
and its Subsidiaries to be derived from past or present buyouts, acquisitions or
recapitalizations if the total liabilities of the acquired entity plus the then
current balance of indebtedness, excluding trade payables, incurred or created
in connection with all prior acquisitions equals or exceeds 25% of the
Consolidated Total Liabilities of such Co-Borrower and its Subsidiaries.
"Permitted Acquisition Purchase Price" shall mean, with respect to
any Permitted Acquisition, collectively, without duplication, (i) all cash paid
by the Co-Borrowers or any of their
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Subsidiaries in connection with such Permitted Acquisition, including in respect
of transaction costs, fees and other expenses incurred by the Co-Borrowers or
any of their Subsidiaries in connection with such Permitted Acquisition, (ii)
all indebtedness created, and all indebtedness assumed, by the Co-Borrowers or
any of their Subsidiaries in connection with such Permitted Acquisition, (iii)
the value of all capital stock issued by the Co-Borrowers or any of their
Subsidiaries in connection with such Permitted Acquisition and (iv) any deferred
portion of the purchase price or any other costs paid by the Co-Borrowers or
any of their Subsidiaries in connection with such Permitted Acquisition,
including but not limited to consulting agreements and non-compete agreements.
"Person" shall mean an individual, partnership, corporation,
business trust, joint stock company, limited liability company, trust,
unincorporated association, joint venture, government authority or other entity
of whatever nature.
"Plan" shall mean at any particular time, any employee benefit plan
which is covered by ERISA and in respect of which the Co-Borrowers, or either of
them, or a Commonly Controlled Entity is (or, if such plan were terminated at
such time, would under Section 4069 of ERISA be deemed to be) an employer as
defined in Section 3(5) of ERISA.
"Prohibited Transaction" shall mean any transaction set forth in
Section 406 of ERISA or Section 4975 of the Internal Revenue Code of 1986, as
amended from time to time.
"Regulation D" shall mean Regulation D of the Board of Governors, as
the same may be amended and in effect from time to time.
"Regulation G" shall mean Regulation G of the Board of Governors, as
the same may be amended and in effect from time to time.
"Regulation T" shall mean Regulation T of the Board of Governors, as
the same may be amended and in effect from time to time.
"Regulation U" shall mean Regulation U of the Board of
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Governors, as the same may be amended and in effect from time to time.
"Regulation X" shall mean Regulation X of the Board of Governors, as
the same may be amended and in effect from time to time.
"Reorganization" shall mean, with respect to any Multiemployer Plan,
the condition that such Plan is in reorganization within the meaning of such
term as used in Section 4241 of ERISA.
"Reportable Event" shall mean any of the events set forth in Section
4043(b) of ERISA, other than those events as to which the thirty-day notice
period is waived under subsections .13, .14, .16, .18, .19 or .20 of PBGC
Reg. Section 2615.
"Required Banks" shall mean, at any time, Banks having at least
66-2/3% of the total Commitments.
"Reserve Requirement" means, with respect to each Interest Period
for each Eurodollar Loan, the aggregate of the maximum rates (expressed as a
percentage and rounded upwards if necessary to the nearest 1/100th of 1%) of
reserve requirements current on the date two Working Days prior to the beginning
of such Interest Period (including, without limitation, basic, supplemental,
marginal and emergency reserves under any regulations of the Board of Governors
of the Federal Reserve System or other governmental authority having
jurisdiction with respect thereto), as now and/or from time to time hereafter in
effect, relating to reserve requirements prescribed for eurocurrency funding
maintained by a member bank of such system. Such reserve percentages shall
include, without limitation, those imposed under Regulation D. Eurodollar Loans
shall be deemed to constitute "eurocurrency liabilities" (as defined in
Regulation D) and, as such, shall be deemed to be subject to such reserve
requirements without benefit of or credit for proration, exemptions or offsets
which may be available to any bank under Regulation D. The Reserve Requirement
shall be adjusted automatically on and as of the effective date of any change in
any such reserve percentage.
"Security Agreement" shall mean each security agreement executed by
a Co-Borrower in favor of the Agent for the benefit of the Banks hereunder
substantially in the form of Exhibit B annexed
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hereto.
"Single Employer Plan" shall mean any Plan which is covered by Title
IV of ERISA, but which is not a Multiemployer Plan.
"Solvent" means, when used with respect to any Person on a particular
date, that on such date: (a) the fair saleable value of its assets is in
excess of the total amount of its liabilities, including, without limitation,
the reasonable expected amount of such Person's obligations with respect to
contingent liabilities, (b) the present fair saleable value of the assets of
such Person is not less than the amount that will be required to pay the
probable liability of such Person on its indebtedness as they become absolute
and matured, (c) such Person does not intend to, and does not believe that it
will, incur indebtedness or liabilities beyond such Person's ability to pay as
such indebtedness and liabilities mature and (d) such Person is not engaged in
business or a transaction for which such Person's property would constitute an
unreasonably small capital.
"Subordinated Debt" shall mean all indebtedness of a Person, the
repayment of which the obligee has agreed in writing, on terms approved in
advance by the Agent in writing, shall be subordinated in right of payment to
all indebtedness of such Person to the Banks.
"Subsidiary" shall mean with respect to any Person, any corporation,
partnership or joint venture whether now existing or hereafter organized or
acquired: (i) in the case of a corporation, of which a majority of the
securities having ordinary voting power for the election of directors (other
than securities having such power only by reason of the happening of a
contingency) are at the time owned by such Person and/or one or more
Subsidiaries of such Person or (ii) in the case of a partnership or joint
venture, of which a majority of the partnership or other ownership interests are
at the time owned by such Person and/or one or more of its Subsidiaries.
"Termination Date" shall mean the earlier of September 25, 1999 or
the date the Commitments may be terminated.
"Total Commitment" means, at any time, the aggregate of the
Commitments in effect from time to time.
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"Working Day" shall mean any day on which dealings in foreign
currencies and exchange between banks may be carried on in the places where the
Agent's eurodollar lending office is located and in New York.
S1. Use of Defined Terms. All terms defined in this Agreement shall
have the defined meanings when used in the Notes, the Loan Documents,
certificates, reports or other documents made or delivered pursuant to this
Agreement unless the context shall otherwise require.
S2. Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP.
A1. AMOUNT AND TERMS OF THE REVOLVING CREDIT LOANS
S1.
Revolving Credit Loans. Subject to the terms and conditions of this Agreement,
each of the Banks severally (but not jointly) agree to make Loans in Dollars to
the Co-Borrowers at any time and from time to time on or after the date hereof,
to and including the Termination Date, in an aggregate principal amount
outstanding at any one time up to but not exceeding its Commitment Proportion of
the difference between (i) the Total Commitments and (ii) the Letter of Credit
Outstandings. The Loans may be outstanding as Base Rate Loans or Eurodollar
Loans; provided, however, that during the occurrence and continuance of a
Default or an Event of Default, the Banks shall have no obligation to make
Eurodollar Loans. Subject to the foregoing limits, the Co-Borrowers may use the
Commitment by borrowing, repaying and reborrowing, all in accordance with the
terms and conditions of this Agreement. Notwithstanding the foregoing, in no
event shall the aggregate principal amount of Loans made available to PDK exceed
PDK Sublimit and in no event shall the aggregate principal amount of Loans made
available to Futurebiotics exceed the Futurebiotics Sublimit.
S2.
The Notes. The Loans made by each Bank for the benefit of PDK shall be
evidenced by a single promissory note in favor of such Bank substantially in the
form of Exhibit A-1 annexed hereto with appropriate insertions, duly executed
and completed by the Co-Borrowers. The Loans made by each Bank for the benefit
of Futurebiotics shall be evidenced by a single promissory note in favor of such
Bank substantially in the form of Exhibit A-2 annexed
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hereto with appropriate insertions, duly executed and completed by the
Co-Borrowers. Each Bank is hereby authorized to record the date, type and amount
of each Loan, the date and amount of each payment of principal thereof, the
principal amount subject thereto and the interest rate and Interest Period with
respect thereto in the Bank's records and/or on schedules annexed to and
constituting a part of the Notes, and, absent manifest error, any such
recordation shall constitute conclusive evidence of the information so recorded;
provided, that the failure to make such recordation shall not in any way affect
the obligations of the Co-Borrowers to repay the Loans. The Notes (a) shall be
dated the date hereof, (b) be stated to mature on the Termination Date and (c)
bear interest on the unpaid principal amount thereof as follows:
(a)
Each Base Rate Loan shall bear interest on the unpaid principal amount thereof
at a rate per annum equal to the Alternate Base Rate. Interest on Base Rate
Loans shall be payable monthly on the first Business Day of each month
commencing on the first such date after a Base Rate Loan is made and upon
payment or prepayment in full of the unpaid principal amount thereof.
(b)
Each Eurodollar Loan shall bear interest on the unpaid principal amount thereof
at a rate per annum equal to 2% above the Eurodollar Rate. Interest on each
Eurodollar Loan shall be payable on the last day of each Interest Period
applicable thereto, and upon payment or prepayment in full of the unpaid
principal amount thereof. If applicable, interest on each Eurodollar Loan with
an Interest Period greater than one month shall also be payable on the first
Business Day of each month from the date of such Eurodollar Loan, and on the
first Business Day of each month thereafter.
(c)
The unpaid principal amount of all Base Rate Loans and Eurodollar Loans shall be
payable on the Termination Date. If all or a portion of any principal amount of
any loan shall not be paid when due (whether as stated, by acceleration or
otherwise), such loan, if a Eurodollar Loan, shall be converted to a Base Rate
Loan at the end of the relevant Interest Period applicable thereto, and any such
overdue principal amount shall bear interest at a rate per annum
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which is 2% above the rate which would otherwise be applicable pursuant to the
terms of this Section 2.2.
S3.
Notice of Borrowing; Minimum Amounts. (a) The Co-Borrowers shall give the Agent
prior telephonic notice followed by written, telegraphic or tested telex
confirmation of the date, the borrowing option, the applicable Interest Period,
if any, and the amount of each borrowing pursuant to the Commitment at least by
11:00 a.m. (i) on the borrowing date of any Base Rate Loan, and (ii) at least
three (3) Working Days prior to the borrowing date of any Eurodollar Loan. Each
such notice, which shall be effective only upon receipt thereof by the Agent,
shall also include a certification, if form and substance satisfactory to the
Agent, indicating which of the Co-Borrowers will receive the proceeds of such
Loan. Notice of receipt of any such notice shall be provided by the Agent to
each Bank with reasonable promptness.
(b) Each Bank will make its share of each borrowing available to the
Agent by 12:00 p.m. on the date of such borrowing in immediately available
funds. Unless any applicable condition specified in Article 3 has not been
satisfied, the amounts so received by the Agent will be made available to the
Co-Borrowers by credit to an account of the Co-Borrowers maintained at the
Agent. All Loans requested by the Co-Borrowers to benefit PDK shall be credited
to an account of PDK maintained at the Agent and all Loans represented by the
Co-Borrowers to benefit Futurebiotics shall be credited to an account of
Futurebiotics maintained at the Agent.
(c) At least three (3) Working Days prior to the last day of any
Interest Period with respect to any Eurodollar Loan, the Co-Borrowers may give
the Agent notice of their election to continue such Eurodollar Loan, specifying
the resulting Interest Period. If the Co-Borrowers shall fail to give such
notice, any loan affected thereby shall be automatically converted to a Base
Rate Loan at the end of such Interest Period. Upon at least three (3) Working
Days' prior written notice, the Co-Borrowers may give the Agent notice of their
election to convert a Base Rate Loan to a Eurodollar Loan, specifying the
resulting Interest Period. Notice of receipt of any such notice shall be
provided by the Agent to the Banks with reasonable promptness. The Banks may,
but shall be under no obligation to, continue any Eurodollar Loan as such or to
convert any Base Rate Loan to a Eurodollar Loan, when any Default or Event of
Default has occurred and is continuing, but any such Eurodollar
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Loan shall be automatically converted to a Base Rate Loan on the last day of the
Interest Period applicable thereto, and any such Base Rate Loan shall be
continued as a Base Rate Loan, as the case may be.
(d) Except for borrowings which exhaust the full remaining amount of
the Commitments, each borrowing of Base Rate Loans shall be in an amount at
least equal to $100,000 and, if greater, in integral multiples of $100,000 in
excess thereof, and each borrowing of Eurodollar Loans shall be in an amount at
least equal to $500,000, and, if greater, in integral multiples of $100,000 in
excess thereof.
S1.
Commitment Fee. The Co-Borrowers agree to pay to the Agent for the pro rata
account of each Bank a commitment fee for the period from and including the date
hereof to and including the Termination Date, computed at the rate of 1/4 of 1%
per annum on the average daily unused portion of the Total Commitments in effect
during the period for which payment is made. Such commitment fee shall be
payable on the last day of each March, June, September and December, and on the
Termination Date.
S2.
