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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
REPORT ON FORM 10-K
|X| Annual Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended November 30, 1997.
|_| Transition Report pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the transition period from to .
-------------- ----------------
Commission File 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 Offices)
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
-------------------------------------------------
(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 Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Issuer's revenues for its most recent fiscal year were $51,352,000.
The aggregate market value of the voting and non-voting stock held by
non-affiliates of the Registrant, computed by reference to the closing price of
such stock as of February 19, 1998, was approximately $17,386,000.
Number of shares outstanding of the Registrant's common stock, as of
February 19, 1998, was 3,557,153.
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 ("OTC") non-prescription pharmaceutical products and vitamins.
The Company's line of products primarily consists of non-prescription pain
relievers, decongestants, bronchodialators, and a broad range of vitamins and
nutritional supplements. The Company markets its products through regional
distributors, private label distribution and various licensing and supply
agreements.
The Company only sells OTC 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 OTC products, those products that will be generally recognized as
safe and effective and non-misbranded. See "Business Government Regulation."
The Company's non-prescription pharmaceutical products contain active
ingredients which are identical to those contained in non-prescription 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 products are similar to
Tylenol(R); its antihistamine tablets are similar to Benadryl(R); and its
decongestant products are similar to Actifed(R) and Sudafed(R).
The Company also sells products through its majority owned public
subsidiary, Futurebiotics, Inc. ("Futurebiotics"). Futurebiotics' product line
consists of more than 150 items, including multi-vitamin/mineral formulas, green
superfood powders, herbal/mineral tonics and herbal complexes and specific
specialty supplements. Futurebiotics currently sells its products to health food
distributors. In addition, Futurebiotics currently sells products in several
international markets including South America, Central Europe, Hong Kong,
Malaysia, Japan, and Scandinavia.
The Company was incorporated under the laws of the State of New York on
July 6, 1982.
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Marketing
The Company markets its products to customers through direct
salespersons, manufacturers representatives, and various supply and licensing
agreements. Approximately 23% of the Company's total revenue for the fiscal year
ended November 30, 1997 was from sales by its Futurebiotics subsidiary. Private
label sales accounted for 65% of the Company's total revenue for the fiscal year
ended November 30, 1997. Sales under various supply and licensing agreements
accounted for 40% of the Company's total revenue for the fiscal year ended
November 30, 1997.
The Company supplies a third party under an exclusive supply agreement
with dietary supplements and a broad range of OTC non-prescription
pharmaceutical products. This agreement expires in October 2000 and is
automatically renewable for successive one (1) year terms.
In addition, on March 24, 1997, the Company entered into an additional
exclusive supply and licensing agreement with this same third party pursuant to
which the Company granted an exclusive license to use the trademarks "Max Brand"
and "Heads Up" brands of OTC pharmaceuticals and the exclusive right to
distribute products bearing such names. This agreement has a five (5) year term
which automatically renews for successive periods of one (1) year. In
consideration for the license, the third party agreed to pay an annual license
fee to the Company. The fee is payable at the option of the third party in
either cash or the publicly traded common stock of the third party. Sales to
this customer approximated $5,485,000 for the fiscal year ended November 30,
1997.
On May 5, 1997, the Company renegotiated an Exclusive Supply Agreement
(the "New Agreement") with a non-affiliated distributor (the "Distributor") for
a three (3) year term. Under the New Agreement, the Company was granted
exclusive supply rights to distribute certain products to the Distributor's
customers. In consideration for the supply rights, the Company agreed to pay a
royalty fee based on sales to these customers.
The New Agreement superseded a prior Exclusive Supply and Licensing
Agreement (the "Original Agreement") pursuant to which the Company had supplied
the Distributor with all of its requirements for vitamins and OTC
non-prescription products. The Company also terminated 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
granted to the Distributor.
Sales to this Distributor made pursuant to the Original Agreement
accounted for 8% of total revenue for the fiscal year ended November 30, 1997.
The Company recognized license fees of $25,000 for the fiscal year ended
November 30, 1997 in connection with the Original Agreement.
The Company markets its various OTC pharmaceuticals and vitamin
products under various brand names to drug store chains, health food stores,
health food store distributors,
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convenience stores, and other various retailers.
Manufacturing
The Company's manufacturing facility is located in Hauppauge, New York.
Approximately 70% of the sales volume of the Company's products are manufactured
and/or packaged by the Company. The Company has the current capacity to
manufacture 6 billion tablets and/or capsules annually. In addition, the Company
can package 60 million bottles annually. Manufacturing and packaging equipment
has been dramatically increased in fiscal 1997. The Company believes that the
expanded capacity of its manufacturing facility is adequate to meet the
requirements of its current and future business.
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 OTC 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.
The Company has a supply agreement with Superior Supplements, Inc., a
Delaware
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corporation ("SSI"), pursuant to which the Company is obligated to purchase a
minimum of $2,500,000 of certain products at specified prices annually. This
supply agreement expires in May 1999 and is automatically renewable for
successive one (1) year periods thereafter. For the fiscal year ended November
30, 1997, the Company made purchases of approximately $4,386,000 pursuant to
this agreement. See "Certain Relationships and Related Transactions."
In addition, on November 30, 1997, the Company entered into a packaging
agreement with SSI. SSI agreed to package Futurebiotics products for the Company
for a fixed price based on component cost plus a direct labor charge per unit.
The term of the agreement is for two (2) years, renewable for successive one (1)
year periods thereafter. The Company is obligated to purchase 1,000,000 bottles
of Futurebiotics products per annum during the term of the agreement. See
"Certain Relationships and Related Transactions."
Although raw materials are available from numerous sources, two
suppliers currently provide approximately 16% and 12% of the Company's
purchases. No other supplier accounts for more than 10% of the Company's raw
material purchases.
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 the event of a successful
suit against the Company, insufficiency of insurance coverage or inadequacy of
indemnification, there could be 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.
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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 United States 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.
In October 1994, the Dietary Supplement Health and Education Law was
signed into law. This new law, which amends the Federal Food, Drug and Cosmetic
Act, defines dietary supplements as a separate and distinct entity, and not as
food additives. Vitamins, minerals, amino acids, herbs and other nutritional
substances are included in the definition. It expressly provides for the use of
third party scientific literature which shall not be regulated as labeling by
the FDA, provided it is not false or misleading. The new law also delayed the
FDA's requirements for extensive product label changes which were to be applied
to products manufactured after July 1, 1995. It provides a set of different
label requirements for ingredient content information, and directs the FDA to
publish new label regulations for supplements with a mandatory effective date,
as extended, of March 23, 1999. It makes no modifications on the requirements
and proscriptions regarding health claims for dietary supplements. The new law
also introduced the concept of good manufacturing practices to the manufacture
of dietary supplements. At this time, it would be premature to predict its
overall impact on the dietary supplement industry.
Several of the raw materials used by the Company in its manufacturing
process are categorized as List I Chemicals by the Chemical Diversion Act of
1988. As such, the importation of these chemicals requires the filing of
importation documents with the Federal Drug Enforcement Agency. In addition,
certain foreign countries require a "letter of non-objection" for the export of
List I Chemicals.
The FDA proposed regulations which remain pending but, if adopted,
would remove
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ephedrine-containing over-the-counter drug products which are manufactured and
sold by the Company from the over-the-counter market. During this past year
several states have already taken action on an individual state by state basis,
to restrict, in some fashion, the sale of ephedrine, pseudoephedrine, and/or
phenylpropanolamine ("PPA") containing products.
The Drug Enforcement Administration (the "DEA") has been given the
statutory authority to regulate all ephedrine, pseudoephedrine, and PPA
over-the-counter drug products. Previously, the restrictions were limited to
certain ephedrine products. The restrictions on pseudoephedrine and PPA became
effective in October 1997 and DEA registration requirements are now effective.
Registration with the DEA is required for all companies engaged in the
distribution of any products containing ephedrine, pseudoephedrine, or PPA.
There are certain registration exemptions in place for retail stores. The
Company has applied for its own registration with the DEA. That registration
remains pending and the Company continues to operate under an exemption. Should
the DEA ultimately deny the Company's registration, it would no longer be
permitted to manufacture and distribute these products. The Company's customers
who have not applied for such registration or have been rejected, can no longer
market the Company's products containing the three ingredients in question.
Thus, the DEA, registration, identification, record keeping, and
reporting requirements may adversely affect the Company's sales of these
products.
Employees
As of February 19, 1998, the Company employed 162 full-time persons.
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 three 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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In 1997, the Company leased a third property in Hauppauge, New York.
This 26,000 square foot property serves as an additional distribution facility
for the Company. This lease is for a three (3) year term at an annual rental of
$153,400.
Item 3. LEGAL PROCEEDINGS.
Except as set forth below, management is not aware of any material
legal proceedings 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 in a litigation entitled PDK Labs Inc. v Perry Krape
in the Supreme Court of the State of New York, County of Suffolk. 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 Counterclaim, asserts 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
Counterclaim. Each intends to vigorously defend against such claims and PDK
intends to proceed with its action against the executive.
Donald Zinman ("Zinman") served and filed a complaint (the "Zinman
Complaint") against PDK and its majority-owned subsidiary, Futurebiotics, Inc.
("Futurebiotics") dated May 16, 1997 in a litigation entitled Zinman v. PDK Labs
Inc. and Futurebiotics, Inc. in the Eastern District of New York. The Zinman
Complaint alleges breach of contract in that PDK failed to pay amounts under an
Amended Consulting Agreement between Zinman and PDK.
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In their Answer and Counterclaim dated July 7, 1997 PDK and
Futurebiotics answer and assert counterclaims and setoffs.
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
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Item 5. MARKET FOR REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock and Preferred Stock is regularly quoted and
traded on the NASDAQ system under the symbols PDKL and PDKLP, respectively.
Since November 8, 1995, the Old Warrants are not quoted or traded on the NASDAQ
system.
In addition, the Company's Class B Warrants and the Class C Warrants
traded on the NASDAQ system until December 31, 1996 and they expired on April
13, 1997.
The Company invested $983,000 in its own stock in fiscal 1997,
repurchasing 176,500 shares at an average price of $5.57. In addition, the
Company repurchased 9,000 shares at an average price of $8.25 between December
1, 1997 and February 19, 1998. As of February 19, 1998, the Company had
authorization to repurchase an additional $607,000 worth of its own stock.
The following table indicates the high and low bid prices for the
Company's Common Stock, Preferred Stock, Class B Warrants and Class C Warrants
for the period up to November 30, 1997 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.
Common Stock
1995 Calendar Year
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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
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1997 Calendar Year
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First Quarter 7 4 7/8
Second Quarter 6 3/8 3 7/8
Third Quarter 5 1/2 4 3/8
Fourth Quarter 7 4 5/8
Preferred Stock
1995 Calendar Year
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Fourth Quarter 4 3/4 3 1/4
1996 Calendar Year
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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
1997 Calendar Year
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First Quarter 6 5/8 5
Second Quarter 6 1/2 4
Third Quarter 8 5 1/4
Fourth Quarter 7 1/2 6 3/4
Class B Warrants
1995 Calendar Year
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Fourth Quarter DID NOT TRADE
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1996 Calendar Year
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First Quarter DID NOT TRADE
Second Quarter DID NOT TRADE
Third Quarter DID NOT TRADE
Fourth Quarter DID NOT TRADE
1997 Calendar Year
------------------
First Quarter DID NOT TRADE
April 1 - April 13 DID NOT TRADE
Class C Warrants
1995 Calendar Year
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Fourth Quarter 1/32 1/32
1996 Calendar Year
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First Quarter DID NOT TRADE
Second Quarter DID NOT TRADE
Third Quarter DID NOT TRADE
Fourth Quarter DID NOT TRADE
1997 Calendar Year
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First Quarter DID NOT TRADE
April 1 - April 13 DID NOT TRADE
On February 19, 1998, the closing price of the Common Stock as reported
on the NASDAQ System was $7.50. On February 19, 1998, the closing price of the
Preferred Stock reported on the NASDAQ System was $7.88. On February 19, 1998,
there were 736 holders of
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record of Common Stock.
On April 15, 1997, the Company paid $.25 per share of Preferred Stock
dividend to holders of record on April 9, 1997 payable in cash. On October 15,
1997, the Company paid $.24 per share of Preferred Stock dividend to holders of
record on October 10, 1997 payable in cash.
Item 6. SELECTED FINANCIAL DATA.
SUMMARY BALANCE SHEET DATA
<TABLE>
<CAPTION>
November 30,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total Assets $54,221,463 $53,254,508 $41,943,131 $33,533,057 $25,683,948
Long-Term Obligations,
net of current portion 15,433,614 13,602,768 8,251,463 4,356,000 737,195
Stockholders' Equity 28,304,895 26,661,208 24,436,952 22,440,061 19,294,966
</TABLE>
SUMMARY INCOME STATEMENT DATA
<TABLE>
<CAPTION>
Years Ended November 30,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $51,351,803 $46,562,870 $31,903,558 $21,151,667 $18,748,430
Operating Income 2,682,250 2,356,378 1,681,182 1,435,794 1,418,225
Net Income (Loss) 1,559,309 1,612,806 (180,101) 1,773,792 780,290
Net Income (Loss) Per
Common Share $0.41 $0.40 ($0.24) $0.71 $0.00
Average Number of
Common Shares
Outstanding 3,095,660 3,088,486 2,559,232 1,797,316 900,304
</TABLE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Results of Operations
Fiscal Year 1997 compared to Fiscal Year 1996
Net sales for fiscal year ended 1997 were approximately $51,352,000 as
compared to net
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sales in 1996 of $46,563,000. Gross profit amounted to $25,510,000 (50% of
sales) in 1997 as compared to $19,275,000 (41% of sales) in 1996. The increase
in sales and gross profit is principally attributable to the Company
renegotiating an Exclusive Supply Agreement (the "New Agreement") with a
non-affiliated pharmaceutical distributor (the "Distributor") in May 1997. The
New Agreement supercedes a prior Exclusive Supply and Licensing Agreement with
the Distributor dated October 16, 1995. Under the New Agreement, the Company was
granted exclusive supply rights to sell certain products directly to the
Distributor's customers. In consideration for the supply rights, the Company
agreed to pay a royalty fee to the Distributor based upon the gross profit
earned on sales to those customers.
Selling, general and administrative expenses were $15,402,000 in 1997
and $16,918,000 in 1996. As a percentage of sales, selling, general and
administrative expenses were 30% in 1997 and 36% in 1996. The overall decrease
as a percentage of sales is primarily attributable to decreased advertising and
marketing costs and an increase in sales resulting from the Company's
renegotiation of its Exclusive Supply Agreement with a non-affiliated
pharmaceutical distributor. Royalty expenses under the renegotiated supply
agreement approximated $7,426,000.
In December 1996, the Company amended its Supply Agreement ("Amended
Agreement") with Compare Generiks, Inc., ("CGI"). The Amended Agreement provides
for the Company to supply CGI with certain products at prices based on the
Company's material cost plus a specified mark-up.
In March 1997, the Company entered into a second five year Supply
Agreement with CGI covering the purchases of products in the "Max Brand" and
"Heads Up" product ranges. In consideration for the agreement, CGI agreed to pay
an annual license fee of $500,000 to the Company. The fee is payable, at the
option of CGI, either in cash or in shares of CGI's common stock. Total sales to
CGI approximated $5,485,000 and $1,459,000 for 1997 and 1996, respectively.
On November 30, 1997, the Company entered into a multi-year supply and
packaging agreement (the "agreement") with Superior Supplements Inc.,
("Superior"), which provides for Superior to supply and package certain products
for PDK. In the event that PDK purchases less than $2,500,000 of product or
orders less than 1,000,000 bottles packaged per annum, Superior will be entitled
to up to $200,000 on a pro-rata basis, as liquidated damages. Additionally,
Superior is also obligated to PDK under a management agreement which provides
for PDK to provide Superior with certain management services in consideration
for a management fee of $10,000 per month.
Interest expenses, net of interest income, was $905,000 in 1997, as
compared to $490,000 in 1996. The increase in interest expense in 1997 is a
result of greater borrowings to finance the purchase of additional machinery and
equipment, make necessary plant modifications, and meet
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working capital needs.
The provision for income taxes reflects an effective tax rate of 37% in
1997 and 41% in 1996. The rate for 1997 was lower as a result of the Company
recognizing a tax benefit on its proportionate share of Futurebiotics' loss.
The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software failures. Software failures due to
processing errors potentially arising from calculations using the Year 2000 date
are a known risk. The Company is addressing this risk to the availability and
integrity of financial systems and the reliability of operational systems. The
Company has engaged computer consultants and is establishing processes for
evaluating and managing the risks and costs associated with this problem. In the
opinion of management, the costs of addressing this problem will not materially
affect the financial position of the Company.
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 Company having entered
into an Exclusive Supply and License Agreement with a major non-affiliated
customer in 1995. 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 manufactured and sold 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 certain products for a three (3) year period, renewable for
successive one (1) year periods thereafter.
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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.
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 1997, 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.
Liquidity and Capital Resources
The Company had working capital of approximately $38,165,000 and
$31,855,000 at November 30, 1997 and 1996, respectively.
The Company's statement of cash flows for 1997 reflects cash used in
operating activities of approximately $503,000. This use of cash includes net
earnings ($1,559,000), an adjustment for depreciation and amortization
($4,754,000), an increase in due from supplier ($796,000), and an increase in
royalties payable ($1,600,000), which were offset by adjustments for the
minority interest in the loss of subsidiary ($498,000) and the deferred income
tax benefit ($794,000), increases in operating assets such as accounts
receivable ($924,000) and inventories ($4,834,000), and a decrease in accounts
payable ($2,820,000).
Net cash provided by investing activities approximated $832,000
principally attributable to the sale and maturity of securities ($1,901,000) and
the proceeds from sale of assets ($407,000), offset by the purchase of property,
plant and equipment ($1,350,000) and the acquisition of intangibles ($125,000).
The statement also reflects net cash provided by financing activities
of approximately $519,000, representing bank borrowings net of repayments
($1,803,000), offset by payment of cash dividends ($301,000) and the purchase of
treasury stock ($983,000).
17
<PAGE>
The Company reacquired $983,000 of its common stock in fiscal 1997,
repurchasing 176,500 shares at an average price of $5.57. On July 18, 1997, the
Company's Board of Directors authorized the Company to repurchase up to an
additional $1,000,000 of its common stock in the public market. As of February
19, 1998, the Company had authorization to repurchase an additional $607,000
worth of its own stock.
On July 21, 1997, the Board of Directors authorized an increase in the
conversion rate of the Company's Series A Convertible Preferred Stock from .3
shares of Common Stock for each share of Preferred Stock to 1.5 shares of the
Company's Common Stock for each share of Preferred Stock. The increase in the
conversion rate was for a period of 45 days and ended on September 3, 1997, at
which time the conversion rate returned to the original rate. During the
conversion period, 241,445 shares of Preferred Stock were converted into 365,167
shares of Common Stock.
In August 1997, the Company and its subsidiary entered into credit
facilities with a bank which provide for borrowings under a revolving credit
agreement (the "Revolving Agreement") and a term loan (the "Term Agreement").
The Revolving Agreement, which expires in September 2000, 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. Borrowings under the Revolving
Agreement bear interest at the bank's prime rate or Eurodollar rate plus 1.75%,
at the Company's option.
The Term Agreement provides for aggregate borrowings of up to
$8,500,000 for the Company and its subsidiary on a combined basis, The term
loan, aggregating $6,090,000 at November 30, 1997, is payable in monthly
installments of $105,000 plus interest at prime through September 1, 2002 when
the remaining principal is due. A portion of the proceeds were used to repay
existing indebtedness under prior term loan obligations.
The Company and its subsidiary are jointly and severally liable for the
unpaid balance under these credit facilities. Borrowings are secured by the
assets of the Company and its subsidiary.
The credit facilities contain various covenants pertaining to the
maintenance of certain financial ratio restrictions, limitations on dividends,
and restrictions on borrowings.
The Company expects to meet its cash requirements from operations,
current cash reserves, and existing financial arrangements.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See financial statements following Item 14 of this Annual Report on
Form 10-K.
Item 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
18
<PAGE>
PART III
--------
Item 10. 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.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Michael B. Krasnoff 43 Chairman of the Board,
President, Chief Executive
Officer and Secretary
Stanley Krasnoff (1) 70 Director
Ira Helman 66 Director
Hartley T. Bernstein (2) 46 Director and Assistant Secretary
Robin Marks-Kaufman(3) 44 Director
Reginald Spinello (4) 44 Director and Assistant Secretary
Karine Hollander 31 Chief Financial Officer
</TABLE>
(1) Stanley Krasnoff is the father of Michael Krasnoff, President, Chief
Executive Officer and Secretary of the Company.
(2) Hartley T. Bernstein resigned as a Director and the Assistant Secretary of
the Company on August 5, 1997.
(3) Robin Marks-Kaufman resigned as a Director of the Company as of February
26, 1998.
(4) Reginald Spinello was appointed as a Director and the Assistant Secretary
of the Company on August 5, 1997.
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 Ten Thousand Dollars ($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.
19
<PAGE>
Background of Executive Officers and Directors
Michael B. Krasnoff has been the President and Chief Executive Officer
of the Company since July 31, 1991. Mr. Krasnoff was the Chief Financial Officer
of the Company from July 31, 1991 until March 2, 1997. 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. Mr. Krasnoff also serves as a director and officer of the
Company's subsidiary, Futurebiotics, Inc. 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.
Stanley Krasnoff has served as a Director of the Company since January
1991. Mr. Krasnoff also served as a director of the Company's subsidiary,
Futurebiotics, Inc. until December 2, 1997. 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 30 years, Mr. Helman has been an independent investor and financial
consultant as well as a breeder and owner of harness horses. Mr. Helman received
his B.A. degree from Princeton University and his law degree from Brooklyn Law
School.
Hartley T. Bernstein was a Director of the Company from September 1991
until August 5, 1997 and is a member of the law firm of Bernstein & Wasserman,
LLP 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 served as a director of the Company's subsidiary, Futurebiotics,
Inc. until July 22, 1997, and CGI until July 22, 1997. 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.
20
<PAGE>
Ms. Marks-Kaufman was a Director of the Company through February 26,
1998. She 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 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.
Reginald Spinello has been a Director of the Company since August 5,
1997. He has been the Executive Vice President of the Company since September
1993. Mr. Spinello joined PDK Labs Inc. in September 1991 as Vice President of
Operations. He has been the President and a Director of the Company's
subsidiary, Futurebiotics, Inc. since its formation in March, 1994 and Chief
Executive Officer since December 2, 1997. In addition, he has been a Director of
SSI since May, 1996. Prior to joining the Company, Mr. Spinello was President
and Founder of Internal Reinforcements from 1985 to 1991, a specialty
distributor and marketer of natural vitamins and supplements. Prior to Internal
Reinforcements, Mr. Spinello was Founder and President of Superior Supplements
(a company with no affiliation to SSI). Mr. Spinello sold his entire interest in
this company in 1985 and the company was dissolved in 1992. Mr. Spinello
graduated from Bryant College with a B.S. Degree in Business Administration.
Additionally, he has studied in the field of nutrition and is a non-practicing
nutrition consultant.
Karine Hollander has been the Company's Chief Financial Officer since
March 3, 1997. She had been the Comptroller of the Company since September 1994.
From 1989 until joining the Company Ms. Hollander was employed by the accounting
firm of Holtz Rubenstein & Co., LLP. Ms Hollander received a B.A. degree in
Accounting from Dowling College.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent (10%) of a registered class of the Company's equity securities, to file
with the Securities and Exchange Commission initial reports of ownership and
reports of changes in ownership of common stock and other equity securities of
the Company. Officers, directors and greater than ten percent shareholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.
To the Company's knowledge, based solely upon its review of the copies
of such reports furnished to the Company during the year ended November 30,
1997, all Section 16(a) filing requirements applicable to its officers and
directors and greater than ten percent beneficial owners were satisfied except
that a report required to be filed upon the appointment of Karine Hollander as
Chief Financial Officer was inadvertently filed after the due date.
21
<PAGE>
Item 11. 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 1997 $400,000 $300,000 $ -0- $ -0- -0- $ -0- $ -0-
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-
Reginald Spinello, V.P. of
Operations 1997 $250,000 $200,000 $ -0- $ -0- -0- $ -0- $ -0-
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-
Karine Hollander, CFO 1997 $110,000 $ 60,000 $ -0- $ -0- -0- $ -0- $ -0-
1996 $ 85,000 $ -0- $ -0 $ -0- -0- $ -0- $ -0-
1995 $ 67,500 $ 25,000 $ -0- $ 81,250(6) -0- $ -0- $ -0-
- --------------------
(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.
(6) Represents issuance of 50,000 shares in accordance with October 1995
employment agreement. Shares were valued at $1.625 per share.
22
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises -
---------------------------------
and FY-End Option/SAR Values
----------------------------
- ---------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End (#) FY-End (#)
Shares Acquired Exercisable/ Exercisable/
Name on Exercise (#) Value Realized($) Unexercisable Unexercisable
- ---- --------------- ----------------- ------------- --------------
Michael Krasnoff,
<S> <C> <C> <C> <C>
CEO -0- -0- 250,000/-0- $920,000/-0-
</TABLE>
In October 1995, Mr. Krasnoff was granted options to purchase 250,000 shares of
the Company's common stock at $2.63 per share pursuant to his employment
agreement with the Company.
23
<PAGE>
Employment Agreements
The Company has an employment agreement with Michael Krasnoff, the
Company's Chief Executive Officer, (the "Krasnoff Agreement") which 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. In October 1995, Mr. Krasnoff was issued 400,000 shares of
the Company's Common Stock and options to purchase 250,000 shares of Common
Stock at $2.63 per share pursuant to the Krasnoff Agreement. As of November 30,
1997, Mr. Krasnoff owed the Company the sum of $650,000 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.
The Company has an employment agreement with Reginald Spinello, the
Company's Executive Vice President, which provides for a minimum salary of
$200,000 per year (the "Spinello Agreement"). In October 1995, Mr. Spinello was
issued 200,000 shares of Common Stock pursuant to the Spinello Agreement. On
November 1, 1997, the Spinello Agreement was amended to remove all restrictions
on the vesting of Mr. Spinello's shares and to provide for reimbursement of all
taxes incurred by Mr. Spinello with respect to his shares. The Spinello
Agreement terminates in October 2002 but may be terminated by the Company, at
its sole discretion, on ninety days notice.
On March 3, 1997, the Company's employment agreement with Karine
Hollander, was amended to appoint her as the Company's Chief Financial Officer
at a minimum salary of $110,000 per year (the "Hollander Agreement"). In October
1995, Ms. Hollander was issued 50,000 shares of Common Stock pursuant to the
Hollander Agreement. On November 1, 1997, the Hollander Agreement was amended to
increase Ms. Hollander's salary to $160,000 per year with effect from December
8, 1997, to remove all restrictions on the vesting of Ms. Hollander's shares and
to provide for reimbursement of all taxes incurred by Ms. Hollander with respect
to her shares. The Hollander Agreement terminates in October 2000 but may be
terminated by the Company, at its sole discretion, on ninety days notice.
24
<PAGE>
Item 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information, as of February 19,
1998 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 6.3%
c/o PDK Labs Inc.
145 Ricefield Lane
Hauppauge, NY 11788
Michael B. Krasnoff 1,200,000 (1) 34.1
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
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
25
<PAGE>
Reginald Spinello 200,000 6.1
c/o PDK Labs Inc.
145 Ricefield Lane
Hauppauge, NY 11788
Karine Hollander 50,000 1.5
c/o PDK Labs Inc.
145 Ricefield Lane
Hauppauge, NY 11788
Dune Holdings, Inc. 200,000 6.1
132 Dune Road
Westhampton Beach, NY 11978
Heartland Advisors, Inc. 368,500(2) 11.3(2)
790 North Milwaukee Street
Milwaukee, WI 53202
All officers and directors as a
group (6 persons) 1,200,000(1)(3) 34.1%
(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, (v) 100,000 shares of Common Stock owned by Michael Lulkin and
(vi) options to acquire 250,000 shares of common stock. 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) Based on Schedule 13G filed by Heartland Advisors, Inc. with the Securities
and Exchange Commission dated December 10, 1997 and amended on February 6,
1998. The Schedule 13G does not identify any shares with respect to which
there is a right to acquire beneficial ownership. The Schedule 13G
indicates that these shares are held by Heartland Limited Partnership I, a
private limited partnership for which Heartland Advisors, Inc. serves as
managing general partner with voting and dispositive power. As a result,
the partnership may be deemed to have the right to receive or the power to
direct the receipt of dividends from, or the proceeds from the sale of, the
securities.
(3) Includes shares beneficially owned by Michael Krasnoff, Ira Helman, Stanley
Krasnoff, Reginald Spinello, Karine Hollander and Robin Marks-Kaufman. Dune
is not an officer or director of the Company.
26
<PAGE>
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
As of November 30, 1997, 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, 1997, Mr. Krasnoff owed the Company the sum of
$650,000, pursuant to the loan provisions in the Krasnoff 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.
Reginald Spinello, a director of the Company and the Company's
Executive Vice President, is also a director of SSI. Reginald Spinello and two
other directors of 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.
The Company has a supply agreement with Superior Supplements, Inc., a
Delaware corporation ("SSI"), pursuant to which the Company is obligated to
purchase a minimum of $2,500,000 of certain products at specified prices
annually. This supply agreement expires in May 1999 and is automatically
renewable for successive one (1) year periods thereafter.
The Company supplies certain management and personnel to SSI pursuant
to a management agreement between the Company and SSI dated July 21, 1997 which
provides for the Company to supply certain management services to SSI in
consideration for the payment by SSI of a management fee of $10,000 per month.
In addition, on November 30, 1997, the Company entered into a packaging
agreement with SSI. SSI agreed to package Futurebiotics products for the Company
for a fixed price based on component cost plus a direct labor charge per unit.
The term of the agreement is for two (2) years, renewable for successive one (1)
year periods thereafter. The Company is obligated to purchase 1,000,000 bottles
of Futurebiotics products per annum during the term of the agreement.
Miscellaneous
For the year ended November 30, 1997, legal fees of approximately
$128,000 were incurred for services from the law firm of Bernstein and
Wasserman, LLP. For the year ended November 30, 1996, legal fees of
approximately $129,000 were incurred for services from the same firm. Hartley T.
Bernstein, a partner in the firm, was a Director of the Company until August 5,
1997.
27
<PAGE>
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.
28
<PAGE>
PART IV
Item 14. EXHIBITS AND REPORTS ON FORM 8-K
(a)(1) Financial Statements.
The following financial statements are included in Part II, Item 8:
Report of Independent Certified Public Accountants F-1
Consolidated balance sheets as of November 30, 1997 and 1996 F-2
Consolidated statements of operations for the three years ended
November 30,1997 F-3
Consolidated statements of stockholders' equity for the three
years ended November 30, 1997 F-4
Consolidated statements of cash flows for the three years ended
November 30, 1997 F-5
Notes to consolidated financial statements F-6 - F-17
(a)(2) Financial Statement Schedules.
Schedules not listed above are omitted because of the absence of the
conditions under which they are required or because the required information is
included in the financial statements or notes thereto.
29
<PAGE>
PDK LABS INC. AND SUBSIDIARY
REPORT ON AUDITS OF
CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED NOVEMBER 30, 1997
CONTENTS
Page
----
Report on Independent Certified Public Accountants F-1
Consolidated balance sheets as of November 30, 1997 and 1996 F-2
Consolidated statements of operations for the
three years ended November 30, 1997 F-3
Consolidated statement of stockholders' equity
for the three years ended November 30, 1997 F-4
Consolidated statements of cash flows for the
three years ended November 30, 1997 F-5
Notes to consolidated financial statements F-6 - F-17
<PAGE>
Independent Auditors' Report
Board of Directors and Stockholders
PDK Labs Inc. and Subsidiary
Hauppauge, New York
We have audited the consolidated balance sheets of PDK Labs Inc. and Subsidiary
as of November 30, 1997 and 1996 and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended November 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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, 1997 and 1996 and the results of its operations and its cash
flows for each of the three years in the period ended November 30, 1997, in
conformity with generally accepted accounting principles.
HOLTZ RUBENSTEIN & CO., LLP
Melville, New York
February 13, 1998
F-1
<PAGE>
PDK LABS INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
November 30,
----------------------------------
ASSETS (Note 8) 1997 1996
------ ------------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,733,652 $ 2,885,517
Investment in marketable securities, at fair value 2,375,570 3,463,596
Accounts receivable - less allowance for doubtful
accounts of $54,000 and $42,000, respectively 8,927,236 8,015,159
Inventories (Note 4) 26,061,702 23,272,516
Prepaid income taxes (Note 10) 153,617 416,685
Prepaid expenses and other current assets 1,428,020 982,407
Due from supplier (Note 12) 864,758 60,906
Deferred income tax asset (Note 10) 608,630 383,211
------------- -------------
Total current assets 44,153,185 39,479,997
INVESTMENT IN MARKETABLE SECURITIES 836,114 1,650,512
PROPERTY, PLANT AND EQUIPMENT, net (Note 5) 4,667,439 5,132,548
INTANGIBLE ASSETS, net (Note 6) 1,447,237 3,552,696
INVESTMENT IN COMPARE GENERIKS (Note 15) 500,000 500,000
OTHER ASSETS (Note 7) 2,617,488 2,938,755
------------- -------------
$ 54,221,463 $ 53,254,508
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 1,986,330 $ 5,483,356
Accrued expenses and other current liabilities 573,340 267,345
Dividends payable (Note 9) 29,885 45,223
Royalty payable 1,600,000 -
Income taxes payable (Note 10) 498,735 500,611
Current portion of long-term debt (Note 8) 1,300,338 1,328,509
------------- -------------
Total current liabilities 5,988,628 7,625,044
------------- -------------
LONG-TERM DEBT (Note 8) 15,433,614 13,602,768
------------- -------------
DEFERRED INCOME TAX LIABILITY (Note 10) 739,656 1,251,117
------------- -------------
INTERESTS OF MINORITY HOLDERS IN SUBSIDIARY 3,754,670 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;
3,557,153 and 3,191,986 issued and outstanding, respectively 35,572 31,919
Series A convertible preferred stock, $.01 par value;
authorized 5,000,000 shares; 498,110 and 739,555
issued and outstanding, respectively 4,981 7,396
Additional paid-in capital 27,950,622 27,754,634
Unrealized loss on marketable securities (1,633) -
Unearned compensation (3,782,811) (4,939,907)
Retained earnings 5,716,648 4,442,741
Treasury stock, at cost; 280,000 and 103,500 shares, respectively (1,618,484) (635,575)
------------- -------------
28,304,895 26,661,208
------------- -------------
$ 54,221,463 $ 53,254,508
============= =============
</TABLE>
See notes to consolidated financial statements
F-2
<PAGE>
PDK LABS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended November 30,
----------------------------------------------------------
1997 1996 1995
--------------- -------------- --------------
<S> <C> <C> <C>
NET SALES (Notes 13 and 14) $ 51,351,803 $ 46,562,870 $ 31,903,558
--------------- -------------- --------------
COSTS AND EXPENSES:
(Notes 2, 5, 6, 11, 12 and 13)
Cost of sales 25,841,733 27,288,130 17,107,396
Selling, general and administrative 15,401,858 16,918,362 13,114,980
Royalty expense 7,425,962 - -
--------------- -------------- -------------
48,669,553 44,206,492 30,222,376
--------------- -------------- --------------
OPERATING INCOME 2,682,250 2,356,378 1,681,182
--------------- -------------- --------------
OTHER EXPENSES (INCOME):
Interest income (348,130) (432,300) (565,544)
Interest expense 1,253,103 922,464 592,773
Gain on sale of subsidiary stock (Note 2) - - (219,531)
Other (Note 15) 105,953 (624,954) 1,812,991
--------------- -------------- --------------
1,010,926 (134,790) 1,620,689
--------------- -------------- --------------
EARNINGS BEFORE PROVISION
FOR INCOME TAXES AND
MINORITY INTEREST 1,671,324 2,491,168 60,493
PROVISION FOR INCOME
TAXES (Note 10) 610,000 1,018,000 50,000
--------------- -------------- --------------
EARNINGS BEFORE MINORITY
INTEREST 1,061,324 1,473,168 10,493
MINORITY INTEREST IN NET (LOSS)
EARNINGS OF SUBSIDIARY (497,985) (139,638) 190,594
--------------- -------------- --------------
NET EARNINGS (LOSS) $ 1,559,309 $ 1,612,806 $ (180,101)
=============== ============== ==============
EARNINGS (LOSS) PER SHARE (Note 9) $.41 $.40 $(.24)
==== ==== =====
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING (Note 9) 3,095,660 3,088,486 2,559,232
========= ========= =========
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
PDK LABS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Preferred Stock
------------ --------------- Paid-in Unearned
Total Shares Amount Shares Amount Capital Compensation
----------- --------- -------- -------- ------ ----------- -------------
<S> <C> <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 $(5,855,691)
Issuance of stock for services
(Notes 9 and 12) - 1,050,000 10,500 - - 1,695,750 (1,706,250)
Amortization of unearned compensation 1,319,335 - - - - - 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 (6,242,606)
Amortization of unearned compensation 1,302,699 - - - - - 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 (4,939,907)
Preferred stock conversion (Note 9) - 365,167 3,653 (241,445) (2,415) (1,238) -
Amortization of unearned compensation 1,157,096 - - - - - 1,157,096
Acquisition of treasury stock (982,909) - - - - - -
Amortization of unearned management fee (142,752) - - - - (142,752) -
Amortization of subsidiary unearned
management fee 91,978 - - - - 91,978 -
Unrealized loss on marketable securities (1,633) - - - - - -
Tax effect of permanent difference in
valuation of stock compensation
(Note 10) 248,000 - - - - 248,000
Dividends (Note 9) (285,402) - - - - - -
Net earnings 1,559,309 - - - - - -
----------- --------- -------- -------- ------- ----------- -----------
Balance at November 30, 1997 $28,304,895 3,557,153 $ 35,572 498,110 $ 4,981 $27,950,622 $(3,782,811)
=========== ========= ======== ======== ======= =========== ===========
<CAPTION>
Unrealized
Loss on Treasury Stock
Marketable Retained --------------
Securities Earnings Shares Amount
---------- ------------ ------- --------------
<S> <C> <C> <C> <C>
Balance at November 30, 1994 $ - $ 3,734,802 30,000 $ (300,000)
Issuance of stock for services
(Notes 9 and 12) - - - -
Amortization of unearned compensation - - - -
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 - 3,192,317 30,000 (300,000)
Amortization of unearned compensation - - - -
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 - 4,442,741 103,500 (635,575)
Preferred stock conversion (Note 9) - - - -
Amortization of unearned compensation - - - -
Acquisition of treasury stock - - 176,500 (982,909)
Amortization of unearned management fee - - - -
Amortization of subsidiary unearned
management fee - - - -
Unrealized loss on marketable securities (1,633) - - -
Tax effect of permanent difference in
valuation of stock compensation
(Note 10) - - - -
Dividends (Note 9) - (285,402) - -
Net earnings - 1,559,309 - -
------- ----------- -------- ----------
Balance at November 30, 1997 $(1,633) $ 5,716,648 280,000 $(1,618,484)
======= =========== ======== ===========
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
PDK LABS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended November 30,
-----------------------------------------------------
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 1,559,309 $ 1,612,806 $ (180,101)
-------------- -------------- --------------
Adjustments to reconcile net earnings (loss) to
net cash used in operating activities:
Depreciation and amortization 4,753,905 4,802,639 3,381,776
Minority interest in (loss) earnings of subsidiary (497,985) (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 (45,264) - (560,525)
Deferred income tax (benefit) (794,000) (91,000) (77,637)
Tax effect of permanent difference in
valuation of stock compensation 248,000 - -
Increase in allowance for doubtful accounts 12,000 - -
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (924,077) (1,687,794) (1,453,086)
Inventories (4,834,433) (10,025,371) (7,187,396)
Prepaid income taxes 263,068 (416,971) -
Prepaid expenses and other current assets (445,613) 59,518 (422,746)
Other assets 321,267 1,123,060 (704,256)
Due from supplier 796,125 (60,906) -
Increase (decrease) in liabilities:
Accounts payable (2,819,756) 3,131,513 738,155
Accrued expenses 305,995 65,026 62,846
Income taxes payable (1,876) 382,792 (240,978)
Royalties payable 1,600,000 - -
-------------- -------------- -------------
Total adjustments (2,062,644) (3,432,086) (4,119,268)
-------------- -------------- --------------
Net cash used in operating activities (503,335) (1,819,280) (4,299,369)
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in marketable securities 1,900,791 2,358,210 (7,472,318)
Purchase of property, plant and equipment (1,350,096) (2,440,251) (908,825)
Acquisition of intangible assets (125,000) (2,532,318) (2,413,719)
Proceeds from sale of subsidiary stock - - 2,155,300
Net proceeds from sale of assets 406,749 - 37,500
Net proceeds from sale of investment
in Compare Generiks - 1,774,954 -
-------------- -------------- -------------
Net cash provided by (used in)
investing activities 832,444 (839,405) (8,602,062)
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds of revolving credit line 13,500,000 4,750,000 1,250,000
Proceeds from term loan 6,300,000 1,848,000 4,000,000
Repayment of debt (17,997,325) (1,284,602) (562,495)
Payment of cash dividends (300,740) (362,382) (177,513)
Purchase of treasury stock (982,909) (335,575) -
-------------- -------------- -------------
Net cash provided by financing activities 519,026 4,615,441 4,509,992
-------------- -------------- --------------
Net increase (decrease) in cash and cash equivalents 848,135 1,956,756 (8,391,439)
Cash and cash equivalents at beginning of year 2,885,517 928,761 9,320,200
-------------- -------------- --------------
Cash and cash equivalents at end of year $ 3,733,652 $ 2,885,517 $ 928,761
============== ============== ==============
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
PDK LABS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED NOVEMBER 30, 1997
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, 1997 and 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.