Termination or Reduction of Commitment; Acceleration of Termination Date. The
Co-Borrowers shall have the right, upon not less than three (3) Business Days
prior written notice to the Agent, to terminate the Commitment in whole at any
time or to reduce the Commitments in part from time to time, or to accelerate
the Termination Date, provided that (a) any reduction of the Commitments shall
be accompanied by prepayment, together with accrued interest on the amount so
prepaid and any payment required by Section 2.12(iv), to the extent, if any,
that the aggregate unpaid principal amount of the Note exceeds the Commitment as
then reduced, (b) any termination of the Commitments shall be accompanied by
payment in full of the unpaid principal amount of the Notes, together with
accrued interest thereon and any payment required by Section 2.12(iv), and the
payment of any commitment fee then accrued hereunder, (c) any acceleration of
the Termination Date shall be accompanied by the payment of any commitment fee
then accrued hereunder and any payment required by Section 2.12 (iv) and (d) any
partial reduction in the Commitments shall reduce the Futurebiotics Sublimit
and/or PDK Sublimit in such amounts as the Co-Borrowers' may elect in their
notice to the Agent. If the Co-
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<PAGE>
Borrowers do not specify a different allocation in the notice required to be
delivered to the Agent hereunder, any reduction in the Commitment shall be
applied to reduce the Futurebiotics Sublimit and PDK Sublimit proportionately.
Any partial reduction shall be in an aggregate principal amount of $50,000 or a
multiple thereof and shall reduce permanently the Commitments then in effect
hereunder. The Commitments, once reduced or terminated, shall not be increased
or reinstated, as the case may be.
S3.
Changes in Capital Requirements. If after the date hereof, any Bank shall have
determined that the adoption of any applicable law, rule or regulation regarding
capital adequacy, or any change therein, or any change in the interpretation or
administration thereof, by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by any Bank with any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on such Bank's capital as a consequence of its obligations hereunder to a level
below that which such Bank could have achieved but for such adoption, change or
compliance (taking into consideration such Bank's policies with respect to
capital adequacy) by an amount deemed by such Bank to be material, then such
Bank shall notify the Agent and the Co-Borrowers of such event and within 15
days after such notice is delivered by such Bank hereunder, the Co-Borrowers
shall pay to the Agent for the benefit of such Bank such additional amount or
amounts as will compensate such Bank for such reduction.
1. Voluntary Prepayments. The Co-Borrowers may prepay any Base Rate Loan
without premium or penalty in whole at any time or in part from time to time,
and any Eurodollar Loan without premium or penalty in whole or in part on the
last day of any Interest Period applicable thereto. Eurodollar Loans may not be
prepaid during an Interest Period without the prior written consent of the
Agent. Partial prepayments of the Loans shall be in the principal amount of
$25,000 or multiples thereof if repayment is of a Base Rate Loan, and $250,000
or multiples thereof if repayment is of a Eurodollar Loan, together with payment
of accrued interest thereon to the date of the prepayment (and, if applicable,
the payment required by Section 2.12 (iv)). The Co-Borrowers shall give to the
Agent and each Bank at least three (3) Business Days prior written,
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telegraphic or tested telex notice of any repayment or prepayment, specifying
the date and the amount thereof.
S1. Computation of Interest and Commitment Fee; Payments. Commitment fees, if
any, and interest shall be calculated on the basis of a 360 day year for the
actual days elapsed. Any change in the interest rate on the Notes resulting from
a change in the Base Rate shall become effective as of the opening of business
on the day on which such change in the Base Rate shall become effective. All
payments (including prepayments) by the Co-Borrowers on account of principal
and interest on the Loans and the commitment fee hereunder shall be made not
later than 10:00 a.m. on the date specified herein to the Agent for the benefit
of the Banks, at the Agent's office located at 395 North Service Road, Suite
302, Melville, New York 11747 in Dollars in immediately available funds. If any
payment on a Base Rate Loan becomes due and payable on a day other than a
Business Day the maturity thereof shall be extended to the next succeeding
Business Day and interest thereon shall be payable at the then applicable rate
during such extension. If any payment on a Eurodollar Loan becomes due and
payable on a day other than a Working Day, the maturity thereof shall be
extended to the next succeeding Working Day unless the result of such extension
would be to extend such payment into another calendar month in which event such
payment shall be made on the immediately preceding Working Day.
S2. Inability to Determine Rate. If with respect to any Interest Period
pertaining to a Eurodollar Loan, the Agent determines that extraordinary
circumstances affecting the relevant market make it impracticable to ascertain
the interest rate applicable for such Interest Period, the Agent shall promptly
notify the Co-Borrowers and each Bank of such determination and no additional
Eurodollar Loans shall be made nor shall there be any conversions thereto until
such notice is withdrawn. If any Eurodollar Loan is outstanding on the date of
such notice and such notice has not been withdrawn on the last day of the then
current Interest Period applicable thereto, the Co-Borrowers may on the last day
of such Interest Period either convert such Eurodollar Loan to a Base Rate Loan
or prepay the outstanding principal balance thereof and accrued interest thereon
in full.
S3. Illegality. Notwithstanding any other provisions of this Agreement, if
any law, regulation, treaty or directive or any
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change therein or in the interpretation or application thereof, shall make it
unlawful for any Bank to make or maintain Eurodollar Loans as contemplated by
this Agreement, then (a) such Bank shall promptly notify the Agent thereof (with
a copy to the Co-Borrowers) and such Bank's obligation to make or maintain
Eurodollar Loans or convert Base Rate Loans to Eurodollar Loans shall forthwith
be suspended until such time as such Bank may again make and maintain such Loans
and (b) Loans then outstanding as Eurodollar Loans, if any, shall be converted
to Base Rate Loans on the last day of the Interest Period applicable thereto or
within such earlier period as required by law. The Co-Borrowers hereby agree to
promptly pay to the Agent for the benefit of the affected Bank, upon the demand
of such Bank through the Agent, any amounts required by Section 2.12(iv)
resulting from a prepayment of a Eurodollar Loan.
S4. Requirements of Law. In the event that any law, regulation, treaty or
directive or any change therein or in the interpretation or application thereof
or compliance by any Bank with any request or directive (whether or not having
the force of law) from any central bank or other governmental authority, agency
or instrumentality:
(i) does or shall subject such Bank to any tax of any kind
whatsoever with respect to this Agreement, its Commitment,
the Notes or any Loans made hereunder, or change the basis of
taxation of payments to such Bank of principal, commitment fee,
interest or any other amount payable hereunder (except for
changes in the rate of any tax presently imposed on such Bank);
(ii) does or shall impose, modify or hold applicable any
reserve, special deposit, compulsory loan or similar requirement
against assets held by, or deposits or other liabilities in or
for the account of, advances or loans by, or other credit extended
by, or any other acquisition of funds by, any office of such
Bank which are not otherwise included in the determination of
the Eurodollar Rate hereunder;
(iii) does or shall impose on such Bank any other condition;
and the result of any of the foregoing is to increase the cost to such Bank of
making, renewing or maintaining commitments, advances or extensions of credit to
the Co-Borrowers or to reduce any amount
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receivable from the Co-Borrowers thereunder then, in any such case, the
Co-Borrowers shall promptly pay to the Agent for the account of each Bank, upon
the demand of such Bank through the Agent, any additional amounts necessary to
compensate such Bank for such additional cost or reduced amount receivable which
such Bank deems to be material as determined by such Bank with respect to this
Agreement, its Commitment, the Notes or the Loans made hereunder. If any Bank
becomes entitled to claim any additional amounts pursuant to this Section 2.11,
it shall promptly notify the Co-Borrowers and the Agent of the event by reason
of which it has become so entitled. A certificate setting forth calculations as
to any additional amounts payable pursuant to the foregoing sentence submitted
by such Bank to the Agent the Co-Borrowers shall be conclusive in the absence of
manifest error.
S1. Indemnification. The Co-Borrowers agree to indemnify each Bank (including,
without limitation, the Agent) and to hold each Bank harmless from any loss or
expense which such Bank may sustain or incur as a consequence of (i) default by
the Co-Borrowers in payment when due of the principal amount of or interest on
any Eurodollar Loan, (ii) default by the Co-Borrowers in making a borrowing of,
conversion into or continuation of Eurodollar Loans after the Co-Borrowers have
given a notice requesting the same in accordance with the provisions of this
Agreement, (iii) default by the Co-Borrowers in making any prepayment after the
Co-Borrowers have given a notice thereof in accordance with the provisions of
this Agreement, or (iv) the making of a prepayment of Eurodollar Loans on a day
which is not the last day of an Interest Period with respect thereto, including,
without limitation, in each case, any such loss (including lost profits) or
expense arising from the reemployment of funds obtained by it or from fees
payable to terminate the deposits from which such funds were obtained. This
covenant shall survive the termination of this Agreement and the payment of the
Notes and all other amounts payable hereunder.
S2. Use of Proceeds. (a) No part of the proceeds of any borrowing hereunder
will be used to purchase or carry any margin stock or to extend credit to others
for the purpose of purchasing or carrying any margin stock. If requested by the
Agent, the Co-Borrowers will furnish to the Agent a statement in conformity
with the requirements of Federal Reserve Form U-1 referred to in Regulation U
and to the foregoing effect. No part of the proceeds of the Loans will be used
for any purpose which
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<PAGE>
violates, or which is inconsistent with, the provisions of Regulation G,
Regulation T, Regulation U or Regulation X.
(a) The proceeds of the Loans shall be used (i) to refinance all
obligations of the Co-Borrowers (other than the obligations of PDK with respect
to the Existing Term Loans), under the Futurebiotics Credit Agreement and PDK
Credit Agreement; and (ii) subject to the Futurebiotics Sublimit and PDK
Sublimit, to finance the ongoing working capital needs and capital expenditures
of the Co-Borrowers. The proceeds of the Loans shall not be used to finance
acquisitions.
S3. Authorization to Debit Co-Borrowers' Accounts. The Agent is hereby
authorized to debit any account of the Co-Borrowers or of either Co-Borrower
maintained with the Agent for (i) all scheduled payments of principal and/or
interest under the Notes, and (ii) the commitment fee and all other amounts due
hereunder; all such debits to be made on the days such payments are due in
accordance with the terms hereof.
S4. Default Interest. Upon the occurrence and during the continuation of a
Default, the Co-Borrowers shall pay interest on all amounts owing under the
Notes and this Agreement (after as well as before judgment) at a rate per annum
(computed on the basis of the actual number of days elapsed and a year of 360
days) equal to 2% in excess of the interest rate otherwise in effect hereunder.
S5. Interest Adjustments. (a) If the provisions of this Agreement or the
Notes would at any time otherwise require payment by the Co-Borrowers to the
Agent for the benefit of the Banks of any amount of interest in excess of the
maximum amount then permitted by applicable law the interest payments shall be
reduced to the extent necessary so that the Banks shall not receive interest in
excess of such maximum amount. To the extent that, pursuant to the foregoing
sentence, the Banks shall receive interest payments hereunder or under the Notes
in an amount less than the amount otherwise provided, such deficit (hereinafter
called the "Interest Deficit") will cumulate and will be carried forward
(without interest) until the termination of this Agreement. Interest otherwise
payable to the Banks hereunder and under the Notes for any subsequent period
shall be increased by such maximum amount of the Interest Deficit that may be so
added without causing the Banks to receive interest in excess of the maximum
amount then permitted by applicable law.
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<PAGE>
(a) To the extent permitted by law, the amount of the Interest
Deficit shall be treated as a prepayment penalty and paid in full at the time of
any optional prepayment by the Co-Borrowers to the Banks of all outstanding
Loans.
S6. Participations, Etc. Each Bank shall have the right at any time, with or
without notice to the Co-Borrowers, to sell, assign, transfer or negotiate all
or any part of its Notes or its Commitments or grant participations therein
to one or more banks (foreign or domestic, including an affiliate of any Bank),
insurance companies or other financial institutions, pension funds or mutual
funds. The Co-Borrowers and the Guarantors agree and consent to the Agent
providing financial and other information regarding their business and
operations to prospective purchasers or participants and further agree that to
the extent that any Bank should sell, assign, transfer or negotiate all or any
part of the Notes or the Commitment, such Bank shall be forever released and
discharged from its obligations under the Notes, the Commitment and this
Agreement to the extent same is sold, assigned, transferred or negotiated. Each
Bank shall have the right, at any time and from time to time, to pledge the
Notes to any Federal Reserve Bank. In the event that any Bank sells, assigns or
transfers all or any part of its Commitment hereunder to another bank, such
other bank shall be deemed to be a "Bank" for all purposes hereof and shall
execute such documents or instruments as are required by the Agent to give
effect to the provisions of this Section 2.17 including, without limitation, an
intercreditor agreement and a collateral agency agreement, in form and substance
satisfactory to the Agent.
A1. CONDITIONS OF BORROWING
S1. Conditions of Initial Revolving Credit Loan. The obligation of the Banks
to make the initial Loan hereunder shall be subject to the fulfillment of
the following conditions precedent:
(a) the Agent shall have received on or before the date hereof each
of the following, with copies for each Bank, each in form and substance
reasonably satisfactory to the Agent and its counsel:
(i) this Agreement and the Notes executed in favor of the Banks
duly executed by the Co-Borrowers;
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<PAGE>
(ii) a certificate of the Secretary of each of the Co-Borrowers
and each of the Guarantors, dated the Closing Date, attesting to all
corporate action taken by such entity, including resolutions of its
Board of Directors authorizing the execution, delivery and performance
of the Loan Documents and each other document to be delivered pursuant
to this Agreement, together with certified copies of the certificate
or articles of incorporation and the by-laws of each of the Co-
Borrowers and each of the Guarantors; and, such certificate shall
state that the resolutions and corporate documents thereby certified
have not been amended, modified, revoked or rescinded as of the date
of such certificate;
(iii) a certificate of the Secretary of each of the Co-Borrowers
and each of the Guarantors, dated the Closing Date, certifying the
names and true signatures of the officers of such entity authorized to
sign the Loan Documents and the other documents to be delivered by
such entity under this Agreement;
(iv) a certificate of a duly authorized officer of each of the
Co-Borrowers, dated the Closing Date, stating that the representations
and warranties in Article 4 are true and correct on such date as
though made on and as of such date and that no event has occurred and
is continuing which constitutes a Default or Event of Default;
(v) Security Agreements duly executed by each of the
Co-Borrowers and Guarantor's Security Agreements executed by each of
the Guarantors, together with (A) fully completed and executed
financing statements on Form UCC-1, in proper form for filing duly
filed under the Uniform Commercial Code in all jurisdictions necessary
or, in the reasonable discretion of the Agent, desirable to perfect
the security interests to be granted hereunder and under the Security
Agreements and the Guarantor's Security Agreements and (B) UCC search
results identifying all of the financing statements
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on file with respect to each Co-Borrower and each Guarantor in all
jurisdictions referred to under clause (A) hereof, indicating that no
party claims an interest in any of the Collateral;
(vi) Guaranties, duly executed by each Guarantor;
(vii) a favorable opinion of counsel for the Co-Borrowers and
Guarantors, dated the Closing Date, in form and substance
satisfactory to the Agent and its counsel;
(viii) satisfactory evidence that the Co-Borrowers and the
Guarantors are duly organized, validly existing and in good standing
under the laws of their respective jurisdictions of incorporation and
each other jurisdiction where qualification is necessary;
(ix) audited consolidated balance sheet of PDK and its
Subsidiaries as of November 30, 1995, and consolidated income
statement and statement of cash flows of PDK and its Subsidiaries for
the fiscal year then ended, all prepared in accordance with GAAP,
together with the unqualified opinion thereon of Holtz Rubenstein &
Co., LLP, independent certified public accountants, together with
corresponding management prepared consolidating financial statements
of PDK and its Subsidiaries, all prepared in accordance with GAAP
under the supervision of the chief financial officer of PDK, and
unaudited consolidated and consolidating balance sheets of PDK and its
Subsidiaries as at May 31, 1996, together with consolidated and
consolidating income statements and statements of cash flows of PDK
and its Subsidiaries, for the fiscal quarter ended May 31, 1996, and
for the period commencing at the end of the previous fiscal year and
ending with the end of such quarter, each prepared by or under the
supervision of the chief financial officer of PDK in accordance with
GAAP.
(x) an audited balance sheet of
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Futurebiotics as of November 30, 1995 and income statement and
statement of cash flows of Futurebiotics for the fiscal year then
ended, all prepared in accordance with GAAP, together with an
unqualified opinion thereon of Holtz Rubenstein & Co., LLP,
independent certified public accountants and an unaudited balance
sheet of Futurebiotics as at May 31, 1996, together with an income
statement and statement of cash flows of Futurebiotics for the fiscal
quarter ended May 31, 1996 and for the period ending at the end of the
previous fiscal year and ending with the end of such quarter, each
prepared by or under the supervision of the chief financial officer of
Futurebiotics in accordance with GAAP;
(xi) certificates of insurance covering the Collateral and the
other assets and the business of the Co-Borrowers and the Guarantors,
which certificates shall designate the Agent as the "loss payee" and
as an "additional insured", in form and substance and in amounts and
with carriers satisfactory to the Agent in all respects;
(xii) evidence satisfactory to the Agent that the products
liability insurance referred to in Section 5.3 hereof is in full force
and effect on the date hereof;
(xiii) a complete copy of the supply agreement executed by and
between PDK and Futurebiotics, together with all amendments,
supplements or modifications thereof;
(xiv) for each of PDK and Futurebiotics, a summary accounts
receivable aging and a detailed aging for its 10 largest customers for
the most recent month then ended, in form and substance satisfactory
to the Agent;
(xv) landlord's waivers, in form and substance satisfactory to
the Agent, for each location leased by the Co-
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Borrowers or the Guarantors, or any of them, where assets of the
Co-Borrowers or the Guarantors, or any of them, are located;
(xvi) a certified copy of the certificate of dissolution of C&C
Enterprises, Inc; and
(xvii) such other documents, instruments, approvals, opinions
and evidence as the Agent may reasonably require.
(b) the Co-Borrowers shall have paid or caused to be paid in full
all fees and expenses required to be paid hereunder or in connection herewith,
and including all fees and expenses of the Agent incurred in connection with the
preparation, execution and delivery of this Agreement and the other Facility
Documents and the consummation of the transactions contemplated thereby;
(c) the Co-Borrowers and the Guarantors shall have obtained all
consents, permits and approvals required in connection with the execution,
delivery and performance by the Co-Borrowers and the Guarantors of their
obligations hereunder and such consents, permits and approvals shall continue in
full force and effect;
(d) the Futurebiotics Credit Agreement shall have been terminated
and Chase shall be satisfied that the proceeds of the initial Loans hereunder
shall be applied to pay the obligations of Futurebiotics under the Futurebiotics
Credit Agreement in full;
(e) Chase and PDK shall have entered into an amendment to the PDK
Credit Agreement pursuant to which Chase's obligation to extend additional
credit to PDK shall be terminated and Chase shall be satisfied that the proceeds
of the initial Loans hereunder shall be applied to pay the obligations of PDK
under the PDK Credit Agreement (other than its obligations with respect to the
Existing Term Loans) in full;
(f) Chase and PDK shall have entered into an amendment to the
agreements giving rise to the Existing Term Loans pursuant to which PDK
reaffirms its duty to pay to Chase in full its obligations thereunder;
(g) the Agent shall be satisfied with the form and content of all
Schedules delivered by the Co-Borrowers pursuant to
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this Agreement or any document delivered in connection herewith;
(h) the Co-Borrowers shall provide reasonably satisfactory evidence
that none of them nor any Guarantor is in default with respect to any
contractual obligations to which it is a party, the effect of which may be
material and adverse to any Co-Borrower or any Guarantor, or to the ability of
any Co-Borrower or any Guarantor to perform its obligations hereunder or under
the other Loan Documents;
(i) results satisfactory to the Agent of all due diligence with
respect to the Co-Borrowers and the Guarantors including, without limitation,
trade checkings, customer checkings and litigation checkings and all due
diligence with respect to management of the Co-Borrowers and/or the Guarantors;
(j) receipt and satisfactory review by the Agent of (i) all material
loan documents or credit agreements entered into by any Co-Borrower or
Guarantor; (ii) all shareholder, and management agreements entered into by any
Co-Borrower or Guarantor; (iii) any employment agreement entered into by any Co-
Borrower or any Guarantor and any officer of any such entity; and (iv) all lease
agreements entered into by any Co-Borrower or Guarantor;
(k) copies of each of the Co-Borrowers' customer lists, certified by
the President or Chief Financial Officer of such Co-Borrower to be complete and
accurate as of a date reasonably acceptable to the Agent;
(l) since November 30, 1995, nothing shall have occurred which in
the Agent's sole judgment could, individually or in the aggregate, have a
material adverse effect upon (i) the rights and remedies of the Agent or the
Banks under this Agreement or the other Loan Documents; (ii) the ability of
any of the Co-Borrowers or the Guarantors to perform its obligations hereunder
or under any other Document; or (iii) the business, property, assets,
liabilities, condition (financial or otherwise), operations, results of
operations or prospects of any Co-Borrower or any Guarantor after giving effect
to the transactions contemplated hereby;
(m) the Agent and its counsel shall be satisfied in all respects
with their review of any litigation pending against the Co-Borrowers or any
Guarantor and shall have been provided with
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a letter from the Co-Borrower's counsel describing the status of a litigation
captioned PDK Labs Inc. v. Perry D. Krape, which is pending in New York State
Court in Suffolk County; and
(n) all legal matters in connection with this financing shall be
reasonably satisfactory to the Agent and its counsel.
S2. Additional Conditions Precedent.
The obligation of the Banks to make any Loan shall be subject to the
further conditions precedent (which shall be in addition to, and shall not be
deemed to limit or modify, any of the other terms and conditions hereunder) that
on the date of such Loan, the Agent shall have received the following:
(a) a certificate executed by the Chief Financial Officer of each of
the Co-Borrowers, dated as of such date, stating that (i) the representations
and warranties contained in Article 4 hereof, which for purposes of this
Section, shall be deemed to relate to the Co-Borrowers and to each Subsidiary as
if each such Person were the subject of each such representation and warranty,
are true and correct in all material respects on and as of the date of such Loan
as though made on and as of such date (except when such representation or
warranty by its terms relates to the date hereof or another specific date); and
(ii) no Default or Event of Default has occurred and is continuing or would
result from any such Loan;
(b) a certificate executed by the Chief Financial Officer of each of
the Co-Borrowers, dated as of such date, in form and substance satisfactory to
the Agent stating that the Aggregate Outstandings after giving effect to the
proposed borrowing will not exceed the Commitment and demonstrating compliance,
after giving effect to the proposed borrowing, the aggregate principal balance
of loans made for the account of PDK shall not exceed PDK Sublimit and the
aggregate principal balance of loans made for the account of Futurebiotics shall
not exceed the Futurebiotics Sublimit;
(c) copies of all invoices, bills, contracts and paid receipts in
connection with any capital expenditure to be purchased, made or financed with
the proceeds of any Loan; and
(d) all other instruments and legal and corporate
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proceedings in connection with the transactions contemplated by this Agreement
shall be satisfactory in form and substance to the Agent and its counsel, and
the Agent shall have received copies of all documents which it may have
reasonably requested in connection therewith.
A1. REPRESENTATIONS AND WARRANTIES
In order to induce the Agent and the Banks to enter into this
Agreement and to make the Loans herein provided for, the Co-Borrowers and the
Guarantors hereby represent and warrant that:
S1. Corporate Existence. Each of the Co-Borrowers and the Guarantors is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and each has the corporate power to own its
assets and to transact the business in which it is presently engaged, and is
duly qualified as a foreign corporation and in good standing under the laws of
each jurisdiction in which failure to so qualify or be in good standing could
result in a Material Adverse Change in such Co-Borrower or Guarantor.
S2. Corporate Power and Authorization. Each of the Co-Borrowers and the
Guarantors has the corporate power, authority and legal right to make, deliver
and perform the Loan Documents to which it is a party and, with respect to the
Co-Borrowers, to borrow hereunder and has taken all necessary corporate action
to authorize the borrowings hereunder and the Guaranties on the terms and
conditions of this Agreement, the Notes, and the Guaranties. No consent of any
other party (including stockholders of the Co-Borrowers or the Guarantors), and
no consent, license, approval or authorization of, or registration or
declaration with, any governmental authority, bureau or agency is required in
connection with the execution, delivery, performance, validity or enforceability
of the Loan Documents. The Loan Documents when delivered hereunder will have
been duly executed and delivered on behalf of the Co-Borrowers and the
Guarantors, as the case may be, and will be legal, valid and binding obligations
of the Co-Borrowers and the Guarantors, as the case may be, enforceable against
the Co-Borrowers or the Guarantors in accordance with their respective terms.
S3. No Legal Bar to Loans. The execution, delivery and performance of the
Loan Documents will not violate any provision of any existing law or regulation
or of any order or decree of any
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court or governmental instrumentality, or of the certificates of incorporation
or by-laws of the Co-Borrowers, or either of them or any of the Guarantors, or
of any mortgage, indenture, contract or other agreement to which the
Co-Borrowers, or either of them, or any of the Guarantors is a party or by which
the Co-Borrowers, or either of them, or any of the Guarantors or any of their
property or assets may be bound, and will not result in the creation or
imposition of any Lien on any of its properties pursuant to the provisions of
such mortgage, indenture, contract or other agreement.
S4. No Material Litigation. Except as set forth on Schedule 4.4 hereto, no
litigation or administrative proceedings of or before any court, tribunal or
governmental body is presently pending, or, to the knowledge of the
Co-Borrowers, threatened against the Co-Borrowers, or either of them, or any of
the Guarantors or any of its or their properties or with respect to the Loan
Documents which, if adversely determined, could result in, in the opinion of the
Co-Borrowers, a Material Adverse Change in the Co-Borrowers, or either of them,
or any of the Guarantors.
S5. No Default. Except as set forth on Schedule 4.5 hereto, neither the
Co-Borrowers, nor either of them, nor any of the Guarantors is in default in any
material manner in the payment or performance of any of their obligations or in
the performance of any contract, agreement or other instrument to which any of
them is a party or by which any of them or any of their assets may be bound, and
no Default hereunder has occurred and is continuing.
S6. Ownership of Properties; Liens. Each of the Co-Borrowers and each of the
Guarantors has good and marketable title to all of their properties and assets,
real and personal, and none of such properties and assets are subject to any
Lien except as permitted in Section 6.2 hereof and except as set forth on
Schedule 4.6 hereto.
S7. Taxes. Each Co-Borrower and each of the Guarantors has filed or caused to
be filed all tax returns which to the knowledge of the Company are required to
be filed, and has paid all taxes shown to be due and payable on said returns or
on any assessments made against them (other than those being contested in good
faith by appropriate proceedings for which adequate reserves have been provided
on the books of such Co-Borrower or such Guarantor, as the case may be), and no
tax liens have been filed
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and, to the best of the knowledge of the Co-Borrowers and the Guarantors, no
claims are being asserted with respect to any taxes.