F-6
<PAGE>
1. Summary of Significant Accounting Policies: (Cont'd)
f. Depreciation and amortization (Cont'd)
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
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 years' financial
statements to conform with the classifications used in 1997.
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 advertising costs to expense as incurred.
Advertising costs amounted to $1,239,000, $1,818,000 and $1,735,000 for the
three years ended 1997, respectively.
l. New accounting standards
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 130, "Reporting Comprehensive Income," which establishes standards for
reporting and display of comprehensive income, its components and accumulated
balances. Comprehensive income is defined to include all changes in equity
except those resulting from investments by owners and distribution to owners.
Among other disclosures, SFAS No. 130 requires that all items that are required
to be recognized under current accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements.
F-7
<PAGE>
1. Summary of Significant Accounting Policies: (Cont'd)
l. New accounting standards (Cont'd)
In addition, in June 1997, the FASB issued SFAS No. 131, "Disclosures
About Segments of an Enterprise and Related Information," which establishes
standards for reporting information about operating segments. It also
establishes standards for disclosures regarding products and services,
geographic areas and major customers.
Both of these new standards are effective for periods beginning after
December 15, 1997 and require comparative information for earlier years to be
restated. The implementation of these new standards will not affect the
Company's results of operations and financial position, but may have an impact
on future financial statement disclosures.
2. Futurebiotics Stock Transactions:
In 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 1995 Futurebiotics entered into two separate seven 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 ($843,480), is being charged to operations ratably over the lives of the
consulting agreements.
Amounts charged to operations under these agreements approximated
$150,000, $150,000 and $138,000 for 1997, 1996 and 1995, respectively.
3. Supplementary Information - Statement of Cash Flows:
Cash paid during the years for:
Years Ended November 30,
-----------------------------------------------------
1997 1996 1995
-------------- ------------- ------------
Interest $ 1,253,000 $ 922,000 $ 593,000
============== ============= ===========
Income taxes $ 1,306,000 $ 1,252,000 $ 270,000
============== ============= ===========
During the year ended 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:
November 30,
------------------------------------
1997 1996
-------------- --------------
Raw materials $ 5,068,408 $ 5,829,483
Work-in-process 10,883,990 9,211,383
Finished goods 10,109,304 8,231,650
-------------- --------------
$ 26,061,702 $ 23,272,516
============== ==============
F-8
<PAGE>
5. Property, Plant and Equipment:
Property, plant and equipment, at cost, consist of the following:
November 30,
------------------------------------
1997 1996
-------------- -------------
Land $ - $ 493,448
Manufacturing equipment 5,670,755 5,248,902
Vehicles 245,518 245,518
Office equipment and fixtures 2,368,470 2,112,413
Leasehold improvements 1,736,149 1,408,867
-------------- -------------
10,020,892 9,509,148
Less accumulated depreciation
and amortization 5,353,453 4,376,600
-------------- -------------
$ 4,667,439 $ 5,132,548
============== =============
Depreciation and amortization of plant and equipment for the three years
ended 1997 was $1,222,000, $909,000 and $654,000, respectively.
During 1997, the Company sold land for net proceeds of approximately
$407,000.
6. Intangible Assets:
Intangible assets consist of the following:
November 30,
-----------------------------------
1997 1996
------------- -------------
Customer lists $ 2,409,138 $ 4,430,104
Trademarks 92,024 250,098
Covenants not to compete 1,099,000 2,039,000
Deferred loan costs 114,584 258,436
Goodwill 300,000 300,000
Distribution rights - 2,587,133
------------- -------------
4,014,746 9,864,771
Less accumulated amortization 2,567,509 6,312,075
------------- -------------
$ 1,447,237 $ 3,552,696
============= =============
Amortization expense for the years ended 1997, 1996 and 1995 was
$1,984,000, $2,445,000 and $1,527,000, respectively.
Futurebiotics was engaged in a marketing program with select retail
stores and distributors in order to obtain premium shelf space. Effective May
31, 1996, Futurebiotics ceased signing any new customers under this program.
Costs associated with the program were fully amortized as of November 30, 1997.
7. Other Assets:
At November 30, 1997 and 1996, other assets include a loan and accrued
interest to an officer approximating $650,000 and $763,000, respectively. 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.
F-9
<PAGE>
8. Long-Term Debt:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
November 30,
--------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
Revolving line of credit $ 10,500,000 $ 10,000,000
Term loan, payable in monthly
installments of $105,000, plus
interest at prime, through
September 2002; collateralized
by the Company's assets 6,090,000 -
Various term loans - 4,698,000
Other, consisting principally of
capital lease obligations,
expiring in various years through 2001 143,952 233,277
-------------- --------------
16,733,952 14,931,277
Less current portion 1,300,338 1,328,509
-------------- --------------
$ 15,433,614 $ 13,602,768
============== ==============
</TABLE>
On August 20, 1997, the Company and its subsidiary entered into a
revolving credit agreement with a bank which expires in September 2000. The
facility provides for aggregate borrowings of up to $15,000,000, with sublimits
of $11,000,000 for the Company and $4,000,000 for its subsidiary. Interest is
charged monthly on the outstanding balance at either the bank's prime rate or
the Eurodollar rate plus 1.75%, at the Company's option. This facility replaced
an existing revolving credit agreement which was due to expire in September
1999.
On August 20, 1997, the Company repaid its existing term indebtedness
through proceeds received under a new term loan facility with a bank which
provides for aggregate borrowings of up to $8,500,000. The term loan aggregated
$6,090,000 at November 30, 1997 and is payable in monthly installments of
$105,000 plus interest at prime through September 1, 2002, when the remaining
principal amount is due.
The credit facilities contain various covenants pertaining to the
maintenance of certain financial ratio restrictions, limitations on dividends,
and restrictions on borrowings. Borrowings are secured by the assets of the
Company and its subsidiary, which are jointly and severally liable for the
unpaid balance under these credit facilities.
The prime rate and the Eurodollar rate at November 30, 1997 were 8.5% and
5.9%, respectively.
Maturities of long-term debt are as follows:
Years Ending
November 30,
------------
1998 $ 1,300,000
1999 1,303,000
2000 11,800,000
2001 1,281,000
2002 1,050,000
F-10
<PAGE>
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
Series A Convertible Preferred shares issued and outstanding have no voting
rights and, in the event of liquidation, are entitled to $7.00 per share plus
accrued dividends before any distribution to other stockholders. On July 21,
1997, the Board of Directors authorized an increase in the conversion rate of
the Company's Series A Convertible Preferred Stock from .3 shares of Common
Stock for each share of Preferred Stock to 1.5 shares of the Company's Common
Stock for each share of Preferred Stock. The increase in the conversion rate was
for a period of 45 days and ended on September 3, 1997, at which time the
conversion rate returned to the original rate. During the conversion period,
241,445 shares of Preferred Stock were converted into 365,167 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. Treasury stock
In July 1997, the Company's Board of Directors authorized the Company
to repurchase up to an additional $1,000,000 worth or its own Common Stock, par
value $.01, in the public market. The Company's management has been afforded the
discretion to purchase the shares at such time or times, and at such prices, as
management believes appropriate.
c. 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
all periods presented. 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,
---------------------------------------------------------
1997 1996 1995
-------------- ------------- ------------
<S> <C> <C> <C>
Net earnings (loss) $ 1,559,309 $ 1,612,806 $ (180,101)
Dividends on preferred shares (285,402) (362,382) (362,384)
-------------- ------------- ------------
Net income (loss) available to
common shareholders $ 1,273,907 $ 1,250,424 $ (542,485)
============== ============= ============
</TABLE>
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share"
("Statement 128"), which simplifies the standards for computing earnings per
share previously used and makes them comparable to international standards. The
statement is effective for financial statements issued for periods ending after
December 15, 1997, and earlier application is not permitted. Had the Company
implemented the new pronouncement, management believes that net income (loss)
per common share would have decreased by $.02, $.02 and $0 for the years ended
November 30, 1997, 1996 and 1995, respectively.
F-11
<PAGE>
9. Stockholders' Equity: (Cont'd)
d. 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,
1997, no options have been granted under the Plan.
At November 30, 1997, the Company has approximately 443,000 shares of
common stock reserved for future issuances.
10. Income Taxes:
The provision (benefit) for income taxes consists of the following:
Years Ended November 30,
---------------------------------------------------
1997 1996 1995
-------------- ------------- -----------
Current:
Federal $ 1,294,000 $ 1,012,000 $ (4,500)
State 110,000 97,000 (19,500)
-------------- ------------- -----------
1,404,000 1,109,000 (24,000)
-------------- ------------- -----------
Deferred:
Federal (603,000) (10,000) 85,000
State (191,000) (81,000) (11,000)
-------------- ------------- -----------
(794,000) (91,000) 74,000
-------------- ------------- -----------
$ 610,000 $ 1,018,000 $ 50,000
============== ============= ===========
Net deferred income tax asset (liability) are comprised of the following:
November 30,
-------------------------------------
1997 1996
--------------- ---------------
Inventories $ 374,800 $ 357,825
Prepaid salaries (55,626) (57,731)
Property, plant and equipment (42,800) (66,667)
Intangible assets 768,300 763,117
Investment in subsidiary (498,200) (522,000)
Unearned compensation (1,052,600) (1,375,340)
Tax carryforwards 435,100 54,000
Accrued commissions 111,000 65,290
Other 4,000 (36,400)
Valuation allowance (175,000) (50,000)
-------------- --------------
$ (131,026) $ (867,906)
============== ==============
F-12
<PAGE>
10. Income Taxes: (Cont'd)
A reconciliation of the federal statutory rate to the Company's effective
tax rate is as follows:
<TABLE>
<CAPTION>
Years Ended November 30,
--------------------------------------------------
1997 1996 1995
----- ----- ------
<S> <C> <C> <C>
U. S. Federal statutory income tax rate 34.0% 34.0% 34.0%
State income tax, net of federal tax benefit (5.9) .4 4.0
Other (7.9) .7 10.5
Valuation allowance 10.5 - -
Adjustment to prior year liability - - (51.3)
Permanent differences 5.8 5.8 85.5
----- ----- ------
36.5% 40.9% 82.7%
===== ===== ======
</TABLE>
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.
The tax effect of excess deductions for stock-based awards whose
compensation cost recorded for tax purposes exceeds the compensation cost
recorded for financial reporting purposes is recognized as additional paid-in
capital.
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 1997, 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 $62,000, $58,000 and $47,000 to the
Plan for the years ended 1997, 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). The agreements,
as amended, provide for reimbursement of any tax liability arising from the
officers' stock grant. One agreement also provides for a payment of two times
the officers' 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, 1997
under such contracts is approximately $5,710,000.
F-13
<PAGE>
12. Commitments and Contingencies: (Cont'd)
b. Consulting agreements
The Company is a party to a consulting agreement with the former
president/stockholder of Futurebiotics, Ltd. ("Consultant"). Under the terms of
the Agreement, as amended, the Consultant is required to provide services
through December 2001 in exchange for 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. Compensation expense under this
agreement aggregated $505,000, $535,000 and $475,000 for 1997, 1996 and 1995,
respectively. In 1997, the Consultant brought suit against the Company for the
non-payment of the annual bonus. The Company is engaged in negotiations with the
Consultant regarding a settlement of this matter.
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 1997 and 1996, 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 three non-cancellable operating leases
for its manufacturing and office facilities. The leases, as extended, require
minimum future rental payments of $609,000, $642,000, $576,000 in 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 13) at a rate of $5,000 per month.
Rent expense, net of rental income, approximated $351,000, $419,000
and $279,000 for 1997, 1996 and 1995, respectively.
d. 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.
The Company is involved in various other lawsuits and claims incidental
to its business. In the opinion of management, the ultimate liabilities, if any,
resulting from such lawsuits and claims, will not materially affect the
financial position of the Company.
F-14
<PAGE>
12. Commitments and Contingencies: (Cont'd)
e. Supply and packaging agreement
The Company is party to multi-year supply and packaging agreements
with Superior Supplements, Inc. ("Superior"), an entity having a common director
with the Company, pursuant to which Superior is supplying and packaging certain
products for PDK. In the event PDK purchases less than $2,500,000 of product or
orders less than 1,000,000 bottles packaged per annum, Superior will be entitled
to up to $200,000 in liquidated damages. Purchases under these agreements
approximated $4,386,000, $1,796,000 and $0 for 1997, 1996 and 1995,
respectively.
In connection with these agreements, in 1997 PDK transferred to
Superior, at cost, inventory of approximately $2,045,000. In addition, PDK sold
Superior machinery and equipment for proceeds of $232,000, recognizing a gain of
approximately $134,000.
Additionally, Superior is obligated to PDK under a management
agreement which provides for PDK to provide Superior with certain management
services in consideration for a management fee of $10,000 per month.
13. Related Party Transactions:
a. Futurebiotics
Under a 10 year agreement entered into in 1994, the Company, in
exchange for 600,000 shares of Futurebiotics' unregistered common stock, is
providing 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.
b Compare Generiks
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.
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 years
ended November 30, 1997 and 1996 totalled $60,000 and $50,000, respectively.
F-15
<PAGE>
13. Related Party Transactions: (Cont'd)
b. Compare Generiks (Cont'd)
In December 1996, the Company amended its "Supply Agreement" (the
"Amended Agreement") with CGI. Under the Amended Agreement, which expires in
2001, PDK will provide CGI certain products at prices based upon PDK's material
cost plus a specified mark-up. Sales to CGI approximated $5,485,000 and
$1,459,000 for the years ended November 30, 1997 and 1996.
In March 1997, the Company entered into a second five year Supply
Agreement with CGI covering the purchase of products in the "Max Brand" and
"Heads Up" product ranges under terms similar to the December 1996 Amended
Agreement. In consideration for this agreement, CGI agreed to pay an annual
license fee of $500,000 to PDK. This fee is payable, at the option of CGI,
either in cash or in shares of CGI's common stock.
14. Exclusive Supply and Licensing Agreement:
In May 1997, the Company renegotiated its Exclusive Supply Agreement with
a non-affiliated distributor (the "Distributor"). The prior agreement provided
that the Company manufacture and supply the Distributor with all of its
requirements for vitamins, non-prescription pharmaceutical products, and health
and fitness products in tablet, capsule, caplet and liquid form. Under the
renegotiated agreement, which expires in 2000, PDK was granted the right to sell
certain products directly to the Distributor's customers. In consideration, PDK
is paying the Distributor a royalty fee based upon the gross profit earned on
the sales to those customers.
Under the prior agreement, the Company had 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 8%, 55% and 18% of total
revenue in 1997, 1996 and 1995, respectively.
15. Other Expense (Income):
Other expense (income) consists of the following:
<TABLE>
<CAPTION>
Years Ended November 30,
------------------------------------------------------
1997 1996 1995
----------- ------------ ------------
<S> <C> <C> <C>
Loss on regulatory action (a) $ - $ - $ 2,373,516
Gain on sale of product lines - - (560,525)
Gain on sale of securities (b) - (574,954) -
Dividend income (60,000) (50,000) -
Write-off of terminated
deferred loan costs 231,774 - -
Other (65,820) - -
----------- ------------ ------------
$ 105,954 $ (624,954) $ 1,812,991
=========== ============ ============
</TABLE>
F-16
<PAGE>
15. Other Expense (Income): (Cont'd)
(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) In March 1996, the Company sold the 500,000 shares of CGI common
stock (Note 13) for net proceeds of approximately $1,775,000.
16. Fair Value of Financial Instruments:
The methods and assumptions used to estimate the fair value of the
following classes of financial instruments were:
Current Assets, Investments in Marketable Securities 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.
Long-Term Debt: The carrying amount of long-term debt, based on the
Company's current incremental borrowing rates for similar types of
borrowing arrangements, approximate its fair value.
The carrying amount and fair value of the Company's financial instruments
are as follows:
<TABLE>
<CAPTION>
November 30,
-------------------------------------------------------------------
1997 1996
------------------------------- ------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 3,733,700 $ 3,733,700 $ 2,885,500 $ 2,885,500
Investments in marketable
securities, at fair value 3,211,700 3,211,700 5,114,100 5,114,100
Accounts receivable 8,927,200 8,927,200 8,015,200 8,015,200
Due from affiliates 1,020,000 1,020,000 68,700 68,700
Investment in Compare
Generiks 500,000 500,000 500,000 500,000
Accounts payable 1,986,300 1,986,300 5,483,400 5,483,400
Accrued expenses and
other current liabilities 573,300 573,300 267,300 267,300
Dividends payable 29,900 29,900 45,200 45,200
Royalty payable 1,600,000 1,600,000 - -
Long-term debt 16,734,000 16,734,000 14,931,300 14,931,300
</TABLE>
F-17
<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.
30
<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.
o10.37 Term Loan Agreement by and between PDK Labs Inc. and
Manufacturers Hanover Trust Company dated as of November 30,
1992.
o10.38 Promissory Notes and Security Agreement by and between PDK Labs
Inc. and Coast to Coast Generics, Inc. dated November 30, 1992.
oo10.39 Asset Purchase Agreement by and among Futurebiotics, the Company
and Donald Zinman dated December 16, 1992.
oo10.40 Consulting Agreement by and between Donald Zinman and the Company
dated December 16, 1992.
31
<PAGE>
oo10.41 Non-Competition Agreement by and between the Company and Donald
Zinman dated December 16, 1992.
oo10.42 Amendment to Consulting Agreement dated December 16, 1992 by and
between Donald Zinman and the Company dated January 12, 1994.
oo10.43 Voting Trust Agreement by and among Donald Zinman, Michael
Krasnoff and the Company dated as of January 12, 1994.
oo10.44 Stock Option Agreement by and between Donald Zinman and the
Company dated January 12, 1994.
oo10.45 Promissory note from Donald Zinman to the Company dated January
1, 1994.
oo10.46 Employment Agreement with Michael Krasnoff dated as of October
18, 1993.
oo10.47 Employment Agreement with Reginald Spinello dated as of October
18, 1993.
oo10.48 Amendment of Consulting Agreement by and between K.A.M. Group,
Inc. and the Company dated January 19, 1994.
ooo10.49 Sales and Management Agreement by and between the Company and
Futurebiotics dated April 14, 1994.
ooo10.50 Amendment of Sales and Management Agreement by and between the
Company and Futurebiotics dated December 8, 1994.
ooo10.51 Consulting Agreement by and between the Company and Carico, Inc.
dated April 4, 1994.
oooo10.52 Supply and Licensing Agreement with Body Dynamics, Inc. dated
October 16, 1995.
oooo10.53 Asset Purchase Agreement with Compare Generiks, Inc. dated
October 31, 1995.
oooo10.54 Supply Agreement with Compare Generiks, Inc. dated October 31,
1995.
32
<PAGE>
ooooo10.55 Third Amendment to Revolving Credit Agreement by and between PDK
Labs Inc. and Chemical Bank dated as of July 6, 1995.
ooooo10.56 Term Loan Agreement by and between PDK Labs Inc. and Chemical
Bank dated as of March 28, 1996.
ooooo10.57 Supply Agreement with Superior Supplements, Inc. dated May 14,
1996.
ooooo10.58 Revolving Credit Agreement by and among PDK Labs Inc.,
Futurebiotics, Inc., PDI Labs Inc. and The Chase Manhattan Bank
dated September 25, 1996.
ooooo10.59 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.
10.60 Employment Agreement with Michael Krasnoff dated as of October 6,
1995.
10.61 Amendment No. 1 to Employment Agreement with Michael Krasnoff.
10.62 Amendment No. 2 to Employment Agreement with Michael Krasnoff
dated as of May 31, 1997.
10.63 Employment Agreement with Reginald Spinello dated as of October
6, 1995.
10.64 Amendment No. 1 to Employment Agreement with Reginald Spinello
dated as of November 1, 1997.
10.65 Employment Agreement with Karine Hollander dated as of October 6,
1995.
10.66 Amendment No. 1 to Employment Agreement with Karine Hollander
dated as of March 3, 1997.
10.67 Amendment No. 2 to Employment Agreement with Karine Hollander
dated as of November 1, 1997.
10.68 Amendment to Supply Agreement between the Company and Compare
Generiks, Inc. dated as of December 13, 1996.
10.69 Exclusive Supply and Licensing Agreement between the Company and
Compare Generiks, Inc. dated March 24, 1997.
10.70 Exclusive Supply Agreement between the Company and Body Dynamics,
Inc. dated as of May 5, 1997.
33
<PAGE>
10.71 Amendment to Supply Agreement between the Company and Superior
Supplements, Inc. dated as of July 21, 1997.
10.72 Management Agreement between the Company and Superior
Supplements, Inc. dated as of July 21, 1997.
10.73 Credit Agreement by and among PDK Labs Inc., Futurebiotics, Inc.
and European American Bank dated as of August 20, 1997 and
certain material exhibits thereto.
10.74 Packaging Agreement between the Company and Superior Supplements,
Inc. dated as of November 30, 1997.
10.75 Assignment and Assumption Agreement by and among PDK Labs Inc.,
Futurebiotics, Inc. and Bank Leumi USA dated January 16, 1998.
10.76 Assignment and Assumption Agreement by and among PDK Labs Inc.,
Futurebiotics, Inc. and National Bank of Canada dated January 16,
1998.
10.77 First Amendment and Waiver to Credit Agreement by and among PDK
Labs Inc., Futurebiotics, Inc., European American Bank, Bank
Leumi USA and National Bank of Canada dated as of February 18,
1998.
- --------------------
* 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
o Incorporated by Reference to the Company's Form 10-KSB for the year
ended November 30, 1992.
oo Incorporated by Reference to the Company's Form 10-KSB for the year
ended November 30, 1993.
ooo Incorporated by Reference to the Company's Form 10-KSB for the year
ended November 30, 1994.
oooo Incorporated by Reference to the Company's Form 10-KSB for the year
ended November 30, 1995.
ooooo Incorporated by Reference to the Company's Form 10-KSB for the year
ended November 30, 1996.
(B) Reports on Form 8-K.
None.
34
<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, 1998
PDK LABS INC.
By: /s/ Michael B. Krasnoff
--------------------------
Michael B. Krasnoff, President and
Chief Executive Officer
By: /s/ Karine Hollander
--------------------------
Karine Hollander, 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, 1998
- ------------------------- Executive Officer
Michael B. Krasnoff and Chief Financial
Officer
/s/ Stanley Krasnoff
- -------------------------
Stanley Krasnoff Director February 26, 1998
/s/ Ira Helman
- -------------------------
Ira Helman Director February 26, 1998
/s/ Reginald Spinello
- -------------------------
Reginald Spinello Director February 26, 1998
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of October 6, 1995, by and between PDK
LABS INC., a New York corporation with offices at 145 Ricefield Lane, Hauppauge,
NY 11788 (the "Corporation"), and MICHAEL B. KRASNOFF, an individual residing at
5 Old Woods Drive, Harrison NY 10528 (the "Executive").
W I T N E S S E T H
WHEREAS, on October 18, 1993, the Executive and the Corporation entered
into a seven (7) year Executive Employment Agreement; and
WHEREAS, the Executive's leadership and services have
constituted a major factor in the growth and development of the
Corporation; and
WHEREAS, the Corporation desires to continue to employ and retain the
unique experience, ability and services of the Executive as its principal
executive officer from the effective date hereof and to prevent any other
competitive business from securing his services, in utilizing his experience,
background and know-how.
NOW, THEREFORE, the parties mutually agree as follows:
1. Employment. The Corporation employs the Executive and
the Executive hereby accepts continued employment in a principal
1
<PAGE>
executive capacity and Chairman through December 31, 2005 (the "Executive
Employment").
2. Duties. The Executive shall serve as the President, Chief Executive
Officer and Chief Financial Officer of the Corporation and shall properly
perform such duties as may be assigned to him from time to time by the Board of
Directors of the Corporation. If requested by the Corporation, the Executive
shall serve on any committee of the Corporation's Board of Directors without
additional compensation. There shall be no diminution or change in the
Executive's status or title without his express written consent. During the term
of this Agreement, the Executive shall devote substantially all of his business
time to the performance of his duties hereunder unless otherwise authorized by
the Board of Directors.
3. Compensation of the Executive.
3.1 Salary. During the period of Executive Employment, the
Corporation shall pay to the Executive a salary (the "Executive Salary") the
amount of which shall be fixed by the Board of Directors of the Corporation,
from time to time, during such period, provided that in no event shall the
Executive's Salary be at a rate less than four hundred thousand ($400,000)
dollars per year. Such compensation shall be paid to the Executive with the
2
<PAGE>
same frequency as other executives of the Corporation are compensated. In
addition to all other remuneration provided for in the Agreement, the Executive
shall be entitled to a cost of living adjustment (as hereinafter set forth) and
other fringe benefits to which executives of the Corporation are entitled.
As promptly as practical at the end of each year during the
term of this Executive Employment Agreement, the Corporation shall compute the
increase, if any, in the cost of living, using as the basis of such computation
the "Revised Consumers Price Index- Cities" hereinafter called the "Index,"
published by the Bureau of Labor Statistics of the United States Department of
Labor.
3.2 Discretionary Bonus. In addition to the annual salary set
forth in Section 3.1 above, the Executive shall be entitled to such bonus
compensation (in cash, capital stock or other property) as the Board of
Directors of the Corporation may determine from time to time in its sole
discretion.
3.3 Expenses. In addition to those expenses expressly set
forth herein, the Corporation shall pay or reimburse the Executive for all
reasonable out-of-pocket expenses actually incurred or paid by the Executive in
connection with performing his duties hereunder as President and as Chief
Financial Officer of the Corporation, of which no more than $100,000 shall be
non-
3
<PAGE>
accountable. The Corporation shall, at the direction of the Executive,
either reimburse the Executive for, or directly pay the costs of, membership
dues for any one (1) social or recreational club or organization that the
Executive chooses to join. Additionally, the Corporation shall, at the direction
of the Executive, either reimburse the Executive for, or directly pay the costs
of, membership dues for any professional organizations that the Executive
chooses to join. The Corporation shall also reimburse the Executive for any
disability insurance premiums actually paid by the Executive during the Term
hereof.
3.4 Automobile Allowance. With respect to Executive's use of
an automobile in connection with the performance of his duties hereunder,
Corporation shall, at the direction of Executive, either reimburse Executive
for, or directly pay the costs of, the use of an automobile during the Term of
this Agreement and all usual expenditures in connection therewith; i.e., fuel,
insurance, parking, customary maintenance and repairs, etc. The type of
automobile shall be selected by Executive.
3.5 Benefits. the Executive shall be entitled to participate
in such pension, profit sharing, group insurance, option plans, hospitalization,
and group health and benefit plans
4
<PAGE>
and all other benefits and plans as the Corporation provides to its
senior executives.
3.6 Equity Participation.
(a) Upon the execution hereof, Corporation hereby grants to
Executive options pursuant to the Company's Stock Option Plan to purchase up to
Two Hundred Fifty Thousand (250,000) shares of Corporation's common stock, par
value $.01 per share (the "Common Stock"), at an exercise price of Two Dollars
and Sixty Three Cents ($2.63). The options shall include demand registration
rights at the expense of the Corporation. Any unexercised options shall
automatically be extinguished upon the expiration or termination of this
Agreement.
(b) Upon the execution hereof, the Corporation hereby issues
to Executive, Four Hundred Thousand (400,000) shares of the Corporations Common
Stock, par value $.01 per value, provided however, that commencing upon the date
hereof through December 31, 2005 for each three (3) month period (or any part
thereof) that Executive is not employed by Corporation pursuant to the terms of
this Agreement for any reason whatsoever, unless otherwise agreed in writing by
the parties, Executive shall automatically forfeit Ten Thousand (10,000) shares
of Common Stock. Notwithstanding the foregoing, in the event that (i)
Corporation shall file a
5
<PAGE>
Registration Statement with the Securities and Exchange Commission on Form S-1
(or any other appropriate form) during the Term hereof and (ii) the underwriter
with respect to the Registration Statement (or Corporation, if there is not an
underwriter) has agreed to register any or all shares of Common Stock granted to
Executive hereunder, then none of such shares which are so registered will be
subject to forfeiture thereafter and only those shares, if any, that remain
unregistered shall be subject to the provisions of forfeiture (on a prorated
basis) set forth in the immediately preceding sentence.
(c) Corporation expressly agrees to pay on Executive's behalf
or reimburse Executive for any federal, state and local taxes of any nature
whatsoever (including but not limited to any income or capital gains taxes) that
Executive actually incurs with respect to his receipt of any of the securities,
or the proceeds therefrom, granted to Executive pursuant to this Section 3.7.
(d) The Corporation and the Executive agree that Section 4.6
of the December 1, 1991 Employment Agreement between Executive and the
Corporation shall remain in full force and effect.
3.7 Change of Control.
6
<PAGE>
(a) In the event that there occurs a "Change of Control" (as
defined below) during the term of this Agreement and as a result thereof the
Executive resigns or this Agreement is terminated, the Corporation expressly
agrees that upon such resignation or termination, the Corporation shall pay to
the Executive a sum equal to two times the entire compensation that the
Executive would have been entitled to through December 31, 2005, but in no event
less than $2,500,000. As used herein, the term "Change of Control" shall mean,
subject to Section 3.8(b) hereof, either
(i) a sale of securities representing voting control of the
Corporation or a sale of all or substantially all of
the assets of the Corporation,
(ii) any merger, joint venture of other business combination
where the Corporation is either (x) not the surviving
entity or, (y) becomes the subsidiary of another
entity, or
(iii)the acquisition of more than ten percent (10%) of the
outstanding voting securities of the Corporation by any
entity(ies) or person(s) exclusive of the Executive or
any holder of the Company's securities on the date
hereof who
7
<PAGE>
presently owns more than 10%, either acting alone or as
a "group," as that term is defined for purposes of
Section 13(d) of the Securities Exchange Act of 1934,
as amended.
(iv) the increase in ownership, by an amount of 1% or more,
of the outstanding voting securities of the
Corporation by any entity(ies) or person(s) owning
more than 5% on the date hereof.
(v) the nomination of individuals for election to the board
of directors which elections will result in one-third
of the directors of the Company consisting of
individuals who have not been directors of the Company
for at least two years.
(vi) a tender offer for shares of the Corporation's common
stock is made, which tender is not approved by the
Company's Board of Directors and a majority of the
Corporation's outstanding stock is tendered thereunder.
(b) Notwithstanding anything set forth herein to the contrary,
in the event that the Executive, as a member of the Corporation's Board of
Directors, votes in favor of any of the transactions described in either Section
3.8(i) or 3.8(ii) above,
8
<PAGE>
then in such event, there shall not be deemed to have occurred a "Change of
Control" for the purposes of this Agreement.
3.8 Intentionally Omitted.
3.9 Loan to Executive. Upon the execution hereof, Corporation
shall make available to Executive a revolving line of credit of up to Five
Hundred Thousand Dollars ($500,000) pursuant to which Executive can borrow up to
such amount from Corporation from time to time and at any time during the Term
hereof (the "Line of Credit"). Any funds borrowed by Executive pursuant to the
Line of Credit shall bear interest at the prime rate as quoted in The Wall
Street Journal from time to time plus one-half of one percent (.5%) per annum,
which interest shall be payable monthly. In the event any sums are outstanding
pursuant to the Line of Credit upon the termination or expiration hereof, such
sums shall be automatically converted to a ten (10) year loan which shall be
fully amortized over one hundred twenty (120) consecutive monthly payments with
the rate of interest fixed upon the actual date of expiration or termination.
Executive agrees to execute any reasonable documents prepared by Corporation to
evidence the transactions described in this Section 3.9.
4. Disability.
9
<PAGE>
4.1 Death and Total Disability. In the event of the death or
total disability, the Executive, during the period of his Executive Employment,
his Executive Salary shall continue to be paid to the Executive, or his Estate
as the case may be, at the same rate that it was on the date of such disability.
If the Executive shall receive any disability payments from any insurance policy
paid for by the Corporation, the payments to the Executive during any period of
disability shall be reduced by the amount of disability payments received by the
Executive under any such insurance policy or policies. For the purposes of this
Agreement, disability shall mean mental or physical illness or condition
rendering the Executive incapable of performing his normal duties with the
Corporation.
5. Vacations. the Executive shall be entitled to a vacation of four (4)
weeks per year, during which period his salary shall be paid in full. The
Executive shall take his vacation at such time or times as the Executive and the
Corporation shall determine is mutually convenient.
6. Disclosure of Confidential Information. The Executive recognizes
that he has had and will continue to have access to secret and confidential
information regarding the Corporation, including but not limited to its customer
list, products, know-how,
10
<PAGE>
and business plans. The Executive acknowledges that such information is of great
value to the Corporation, is the sole property of the Corporation, and has been
and will be acquired by him in confidence. In consideration of the obligations
undertaken by the Corporation herein, the Executive will not, at any time,
during or after his employment hereunder, reveal, divulge or make known to any
person, any information acquired by the Executive during the course of his
employment, which is treated as confidential by the Corporation, including but
not limited to its customer list, and not otherwise in the public domain the
provisions of this Section 6 shall survive the Executive's employment hereunder.
7. Covenant Not To Compete.
(a) Executive recognizes that the services to be performed by
him hereunder are special, unique and extraordinary. The parties confirm that it
is reasonably necessary for the protection of the Corporation that the Executive
agree, and accordingly, the Executive does hereby agree, that he shall not,
directly or indirectly, at any time during the "Restricted Period" within the
"Restricted Area" (as those terms are defined in Section 8(e) below):
11
<PAGE>
(i) except as provided in Subsection (c) below, engage in
the business of retail or mail order sale of vitamins
either on his own behalf or as an officer, director,
stockholder, partner, consultant, associate, employee,
owner, agent, creditor, independent contractor, or
co-venturer of any third party; or
(ii) employ or engage, or cause or authorize, directly or
indirectly, to be employed or engaged, for or on behalf
of himself or any third party, any employee or agent of
the Corporation.
(b) Executive hereby agrees that he will not, directly or
indirectly, for or on behalf of himself or any third party, at any time during
the Term and during the Restricted Period solicit any customers of the
Corporation.
(c) If any of the restrictions contained in this Section shall
be deemed to be unenforceable by reason of the extent, duration or geographical
scope thereof, or otherwise, then the court making such determination shall have
the right to reduce such extent, duration, geographical scope, or other
provisions hereof, and in its reduced form this Section shall then be
enforceable in the manner contemplated hereby.
12
<PAGE>
(d) This Section 7 shall not be construed to prevent the
Executive from owning, directly and indirectly, in the aggregate, an amount not
exceeding five percent (5%) of the issued and outstanding voting securities of
any class of any corporation whose voting capital stock is traded on a national
securities exchange or in the over-the-counter market.
(e) The term "Restricted Period," as used in this Section 7,
shall mean the period of the Executive's actual employment hereunder plus: (i)
twelve (12) months after the date the Executive is actually no longer employed
by the Corporation in the event this Agreement expires or the Executive's
termination For Cause; (ii) twelve (12) months after the date the Executive is
actually no longer employed by the Corporation in the event that this Agreement
is terminated by the Corporation for any reason whatsoever except For Cause, or
if the Executive resigns for any reason during the Term, except for his
resignation pursuant to Section 3.8 hereof; and, (iii) twenty-four (24) months
after the date the Executive is actually no longer employed by the Corporation
in the event that the Executive resigns pursuant to Section 3.8 hereof. The term
"Restricted Area" as used in this Section 7 shall mean the seventy-five (75)
mile radius from the Corporation's principal executive offices.
13
<PAGE>
(f) The provisions of this Section 7 shall survive the termination of
the Executive's employment hereunder and until the end of the Restricted Period
as provided in Section 7(e) hereof.
8. Miscellaneous.
8.1 Assignments. Neither the Executive nor the Corporation may
assign or delegate any of their rights or duties under this Agreement without
the express written consent of the other.
8.2 Entire Agreement. This Agreement constitutes and embodies
the full and complete understanding and agreement of the parties with respect to
the Executive's employment by the Corporation, supersedes all prior
understandings and agreements, whether oral or written, between the Executive
and the Corporation, including, but not limited to, the Prior Employment
Agreement, and shall not be amended, modified or changed except by an instrument
in writing executed by the party to be charged. The invalidity or partial
invalidity of one or more provisions of this Agreement shall not invalidate any
other provision of this Agreement. No waiver by either party of any provision or
condition to be performed shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same time or any prior or subsequent time.
14
<PAGE>
8.3 Binding Effect. This Agreement shall inure to the benefit
of, be binding upon and enforceable against, the parties hereto and their
respective successors, heirs, beneficiaries and permitted assigns.
8.4 Headings. The headings contained in this Agreement are for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
8.5 Notices. All notices, requests, demands and other
communications required or permitted to be given hereunder shall be in writing
and shall be deemed to have been duly given when personally delivered, sent by
registered or certified mail, return receipt requested, postage prepaid, or by
private overnight mail service (e.g. Federal Express) to the party at the
address set forth above or to such other address as either party may hereafter
give notice of in accordance with the provisions hereof. Notices shall be deemed
given on the sooner of the date actually received or the third business day
after sending.
8.6 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without giving
effect to such State's conflicts of laws provisions and each of the parties
hereto irrevocably consents to the
15
<PAGE>
jurisdiction and venue of the federal and state courts located in the State of
New York, County of Suffolk.
8.7 Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one of the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth above.
PDK LABS INC.
By: /s/ Hartley T. Bernstein
-----------------------
Hartley T. Bernstein,
Assistant Secretary
/s/ Michael B. Krasnoff
-----------------------
Michael B. Krasnoff
16
<PAGE>
AMENDMENT NO.1 TO EMPLOYMENT AGREEMENT
This Amendment No.1 to that certain Employment Agreement (this
"Amendment"), dated as of October 6, 1995, by and between PDK Labs, Inc., a New
York corporation (the "Company"), and Michael Krasnoff (the "Executive").
W I T N E S E T H :
WHEREAS, the Company and the Executive entered into that certain
Employment Agreement dated as of October 6, 1995 (the "Agreement"); and
WHEREAS, the Company and the Executive desire to amend the Agreement to
effect the changes provided for herein.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the receipt and sufficiency of which is hereby acknowledged,
the parties hereto agree as follows:
1. Effective as of the date hereof, the Agreement is hereby amended by
replacing paragraph 3.9 with the following:
3.9 Loan to Executive. Upon the execution hereof, Corporation
shall make available to Executive a revolving line of credit of up to
Seven Hundred Fifty Thousand Dollars ($750,000) pursuant to which
Executive can borrow up to such amount from Corporation from time to
time and at any time during the Term hereof (the "Line of Credit").
Any funds borrowed by Executive pursuant to the Line of Credit shall
bear interest at the prime rate as quoted in The Wall Street Journal
from time to time plus one-half of one percent (.5%) per annum, which
interest shall be payable monthly. In the event any sums are
outstanding pursuant to the Line of Credit upon the termination or
expiration hereof, such sums shall be automatically converted to a ten
(10) year loan which shall be fully amortized over one hundred twenty
(120) consecutive monthly payments with the rate of interest fixed
upon the actual date of expiration or termination. Executive agrees to
execute any reasonable documents prepared by Corporation to evidence
the transactions described in this Section 3.9.
2. This Amendment shall be governed by and construed in accordance with
the laws of the State of New York, without regard to principles of conflicts of
law.
<PAGE>
3. Except as otherwise specifically set forth herein, all of the terms
and provisions of the Existing Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment
as of the day and year first above written.
PDK LABS, INC.
By: /s/ Reginald Spinello
-------------------------------
Name: Reginald Spinello
Title: Executive Vice
President
/s/ Michael Krasnoff
-------------------------------
Michael Krasnoff
2
<PAGE>
AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT
This Amendment No.2 dated as of May 31, 1997 to that certain Employment
Agreement (this "Amendment"), dated as of October 6, 1995, by and between PDK
Labs, Inc., a New York corporation (the "Company"), and Michael Krasnoff (the
"Executive").
W I T N E S S E T H :
WHEREAS, the Company and the Executive entered into that certain
Employment Agreement dated as of October 6, 1995, as amended by that certain
Amendment No. 1 to Employment Agreement (the "Agreement"); and
WHEREAS, the Company and the Executive desire to amend the Agreement to
effect the changes provided for herein.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the receipt and sufficiency of which is hereby acknowledged,
the parties hereto agree as follows:
1. Effective as of the date hereof, the Agreement is hereby amended by
replacing paragraph 3.9 with the following:
3.9 Loan to Executive. Upon the execution hereof, Corporation
shall make available to Executive a revolving line of credit of up to One
Million Dollars ($1,000,000) pursuant to which Executive can borrow up to such
amount from Corporation from time to time and at any time during the Term hereof
(the "Line of Credit"). Any funds borrowed by Executive pursuant to the Line of
Credit shall bear interest at the prime rate as quoted in The Wall Street
Journal from time to time plus one-half of one percent (.5%) per annum, which
interest shall be payable monthly. In the event any sums are outstanding
pursuant to the Line of Credit upon the termination or expiration hereof, such
sums shall be automatically converted to a ten (10) year loan which shall be
fully amortized over one hundred twenty (120) consecutive monthly payments with
the rate of interest fixed upon the actual date of expiration or termination.
Executive agrees to execute any reasonable documents prepared by Corporation to
evidence the transactions described in this Section 3.9.
2. This Amendment shall be governed by and construed in accordance with
the laws of the State of New York, without regard to principles of conflicts of
law.
<PAGE>
3. Except as otherwise specifically set forth herein, all of the terms
and provisions of the Existing Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment
as of the day and year first above written.
PDK LABS, INC.
By: /s/ Reginald Spinello
---------------------------
Name: Reginald Spinello
Title: Executive Vice President
/s/ Michael Krasnoff
---------------------------
Michael Krasnoff
2
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of October 6, 1995, by and between
REGINALD SPINELLO, an individual residing at 62 Buckeye Road, Glen Cove, NY
11542 ("Spinello" or the "Employee") and PDK Labs Inc., having offices at 145
Ricefield Lane, Hauppauge, NY 11788 (the "Company").
WHEREAS, as of October 18, 1993, Employee and the Company entered into
a seven (7) year Employment Agreement; and
WHEREAS, the Company is desirous of extending the exclusive employment
services of Spinello and Spinello is desirous of providing his exclusive
employment services to Company in connection with the day-to-day operations of
the Company with respect to the sale of generic drug and vitamin products
throughout the territory covered by this Agreement.
NOW, THEREFORE, in consideration of mutual premises and covenants
contained herein, the parties hereto agree as follows:
1. The Company hereby agrees to employ Spinello and Spinello hereby
agrees to be exclusively employed as the Company's Executive Vice President.
Spinello shall have the title "Executive Vice President" and shall have the
duties commensurate with such title.
2. The term of this Agreement shall be for the period of
<PAGE>
seven (7) years commencing on the date first set forth above; provided, however,
that this Agreement may be canceled by the Company, at its sole direction, at
any time after October 5, 1996, upon ninety (90) days written notice to
Employee. Each twelve month period during the term of this Agreement (i.e.
October 6th through October 5th) is sometimes hereinafter referred to as a
"Contract Year." The territory covered by this Agreement shall be every place
where the Company presently does business or may do business during the term
hereof.
3. As consideration for Spinello's agreement to provide his exclusive
services to the Company, the Company hereby agrees to pay to Spinello a minimum
salary of $200,000 per annum for each year during the term hereof (the "Term").
Such salary shall be payable by the Company on a bi-weekly basis.
4. Upon the execution hereof, the Corporation shall deliver to Employee
200,000 shares of the Company's common stock in consideration for payment of par
value $.01 per share (the "Common Stock"); provided however, that commencing
upon the date hereof through October 5, 2002 for each three (3) month period (or
any part thereof) that Executive is not employed by Corporation pursuant to the
terms of this Agreement for any reason whatsoever, unless otherwise agreed in
writing by the parties, Executive shall
2
<PAGE>
automatically forfeit Seven Thousand One Hundred Forty Two (7,142) shares of
Common Stock. Notwithstanding the foregoing, in the event that (i) Corporation
shall file a Registration Statement with the Securities and Exchange Commission
on Form S-1 (or any other appropriate form) during the Term hereof and (ii) the
underwriter with respect to the Registration Statement (or Corporation, if there
is not an underwriter) has agreed to register any or all shares of Common Stock
granted to Executive hereunder, then none of such shares which are so registered
will be subject to forfeiture thereafter and only those shares, if any, that
remain unregistered shall be subject to the provisions of forfeiture (on a
prorated basis) set forth in the immediately preceding sentence. The shares of
Common Stock to be delivered to employee hereunder are not registered pursuant
to the Securities Act of 1933 as amended or the securities laws of any state and
may not be transferred unless registered thereunder or qualifying for an
exemption from registration. Employee expressly agrees that in the event that
are any resale limitations now in existence or hereafter imposed upon any shares
of Common Stock owned by Michael Krasnoff during the term hereof, then none of
the shares of common Stock issued to Employee hereunder may be sold until such
time as such resale limitations have expired. The foregoing is in addition to
the
3
<PAGE>
resale limitations of Rule 144. All of the shares of Common Stock issued to
Employee hereunder shall bear an appropriate legend evidencing the foregoing
restrictions. Employee agrees to sign a Voting Trust Agreement in the form
annexed hereto as Exhibit A, wherein Employee shall vote along with Michael
Krasnoff for ten (10) years on all issues put to the vote of the shareholders of
the Company.
5. (a) Employee shall be entitled two (2) weeks paid vacation during
the first Contract Year and three (3) weeks paid vacation during each subsequent
Contract Year of the term hereof. Additionally, Employee shall be entitled to
all health and insurance benefits and any other employee benefit plans afforded
by the Company to all of its employees. The Company shall have the right, but
not the obligation, to take out "key-man" insurance on Employee. Employee agrees
to consent to and make himself available for any physical examinations required
by any insurance company chosen by Company in connection with Company's
procurement of any such "key-man" insurance during the term hereof.
(b) With respect to Employee's use of an automobile in
connection with the performance of his duties hereunder, Corporation shall, at
the direction of Employee, either reimburse Employee for, or directly pay the
costs of, the use of an
4
<PAGE>
automobile during the Term of this Agreement and all usual expenditures in
connection therewith; i.e., fuel, insurance, parking, customary maintenance and
repairs, etc. The type of automobile shall be selected by Employee.
6. (a) During the Term hereof, Employee agrees to be exclusively
employed by the Company and agrees that he shall be a full time employee of the
Company and as such, shall devote his best efforts and all of his time to
advance the interests of Company. The foregoing proscription shall not prohibit
Employee from making any passive investments in any corporations, or being a
limited partner in any limited partnership.
(b) For no less than three (3) years after the execution
hereof, whether or not employed by the Company, and for one (1) year after the
expiration or termination of this Agreement, Employee agrees that he shall not,
directly or indirectly, alone or as a member of a partnership, or as an
employee, officer, director, or shareholder of any other corporation, be engaged
in or concerned with any other duties or pursuits within a radius of one hundred
(100) miles from the Company's then principal executive office (the "Non Compete
Territory") that may compete directly or indirectly in any manner whatsoever
with the Company's business at the date of the expiration or termination hereof,
except with the prior written
5
<PAGE>
consent of Company, which consent may be withheld by Company in its
sole and absolute discretion.
(c) Spinello expressly agrees that for one (1) year after the
expiration or termination of this Agreement, within the Non-Compete Territory,
Spinello shall neither (i) engage in any business activities whatsoever with any
customers of the Company, nor (ii) contact any customers of the Company for any
purpose whatsoever.
7. Employee acknowledges and agrees that his services to be provided to
Company hereunder are of a unique and extraordinary character, and to replace
the services of Employee would cause the Company great hardship. Accordingly, in
the event of a breach or threatened breach by the Employee of the provisions
herein, including but not limited to Sections 6 and 8 hereof, in addition to
Company's other remedies hereunder, Company shall be entitled to a temporary or
permanent injunction restraining Employee from violation of any of the terms
hereof. Nothing herein contained shall be construed as prohibiting Company from
pursuing any and all other remedies available to it for any such breach or
threatened breach.
8. Any financial advice, memoranda, customer list or other
documentation which Employee becomes aware of during the term of
6
<PAGE>
this Agreement shall not be disclosed to any third-party or person for any
reason whatsoever without the express, prior written approval of Company, which
may be withheld by Company in its absolute discretion. It is expressly
acknowledged and agreed by Employee that Company shall be furnishing
proprietary, confidential product, financial, marketing, organizational,
customer and other data relating to the business of Company (hereinafter
referred to, together with the advice, memoranda and documentation referred to
in the preceding sentence as "confidential information") during the term hereof.
Confidential information includes not only original information, but also
information transferred orally, in writing or by any other means whether now
known or hereafter devised. All confidential information which Employee learns
of during the term hereof and all confidential information given by Company to
Employee will be considered non-public and shall be retained as such by
Employee. Confidential information shall be used by Employee solely in
connection with his duties hereunder and for no other purpose whatsoever. Upon
the termination of this Agreement for any reason, Employee shall immediately
deliver to Company all copies of any confidential information and other
materials delivered to Employee by Company and all abstracts and summaries
thereof prepared by Employee. Employee shall not have the right to
7
<PAGE>
disclose any confidential information to any third-person or entity for any
reason whatsoever upon the expiration or termination of this Agreement.
9. It is expressly understood that the services of Employee are unique
and accordingly, Employee may not assign any of his rights or obligations
hereunder. Company shall have the right to assign its rights and obligations
hereunder, provided, however, that Company shall remain liable for all
compensation to Employee hereunder.
10. Each of the parties hereto represents, warrants and agrees that it
has the full right, power and authority to enter into this Agreement, and upon
the full execution hereof this Agreement shall be a valid and binding and
enforceable against each of the parties in accordance with its terms.
11. Each of the parties hereto expressly acknowledges and agrees that
all representations, warranties and agreements made by both parties hereunder,
except with respect to the Company's obligation to compensate Employee
subsequent to the expiration or termination hereof, shall survive the expiration
or termination of this Agreement.
12. This Agreement, including any exhibits and schedules hereto and
other documents and certificates delivered pursuant to
8
<PAGE>
the terms hereof, sets forth the entire agreement and understanding of the
parties hereto in respect of the subject matter contained herein, and supersede
all prior agreements, promises, covenants, arrangements, communications,
representations or warranties, whether oral or written, by any officer, employee
or representative of any party hereto.
13. All notices requested and other communication required herein shall
be in writing and shall be deemed to be duly given and delivered by either
certified or registered mail, return receipt requested with postage prepaid or
by private overnight mail service (e.g., Federal Express).
If to Spinello:
Reginald Spinello
62 Buckeye Road
Glen Cove, NY 11542
With copy to:
If to Company;
PDK Labs Inc.
145 Ricefield Lane
Hauppauge, NY 11788
With copy to:
Bernstein & Wasserman
950 Third Avenue
New York, NY 10022
Attn: Hartley T. Bernstein, Esq.
9
<PAGE>
Or in each case to such other person who addresses any party shall
furnish to the other party in writing.
14. The remedies provided herein shall be cumulative and shall not
preclude Company from asserting any other rights or seeking any other remedies
against Employee.
15. If in any jurisdiction, any provision of this Agreement or its
application to any party or circumstance is restricted, prohibited or
unenforceable, such provision shall, as to such jurisdiction, be ineffective
only to the extent of such restriction, prohibition or unenforceability without
invalidating the remaining provisions hereof and without affecting the validity
or enforceability of such provision in any other jurisdiction or its application
to other parties or circumstances.
16. No party hereto shall make or issue, or cause to be made or issued,
any announcement or written statement concerning this Agreement or the
transactions contemplated hereby for dissemination to customers, suppliers,
sales representatives or employees or the general public prior to the execution
hereof.
17. This Agreement shall supersede all previous Employment Agreements
between the parties, including but not limited to, the Employment Agreements
dated September 1991 and October 1993.
18. This Agreement and the legal relations among the parties
10
<PAGE>
hereto shall be governed by and constructed in accordance with the laws of the
State of New York without regard to its conflicts of law doctrine. Each of the
parties hereto irrevocably consents to the jurisdiction of the Federal and State
Courts located in the State of New York.
19. This Agreement may be executed simultaneously in one or more
original or facsimile counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement on the 6th
day of October, 1995.
PDK LABS INC.
By: /s/ Michael B. Krasnoff
------------------------------
Michael B. Krasnoff, President
/s/ Reginald Spinello
----------------------
Reginald Spinello
11
<PAGE>
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
This Amendment No.1 dated as of November 1, 1997 (this "Amendment") to
that certain Employment Agreement dated as of October 6, 1995, by and between
PDK Labs, Inc., a New York corporation with offices at 145 Ricefield Lane,
Hauppauge, NY 11788 (the "Company"), and Reginald Spinello, an individual
residing at 62 Buckeye Road, Glen Cove, NY 11542 (the "Executive").
W I T N E S S E T H :
WHEREAS, the Company and the Executive entered into that certain
Employment Agreement dated as of October 6, 1995 (the "Agreement"); and
WHEREAS, the Company and the Executive desire to amend the Agreement to
effect the changes provided for herein.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the receipt and sufficiency of which is hereby acknowledged,
the parties hereto agree as follows:
1. Effective as of the date hereof, the Agreement is hereby
amended by replacing Section 3 with the following:
"3. As consideration for Spinello's agreement to provide his
exclusive services to the Company, the Company hereby agrees to pay
to Spinello a minimum salary of $200,000 per annum pro-rated for
the period October 6, 1995 through December 8, 1997, inclusive and,
thereafter, $325,000 per annum for each year during the term hereof
(the "Term"). Such salary hereunder shall be payable by the Company
on a bi-weekly basis."
2. Effective as of the date hereof, the Agreement is hereby
amended by deleting the following words from Section 4:
"; provided however, that commencing upon the date hereof through
October 5, 2002 for each three (3) month period (or any part
thereof) that Executive is not employed by Corporation pursuant to
the terms of this Agreement for any reason whatsoever, unless
otherwise agreed in writing by the parties, Executive shall
automatically forfeit Seven Thousand One Hundred Forty Two (7,142)
shares of Common Stock"
<PAGE>
3. Effective as of the date hereof, the Agreement is hereby
amended by inserting at the end of Section 4 the following words:
"The Company expressly agrees to pay on Executive's behalf or
reimburse Executive for any federal, state and local taxes of any
nature whatsoever (including but not limited to any income or
capital gains taxes) that Executive actually incurs with respect to
his receipt of any of the securities, or the proceeds therefrom,
granted to Executive pursuant to this Section 3(b)."
4. This Amendment shall be governed by and construed in
accordance with the laws of the State of New York, without regard
to principles of conflicts of law.
5. Except as otherwise specifically set forth herein, all of the
terms and provisions of the Agreement shall remain in full force
and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
day and year first above written.
PDK LABS, INC.
By: /s/ Michael B. Krasnoff
-----------------------
Name: Michael B. Krasnoff
Title: President
/s/ Reginald Spinello
---------------------
Reginald Spinello
2
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT, dated as of October 6, 1995, by and between
Corrine Hollander, an individual residing at 39 Kensington Avenue, Selden, NY
11784 ("Hollander" or the "Employee") and PDK Labs Inc., having offices at 145
Ricefield Lane, Hauppauge, NY 11788 (the "Company").
WHEREAS, the Company is desirous of engaging the exclusive employment
services of Hollander and Hollander is desirous of providing her exclusive
employment services to Company in connection with the day-to-day operations of
the Company.
NOW, THEREFORE, in consideration of mutual premises and covenants
contained herein, the parties hereto agree as follows:
1. The Company hereby agrees to employ Hollander and Hollander hereby
agrees to be exclusively employed as the Company's Comptroller. Hollander shall
have the title "Comptroller" and shall have the duties commensurate with such
title.
2. The term of this Agreement shall be for the period of five (5) years
commencing on the date first set forth above; provided, however, that this
Agreement may be cancelled by the
<PAGE>
Company, at its sole direction, at any time after October 5, 1996, upon ninety
(90) days written notice to Employee. Each twelve month period during the term
of this Agreement (i.e. October 6th through October 5th) is sometimes
hereinafter referred to as a "Contract Year."
3. (a) As consideration for Hollander's agreement to provide her
exclusive services to the Company, the Company hereby agrees to pay to Hollander
a minimum salary of $85,000 per annum for each year during the Term hereof. Such
salary hereunder shall be payable by the Company on a bi-weekly basis.
(b) As additional consideration for Hollander's employment
hereunder, upon the execution hereof, Corporation hereby grants to Hollander
fifty thousand (50,000) shares of the Company's Common Stock, par value $.01 per
share (the "Common Stock"); provided however, that commencing upon the date
hereof through March 31, 2001 for each three (3) month period (or any part
thereof) that Hollander is not employed by Corporation pursuant to the terms of
this Agreement for any reason whatsoever, unless otherwise agreed in writing by
the parties, Hollander shall automatically forfeit Two Thousand Five Hundred
(2,500) shares of
2
<PAGE>
Common Stock. The shares of Common Stock to be delivered to employee hereunder
are not registered pursuant to the Securities Act of 1933 as amended or the
securities laws of any state and may not be transferred unless registered
thereunder or qualifying for an exemption from registration. Notwithstanding the
foregoing, in the event that (i) Corporation shall file a Registration Statement
with the Securities and Exchange Commission on Form S-1 (or any other
appropriate form) during the Term hereof and (ii) the underwriter with respect
to the Registration Statement (or Corporation, if there is not an underwriter)
has agreed to register any or all shares of Common Stock granted to Hollander
hereunder, then none of such shares which are so registered will be subject to
forfeiture thereafter and only those shares, if any, that remain unregistered
shall be subject to the provisions of forfeiture (on a prorated basis) set forth
in the immediately preceding sentence.
(c) Hollander expressly agrees that in the event that there
are any resale limitations now in existence or hereafter imposed upon any shares
of Common Stock owned by Michael Krasnoff during the term hereof, then none of
the shares of Common Stock issued to Hollander hereunder may be sold until such
time as all
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<PAGE>
such resale limitations have expired. The foregoing is in addition to the
re-sale limitations of Rule 144. All of the shares of Common Stock issued to
Employee hereunder, as well as the Common Stock issued to Hollander pursuant to
the Stock Purchase Agreement, shall bear an appropriate legend evidencing the
foregoing restrictions.
(d) Hollander agrees to sign a Voting Trust Agreement in the
form annexed hereto as Exhibit A wherein Hollander shall vote along with and in
favor of management for ten (10) years on all issues put to the vote of the
shareholders of the Company.
4. Employee shall be entitled two (2) weeks paid vacation during the
first Contract Year and three (3) weeks paid vacation during each subsequent
Contract Year of the term hereof. Additionally, Employee shall be entitled to
all health and insurance benefits and any other employee benefit plans afforded
by the Company to all of its employees. The Company shall have the right, but
not the obligation, to take out "key-man" insurance on Employee. Employee agrees
to consent to and make herself available for any physical examinations required
by any insurance company
4
<PAGE>
chosen by Company in connection with Company's procurement of any such "key-man"
insurance during the term hereof.
5. (a) During the Term hereof, Employee agrees to be exclusively
employed by the Company and agrees that she shall be a full time employee of the
Company and as such, shall devote her best efforts and all of her time to
advance the interests of Company. The foregoing proscription shall not prohibit
Employee from making any passive investments in any corporations, or being a
limited partner in any limited partnership.
(b) For no less than three (3) years after the execution
hereof, whether or not employed by the Company, and for one (1) year after the
expiration or termination of this Agreement, Employee agrees that she shall not,
directly or indirectly, alone or as a member of a partnership, or as an
employee, officer, director, or shareholder of any other corporation, be engaged
in or concerned with any other duties or pursuits within a radius of one hundred
(100) miles from the Company's then principal executive office (the "Non Compete
Territory") that may compete directly or indirectly in any manner whatsoever
with the Company's business at the date of the expiration or termination hereof,
except with the
5
<PAGE>
prior written consent of Company, which consent may be withheld by Company in
its sole and absolute discretion.
(c) Hollander expressly agrees that for one (1) year after the
expiration or termination of this Agreement, within the Non-Compete Territory,
Hollander shall neither (i) engage in any business activities whatsoever with
any customers of the Company, nor (ii) contact any customers of the Company for
any purpose whatsoever.
6. Employee acknowledges and agrees that her services to be provided to
Company hereunder are of a unique and extraordinary character, and to replace
the services of Employee would cause the Company great hardship. Accordingly, in
the event of a breach or threatened breach by the Employee of the provisions
herein, including but not limited to Sections 5 and 7 hereof, in addition to
Company's other remedies hereunder, Company shall be entitled to a temporary or
permanent injunction restraining Employee from violation of any of the terms
hereof. Nothing herein contained shall be construed as prohibiting Company from
pursuing any and all other remedies available to it for any such breach or
threatened breach.
6
<PAGE>
7. Any financial advice, memoranda, customer list or other
documentation which Employee becomes aware of during the term of this Agreement
shall not be disclosed to any third-party or person for any reason whatsoever
without the express, prior written approval of Company, which may be withheld by
Company in its absolute discretion. It is expressly acknowledged and agreed by
Employee that Company shall be furnishing proprietary, confidential product,
financial, marketing, organizational, customer and other data relating to the
business of Company (hereinafter referred to, together with the advice,
memoranda and documentation referred to in the preceding sentence as
"confidential information") during the term hereof. Confidential information
includes not only original information, but also information transferred orally,
in writing or by any other means whether now known or hereafter devised. All
confidential information which Employee learns of during the term hereof and all
confidential information given by Company to Employee will be considered
non-public and shall be retained as such by Employee. Confidential information
shall be used by Employee solely in connection with his duties hereunder and for
no other purpose whatsoever. Upon the termination of this Agreement
7
<PAGE>
for any reason, Employee shall immediately deliver to Company all copies of any
confidential information and other materials delivered to Employee by Company
and all abstracts and summaries thereof prepared by Employee. Employee shall not
have the right to disclose any confidential information to any third-person or
entity for any reason whatsoever upon the expiration or termination of this
Agreement.
8. It is expressly understood that the services of Employee are unique
and accordingly, Employee may not assign any of her rights or obligations
hereunder. Company shall have the right to assign its rights and obligations
hereunder, provided, however, that Company shall remain liable for all
compensation to Employee hereunder.
9. Each of the parties hereto represents, warrants and agrees that it
has the full right, power and authority to enter into this Agreement, and upon
the full execution hereof this Agreement shall be a valid and binding and
enforceable against each of the parties in accordance with its terms.
10. Each of the parties hereto expressly acknowledges and agrees that
all representations, warranties and agreements made by
8
<PAGE>
both parties hereunder, except with respect to the Company's obligation to
compensate Employee subsequent to the expiration or termination hereof, shall
survive the expiration or termination of this Agreement.
11. This Agreement, including any exhibits and schedules hereto and
other documents and certificates delivered pursuant to the terms hereof, sets
forth the entire agreement and understanding of the parties hereto in respect of
the subject matter contained herein, and supersede all prior agreements,
promises, covenants, arrangements, communications, representations or
warranties, whether oral or written, by any officer, employee or representative
of any party hereto.
12. All notices requested and other communication required herein shall
be in writing and shall be deemed to be duly given and delivered by either
certified or registered mail, return receipt requested with postage prepaid or
by private overnight mail service (e.g., Federal Express).
If to Hollander:
Corrine Hollander
39 Kensington Avenue
Selden, NY 11784
9
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If to Company;
PDK Labs Inc.
145 Ricefield Lane
Hauppauge, NY 11788
With copy to:
Bernstein & Wasserman
950 Third Avenue
New York, NY 10022
Attn: Hartley T. Bernstein, Esq.
Or in each case to such other person who addresses any party shall
furnish to the other party in writing.
13. The remedies provided herein shall be cumulative and shall not
preclude Company from asserting any other rights or seeking any other remedies
against Employee.
14. If in any jurisdiction, any provision of this Agreement or its
application to any party or circumstance is restricted, prohibited or
unenforceable, such provision shall, as to such jurisdiction, be ineffective
only to the extent of such restriction, prohibition or unenforceability without
invalidating the remaining provisions hereof and without affecting the validity
or enforceability of such provision in any other jurisdiction or its application
to other parties or circumstances.
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15. No party hereto shall make or issue, or cause to be made or issued,
any announcement or written statement concerning this Agreement or the
transactions contemplated hereby for dissemination to customers, suppliers,
sales representatives or employees or the general public prior to the execution
hereof.
16. This Agreement and the legal relations among the parties hereto
shall be governed by and constructed in accordance with the laws of the State of
New York without regard to its conflicts of law doctrine. Each of the parties
hereto irrevocably consents to the jurisdiction of the Federal and State Courts
located in the State of New York.
17. This Agreement may be executed simultaneously in one or more
original or facsimile counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the 6th
day of October, 1995.
PDK LABS INC.
By: /s/ Michael B. Krasnoff
------------------------
Michael B. Krasnoff, President
/s/ Corrine Hollander
---------------------
Corrine Hollander
12
<PAGE>
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
This Amendment No.1 dated as of March 3, 1997 (this "Amendment") to
that certain Employment Agreement dated as of October 6, 1995, by and between
PDK Labs, Inc., a New York corporation with offices at 145 Ricefield Lane,
Hauppauge, NY 11788 (the "Company"), and Karine Hollander, an individual
residing at 39 Kensington Avenue, Selden, NY 11784 (the "Executive").
W I T N E S S E T H :
WHEREAS, the Company and the Executive entered into that certain
Employment Agreement dated as of October 6, 1995 (the "Agreement"); and
WHEREAS, the Company and the Executive desire to amend the Agreement to
effect the changes provided for herein.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the receipt and sufficiency of which is hereby acknowledged,
the parties hereto agree as follows:
1. Effective as of the date hereof, the Agreement is hereby amended by
replacing Section 1 with the following:
"1. The Company hereby agrees to employ Hollander and Hollander
hereby agrees to be exclusively employed as the Company's Chief
Financial Officer. Hollander shall have the title "Chief
Financial Officer" and shall have the duties commensurate with
such title."
2. Effective as of the date hereof, the Agreement is hereby amended by
replacing Section 3(a) with the following:
"3. (a) As consideration for Hollander's agreement to provide her
exclusive services to the Company. The Company hereby agrees to
pay to Hollander a minimum salary of $85,000 per annum pro-rated
for the period October 6, 1995 through March 2, 1997, inclusive
and, thereafter, $110,000 per annum for each year during the Term
hereof. Such salary hereunder shall be payable by the Company on
a bi-weekly basis."
3. This Amendment shall be governed by and construed in accordance with
the laws of the State of New York, without regard to principles of conflicts of
law.
<PAGE>
4. Except as otherwise specifically set forth herein, all of the terms
and provisions of the Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment
as of the day and year first above written.
PDK LABS, INC.
By: /s/ Michael B. Krasnoff
---------------------------------
Name: Michael B. Krasnoff
Title: President
/s/ Karine Hollander
---------------------------------
Karine Hollander
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<PAGE>
AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT
This Amendment No. 2 dated as of November 1, 1997 (this "Amendment") to
that certain Employment Agreement dated as of October 6, 1995, by and between
PDK Labs, Inc., a New York corporation with offices at 145 Ricefield Lane,
Hauppauge, NY 11788 (the "Company"), and Karine Hollander, an individual
residing at 39 Kensington Avenue, Selden, NY 11784 (the "Executive").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company and the Executive entered into that certain Employment
Agreement dated as of October 6, 1995, as amended by that certain Amendment No.
1 dated as of March 3, 1997 (the "Agreement"); and
WHEREAS, the Company and the Executive desire to amend the Agreement to
effect the changes provided for herein.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the receipt and sufficiency of which is hereby acknowledged,
the parties hereto agree as follows:
1. Effective as of the date hereof, the Agreement is hereby amended by
replacing Section 3(a) with the following:
"3. (a) As consideration for Hollander's agreement to provide her
exclusive services to the Company, the Company hereby agrees to pay to
Hollander a minimum salary of $110,000 per annum pro-rated for the
period March 3, 1997 through December 8, 1997, inclusive and,
thereafter, $160,000 per annum for each year during the Term hereof.
Such salary hereunder shall be payable by the Company on a bi-weekly
basis."
2. Effective as of the date hereof, the Agreement is hereby amended by
deleting the following words from Section 3(b):
";provided however, that commencing upon the date hereof through March
31, 2001 for each three (3) month period (or any part thereof) that
Hollander is not employed by Corporation pursuant to the terms of this
Agreement for any reason whatsoever, unless otherwise agreed in writing
by the parties, Hollander shall automatically forfeit Two Thousand Five
Hundred (2,500) shares of Common Stock"
<PAGE>
3. Effective as of the date hereof, the Agreement is hereby amended by
inserting at the end of Section 3(b) the following words:
"The Company expressly agrees to pay on Executive's behalf or reimburse
Executive for any federal, state and local taxes of any nature whatsoever
(including but not limited to any income or capital gains taxes) that
Executive actually incurs with respect to his receipt of any of the
securities, or the proceeds therefrom, granted to Executive pursuant to
this Section 3(b)."
4. This Amendment shall be governed by and construed in accordance with
the laws of the State of New York, without regard to principles of
conflicts of law.
5. Except as otherwise specifically set forth herein, all of the terms
and provisions of the Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day
and year first above written.
PDK LABS, INC.
By: /s/ Michael B. Krasnoff
______________________________
Name: Michael B. Krasnoff
Title: President
/s/ Karine Hollander
______________________________
Karine Hollander
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<PAGE>
AMENDMENT AGREEMENT
AMENDMENT AGREEMENT, dated as of December 13, 1996 by and between PDK
Labs Inc., a New York corporation, with offices at 145 Ricefield Lane,
Hauppauge, NY 11788 ("PDK") and, Compare Generiks, Inc., (formerly Lesser Paul,
Inc.) a Delaware corporation, with offices at 300 Oser Avenue, Hauppauge, NY
11788 ("CGI").
WHEREAS, PDK and CGI have heretofore entered into an Agreement (the
"Agreement"), dated as of October 31, 1995.
WHEREAS, the Agreement contains a provision providing for the payment
by CGI to PDK of an amount equal to PDK's Material Cost (as defined in the
Agreement) plus one hundred percent (100%) for the Pills (as defined in the
Agreement) supplied pursuant thereto, which provision the parties hereto desire
to amend to provide for the payment by CGI to PDK of an amount equal to PDK's
Material Cost plus $.05 per bottle of Pills of the Compare Generiks brand
products packaged in 25cc. bottles or as otherwise agreed in the related written
purchase order.
The terms which are not defined herein shall have the respective
meanings ascribed to them in the Agreement.
NOW, THEREFORE, for valid and good consideration, the parties hereto
agree as follows:
1. Section 2(a) of the Agreement shall be deleted in its entirety and
shall be replaced with the following language:
"(a) Except as otherwise provided herein at paragraph 2, LPI
will pay to PDK, PDK's material cost ("Material Cost") plus
$.05 per vial or bottle of Pills of Compare Generiks brand
products packaged in 25cc. bottles or for all
<PAGE>
other Pills and, for Compare Generiks brand products upon the
mutual consent of the parties hereto, such other amount as
shall be agreed by PDK and LPI as set forth in the related
written purchase order. For purposes of this Agreement
"Material Cost" shall mean PDK's actual material expenses
incurred in the manufacture and packaging of the Pills."
2. Except as hereinabove amended, all of the terms and provisions of
the Agreement shall remain in full force and effect.
3. This Amendment shall be governed by and construed in accordance with
the laws of the State of New York, without regard to principles of conflicts of
law.
IN WITNESS WHEREOF, the parties have executed this Amendment
Agreement as of the day and year first above written.
PDK LABS INC.
By: /s/ Michael Krasnoff
----------------------------
Michael Krasnoff, President
COMPARE GENERIKS, INC.
By: /s/ Thomas A. Keith
----------------------------
Thomas A. Keith, President
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<PAGE>
EXCLUSIVE SUPPLY AND LICENSING AGREEMENT
This Supply and Licensing Agreement (the "Agreement") is made and
entered into as of the 24th day of March, 1997 by and between PDK Labs Inc., a
New York corporation ("PDK"), and Compare Generiks, Inc., a Delaware corporation
("CGI").
W I T N E S S E T H:
WHEREAS, PDK is engaged in the business of manufacturing, marketing
and distributing vitamins, herbs and non-prescription pharmaceutical products;
and
WHEREAS, PDK owns and operates a factory for the manufacture of
vitamins and non-prescription pharmaceutical products; and
WHEREAS, CGI is engaged in the business of marketing and distributing
dietary supplements and over-the-counter non-prescription pharmaceutical
products; and
WHEREAS, PDK and CGI desire that PDK sell to CGI and CGI wishes to
purchase from PDK, certain products manufactured by PDK in its "Max Brand" and
"HeadsUp" product ranges (the "Products"); and
WHEREAS, PDK and CGI also wish to enter into an agreement whereby PDK
licenses to CGI certain trademarks, tradenames and rights of distribution
relating to the Products; and
WHEREAS, CGI acknowledges that PDK will incur substantial expenses
and will expend significant resources in order to acquire additional equipment,
incur obligations and employ additional personnel in order to fulfill its
obligations to CGI under this Agreement.