S8. Financial Condition. The financial statements referred to in Section
3.1(ix) and (x) hereof heretofore furnished to the Agent, each present fairly
the financial condition of PDK and its Subsidiaries and Futurebiotics as at the
dates of said statements and the results of their operations for the periods
covered by such statements. All such financial statements have been prepared in
accordance with GAAP and since the date of the annual financial statement
mentioned above, there has been no Material Adverse Change in the Co-Borrowers,
or either of them, or any of the Guarantors from that shown by said statements
as of said date and since the date of the quarterly financial statements
mentioned above, there has been no material increase in liabilities of PDK and
its Subsidiaries or of Futurebiotics. Neither of the Co-Borrowers nor any of the
Guarantors has any material obligation, liability or commitment, direct or
contingent, which is not reflected in the foregoing financial statements (and
the related notes thereto) as of said dates.
S9. Filing of Statements and Reports. Each of the Co-Borrowers and each of
the Guarantors have filed copies of all material statements and reports which,
to the knowledge of the Co-Borrowers or the Guarantors, are required to be filed
with any governmental authority, agency, commission, board or bureau.
S10. ERISA. Each Co-Borrower and each of the Guarantors, and each ERISA
Affiliate are in compliance in all material respects with all applicable
provisions of ERISA. Neither a Reportable Event nor a Prohibited Transaction has
occurred and is continuing with respect to any Plan; no notice of intent to
terminate a Plan has been filed nor has any Plan been terminated; no
circumstances exist which constitute grounds under to terminate, or appoint a
trustee to administrate, a Plan, nor has the PBGC instituted any such
proceedings; none of the Co-Borrowers or the Guarantors, nor any ERISA
Affiliate has completely or partially withdrawn under Sections 4201 or 4204 of
ERISA from a Multiemployer Plan; each Co-Borrower and each of the Guarantors and
each ERISA Affiliate have met their minimum funding requirements under ERISA
with respect to all of their Plans and the present fair market value of all Plan
assets exceeds the present value of all vested benefits under each Plan, as
determined on the most recent valuation date of the Plan in accordance with
the provisions of
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ERISA for calculating the potential liability of each Co-Borrower and each of
the Guarantors or any ERISA Affiliate to PBGC or the Plan under Title IV of
ERISA; and none of the Co-Borrowers, nor any of the Guarantors nor any ERISA
Affiliate, or any of them, has incurred any liability to the PBGC under ERISA.
S11. Environmental Matters. Each Co-Borrower and each of the Guarantors are in
compliance with all federal, state or local laws, ordinances, rules, regulations
or policies governing Hazardous Materials and none of the Co-Borrowers nor any
of the Guarantors have used Hazardous Materials on, from, or affecting any
property now owned or occupied or hereafter owned or occupied by such
Co-Borrower or Guarantor in any manner which violates federal, state or local
laws, ordinances, rules, regulations or policies governing the use, storage,
treatment, transportation, manufacture, refinement, handling, production or
disposal of Hazardous Materials, and that to the best knowledge of the
Co-Borrowers and the Guarantors, no prior owner of any such property or any
tenant, subtenant, prior tenant or prior subtenant have used Hazardous Materials
on, from or affecting such property in any manner which violates federal, state
or local laws, ordinances, rules, regulations, or policies governing the use,
storage, treatment, transportation, manufacture, refinement, handling,
production or disposal of Hazardous Materials.
S12. Licenses, Permits, etc. Each Co-Borrower and each of the Guarantors
possess all licenses, permits, franchises, patents, copyrights, trademarks and
trade names, or rights thereto, to conduct their respective businesses
substantially as now conducted and as presently proposed to be conducted, and
none of the Co-Borrowers nor the Guarantors is in violation of any similar
rights of others.
S13. Material Agreements. None of the Co-Borrowers or the Guarantors is a
party to any indenture, loan or credit agreement or any other agreement, lease
or instrument or subject to any charter or corporate restriction the violation
of which could result in a Material Adverse Change in the Co-Borrowers, or
either of them, or any Guarantor.
S14. Margin Credit. The Co-Borrowers are not engaged in the business of
extending credit for the purpose of purchasing or carrying margin stock
(within,the meaning of Regulation U), and no proceeds of any Loan will be used
to purchase or carry any
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margin stock or to extend credit to others for the purpose of purchasing or
carrying any margin stock or in any other way which will violate the provisions
of Regulation G, T, U or X.
S15. Use of Proceeds. The proceeds of each Loan shall be used for the purposes
set forth in Section 2.13 hereof.
S16. Properties Affected. Neither the business nor the properties of any
Co-Borrower or any Guarantor are affected by any fire, explosion, accident,
strike, hail, earthquake, embargo, act of God or of the public enemy, or other
casualty (whether or not covered by insurance), which could result in a Material
Adverse Change in the Co-Borrowers, or either of them, or any Guarantor.
S17. Guarantors. The liability of each Guarantor as a result of the execution
of its Guaranty and the execution of this Agreement shall not cause the
liabilities (including contingent liabilities) of such Guarantor to exceed the
fair saleable value of its assets. Each Guarantor acknowledges it has derived or
expects to derive a financial or other advantage from the Loans obtained by the
Company from the Banks.
S18. Subsidiaries. As of the date hereof, the Guarantors are the only existing
Subsidiaries of the Co-Borrowers, other than C&C Enterprises, Inc., which has
assets having a value of not more than $1,000.
S19. Solvency. Without giving effect to any Guaranty executed in connection
with this Agreement, each of the Co-Borrowers, on both a stand-alone and
consolidated basis, and each of the Guarantors, is Solvent. After giving effect
to any such Guaranty, the Co-Borrowers and the Guarantors, taken as a whole, are
Solvent.
A1. AFFIRMATIVE COVENANTS
Each of the Co-Borrowers and each of the Guarantors hereby covenant
that so long as the Notes remain outstanding and unpaid or so long as the
Commitments remain unterminated, each Co-Borrower and each of the Guarantors
will, and shall cause any Subsidiary to, unless otherwise consented to in
writing by the Banks acting through the Agent:
S1. Financial Statements. Furnish to each Bank:
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(a) as soon as available, but in any event not later than 120
days after the close of each fiscal year of PDK, a copy of the annual audit
report for such fiscal year of PDK and its Subsidiaries, including therein the
consolidated and consolidating balance sheets of PDK and its Subsidiaries as at
the end of such fiscal year, and related consolidated and consolidating
statements of income and retained earnings of PDK and its Subsidiaries for such
fiscal year, setting forth in each case in comparative form the corresponding
figures for the preceding fiscal period, all in reasonable detail, prepared in
accordance with GAAP, such consolidated financial statements being certified by
independent certified public accountants of recognized standing selected by PDK
and acceptable to the Agent and each of the Banks and such consolidating
financial statements being prepared by the Chief Financial Officer of PDK;
(b) as soon as available, but in any event not later than 120
days after the close of each fiscal year of Futurebiotics, a copy of the annual
audit report for such fiscal year of Futurebiotics and its Subsidiaries,
including therein the consolidated and consolidating balance sheets of
Futurebiotics and its Subsidiaries as at the end of such fiscal year, and
related consolidated and consolidating statements of income and retained
earnings of Futurebiotics and its Subsidiaries for such fiscal year, setting
forth in each case in comparative form the corresponding figures for the
preceding fiscal period, all in reasonable detail, prepared in accordance with
GAAP, such consolidated financial statements being certified by independent
certified public accountants of recognized standing selected by Futurebiotics
and acceptable to the Agent and each of the Banks and such consolidating
financial statements being prepared by the Chief Financial Officer of
Futurebiotics;
(c) as soon as available, but in any event not later than 60
days after the end of each of the first three quarterly periods of each fiscal
year of PDK and of Futurebiotics, each such entity's 10Q reports for such fiscal
quarter;
(d) concurrently with the delivery of the financial statements
referred to in clauses (a), (b) and (c) above, a
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certificate of the Chief Financial Officer of each of the Co-Borrowers stating
that, to the best of his knowledge, the Co-Borrowers during such period have
kept, observed, performed and fulfilled each and every covenant and condition
contained in this Agreement and in the Notes and that he has obtained no
knowledge of any Events of Default or Defaults hereunder except as specifically
indicated, with computations evidencing compliance with the covenants set
forth in Sections 6.10, 6.11, 6.12 and 6.13;
(e) promptly after the same are sent, copies of all financial
statements and reports which the Co-Borrowers, or either of them, send to their
stockholders, and promptly after the same are filed, copies of all financial
statements and reports which the Co-Borrowers, or either of them, may make to,
or file with, any governmental authority, agency, commission, board or bureau;
(f) as soon as possible and in any event within 30 days after
either Co-Borrower knows or has reason to know of the following events: (i) the
occurrence or expected occurrence of any Reportable Event with respect to any
Plan or any withdrawal from, or the termination, Reorganization or Insolvency
of, any Multiemployer Plan or (ii) the institution of proceedings or the taking
of any other action by the PBGC, the Co-Borrowers, or either of them, or any
Commonly Controlled Entity, or any Multiemployer Plan with respect to the
withdrawal from, or the terminating, Reorganization or Insolvency of, any Plan
the Co-Borrowers shall deliver to the Agent and each of the Banks a certificate
of the Chief Financial Officer of each of the Co-Borrowers setting forth the
details thereof and the action the Co-Borrowers or the Commonly Controlled
Entity proposes to take with respect thereto;
(g) within 30 days of the expiration date of each policy,
updated copies of all insurance coverage binders; and
(h) promptly upon receipt thereof, copies of any reports
submitted to any Co-Borrower or any Guarantor by independent certified public
accountants in connection with examination of the financial statements of either
Co-Borrower and their Subsidiaries made by such accountants;
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(i) promptly after the furnishing thereof, copies of any
statement or report furnished to any other party pursuant to the terms of any
indenture, loan, or credit or similar agreement and not otherwise required to be
furnished to the Agent and the Banks pursuant to any other clause of this
Section 5.1;
(j) no later than 30 days after the end of each fiscal quarter
of each Co-Borrower, an accounts receivable aging schedule for each Co-Borrower,
in form and substance reasonably satisfactory to the Agent and each of the
Banks;
(k) annually, updated copies of each of the Co-Borrowers'
customer lists, certified by the President or Chief Financial Officer of such
Co-Borrower to be complete and accurate as of a date reasonably acceptable to
the Agent and each of the Banks;
(l) promptly, copies of all financial, legal or other
information and/or documentation as the Agent may require pertaining to any
Permitted Acquisitions involving a Permitted Acquisition Purchase Price in
excess of $2,000,000 in any one case or in the aggregate during any fiscal year
of the Co-Borrowers;
(m) concurrently with the delivery of the financial statements
referred to in clauses (a), (b) and (c) above, a status report, in form and
substance satisfactory to the Bank, on the litigation captioned PDK Labs Inc.
v. Perry D. Krape, which is pending in New York State Supreme Court in Suffolk
County; and
(n) promptly, such additional financial and other information
as the Agent may from time to time reasonably request including, without
limitation, copies of all material shareholders agreements, consulting
agreements, management agreements, employment agreements, noncompete agreements,
employee benefit plans, stock option plans or voting trust agreements relating
to the Co-Borrowers, or either of them.
S2. Payment and Performance of Obligations. Perform and comply with each of
the provisions of each and every agreement of which the failure to perform or
comply could result in a Material Adverse Change in the Co-Borrowers, or either
of them, or any of
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the Guarantors. Pay and discharge, and cause the Guarantors to pay and
discharge, at or before maturity all of their respective obligations and
liabilities, including without limitation tax liabilities, except where the same
may be contested in good faith, and maintain, in accordance with GAAP,
appropriate reserves for the accrual of any of the same.
S3. Maintenance of Properties; Insurance. Keep, and cause the Guarantors to
keep, all properties useful and necessary in the business of the Co-Borrowers
and the Guarantors in good working order and condition; maintain, and cause the
Guarantors to maintain, with financially sound and reputable insurance
companies, insurance on all their properties in such amounts as are proper in
accordance with sound business practices against such risks as are usually
insured against in the same general area and by companies engaged in the same or
a similar business, including but without limitation, product liability
insurance in an aggregate amount not less than $5,000,000 for the Co-Borrowers
at any time, such insurance to be in form and substance satisfactory to the
Agent and each of the Banks; pay, and cause the Guarantors to pay, all insurance
premiums, and, upon written request, any other information as to the insurance
carried.
S4. Notices. Promptly give notice in writing to the Agent of (a) the
occurrence of any Default under this Agreement or of any default under any
material instrument or other agreement of any Co-Borrower or any Guarantor,
(b) any litigation, proceeding, investigation or dispute which may exist at any
time between any Co-Borrower or any Guarantor and any governmental regulatory
body which could result in a Material Adverse Change in the Co-Borrowers, or
either of them, or any of the Guarantors, (c) all litigation and proceedings
affecting the Co-Borrowers, or either of them, or any of the Guarantors in which
the amount involved is $50,000 in excess of applicable insurance coverage or in
which injunctive or similar relief is sought, (d) any of the Co-Borrowers or
Guarantors establishing or contributing to any Plan and (e) any change in the
management of the Co-Borrowers, the Guarantors or any of them.
S5. Conduct of Business and Maintenance of Existence. Continue, and cause the
Guarantors to continue, to engage in business of the same general type as now
conducted by the Co-Borrowers and the Guarantors, and preserve, renew and keep
in full force and effect their corporate existence and take all reasonable
action to
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maintain their rights, privileges and franchises necessary or desirable in the
normal conduct of business; provided that nothing herein contained shall prevent
any of the Co-Borrowers or any Guarantor from discontinuing a part of its
business which is not a substantial part of the business of such entity if such
discontinuance is, in the opinion of the Board of Directors of such entity, in
the interest of such entity, and not disadvantageous to the Banks.
S6. Inspection of Property, Books and Records. Permit, and cause the
Guarantors to permit, any representatives of the Agent to (a) visit and inspect
any of their respective properties, (b) conduct an environmental audit of any of
their respective properties and (c) examine and make abstracts from any of the
books and records of any Co-Borrower and any Guarantor at any reasonable time
during normal business hours and as often as may reasonably be desired.
S7. Hazardous Material. None of the Co-Borrowers or the Guarantors shall
cause or permit any property owned or occupied by the Co-Borrowers or the
Guarantors to be used to generate, manufacture, refine, transport, treat, store,
handle, dispose, transfer, produce or process Hazardous Materials, except in
compliance with all applicable federal, state and local laws or regulations nor
shall any such entity cause or permit, as a result of any intentional or
unintentional act or omission on the part of such entity or any tenant or
subtenant, a release of Hazardous Materials onto any property owned or occupied
by any such entity or onto any other property. Each of the Co-Borrowers and the
Guarantors shall comply with all applicable federal, state and local laws,
ordinances, rules and regulations, whenever and by whomever triggered, and shall
obtain and comply with, any and all approvals, registrations or permits required
thereunder. Each of the Co-Borrowers and the Guarantors shall execute any
documentation required by any Bank in connection with the covenants contained
herein. The Co-Borrowers and the Guarantors shall indemnify each Bank
(including, without limitation, the Agent) against any liability, loss, cost,
damage or expense (including, without limitation, reasonable attorneys' fees)
arising from (a) the imposition or recording of a Lien by any local, state, or
federal governments or governmental agency or authority pursuant to any federal,
state or local statute or regulation relating to Hazardous Materials or the
removal thereof; (b) claims of any private parties regarding violations of laws
regulating Hazardous Materials; and
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(c) costs and expenses (including, without limitation, reasonable attorneys'
fees and fees incidental to the securing of repayment of such costs and
expenses) incurred by the Agent in connection with the removal of any such Lien
or in connection with compliance by the Agent or any such entity with any
statute, regulation or order regulating Hazardous Materials.
S8. Subsidiary Guaranties. Cause any Subsidiary of any Co-Borrower or any
Guarantor hereafter formed to execute and deliver to the Agent, for the benefit
of the Banks, a Guaranty substantially in the form of Exhibit C hereto and to
execute a Guarantor's Security Agreement substantially in the form of Exhibit D
hereto, pursuant to which it shall grant to the Agent, for the benefit of the
Banks, a lien upon all of its personal property in order to secure its
obligations under its guaranty.
S9. Pension Funding. Comply with the following and cause each ERISA
Affiliate of the Co-Borrowers or any Guarantor to comply with the following:
(i) engage solely in transactions which would not subject any
of such entities to either a civil penalty assessed pursuant to
Section 502 (i) of ERISA or a tax imposed by Section 4975 of the
Internal Revenue Code in either case in an amount in excess of
$25,000;
(ii) make full payment when due of all amounts which, under
the provisions of any Plan or ERISA, such Co-Borrower, Guarantor or
ERISA Affiliate of any of same is required to pay as contributions
thereto;
(iii) all applicable provisions of the Internal Revenue Code
and the regulations promulgated thereunder, including but not
limited to Section 412 thereof, and all applicable rules,
regulations and interpretations of the Accounting Principles Board
and the Financial Accounting Standards Board;
(iv) not fail to make any payments in an aggregate amount
greater than $25,000 to any Multiemployer Plan that such Co-Borrower,
Guarantor or any ERISA Affiliate may be required to make under any
agreement relating to such Multiemployer Plan, or any law pertaining
thereto; or
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(v) not take any action regarding any Plan which could
result in the occurrence of a Prohibited Transaction.
S10. Dissolution of C&C Enterprises, Inc. Cause to be dissolved, within 90
days of the date hereof, C&C Enterprises, Inc., and furnish a certified copy of
the certificate of dissolution to the Agent.
A1. NEGATIVE COVENANTS
Each Co-Borrower and each of the Guarantors hereby covenant that so
long as the Notes remain outstanding and unpaid or so long as the Commitments
remain unterminated, neither the Co-Borrowers, nor any of them, nor any of the
Guarantors will, nor will they permit any Subsidiary to, directly or indirectly,
without the prior written consent of the Banks acting through the Agent:
S1. Limitation on Indebtedness. Create, incur, assume or suffer to exist, any
Consolidated Indebtedness, except (a) the Notes and letters of credit issued by
the Agent in connection herewith; (b) accounts payable (other than for borrowed
money) incurred in the ordinary course of business as presently conducted,
provided that the same shall not be overdue or, if overdue, are being contested
in good faith and by appropriate proceedings; (c) indebtedness between
Co-Borrowers or Guarantors and between a Guarantor and a Co-Borrower; (d) other
indebtedness owing by the Co-Borrowers or the Guarantors on the date of this
Agreement and which was reflected in the balance sheet referred to in Section
4.8 hereof provided same is not extended, renewed or refinanced; (e)
Subordinated Debt; (f) indebtedness which constitutes the deferred purchase
price of any property or assets, not in excess of $250,000 in any fiscal year of
the Co-Borrowers (computed on a non-cumulative basis), (g) purchase money
indebtedness incurred to finance specific Capital Expenditures, subject to the
limitations of Section 6.2(g) of this Agreement with respect to purchase money
mortgages and purchase money security interests; and (h) indebtedness resulting
from notes issued by the Co-Borrowers or either of them in connection with and
subject to the limitations of Section 6.5(g) of this Agreement, provided,
however, that said indebtedness shall not exceed $6,000,000 in the aggregate at
any time.
S2. Limitation on Liens. Create, incur, assume or suffer
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to exist, any Lien of any kind upon any of their property or assets, income or
profits, whether now owned or hereafter acquired, except (a) the Liens existing
as of the date of this Agreement referred to in the financial statements
referred to in Section 4.8 hereof, provided, however, that such Liens are not
spread to cover other or additional indebtedness or property of any Co-Borrower
or Guarantor; (b) Liens for taxes not yet due or which are being contested in
good faith and by appropriate proceedings if adequate reserves with respect
thereto are maintained on the books of a Co-Borrower or Guarantor, as the case
may be, in accordance with GAAP; (c) carriers', warehousemen's, mechanics',
materialmen's, repairmen's or other like Liens arising in the ordinary course of
business for sums which are not overdue for a period of more than 45 days or
which are being contested in good faith and by appropriate proceedings; (d)
pledges or deposits in connection with worker's compensation, unemployment
insurance and other social security legislation; (e) deposits to secure the
performance of bids, trade contracts (other than for borrowed money), leases,
statutory obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of business; (f)
easements, rights-of-way, restrictions and other similar encumbrances incurred
in the ordinary course of business which, in the aggregate, are not substantial
in amount, and which do not in any case materially detract from the value of the
property subject thereto or interfere with the ordinary conduct of the business
of any Co-Borrower or any Guarantor; (g) Liens covering real or personal
property in existence at the time of acquisition thereof by a Co-Borrower or a
Guarantor, and purchase money mortgages and purchase money security interests
(including the Lien or retained security title of a conditional vendor) covering
real or personal property hereafter acquired by a Co-Borrower or a Guarantor in
the ordinary course of business, provided such Lien shall not exceed 100% of the
purchase price of the property so encumbered and no such Lien covers, or is
extended to cover, any other property owned by a Co-Borrower or a Guarantor; (h)
Liens in favor of the Agent; and (i) Liens granted in connection with Section
6.1(i), provided, however, that said Liens are granted solely on customer lists
hereafter acquired by the Co-Borrowers and do not exceed a value of $6,000,000
in the aggregate during the term of this Agreement.
S3. Limitation on Contingent Obligations. Assume, guarantee, indorse or
otherwise in any way be or become responsible or liable for the obligations of
any Person (all such transactions
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being herein called "guarantees"), whether by agreement to purchase or
repurchase obligations, or by agreement to supply funds for the purpose of
paying, or enabling such entity to pay, any obligations (whether through
purchasing stock, making a loan, advance or capital contributions or by means or
agreeing to maintain or cause such Person to maintain, a minimum working capital
or net worth of any such Person, or otherwise) in an aggregate amount exceeding
$1,000,000, provided, however, that the aggregate amount permitted under this
Section 6.3 and Section 6.5(h) and (k) of this Agreement shall not exceed
$2,000,000 with respect to any one Person and $2,500,000 in the aggregate at any
time, except (a) guarantees by endorsement of instruments for deposit or
collection in the ordinary course of business, and (b) guarantees in respect of
indebtedness of Subsidiaries, provided that the indebtedness in respect of which
such guarantees are given is permitted by subsection 6.1 hereof; and guarantees
in favor of the Banks.
S4. Prohibition of Fundamental Changes. Enter into any transaction of merger
or consolidation or liquidate or dissolve itself (or suffer any liquidation or
dissolution) or convey, sell, lease, transfer or otherwise dispose of, in one
transaction or a series of related transactions, all or a substantial part of
its property, business, or assets, including its accounts receivable, or stock
or securities convertible into stock of any Subsidiary, or make any material
change in the present method of conducting business, except that: (a) any
Guarantor may be merged into, or consolidated with, a Co-Borrower (provided that
the Co-Borrower shall be the continuing or surviving corporation) or with any
one or more Guarantors and (b) any Subsidiary may sell, lease, transfer or
otherwise dispose of any of its assets to the Co-Borrowers.
S5. Limitation on Investments, Loans and Advances. Make or suffer to exist
any advances or loans to, or Investments (by way of transfers of property,
contributions to capital, acquisitions of stock, or securities or evidences of
indebtedness, acquisitions of businesses or acquisitions of assets other than in
the ordinary course of business, or otherwise), in, any Person except (a)
Investments in certificates of deposit issued by any domestic commercial bank
with a capital and surplus of at least $250,000,000 provided, however, that such
certificates of deposit shall have a maturity of one year or less from the date
of purchase; (b) investments in direct obligations of the United States of
America or any agency thereof, or marketable obligations directly and fully
guaranteed by the United States of America, provided, however, that
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any such obligations shall have a maturity of five years or less from the date
of acquisition; (c) investments in money market mutual funds having assets in
excess of $2,500,000,000; (d) investments in commercial paper or medium term
notes, provided, however, that any such commercial paper or medium term notes
shall have a maturity of three years or less from the date of acquisition and
shall be rated at least "A-1" or the equivalent thereof by Standard & Poors
Corporation (or has a similar rating by any similar organization which rates
commercial paper or medium term notes); (e) investments in repurchase
obligations with a term of not more than seven days for underlying securities of
the type described in clause (b); (f) stock or obligations issued in settlement
of claims against any other Person by reason of any event of bankruptcy or
composition or readjustment of debt or reorganization of any debtor of any
Co-Borrower, any Guarantor or any Subsidiary; (g) Permitted Acquisitions; (h)
loans and advances to any other Person not to exceed $2,500,000, provided,
however, that the aggregate amount permitted under this Section 6.5(h) and
6.5(k) and Section 6.3 of this Agreement shall not exceed $2,000,000 with
respect to any one Person and $2,500,000 in the aggregate at any time; (i) loans
or advances to a Guarantor; (j) purchases of securities publicly traded on a
national exchange in an aggregate amount not to exceed $250,000; (k) any other
Investments in any Person(s) not to exceed $2,000,000, provided, however, that
the aggregate amount permitted under this Section 6.5(k) and 6.5(h) and
Section 6.3 of this Agreement shall not exceed $2,000,000 with respect to any
one Person and $2,500,000 in the aggregate at any time; (l) tax exempt
securities rated A or better by Standard & Poors or Moody's Investors Service;
and (m) purchases by either Co-Borrower of shares of such Co-Borrowers' capital
stock, provided that prior to and immediately following such purchases, there
shall exist no Default or Event of Default under Agreement or any related Loan
Documents and provided that the aggregate consideration paid for such purchases
on a consolidated basis shall not exceed $1,000,000 in any fiscal year or
$2,000,000 during the term of this Agreement.
S6. Prohibition of Certain Prepayments. Make any prepayment of principal of
any debt, with a maturity of more than one year, for borrowed money (except the
Notes and the Existing Term Notes) or for the deferred purchase price of
property or services, except (i) at the stated maturity of such debt, (ii) as
required by mandatory prepayment provisions relating thereto (subject to any
subordination provisions applicable thereto), and
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(iii) with respect to existing loans made by Chase to the Co-Borrowers, or
either of them, according to the terms of said loans.
S7. Limitation on Leases. Enter into any agreement, or be or become liable
under any agreement, for the lease, hire or use of any personal property (other
than the presently outstanding leases described on Schedule 6.7 hereof
provided that such leases are not amended, modified or supplemented) which would
cause the aggregate maximum amount of all obligations of the Co-Borrowers and
the Guarantors pursuant to such agreements in any fiscal year of the
Co-Borrowers to exceed $750,000. This provision shall not apply to Capital
Leases.