NOW, THEREFORE, the parties for good and valuable consideration the
receipt and sufficiency of which is hereby acknowledged, agree as follows:
<PAGE>
1. Exclusive Purchase and Sale of Products.
(a) Commencing from the date of this Agreement, and during the
term hereof (the "Term"), as defined at paragraph 3 hereof, CGI, its successors,
assigns, subsidiaries and affiliates (collectively, "CGI") shall purchase from
PDK, exclusively, all "Pills" (the "Pills") relating to the Products which CGI
distributes, markets or otherwise sells within the United States ("US"). For
purposes of this Agreement, the term "Pills" shall include all vitamins,
non-prescription pharmaceutical products and health and fitness products
manufactured in tablet, capsule, caplet, liquid or equivalent form as part of
the "Max Brand" and "HeadsUp" product ranges.
(b) PDK shall use its best efforts to fulfill all of CGI's
orders on a timely basis. PDK shall comply with applicable laws and regulations
regarding the manufacture, packaging and delivery of Pills for and on behalf of
CGI.
(c) PDK will supply all materials used in connection with the
manufacture and packaging of the Pills. All Pills shall meet CGI's
specifications and be in "finished good format" as defined by accepted industry
standards.
(d) All sales by PDK to CGI will be FOB, PDK's manufacturing
facility in Hauppauge, New York or such other manufacturing facility of PDK of
PDK's choice. Title to and risk of loss of the products shall pass from PDK to
CGI upon acceptance by the carrier of CGI's choice. PDK will ship directly to
customers of CGI, at CGI's written direction and expense, in case lots of no
less than fifty (50) cases.
(e) Nothing herein shall restrict or limit in any manner the
right of PDK to sell any other products in any other product range to any party
other than CGI.
2. Purchase Price and Payment. CGI will pay for the Pills as follows:
(a) Except as otherwise provided herein at paragraphs 2 and 6,
CGI will pay to PDK, PDK's material cost ("Material Costs") plus fifty percent
(50%). For purposes of this agreement "Material Cost" shall mean PDK's actual
material expenses incurred in the manufacture and packaging of the Pills.
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<PAGE>
(b) PDK shall receive a premium of (i) five cents (5(cent))
per vial on any product packaged in a vial containing a 100 count or less and
(ii) eight cents (8(cent)) per vial on any product packaged in a vial containing
greater than 100 count.
(c) The Material Costs for each item ordered by CGI will be
determined, in advance, each forty five (45) days during the term of this
Agreement. Upon written request from CGI, PDK will provide to CGI an MRP
schedule reflecting PDK's Material Cost per item.
(d) PDK shall invoice CGI upon delivery of each order and all
invoices shall be paid by CGI within sixty (60) days of the date of shipment.
CGI shall pay all costs and expenses, including reasonable attorney's fees,
reasonably incurred by PDK in the collection of any sum payable hereunder by CGI
to PDK. In addition to paying the price in effect under this Agreement, CGI
shall pay all sales or use taxes applicable to the sale or delivery by PDK or
the subsequent use by CGI of any items delivered hereunder.
(e) CGI shall have the right to audit the MRP, and to review
invoices reflecting MRP costs, on a quarterly basis. In the event such audit
reveals any discrepancies in the costs charged to CGI, such charges will be
adjusted within 90 days of the conclusion of the audit. If CGI fails to review
and audit the MRP within one hundred twenty (120) days of the end of each year,
the year shall close and CGI shall lose the ability to review such year, unless
a subsequent audit reveals a "Material Discrepancy" which occurred in the closed
year. In the event of any Material Discrepancy in such charges, PDK shall be
responsible for payment of all reasonable expenses of the audit. A Material
Discrepancy shall mean any Material Costs charged to CGI which is greater than
two percent (2%) above the actual Material Cost incurred by PDK.
(f) PDK hereby agrees to keep complete and accurate books of
accounts, records, data and memoranda respecting the acquisition of raw material
and freight charges and the manufacture, packaging and delivery of Pills to or
for the benefit of CGI as provided herein and to retain such records for a
period of not less than five (5) years, or such longer period as may be required
by any regulatory agency.
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<PAGE>
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 five
(5) 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.
(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) CGI will place all orders for the purchase of Pills from
PDK, by written purchase order executed by an authorized agent of CGI, no less
than forty-five (45) days in advance. Such orders shall be filled by PDK, within
such forty-five (45) day period, unless an order is significantly in excess of
previous orders, in which case PDK 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) PDK shall not be obligated to manufacture or distribute to
CGI any item, and shall have the right to reject any order, in whole or in part,
based upon PDK's determination that such manufacture or distribution might
violate existing regulatory standards, requirements, regulations, or concerns.
In the event, PDK declines to manufacture any item requested by CGI, or rejects
any order placed by CGI, CGI shall have the right to purchase such item or
items, or fill such requested order or such portion of an order, through another
manufacturer or distributor.
(c) Resale of Products. CGI will not sell or distribute any
product purchased from PDK hereunder to any party or entity that CGI 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.
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<PAGE>
(d) Obligation for Cost of Raw Materials. Upon placement of
any order, CGI shall become liable for all costs incurred by PDK in connection
with the purchase of raw materials to be used in fulfilling such order.
5. Force Majeure. PDK 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 PDK's reasonable control (each of the foregoing being hereinafter
referred to as an "Event of Force Majeure"). In such event, PDK's obligation to
perform hereunder shall be suspended for the duration of such Event of Force
Majeure. PDK will use reasonable efforts to promptly notify CGI, either orally
or in writing, upon learning of the occurrence or potential occurrence of such
Event of Force Majeure. If any Event of Force Majeure is not remedied by PDK
within five (5) days of its occurrence, CGI shall have the right to purchase
Pills from another manufacturer or distributor until such time as PDK can again
fully meet CGI's needs and has given CGI at least thirty (30) days written
notice of such fact.
6. License.
6.1 Rights Granted.
(a) PDK hereby grants to CGI an exclusive license (the
"License") to use the trademarks Max Brand(R) and Heads Up(R), and its
trademarks for its ginseng herbal products (the "Licensed Trade Names") and the
exclusive right to distribute products bearing such names and consisting of the
components set forth in Schedule 6.1 hereto (the "Licensed Products"). During
the Term, PDK will not grant any license for the Licensed Products to any other
person, without the express written consent of CGI.
(b) PDK agrees to disclose to CGI all information,
documentation and related materials within its possession or knowledge in
connection with the Licensed Trade Name and the Licensed Products, including but
not limited to distributor and customer lists, sales contracts, customer credit
history, price, sale
5
<PAGE>
terms, any rebates or other negotiated contracts, either oral or written, verbal
promises or other deals relating to the Licensed Trade Names and/or the sale of
distribution of the Licensed Products, any existing pending or potential
litigation claims relating or involving the Licensed Trade Names and/or the
Licensed Products, any existing or pending rulings or regulations relating to or
involving the use of the Licensed Trade Names or Licensed Products, and any
other information that CGI may request in connection with carrying out the terms
of this Agreement. CGI agrees to receive such information subject to the
restrictions imposed by all regulatory laws and shall exercise the standards of
care utilized by CGI treating its own information which it does not wish
disclosed outside CGI; provided, however, that this restriction shall not be
construed to limit the rights granted by the PDK to CGI under the terms of this
Agreement.
(c) In consideration for the License, CGI agrees to pay to PDK
a license fee ("License Fee") for each Agreement Year, in the amount of
$500,000, payable in arrears on each anniversary of the date of this Agreement.
Such License Fee shall be payable, at the sole option of CGI, either in cash or
satisfied by the issuance of such aggregate number of shares of common stock,
par value $.0001 of CGI as shall be equal to the License Fee calculated by
assuming a per share value of fifty percent (50%) of the "Market Price" of CGI's
common stock. Market Price for the purpose of this Section 6.1 shall mean (i)
the average closing bid price for any twenty (20) consecutive trading days
within a period of thirty (30) consecutive trading days ending within five (5)
days prior to the date payment is due of the common stock of CGI as reported by
the National Association of Securities Dealers, Inc. Automatic Quotation System
or (ii) the last reported sale price, for twenty (20) consecutive trading days
within a period of thirty (30) consecutive trading days ending within five (5)
days of the date payment is due, on the primary exchange on which the common
stock is traded, if the common stock is traded on a national securities
exchange.
6.2 Exclusivity.
(a) The License granted to CGI pursuant to this Section shall
automatically terminate in the event during any year of the Term, (i) CGI
utilizes the Licensed Names in connection with any product other than those
comprised of the components as set forth on Schedule 6.1 hereto without the
express written consent of PDK; or (ii) CGI purchases Pills from any other
parties in violation of this Agreement.
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<PAGE>
6.3 Trademarks, Records, Research
(a) CGI shall have the right to sell the Licensed Products
only under the Licensed Trade Names.
(b) CGI hereby agrees to keep complete and accurate books of
accounts, records, data and memoranda respecting the purchase, marketing and
sale of the Licensed Products and to retain such records for a period of not
less than seven years. Such books and records shall also be in sufficient detail
to enable the payments hereunder to PDK to be determined. CGI further gives PDK
the right, at this own expense, to have said books and records and supporting
documents examined by an accountant, insofar as they concern the sales of any
Licensed Product, annually during CGI's business hours for the purpose of
verifying the reports provided for in this Agreement, such examination to be
conducted in such manner as not unduly to interfere with the business of CGI.
PDK and its representatives shall not use for its own competitive purposes or
disclose to any other person or entity any information acquired as a result of
such examination, except as may be required by law, government regulation or
pursuant to governmental process; provided that, prior to any such disclosure,
PDK shall provide CGI with reasonable notice thereof, as well as reasonable
opportunity to take appropriate steps to preserve the confidentiality of such
information.
6.4 Indemnification. CGI hereby agrees to indemnify and hold PDK, 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 CGI relating to the Licensed Products.
6.5 Termination of License.
(a) PDK shall have the right to terminate the License at its
sole discretion, at any time, upon being advised that any regulatory authority
objects to the sale of the Licensed Products by PDK to CGI. In the event any
regulatory agency restricts or denies further use of the Licensed Names in
connection with the Licensed Products, all rights and obligations of the parties
under the License shall remain in effect, except that the Licensed Products will
be marketed under a name
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<PAGE>
or names mutually acceptable to PDK and CGI and consistent with the
determination of such regulatory authorities.
(b) Upon the termination of the License any then unpaid
licensing and/or accounts receivable fees shall accrue and become immediately
due and payable.
(c) CGI hereby agrees that if this License is terminated under
any of its provisions CGI will not itself, or through others, thereafter
manufacture and sell any Licensed Product and all rights to the Licensed Names
and the Licensed Products shall revert to PDK.
6.6 Sell-Off Period.
(a) Upon the expiration or earlier termination of the License
for any reason whatsoever, CGI shall immediately discontinue any and all use of
the Licensed Names. If the termination of the License Agreement occurs for any
reason other than a default of CGI, CGI shall have the reasonable time, not to
exceed ninety (90) days, during which it shall have the right on a non-exclusive
basis to dispose of its inventory of Licensed Products. Within ten (10) business
days of the expiration or termination of the License, CGI shall deliver to PDK a
statement of its then existing inventory of Licensed Products specifying the
quantity and kind of Licensed Products on hand. CGI's sales of Licensed Products
during this sell-off period shall not exceed the amount of inventory disclosed
on such statement plus any returns received by CGI subsequent to the effective
date of the inventory statement. If CGI fails to timely provide PDK with the
required statement of inventory, CGI shall forfeit this sell-off period
privilege.
(b) During the sell-off period, CGI shall not sell the
Licensed Products at a price below its usual price for such products without
obtaining the prior written consent of PDK.
(c) Except as necessary to sell-off the inventory during the
sell-off period, CGI shall cease to use all items which display the Licensed
Trade Names.
(d) Within ten (10) business days of the end of the sell-off
period, CGI shall furnish to PDK a statement of its then existing inventory of
Licensed Products specifying the quantity and kind of Licensed Products on hand.
Within
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ten (10) business days of its receipt of the inventory statement, PDK shall have
the right to purchase the inventory set forth on the statement at a price equal
to CGI's cost plus labeling expenses, but otherwise, excluding labor and
overhead. If PDK fails to purchase the inventory, CGI shall have the right to
sell such inventory at whatever price it desires.
6.7 Infringement and Litigation.
(a) CGI shall have the option to defend the Licensed Names
against infringement or interference by other parties, including bringing any
action of infringement or defending any counterclaim of invalidity or action of
a third party for declaratory judgment of non-infringement or interference, and
may settle any such actions solely at its own expense and through counsel of its
selection. PDK must approve any settlement that adversely affects the validity
of any of the Licensed Trade Names. Approval shall not be unreasonably withheld.
(b) PDK shall provide reasonable assistance to CGI as
requested, and shall be reimbursed for its out-of-pocket expenses in connection
with any such requested assistance. CGI shall bear the expenses of such actions.
In the event CGI fails to initiate and pursue or participate in such legal
action, PDK shall have the right to initiate legal action to uphold the Licensed
Name against third parties. CGI shall have no legal or contractual obligation to
PDK for its failure to initiate or participate in any such legal action, except
that PDK may terminate the License granted to CGI hereunder.
(c) In the event CGI is permanently enjoined from exercising
its License rights granted hereunder pursuant to an infringement action brought
by a third party, or if both CGI and PDK elect not to undertake the defense or
settlement of such a claim of alleged infringement for a period of six months
from notice of such claim or suit, PDK shall have the right to terminate this
agreement with respect to the infringing trademark claims following thirty (30)
days' written notice.
6.8. Breach of License. No violation of the provisions of this
Agreement concerning the License shall operate to modify, cancel or otherwise
affect the other rights and obligations of the parties under this Agreement,
including, without limitation, those rights and obligations relating to the
purchase of products from PDK by CGI.
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<PAGE>
7. Security Interest and Guarantees.
(a) As security for the performance by CGI of its obligations
under this Agreement, PDK shall file all appropriate financing statements (on
Form UCC-1) with the necessary governmental authorities in the State of Indiana
and all other states where CGI maintains assets, equipment, inventory or
receivables, granting PDK a collateral interest in all of CGI's assets,
equipment, trade names, accounts receivables and inventory, such interest to be
subordinate to all encumbrances thereon prior to the date hereof.
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 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 CGI'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 CGI by operation of law.
(b) Any failure by either party to terminate this Agreement
and the License hereunder by reason of one or more of the foregoing acts or
events shall not constitute a waiver of the right to terminate this Agreement
and the License hereunder upon reoccurrence or continuance of such acts or
events.
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(c) CGI acknowledges that it shall have earned income from its
performance under this Agreement, and that in the event of termination of this
Agreement for any reason, the income earned thereby shall constitute its sole
earnings, and it shall not be entitled to reimbursement, lost profits or
indemnity payments of any kind.
9. Representations and Warranties of CGI. CGI (including all of its
subsidiaries and affiliates) represents and warrants to PDK as follows:
9.1 Organization and Qualification. CGI 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. CGI 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 CGI.
9.2 Subsidiaries and Affiliates. Except as set forth on Schedule 9.2
hereof, CGI has no subsidiaries or affiliates.
9.3 Validity and Execution of Agreement. CGI 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 CGI has approved the transactions contemplated pursuant to this
Agreement. This Agreement has been duly executed and delivered by CGI and
constitutes the valid and binding obligation of CGI enforceable against it in
accordance with its terms.
9.4 No Conflict. Neither the execution and delivery of this Agreement
nor the performance by CGI of the transactions contemplated hereby will: violate
or conflict with (a) any of the provisions of the Articles of Incorporation or
Bylaws or other organizational documents of CGI; (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
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contract, (c) any order, judgment, regulation or ruling of any governmental or
regulatory body to which CGI 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 CGI.
9.5 Licenses and Permits. CGI 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. CGI 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 CGI.
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 CGI is defective or fails to meet in any material respect any standards
promulgated by any such governmental or regulatory body. There have been no
recalls ordered by any such governmental or regulatory body with respect to any
product. To the best knowledge of CGI, 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 CGI 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 CGI
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.
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10. Representations and Warranties of PDK.
10.1 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.
10.2 Subsidiaries and Affiliates. Except as set forth on Schedule
10.2 hereof, PDK has no subsidiaries or affiliates.
10.3 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.
10.4 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 Articles 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.
10.5 Licenses and Permits. PDK maintains all governmental permits,
licenses, registrations and other governmental consents (federal, state and
local)
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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. 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.
10.7 Products. To PDK'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 PDK 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 PDK, there is no (a) fact relating
to any product that may impose upon PDK a duty to recall any product or a duty
to warn customers or a defect in any product, other than defects about which PDK
has issued appropriate and adequate warning, or (b) latent or overt design,
manufacturing or other defect in any product.
10.8 Trademarks. PDK warrants and represents that the Licensed Trade
Names are the property of PDK, there is no litigation pending or existing
regarding the use of such trademarks, there are no ongoing investigations
regarding the use of such trademarks and that the use of such trademarks does
not violate any existing federal or state regulations.
10.9 Insurance and Indemnification. At all times during the Term and
for five (5) years thereafter, PDK agrees to be responsible for maintaining
products liability coverage on all products sold to CGI hereunder. Such coverage
shall be in an amount not less than $3 million and shall include the
distribution and sale of such products by CGI and its distributors and
customers. CGI shall be named as an additional insured on any and all products
liability policies maintained by PDK. Each such policy shall require the
insurance carrier to give at least thirty (30) days but not more than ninety
(90) days written notice to CGI of cancellation. PDK shall provide proof of
adequate insurance coverage to CGI at least annually.
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10.10 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.
11. Injunctive Relief. CGI acknowledges that PDK will incur
considerable expenses in connection with the purchase of equipment and materials
and the employment of personnel in order to fulfill its obligations under this
Agreement. CGI further acknowledges that its obligations to PDK hereunder are of
a special, unique and extraordinary character, and would be difficult or
impossible to replace and that any breach of this Agreement by CGI would result
in irreparable and continuing damages to PDK for which there would be no
adequate remedy at law. Accordingly, CGI agrees that any breach or threatened
breach by it of this Agreement shall entitle PDK, its successors and assigns, to
injunctive relief, and to such further relief as may be proper, including
damages at law and equitable relief, and further agrees to hold PDK harmless
from, and indemnify PDK from any losses or damages sustained, including lost
profits, and any expenses incurred, including attorneys fees, arising out of any
breach by CGI of this Agreement. The parties understand and intend that each
restriction agreed to by CGI hereinabove shall be construed as separable and
divisible from every other restriction, that the unenforceability of any
restriction shall not limit the enforceability, in whole or in part, of any
other restriction, and that one or more or all of such restrictions may be
enforced in whole or in part as the circumstances warrant. In the event that any
restriction in this Agreement is more restrictive than permitted by law in the
jurisdiction in which PDK seeks enforcement thereof, such restriction shall be
limited to the extent permitted by law. Nothing contained herein shall waive or
limit any right or remedy which PDK may have, either in law or equity, to
enforce this Agreement and its rights hereunder.
12. Nondisclosure. Neither party, nor any person controlled by it,
shall for any reason other than fulfilling it 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.
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13. 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.
14. Disclaimer of Warranties. PDK makes no other representations or
warranties except as set forth in this agreement, and PDK expressly disclaims
any implied warranties of merchantability, fitness for use or fitness for a
particular purpose.
15. 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 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 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 15):
If to PDK, to:
PDK Labs Inc.
145 Ricefield Lane
Hauppauge, NY 11788
Attn: Michael Krasnoff
If to CGI, to:
Compare Generiks
300 Oser Avenue
Hauppauge, New York 11788
Attn: Thomas A. Keith
16. Binding Effect; Assignment. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
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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.
17. 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.
18. 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.
19. 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.
20. Amendment. This Agreement may be amended only by a writing signed
by all parties hereto.
21. 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.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the first date written above.
PDK LABS INC.
By:/s/ Michael Krasnoff
------------------------------
Michael Krasnoff, President
COMPARE GENERIKS, INC.
By:/s/ Thomas A. Keith
------------------------------
Thomas A. Keith, President
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EXCLUSIVE SUPPLY AGREEMENT
This Supply Agreement (the "Agreement") is made and entered into as of
the 5th day of May, 1997 by and between PDK Labs Inc., a New York corporation
("PDK") and Body Dynamics, Inc., an Indiana corporation ("BDI").
W I T N E S S E T H:
WHEREAS, PDK is engaged in the business of manufacturing, marketing and
distributing vitamins, herbs and non-prescription pharmaceutical products; and
WHEREAS, PDK owns and operates a factory for the manufacture of
vitamins and non- prescription pharmaceutical products; and
WHEREAS, BDI is engaged in the business of marketing and distributing
vitamin, herbs and non-prescription pharmaceutical products; and
WHEREAS, PDK and BDI wish to enter into an agreement whereby PDK
supplies certain products containing ephedrine and pseudoephedrine to BDI's
customers; and
WHEREAS, BDI acknowledges that PDK may incur substantial expenses and
will expend significant resources in order to acquire additional equipment,
incur obligations and employ additional personnel in order to fulfill its
obligations to BDI under this Agreement.
NOW, THEREFORE, the parties for good and valuable consideration the
receipt and sufficiency of which is hereby acknowledged, agree as follows:
1. Exclusive Sale of Products.
(a) Commencing from the date of this Agreement, and during the
term hereof (the "Term"), as defined at paragraph 3 hereof, BDI and its
successors, assigns, subsidiaries and affiliates (collectively, "BDI") agree
upon the terms of this Agreement that PDK shall be the exclusive supplier of all
products containing ephedrine and/or pseudoephedrine as a single ingredient or
in combination with other ingredients, which BDI distributes or markets within
the United States ("US") as set forth on Schedule 1.1 hereof (the "Products")
for sale to BDI's customers (the "Customer").
(b) Nothing herein shall restrict or limit in any manner the
right of PDK to sell any products (whether such products contain ephedrine,
and/or pseudoephedrine or not; except that PDK shall not, during the term of
this Agreement, sell any Products to the Customers except pursuant to, and in
accordance with, the terms hereof.
<PAGE>
(c) BDI shall be responsible for all marketing and sales
efforts and all costs relating thereto, including, without limitation, trade
shows, brokers' commissions and advertising expenses.
(d) BDI shall ensure that all terms of this Agreement relating
to the sale and delivery of Products to the Customers are included in any
contract or agreement between the Customers and/or BDI and PDK.
(e) PDK represents and warrants that the Products it
manufactures for supply to BDI are produced in compliance with good
manufacturing practices as stated in the Code of Federal Regulation Parts 210 &
211.
2. 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 as set forth in paragraphs (b), (c), (d) and (e) below.
(b) BDI may give PDK a minimum of thirty days' written notice
of intent to terminate this Agreement from and after the first day of the
eleventh month from and after the Effective Date, provided that BDI shall pay
PDK the sum of Two Million Dollars ($2,000,000) (the "Termination Fee") on the
date such notice is given.
(c) BDI may give PDK three months' written notice of intent to
terminate this Agreement from and after the first day of the twenty first month
from and after the Effective Date, without payment of the Termination Fee or any
part thereof.
(d) PDK may, at its sole option and in its sole discretion,
for any reason whatsoever, give BDI written notice to terminate this Agreement
at any time upon such date as PDK shall set forth.
(e) BDI may give PDK written notice of its intent to terminate
this Agreement at any time prior to August 1, 1997, if BDI has received written
evidence permitting PDK to supply the Product to BDI from the Drug Enforcement
Administration or a United States District court.
(f) The parties hereto shall execute and deliver to PDK, to be
held in escrow by PDK, an Exclusive Supply Agreement in the form of Exhibit A
attached hereto (the "Alternate Agreement"). In the event of any termination of
this Agreement by PDK or BDI, under Section 2(d) or (e) above at PDK's sole
option and discretion, the Alternate Agreement shall be released from escrow and
shall become effective as of the date of termination of this Agreement for a
period of three (3) years therefrom, as set forth in the Alternate Agreement.
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3. Placement and Acceptance of Orders; Delivery Schedule..
(a) PDK shall not be obligated to manufacture for
distribution, or supply to any Customer any item, and shall have the right to
reject any order, in whole or in part, whether based upon geographic location,
Customer identity, regulatory standards, requirements or concerns or otherwise.
In such event, all provisions of this agreement will continue to remain in full
force and effect and BDI is prohibited from assisting such customer from
obtaining the Product from any other source.
(b) BDI will not market any Product supplied by PDK hereunder
to any party or entity that BDI knows, or has reason to know or reason to be
suspicious, 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.
4. Exclusive Supply Rights
4.1 Rights Granted.
(a) BDI hereby grants to PDK the exclusive right (the "Supply
Rights") to supply to the Customers the Products bearing such names and
consisting of the components set forth in Schedule 4.1 hereto (the "Supplied
Products"). During the Term, BDI will not grant any distribution rights, supply
rights or license for the Supplied Products to any other person, without the
express written consent of PDK.
(b) BDI agrees to disclose to PDK all information,
documentation and related materials within its possession or knowledge in
connection with the Supplied Products, including but not limited to distributor
and customer lists, sales contracts, customer credit history, price, sale terms,
any rebates or other negotiated contracts, either oral or written, verbal
promises or other deals relating to the sale or distribution of the Supplied
Products, any existing pending or potential litigation claims relating or
involving the Supplied Products, any existing or pending rulings or regulations
relating to or involving the use of the Supplied Products, and any other
information that PDK may request in connection with carrying out the terms of
this Agreement. PDK agrees to receive such information subject to the
restrictions imposed by all regulatory laws and shall exercise the standards of
care utilized by PDK treating its own information which it does not wish
disclosed outside PDK; provided, however, that this restriction shall not be
construed to limit the rights granted by BDI to PDK under the terms of this
Agreement.
(c) In consideration for the Supply Rights, PDK agrees to pay
to BDI a fee ("Fee") as follows: PDK shall pay BDI the difference between (i)
the purchase price for the Supplied Products as billed to the Customer, and (ii)
an amount equal to two hundred percent (200%) of the Material Cost of the
Supplied Products. "Material Cost" shall mean PDK's actual material expenses
incurred in the manufacture and packaging of the Supplied Products. The Material
Costs for each item ordered will be determined, in advance, each forty-five (45)
days
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<PAGE>
during the term of this Agreement. Upon written request from BDI, PDK will
provide to BDI an MRP Schedule reflecting PDK's Material Cost per item. PDK
shall receive a premium of (i) five cents (5(cent)) per vial on any products
packaged in a vial containing 100 count or less and (ii) eight cents (8(cent))
per vial on any product packaged in a vial containing greater than 100 count.
The Fee is payable monthly, in arrears, within fifteen (15) days of the end of
the month in which PDK received payment for the related Supplied Products and is
only payable upon receipt of the purchase price from the related Customer.
(d) The Fee shall be deemed to exclude a shipping allowance of
1(cent) per bottle (the "Shipping Allowance"). To the extent the actual shipping
costs exceed the Shipping Allowance, then PDK shall offset such amount against
the next installment of the Fee.
(e) PDK has the absolute right in its sole and absolute
discretion, if an invoice remains unpaid for a period in excess of 150 days to
offset 100% of the material cost of the Supplied Products delivered pursuant to
the delinquent invoice, against the next installment of the Fee.
(f) PDK agrees to be responsible for all returns of Supplied
Products sold from and after the date of this contract.
(g) If BDI terminates this agreement pursuant to any of the
provisions hereof, PDK shall have ten (10) days to offer to sell to BDI the
finished goods of the Products in PDK's inventory at a price of 200% of Material
Cost. BDI shall have ten (10) days to accept such offer and upon such acceptance
PDK shall ship the finished goods (with 60 day credit terms). If BDI shall not
accept such offer, PDK shall have the right to sell the finished goods in its
sole and absolute discretion.
(h) PDK must use its best efforts to obtain the lowest
material cost with respect to the manufacturing and packaging of Supplied
Products.
4.2 Exclusivity.
(a) The Supply Rights granted to PDK pursuant to this Section
are exclusive and BDI shall not grant any right to distribute the Supplied
Products to the Customers to any other party during the Term (except as
otherwise set forth in this Agreement).
4.3 Indemnification.
(a) BDI hereby agrees to indemnify and hold PDK, 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 BDI relating to the Supplied Products.
4
<PAGE>
(b) PDK hereby agrees to indemnify and hold BDI, 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 Supplied Products.
4.4 Termination of Supply Rights.
(a) PDK shall have the right to terminate the Supply Rights at
its sole discretion, at any time, upon being advised that any regulatory
authority objects to the sale of the Supplied Products by PDK to the Customers.
(b) In addition, in the event any regulatory agency restricts
or denies further use of any trademarks used by PDK in connection with the
Supplied Products, all rights and obligations of the parties relating to the
Supply Rights shall remain in effect, except that the Supplied Products will be
marketed under a name or names mutually acceptable to PDK and BDI and consistent
with the determination of such regulatory authorities.
(c) PDK shall not have the right or authority to substitute
another brand for any order that calls for the BDI brand with out the express
written consent of BDI.
(d) PDK shall properly package and timely ship all orders from
BDI for shipment to BDI's customers consistent with BDI's instructions relating
thereto. PDK shall not, with regard to the shipment of Supplied Products to
BDI's customers, use any art, text, labels or packaging which has not been
specifically approved by BDI, nor may PDK change, alter or modify any such art,
labels, text or packaging with out BDI's specific written approval to do so.
5. Termination of Agreement.
(a) BDI acknowledges that it shall have earned income from its
performance under this Agreement, and that in the event of termination of this
Agreement for any reason, the income earned thereby shall constitute its sole
earnings, and it shall not be entitled to reimbursement, lost profits or
indemnity payments of any kind. However, upon the expiration or termination of
this Agreement, PDK shall return to BDI, all items that were supplied by or paid
for by BDI within fifteen (15) days. This includes, but is not limited to,
customer information and tooling.
(b) Any failure by either party to terminate this Agreement
pursuant to Clauses 2(b), (c), (d), or (e) hereunder and the Supply Rights
pursuant to Clause 4.4 hereunder by reason of one or more of the foregoing acts
or events shall not constitute a waiver of the right to terminate this Agreement
and the Supply Rights hereunder upon reoccurrence or continuance of such acts or
events.
5
<PAGE>
6. Representations and Warranties of BDI. BDI (including all of its
subsidiaries and affiliates) represents and warrants to PDK as follows:
6.1 Organization and Qualification. BDI is a corporation validly
existing and in good standing under the laws of the State of Indiana, 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. BDI 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 BDI.
6.2 Subsidiaries and Affiliates. Except as set forth on Schedule 6.2
hereof, BDI has no subsidiaries or affiliates.
6.3 Validity and Execution of Agreement. BDI 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 BDI has approved
the transactions contemplated pursuant to this Agreement. This Agreement has
been duly executed and delivered by BDI and constitutes the valid and binding
obligation of BDI enforceable against it in accordance with its terms.
6.4 No Conflict. Neither the execution and delivery of this Agreement
nor the performance by BDI of the transactions contemplated hereby will: violate
or conflict with (a) any of the provisions of the Articles of Incorporation or
By-laws or other organizational documents of BDI; (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 BDI 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 BDI.
6.5 Licenses and Permits. BDI 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.
6.6 Compliance with Laws. BDI has complied in all respects with all
applicable federal, state and local laws, regulations and ordinances or any
requirement of any governmental
6
<PAGE>
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 BDI.
6.7 Products. There are no statements, citations or decisions by any
governmental or regulatory body that any product marketed or distributed at any
time by BDI is defective or fails to meet in any material respect any standards
promulgated by any such governmental or regulatory body. There have been no
recalls ordered by any such governmental or regulatory body with respect to any
product. To the best knowledge of BDI, 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 BDI has issued appropriate and adequate warnings or (b) latent or overt
design, manufacturing or other defect in any product.
6.8 Survival. All of the representations and warranties of BDI
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.
7. Representations and Warranties of PDK.
7.1 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.
7.2 Subsidiaries and Affiliates. Except as set forth on Schedule 7.2
hereof, PDK has no subsidiaries or affiliates.
7.3 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 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.
7.4 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 Articles of Incorporation or
By-laws 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
7
<PAGE>
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.
7.5 Insurance and Indemnification. At all times during the Term and for
two (2) years thereafter, PDK agrees to be responsible for maintaining products
liability coverage on all products sold to the Customers hereunder. Such
coverage shall be in an amount not less than $3 million, per occurrence. BDI
shall be named as an additional insured on any and all products liability
policies maintained by PDK. Each such policy shall require the insurance carrier
to give at least thirty (30) days but not more than ninety (90) days written
notice to BDI of cancellation. PDK shall provide proof of adequate insurance
coverage to BDI at least annually. Any failure by PDK to maintain the foregoing
insurance shall entitle BDI to terminate this Agreement with out payment of any
termination fee.
7.6 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.
8. Force Majeure. PDK 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 PDK's reasonable control including but not limited to governmental
actions or inactions.
9. Injunctive Relief.
(a) BDI acknowledges that PDK will incur considerable expenses
in connection with the purchase of equipment and materials and the employment of
personnel in order to fulfill its obligations under this Agreement. BDI further
acknowledges that its obligations to PDK hereunder are of a special, unique and
extraordinary character, and would be difficult or impossible to replace and
that any breach of this Agreement by BDI would result in irreparable and
continuing damages to PDK for which there would be no adequate remedy at law.
Accordingly, BDI agrees that any breach or threatened breach by it of this
Agreement shall entitle PDK, its successors and assigns, to injunctive relief,
and to such further relief as may be proper, including damages at law and
equitable relief, and further agrees to hold PDK harmless from, and indemnify
PDK from any losses or damages sustained, including lost profits, and any
expenses incurred, including attorneys fees, arising out of any breach by BDI of
this Agreement. The parties understand and intend that each restriction agreed
to by BDI hereinabove shall be
8
<PAGE>
construed as separable and divisible from every other restriction, that the
unenforceability of any restriction shall not limit the enforceability, in whole
or in part, of any other restriction, and that one or more or all of such
restrictions may be enforced in whole or in part as the circumstances warrant.
In the event that any restriction in this Agreement is more restrictive than
permitted by law in the jurisdiction in which PDK seeks enforcement thereof,
such restriction shall be limited to the extent permitted by law. Nothing
contained herein shall waive or limit any right or remedy which PDK may have,
either in law or equity, to enforce this Agreement and its rights hereunder.
(b) PDK acknowledges that BDI will incur considerable expenses
in connection with its obligations under this Agreement. PDK further
acknowledges that its obligations to BDI hereunder are of a special, unique and
extraordinary character, and would be difficult or impossible to replace and
that any breach of this Agreement by PDK would result in irreparable and
continuing damages to BDI for which there would be no adequate remedy at law.
Accordingly, PDK agrees that any breach or threatened breach by it of this
Agreement shall entitle BDI, its successors and assigns, to injunctive relief,
and to such further relief as may be proper, including damages at law and
equitable relief, and further agrees to hold BDI harmless from, and indemnify
BDI from any losses or damages sustained, including lost profits, and any
expenses incurred, including attorneys fees, arising out of any breach by PDK of
this Agreement. The parties understand and intend that each restriction agreed
to by PDK hereinabove shall be construed as separable and divisible from every
other restriction, that the unenforceability of any restriction shall not limit
the enforceability, in whole or in part, of any other restriction, and that one
or more or all of such restrictions may be enforced in whole or in part as the
circumstances warrant. In the event that any restriction in this Agreement is
more restrictive than permitted by law in the jurisdiction in which BDI seeks
enforcement thereof, such restriction shall be limited to the extent permitted
by law. Nothing contained herein shall waive or limit any right or remedy which
BDI may have, either in law or equity, to enforce this Agreement and its rights
hereunder.
10. Nondisclosure. Neither party, nor any person controlled by it,
shall for any reason other than fulfilling it 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.
11. 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.
12. Disclaimer of Warranties. PDK makes no other representations or
warranties except as set forth in this agreement, and PDK expressly disclaims
any implied warranties of merchantability, fitness for use or fitness for a
particular purpose.
9
<PAGE>
13. 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 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 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 13):
If to PDK, to:
PDK Labs Inc.
145 Ricefield Lane
Hauppauge, NY 11788
Attn: Michael Krasnoff
If to BDI, to:
Body Dynamics, Inc.
9700 North Michigan Road
Carmel, IN 46032
Attn: Karen Windle-Burcham
14. 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.
15. 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.
16. 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.
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<PAGE>
17. 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.
18. Amendment. This Agreement may be amended only by a writing signed
by all parties hereto.
19. 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.
PDK LABS INC.
By: /s/ Michael B. Krasnoff
----------------------
BODY DYNAMICS, INC.
By: /s/ Karen Windle-Burcham
-----------------------
<PAGE>
AMENDMENT AGREEMENT
AMENDMENT AGREEMENT, dated as of July 21, 1997 by and between PDK Labs
Inc., a New York corporation, with offices at 145 Ricefield Lane, Hauppauge, NY
11788 ("PDK") and, Superior Supplements, Inc., a Delaware corporation, with
offices at 270 Oser Avenue, Hauppauge, NY 11788 ("SSI").
WHEREAS, PDK and SSI have heretofore entered into a Non-Exclusive
Supply Agreement (the "Agreement"), dated as of May 14, 1996.
WHEREAS, the Agreement contains a provision providing for the payment
by PDK to SSI of an amount equal to SSI's Material Cost (as defined in the
Agreement) plus fifteen percent (15%) for the Pills (as defined in the
Agreement) supplied pursuant thereto, which provision the parties hereto desire
to amend to provide for the payment by PDK to SSI of an amount equal to the
approximate fair market value for the related Pills as agreed in the related
written purchase order.
The terms which are not defined herein shall have the respective
meanings ascribed to them in the Agreement.
NOW, THEREFORE, for valid and good consideration, the parties hereto
agree as follows:
1. Section 2(a) of the Agreement shall be deleted in its entirety and
shall be replaced the following language:
"(a) PDK will pay to SSI the approximate Fair Market Value
of the Pills as shall be agreed by PDK and SSI and set forth
in the related written purchase order. For purposes of this
Agreement "Fair Market Value" shall mean the approximate
fair market price payable to manufacturers for
<PAGE>
vitamins and/or food supplement products similar to the
related Pills."
2. The following two sentences shall be inserted immediately after the
first sentence of Section 4(a) of the Agreement:
"Such orders shall include the Fair Market Value for the
related Pills, as agreed by PDK and SSI and such agreement
shall be evidenced by the execution of the related written
purchase order by an authorized agent of PDK and by an
authorized agent of SSI. If either party fails to execute
any purchase order, such purchase order shall be void and of
no further effect within ten (10) business days of its
receipt by SSI."