S8. Sale and Leaseback. Enter into any arrangement with any person whereby
any Co-Borrower or Guarantor shall sell or transfer any property, real or
personal, whether now owned or hereafter acquired, and thereafter rent or lease
such property or other property which such Co-Borrower or Guarantor intends to
use for substantially the same purpose or purposes as the property being sold or
transferred.
S9. Prohibitions Regarding Subordinated Debt. Make any optional prepayment of,
or purchase, redeem or otherwise acquire, or amend any provision pertaining to
the subordination or the terms of payment of, any Subordinated Debt.
S10. 0 Maintenance of Consolidated Indebtedness to Consolidated Tangible Net
Worth Ratio. Permit the ratio of Consolidated Indebtedness to Consolidated
Tangible Net Worth to exceed 1.0 to 1.0 at any time.
S11. Maintenance of Consolidated Coverage Ratio. Permit the Consolidated
Coverage Ratio to fall below 1.25 to 1.00 at any time.
S12. Consolidated Net Income. Permit Consolidated Net Income to be less than
$250,000 for any consecutive four quarterly period.
S13. Maintenance of Consolidated Quick Ratio. Permit the Consolidated Quick
Ratio to fall below 1.35 to 1.00 at any time.
S14. Transactions with Affiliates. Enter into any transaction, including,
without limitation, the purchase, sale, or exchange of property or the
rendering of any service, with any Affiliate, except in the ordinary course of
business and pursuant to the
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reasonable requirements of a Co-Borrower's or a Guarantor's business and upon
fair and reasonable terms no less favorable to such Co-Borrower or such
Guarantor than it would obtain in a comparable arm's length transaction with a
Person not an Affiliate.
S15. Management. Fail to retain Michael B. Krasnoff in a reasonably active
full time capacity in the management of the Co-Borrowers.
S16. Change in Control. At any time from the date hereof (i) a majority of the
members of the Board of Directors of PDK have been elected, having been
nominated other than by the management or preceding Board of Directors or (ii)
PDK shall fail or cease to maintain the voting control of such classes of voting
stock of Futurebiotics which at all times will entitle the holder thereof to
elect a majority of the members of the Board of Directors of Futurebiotics.
S17. Limitation on Capital Expenditures. Make any Capital Expenditures
(excluding Capital Expenditures resulting from acquisitions of property, plant
and equipment described in Section 6.5(g) of this Agreement) including purchase
money indebtedness if, after giving effect thereto, the aggregate amount of such
expenditures by PDK and its Subsidiaries would exceed (i) $2,750,000 during the
Co-Borrowers' fiscal year ending November 30, 1996 or (ii) $2,000,000 during any
fiscal year thereafter.
S18. Limitation on Dividends and Stock Acquisitions. Declare or pay any
dividends or make any other distribution (whether in cash or property) on any
shares of its capital stock now or hereafter outstanding, or except as permitted
under Section 6.5 (m) hereof, purchase, redeem, retire or otherwise acquire for
value any shares of its capital stock or warrants or, options therefor now or
hereafter outstanding (all such dividends, distributions, purchases and other
actions being hereinafter collectively called "Stock Payments", except that (a)
a Subsidiary may make Stock Payments to the Co-Borrowers, or either of them; (b)
the Co-Borrowers may declare stock splits and pay dividends payable solely in
shares of any class of their capital stock; and (c) PDK may declare or pay
dividends on its preferred stock in an aggregate amount not to exceed $362,000
in the aggregate in each fiscal year of PDK.
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A1. EVENTS OF DEFAULT
S1. Events of Default. Any of the following events shall be an "Event of
Default":
(a) failure by the Co-Borrowers to pay the principal of or any
installment of the principal of the Notes when due, or failure to
pay any interest on the Notes or any commitment fee or any other
amount owing hereunder or under the Loan Documents within five days
after any such interest or commitment fee becomes due;
(b) if any representation or warranty made by the Co-Borrowers
or any Guarantor in this Agreement, any other Loan Document or in any
certificate, financial or other statement furnished at any time under
or in connection with this Agreement shall prove to have been untrue
or misleading in any material respect;
(c) default by the Co-Borrowers, or any of them, or any
Guarantor in an observance or performance of any of the covenants or
agreements contained in Section 6 of this Agreement, in any other Loan
Document or in any other document delivered to Agent or the Banks in
connection herewith;
(d) default by the Co-Borrowers, or any of them, or any
Guarantor in the observance or performance of any other covenant or
agreement contained in this Agreement, and the continuance of the same
for 30 days after the earlier of (i) the Co-Borrowers having knowledge
of such default or (ii) notice of such default being given to the
Co-Borrowers by the Agent;
(e) if the Co-Borrowers, or any of them, or any Guarantor shall
(i) default in the payment of principal or interest on the Existing
Term Loans; (ii) default in the payment of principal or interest on
any obligation in excess of $100,000 for borrowed money (other than
the Notes), or for the deferred purchase price of property, beyond the
period of grace, if any, provided with respect thereto; or (iii)
default in the performance or observance of any other term, condition
or agreement contained in any such obligation or in any agreement
relating thereto if the effect thereof is to cause, or permit the
holder or holders of such obligation (or a trustee on behalf of such
holder or holders) to cause, such
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obligation to become due prior to its stated maturity;
(f) (i) the Co-Borrowers, or either of them, any Guarantor or
any of their Subsidiaries shall commence any case, proceeding or other
action (A) under any existing or future law of any jurisdiction,
domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for
relief entered with respect to it, or seeking to adjudicate it a
bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, liquidation, dissolution, composition or other relief with
respect to it or its debts, or (B) seeking appointment of a receiver,
trustee, custodian or other similar official for it or for all or any
substantial part of its property, or the Company, any Guarantor or any
of their Subsidiaries shall make a general assignment for the benefit
of its creditors; or (ii) there shall be commenced against the
Co-Borrowers, or either of them, any Guarantor or any of their
Subsidiaries any case, proceeding or other action of a nature referred
to in clause (i) above or seeking issuance of a warrant of attachment,
execution, distraint or similar process against all or any substantial
part of its property, which case, proceeding or other action (x)
results in the entry of an order for relief or (y) remains
undismissed, undischarged or unbonded for a period of 60 days; or
(iii) the Co-Borrowers, or either of them, any Guarantor or any of
their Subsidiaries shall take any action indicating its consent to,
approval of, or acquiescence in, or in furtherance of, any of the acts
set forth in clause (i) or (ii) above; or (iv) the Co-Borrowers, or
either of them, any Guarantor or any of their Subsidiaries shall
generally not, or shall be unable to, pay its debts as they become due
or shall admit in writing its inability to pay its debts;
(g) (i) any Person shall engage in any "prohibited transaction"
(as defined in Section 406 or ERISA or Section 4975 of the Code)
involving any Plan, (ii) any "accumulated funding deficiency" (as
defined in Section 302 of ERISA), whether or not waived, shall exist
with respect to any Plan, (iii) a Reportable Event shall occur with
respect to, or proceedings shall commence to have a trustee appointed,
or a trustee shall be appointed, to administer or to terminate, any
Single Employer Plan, which Reportable Event or commencement of
proceedings or appointment of a trustee is, in the
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reasonable opinion of the Banks, likely to result in the termination
of such Plan for purposes of Title IV of ERISA, (iv) any Single
Employer Plan shall terminate for purposes of Title IV of ERISA, (v)
the Co-Borrowers, or either of them, or any Commonly Controlled
Entity shall, or is, in the reasonable opinion of the Banks, likely
to, incur any liability in connection with a withdrawal from, or the
Insolvency or Reorganization of, a Multiemployer Plan or (vi) any
other event or condition shall occur or exist with respect to a Plan;
and in each case in clauses (i) through (vi) above, such event or
condition, together with all other such events or conditions, if any,
could subject the Co-Borrowers, or either of them, or any of the
Guarantors or any of their Subsidiaries to any tax, penalty or other
liabilities in the aggregate material in relation to the business,
operations, property or financial or other condition of the Co-
Borrowers, or either of them, or any of the Guarantors or any of their
Subsidiaries;
(h) default by any Co-Borrower or Guarantor in the performance
of the terms of any Loan Documents to which such entity is a party or
if any Loan Documents shall cease to be in full force and effect or
shall be declared to be null and void, or the validity or
enforceability of any Loan Document shall be contested by any such
Co-Borrower or Guarantor or such party shall deny that it has any
further liability to the Banks, or any of them, with respect thereto;
(i) final judgment for payment of money in excess of $100,000
shall be rendered against the Co-Borrowers, or either of them, any
Guarantor or any Subsidiary, and the same shall remain undischarged
for a period of 30 days during which execution of such judgment shall
not be effectively stayed; or
(j) any Material Adverse Change shall occur.
S2. Remedies on Default. Upon the occurrence and continuance of an Event of
Default, the Agent may, upon request of the Required Banks, by notice to the
Co-Borrowers, (i) terminate the Commitment, (ii) declare the Notes, all interest
thereon and all other amounts payable under this Agreement to be forth with due
and payable, whereupon the Notes, all such interest and all such amounts shall
become and be forthwith due and payable, without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived by the
Co-Borrowers and (iii)
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proceed to enforce the rights of the Agent and the Banks whether by suit in
equity or by action at law, whether for specific performance of any covenant or
agreement contained in this Agreement or any Loan Document, or in aid of the
exercise of any power granted in either this Agreement or any, Loan Document or
proceed to obtain judgment or any other relief whatsoever appropriate to the
enforcement of its rights, or proceed to enforce any other legal or equitable
right which the Agent and the Banks may have by reason of the occurrence of any
Event of Default hereunder or under any Loan Document, provided, however, that
upon the occurrence of an Event of Default referred to in Section 7.1(f) the
Commitment shall be automatically terminated, the Notes, all interest thereon
and all other amounts payable under this Agreement shall be immediately due and
payable without presentment, demand, protest or further notice of any kind, all
of which are hereby expressly waived by the Co-Borrowers. Any amounts collected
pursuant to action taken under this Section 7.2 shall be applied first, to the
payment of any costs incurred by the Agent, acting on behalf of any of the
Banks, in taking such action, including but without limitation reasonable
attorneys fees, second, to the payment of the accrued interest on the Notes, and
third, to the payment of the unpaid principal of the Notes.
A2.THE AGENT; RELATIONS AMONG BANKS
Section 8.1. Appointment, Powers and Immunities of Agent. Each
Bank hereby irrevocably (but subject to removal by the Required Banks pursuant
to Section 8.9) appoints and authorizes the Agent to act as its agent hereunder
and under any other Loan Document with such powers as are specifically delegated
to the Agent by the terms of this Agreement and any other Loan Document,
together with such other powers as are reasonably incidental thereto. The Agent
shall have no duties or responsibilities except those expressly set forth in
this Agreement and any other Loan Document, and shall not by reason of this
Agreement be a trustee for any Bank. The Agent shall not be responsible to the
Banks for any recitals, statements, representations or warranties made by the
Co-Borrowers, or any officer or official of the Co-Borrowers, or any other
Person contained in this Agreement or any other Loan Document, or in any
certificate or other document or instrument referred to or provided for in, or
received by any of them under, this Agreement or any other Loan Document, or for
the value, legality, validity, effectiveness, genuineness, enforceability or
sufficiency of this Agreement or any other Loan Document or any
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other document or instrument referred to or provided for herein or therein, or
for the failure by the Co-Borrowers to perform any of their obligations
hereunder or thereunder. The Agent may employ agents and attorneys-in-fact and
shall not be responsible, except as to money or securities received by it or its
authorized agents, for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it with reasonable care. Neither the Agent nor any
of its directors, officers, employees or agents shall be liable or responsible
for any action taken or omitted to be taken by it or them hereunder or under any
other Loan Document or in connection herewith or therewith, except for its or
their own gross negligence or willful misconduct. The Co-Borrowers shall pay any
fee agreed upon with respect to the Agent's services hereunder as set forth in a
letter from the Agent to the Co-Borrowers dated the date hereof.
Section 8.2 Reliance by Agent. The Agent shall be entitled to
rely upon any certification, notice or other communication (including any
thereof by telephone, telefax, telex, telegram or cable) believed by it to be
genuine and correct and to have been signed or sent by or on behalf of the
proper Person or Persons, and upon advice and statements of legal counsel,
independent accountants and other experts selected by the Agent. The Agent may
deem and treat each Bank as the holder of the Loans made by it for all purposes
hereof unless and until a notice of the assignment or transfer thereof
satisfactory to the Agent signed by such Bank shall have been furnished to the
Agent but the Agent shall not be required to deal with any Person who has
acquired a participation in any Loan from a Bank. As to any matters not
expressly provided for by this Agreement or any other Loan Document, the Agent
shall in all cases be fully protected in acting, or in refraining from acting,
hereunder in accordance with instructions signed by the Required Banks, and such
instructions of the Banks and any action taken or failure to act pursuant
thereto shall be binding on all of the Banks and any other holder of all or any
portion of any Loan.