3. Except as hereinabove amended, all of the terms and provisions of
the Agreement shall remain in full force and effect.
4. This Amendment shall be governed by and construed in accordance with
the laws of the State of New York, without regard to principles of conflicts of
law.
IN WITNESS WHEREOF, the parties have executed this Amendment Agreement
as of the day and year first above written.
PDK LABS INC.
By: /s/ Michael Krasnoff
-------------------
Michael Krasnoff, President
SUPERIOR SUPPLEMENTS, INC.
By: /s/ Lawrence D. Simon
--------------------
Lawrence D. Simon, President
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MANAGEMENT AGREEMENT
This Management Agreement (the "Agreement") is made and entered into as
of the 21st day of July, 1997 by and between PDK Labs Inc., a New York
corporation ("PDK"), and Superior Supplements, Inc., a Delaware corporation
("SSI").
W I T N E S S E T H:
WHEREAS, PDK maintains an experienced bookkeeping, order processing and
computer facility at its headquarters; and
WHEREAS, SSI is a corporation engaged in the business of manufacturing
and distributing certain vitamins and food supplements in bulk tablet form; and
WHEREAS, PDK and SSI desire that PDK provide SSI with certain
management services in consideration for the fees described herein.
NOW, THEREFORE, the parties for good and valuable consideration the
receipt and sufficiency of which is hereby acknowledged, agree as follows:
1. Management Services. PDK shall provide to SSI management services
(the "Services"), including
(i) bookkeeping;
(ii) order processing; and
(iii) computer services.
2. Cooperation by the Parties. SSI shall cooperate fully with PDK so
that PDK may render the services in a timely and professional manner. SSI shall
at all times provide PDK with access to (i) the books and records of SSI, (ii)
the employees of SSI and its outside advisors or consultants and (iii) any other
materials PDK may reasonably request in order to render the services. If at any
time the services to be rendered by PDK shall in any way conflict with a current
or proposed policy, practice or approach conducted or proposed to be conducted
by SSI, PDK shall have the right to pursue and implement its service in lieu of
such policy, practice or approach of SSI. PDK agrees to periodically provide SSI
with information regarding the services rendered by PDK.
3. Fees and Disbursements. In full consideration for the Services, for
each calendar month of this Agreement (pro-rated for each part thereof), SSI
shall pay PDK Ten
<PAGE>
Thousand Dollars ($10,000); provided that, if PDK is required to provide
additional services in connection with special projects or unanticipated
services, PDK shall be entitled to charge an additional fee. All payments made
hereunder shall be made, within thirty (30) days of receipt by SSI of an invoice
from PDK.
4. Representations and Warranties of SSI. SSI represents and warrants
to PDK as follows:
4.1 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.
4.2 Subsidiaries. SSI has no subsidiaries.
4.3 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 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.
4.4 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 Articles of Incorporation or
By-laws or other organizational documents of SSI; (b) or 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 is 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.
4.5 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
2
<PAGE>
continue to be in full force and effect and in good standing following the
consummation of the transactions contemplated by this Agreement.
4.6 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.
4.7 Products. There are no statements, citations or decisions by any
governmental or regulatory body that any product marketed or distributed at any
time by SSI ("Product") is defective or fails to meet in any material respect
any standards promulgated by any such governmental or regulatory body. There
have been no recalls ordered by any such governmental or regulatory body with
respect to any product. To the best 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 of a defect in any product, other than defects about
which SSI has issued appropriate and adequate warnings or (b) latent or overt
design, manufacturing or other defect in any product.
4.8 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 any claim relating to any such representation or warranty is
barred by all applicable statutes of limitations.
5. Representations and Warranties of PDK. PDK represents and warrants
to SSI as follows:
5.1 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.
5.2 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 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.
5.3 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)
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<PAGE>
any of the provisions of the Articles of Incorporation or By-laws or other
organizational documents of PDK; (b) or 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 is 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.
5.4 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.
5.5 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.
5.6 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.
6. Term of Agreement. The term of this Agreement shall commence on the
date hereof and shall continue for a period of one (1) year 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 contract year.
7. Miscellaneous. 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. 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.
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. This Agreement contains the entire
understanding of the parties hereto with respect to its subject matter. This
Agreement may be amended only by a written instrument duly executed by the
parties.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the first date written above.
PDK LABS, INC.
By: /s/ Michael B. Krasnoff
-----------------------
Name: Michael B. Krasnoff
Its: President
SUPERIOR SUPPLEMENTS, INC.
By: /s/ Lawrence D. Simon
---------------------
Name: Lawrence D. Simon
Its: President
5
<PAGE>
CREDIT AGREEMENT
dated as of August 20, 1997
among
PDK LABS INC. and FUTUREBIOTICS, INC., as Co-Borrowers,
and
EUROPEAN AMERICAN BANK, as Agent,
and
THE "BANKS" PARTY HERETO
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TABLE OF CONTENTS
Page
ARTICLE 1. DEFINITIONS; ACCOUNTING TERMS......................................1
Section 1.1. Definitions...................................................1
Section 1.2. Accounting Terms.............................................12
ARTICLE 2....................................................................13
REVOLVING CREDIT FACILITY....................................................13
Section 2.1. Revolving Credit Loans.......................................13
Section 2.2. The Notes....................................................13
Section 2.3. Use of Proceeds..............................................14
Section 2.4. Borrowing Procedures for Revolving Credit Loans..............14
Section 2.5. Minimum Amounts..............................................15
Section 2.6. Interest Periods, Continuations and Conversions..............15
Section 2.7. Letters of Credit............................................16
Section 2.8. Acceptances..................................................20
Section 2.9. Voluntary Prepayment of Revolving Credit Loans...............25
Section 2.10. Inability to Determine Rate.................................26
Section 2.11. Illegality..................................................26
Section 2.12. Requirement of Law..........................................26
Section 2.13. Indemnification.............................................27
ARTICLE 3. THE TERM LOAN FACILITY............................................28
Section 3.1. Generally....................................................28
Section 3.2. The Term Notes...............................................28
Section 3.3. Amortization of Term Loans...................................28
Section 3.4. Interest on Term Loans.......................................28
Section 3.5. Use of Proceeds of Term Loans................................29
Section 3.6. Borrowing Procedure for Term Loans...........................29
ARTICLE 4. GENERAL CREDIT PROVISIONS; FEES AND PAYMENTS......................29
Section 4.1. Certain Notices; etc.........................................29
Section 4.2. Prepayments..................................................30
Section 4.3. Fees.........................................................30
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Section 4.4. Reimbursement Obligations....................................31
Section 4.5. Requirements of Law..........................................31
Section 4.6. Payments Generally...........................................32
ARTICLE 5. CONDITIONS PRECEDENT..............................................32
Section 5.1. Documentary Conditions Precedent.............................32
Section 5.2. Additional Conditions Precedent..............................36
Section 5.3. No Default Certification and Deemed Representations..........36
Section 5.4. Special Conditions for Term Loans............................36
ARTICLE 6. REPRESENTATIONS AND WARRANTIES....................................37
Section 6.1. Corporate Existence..........................................37
Section 6.2. Corporate Power and Authorization............................37
Section 6.3. No Legal Bar to Loans........................................38
Section 6.4. No Material Litigation.......................................38
Section 6.5. No Default...................................................38
Section 6.6. Ownership of Properties; Liens...............................38
Section 6.7. Taxes........................................................38
Section 6.8. Financial Condition..........................................39
Section 6.9. Filing of Statements and Reports.............................39
Section 6.10. ERISA.......................................................39
Section 6.11. Environmental Matters.......................................39
Section 6.12. Licenses, Permits, etc......................................40
Section 6.13. Material Agreements.........................................40
Section 6.14. Margin Credit...............................................40
Section 6.15. Use of Proceeds.............................................40
Section 6.16. Properties Affected.........................................40
Section 6.17. Guarantors..................................................41
Section 6.18. Subsidiaries................................................41
Section 6.19. Solvency....................................................41
ARTICLE 7. AFFIRMATIVE COVENANTS.............................................41
Section 7.1. Financial Statements.........................................41
Section 7.2. Payment and Performance of Obligations.......................43
Section 7.3. Maintenance of Properties; Insurance.........................44
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Section 7.4. Notices......................................................44
Section 7.5. Conduct of Business and Maintenance of Existence.............44
Section 7.6. Inspection of Property, Books and Records....................44
Section 7.7. Hazardous Material...........................................45
Section 7.8. Subsidiary Guaranties........................................45
Section 7.9. Pension Funding..............................................45
Section 7.10. Dissolution of PDI Labs Inc.................................46
ARTICLE 8. NEGATIVE COVENANTS................................................46
Section 8.1. Limitation on Indebtedness...................................46
Section 8.2. Limitation on Liens..........................................47
Section 8.3. Limitation on Contingent Obligations.........................47
Section 8.4. Prohibition of Fundamental Changes...........................48
Section 8.5. Limitation on Investments, Loans and Advances................48
Section 8.6. Prohibition of Certain Prepayments...........................49
Section 8.7. Limitation on Leases.........................................49
Section 8.8. Sale and Leaseback...........................................49
Section 8.9. Prohibitions Regarding Subordinated Debt.....................49
Section 8.10. Transactions with Affiliates................................49
Section 8.11. Management..................................................50
Section 8.12. Change in Control...........................................50
Section 8.13. Limitation on Capital Expenditures..........................50
Section 8.14. Limitation on Dividends and Stock Acquisitions..............50
ARTICLE 9. FINANCIAL COVENANTS...............................................51
Section 9.1. Leverage.....................................................51
Section 9.2. Minimum Coverage Ratio.......................................51
Section 9.3. Minimum Liquidity Ratio......................................51
Section 9.4. Minimum Consolidated Net Income..............................51
ARTICLE 10. EVENTS OF DEFAULT................................................51
Section 10.1. Events of Default...........................................51
Section 10.2. Remedies....................................................53
ARTICLE 11. THE AGENT; RELATIONS AMONG BANKS.................................54
Section 11.1. Appointment, Powers and Immunities of Agent.................54
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Section 11.2. Reliance by Agent...........................................54
Section 11.3. Defaults....................................................55
Section 11.4. Rights of Agent as a Bank...................................55
Section 11.5. Indemnification of Agent....................................56
Section 11.6. Documents...................................................56
Section 11.7. Non-Reliance on Agent and Other Banks.......................56
Section 11.8. Failure of Agent to Act.....................................57
Section 11.9. Resignation or Removal of Agent.............................57
Section 11.10. Amendments Concerning Agency Function......................57
Section 11.11. Liability of Agent.........................................57
Section 11.12. Transfer of Agency Function................................58
Section 11.13. Non-Receipt of Funds by the Agent..........................58
Section 11.14. Several Obligations and Rights of Banks....................58
Section 11.15. Pro Rata Treatment of Loans, Etc...........................58
Section 11.16. Sharing of Payments Among Banks............................59
ARTICLE 12. MISCELLANEOUS....................................................59
Section 12.1. Amendments and Waivers......................................59
Section 12.2. Usury.......................................................50
Section 12.3. Expenses....................................................60
Section 12.4. Survival....................................................60
Section 12.5. Assignment; Participation...................................61
Section 12.6. Notices.....................................................61
Section 12.7. Setoff......................................................62
Section 12.8. Jurisdiction; Immunities....................................62
Section 12.9. Table of Contents; Headings.................................63
Section 12.10. Severability...............................................63
Section 12.11. Counterparts...............................................63
Section 12.12. Integration................................................63
Section 12.13. Joint and Several Obligations..............................63
Section 12.14. Governing Law..............................................63
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CREDIT AGREEMENT dated as of August 20, 1997 among PDK LABS
INC., a corporation organized under the laws of New York ("PDK"), FUTUREBIOTICS,
INC., a corporation organized under the laws of Delaware ("Futurebiotics";
collectively with PDK, the "Co-Borrowers"), each of the Banks which is party
hereto and EUROPEAN AMERICAN BANK, a New York banking corporation having an
office at EAB Plaza, Uniondale, New York 11555 ("EAB"), as agent for the Banks
(in such capacity, together with its successors in such capacity, the "Agent").
The Co-Borrowers desire that the Banks extend credit as
provided herein, and the Banks are prepared to extend such credit. Accordingly,
the Co-Borrowers, the Banks and the Agent agree as follows:
ARTICLE 1.
DEFINITIONS; ACCOUNTING TERMS
Section 1.1. Definitions.
As used in this Agreement the following terms have the
following meanings (terms defined in the singular to have a correlative meaning
when used in the plural and vice versa):
"Acceptance Obligations" means, at any time, an amount equal
to the sum of (a) the aggregate face amount of unmatured Acceptances and (b) the
aggregate amount of all unpaid Acceptance Reimbursement Obligations.
"Acceptance Rate" means the rate for any Acceptance financing,
as determined from time to time by the Agent in its sole and absolute
discretion.
"Acceptance Reimbursement Obligations" means the obligation of
the Co-Borrowers to reimburse the Agent pursuant to Section 4.4 hereof for the
face amount of Acceptances.
"Acceptance Request" means an Acceptance Request with
appropriate insertions, in such form as the Agent shall reasonably request.
"Acceptances" shall have the meaning assigned to that term in
Section 2.8 hereof.
"Accumulated Funding Deficiency" shall have the meaning set
forth in Section 302 of ERISA.
"Affiliate" means any Person: (a) which directly or indirectly
controls, or is controlled by, or is under common control with, the
Co-Borrowers, or either of them; (b) which directly or indirectly beneficially
owns or holds 5% or more of any class of voting stock of the Co-Borrowers, or
either of them; (c) 5% or more of the voting stock of which is directly or
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indirectly beneficially owned or held by the Co-Borrowers, or either of them; or
(d) which is a partnership in which the Co-Borrowers, or either of them, are a
general partner. The term "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract, or otherwise.
"Aggregate Outstandings" means an amount equal to the sum of
(a) the aggregate principal amount of all Loans then outstanding, (b) L/C
Obligations then outstanding, and (c) Acceptance Obligations then outstanding.
"Agreement" means this Credit Agreement, as amended or
supplemented from time to time. References to Articles, Sections, Exhibits,
Schedules and the like refer to the Articles, Sections, Exhibits, Schedules and
the like of this Agreement unless otherwise indicated.
"Amortization" means amortization as determined and calculated
in accordance with GAAP.
"Application" means an application, in such form as the Agent
may specify from time to time, requesting the Agent to open a Letter of Credit.
"Banking Day" means any day on which commercial banks are not
authorized or required to close in New York City.
"Banks" means each of EAB and the other Banks, if any,
signatory hereto and each Bank which hereinafter becomes a "Bank" pursuant to
the terms hereof.
"Capital Base" means, on a consolidated basis, the
shareholders equity of the Co-Borrowers and their Subsidiaries plus Subordinated
Debt, less all intangible assets, including without limitation, organizational
expenses, intellectual property, goodwill, security deposits, loans or mortgages
due from shareholders and/or employees and/or Affiliates, treasury stock and
deferred charges.
"Capital Expenditures" means expenditures for any fixed assets
or improvements, replacements, substitutions, or additions thereto which have a
useful life of more than one (1) year.
"Capital Lease" means any lease which has been capitalized on
the balance sheet of the lessee in accordance with GAAP.
"Closing Date" means the date this Agreement has been executed
by the Co-Borrowers, the Banks and the Agent.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time.
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"Collateral" means all of the now-owned or hereafter acquired
personal property of the Co-Borrowers and of the Guarantors, together with all
products and proceeds thereof all as more fully described in the Security
Agreements and the Guarantor Security Agreements.
"Commitments" shall mean the Revolving Credit Commitments and
the Term Loan Commitments.
"Commitment Fee" shall have the meaning assigned to such term
in Section 4.3.
"Commitment Proportion" means, with respect to each Bank at
the time of determination, that proportion its Commitment bears to the Total
Commitments.
"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, on a consolidated basis, 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 cash taxes paid, to
(ii) the sum of interest expense during the preceding four fiscal quarters plus
the current portion of long term Consolidated Indebtedness (i.e., principal
installments scheduled to be paid during the subsequent four fiscal quarters.)
For purposes hereof, long term Consolidated Indebtedness shall exclude all
Revolving Credit Outstandings.
"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) all Revolving Credit Oustandings.
"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 (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
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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 reevaluations 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 and
cash equivalents, marketable securities and net 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 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.
"Debt" means, with respect to any Person: (a) indebtedness of
such Person for borrowed money; (b) indebtedness for the deferred purchase price
of property or services; (c) Unfunded Vested Liabilities of such Person; (d) the
face amount of any outstanding letters of credit issued for the account of such
Person; (e) obligations arising under acceptance facilities; (f) guaranties,
endorsements (other than for collection 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; (g) obligations secured by any Lien on property of such Person; (h)
obligations of such Person as lessee under Capital Leases; (i) indebtedness of
such Person evidenced by a note, bond, indenture or similar instrument; and (j)
deferred taxes.
"Default" means any event which with the giving of notice or
lapse of time, or both, would become an Event of Default.
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"Default Rate" means, with respect to the principal of any
Loan and, to the extent permitted by law, any other amount payable by the
Co-Borrowers under this Agreement or any Note, a rate per annum equal to 2%
above the rate of interest otherwise applicable to such Loan.
"Depreciation" means depreciation, in accordance with GAAP.
"Dividends" means, for any period, dividends paid by either
the Co-Borrower or the Guarantor.
"Dollars" and the sign "$" mean lawful money of the United
States of America.
"Draft" means a draft in such form as the Agent shall
reasonably request.
"Environmental Laws" means any and all federal, state, local
and foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment or to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substances or wastes into the
environment including, without limitation, ambient air, surface water, ground
water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, including any rules and regulations
promulgated thereunder.
"ERISA Affiliate" means any corporation or trade or business
which is a member of the same controlled group of corporations (within the
meaning of Section 414(b) of the Code) as the Co-Borrowers or any Affiliate of
the Co-Borrowers or is under common control (within the meaning of Section
414(c) of the Code) with the Co-Borrowers or any Affiliate of the Co-Borrowers.
"Eurodollar Loan" shall mean a Revolving Credit 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, determined by the
Agent to be the rate at which U.S. dollar deposits are offered to leading banks
in the interbank eurodollar market, two (2) Banking 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.
"Event of Default" has the meaning given such term in Section
10.1.
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"Facility Documents" means this Agreement, the Notes, the
Security Agreement, the Guarantees, the Guarantor Security Agreement, the
Subordination Agreement and all other documents or instruments executed in
connection herewith or therewith.
"Federal Funds Rate" means, for any day, the rate per annum
(expressed on a 360 day basis of calculation), equal to the weighted average of
the rates on overnight federal funds transactions with member banks of the
Federal Reserve System arranged by federal funds brokers, as published by the
Federal Reserve Bank of New York for such day (or for any day that is not a
Banking Day, for the immediately preceding Banking Day).
"Final Maturity Date" means the date in which all Term Loans
hereunder have reached their respective maturity dates in accordance with their
terms, which date shall be no later than the fifth anniversary of the Revolving
Credit Termination Date.
"Fixed Rate" means, with respect to any Term Loan, the rate
per annum determined by the Agent to be equal to the then current yield on U.S.
Treasury Securities having maturities approximately corresponding to the Term
Loan Maturity Date for such Term Loan plus a margin of 2% per annum.
"Forfeiture Proceeding" means the commencement of any action
or proceeding affecting the Co-Borrowers, or either of them, or any Guarantors
before any court, governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign which may result in the seizure or
forfeiture of any of their property which would cause a Material Adverse Change
with respect to the Co-Borrowers, or either of them, or either Guarantor.
"Futurebiotics Sublimit" shall mean $4,000,000, or such lesser
amount as may be in effect from time to time.
"GAAP" means generally accepted accounting principles in the
United States of America as in effect from time to time, applied on a basis
consistent with those used in the preparation of the financial statements
referred to in Section 5.1.
"Guarantees" means the guarantees to be executed by each of
the Guarantors, each substantially in the form of Exhibit D.
"Guarantor Collateral" means all of the now owned or hereafter
acquired personal property of the Guarantors, together with all products and
proceeds thereof all as more fully described in the Guarantor Security
Agreements.
"Guarantors" means, collectively, any now existing or
hereafter created subsidiary of either Co-Borrower other than PDI Labs Inc.
"Guarantor Security Agreement" means the security agreement to
be executed, by each Guarantor, substantially in the form of Exhibit E hereto.
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"Hazardous Substance" means any material, whether animate or
inanimate, raw, processed or waste by-product, which in itself or as found or
used, is potentially toxic, noxious or harmful to the health or safety of human
or animal life or vegetation, regardless of whether such material be found on or
below the surface of the ground, in any surface or underground water, or
airborne in ambient air or in the air inside of any structure built or located
upon or below the surface of the ground, or in any machinery, equipment or
inventory located or used in any such structure, including, but in no event
limited to all hazardous materials, hazardous wastes, toxic substances,
infectious wastes, pollutants and contaminants from time to time defined or
classified as such under any Environmental Law regardless of the quantity found,
used, manufactured or removed from a given location.
"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 Co-Borrowers in their notice of borrowing as provided in Section 4.1 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 Revolving
Termination Date;
(B) if any Interest Period would end on a day which is not a
Banking Day, that Interest Period shall be extended to the next succeeding
Banking 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 Banking Day; and
(C) any Interest Period that begins on the last Banking 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 Banking 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 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" means any letter of credit issued by the
Agent for the account of the Co-Borrowers pursuant to the terms of Section 2.7
of this Agreement.
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"L/C Obligations" means, at any time, an amount equal to the
sum of (a) the aggregate then undrawn and unexpired amount of then outstanding
Letters of Credit and (b) the aggregate amount of unpaid L/C Reimbursement
Obligations.
"L/C Reimbursement Obligations" means the obligation of the
Co-Borrowers to reimburse the Agent pursuant to Section 4.4 for amounts drawn
under Letters of Credit.
"Lien" means any lien (statutory or otherwise), security
interest, mortgage, deed of trust, priority, pledge, charge, conditional sale,
title retention agreement, Capital Lease or other encumbrance or similar right
of others, or any agreement to give any of the foregoing.
"Loan" means any Revolving Credit Loan or any Term Loan.
"Material Adverse Change" shall mean, with respect to any
Person, (i) a material adverse change in the financial condition, business,
operations, properties, prospects 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 Facility Documents.
"Multiemployer Plan" means a Plan defined as such in Section
4001(a)(3) of ERISA to which contributions have been made by the Co-Borrowers,
or either of them, or any ERISA Affiliate and which is covered by Title IV of
ERISA.
"Notes" means, collectively, the Revolving Credit Notes and
the Term Notes.
"Participating Bank" means any Bank (other than the Agent)
with respect to its Participating Interest in each Letter of Credit or
Acceptance.
"Participating Interest" means, with respect to each Letter of
Credit or Acceptance, (i) in the case of the Agent, its interest (a) in such
Letter of Credit and any Application relating thereto, or (b) in such Acceptance
and any Acceptance Request relating thereto, as the case may be, in each case
after giving effect to the granting of any participating interests therein
pursuant hereto and (ii) in the case of each Participating Bank, its undivided
participating interest (a) in such Letter of Credit and any Application relating
thereto, or (b) in such Acceptance and any Acceptance Request relating thereto,
as the case may be.
"PBGC" means the Pension Benefit Guaranty Corporation and any
entity succeeding to any or all of its functions under ERISA.
"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
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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 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.
"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 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.
"Permitted Liens" means those certain Liens defined in Section
8.2 hereof.
"Person" means an individual, partnership, corporation,
business trust, joint stock company, trust, unincorporated association, joint
venture, governmental authority or other entity of whatever nature.
"Plan" means any employee benefit or other plan established or
maintained, or to which contributions have been made, by the Co-Borrowers, or
either of them, or any ERISA Affiliate and which is covered by Title IV of ERISA
or to which Section 412 of the Code applies provided that such term shall not
include plans terminated prior to the date hereof.
"Prime Rate" means that rate of interest from time to time
announced by the Agent at its principal office as its prime commercial lending
rate.
"Prime Rate Loan" means any Loan to the extent that it is
bearing interest at a rate based upon the Prime Rate.
"Principal Office" means the principal office of the Agent,
presently located at EAB Plaza, Uniondale, New York 11555 or at such other
address as may be designated by the Agent as its principal office.
"Prohibited Transaction" shall mean any transaction set forth
in Section 406 of ERISA or Section 4975 of the Code.
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"Reimbursement Obligations" means, collectively, the L/C
Reimbursement Obligations and the Acceptance Reimbursement Obligations.
"Reportable Event" means any of the events set forth in
Section 4043(b) of ERISA as to which events the PBGC by regulation has not
waived the requirement of Section 4043(a) of ERISA that it be notified within 30
days of the occurrence of such event, provided that a failure to meet the
minimum funding standard of Section 412 of the Code or Section 302 of ERISA
shall be a Reportable Event regardless of any waivers given under Section 412(d)
of the Code.
"Required Banks" shall mean, at any time, Banks having sixty
percent (60%) 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 Banking 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.
"Revolving Credit Commitment" means, with respect to each
Bank, the obligation of such Bank to extend credit to the Co-Borrowers pursuant
to Article 2 hereof and subject to the terms hereof in the aggregate principal
amounts following, as such amount may be reduced or otherwise modified from time
to time:
Bank Commitment
---- ----------
EAB $15,000,000
"Revolving Credit Facility" means the Revolving Credit
Facility provided for in Article 2 hereof.
"Revolving Credit Loans" means any revolving credit loan made
by the Banks to the Co-Borrowers pursuant to Section 2.1 hereto.
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"Revolving Credit Note" means a promissory note of the
Co-Borrowers, substantially in the form of Exhibit A hereto, evidencing
Revolving Credit Loans made by any Bank hereunder.
"Revolving Credit Oustandings" means an amount equal to the
sum of (a) the aggregate principal amount of Revolving Credit Loans then
outstanding, (b) L/C Obligations then outstanding and (c) Acceptance Obligations
then outstanding.
"Revolving Credit Termination Date" means the date three years
from the date of this Agreement.
"Security Agreement" means each Security Agreement in
substantially the form of Exhibit B, to be delivered by the Co-Borrowers under
the terms of this Agreement.
"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 reasonably 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 Debts as they become absolute and
matured, (c) such Person does not intend to, and does not believe that it will,
incur Debts or liabilities beyond such Person's ability to pay as such Debts 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" means that certain indebtedness listed on
Schedule 1.1 (c) and unsecured Debt of the Co-Borrowers, or either of them, that
is subordinated on terms satisfactory to the Banks to the obligations of the
Co-Borrowers, or either of them, to the Banks under this Agreement.
"Subsidiary" means, as to any Person, any corporation or other
entity of which at least a majority of the securities or other ownership
interests having ordinary voting power (absolutely or contingently) for the
election of directors or other persons performing similar functions are at the
time owned directly or indirectly by such Person.
"Term Loan" means each Term Loan made by the Banks to the
Co-Borrowers pursuant to Article 3 hereto.
"Term Loan Commitment" means with respect to each Bank, the
obligation of the Bank to extend credit to the Co-Borrowers pursuant to Article
3 hereof and subject to the terms and conditions hereof in the aggregate
principal amounts following, as such amounts may be reduced or otherwise
modified from time to time:
Bank Commitment
---- ----------
EAB $8,500,000
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"Term Loan Maturity Date" means, with respect to each Term
Loan, the date on which such Term Loan matures in accordance with its terms
provided that no such date shall extend beyond the fifth anniversary of the
Revolving Credit Termination Date.
"Term Note" means each promissory note of the Co-Borrowers,
substantially in the form of Exhibit A-1 hereto, evidencing a Term Loan made by
any Bank hereunder.
"Total Commitments" means the sum of the Commitments.
"Total Unsubordinated Liabilities" means all Debt of the
Co-Borrowers and the Corporate Guarantor, on a consolidated basis, that is not
Subordinated Debt excluding all Debt which is contingent indebtedness..
"Unfunded Vested Liabilities" means, with respect to any Plan,
the amount (if any) by which the present value of all vested benefits under the
Plan exceeds the fair market value of all Plan assets allocable to such
benefits, as determined on the most recent valuation date of the Plan and in
accordance with the provisions of ERISA for calculating the potential liability
of the Borrower or any ERISA Affiliate to the PBGC or the Plan under Title IV of
ERISA.
"UCC" means the Uniform Commercial Code as in effect from time
to time in New York.
"Uniform Customs" means the Uniform Customs and Practice for
Documentary Credits (1993 Revision), International Chamber of Commerce
Publication No. 500, as the same may be amended from time to time.
Section 1.2. Accounting Terms.
All accounting terms not specifically defined herein shall be
construed in accordance with GAAP, and all financial data required to be
delivered hereunder shall be prepared in accordance with GAAP.
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ARTICLE 2.
REVOLVING CREDIT FACILITY
Section 2.1. Revolving Credit Loans.
Subject to the terms and conditions of this Agreement, each of
the Banks severally agrees to make revolving credit loans in Dollars (the
"Revolving Credit Loans") to the Co-Borrowers from time to time from and
including the date hereof to but excluding the Revolving Credit Termination Date
up to but not exceeding at any one time outstanding, when aggregated with such
Bank's Commitment Proportion of the then outstanding L/C Obligations and
Acceptance Obligations, the amount of its Revolving Credit Commitment; provided,
that no Revolving Credit Loan shall be made if after giving effect to such Loan
the Revolving Credit Outstandings at the time of such Loan would exceed the
aggregate Revolving Credit Commitments in effect on such date. Revolving Credit
Loans may be outstanding as Prime Rate Loans or as Eurodollar Loans; provided,
however, that during the occurrence and continuance of a Default or Event of
Default, the Banks shall have no obligation to make Eurodollar Loans. Subject to
the foregoing limits, the Co-Borrowers may borrow, repay and reborrow, on or
after the date hereof and prior to the Revolving Credit Termination Date, all or
a portion of the aggregate Revolving Credit Commitments hereunder.
Section 2.2. The Notes.
The Revolving Credit Loans of each Bank shall be evidenced by
a single promissory note in favor of such Bank substantially in the form of
Exhibit A with appropriate insertions, duly executed and completed by the
Co-Borrowers. Each Bank is hereby authorized to record the date and amount of
each Revolving Credit Loan, the date and amount of each payment of principal
thereof, and the principal amount subject thereto in such Bank's records and/or
on the schedules annexed to and constituting a part of the Revolving Credit
Notes, and, absent manifest error, any such recordation shall constitute
conclusive evidence of the information so recorded; provided that the failure to
make any such recordation shall not in any way affect the obligation of the
Co-Borrowers to repay the Revolving Credit Loans. Each Revolving Credit Note (a)
shall be dated the date hereof, (b) be stated to mature on the Revolving Credit
Termination Date and (c) shall bear interest from and including the date hereof
on the unpaid principal amount thereof as follows:
(i) 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
Banking 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.
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(ii) Each Eurodollar Loan shall bear interest on the
unpaid principal amount thereof at a rate per
annum equal to the Eurodollar Rate plus a margin
of 1-3/4% per annum. 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.
(iii) The unpaid principal amount of all Prime Rate
Loans and Eurodollar Loans shall be payable on the
Revolving 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.
Section 2.3. Use of Proceeds.
(a) The Co-Borrowers shall use the proceeds of the Revolving
Credit Loans (i) to refinance all obligations of the Co-Borrowers to The Chase
Manhattan Bank and (ii) subject to the Futurebiotics Sublimit, to finance the
ongoing working capital needs of the Co-Borrowers for general corporate purposes
and general working capital purposes. No part of the proceeds of any of the
Loans will be used for any purpose which violates the provisions of Regulation
G, T, U or X of the Board of Governors of the Federal Reserve System as in
effect on the date of making such Loans.
(b) The Co-Borrowers agree to indemnify each Bank and hold
each Bank harmless from and against any and all liabilities, losses, damages,
costs and expenses of any kind (including, without limitation, the reasonable
fees and disbursements of counsel for any Bank in connection with any
investigative, administrative or judicial proceeding, whether or not such Bank
shall be designated a party thereto) which may be incurred by any Bank (or by
the Agent in connection with its actions as Agent hereunder), relating to or
arising out of this Agreement or any actual or proposed use of proceeds of Loans
hereunder, except those caused by such Bank's gross negligence or willful
misconduct or the breach of its obligations hereunder.
Section 2.4. Borrowing Procedures for Revolving Credit Loans.
The Co-Borrowers may request a borrowing under the Revolving
Credit Commitments hereunder as provided in Section 4.1. Not later than 1:00
p.m. New York City time on the date of such borrowing, each Bank shall, subject
to the conditions of this Agreement, make the amount of the Revolving Credit
Loan to be made by it on such day available to the Agent, at the Principal
Office and in immediately available funds for the account of the Co-
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Borrowers. The amount received by the Agent shall, subject to the conditions of
this Agreement, be made available to the Co-Borrowers on the date of such
borrowing, in immediately available funds, by the Agent crediting an account of
the Co-Borrowers designated by the Co-Borrowers and maintained with the Agent at
the Principal Office.
Section 2.5. Minimum Amounts.
Except for borrowings which exhaust the full remaining amount
of the Revolving Credit Commitments and payments which result in the prepayment
of all Revolving Credit Loans, each borrowing and payment of principal of Prime
Rate Loans shall be in an amount at least equal to $200,000 and, if greater,
integral multiples of $100,000, and each borrowing and payment of Eurodollar
Loans shall be in an amount at least equal to $500,000 and, if greater, integral
multiples of $500,000.
Section 2.6. Interest Periods, Continuations and Conversions.
(a) In the case of each Eurodollar Loan, the Co-Borrowers
shall select an Interest Period of any of the durations set forth in the
definition of Interest Period in Section 1.1. and shall notify the Agent of such
selection as provided in Section 4.1 hereof.
(b) Upon the expiration of an Interest Period for any
Eurodollar Loan or any portion thereof, such Loan or portion thereof shall be
automatically converted to a Prime Rate Loan, except to the extent that such
Loan shall be repaid hereunder or shall be required to be repaid hereunder or
unless the Co-Borrowers shall have notified the Agent, as provided in Section
4.1 hereof, of their intention to continue such Loan as a Eurodollar Loan and
shall have selected an Interest Period with respect thereto. Subject to the
following conditions and to the terms and conditions of this Agreement, the
Co-Borrowers shall have the right to convert or continue (as the case may be)
any Loan or portion thereof as aforesaid, provided that:
(i) if less than all Revolving Credit Loans at the
time outstanding shall be converted or continued,
the notice given by the Co-Borrowers to the Agent
shall specify the aggregate amount of Revolving
Credit Loans in each case to be converted or
continued and such conversion or continuation
shall be made ratably among the Banks in
accordance with their respective Commitment
Proportions;
(ii) in the case of a conversion or continuation of
less than all outstanding Revolving Credit Loans,
the aggregate principal amount of Revolving Credit
Loans to be converted or continued shall not be
less than (1) $1,000,000 (and if greater in
integral multiples of $500,000 in excess thereof)
in the case of conversions to or continuations of
Eurodollar Loans or (2) $200,000 (or if greater in
integral multiples of $100,000 in excess thereof)
in the case of conversions to Prime Rate Loans;
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<PAGE>
(iii) no Revolving Credit Loan may be converted to or
continued as a Eurodollar Loan less than one month
before the Revolving Credit Termination Date;
(iv) a Eurodollar Loan may be converted to a Prime Rate
Loan only on the last day of an Interest Period;
(v) no Revolving Credit Loan or portion thereof may be
converted to or continued as a Eurodollar Loan
after the occurrence and during the continuance of
a Default or an Event of Default;
(vi) the initial Interest Period for any Eurodollar
Loan shall commence on the date of the making of
such Loan (including the date of any conversion
from a Prime Rate Loan) and each Interest Period
occurring thereafter in respect of such Loan shall
commence on the date on which the next preceding
Interest Period expires; and
(vii) no Interest Period in respect of any Eurodollar
Loan shall extend beyond the Revolving Credit
Termination Date.
Section 2.7. Letters of Credit.
(a) Generally. Subject to the terms and conditions hereof, the
Agent, in reliance on the agreements of the other Banks set forth in subsection
2.7(d)(i), agrees to issue letters of credit (the "Letters of Credit") for the
account of the Co-Borrowers on any Banking Day prior to the Revolving Credit
Termination Date in such form as may be approved from time to time by the Agent;
provided that the Agent shall have no obligation to issue any Letter of Credit
if, after giving effect to such issuance, (i) the Revolving Credit Outstandings
would exceed the aggregate Revolving Credit Commitments as then in effect or
(ii) the L/C Obligations plus the Acceptance Obligations would exceed $2,000,000
in the aggregate. Each Letter of Credit shall be denominated in Dollars and
shall expire no later than one year after the date of issuance and in any event
no later than the Revolving Credit Termination Date.
(i) Each Letter of Credit shall be subject to the
Uniform Customs and, to the extent not
inconsistent therewith, the laws of the State of
New York.
(ii) The Agent shall not at any time be obligated to
issue any Letter of Credit hereunder if such
issuance would conflict with, or cause the Agent
or any Participating Banks to exceed any limits
imposed by, any applicable law.
(iii) In no event shall the aggregate face amount of the
Letters of Credit outstanding plus the aggregate
Acceptance Obligations hereunder exceed
$2,000,000.
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(b) Procedure for Issuance of Letters of Credit. The
Co-Borrowers may from time to time request that the Agent issue a Letter of
Credit by delivering to the Agent at its address for notices specified herein an
Application therefor, including by electronic transmission, completed to the
satisfaction of the Agent, and such other certificates, documents and other
papers and information as the Agent may require. Upon receiving a completed
Application and such other certificates, documents and other papers and
information, the Agent will process such Application and the certificates,
documents and other papers and information delivered to it in connection
therewith in accordance with its customary procedures and shall promptly issue
the Letter of Credit requested thereby (but in no event shall the Agent be
required to issue any Letter of Credit earlier than three Banking Days after its
receipt of the Application therefor and all such other certificates, documents
and other papers and information relating thereto) by issuing the original of
such Letter of Credit to the beneficiary thereof or as otherwise may be agreed
by the Agent and the Co-Borrowers. The Agent shall furnish a copy of such Letter
of Credit to the Co-Borrowers promptly following the issuance thereof.
(c) Fees, Commissions and Other Charges.
(i) Subject to the Agent's minimum commissions
established from time to time, the Co-Borrowers
shall pay to the Agent, for the account of the
Agent and the Participating Banks, a letter of
credit commission with respect to each Letter of
Credit that is a standby letter of credit, in an
amount equal to 1% per annum of the face amount of
each such Letter of Credit at the time such Letter
of Credit is established, to be shared ratably
among the Agent and the Participating Banks in
accordance with their respective Commitment
Proportions. Subject to the Agent's minimum
commissions established from time to time, the
Co-Borrowers shall pay to the Agent, for the
account of the Agent and the Participating Banks,
a letter of credit commission with respect to each
Letter of Credit other than a standby letter of
credit in an amount equal to 1/4 of 1% of the face
amount of each such Letter of Credit at the time
such Letter of Credit is established and 1/4 of 1%
of the amount paid on each such Letter of Credit
when there is a drawing thereon.
(ii) In addition to the foregoing commissions, the
Co-Borrowers shall pay or reimburse the Agent for
such normal and customary costs and expenses as
are incurred or charged by the Agent in issuing,
effecting payment under, amending or otherwise
administering any Letter of Credit.
(iii) The Agent shall, at the end of each month,
distribute to itself and the Participating Banks
all commissions received by the Agent for their
respective accounts pursuant to this subsection.
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(d) Participating Banks.
(i) The Agent irrevocably agrees to grant and hereby
grants to each Participating Bank , and, to induce
the Agent to issue Letters of Credit hereunder,
each Participating Bank irrevocably agrees to
accept and purchase and hereby accepts and
purchases from the Agent, on the terms and
conditions hereinafter stated, for such
Participating Bank's own account and risk, an
undivided interest equal to such Participating
Bank's Commitment Proportion in the Agent's
obligations and rights under each Letter of Credit
issued hereunder and the amount of each draft paid
by the Agent thereunder. Each Participating Bank
unconditionally and irrevocably agrees with the
Agent that, if a draft is paid under any Letter of
Credit for which the Agent is not reimbursed in
full by the Co-Borrower in accordance with the
terms of this Agreement or the Application, as the
case may be, such Participating Bank shall pay to
the Agent upon demand at the Agent's address for
notices specified herein an amount equal to such
Participating Bank's Commitment Proportion of the
amount of such draft, or any part thereof, which
is not so reimbursed.
(ii) If any amount required to be paid by any
Participating Bank to the Agent pursuant to
subsection 2.7(d)(i) in respect of any
unreimbursed portion of any payment made by the
Agent under any Letter of Credit is paid to the
Agent within three Banking Days after the date
such payment is due, such Participating Bank shall
pay to the Agent on demand an amount equal to the
product of (i) such amount, times (ii) the daily
average Federal Funds Rate, as quoted by the
Agent, during the period from and including the
date such payment is required to the date on which
such payment is immediately available to the
Agent, times (iii) a fraction, the numerator of
which is the number of days that elapse during
such period and the denominator of which is 360.
If any such amount required to be paid by any
Participating Bank pursuant to subsection
2.7(d)(i) is not in fact made available to the
Agent by such Participating Bank within three
Banking Days after the date such payment is due,
the Agent shall be entitled to recover from such
Participating Bank, on demand, such amount with
interest thereon calculated from such date at the
rate per annum applicable to Prime Rate Loans
which are not overdue hereunder. A certificate of
the Agent submitted to any Participating Banks
with respect to any amounts owing under this
subsection shall be conclusive in the absence of
manifest error.
(iii) Whenever, at any time after the Agent has made
payment under any Letter of Credit and has
received from any Participating Bank its pro rata
share of such payment in accordance with
subsection 2.7(d)(i),
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the Agent receives any payment related to such
Letter of Credit (whether directly from the
Co-Borrowers or otherwise, including proceeds of
collateral applied thereto by the Agent), or any
payment of interest on account thereof, the Agent
will, within three Banking Days after receipt
thereof, distribute to such Participating Bank its
pro rata share thereof; provided, however, that in
the event that any such payment received by the
Agent shall be required to be returned by the
Agent, such Participating Bank shall, within three
Banking Days, return to the Agent the portion
thereof previously distributed by the Agent to it.
If any amount payable under this paragraph is paid
within three Banking Days after such payment is
due, the Bank which owes such amount shall pay to
the Bank to which such amount is owed on demand an
amount equal to the product of (i) such amount,
times (ii) the daily average Federal Funds Rate,
as quoted by such Bank, during the period from and
including the date such payment is required to the
date on which such payment is made available to
such Bank, times (iii) a fraction, the numerator
of which is the number of days that elapse during
such period and the denominator of which is 360.
If any amount required to be paid under this
paragraph is not in fact made available to the
Bank to which such amount is owed within three
Banking Days after the date such payment is due,
such Bank shall be entitled to recover from the
Bank which owes such amount, on demand, such
amount with interest thereon calculated from such
due date at the rate per annum applicable to Prime
Rate Loans which are not overdue hereunder.
(e) Obligations Absolute. The Co-Borrowers' obligations under
this Section 2.7 and Section 4.4 shall be absolute and unconditional under any
and all circumstances and irrespective of any set-off, counterclaim or defense
to payment which the Co-Borrowers may have or have had against the Agent or any
beneficiary of a Letter of Credit. The Co-Borrowers also agree with the Agent
that the Agent shall not be responsible for, and the Co-Borrowers' L/C
Reimbursement Obligations under Section 4.4 shall not be affected by, among
other things, the validity or genuineness of documents or of any endorsements
thereon, even though such documents shall in fact prove to be invalid,
fraudulent or forged, or any dispute between or among the Co-Borrowers and any
beneficiary of any Letter of Credit or any other party to which such Letter of
Credit may be transferred or any claims whatsoever of the Co-Borrowers against
any beneficiary of such Letter of Credit or any such transferee. The Agent shall
not be liable for any error, omission, interruption or delay in transmission,
dispatch or delivery of any message or advice, however transmitted, in
connection with any Letter of Credit, except for errors or omissions caused by
the Agent's gross negligence or willful misconduct. The Co-Borrowers agree that
any action taken or omitted by the Agent under or in connection with any Letter
of Credit (including any Existing Letter of Credit) or the related drafts or
documents, if done in the absence of gross negligence or willful misconduct and
in accordance with the standards of care specified in the UCC, shall be binding
on the Co-Borrowers and shall not result in any liability of the Agent to the
Co-Borrowers.
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(f) Letter of Credit Payments. If any draft shall be presented
for payment under any Letter of Credit, the Agent shall promptly notify the
Co-Borrowers of the date and amount thereof. The responsibility of the Agent to
the Co-Borrowers in connection with any draft presented for payment under any
Letter of Credit shall, in addition to any payment obligation expressly provided
for in such Letter of Credit, be limited to determining that the documents
(including each draft) delivered under such Letter of Credit in connection with
such presentment are in conformity with such Letter of Credit.
(g) Application. To the extent that any provision of any
Application related to any Letter of Credit is inconsistent with the provisions
of this Section 2.7, the provisions of this Section 2.7 shall apply. The
Co-Borrowers acknowledge and agree that all rights of the Agent under any
Application shall inure to the benefit of each Participating Bank to the extent
of its Commitment Proportion as fully as if such Participating Banks were a
party to such Application.
Section 2.8. Acceptances.
(a) Generally.
(i) Subject to the terms and conditions hereof, the
Agent, in reliance of the agreements of the other
Banks set forth in subsection 2.8(c)(i), agrees to
create acceptances (the "Acceptances") in respect
of Drafts drawn on the Agent by the Co-Borrowers
and discounted by the Agent for the account of the
Co-Borrowers on any Banking Day prior to the
Termination Date; provided that the Agent shall
have no obligation to create any Acceptance, if
after giving effect to such creation, (i) the
Revolving Credit Outstandings would exceed the
aggregate Revolving Credit Commitments as then in
effect or (ii) the Acceptance Obligations plus the
L/C Obligations would exceed $2,000,000 in the
aggregate. Upon the creation of any Acceptance
hereunder, the Co-Borrowers shall be deemed to
have requested that the Agent discount such Draft
pursuant to, subsection 2.8(d) hereof
(ii) The Agent shall not at any time be obligated to
create an Acceptance hereunder if such creation
would conflict with, or cause the Agent or any
Participating Bank to exceed any limits imposed by
any applicable law or if, for reasons beyond the
control of the Agent, such Acceptance does not
comply with applicable requirements of Section 13
of the Federal Reserve Act or the regulations of
the Board of Governors of the Federal Reserve
System of the United States of America governing
the creation and discounting of, and the
maintenance of reserves with respect to, bankers'
acceptances.
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(b) Procedure for Creation of Acceptances.
(i) The Co-Borrowers may from time to time request the
creation of Acceptances hereunder by delivering to
the Agent at its address for notices specified
herein, (A) an Acceptance Request, completed to
the satisfaction of the Agent and specifying,
among other things, the date (which must be a
Banking Day), maturity and amount of the Draft to
be accepted, (B) to the extent not theretofore
supplied to the Agent in accordance with
subsection 2.8(g), a Draft to be drawn on the
Agent, appropriately completed in accordance with
this subsection 2.8(b) and (C) such other
certificates, documents and other papers and
information as the Agent may reasonably request.
(ii) Each Draft submitted by the Co-Borrowers for
acceptance hereunder shall be denominated in
Dollars, shall be dated the date specified in the
Acceptance Request with respect thereto and shall
be stated to mature on a Banking Day which is 30,
60, 90, 120, 150 or 180 days after the date
thereof provided that no Draft submitted for
acceptance hereunder shall be stated to mature on
a date after the Revolving Credit Termination
Date. Acceptances created hereunder shall be in
minimum face amounts of $500,000 and, if greater,
in integral multiples of $100,000 in excess
thereof.
(iii) Subject to subsection 2.8(b)(iv), not later than
the close of business at its address for notices
specified herein on the Banking Day specified in
an Acceptance Request, and upon fulfillment of the
applicable conditions set forth in Section 5.1,
the Agent shall, in accordance with such
Acceptance Request, (A) complete the date, amount
and maturity of each Draft presented for
acceptance (to the extent not completed by the
Co-Borrowers), (B) accept such Drafts and (C) upon
such acceptance, discount such Acceptances in
accordance with subsection 2.8(d).
(iv) The acceptance and discounting of Drafts by the
Agent hereunder shall at all times be in the sole
and absolute discretion of the Agent.
(c) Acceptance Participation.
(i) The Agent irrevocably agrees to grant and hereby
grants to each Participating Bank, and, to induce
the Agent to create Acceptances hereunder, each
Participating Bank irrevocably agrees to accept
and purchase and hereby accepts and purchases from
the Agent, on the terms and conditions hereinafter
stated, for such Participating Bank's own account
and risk, an undivided interest equal to such
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Participating Bank's Commitment Proportion in the
Agent's obligations and rights under each
Acceptance created hereunder and the face amount
of each Acceptance created by the Agent. Each
Participating Bank unconditionally and irrevocably
agrees with the Agent that, if the Agent is not
reimbursed in full by the Co-Borrowers for the
face amount of any Acceptance in accordance with
the terms of this Agreement, such Participating
Bank shall pay to the Agent upon demand at the
Agent's address for notices specified herein an
amount equal to such Participating Bank's
Commitment Proportion of the face amount of such
Acceptance, or any part thereof, which is not so
reimbursed.
(ii) If any amount required to be paid by any
Participating Bank to the Agent pursuant to
subsection 2.8(c)(i) in respect of any
unreimbursed portion of any payment made by the
Agent under any Acceptance is paid to the Agent
within three Banking Days after the date such
payment is due, such Participating Bank shall pay
to the Agent on demand an amount equal to the
product of (A) such amount, times (B) the daily
average Federal Funds Rate, as quoted by the
Agent, during the period from and including the
date such payment is required to the date on which
such payment is immediately available to the
Agent, times (C) a fraction, the numerator of
which is the number of days that elapse during
such period and the denominator of which is 360.
If any such amount required to be paid by any
Participating Bank pursuant to subsection
2.8(c)(i) is not in fact made available to the
Agent by such Participating Bank within three
Banking Days after the date such payment is due,
the Agent shall be entitled to recover from such
Participating Bank, on demand, such amount with
interest thereon calculated from such due date at
the rate per annum applicable to Prime Rate Loans
which are not overdue hereunder. A certificate of
the Agent submitted to any Participating Bank with
respect to any amounts owing under this subsection
shall be conclusive in the absence of manifest
error.
(iii) Whenever, at any time after the Agent has made
payment under any Acceptance and has received from
any Participating Bank its pro rata share of such
payment in accordance with subsection 2.8(c)(i),
the Agent receives any payment related to such
Acceptance (whether directly from the Co-Borrowers
or otherwise, including proceeds of collateral
applied thereto by the Agent), or any payment of
interest on account thereof, the Agent will,
within three Banking Days after receipt thereof,
distribute to such Participating Bank its pro rata
share thereof; provided, however, that in the
event that any such payment received by the Agent
shall be required to be returned by the Agent,
such Participating Bank shall, within three
Banking Days, return to
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the Agent the portion thereof previously
distributed by the Agent to it. If any amount
payable under this paragraph is paid within three
Banking Days after such payment is due, the Bank
which owes such amount shall pay to the Bank to
which such amount is owed on demand an amount
equal to the product of (A) such amount, times (B)
the daily average Federal Funds Rate, as quoted by
such Bank, during the period from and including
the date such payment is required to the date on
which such payment is made available to such Bank,
times (C) a fraction, the numerator of which is
the number of days that elapse during such period
and the denominator of which is 360. If any amount
required to be paid under this paragraph is not in
fact made available to the Bank to which such
amount is owed within three Banking Days after the
date such payment is due, such Bank shall be
entitled to recover from the Bank which owes such
amount, on demand, such amount with interest
thereon calculated from such due date at the rate
per annum applicable to Prime Rate Loans which are
not overdue hereunder.
(d) Discount of Acceptances, etc.
(i) The Agent agrees, on the terms and conditions of
this Agreement, that on any date on which it
creates an Acceptance hereunder, the Agent will
discount such Acceptance at the Acceptance Rate
plus 1-3/4%, by making available to the
Co-Borrowers an amount in immediately available
funds equal to the face amount of each Acceptance
created by the Agent on such date less such
discount and notify the Agent that such Draft has
been accepted and discounted by the Agent. The
Agent will then pay to the Agent for the account
of the Co-Borrowers an amount equal to the
proceeds of such discount.
(ii) On the date that any Acceptance is discounted
pursuant to subsection 2.8(d)(i), the Agent shall
pay to each Participating Bank an amount equal to
1-3/4% of such Participating Bank's Commitment
Proportion of the face amount of such Acceptance.
(iii) In addition, the Co-Borrowers shall pay or
reimburse the Agent for such normal and customary
costs and expenses as are incurred or charged by
the Agent in connection with the creation,
discount or administration of Acceptances.
(e) Mandatory Prepayment.
(i) In the event that (A) there is a change in, or
change in interpretation of, any applicable law,
rule or regulation (such determination or such
change, a "Reserve Determination"), in either case
to the effect that
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any bankers' acceptance created hereunder or in
connection with a substantially similar facility
(whether or not either the Co-Borrowers or any
Bank is directly involved as a party) will be
ineligible for reserve-free treatment (or, if
already discounted, should have been ineligible
for reserve-free treatment) under Section 13 of
the Federal Reserve Act or any other regulation or
rule of the Board of Governors of the Federal
Reserve System of the United States of America,
and as a result any Bank is required to maintain,
or determines as a matter of prudent banking
practice that it is appropriate for it to
maintain, additional reserves, or (B) any
restriction is imposed on any Bank (including,
without limitation, any change in acceptance
limits imposed on any Bank) which would prevent
such Bank from creating or participating in
bankers' acceptances or otherwise performing its
obligations in respect of the Acceptances, then
the Agent may, or upon the direction of the Banks,
the Agent shall, by notice to the Co-Borrowers,
demand prepayment of all outstanding Acceptances
(if such prepayment is required), and the Agent
shall have no further obligation to accept or
discount Drafts hereunder. The Co-Borrowers agree
that they shall, within two Banking Days of its
receipt of a notice of mandatory prepayment of the
Acceptances, prepay all Acceptance Obligations in
accordance with the provisions of subsection
2.8(e)(ii) hereof.
(ii) Any prepayment of any Acceptance Obligation made
pursuant hereto shall be made to the Agent and
shall be in an amount equal to the face amount of
such Acceptance minus a prepayment discount
calculated by the Agent in accordance with its
customary practice for similar Acceptances and
communicated to the Co-Borrowers; provided that,
in the event that the Co-Borrowers fail to make
such prepayment as provided in this subsection
2.8(e)(ii), such Acceptance Obligation shall be
automatically converted into Loans in the amount
of such prepayment. The Borrowing Date with
respect to such borrowing shall be the date of
such prepayment.
(iii) Except as otherwise provided herein, Acceptances
may not be prepaid prior to maturity.
(f) Obligations Absolute. The Co-Borrowers' obligations under
this Section 2.8 and Section 4.4 shall be absolute and unconditional under any
and all circumstances and irrespective of any set-off, counterclaim or defense
to payment which the Co-Borrowers may have or have had against the Agent. The
Co-Borrowers also agree with the Agent that the Agent shall not be responsible
for, and the Co-Borrowers' Acceptance Reimbursement Obligations under Section
4.4 shall not be affected by, among other things, the validity or genuineness of
documents or of any endorsements thereon, even though such documents shall in
fact prove to be invalid, fraudulent or forged, or any dispute between or among
the Co-Borrowers or any other
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party to which such Acceptance may be transferred or any claims whatsoever of
the Co-Borrowers or any such transferee. The Co-Borrowers agree that any action
taken or omitted by the Agent under or in connection with any Acceptance or the
related drafts or documents, if done in the absence of gross negligence or
willful misconduct and in accordance with the standards of care specified in the
UCC, shall be binding on the Co-Borrowers and shall not result in any liability
of the Agent to the Co-Borrowers.
(g) Supply of Drafts. To enable the Agent to create
Acceptances in the manner specified in this Section 2.8, the Co-Borrowers may
provide to the Agent, on the Closing Date and thereafter from time to time upon
request of the Agent or the Agent, such number of blank Drafts conforming to the
requirements hereof as the Agent or the Agent may reasonably request, each duly
executed on behalf of the Co-Borrowers, and the Agent shall hold any such
documents in safekeeping. The Co-Borrowers and the Agent hereby agree that in
the event that any authorized signatory of the Co-Borrowers whose signature
shall appear on any Draft shall cease to have such authority at the time that an
Acceptance is to be created with respect thereto, such signature shall
nevertheless be valid and sufficient for all purposes as if such authority had
remained in full force and effect at the time of such creation.
(h) Delivery of Certain Documentation. Upon request by the
Agent, the Co-Borrowers shall furnish to the Agent (a) a copy of the contract of
sale or any bill of lading, warehouse receipt, policy or certificate of
insurance or other document covering or otherwise relating to each shipment of
goods, if any, specified in the Acceptance Request relating to such Acceptance
and (b) such other documents or information as the Agent shall reasonably
request with respect to the creation of such Acceptance.
(i) Notice. The Agent shall notify the Federal Reserve Bank of
New York of the terms under which Acceptances may be made if requested or
required to do so by such institution.
(j) Use of Proceeds. The proceeds of the Acceptances shall be
used in transactions which fulfill the requirements of Section 13 of the Federal
Reserve Act or the regulations of the Board of Governors of the Federal Reserve
System of the United States of America governing the creation and discounting
of, and the maintenance of reserves with respect to, bankers' acceptances or for
general working capital purposes.
Section 2.9. Voluntary Prepayment of Revolving Credit Loans.
The Co-Borrowers 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 unless together with such payment, the Co-Borrowers
pay any amounts required to be paid in accordance with Section 2.13(iv) hereof.
Partial prepayments of the Revolving Credit Loans shall be in minimum principal
amount of $200,000 (or integral multiples of $100,000 in excess thereof) if
repayment is of a Prime Rate Loan, and $1,000,000 (or integral multiples of
$500,000 in excess thereof) if repayment is of a
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Eurodollar Loan, together with payment of accrued interest thereon to the date
of the prepayment (and, if applicable, the payment required by Section 2.13
(iv)). The Co-Borrowers shall give to the Agent and each Bank at least three (3)
Business Days prior written, telegraphic or tested telex notice of any repayment
or prepayment of any Eurodollar Loan, specifying the date and the amount
thereof.
Section 2.10. 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 Prime Rate Loan or
prepay the outstanding principal balance thereof and accrued interest thereon in
full.
Section 2.11. Illegality.
Notwithstanding any other provisions of this Agreement, if any
law, regulation, treaty or directive or any 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 Prime 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 Loans bearing
interest at the Prime Rate 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
2.13(iv) resulting from a prepayment of a Eurodollar Loan.
Section 2.12. Requirement 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);
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(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 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 2.12, 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 and the Co-Borrowers shall be conclusive in the absence of
manifest error.
Section 2.13. 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.
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ARTICLE 3.
THE TERM LOAN FACILITY.
Section 3.1. Generally
Subject to the terms and conditions hereof, the Banks agree to
make Term Loans to the Co-Borrowers on or before the Revolving Credit
Termination Date in an aggregate principal amount not to exceed $8,500,000 at
any one time. The Term Loans may initially bear interest at a floating rate
equal to the Prime Rate or at a Fixed Rate, as determined by the Co-Borrowers
and notified to the Agent in accordance with Section 3.1, provided, however,
that the minimum principal amount of any Term Loan shall be $250,000.
Section 3.2. The Term Notes.
Each Term Loan made by any Bank hereunder shall be evidenced
by a single promissory note substantially in the form of Exhibit A-1 hereto,
with appropriate insertions, payable to the order of such Bank and representing
the obligation of the Co-Borrowers to pay the unpaid principal balance of such
Term Loan, with interest thereon as provided herein. Each Bank is hereby
authorized to record the type of its Term Loan, the date or amount of each
payment or prepayment of principal thereof and the date and amount of each
payment of interest thereon in the Bank's records and/or on a schedule annexed
to its Term Note and, absent manifest error, any such recordation shall
constitute conclusive evidence of the accuracy of the information so recorded;
provided, however, that the failure to record such information shall not affect
the Co-Borrowers' obligations to repay the Term Loans. Each Term Note (a) shall
be dated the date such Term Loan is made (b) shall be stated to mature not less
than two (2) years or more than five (5) years after the date such Loan is made
and (c) shall bear interest for a period from the date such Loan is made until
it is paid in full on the unpaid principal amount thereof at the applicable
rates per annum specified herein.
Section 3.3. Amortization of Term Loans.
Term Loans made hereunder shall, at the Co-Borrowers'
election, have terms of not less than two (2) years and not more than five (5)
years. The principal balance of each Term Loan shall be paid in equal
consecutive monthly installments commencing on the first day of the month
following the date on which such Term Loan is made and ending on the relevant
Term Loan Maturity Date.
Section 3.4. Interest on Term Loans.
The Co-Borrowers shall pay interest on the outstanding and
unpaid principal amount of each Term Loan made hereunder at the Co-Borrowers
option, at a floating rate equal to the Prime Rate or at a Fixed Rate. If the
Co-Borrowers elect the floating rate, (i) each change in the interest rate shall
take effect simultaneously with the corresponding change in the Prime Rate and
(ii) at any time prior to the date six months before the Term Loan Maturity the
Co-Borrowers may convert such Term Loan to a Loan bearing interest at a Fixed
Rate by giving the Agent five (5) Banking Days prior written notice. Interest
shall be calculated on the basis of a
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year of 360 days and shall be paid to the Banks in arrears on the first day of
each month as provided in Section 4.6 and on the relevant Term Loan Maturity
Date. Any principal amount not paid when due (at maturity in acceleration or
otherwise) shall bear interest thereafter until paid at a rate which shall be
two percent (2%) above the rate which would otherwise be applicable hereunder.
Section 3.5. Use of Proceeds of Term Loans.
The Co-Borrowers shall use the proceeds of Term Loans made
hereunder to finance the Capital Expenditures of the Co-Borrowers and to
refinance existing Debt of the Co-Borrowers. No part of the proceeds of any of
the Term Loans will be used for any purpose which violates the provisions of
Regulations G, T, U or X of the Board of Governors of the Federal Reserve System
in effect on the date of making such Loans.
Section 3.6. Borrowing Procedure for Term Loans.
The Co-Borrowers may request a borrowing under the Term Loan
Commitments hereunder as provided in Section 4.1. Not later than 1:00 p.m. New
York City time on the date of such borrowing, each Bank shall, subject to the
conditions of this Agreement, make the amount of the Term Loan to be made by it
on such day available to the Agent, at the Principal Office and in immediately
available funds for the account of the Co-Borrowers. The amount received by the
Agent shall, subject to the conditions of this Agreement, be made available to
the Co-Borrowers on the date of such borrowing in immediately available funds,
by the Agent crediting an account of the Co-Borrowers designated by the
Co-Borrowers and maintained with the Agent at the Principal Office.
ARTICLE 4.
GENERAL CREDIT PROVISIONS; FEES AND PAYMENTS.
Section 4.1. Certain Notices; etc.
(a) Notices by the Co-Borrowers to the Agent of each borrowing
pursuant to Section 2.4 and 3.6, each continuation or conversion of a Loan
pursuant to Section 2.6 and of each prepayment of Term Loans pursuant to Section
4.2(d) shall be irrevocable and shall be effective on the date of receipt only
if received by the Agent not later than 11:00 a.m., New York City time, and (i)
in the case of borrowings of Revolving Credit Loans bearing interest at the
Prime Rate or conversion of Eurodollar Loans to Prime Rate Loans, given on the
day of the requested borrowing or conversion; (ii) in the case of borrowings of
Eurodollar Loans or conversions of Prime Rate Loans to Eurodollar Loans or
continuation of Eurodollar Loans, given three (3) Banking Days prior to the date
of the proposed borrowing, continuation or conversion; (iii) in the case of
borrowings of Term Loans, given ten (10) Banking Days to the date of the
proposed borrowing and (iv) in the case of prepayment of Term Loans, given ten
(10) days prior thereto. Each such notice of borrowing of Eurodollar Loans or
conversions to or continuations of Eurodollar Loans shall specify an Interest
Period to be applicable to each such Loan. Each such notice of prepayment of
Term Loans shall specify the Term Loans to be prepaid. The Agent shall notify
the Banks of the contents of each such notice with reasonable promptness.
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(b) Each Bank will make its share of each borrowing available
to the Agent by 1:00 p.m. on the date of such borrowing in immediately available
funds. Unless any applicable condition specified in Article 5 has not been
satisfied, the amounts so received by the Agent will be made available to the
Co-Borrowers on the date of such borrowing by credit to an account of the
Co-Borrowers maintained at the Agent.
Section 4.2. Prepayments.
(a) Mandatory Prepayment. In the event that the Revolving
Credit Outstandings exceed the aggregate Revolving Credit Commitments at any
time prior to the Revolving Credit Termination Date, the Co-Borrowers shall
promptly pay or prepay so much of the Revolving Credit Loans outstanding as
shall be necessary in order to eliminate such excess.
(b) Accrued Interest. All prepayments made pursuant to this
Section 4.2 shall be accompanied by the payment of all accrued interest on the
amount so prepaid.
(c) Outstanding L/C Obligations and/or Acceptance Obligations.
To the extent that at any time after giving effect to any prepayment required by
this Section 4.2, the sum of then outstanding L/C Obligations and Acceptance
Obligations exceeds the Revolving Credit Commitments then in effect, the
Co-Borrower shall, without notice or demand, immediately deposit in a cash
collateral account with the Agent, as collateral security for the liability of
the Agent (whether direct or contingent) under any Letters of Credit then
outstanding or under any Acceptances then outstanding, an amount equal to the
amount by which the sum of the then outstanding L/C Obligations and Acceptance
Obligations exceeds the Revolving Credit Commitments then in effect.
(d) Prepayment of Term Loans. Any Term Loan may be prepaid in
whole or in minimum amounts of $100,000 or integral multiples thereof, at any
time, upon at least ten (10) days' notice. If such Term Loan is bearing interest
as a rate based on the Prime Rate, prepayment shall not be subject to premiums
or penalty. However, if such Term Loan is bearing interest at a Fixed Rate, such
prepayment shall be accompanied by interest accrued on the amount prepaid
through the date of prepayment together with a prepayment charge equal to the
present value of (a) (i) the difference between the Fixed Rate then in effect,
and the then current yield on U.S. Treasury Securities with maturities
approximately equal to the remaining time between the date of prepayment and the
Maturity Date (expressed as a percentage), multiplied by (ii) the total amount
of principal prepaid, divided by (iii) 360 multiplied by the actual number of
days remaining until the Maturity Date. Each prepayment shall be made together
with interest accrued thereon to and including the date of prepayment and shall
be applied to the last maturing monthly installments of principal in inverse
order of their respective maturities.
Section 4.3. Fees.
(a) Origination Fee. The Co-Borrowers agree to pay to the
Agent for its own account an origination fee equal in accordance with the terms
of a fee letter dated the date hereof and executed by and between the
Co-Borrowers and the Agent.
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(b) Commitment Fees. The Co-Borrowers agree to pay to the
Agent for the account of the Banks a commitment fee for the period commencing on
the Closing Date to and including the Revolving Credit Termination Date or such
earlier date as the Total Commitments shall terminate in accordance with the
terms and provisions hereof, computed at the rate of 1/4% of 1% per annum on the
average daily unused portion of the Total Commitments. Each Bank shall be
entitled to its Commitment Proportion of such commitment fees. All commitment
fees payable under this subsection (b) shall be payable quarterly, in arrears,
on the first Banking Day of January, April, July and October of each year and on
the Revolving Credit Termination Date.
Section 4.4. Reimbursement Obligations
(a) The Co-Borrowers agree to reimburse the Agent on demand on
each date on which the Agent notifies the Co-Borrowers of the date and amount of
a draft presented under any Letter of Credit and paid by the Agent for the
amount of (i) such draft so paid and (ii) any taxes, fees, charges or other
costs or expenses incurred by the Agent in connection with such payment. Each
such payment shall be made to the Agent at EAB Plaza, Uniondale, New York 11555
in lawful money of the United States of America and in immediately available
funds. Each drawing under any Letter of Credit, to the extent not reimbursed by
the Co-Borrowers on the date of such drawing, shall constitute a request by the
Co-Borrowers to the Agent for a borrowing pursuant to Section 2.1 of a Revolving
Credit Loan in the amount of such drawing the proceeds of which shall be applied
by the Agent to such reimbursement obligation. The Borrowing Date with respect
to such borrowing shall be the date of such drawing. Interest shall be payable
on any and all amounts remaining unpaid by the Borrower under this subsection
from the date such amounts become payable until payment in full at a rate which
would be payable on any outstanding Revolving Credit Loans which were then
overdue.
(b) The Co-Borrowers shall be obligated, and hereby
unconditionally agree to reimburse the Agent on demand on the maturity date
thereof or on such earlier date as the Acceptance Obligations shall become or
shall have been declared due and payable in an amount equal to the face amount
of each Acceptance created by the Agent hereunder. Each such payment shall be
made to the Agent at EAB Plaza, Uniondale, New York 11555 in lawful money of the
United States of America and in immediately available funds. Each payment under
any Acceptance, to the extent not paid by the Co-Borrowers to the Agent on the
date of such payment, shall constitute a request by the Co-Borrowers to the
Agent for a borrowing pursuant to Section 2.1 of a Revolving Credit Loan in the
amount of such payment the proceeds of which shall be applied by the Agent to
such payment obligation. The Borrowing Date with respect to such borrowing shall
be the date of such payment. Interest shall be payable on any and all amounts
remaining unpaid by the Co-Borrowers under this subsection from the date such
amounts became payable until payment in full at the rate which would be payable
on any outstanding Revolving Credit Loans which were then overdue.
Section 4.5. Requirements of Law.
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In the event that any Bank shall have reasonably determined
that any change in any law regarding capital adequacy or in the interpretation
or application thereof or compliance by such Bank or any corporation controlling
such Bank with any request or directive regarding capital adequacy (whether or
not having the force of law) from any governmental authority made subsequent to
the date hereof does or shall have the effect of reducing the rate of return on
such Bank's or such corporation's capital as a consequence of its obligations
hereunder or under any Letter of Credit or Acceptance to a level below that
which such Bank or such corporation could have achieved but for such change or
compliance (taking into consideration such Bank's or such corporation's policies
with respect to capital adequacy) by an amount deemed by such Bank to be
material, then from time to time, after submission by such Bank to the
Co-Borrowers, as the case may be (with a copy to the Agent) of a written request
therefor, the Co-Borrowers shall pay to such Bank such additional amount or
amounts as will compensate such Bank for such reduction.
Section 4.6. Payments Generally.
(a) All payments under this Agreement or the Notes, shall be
made in Dollars in immediately available funds not later than 1:00 p.m. New York
City time on the relevant dates specified above (each such payment made after
such time on such due date to be deemed to have been made on the next succeeding
Banking Day) at EAB Plaza, Uniondale, New York 11555 for the account of each
Bank. The Agent may (but shall not be obligated to) debit the amount of any such
payment which is not made by such time to any ordinary deposit account of the
Co-Borrowers, or of either of them, with the Agent. The Co-Borrowers shall, at
the time of making each payment under this Agreement or the Notes, specify to
the Agent the principal or other amount payable by the Co-Borrowers under this
Agreement or the Notes to which such payment is to be applied (and in the event
that it fails to so specify, or if a Default or Event of Default has occurred
and is continuing, the Agent may apply such payment as it may elect in its sole
discretion (subject to Article 10). If the due date of any payment under this
Agreement or the Notes would otherwise fall on a day which is not a Banking Day,
such date shall be extended to the next succeeding Banking Day and interest
shall be payable for any principal so extended for the period of such extension.
Each payment received by the Agent hereunder or under any Note for the account
of a Bank shall be paid promptly to such Bank, in immediately available funds,
for the account of such Bank.
ARTICLE 5.
CONDITIONS PRECEDENT.
Section 5.1. Documentary Conditions Precedent.
The obligations of the Banks to make the Loans constituting
the initial borrowing are subject to the conditions precedent that:
(a) the Agent shall have received on or before the date of
such Loans each of the following, in form and substance satisfactory to the
Agent and its counsel:
(i) this Agreement and the Notes duly executed by the
Co-Borrowers;
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(ii) a certificate of the Secretary of each of the
Co-Borrowers, 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 Facility 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, 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, dated the Closing Date, certifying
the names and true signatures of the officers of
such entity authorized to sign the Facility
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 6 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, 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 (B) UCC search results identifying
all of the financing statements on file with
respect to each Co-Borrower in all jurisdictions
referred to under clause (A) hereof, indicating
that no party claims an interest in any of the
Collateral;
(vi) 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;
(vii) satisfactory evidence that the Co-Borrowers 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;
(viii) audited consolidated balance sheet of PDK and its
Subsidiaries as of November 30, 1996, and
consolidated income statement and statement of
cash flows of PDK and its Subsidiaries for the
fiscal year
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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, 1997, together with consolidated and
consolidating income statements and statements of
cash flows of PDK and its Subsidiaries, for the
fiscal quarter ended May 31, 1997, 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;
(ix) an audited balance sheet of Futurebiotics as of
November 30, 1996 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, 1997, together with an income statement and
statement of cash flows of Futurebiotics for the
fiscal quarter ended May 31, 1997 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;
(x) original certificates of insurance covering the
Collateral and the other assets and the business
of the Co-Borrowers, 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 together with copies of each
policy described in such certificates;
(xi) evidence satisfactory to the Agent that the
products liability insurance referred to in
Section 7.3 hereof is in full force and effect on
the date hereof;
(xii) a complete copy of the supply agreement executed
by and between PDK and Futurebiotics, together
with all amendments, supplements or modifications
thereof;
(xiii) for each of PDK and Futurebiotics, summary
accounts receivable and accounts payable agings
and detailed accounts receivable and accounts
payable agings for its 10 largest customers or
vendors, as the case may be, and for its 10
largest customers or vendors, as the
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case may be, with account balances that remain
unpaid for ninety days or more, for the most
recent month then ended, in form and substance
satisfactory to the Agent;
(xiv) landlord's waivers, in form and substance
satisfactory to the Agent, for each location
leased by the Co-Borrowers or the Guarantors, or
any of them, where assets of the Co-Borrowers or
the Guarantors, or any of them, are located;
(xv) a certified copy of the certificate of dissolution
of C&C Enterprises, Inc.; and
(xvi) such other documents, instruments, agreements,
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 shall have obtained all consents, permits
and approvals required in connection with the execution, delivery and
performance by the Co-Borrowers of their obligations hereunder and such
consents, permits and approvals shall continue in full force and effect;
(d) the Agent shall be satisfied that all obligations of the
Co-Borrowers and The Chase Manhattan Bank shall have been paid in full;
(e) the Agent shall be satisfied with the form and content of
all Schedules delivered by the Co-Borrowers pursuant to this Agreement or any
document delivered in connection herewith;
(f) the Co-Borrowers shall provide reasonably satisfactory
evidence that none of them 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 to the ability of any Co-Borrower or any
Guarantor to perform its obligations hereunder or under the other Facility
Documents;
(g) results satisfactory to the Agent of all due diligence
with respect to the Co-Borrowers including, without limitation, trade checkings,
customer checkings and litigation checkings and all due diligence with respect
to management of the Co-Borrowers;
(h) receipt and satisfactory review by the Agent of (i) all
material loan documents or credit agreements entered into by any Co-Borrower;
(ii) all shareholder, and management
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agreements entered into by any Co-Borrower; (iii) any employment agreement
entered into by any Co-Borrower and any officer of any such entity; and (iv) all
lease agreements entered into by any Co-Borrower;
(i) since November 30, 1996, nothing shall have occurred which
in the Agent's sole judgment could, individually or in the aggregate, result in
a Material Adverse Change with respect to the Co-Borrowers, or either of them;
(j) the Agent and its counsel shall be satisfied in all
respects with their review of any litigation pending against the Co-Borrowers
and shall have been provided with 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
(k) all legal matters in connection with this financing shall
be reasonably satisfactory to the Agent and its counsel.
Section 5.2. Additional Conditions Precedent.