Section 8.3 Defaults. The Agent shall not be deemed to have
knowledge of the occurrence of a Default or Event of Default (other than the
non-payment of principal of or interest or fees on the Loans to the extent the
same is required to be paid to the Agent for the account of the Banks) unless
the Agent has received notice from a Bank or the Co-Borrowers specifying such
Default or Event of Default. In the event that the Agent receives such a notice
of the occurrence of a Default or Event of Default, the
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Agent shall give prompt notice thereof to the Banks (and shall give each Bank
prompt notice of each such non-payment). The Agent shall (subject to Section
8.8) take such action with respect to such Default or Event of Default which is
continuing as shall be directed by the Required Banks; provided that, unless and
until the Agent shall have received such directions, the Agent may take such
action, or refrain from taking such action, with respect to such Default or
Event of Default as it shall deem advisable in the best interest of the Banks;
and provided further that the Agent shall not be required to take any such
action which it determines to be contrary to law.
Section 8.4 Rights of Agent as a Bank. With respect to its
Commitment and the Loans made by it, the Agent in its capacity as a Bank
hereunder shall have the same rights and powers hereunder as any other Bank and
may exercise the same as though it were not acting as the Agent, and the term
"Bank" or "Banks" shall, unless the context otherwise indicates, include the
Agent in its capacity as a Bank. The Agent or any Bank and their respective
affiliates may (without having to account therefor to any other Bank) accept
deposits from, lend money to (on a secured or unsecured basis), and generally
engage in any kind of banking, trust or other business with, the Co-Borrowers or
the Guarantors (and any of their affiliates). In the case of the Agent, it may
do so as if it were not acting as the Agent, and the Agent may accept fees and
other consideration from the Co-Borrowers or the Guarantors for services in
connection with this Agreement or otherwise without having to account for the
same to the Banks. Although the Agent or a Bank or their respective affiliates
may in the course of such relationships and relationships with other Persons
acquire information about the Co-Borrowers or the Guarantors or affiliates and
such other Persons neither the Agent nor such Bank shall have any duty to
disclose such information to the other Banks.
Section 8.5 Indemnification of Agent. The Banks agree to
indemnify the Agent (to the extent not reimbursed under Section 2.12 or under
the applicable provisions of the Loan Documents, but without limiting the
obligations of the Co-Borrowers under Section 2.12 or such provisions) ratably
in accordance with the aggregate unpaid principal amount of the Loans made by
the Banks (without giving effect to any participation, in all or any portion of
such Loans, sold by them to any other Person) (or, if no Loans are at the time
outstanding, ratably in accordance with their respective Commitments), for any
and all liabilities, obligations, losses,
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damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind and nature whatsoever which may be imposed on, incurred by or
asserted against the Agent in any way relating to or arising out of this
Agreement, any other Loan Document or any other documents contemplated by or
referred to herein or the transactions contemplated hereby or thereby
(including, without limitation, the costs and expenses which the Co-Borrowers
are obligated to pay under Sections 2.12 or otherwise or under the applicable
provisions of any other Loan Document but excluding, unless a Default or Event
of Default has occurred, normal administrative costs and expenses incidental to
the performance of its agency duties hereunder) or the enforcement of any of the
terms hereof or thereof or of any such other documents or instruments; provided
that no Bank shall be liable for any of the foregoing to the extent they arise
from the gross negligence or willful misconduct of the party to be indemnified.
Section 8.6 Documents. The Agent will forward to each Bank,
promptly after the Agent's receipt thereof, a copy of each report, notice or
other document required by this Agreement or any other Facility Document to be
delivered to the Agent for such Bank.
Section 8.7 Non-Reliance on Agent and Other Banks. Each Bank
agrees that it has, independently and without reliance on the Agent or any other
Bank, and based on such documents and information as it has deemed appropriate,
made its own credit analysis of the Co-Borrowers and the Guarantors and decision
to enter into this Agreement and that it will, independently and without
reliance upon the Agent or any other Bank, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
analysis and decisions in taking or not taking action under this Agreement or
any other Loan Document. The Agent shall not be required to keep itself informed
as to the performance or observance by the Co-Borrowers or the Guarantors of
this Agreement or any other Loan Document or any other document referred to or
provided for herein or therein or to inspect the properties or books of the
Co-Borrowers or the Guarantors. Except for notices, reports and other documents
and information expressly required to be furnished to the Banks by the Agent
hereunder, the Agent shall not have any duty or responsibility to provide any
Bank with any credit or other information concerning the affairs, financial
condition or business of the Co-Borrowers or the Guarantors (or any of their
affiliates) which may come into the possession of the Agent or of its
affiliates. The Agent shall not
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be required to file this Agreement, any other Loan Document or any document or
instrument referred to herein or therein, for record or give notice of this
Agreement, any other Facility Document or any document or instrument referred to
herein or therein, to anyone.
Section 8.8 Failure of Agent to Act. Except for action
expressly required of the Agent hereunder, the Agent shall in all cases be fully
justified in failing or refusing to act hereunder unless it shall have received
further assurances (which may include cash collateral) of the indemnification
obligations of the Banks under Section 8.5 in respect of any and all liability
and expense which may be incurred by it by reason of taking or continuing to
take any such action.
Section 8.9 Resignation or Removal of Agent. Subject to the
appointment and acceptance of a successor Agent as provided below, the Agent may
resign at any time by giving written notice thereof at least ten Business Days
prior thereto to the Banks and the Co-Borrowers, the Agent may be removed at any
time with cause by the Required Banks and the Agent may be removed at any time
without cause by the Required Banks if with the prior written consent of the
Co-Borrowers; provided that the Co-Borrowers and the other Banks shall be
promptly notified thereof. Upon any such resignation or removal, the Required
Banks shall have the right to appoint a successor Agent. If no successor Agent
shall have been so appointed by the Required Banks and shall have accepted such
appointment within 30 days after the retiring Agent's giving of notice of
resignation or the Required Banks' removal of the retiring Agent, then the
retiring Agent may, on behalf of the Banks, appoint a successor Agent, which
shall be a Bank. The Required Banks or the retiring Agent, as the case may be,
shall upon the appointment of a successor Agent promptly so notify the
Co-Borrowers and the other Banks. Upon the acceptance of any appointment as
Agent hereunder by a successor Agent, such successor Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Agent, and the retiring Agent shall be discharged from its
duties and obligations hereunder. After any retiring Agent's resignation or
removal hereunder as Agent, the provisions of this Article 8 shall continue in
effect for its benefit in respect of any actions taken or omitted to be taken by
it while it was acting as the Agent.
Section 8.10 Amendments Concerning Agency Function. The Agent
shall not be bound by any waiver, amendment, supplement
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or modification of this Agreement or any other Loan Document which affects its
duties hereunder or thereunder unless it shall have given its prior consent
thereto.
Section 8.11 Liability of Agent. The Agent shall not have any
liabilities or responsibilities to the Co-Borrowers on account of the failure of
any Bank to perform its obligations hereunder or to any Bank on account of the
failure of the Borrower to perform its obligations hereunder or under any other
Loan Document.
Section 8.12 Transfer of Agency Function. Without the consent
of the Co-Borrowers or any Bank, the Agent may at any time or from time to time
transfer its functions as Agent hereunder to any of its offices wherever
located, provided that the Agent shall promptly notify the Co-Borrowers and the
Banks thereof.
Section 8.13 Non-Receipt of Funds by the Agent. Unless the
Agent shall have been notified by a Bank or the Co-Borrowers (either one as
appropriate being the "Payor") prior to the date on which such Bank is to make
payment hereunder to the Agent of the proceeds of a Loan or the Co-Borrowers are
to make payment to the Agent, as the case may be (either such payment being a
"Required Payment"), which notice shall be effective upon receipt, that the
Payor does not intend to make the Required Payment to the Agent, the Agent may
assume that the Required Payment has been made and may, in reliance upon such
assumption (but shall not be required to), make the amount thereof available to
the intended recipient on such date and, if the Payor has not in fact made the
Required Payment to the Agent, the recipient of such payment shall, on demand,
repay to the Agent the amount made available to it together with interest
thereon for the period commencing on the date such amount was so made available
by the Agent until the date the Agent recovers such amount at a rate per annum
equal to the Federal Funds Rate for such day (when the Agent recovers such
amount from a Bank) or equal to the rate of interest applicable to such Loan
(when the Agent recovers such amount from the Co-Borrowers) and, if such
recipient shall fail to make such payment promptly, the Agent shall be entitled
to recover such amount, on demand, from the Payor, with interest as aforesaid.
Section 8.14 Several Obligations and Rights of Banks. The
failure of any Bank to make any Loan to be made by it on the date specified
therefor shall not relieve any other Bank of its
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obligation to make its Loan on such date, but no Bank shall be responsible for
the failure of any other Bank to make a Loan to be made by such other Bank. The
amounts payable at any time hereunder to each Bank shall be a separate and
independent debt, and each Bank shall be entitled to protect and enforce its
rights arising out of this Agreement, and it shall not be necessary for any
other Bank to be joined as an additional party in any proceeding for such
purpose.
Section 8.15 Pro Rata Treatment of Loans, Etc. Except to the
extent otherwise provided: (a) each borrowing shall be made from the Banks, each
reduction or termination of the amount of the Commitments shall be applied to
the Commitments of the Banks, and each payment of the fees shall be made by and
held for the account of the Banks, pro rata in accordance with their respective
Commitment Proportions; (b) each prepayment and payment of principal of or
interest on Loans of a particular type and a particular Interest Period shall be
made to the Agent for the account of the Banks holding Loans of such type and
Interest Period pro rata in accordance with the respective unpaid principal
amounts of such Loans of such Interest Period held by such Banks.
Section 8.16 Sharing of Payments Among Banks. If a Bank shall
obtain payment of any principal of or interest on any Loan made by it through
the exercise of any right of setoff, banker's lien, counterclaim, or by any
other means, it shall promptly purchase from the other Banks a participation in
the Loans made by the other Banks in such amounts, and make such other
adjustments from time to time as shall be equitable to the end that all the
Banks shall share the benefit of such payment (net of any expenses which may be
incurred by such Bank in obtaining or preserving such benefit) pro rata in
accordance with the unpaid principal and interest on the Loans held by each of
them. To such end the Banks shall make appropriate adjustments among themselves
(by the resale of any such participation sold or otherwise) if such payment is
rescinded or must otherwise be restored. The Co-Borrowers agree that any Bank so
purchasing a participation in the Loans made by other Banks may exercise all
rights of setoff, banker's lien, counterclaim or similar rights with respect to
such participation. Nothing contained herein shall require any Bank to exercise
any such right or shall affect the right of any Bank to exercise, and retain the
benefits of exercising, any such right with respect to any other indebtedness of
the Co-Borrowers.
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A1. MISCELLANEOUS
S1. Limited Role of Banks. The relationship between the Co-Borrowers and the
Banks shall be solely that of borrower and lender, respectively. Neither the
Agent nor the Banks shall have any fiduciary responsibilities to the
Co-Borrowers and no joint venture exists between the Co-Borrowers and the
Agent or any of the Banks. The Co-Borrowers, the Agent and the Agent or the
Banks each hereby severally acknowledge that there are no representations,
warranties, covenants, undertakings or agreements by the parties hereto as to
the Loan Documents except as specifically provided herein and therein.
S2. Choice of Law Construction. The Loan Documents (other than those
containing a contrary express choice of law provision) shall be construed in
accordance with the internal laws (and not the law of conflicts) of the State of
New York. If any provision of the Loan Documents shall be or become
unenforceable or illegal under any law, the other provisions shall remain in
full force and effect.
S3. Consent to Jurisdiction. (a) The Co-Borrowers and the Guarantors hereby
irrevocably submit to the non-exclusive jurisdiction of any United States
federal or New York state court sitting in New York City in any action or
proceedings arising out of or relating to any Loan Documents and the
Co-Borrowers and the Guarantors hereby irrevocably agree that all claims in
respect of such action or proceeding may be heard and determined in any such
court and irrevocably waives any objection it may now or hereinafter have as to
the venue of any such action or proceeding brought in such a court or the fact
that such court is an inconvenient forum.
(a) The Co-Borrowers and the Guarantors irrevocably and
unconditionally consent to the service of process in any such action or
proceeding in any of the aforesaid courts by the mailing of copies of such
process to it, by certified or registered mail at its address specified in
Section 8.5.
S4. WAIVER OF JURY TRIAL. THE CO-BORROWERS, THE GUARANTORS, THE AGENT AND THE
BANKS HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING INVOLVING DIRECTLY
OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN
ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT OR THE
RELATIONSHIP ESTABLISHED THEREUNDER.
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S5. Notices. All notices, requests and demands to or upon the respective
parties hereto shall be deemed to have been given or made when deposited to the
mail, postage prepaid, in the case of telegraphic notice, when delivered to the
telegraph company, or in the case of tested telex, upon confirmation of receipt,
addressed as set forth below or to such other address as may be hereafter
designated in writing by the respective parties hereto:
The Agent: The Chase Manhattan Bank
395 North Service Road, Suite 302
Melville, New York 11747
Attention: PDK Labs Inc. Account Officer
The Banks: With respect to each Bank, at the
address specified on the signature pages
hereto.
The Co-Borrowers or the Guarantors:
PDK LABS INC.
145 Ricefield Lane
Hauppauge, New York 11788
with a copy to: Bernstein & Wasserman, LLP
950 Third Avenue
New York, New York 10022-2705
Attention: Steven F. Wasserman
S1. Entire Agreement; No Waiver; Cumulative Remedies; Amendments; Setoff.
a) This Agreement and the other Loan Documents constitute, the entire
agreement among the parties hereto and thereto as to the subject matter hereof
and thereof and supersede any previous agreement, oral or written, as to such
subject matter.