The obligations of the Banks to make any Loan (including the
initial Loans) or to issue any Letter of Credit or create any Acceptance (each
such event being hereafter referred to as a "Borrowing Event") shall be subject
to the further conditions precedent that on the date of such Borrowing Event the
following statements shall be true:
(i) the representations and warranties contained in
Article 6 are true and correct on and as of the
date of such Borrowing Event as though made on and
as of such date;
(ii) no Default or Event of Default has occurred and is
continuing, or would result from such Borrowing
Event; and
(iii) no Material Adverse Change shall have occurred
with respect to either Co-Borrower or of any
Guarantor since the date of the most recent
financial statements of the Co-Borrowers delivered
to the Agent hereunder or in connection herewith.
Section 5.3. No Default Certification and Deemed Representations.
Each Borrowing Event shall be deemed a certification by the
Co-Borrowers that the statements contained in Section 5.2 are true and correct
on the date of such notice or submission and, unless the Co-Borrowers otherwise
notifies the Agent prior to such Borrowing Event, each Borrowing Event shall
constitute a representation and warranty that such statements are true and
correct as of the date of such Borrowing Event.
Section 5.4. Special Conditions for Term Loans.
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In addition to the conditions specified above, the obligation
of the Banks to make any Term Loan shall be subject to the further conditions
precedent that on or before the date of such Term Loan the Agent shall have
received each of the following, each in form and substance satisfactory to the
Agent and its counsel:
(i) a list of equipment having a value at least equal
to the requested principal amount of such Term
Loan, together with a certification from the
Co-Borrowers that such equipment is owned by the
Co-Borrowers free and clear of all liens and
encumbrances other than liens in favor of the
Banks; and
(ii) UCC-1 financing statements relating to such
specific items of equipment, in proper form for
filing in all jurisdictions necessary or, in the
reasonable discretion of the Agent, desirable to
perfect its security interest in such specific
equipment.
ARTICLE 6.
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:
Section 6.1. 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.
Section 6.2. 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 Facility
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 Guarantees on the terms and conditions of this
Agreement, the Notes, and the Guarantees. 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 Facility
Documents. The Facility 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
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Guarantors, as the case may be, enforceable against the Co-Borrowers or the
Guarantors in accordance with their respective terms.
Section 6.3. No Legal Bar to Loans.
The execution, delivery and performance of the Facility
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 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.
Section 6.4. No Material Litigation.
Except as set forth on Schedule 6.4 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 Facility 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.
Section 6.5. No Default.
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.
Section 6.6. 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 8.2 hereof and except as set forth on Schedule 6.6 hereto.
Section 6.7. 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 Co-Borrowers
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
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may be), and no tax liens have been filed and, to the best of the knowledge of
the Co-Borrowers and the Guarantors, no claims are being asserted with respect
to any taxes.
Section 6.8. Financial Condition.
The financial statements referred to in Section 5.1(ix) and
(x) hereof heretofore furnished to each Bank, 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.
Section 6.9. 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.
Section 6.10. 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 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.
Section 6.11. 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
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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.
Section 6.12. 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.
Schedule 6.12 is a true and complete list of all of such items.
Section 6.13. 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.
Section 6.14. 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 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.
Section 6.15. Use of Proceeds.
The proceeds of each Loan shall be used for the purposes set
forth in Sections 2.3 and 3.5 hereof.
Section 6.16. 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.
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Section 6.17. 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 Banks.
Section 6.18. Subsidiaries.
As of the date hereof, PDI Labs Inc. is the only existing
Subsidiary of the Co-Borrowers and PDI Labs Inc. has assets having a value of
not more than [$1,000].
Section 6.19. 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.
ARTICLE 7.
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 have not been terminated, each Co-Borrower and each of the
Guarantors will, and shall cause any Subsidiary to:
Section 7.1. Financial Statements.
Furnish to each Bank:
(a) as soon as available, but in any event not later than 90
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 90
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
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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, together with the consolidating financial statements of the
Co-Borrowers that relate to the consolidated financial statements included
therein, such consolidating statements to be prepared by the Chief Financial
Officer of PDK;
(d) concurrently with the delivery of the financial statements
referred to in clauses (a), (b) and (c) above, a certificate of the President or
the Chief Financial Officer of each of the Co-Borrowers stating that, to the
best of such officer's 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 such officer 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 Article 9 hereof;
(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, the Securities and Exchange Commission or any other 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 originals of all insurance coverage binders and, if the Co-Borrowers
intend to purchase new policies of insurance, certified copies of such policies
together with original certificates of insurance with respect to such policies;
and
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(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;
(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 7.1;
(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
and an accounts payable aging schedule of each Co-Borrower, each of which shall
include a "break-out" of the ten largest customers or vendors, as the case may
be, of each Co-Borrower and of the ten customers or vendors, as the case may be,
having the largest balances that remain unpaid for 90 days or more, each in form
and substance reasonably satisfactory to the Agent;
(k) no later than 30 days after the end of each fiscal quarter
of each Co-Borrower, a consolidated inventory breakdown in form and substance
reasonably satisfactory to the Agent;
(l) promptly, copies of all financial, legal or other
information and/or documentation as the Agent may require pertaining to any
Permitted Acquisitions;
(m) concurrently with the delivery of the financial statements
referred to in clauses (a), (b) and (c) above, a written status report, in form
and substance satisfactory to the Agent, 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.
Notwithstanding the provisions of clauses (a) and (b) above,
if the Co-Borrowers receive an extension from the Securities and Exhange
Commission and are permitted to file such statements more than 90 days after
fiscal year end, such statements shall be due hereunder simultaneously with
their filing with the Securities and Exchange Commission; provided, however,
that in no event shall such statements be delivered to the Banks more than 105
days after the fiscal year-end of the Co-Borrowers.
Section 7.2. 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 Co-
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Borrowers, or either of them, or any of 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.
Section 7.3. 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 $8,000,000 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.
Section 7.4. Notices.
Promptly give notice in writing to the Agent of (a) the
occurrence of any Default or Event of 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 including, without
limitation, any such proceeding relating to an alleged violation of any
Environmental Law, (c) all litigation actions, suits and proceedings affecting
the Co-Borrowers, or either of them, or any of the Guarantors in which the
amount claimed is $100,000 or more 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.
Section 7.5. 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 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.
Section 7.6. Inspection of Property, Books and Records.
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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.
Section 7.7. 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 (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.
Section 7.8. Subsidiary Guaranties.
s
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 D hereto and to execute a
Guarantor's Security Agreement substantially in the form of Exhibit E 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.
Section 7.9. 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
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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
(v) not take any action regarding any Plan which could
result in the occurrence of a Prohibited
Transaction.
Section 7.10. Dissolution of PDI Labs Inc.
Within 90 days of the date of this Agreement, cause PDI Labs
Inc. to be dissolved and provide the Agent with a certified copy of its
Certificate of Dissolution.
ARTICLE 8.
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 have not been terminated, neither the Co-Borrowers, nor any of them,
nor any of the Guarantors will, nor will they permit any Subsidiary to, directly
or indirectly:
Section 8.1. Limitation on Indebtedness.
Create, incur, assume or suffer to exist, any Consolidated
Indebtedness, except (a) Indebtedness of the Co-Borrowers under this Agreement
or 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 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 5.1 hereof provided same
is not extended, renewed or refinanced; (e) Subordinated Debt; (f) indebtedness
which constitutes the deferred purchase price
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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 8.2(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 8.5(g) of this Agreement, provided,
however, that said indebtedness shall not exceed $6,000,000 in the aggregate at
any time.
Section 8.2. 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 5.1
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; and
(h) Liens in favor of the Agent.
Section 8.3. 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, provided, however, that the aggregate amount permitted under this
Section 8.3 and Section 8.5(h) and (k) of this Agreement
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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 8.1
hereof; and guarantees in favor of the Banks.
Section 8.4. 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, make any material change in the
present method of conducting business, or change its fiscal year end, 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.
Section 8.5. 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 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; (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 8.5(h) and 8.5(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; (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 8.5(k) and 8.5(h) and Section
8.3 of this Agreement shall not exceed $2,000,000 with respect to any one
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Person and $2,500,000 in the aggregate at any time; (l) tax exempt securities
rated A-1 or better by Standard & Poors and P-1 or better by 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
Facility 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 $3,000,000 during the term of this Agreement. For purposes of clause (j)
above, the Co-Borrowers shall not be deemed to have purchased securities earned
pursuant to an Exclusive Supply and Licensing Agreement, dated [March 24, 1997]
between PDK Labs Inc. and Compare Generiks, Inc.
Section 8.6. Prohibition of Certain Prepayments.
Except as otherwise permitted by this Agreement, make any
prepayment of principal of any debt, with a maturity of more than one year, for
borrowed money or for the deferred purchase price of property or services,
except (i) at the stated maturity of such debt, and (ii) as required by
mandatory prepayment provisions relating thereto (subject to any subordination
provisions applicable thereto).
Section 8.7. 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 leases described on Schedule 8.7 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.
Section 8.8. 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.
Section 8.9. 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.
Section 8.10. 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
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course of business and pursuant to the 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.
Section 8.11. Management.
Fail to retain Michael B. Krasnoff in a reasonably active full
time capacity as the President of each of PDK, and as an officer of
Futurebiotics, responsible for the day-to-day operations of each of the
Co-Borrowers.
Section 8.12. 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; (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; or (iii) PDK
and Futurebiotics shall be unable to issue consolidated financial statements in
accordance with GAAP.
Section 8.13. Limitation on Capital Expenditures.
Make any Capital Expenditures (excluding Capital Expenditures
resulting from acquisitions of property, plant and equipment described in
Section 8.5(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 $2,000,000 during any fiscal year, including
the fiscal year ending November 30, 1997.
Section 8.14. 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 8.5 (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 $365,000 in the aggregate in each
fiscal year of PDK.
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ARTICLE 9.
FINANCIAL 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 shall not have been terminated:
Section 9.1. Leverage.
The Co-Borrowers shall maintain, on a consolidated basis, a
ratio of (i) Total Unsubordinated Liabilities to (ii) Capital Base of not more
than 1.70:1.00.
Section 9.2. Minimum Coverage Ratio.
The Co-Borrowers shall maintain at all times a Consolidated
Coverage Ratio of not less than 1.75:1.00. This covenant shall be tested
quarterly on a rolling four quarters basis.
Section 9.3. Minimum Liquidity Ratio.
The Co-Borrowers shall maintain at all times, on a
consolidated basis, a ratio of (i) Consolidated Liquid Assets to (ii)
Consolidated Current Liabilities of not less than 0.60:1.00.
Section 9.4. Minimum Consolidated Net Income.
The Co-Borrowers shall maintain a minimum Consolidated Net
Income of $500,000 for any four-quarterly period and the Co-Borrowers shall not
suffer to exist two consecutive quarterly periods where Consolidated Net Income
is less than $0.
ARTICLE 10.
EVENTS OF DEFAULT.
Section 10.1. Events of Default.
Any of the following events shall be an "Event of Default":
(a) The Co-Borrowers shall: (i) fail to pay the principal of
or interest on any Note or any fee or other amount due hereunder; or (ii) fail
to pay any Bank any amount when due and payable in connection with any L/C
Obligation or Acceptance Obligation;
(b) Any representation or warranty made or deemed made by the
Co-Borrowers or the Guarantor in this Agreement or in any other Facility
Document or which is contained in any certificate, document, opinion, financial
or other statement furnished at any time under or in connection with any
Facility Document shall prove to have been incorrect in any material respect on
or as of the date made or deemed made;
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(c) The Co-Borrowers shall: (i) fail to perform or observe any
term, covenant or agreement contained in Section 2.3, Section 7.1 or Articles 8
or 9; or (ii) fail to perform or observe any term, covenant or agreement on its
part to be performed or observed (other than the obligations specifically
referred to in Section 10.1(a)) in any Facility Document and (in the case of
this clause (ii)) such failure shall continue for 20 consecutive days;
(d) Any Co-Borrower or Guarantor shall: (i) fail to pay any
Debt, including but not limited to indebtedness for borrowed money (other than
the payment obligations described in (a) above), of such entity or any interest
or premium thereon, when due (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise); or (ii) fail to perform or
observe any term, covenant or condition on its part to be performed or observed
under any agreement or instrument relating to any such Debt, when required to be
performed or observed, if the effect of such failure to perform or observe is to
accelerate, or to permit the acceleration of, after the giving of notice or
passage of time, or both, the maturity of such Debt, whether or not such failure
to perform or observe shall be waived by the holder of such Debt; or (iii) any
such Debt shall be declared to be due and payable, or required to be prepaid
(other than by a regularly scheduled required prepayment) prior to the stated
maturity thereof; provided that it shall not constitute an Event of Default
hereunder if the Debt referred to in clauses (i), (ii) and (iii) above, in any
case or in the aggregate has a principal balance of less than $250,000;
(e) Any Co-Borrower or Guarantor (i) shall generally not, or
be unable to, or shall admit in writing its or their inability to, pay its or
their debts as such debts become due; or (ii) shall make an assignment for the
benefit of creditors, petition or apply to any tribunal for the appointment of a
custodian, receiver or trustee for it or a substantial part of its assets; or
(iii) shall commence any proceeding under any bankruptcy, reorganization,
arrangement, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction, whether now or hereafter in effect; or (iv) shall have had any
such petition or application filed or any such proceeding shall have been
commenced, against it or them, in which an adjudication or appointment is made
or order for relief is entered, or which petition, application or proceeding
remains undismissed for a period of 30 days or more; or shall be the subject of
any proceeding under which its assets may be subject to seizure, forfeiture or
divestiture; or (v) by any act or omission shall indicate its consent to,
approval of or acquiescence in any such petition, application or proceeding or
order for relief or the appointment of a custodian, receiver or trustee for all
or any substantial part of its property; (vi) shall suffer any such
custodianship, receivership or trusteeship to continue discharged for a period
of 30 days or more; or (vii) shall cease to be Solvent;
(f) One or more judgments, decrees or orders for the payment
of money in excess of $250,000 in the aggregate shall be rendered against the
Co-Borrowers, or either of them, or any Guarantor and such judgments, decrees or
orders shall continue unsatisfied and in effect for a period of 30 consecutive
days without being vacated, discharged, satisfied or stayed or bonded pending
appeal;
(g) An event or condition specified in Section 7.1(f) hereof
shall occur or exist with respect to any Plan or Multiemployer Plan and, as a
result of such event or condition, together with all other such events or
conditions, any Co-Borrower, Guarantor or any ERISA
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Affiliate shall incur or in the opinion of the Banks shall be reasonably likely
to incur a liability to a Plan, a Multiemployer Plan or PBGC (or any combination
of the foregoing) which is, in the determination of the Banks, material in
relation to the financial condition, operations, business or prospects of the
such entity;
(h) Any Forfeiture Proceeding shall have been adversely
determined against any Co-Borrower or Guarantor provided that the aggregate
value of the property of the Borrower or the Corporate Guarantor subject thereto
equals or exceeds $250,000;
(i) Any of the Security Agreements or the Guarantor Security
Agreements shall at any time after its execution and delivery and for any reason
cease: (a) to create a valid and perfected and, except as otherwise specifically
provided therein, first priority security interest in and to the property
purported to be subject to such documents; or (b) to be in full force and effect
or shall be declared null and void, or the validity of enforceability thereof
shall be contested by a Co-Borrower or Guarantor or any of the Co-Borrowers or
Guarantors shall deny that it has any further liability or obligation under to
which it is a party, or any Co-Borrower or Guarantor shall fail to perform any
of its obligations under any such agreement;
(j) A Material Adverse Change shall have occurred with respect
to (i) the Co-Borrowers, or either of them, (ii) the Co-Borrowers and the
Guarantors, taken as a whole, or (iii) any Guarantor having $500,000 or more in
assets; or
(k) A default shall occur under any Facility Document after
giving effect to any applicable grace or cure period, if any.
Section 10.2. Remedies.
If any Event of Default shall occur and be continuing, the
Agent shall, upon request of the Required Banks, by notice to the Co-Borrowers
(a) declare the Commitments to be terminated, whereupon the same shall forthwith
terminate, and (b) declare the outstanding principal of the Notes, all interest
thereon and all other amounts payable under this Agreement and the Notes
(including, without limitation, all amounts of L/C Obligations, whether or not
the beneficiaries of the then outstanding Letters of Credit shall have presented
the documents required thereunder, and all amounts of Acceptance Obligations,
whether or not the acceptances relating thereto have matured) 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 Co-Borrowers; provided that, in the case of an Event of Default referred
to in Section 10.1(e) or Section 10.1(h) above, the Commitments shall be
immediately terminated, and the Notes, all interest thereon and all other
amounts payable under this Agreement and the Notes (including amounts payable in
respect of L/C Obligations and Acceptance Obligations) shall be immediately due
and payable without notice, presentment, demand, protest or other formalities of
any kind, all of which are hereby expressly waived by the Co-Borrowers.
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With respect to all Letters of Credit with respect to which
presentment for honor shall not have occurred at the time of an acceleration
pursuant to the preceding paragraph, the Co-Borrowers shall at such time deposit
in a cash collateral account opened by the Agent an amount equal to the
aggregate then undrawn and unexpired amount of such Letters of Credit. Amounts
held in such cash collateral account shall be applied by the Agent to the
payment of drafts drawn under such Letters of Credit, and the unused portion
thereof after all such Letters of Credit shall have expired or been fully drawn
upon and, if any, shall be applied to repay other obligations of the
Co-Borrowers hereunder and under the Notes.
Except as expressly provided above in this Section,
presentment, demand, protest and all other notices of any kind are hereby
expressly waived.
ARTICLE 11.
THE AGENT; RELATIONS AMONG BANKS
Section 11.1. Appointment, Powers and Immunities of Agent.
Each Bank hereby irrevocably (but subject to removal by the
Required Banks pursuant to Section 11.9) appoints and authorizes the Agent to
act as its agent hereunder and under any other Facility Document with such
powers as are specifically delegated to the Agent by the terms of this Agreement
and any other Facility 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 Facility 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 Facility 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 Facility Document, or for the value,
legality, validity, effectiveness, genuineness, enforceability or sufficiency of
this Agreement or any other Facility Document or any 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 Facility 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 11.2. 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
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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 11.3. 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 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 11.8) 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 11.4. 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.
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Section 11.5. 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 Facility
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,
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 11.6. 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 11.7. 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 be required to file this
Agreement, any other Loan Document or any document or instrument referred to
herein or therein, for record or give
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notice of this Agreement, any other Facility Document or any document or
instrument referred to herein or therein, to anyone.
Section 11.8. 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
11.5 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 11.9. 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 11 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 11.10. Amendments Concerning Agency Function.
The Agent shall not be bound by any waiver, amendment,
supplement 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 11.11. 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.
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Section 11.12. 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 11.13. 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 11.14. 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 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 11.15. 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 hereunder 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.
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Section 11.16. 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.
ARTICLE 12.
MISCELLANEOUS.
Section 12.1. Amendments and Waivers.
Except as otherwise expressly provided in this Agreement, any
provision of this Agreement may be amended or modified only by an instrument in
writing signed by the Co-Borrowers, the Agent and the Required Banks, and any
provision of this Agreement may be waived by the Co-Borrowers (if such provision
requires performance by the Agent or the Banks) or by the Agent acting with the
consent of the Required Banks (if such provision requires performance by the
Co-Borrowers); provided, however, that no amendment modification or waiver
shall, unless by an instrument signed by all of the Banks or by the Agent acting
with the consent of all of the Banks: (a) increase or extend the term, or extend
the time or waive any requirement for the reduction or termination of the
Commitments, (b) extend the date fixed for the payment of principal of or
interest on any Loan, (c) reduce the amount of any payment of principal thereof
or the rate at which interest is payable thereon or any fee payable hereunder,
(d) alter the terms of this Section 12.1, (e) amend the definition of the term
"Required Banks", (f) change the Commitment of any Bank or the fees payable to
any Bank except as otherwise provided herein, (g) permit the Co-Borrowers to
transfer or assign any of their obligations hereunder or under the Facility
Documents or (h) release any of the collateral securing the obligations of the
Co-Borrowers hereunder. No failure on the part of the Agent or any Bank to
exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof or preclude any other or further exercise thereof or the exercise
of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
Section 12.2. Usury
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Anything herein to the contrary notwithstanding, the
obligations of the Co-Borrowers under this Agreement and the Notes shall be
subject to the limitation that payments of interest shall not be required to the
extent that receipt thereof would be contrary to provisions of law applicable to
a Bank limiting rates of interest which may be charged or collected by such
Bank. If, the interest rate provided herein exceeds the maximum rate permitted
by law to be collected at any time and subsequently, as a result of a change in
law, the Agent or the Banks are legally permitted to recover the difference
between interest that would have been paid in accordance with the terms of this
Agreement and interest actually paid by the Co-Borrowers, the Co-Borrowers shall
promptly, on demand, pay such difference to the Agent for the benefit of the
Banks.
Section 12.3. Expenses.
The Co-Borrowers shall reimburse the Agent on demand for all
reasonable costs, expenses, and charges (including, without limitation,
reasonable fees, charges and disbursements of external legal counsel for the
Agent) incurred by the Agent or by the Agent on behalf of the Banks in
connection with the preparation, execution and delivery of this Agreement and
the Facility Documents. In addition, the Co-Borrowers shall reimburse the Agent
and, upon the occurrence and continuance of an Event of Default, each Bank for
all of its reasonable costs and expenses in connection with the enforcement or
preservation of any rights under this Agreement, the Notes or the other Facility
Documents. The Co-Borrowers agree to indemnify the Agent and each Bank and their
respective directors, officers employees and agents from, and hold each of them
harmless against, any and all losses, liabilities, claims, damages or expenses
incurred by any of them arising out of or by reason of any investigation or
litigation or other proceedings (including any threatened investigation or
litigation or other proceedings) relating to any actual or proposed use by the
Co-Borrowers or any of their Affiliates of the proceeds of the Loans or
otherwise arising out of or related to this agreement, including without
limitation, the reasonable fees and disbursements of counsel incurred in
connection with any such investigation or litigation or other proceedings (but
excluding any such losses, liabilities, claims, damages or expenses incurred by
reason of the gross negligence, willful misconduct or bad faith of the Person to
be indemnified).
Section 12.4. Survival.
The obligations of the Co-Borrowers under Sections 2.3(b),
2.13 and 12.3 shall survive the repayment of the Loans and the termination of
the Commitments for a period corresponding to the maximum applicable statute of
limitations in effect in the State of New York from time to time.
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Section 12.5. Assignment; Participation.
This Agreement shall be binding upon, and shall inure to the
benefit of, the Co-Borrowers, the Agent, the Banks and their respective
successors and assigns, except that the Co-Borrowers may not assign or transfer
their rights or obligations hereunder. Each Bank may sell participations in or,
with the consent of the Agent, assign all or any part of any Loan to another
bank or other entity, in which event (a) in the case of an assignment, upon
notice thereof by the Bank to the Co-Borrowers with a copy to the Agent, the
assignee shall have, to the extent of such assignment (unless otherwise provided
therein), the same rights, benefits and obligations as it would have if it were
a Bank hereunder and, to the extent of such assignment, the assignor shall be
released from its obligations hereunder; and (b) in the case of a participation,
the participant shall have no rights under the Facility Documents and all
amounts payable by the Co-Borrowers hereunder shall be determined as if such
Bank had not sold such participation. If any Bank assigns all or part of its
Commitments hereunder, (i) the parties to such Assignment shall execute an
Assignment and Acceptance Agreement in the form of Exhibit F hereto, (ii) the
Co-Borrowers shall execute new Notes in favor of the Banks in accordance with
the new allocations after giving effect to the assignment and (iii) the parties
to such assignment shall pay to the Agent a processing and recording fee of
$1,500 plus the reasonable costs and expenses of the Agent's counsel. The
agreement executed by such Bank in favor of the participant shall not give the
participant the right to require such Bank to take or omit to take any action
hereunder except action directly relating to (i) the extension of a payment date
with respect to any portion of the principal of or interest on any amount
outstanding hereunder allocated to such participant, (ii) the reduction of the
principal amount outstanding hereunder or (iii) the reduction of the rate of
interest payable on such amount or any amount of fees payable hereunder to a
rate or amount, as the case may be, below that which the participant is entitled
to receive under its agreement with such Bank. Such Bank may furnish any
information concerning the Co-Borrowers and the Guarantors in the possession of
such Bank from time to time to assignees and participants (including prospective
assignees and participants). Notwithstanding the foregoing, or any other
provision of this Agreement, the Agent agrees that it shall not permit its
Commitment Proportion to be less than 50% unless, in the Agent's sole judgment,
it is required to do so by any law, rule, regulation or order of any
governmental authority having jurisdiction over it.
Section 12.6. Notices
Unless the party to be notified otherwise notifies the other
party in writing as provided in this Section, and except as otherwise provided
in this Agreement, notices shall be given to the Agent by telephone, confirmed
by telecopy or other writing, and to the Banks and to the Co-Borrowers by
certified or registered mail or by recognized overnight delivery services to
such party at its address on the signature page of this Agreement provided that
notices to the Co-Borrowers shall be effective if delivered at the following
address: PDK Labs Inc., 145 Ricefield Lane, Hauppauge, New York 11788, Attn:
Michael Krasnoff, Telecopier: (516) 273-1582 with a copy to Bernstein &
Wasserman, LLP, 950 Third Avenue, 10th Floor, New York, New York 10022, Attn:
Steven Wasserman, Esq., Telecopier (212) 371-4730; provided that failure to
deliver a copy of such notice to Bernstein & Wasserman, LLP, shall not effect
the validity of any notice which is otherwise properly given. Notices shall be
effective: (a) if given by registered or certified mail, 72 hours after deposit
in the mails with postage prepaid, addressed as aforesaid;
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(b) if given by recognized overnight delivery service, on the Banking Day
following deposit with such service addressed as aforesaid; and (c) if given by
telecopy, when the telecopy is transmitted to the telecopy number as aforesaid;
provided that all notices to the Agent and the Banks shall be effective upon
receipt.
Section 12.7. Setoff.
The Co-Borrowers agree that, in addition to (and without
limitation of) any right of setoff, banker's lien or counterclaim a Bank may
otherwise have, each Bank shall be entitled, at its option without any prior
notice to the Co-Borrowers (any such notice being expressly waived by the
Co-Borrowers to the extent permitted by applicable law), to offset balances
(general or special, time or demand, provisional or final) held by it for the
account of the Co-Borrowers at any of such Bank's offices, in Dollars or in any
other currency, against any amount payable by the Co-Borrowers, or either of
them, to such Bank under this Agreement or such Bank's Note which is not paid
when due), in which case it shall promptly notify the Co-Borrowers, or either of
them, and the Agent thereof; provided that such Bank's failure to give such
notice shall not affect the validity thereof. Payments by the Co-Borrowers
hereunder shall be made without setoff or counterclaim.
Section 12.8. Jurisdiction; Immunities.
(a) THE CO-BORROWERS HEREBY IRREVOCABLY SUBMIT TO THE
JURISDICTION OF ANY NEW YORK STATE OR UNITED STATES FEDERAL COURT SITTING IN NEW
YORK, NASSAU OR SUFFOLK COUNTIES OVER ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE NOTES, AND THE CO-BORROWERS HEREBY IRREVOCABLY
AGREE THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND
DETERMINED IN SUCH NEW YORK STATE OR FEDERAL COURT. THE CO-BORROWERS IRREVOCABLY
CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS IN ANY SUCH ACTION OR PROCEEDING
BY THE MAILING (BY CERTIFIED OR REGISTERED MAIL) OF COPIES OF SUCH PROCESS TO
THE CO-BORROWERS AT THE ADDRESS SPECIFIED IN SECTION 12.6. THE CO-BORROWERS
AGREE THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE
AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY
OTHER MANNER PROVIDED BY LAW. THE CO-BORROWERS FURTHER WAIVE ANY OBJECTION TO
VENUE IN SUCH STATE AND ANY OBJECTION TO AN ACTION OR PROCEEDING IN SUCH STATE
ON THE BASIS OF FORUM NON CONVENIENS. THE CO-BORROWERS FURTHER AGREE THAT ANY
ACTION OR PROCEEDING BROUGHT AGAINST THE AGENT SHALL BE BROUGHT ONLY IN NEW YORK
STATE OR UNITED STATES FEDERAL COURT SITTING IN NEW YORK, NASSAU OR SUFFOLK
COUNTIES. THE CO-BORROWERS AND THE BANKS WAIVE ANY RIGHT THEY MAY HAVE TO JURY
TRIAL.
(b) NOTHING IN THIS SECTION 12.8 SHALL AFFECT THE RIGHT OF THE
AGENT OR ANY BANK TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR
AFFECT THE RIGHT OF THE AGENT OR ANY BANK TO
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BRING ANY ACTION OR PROCEEDING AGAINST THE CO-BORROWERS, OR THEIR PROPERTY IN
THE COURTS OF ANY OTHER JURISDICTIONS.
(c) TO THE EXTENT THAT THE CO-BORROWERS HAVE OR HEREAFTER MAY
ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS
(WHETHER FROM SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID
OF EXECUTION, EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY,
THE CO-BORROWERS HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS
OBLIGATIONS UNDER THIS AGREEMENT AND THE NOTES.
Section 12.9. Table of Contents; Headings.
Any table of contents and the headings and captions hereunder
are for convenience only and shall not affect the interpretation or construction
of this Agreement.
Section 12.10. Severability.
The provisions of this Agreement are intended to be severable.
If for any reason any provision of this Agreement shall be held invalid or
unenforceable in whole or in part in any jurisdiction, such provision shall, as
to such jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without in any manner affecting the validity or enforceability
thereof in any other jurisdiction or the remaining provisions hereof in any
jurisdiction.
Section 12.11. Counterparts.
This Agreement may be executed in any number of counterparts,
all of which taken together shall constitute one and the same instrument, and
any party hereto say execute this Agreement by signing any such counterpart.
Section 12.12. Integration.
The Facility Documents set forth the entire agreement among
the parties hereto relating to the transactions contemplated thereby and
supersede any prior oral or written statements or agreements with respect to
such transactions.
Section 12.13. Joint and Several Obligations.
The obligations of the Co-Borrowers hereunder constitute joint
and several obligations of the Co-Borrowers and may be enforced against either
of the Co-Borrowers to the full extent thereof, without proceeding against the
other.
Section 12.14. Governing Law.
This Agreement shall be governed by, and interpreted and
construed in accordance with, the law of the State of New York.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed 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 BANKS:
EUROPEAN AMERICAN BANK, as Agent and as a Bank
By: /s/ Stuart N. Berman
-----------------------------------
Name: Stuart N. Berman
Title: Vice President
730 Veterans Memorial Highway
Hauppauge, New York 11788
Attn: Stuart N. Berman
Vice President
Telephone No.: (516) 360-7113
Telefax No.: (516) 360-7112
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Exhibit A
FORM OF
REVOLVING CREDIT NOTE
$15,000,000 Hauppauge, New York
August 20, 1997
FOR VALUE RECEIVED, PDK LABS INC., a New York corporation, having its
principal place of business at 145 Ricefield Lane, Hauppauge, New York 11788
("PDK") and FUTUREBIOTICS, INC., a Delaware corporation, having its principal
place of business at 145 Ricefield Lane, Hauppauge, New York 11788 (the
"Co-Borrowers"), jointly and severally promise to pay to the order of EUROPEAN
AMERICAN BANK (the "Bank") at the office of EUROPEAN AMERICAN BANK (the "Agent")
located at 730 Veterans Memorial Highway, Hauppauge, New York 11788 on or before
the Revolving Credit Termination Date, the principal sum of FIFTEEN MILLION
DOLLARS ($15,000,000) or, if less, the aggregate unpaid principal amount of all
Revolving Credit Loans made by Bank to the Co-Borrowers pursuant to the
Agreement (as defined below).
The Co-Borrowers shall pay interest on the unpaid principal balance of
this Note from time to time outstanding, at said office, at the rates of
interest, at the times and for the periods set forth in the Agreement.
All payments including prepayments on this Note shall be made in lawful
money of the United States of America in immediately available funds. Except as
otherwise provided in the Agreement, if a payment 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 shall be payable thereon at the rate
herein specified during such extension.
The Co-Borrowers hereby authorize Bank to enter from time to time the
amount of each Revolving Credit Loan to the Co-Borrowers and the amount of each
payment on a Revolving Credit Loan on the schedule annexed hereto and made a
part hereof. Failure of Bank to record such information on such schedule shall
not in any way effect the obligation of Co-Borrowers to pay any amount due under
this Note.
This Note is one of the Revolving Credit Notes referred to in that
certain Credit Agreement dated as of August 20, 1997 among the Co-Borrowers, the
Guarantor, and the Agent and the Banks party thereto of even date herewith (the
"Agreement"), as such Agreement may be amended from time to time, and is subject
to prepayment and its maturity is subject to acceleration upon the terms
contained in said Agreement. All capitalized terms used in this Note and not
defined herein shall have the meanings given them in the Agreement.
<PAGE>
If any action or proceeding be commenced to collect this Note or enforce
any of its provisions, the Co-Borrowers agree to pay all reasonable costs and
expenses of such action or proceeding and reasonable attorneys fees and expenses
and further expressly waive any and every right to interpose any counterclaim in
any such action or proceeding. The Co-Borrowers hereby submit to the
jurisdiction of the Supreme Court of the State of New York and agree with Bank
that personal jurisdiction over the Co-Borrowers shall rest with the Supreme
Court of the State of New York for purposes of any action on or related to this
Note, the liabilities, or the enforcement of either or all of the same. The
Co-Borrowers hereby expressly waive any and every right to a trial by jury in
any action on or related to this Note, the liabilities or the enforcement of
either or all of the same. Bank may transfer this Note and may deliver the
security or any part thereof to the transferee or transferees, who shall
thereupon become vested with all the powers and rights above given to Bank in
respect thereto, and Bank shall thereafter be forever relieved and fully
discharged from any liability or responsibility in the matter. The failure of
any holder of this Note to insist upon strict performance of each and/or all of
the terms and conditions hereof shall not be construed as or deemed to be a
waiver of any such term or condition.
The Co-Borrowers and all endorsers and guarantors hereof waive
presentment and demand for payment, notice of non-payment, protest, and notice
of protest.
The terms of this Note may not be changed orally, but only by an
instrument duly executed by the Co-Borrowers and the Bank.
This Note shall be construed in accordance with and governed by the laws
of the State of New York.
PDK LABS INC.
By:
--------------------
Michael Krasnoff
President
FUTUREBIOTICS, INC.
By:
-------------------
Reginald Spinello
President
2
<PAGE>
Schedule of Revolving Credit Loans
----------------------------------
Amount of Name of
Principal Unpaid Last Day of Person
Making Amount of Interest Paid or Principal Interest Making
Date Loan Rate Prepaid Balance Period Notation
---- ---- ---- ------- ------- ------ --------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3
<PAGE>
Amount of Name of
Principal Unpaid Last Day of Person
Making Amount of Interest Paid or Principal Interest Making
Date Loan Rate Prepaid Balance Period Notation
---- ---- ---- ------- ------- ------ --------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4
<PAGE>
Exhibit B
---------
TERM PROMISSORY NOTE
$6,300,000 Hauppauge, New York
August 20, 1997
PDK LABS INC., a corporation organized under the laws of the State of
New York, having a principal place of business at 145 Ricefield Lane, Hauppauge,
New York and FUTUREBIOTICS, INC., a corporation organized under the laws of the
State of Delaware, having a principal place of business at 145 Ricefield Lane,
Hauppauge, New York, (the "Co-Borrowers"), for value received, hereby, jointly
and severally, promise to pay to the order of EUROPEAN AMERICAN BANK (the
"Bank") at the office of EUROPEAN AMERICAN BANK (the "Agent") located at 730
Veterans Memorial Highway, Hauppauge, New York 11788, the principal sum of Six
Million Three Hundred Thousand Dollars ($6,300,000) in sixty (60) equal
consecutive monthly installments of $105,000, in lawful money of the United
States of America and in immediately available funds, in the manner provided in
the Credit Agreement referred to below on the 1st day of each calendar month
commencing on October 1, 1997, with a final payment due on September 1, 2002.
The Co-Borrowers shall pay interest on the unpaid principal balance of
this Term Note from time to time outstanding, at said office, at the rates of
interest, at the times and for the periods set forth in the Agreement.
All payments including prepayments on this Term Note shall be made in
lawful money of the United States of America in immediately available funds.
Except as otherwise provided in the Agreement, if a payment 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 shall be payable
thereon at the rate herein specified during such extension.
This Note is one of the Term Notes referred to in that certain Credit
Agreement dated as of August 20, 1997 among the Co-Borrowers, the Guarantor, and
the Agent and the Banks party thereto of even date herewith (the "Agreement"),
as such Agreement may be amended from time to time, and is subject to prepayment
and its maturity is subject to acceleration upon the terms contained in said
Agreement. All capitalized terms used in this Term Note and not defined herein
shall have the meanings given them in the Agreement.
If any action or proceeding be commenced to collect this Term Note or
enforce any of its provisions, the Co-Borrowers agree to pay all reasonable
costs and expenses of such action or proceeding and reasonable attorneys fees
and expenses and further expressly waive any and every right to interpose any
counterclaim in any such action or proceeding. The Co-Borrowers hereby submit to
the jurisdiction of the Supreme Court of the State of New York and agree with
Bank that personal jurisdiction over the Co-Borrowers shall rest with the
Supreme Court of the State of New York for purposes of any action on or related
to this Note, the liabilities, or the enforcement of either or all of the same.
The Co-Borrowers hereby expressly waive any and every right to a trial by jury
in any action on or related to this Term Note, the liabilities or the
enforcement of either or all of the same. Bank may transfer this Term Note and
may deliver the security or any part thereof to
<PAGE>
the transferee or transferees, who shall thereupon become vested with all the
powers and rights above given to Bank in respect thereto, and Bank shall
thereafter be forever relieved and fully discharged from any liability or
responsibility in the matter. The failure of any holder of this Term Note to
insist upon strict performance of each and/or all of the terms and conditions
hereof shall not be construed as or deemed to be a waiver of any such term or
condition.
The Co-Borrowers and all endorsers and guarantors hereof waive
presentment and demand for payment, notice of non-payment, protest, and notice
of protest.
The terms of this Term Note may not be changed orally, but only by an
instrument duly executed by the Co-Borrowers and the Bank.
This Term Note shall be construed in accordance with and governed by the
laws of the State of New York.
PDK LABS INC.
By:
----------------------------
Michael Krasnoff
President
FUTUREBIOTICS, INC.