(a) No failure to exercise and to delay in exercising, on the
part of the Agent or any of the Banks or the Co-Borrowers, any right, power or
privilege hereunder or under the Notes, shall operate as a waiver thereof; nor
shall any single or partial exercise of any right, power or privilege hereunder
preclude any
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<PAGE>
other or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein provided are cumulative and not
exclusive of any rights or remedies provided by law. No modification or waiver
of any provision of this Agreement, or the Notes, nor consent to any departure
by the Co-Borrowers or the Guarantors from the provisions hereof or thereof,
shall be effective unless the same shall be in writing from the Agent and then
such waiver or consent shall be effective only in the specific instance and for
the purpose for which it is given. No notice to the Co-Borrowers or the
Guarantors shall entitle the Co-Borrowers or the Guarantors to any other or
further notice in other or similar circumstances unless expressly provided for
herein. No course of dealing between the Co-Borrowers or the Guarantors and the
Agent or any of the Banks shall operate as a waiver of any of the rights of the
Agent or any Bank under this Agreement.
(b) In addition to any rights or remedies of the Agent or any
Bank provided by law, upon the occurrence of any Event of Default, the Agent and
each of the Banks are hereby authorized without notice to the Co-Borrowers or
the Guarantors to setoff and appropriate and apply all deposits (general and
special) and other indebtedness at any time held or owing by the Agent or any
Bank to or for the credit or the account of the Co-Borrowers, the Guarantors,
or any of them, against and on account of all obligations, liabilities and
claims of the Co-Borrowers or the Guarantors to any Bank, and in such amounts as
the Agent or such Bank may elect, although such obligations, liabilities and
claims may be contingent or unmatured.
S1. Reference to Subsidiaries and Guarantors. If the Co-Borrowers have no
Subsidiaries and/or if there are no Guarantors, then the provisions of this
Agreement relating to Subsidiaries and/or Guarantors shall be deemed surplusage
without affecting the applicability of the provisions of this Agreement to the
Co-Borrowers alone.
S2. Joint and Several Obligations. Each of the Co-Borrowers acknowledges and
agrees that all obligations of the Co-Borrowers, or any of them, for the
payment or performance of any obligations hereunder shall be joint and several
obligations of all Co-Borrowers.
S3. Captions. The captions of the various sections and
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<PAGE>
subsections of this Agreement have been inserted only for the purposes of
convenience, and shall not be deemed in any manner to modify, explain, enlarge
or restrict any of the provisions of this Agreement.
S4. Exhibits. All Exhibits and all Schedules annexed hereto shall constitute
integral parts of this Agreement.
S5. Payment of Fees. (a) The Co-Borrowers agree to pay or reimburse the Agent
and each of the Banks for all of their reasonable costs and expenses incurred,
in connection with the preparation and execution of this Agreement and any
subsequent amendment, supplement or modification of the Loan Documents
including, without limitation, the fees and disbursements of counsel to the
Agent up to a maximum of $23,000 plus disbursements and, in the case of internal
counsel, allocated costs of such internal counsel. The Agent shall request such
payment or reimbursement in writing.
(a) The Co-Borrowers agree to pay all reasonable costs and
expenses of the Agent and each of the Banks in enforcing or preserving any of
the rights and remedies available to them under this Agreement, the Notes, or
under any other Loan Documents, instruments or writings executed and delivered
to the Agent or any Bank in connection herewith including, without limitation,
reasonable legal fees, costs and disbursements.
S6. Survival of Agreements. All agreements, representations and warranties
made herein and in any certificates delivered pursuant hereto shall survive the
execution and delivery of this Agreement, the Notes, and the making and renewal
of loans hereunder, and shall continue in full force and effect until the
indebtedness of the Co-Borrowers under the Notes has been paid in full.
S7. Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the Co-Borrowers, the Guarantors, the Agent and the Banks and
their respective successors and assigns, except that the Co-Borrowers and the
Guarantors may not transfer or assign any of its rights or interests hereunder
without the prior written consent of the Banks, acting through the Agent.
S8. Interest. Anything in this Agreement or in the Notes to the contrary
notwithstanding, the Banks shall not charge, take or
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receive, and the Co-Borrowers shall not be obligated to pay interest in excess
of the maximum rate from time to time permitted by applicable law.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
THE CO-BORROWERS:
PDK LABS INC.
By: /s/ Michael Krasnoff
_____________________________
Michael Krasnoff
President
FUTUREBIOTICS, INC.
By: /s/ Reginald Spinello
_____________________________
Reginald Spinello
President
THE GUARANTOR:
PDI LABS, INC.
By: /s/ Michael Krasnoff
______________________________
Michael Krasnoff
President
THE AGENT:
THE CHASE MANHATTAN BANK
By: /s/ Scott M. Grossman
____________________________
Scott M. Grossman
Vice President
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<PAGE>
THE BANKS:
THE CHASE MANHATTAN BANK
By: /s/ Scott M. Grossman
____________________________
Scott M. Grossman
Vice President
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<PAGE>
FIRST AMENDMENT AND WAIVER dated as of February
26, 1997 to the REVOLVING CREDIT AGREEMENT dated
as of September 25, 1996 (the "Credit Agreement")
by and among PDK LABS INC., a New York corporation
having its principal place of business at 145
Ricefield Lane, Hauppauge, New York 11788 ("PDK"),
FUTUREBIOTICS, INC., a Delaware corporation having
its principal place of business at 145 Ricefield
Lane, Hauppauge, New York 11788 ("Futurebiotics";
collectively with PDK, the "Co-Borrowers") and THE
CHASE MANHATTAN BANK, a New York banking
corporation, having an office at 395 North Service
Road, Melville, New York 11747 (the "Bank").
WHEREAS, the Co-Borrowers have requested and the Bank has agreed, subject to the
terms and conditions of this FIRST AMENDMENT AND WAIVER, to amend and waive
compliance with certain provisions of the Credit Agreement to reflect the
requests herein set forth.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants and
agreements hereinafter set forth, the parties hereto agree as follows:
1. Waiver of ARTICLE 5. AFFIRMATIVE COVENANTS.
Section 5.1. Financial Statements. (j).
Compliance with Section 5.1 (j) of the Credit Agreement is hereby waived to
permit (i) the non-receipt of the accounts receivable aging schedule for each
Co-Borrower for the fiscal quarter ended May 30, 1996 and (ii) the late
receipt of the accounts receivable aging schedule for each Co-Borrower for
the fiscal quarter ended November 30, 1996, provided, however, that the
Co-Borrowers shall each deliver to the Bank an accounts receivable aging
schedule as of November 30, 1996 no later than March 17, 1997.
2. Waiver of ARTICLE 5. AFFIRMATIVE COVENANTS.
Section 5.10. Dissolution of C&C Enterprises, Inc.
Compliance with Section 5.10 of the Credit Agreement is hereby waived,
provided, however, that C&C Enterprises shall be dissolved and the
Co-Borrowers shall deliver to the Bank a certified copy of the certificate of
dissolution of C&C Enterprises, Inc. no later than May 22, 1997.
3. Waiver of ARTICLE 6. NEGATIVE COVENANTS.
Section 6.10. Maintenance of Consolidated Indebtedness to Consolidated
Tangible Net Worth Ratio.
Compliance with Section 6.10 of the Credit Agreement is hereby waived to
permit the ratio of Consolidated Indebtedness to Consolidated Tangible Net
Worth to exceed 1.0 to 1.0 during the fiscal quarter ended November 30, 1996,
provided, however, that the ratio of Consolidated Indebtedness to
Consolidated Tangible Net Worth did not exceed 1.29 to 1.0 during the fiscal
quarter ended November 30, 1996.
<PAGE>
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4. Waiver of ARTICLE 6. NEGATIVE COVENANTS.
Section 6.18. Limitation on Dividends and Stock Acquisitions.
Section 6.18 of the Credit Agreement is hereby waived to permit PDK to pay
cash dividends in excess of $362,000 during its fiscal year ended November
30, 1996, provided, however, that cash dividends paid by PDK during its
fiscal year ended November 30, 1996 did not exceed $362,382.
5. Amendment to ARTICLE 6. NEGATIVE COVENANTS.
Section 6.10. Maintenance of Consolidated Indebtedness to Consolidated
Tangible Net Worth Ratio.
Section 6.10 of the Credit Agreement is hereby amended by deleting "1.0 to
1.0" and substituting therefore "1.75 to 1.0".
6. Amendment to ARTICLE 6. NEGATIVE COVENANTS.
Section 6.18. Limitation on Dividends and Stock Acquisitions.
Section 6.18 of the Credit Agreement is hereby amended by deleting "362,000"
and substituting therefore "362,382".
This FIRST AMENDMENT AND WAIVER shall be governed by and construed in accordance
with the laws of the State of New York applicable to agreements made and to be
performed in said State.
All capitalized terms not otherwise defined herein are used with the respective
meanings given to such terms in the Credit Agreement.
Except as expressly waived hereby, the Credit Agreement shall remain in full
force and effect in accordance with the original terms thereof. This FIRST
AMENDMENT AND WAIVER herein contained is limited specifically to the matters set
forth above and does not constitute directly or by implication a waiver or
amendment of any other provision of the Credit Agreement or any default which
may occur or may have occurred under the Credit Agreement.
The Co-Borrowers hereby represent and warrant that, after giving effect to this
FIRST AMENDMENT AND WAIVER, no Event of Default or event which with the giving
of notice or lapse of time or both would constitute an Event of Default exists
under the Credit Agreement or any documents relating thereto.
This FIRST AMENDMENT AND WAIVER may be executed in any number of counterparts,
each of which shall constitute an original, but all of which, when taken
together, shall constitute but one FIRST AMENDMENT AND WAIVER. This FIRST
AMENDMENT AND WAIVER shall become effective when (i) duly executed counterparts
hereof which, when taken together, bear the signatures of each of the parties
hereto shall have been delivered to the Bank and (ii) the Co-Borrowers have
delivered to the Bank the duly executed letter from the Agent to the
Co-Borrowers relating to the Agent's fee, as provided in Section 8.1 of the
Credit Agreement and which letter is attached hereto.
IN WITNESS WHEREOF, the Co-Borrowers and the Bank have caused this FIRST
AMENDMENT AND WAIVER to be duly executed by their duly authorized officers, all
as of the day and year first above written.
PDK LABS INC.
By: /s/ Reginald Spinello
Title: V.P.
<PAGE>
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FUTUREBIOTICS, INC.
By: /s/ Reginald Spinello
Title: President
THE CHASE MANHATTAN BANK
By: /s/ Scott M. Grossman
Vice President
CONSENT
The undersigned, as Guarantor of the obligations of the Co-Borrowers hereby
consents to the execution and delivery by the Co-Borrowers of this FIRST
AMENDMENT AND WAIVER and hereby confirms that it will remain fully bound by the
terms of the Corporate Guaranty dated September 25, 1996 to which it is a party.
PDI LABS, INC.
By: /s/ Reginald Spinello
Title: Asst. Sec.
<PAGE>
February 26, 1997
PDK Labs, Inc.
Futurebiotics, Inc.
145 Ricefield Ave.
Hauppauge, New York 11787
Re: $15,000,000 Revolving Credit Agreement, dated
September 25, 1996 by and between The Chase Manhattan
Bank, as Bank, and PDK Labs, Inc. and Futurebiotics, Inc.,
as Co-Borrowers (the "Credit Agreement")
Ladies and Gentlemen:
Reference is made to the captioned Credit Agreement. Pursuant to the terms
of the Credit Agreement, The Chase Manhattan Bank (the "Bank") has agreed to act
as agent for the "Banks" which are now or hereafter become party to the Credit
Agreement. In consideration of the Bank agreeing to act as Agent, you hereby
agree to pay the Bank an annual agency fee of $10,000. This fee shall be due and
payable upon the Closing Date and upon each anniversary of the date of the
Credit Agreement.
Please indicate your agreement to the foregoing terms by signing the
enclosed copy of this letter and returning it to us.
Very truly yours,
THE CHASE MANHATTAN BANK
By: /s/ Scott M. Grossman
Name: Scott M. Grossman
Title: Vice President
ACKNOWLEDGED AND AGREED:
PDK LABS, INC.
By: /s/ Reginald Spinello
Name: Reginald Spinello
Title: V.P.
FUTUREBIOTICS, INC.
By: /s/ Reginald Spinello
Name: Reginald Spinello
Title: Pres.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the financial
statements and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-END> NOV-30-1996
<CASH> 2,885,517
<SECURITIES> 3,463,596
<RECEIVABLES> 8,057,159
<ALLOWANCES> (42,000)
<INVENTORY> 23,272,516
<CURRENT-ASSETS> 34,479,997
<PP&E> 9,509,148
<DEPRECIATION> 4,376,600
<TOTAL-ASSETS> 53,254,508
<CURRENT-LIABILITIES> 7,625,044
<BONDS> 13,602,768
0
7,396
<COMMON> 31,919
<OTHER-SE> 26,621,893
<TOTAL-LIABILITY-AND-EQUITY> 53,254,508
<SALES> 46,562,870
<TOTAL-REVENUES> 46,562,870
<CGS> 27,288,130
<TOTAL-COSTS> 27,288,130
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 922,464
<INCOME-PRETAX> 2,491,168
<INCOME-TAX> 1,018,000
<INCOME-CONTINUING> 1,612,806
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,612,806
<EPS-PRIMARY> .40
<EPS-DILUTED> .40
</TABLE>