By:
----------------------------
Reginald Spinello
President
2
<PAGE>
Exhibit C
---------
SECURITY AGREEMENT
------------------
THIS SECURITY AGREEMENT (this "Security Agreement") is made this
-----
day of , 1997, by and between:
----------
, a New York corporation having its principal place of
---------------
business at (hereinafter referred to
-----------------------------------------
as the "Debtor"), and
EUROPEAN AMERICAN BANK, a New York banking corporation, having an office
at 730 Veterans Memorial Highway, Hauppauge, New York 11788 (the Agent) as
collateral agent for itself and each other Bank, if any, that is or hereafter
becomes a party to the Credit Agreement referred to below (the Secured Parties).
W I T N E S S E T H
-------------------
WHEREAS, and the Debtor (collectively the Co-Borrowers),
---------------
and the Secured Parties have entered into a Credit Agreement dated
(as it may hereafter be amended or otherwise modified from time
- ---------------
to time, being the "Credit Agreement") pursuant to which the Secured Parties may
lend to the Co-Borrowers the aggregate principal amounts set forth therein, upon
and subject to the terms and conditions thereof;
WHEREAS, it is a condition precedent to the obligation of the Secured
Parties to extend credit to the Co-Borrowers provided for in the Credit
Agreement that the Debtor shall execute and deliver this Security Agreement; and
WHEREAS, all capitalized terms used herein without definition shall have
the respective meanings ascribed thereto in the Credit Agreement.
NOW, THEREFORE, in consideration of the premises and in order to induce
the Secured Parties to continue to extend credit to the Co-Borrowers, the Debtor
agrees with the Agent and the Secured Parties as follows:
1. Security Interest.
(a) Grant of Security. As security for the Obligations (as defined in
Section 1(b) hereof), the Debtor hereby assigns and pledges to the Agent on
behalf of the Secured Parties, and hereby grants to the Agent on behalf of the
Secured Parties a first priority security interest in, all of the Debtors right,
title and interest, whether now existing or hereafter arising or acquired, in
and to the following (collectively, the "Collateral"):
(i) All personal property of the Debtor, whether now or
hereafter existing or now owned or hereafter acquired and wherever located, of
every kind and description, tangible or intangible, including, without
limitation, the balance of every deposit account now or hereafter
<PAGE>
existing of the Debtor with the Secured Parties or any of them or any of their
affiliates or with any agent of the Secured Parties or any of them or any of
their affiliates to the extent such account is maintained such agent in its
capacity as agent of any kind for the Secured Parties or any of them or any of
their affiliates, and all goods, equipment, furniture, inventory (including,
without limitation, all raw materials, finished goods and work-in-process),
accounts, contract rights, chattel paper, notes receivable, instruments,
documents (including, without limitation, documents of title, warehouse receipts
and all other shipping documents and instruments of any kind whatsoever, whether
relating to goods in transit or otherwise), general intangibles, credits,
claims, demands and any other obligations of any kind, whether now or hereafter
arising, of the Debtor, and, as to all of the foregoing, any and all additions
and accessions thereto, all substitutions and replacements therefor and all
products and proceeds thereof (including, without limitation, all proceeds of
insurance thereon).
The term "accounts" shall mean, without limiting the generality
of the foregoing, any and all now existing or hereafter arising rights to
payment held by the Debtor, whether in the form of accounts receivable, notes,
drafts, acceptances or other forms of obligations and receivables now or
hereafter received by or belonging to the Debtor for (A) inventory sold or
leased by it, (B) services rendered by it, or (C) advances or loans made by it
to any Person; together with all guarantees and security therefor and all
proceeds thereof, whether cash proceeds or otherwise, including, without
limitation, all right, title and interest of the Debtor in the inventory that
gave rise to any such accounts, including, without limitation, the right to
stoppage in transit and all returned, rejected, rerouted or repossessed
inventory.
(ii) All choses in action, any rights arising under any
judgment, statute or rule, all corporate and business records, customer lists,
credit files, computer program print-outs, and other computer materials and
records contained in any and all types of storage media, now in use or hereafter
created, including, but not limited to, floppy disks, hard disks,
magneto-optical disks, or CD-ROM disks, whether on-site or at a different
location, all inventories, trademarks, trade styles, trade names, designs,
patents, copyrights, licenses, license agreements, and any applications for
patents and/or trademarks.
(iii) Any and all additions and accessions to the foregoing
Collateral, all substitutions and replacements therefor and all products and
proceeds thereof (including, without limitation, proceeds of insurance thereon).
(b) Security for Obligations. This Security Agreement secures the
payment of all obligations of Debtor to the Secured Parties, or any of them, now
or hereafter existing under the Credit Agreement or this Security Agreement,
including, in each case, any modifications or amendments thereto, or under any
promissory notes or other documents evidencing indebtedness under or related to
or contemplated by the Credit Agreement, or any other obligation of Debtor to
the Secured Parties, whether principal, interest, fees, expenses or otherwise,
together with all costs of collection or enforcement, including, without
limitation, reasonable attorneys fees incurred in any collection efforts or in
any judicial proceeding (including, without limitation, bankruptcy or
reorganization) (all such obligations being the "Obligations").
2
<PAGE>
(c) Debtor Remains Liable. Anything herein to the contrary
notwithstanding, (i) the Debtor shall remain liable to perform all of its duties
and obligations under the transactions giving rise to the Collateral to the same
extent as if this Security Agreement had not been executed, (ii) the exercise by
the Agent on behalf of the Secured Parties of any of the rights hereunder shall
not release the Debtor from any of its duties or obligations under the
transactions giving rise to the Collateral, which shall remain unchanged as if
this Security Agreement had not been executed, and (iii) neither the Agent nor
any of the Secured Parties shall have any obligation or liability under the
transactions giving rise to the Collateral by reason of this Security Agreement,
nor shall the Agent or any of the Secured Parties be obligated to perform any of
the obligations or duties of the Debtor thereunder or to take any action to
collect or enforce any claim for payment assigned hereunder.
(d) Continuing Agreement. This Security Agreement shall create a
continuing security interest in the Collateral and shall remain in full force
and effect until payment in full of the Obligations and until the Credit
Agreement shall no longer be in effect.
2. Debtors Title; Liens and Encumbrances.
The Debtor represents and warrants that the Debtor is, or to the extent
that this Security Agreement states that the Collateral is to be acquired after
the date hereof, will be, the owner of the Collateral, having good and
marketable title thereto, free from any and all liens, security interests,
encumbrances and claims. The Debtor will not create or assume or permit to exist
any such lien, security interest, encumbrance or claim on or against the
Collateral except as created by this Securi Agreement and as permitted under
Section 8.2 of the Credit Agreement, and the Debtor will promptly notify the
Agent of any such other claim, lien, security interest or other encumbrance made
or asserted against the Collateral and will defend the Collateral against any
such claim, lien, security interest or other encumbrance.
3. Representations and Warranties;
Location of Collateral and Records;
Business and Trade Names of Debtor.
(a) The Debtor represents and warrants that it has no place of business,
offices where Debtors books of account and records are kept, or places where the
Collateral is used, stored or located, except as set forth on Schedule I annexed
hereto, and covenants that the Debtor will promptly notify the Agent of any
change in the foregoing representation. The Debtor shall at all times maintain
its records as to the Collateral at its chief place of business at the address
referred to on Sched and at none other. The Debtor further covenants that except
for Collateral delivered to the Agent or an agent for the Agent, the Debtor will
not store, use or locate any of the Collateral at any place other than as listed
on Schedule I annexed hereto. To the extent that any Collateral is located at a
location which is not owned by the Debtor, the Debtor shall deliver to the Agent
for the benefit of the Secured Parties landlords waivers in form and substance
satisfactory to the Agent.
(b) The Debtor represents and warrants that it currently uses, and
during the last five years has used, no business or trade names, except as set
forth on Schedule I annexed hereto,
3
<PAGE>
and covenants that the Debtor will promptly notify the Agent, in sufficient
detail, of any changes in, additions to, or deletions from the business or trade
names used by the Debtor for billing purposes.
(c) The Debtor represents and warrants that it has complied and is in
compliance with the provisions of the Fair Labor Standards Act, including,
without limitation, the minimum wage and overtime rules of that Act, and
covenants that the Debtor will continue to comply with the provisions of such
Act.
4. Perfection of Security Interest.
The Debtor will execute all such financing statements pursuant to the
Uniform Commercial Code or other notices appropriate under applicable law as the
Agent or the Secured Parties may require, each in form satisfactory to the Agent
and will pay all filing or recording costs with respect thereto, and all costs
of filing or recording this Security Agreement or any other instrument,
agreement or document executed and delivered pursuant hereto or to the Credit
Agreement (including the cost of a federal, state or local mortgage,
documentary, stamp or other taxes), in each case, in all public offices where
filing or recording is deemed by the Agent to be necessary or desirable. The
Debtor hereby authorizes the Agent to take all action (including, without
limitation, the filing of any Uniform Commercial Code financing statements or
amendments thereto without the signature of the Debtor or by signing of the
Debtors name to any such financing statements as its attorney-in-fact,) which
the Agent may deem necessary or desirable to perfect or otherwise protect the
liens and security interests created hereunder and to obtain the benefits of
this Security Agreement.
5. General Covenants.
The Debtor shall:
(a) furnish the Agent from time to time at the Agents request written
statements and schedules further identifying and describing the Collateral in
such detail as the Agent may reasonably require;
(b) advise the Agent promptly, in sufficient detail, of any substantial
change in the Collateral, and of the occurrence of any event which would have a
material adverse effect on the value of the Collateral or on the Secured Parties
security interest therein;
(c) comply with all acts, rules, regulations and orders of any
legislative, administrative or judicial body or official applicable to the
Collateral or any part thereof or to the operation of the Debtors business
except where the failure to comply (a) is non-material and (b) has no effect on
the value of the Collateral or on the ability of the Secured Parties to exercise
its rights and remedies hereunder; provided, however, that the Debtor may
contest any acts, rules, regulations, orde and directions of such bodies or
officials in any reasonable manner which will not, in the Agents opinion,
adversely affect Agents or the Secured Parties rights or the priority of their
security interests in the Collateral;
4
<PAGE>
(d) perform and observe all covenants, restrictions and conditions
contained in the Credit Agreement providing for payment of taxes, maintenance of
insurance and otherwise relating to the Collateral, as though such covenants,
restrictions and conditions were fully set forth in this Security Agreement;
(e) promptly notify the Agent of all disputes with account debtors
involving amounts in excess of $250,000.00;
(f) promptly execute and deliver to the Agent such further deeds,
mortgages, assignments, security agreements or other instruments, documents,
certificates and assurances and take such further action as the Agent may from
time to time in its sole discretion deem necessary to perfect, protect or
enforce the Agents or the Secured Parties security interests in the Collateral
or otherwise to effect the intent of this Security Agreement and the Credit
Agreement;
(g) keep or cause to be kept the Collateral in good working order,
repair, running and marketable condition, ordinary wear and tear excepted, at
the Debtors own cost and expense; and
(h) not assign, sell, mortgage, lease, transfer, pledge, grant a
security interest in or lien upon, encumber or otherwise dispose of or abandon,
any part or all of the Collateral, without the express prior written consent of
the Agent (exercisable in the sole discretion of the Secured Parties), except
(i) for the sale from time to time in the ordinary course of business of the
Debtor of such items of Collateral as may constitute part of the business
inventory of the Debtor; and (ii) as otherwise expressly provided in the Credit
Agreement.
6. Assignment of Insurance.
At or prior to the date hereof, the Debtor shall deliver to Secured
Parties copies of, or certificates of the issuing companies with respect to,
endorsements of any and all policies of insurance owned by the Debtor covering
or in any manner relating to the Collateral, in form and substance satisfactory
to the Secured Parties naming the Secured Parties as additional insured party as
their interests may appear with respect to liability coverage and the Agent on
behalf of the Secured Parties a loss payee with respect to property and extended
insurance coverage, and indicating that no such policy will be terminated, or
reduced in coverage or amount, without at least thirty (30) days prior written
notice from the insurer to the Agent. As further security for the due payment
and performance of the Obligations, the Debtor hereby assigns to the Agent for
the benefit of the Secured Parties all sums, including returned or unearned
premiums, which may become payable under or in respect of any policy of
insurance owned by the Debtor covering or in any manner relating to the
Collateral, and the Debtor hereby directs each insurance company issuing any
such policy to make payment of sums directly to the Agent for the benefit of the
Secured Parties. The Debtor hereby appoints the Agent as the Debtors
attorney-in-fact and authorizes the Agent in the Debtors or in the Agents name
to endorse any check or draft representing any such payment and to execute any
proof of claim, subrogation receipt and any other document required by such
insurance company as a condition to or otherwise in connection with such
payment, and, upon the occurrence of any Default or Event of Default, to cancel,
assign or surrender any such policies.
5
<PAGE>
All such sums received by the Agent shall be applied by the Agent to
satisfaction of the Obligations or, to the extent that such sums represent
unearned premiums in respect of any policy of insurance on the Collateral
refunded by reason of cancellation, toward payment for similar insurance
protecting the respective interests of the Debtor and the Secured Parties, or as
otherwise required by applicable law.
7. Fixtures.
It is the intent of the Debtor and the Secured Parties that none of the
Collateral is or shall be regarded as fixtures, as that term is used or defined
in Article 9 of the Uniform Commercial Code, and the Debtor represents and
warrants that it has not made and is not bound by any lease or other agreement
which is inconsistent with such intent. Nevertheless, if the Collateral or any
part thereof is or is to become attached or affixed to any real estate, the
Debtor will, upon request, furnis the Agent with a disclaimer or subordination
in form satisfactory to the Agent or the holder of any interest in the real
estate to which the Collateral is attached or affixed, together with the names
and addresses of the record owners of, and all other persons having interest in,
and a general description of, such real estate.
8. Collections.
(a) The Debtor may collect all checks, drafts, cash or other remittances
(i) in payment of any of its accounts, contract rights or general intangibles
constituting part of the Collateral, (ii) in payment of any Collateral sold,
transferred, leased or otherwise disposed of, or (iii) in payment of or on
account of its accounts, contracts, contract rights, notes, drafts, acceptances,
general intangibles, choses in action and all other forms of obligations
relating to any of the Collateral sold, transferred, or leased or otherwise
disposed of, and all of the foregoing amounts so collected after the occurrence
of an Event of Default shall be held in trust by the Debtor for, and as the
property of, the Secured Parties and shall not be commingled with other funds,
money or property of the Debtor.
(b) Upon the written request of the Agent, the Debtor will immediately
upon receipt of all such checks, drafts, cash or other remittances in payment of
any of its accounts, contract rights or general intangibles constituting part of
the Collateral, deliver any such items to the Agent for the benefit of the
Secured Parties accompanied by a remittance report in form supplied or approved
by the Agent, such items to be delivered to the Agent in the same form received,
endorsed or otherwise assigned by the Debtor where necessary to permit
collection of such items and, regardless of the form of such endorsement, the
Debtor hereby waives presentment, demand, notice of dishonor, protest, notice of
and all other notices with respect thereto.
(c) Upon the written request of the Agent, the Debtor will immediately
upon receipt of all such checks, drafts, cash or other remittances in payment
for any Collateral sold, transferred, leased or otherwise disposed of, or in
payment or on account of its accounts, contracts, contract rights, notes,
drafts, acceptances, general intangibles, choses in action and all other forms
of obligations relating to any of the Collateral so sold, transferred, leased or
otherwise disposed of, deliver such items to the Agent accompanied by a
remittance report in form supplied or
6
<PAGE>
approved by the Agent, such items to be delivered to the Agent in the same form
received, endorsed or otherwise assigned by the Debtor where necessary to permit
collection of such items and, regardless of the form of such endorsement, the
Debtor hereby waives presentment, demand, notice of dishonor, protest, notice of
protest and all other notices with respect thereto.
(d) Upon the written request of the Agent, the Debtor will promptly
notify the Agent in writing of the return or rejection of any goods represented
by any accounts, contract rights or general intangibles and the Debtor shall
forthwith account therefor to the Agent for the benefit of the Secured Parties
in cash without demand or notice and until such payment has been received by the
Agent the Debtor will receive and hold all such goods separate and apart, in
trust for and subject to the security interest in favor of the Agent for the
benefit of the Secured Parties, and the Agent is authorized to sell, for the
Debtors account and at the Debtors sole risk, all or any part of such goods.
(e) All of the foregoing remittances shall be applied and credited by
the Agent first to satisfaction of the Obligations or as otherwise required by
applicable law, and to the extent not so credited or applied, shall be paid over
to the Debtor.
9. Rights and Remedies.
In the event of the occurrence and continuance of any Event of Default,
the Agent, on behalf of the Secured Parties, shall at any time thereafter have
the right, with or without (to the extent permitted by applicable law) notice to
the Debtor, as to any or all of the Collateral, by any available judicial
procedure or without judicial process, to take possession of the Collateral and
without liability for trespass to enter any premises where the Collateral may be
located for the purpose of taking possession of or removing the Collateral, and,
generally, to exercise any and all rights afforded to a secured party under the
Uniform Commercial Code or other applicable law. Without limiting the generality
of the foregoing, the Debtor agrees that the Agent, on behalf of the Secured
Parties shall have the right to sell, lease, or otherwise dispose of all or any
part of the Collateral, either at public or private sale or at any brokers
board, in lots or in bulk, for cash or for credit, with or without warranties or
representations, and upon such terms and conditions, all as the Agent in its
sole discretion may deem advisable, and it or any of the Secured Parties shall
have the right to purchase at any such sale; and, if any Collateral shall
require rebuilding, repairing, maintenance, preparation, or is in process or
other unfinished state, the Agent shall have the right, at its sole option and
discretion, to do such rebuilding, repairing, preparation, processing or
completion of manufacturing, for the purpose of putting the Collateral in such
saleable or disposable form as it shall deem appropriate. At the Agents request,
the Debtor shall assemble the Collateral and make it available to the Agent at
places which the Agent shall select, whether at the Debtors premises or
elsewhere, and make available to the Agent, without rent, all of the Debtors
premises and facilities for the purpose of the Agents taking possession of,
removing or putting the Collateral in saleable or disposable form. The proceeds
of any such sale, lease or other disposition of the Collateral shall be applied
first to the expenses of retaking, holding, storing, processing and preparing
for sale, selling, and the like, and to the reasonable attorneys fees and legal
expenses incurred by the Agent and/or the Secured Parties, and then to
satisfaction of the Obligations, and to the payment of any other amounts
required by applicable law, after which the Agent shall account
7
<PAGE>
to the Debtor for any surplus proceeds. If, upon the sale, lease or other
disposition of the Collateral, the proceeds thereof are insufficient to pay all
amounts to which the Secured Parties are legally entitled, the Debtor will be
liable for the deficiency, together with interest thereon, at the rate
prescribed in the Credit Agreement, and the reasonable fees of any attorneys
employed by the Agent and/or the Secured Parties to collect such deficiency. To
the extent permitted by applicable law, the Debtor waives all claims, damages
and demands against the Agent and the Secured Parties arising out of the
repossession, removal, retention or sale of the Collateral.
10. Costs and Expenses.
Any and all fees, costs and expenses, of whatever kind or nature,
including reasonable attorneys fees and legal expenses incurred by the Agent
and/or the Secured Parties, in connection with the preparation of this Security
Agreement and all other documents relating hereto and the consummation of this
transaction, the filing or recording of financing statements and other documents
(including all taxes in connection therewith) in public offices, the payment or
discharge of any taxes, insuran premiums, encumbrances or otherwise protecting,
maintaining or preserving the Collateral and the Secured Parties security
interest therein, whether through judicial proceedings or otherwise, or in
defending or prosecuting any actions or proceedings arising out of or related to
the transaction to which this Security Agreement relates, shall be borne and
paid by the Debtor on demand by the Agent and the Secured Parties and until so
paid shall be added to the principal amount of the Obligations and shall bear
interest at the rate prescribed in the Credit Agreement.
11. Power of Attorney.
The Debtor authorizes the Agent and does hereby make, constitute and
appoint the Agent, and any officer or agent of the Agent, with full power of
substitution, as the Debtors true and lawful attorney-in-fact, with power, in
its own name or in the name of the Debtor: (a) to endorse any notes, checks,
drafts, money orders, or other instruments of payment (including payments
payable under or in respect of any policy of insurance) in respect of the
Collateral that may come into possession of t Agent; (b) to sign and endorse any
invoice, freight or express bill, bill of lading, storage or warehouse receipts,
drafts against debtors, assignments, verifications and notices in connection
with accounts, and other documents relating to Collateral; (c) to pay or
discharge any taxes, liens, security interest or other encumbrances at any time
levied or placed on or threatened against the Collateral; (d) to demand,
collect, receipt for, compromise, settle and sue for monies due in respect of
the Collateral; (e) to receive, open and dispose of all mail addressed to the
Debtor and to notify the Post Office authorities to change the address for
delivery of mail addressed to the Debtor to such address as the Agent may
designate; and (f) generally to do, at the Agents option and at the Debtors
expense, at any time, or from time to time, all acts and things which the Agent
deems necessary to protect, preserve and realize upon the Collateral and the
Secured Parties security interest therein in order to effect the intent of this
Security Agreement and the Credit Agreement, all as fully and effectually as the
Debtor might or could do; and the Debtor hereby ratifies all that said attorney
shall lawfully do or cause to be done by virtue hereof. All acts of said
attorney or designee are hereby ratified and approved and said attorney or
designee shall not be liable for any acts of commission or omission, nor for any
error or judgment or mistake of fact or
8
<PAGE>
law except for its own gross negligence or willful misconduct. This power of
attorney shall be irrevocable for the term of this Security Agreement and
thereafter as long as any of the Obligations shall be outstanding.
12. Notices.
Unless the party to be notified otherwise notifies the other party in
writing as provided in this Section, notices shall be given hereunder by
telecopy, by certified or registered mail or by recognized overnight delivery
services to any party at its address on the signature page of this Security
Agreement. Notices shall be effective (a) if given by registered or certified
mail, on the third day after deposit in the mails with postage prepaid,
addressed as aforesaid; (b) if given by recogni overnight delivery service, on
the business day following deposit with such service, addressed as aforesaid; or
(c) if given by telecopy, when the telecopy is transmitted to the telecopy
number as aforesaid; provided that all notices to the Agent and the Secured
Parties shall be effective on receipt.
13. Other Security.
To the extent that the Obligations are now or hereafter secured by
property other than the Collateral or by the guarantee, endorsement or property
of any other person, then the Agent shall have the right in its sole discretion
to pursue, relinquish, subordinate, modify or take any other action with respect
thereto, without in any way modifying or affecting any of the Agents and/or the
Secured Parties rights and remedies hereunder.
14. Deposits.
Any and all deposits or other sums at any time credited by or due from
any of the Secured Parties to the Debtor, whether in regular or special
depository accounts or otherwise, shall at all times constitute additional
Collateral for the Obligations, and may be set-off by the Secured Parties, or
any of them, against any Obligations at any time, whether or not other
collateral held by the Agent on behalf of the Secured Parties is considered to
be adequate.
15. Miscellaneous.
(a) Beyond the safe custody thereof, the Agent shall have no duty as to
the collection of any Collateral in its possession or control or in the
possession or control of any agent or nominee of the Agent, or any income
thereon or as to the preservation of rights against prior parties or any other
rights pertaining thereto.
(b) No course of dealing between the Debtor and the Agent or the Secured
Parties, nor any failure to exercise, nor any delay in exercising, on the part
of the Agent or the Secured Parties, any right, power or privilege hereunder or
under the Credit Agreement shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, power or privilege hereunder or
thereunder preclude any other or further exercise thereof or the exercise of any
other right, power or privilege
9
<PAGE>
(c) All of the Agents and the Secured Parties rights and remedies with
respect to the Collateral, whether established hereby or by the Credit
Agreement, or by any other agreements, instruments or documents or by law, shall
be cumulative and may be exercised singly or concurrently.
(d) The provisions of this Security Agreement are severable, and if any
clause or provision shall be held invalid or unenforceable in whole or in part
in any jurisdiction, then such invalidity or unenforceability shall affect only
such clause or provision, or part thereof, in such jurisdiction and shall not in
any manner affect such clause or provision in any other jurisdiction, or any
other clause or provision of this Security Agreement in any jurisdiction.
(e) This Security Agreement (including this subsection) is subject to
modification only by a writing signed by all of the parties hereto.
(f) The benefits and burdens of this Security Agreement shall inure to
the benefit of and be binding upon the respective successors and assigns of the
parties hereto; provided, however, that the rights and obligations of the Debtor
under this Security Agreement shall not be assigned or delegated without the
prior written consent of the Agent and the Secured Parties (exercisable in their
sole discretion), and any purported assignment or delegation without such
consent shall be void.
16. Term of Agreement.
The term of this Security Agreement shall commence on the date hereof
and this Security Agreement shall continue in full force and effect, and be
binding upon the Debtor, until all of the Obligations have been fully paid and
performed and such payment and performance have been acknowledged in writing by
the Agent on behalf of the Secured Parties, whereupon this Security Agreement
shall terminate.
10
<PAGE>
WITNESS the execution hereof as of the day and year first above written.
, as Debtor
---------------
By:
-------------------------------------
President
Address for Notices:
The Banks:
EUROPEAN AMERICAN BANK,
as Agent and as a Secured Party
By:
-------------------------------------
Stuart N. Berman
Vice President
Address for Notices:
European American Bank
730 Veterans Memorial Highway
Hauppauge, New York 11788
Telephone: (516) 360-7113
Telecopier: (516) 360-7112
11
<PAGE>
SCHEDULE I
TO
SECURITY AGREEMENT
------------------
Offices Where Records Are Kept:
-------------------------------
145 Ricefield Lane
Hauppauge, New York 11788
Other Locations Where Collateral
Is Stored, Used or Located:
---------------------------
300 Oser Avenue
Hauppauge, New York 11788
270 Oser Avenue
Hauppauge, New York 11788
Business and Trade Names
Used by Debtor:
---------------
None
12
<PAGE>
SCHEDULE A
TO
UCC-1 FINANCING STATEMENT
NAMING , AS DEBTOR, AND
---------------
EUROPEAN AMERICAN BANK,
AS AGENT FOR ITSELF AND CERTAIN OTHER BANKS
AS SECURED PARTIES
------------------
All of the Debtors right, title and interest, whether now existing or
hereafter arising, in and to the following:
(a) All personal property of the Debtor, whether now or hereafter
existing or now owned or hereafter acquired and wherever located, of every kind
and description, tangible or intangible, including, without limitation, the
balance of every deposit account now or hereafter existing of the Debtor with
the Secured Parties or any of them or any of their affiliates or with any agent
of the Secured Parties or any of them or any of their affiliates to the extent
such account is maintained by such agent in its capacity as agent of any kind
for the Secured Parties or any of them or any of their affiliates and all goods,
equipment, furniture, inventory (including, without limitation, all raw
materials, finished goods and work-in-process), accounts, contract rights,
chattel paper, notes receivable, instruments, documents (including, without
limitation, documents of title, warehouse receipts and all other shipping
documents and instruments of any kind whatsoever, whether relating to goods in
transit or otherwise), general intangibles, credits, claims, demands and any
other obligations of any kind, whether now or hereafter arising, of the Debtor
and, as to all the foregoing, any and all additions and accessions thereto, all
substitutions and replacements therefor and all products and proceeds thereof
(including, without limitation, proceeds of insurance thereon).
The term "accounts" shall mean, without limiting the generality of the
foregoing, any and all now existing or hereafter arising rights to payment held
by the Debtor, whether in the form of accounts receivable, notes, drafts,
acceptances or other forms of obligations and receivables now or hereafter
received by or belonging to the Debtor for (A) inventory sold or leased by it,
(B) services rendered by it, or (C) advances or loans made by it to any Person,
together with all guarantees and security therefor and all proceeds thereof,
whether cash proceeds or otherwise, including, without limitation, all right,
title and interest of the Debtor in the inventory which gave rise to any such
accounts, including, without limitation, the right to stoppage in transit and
all returned, rejected, rerouted or repossessed inventory.
(b) All choses in action, any rights arising under any judgment, statute
or rule, all corporate and business records, customer lists, credit files,
computer program print-outs, and other computer materials and records contained
in any and all types of storage media, now in use or hereafter created,
including, but not limited to, floppy disks, hard disks, magneto-optical disks,
or CD-ROM disks, whether on-site or at a different location, all inventories,
trademarks, trade styles, trade names designs, patents, copyrights, licenses,
license agreements, and any applications for patents and/or trademarks.
13
<PAGE>
(c) Any and all additions and accessions to the foregoing Collateral,
all substitutions and replacements therefor and all products and proceeds
thereof (including, without limitation, proceeds of insurance thereon).
(d) All sums, including returned or unearned premiums, which may become
payable under or in respect of any policy of insurance owned by the Debtor
covering or in any manner relating to the Collateral.
(e) Any and all deposits or other sums at any time credited by or due
from the Secured Parties to the Debtor whether in regular or special depository
accounts or otherwise.
14
<PAGE>
Exhibit D
GUARANTY
--------
WHEREAS, European American Bank and the parties identified as Banks
therein (the Banks) have entered into a Credit Agreement (the Credit Agreement),
dated August 20, 1997, with PDK Labs Inc. and Futurebiotics, Inc. (the Debtors);
and
WHEREAS, under the terms of the Credit Agreement, the Banks have agreed
to extend credit to the Debtors, which indebtedness will be evidenced by certain
promissory notes of the Debtors (the Notes), to be dated on and after August 20,
1997, in the aggregate principal amount of $23,500,000;
WHEREAS, the undersigned (the Guarantor) is a direct or indirect
subsidiary of one or more of the Debtors and has derived or will derive direct
benefit from the extension of credit to the Debtors; and
WHEREAS, the Banks will not extend such credit unless, among other
conditions, the undersigned Guarantor shall have executed and delivered this
Guaranty;
NOW, THEREFORE, in consideration of the Banks extending such credit to
the Debtors and other benefits accruing to the Guarantor, the receipt and
sufficiency of which are hereby acknowledged, the Guarantor hereby makes the
following representations and warranties to the Banks and hereby covenants and
agrees with the Banks as follows:
1. The Guarantor irrevocably and unconditionally, guarantees to the
Banks (i) timely payment in full by Debtors to the Banks of all payments due
pursuant to the Notes (it being understood that this is a guarantee of payment
and not of collection), and (ii) timely payment and/or performance, as
applicable, of all other payment and performance obligations of Debtors pursuant
to the Notes, the Credit Agreement and all other documents and instruments
executed in connection therewith, or pursua to any amendment, modification or
supplement to any of the foregoing (all of the foregoing under clauses (i) and
(ii) being collectively referred to as the Guaranteed Obligations). If Debtors
shall default in payment of any amount due pursuant to the Notes beyond any
applicable grace period or otherwise default beyond any applicable grace period
in the performance of the Guaranteed Obligations, the Guarantor irrevocably and
unconditionally agrees to pay to the Banks upon demand the amount in default or
to cure the default if it is a non-payment default (it being understood,
however, that a non-payment may result in the acceleration of all indebtedness
and a demand for payment in full by the Guarantor under the Guaranty). The
Guarantor understands, agrees and confirms that the Banks may enforce this
Guaranty up to the full amount of the Guaranteed Obligations owing against the
Guarantor without proceeding against the Debtors, or any of them, against any
security for the Guaranteed Obligations or against any other guarantor under any
other guarantee covering the Guaranteed Obligations.
<PAGE>
2. The Guarantor hereby acknowledges the Guaranteed Obligations and
hereby expressly waives: (i) presentment and demand for payment of the principal
of or interest thereon or any other sums of any nature whatsoever with respect
thereto, (ii) notice of acceptance of this Guaranty, or of the extension of
credit to the Debtors, (iii) notice of any default hereunder or under any
agreements between the Banks and the Debtors with respect to the Guaranteed
Obligations, and of all indulgences with respect thereto, (iv) demand on the
Debtors for observance or performance of, or enforcement of any terms or
provisions of any agreements between the Banks and the Debtors with respect to
the Guaranteed Obligations, (v) to the maximum extent permitted by applicable
law and except as otherwise provided herein, the benefit of all laws now or
hereafter in effect in any way limiting or restricting the liability of the
Guarantor under this Guaranty, including any and all right to stay of execution
and exemption of property in any action to enforce the liability of the
Guarantor hereunder and (vi) any other event or circumstance which may
constitute a release of or defense to the obligors under any of the Guaranteed
Obligations or the Guarantor under this Guaranty. In the event this Guaranty
shall be enforced by suit or otherwise, the Guarantor shall pay the Banks, on
demand, for all reasonable fees and expenses incurred by the Banks in connection
therewith, including, without limitation, the reasonable fees and expenses of
the Banks' counsel.
3. The Banks, in their sole and absolute discretion, may at any time and
from time to time without the consent of, or notice to, the Guarantor without
incurring responsibility to the Guarantor, without impairing or releasing the
obligations of Guarantor hereunder, upon or without any terms or conditions and
in whole or in part (but in all events subject to the applicable provisions of
the Credit Agreement);
(a) by agreement with the Debtors, change the manner,
place or terms of payment of, and/or change or extend the time of payment of,
increase the amount of, or renew or alter any of the Guaranteed Obligations, any
security therefor, or any liability incurred directly or indirectly in respect
thereof, and the Guaranty herein made shall apply to the Guaranteed Obligations
as so changed, extended, increased, renewed or altered;
(b) exercise or refrain from exercising any rights
against the Debtors, or any of them, or others or otherwise act or refrain from
acting;
(c) release, settle or compromise any of the Guaranteed
Obligations, any security therefor or any liability (including any of those
hereunder) incurred directly or indirectly in respect thereof or hereof, and may
subordinate the payment of all or any part thereof to the payment of any
liability (whether due or not) of Debtors, or any of them, to creditors of
Debtors, or any of them, other than Guarantor;
(d) consent to or waive any breach of, or any act,
omission or default under, the Credit Agreement or the Notes, or any of the
instruments or agreements referred to therein, or otherwise amend, modify or
supplement any of the foregoing;
(e) agree to the substitution, exchange, release or
other disposition of all or any part of any property securing the Guaranteed
Obligations;
2
<PAGE>
(f) make advances for the purposes of performing any
term or covenant contained in any agreement between the Banks and the Debtors
with respect to which the Debtors may be in default;
(g) assign or otherwise transfer all or any part of the
Guaranteed Obligations; and
(h) deal in all respects with the Debtors as if this
Guaranty were not in effect.
4. No invalidity, irregularity or unenforceability of all or any part of
the Guaranteed Obligations or of any security therefor shall affect, impair or
be a defense to this Guaranty, and this Guaranty is a primary obligation of the
Guarantor.
5. This Guaranty is a continuing one and all liabilities to which it
applies or may apply under the terms hereof shall be conclusively presumed to
have been created in reliance hereon. No failure or delay on the part of the
Banks (whether acting individually or through an agent), or any of them, in
exercising any right, power or privilege hereunder 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
expressly specified are cumulative and not exclusive of any rights or remedies
which the Banks (whether acting individually or through an agent), or any of
them, or any subsequent holder of any Guaranteed Obligations would otherwise
have. No notice to or demand on the Guarantor in any case shall entitle the
Guarantor to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the rights of the Banks (whether acting
individually or through an agent), or any of them, or any holder of any
Guaranteed Obligations to any other or further action in any circumstances
without notice or demand.
6. This is a guarantee of payment and not of collection, and the
liability of the Guarantor under this Guaranty shall be primary, direct and
immediate, and not conditional or contingent upon pursuit by the Banks of any
remedies they may have against the Debtors, or any of them, with respect to the
Guaranteed Obligations, whether pursuant to the terms thereof or by law, or
against any other person or entity or against any other collateral. Without
limiting the generality of the foregoing, Banks shall not be required to make
any demand on the Debtors, or any of them, or to sell at foreclosure or
otherwise pursue or exhaust their remedies against the property securing the
Debtors obligations for the Guaranteed Obligations or against the Debtors, or
any of them, or against any other person or entity or against any other
collateral whatsoever, before, simultaneously with or after enforcing their
rights and remedies hereunder against the Guarantor. Any one or more successive
or concurrent actions may be brought hereon against the Guarantor either in the
same action, if any, brought against the Debtors, or any of them, or in separate
actions, as often as the Banks may deem advisable.
7. The Guarantor represents and warrants to the Banks that:
3
<PAGE>
(a) It is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation and
has all corporate power and authority to own all of its properties and to carry
on its business as presently conducted and as contemplated by this Guaranty and
has corporate power and authority to execute and deliver this Guaranty and to
perform its obligations hereunder.
(b) This Guaranty is and will be the legal, valid and
binding obligation of the Guarantor, enforceable in accordance with its terms,
and the execution, delivery and performance of this Guaranty and such other
agreements, documents and instruments and the performance of the transactions
contemplated hereunder have been and will be duly and validly authorized and
approved by the Board of Directors, and do not and will not require any consent
or approval of any third party or of the stockholders of the Guarantor other
than consents which have previously been obtained.
(c) The execution and delivery of this Guaranty do not,
and the consummation of the transactions contemplated hereby will not,
constitute a violation of, and are not, and will not, be a default under or
conflict with the terms of the Certificate of Incorporation or By-laws of the
Guarantor, or any contract, lease, indenture, agreement, order, judgment, or
decree to which it is a party or by which it is bound or to which any of its
assets are subject, which in any case, or in the aggregate, could have a
material adverse effect on its ability to carry out its obligations under this
Guaranty, and do not, and will not, violate or constitute a default under any
statute, rule, regulation, order or ordinance of any governmental, judicial or
arbitral body, which in any case, or in the aggregate, could have a material
adverse effect on its ability to carry out its obligations under this Guaranty.
(d) Neither the execution, delivery or performance of
this Guarantee, nor the consummation of the transactions contemplated hereby,
requires the Guarantor to obtain any consent, authorization, approval or
registration under any law, rule or regulation, other than as contemplated
hereby or as previously obtained.
(e) There is no suit, action or legal, administrative,
arbitration or other proceeding of any nature pending, or, to the knowledge of
the Guarantor, threatened, against it which might affect the legality or
validity of this Guaranty, or the transactions contemplated hereby, and there is
not any factual basis known to it for any such suit, action or proceeding.
8. This Guaranty shall be binding upon the Guarantor and its successors
and assigns and shall inure to the benefit of the Banks and their respective
successors and permitted assigns. This Guaranty may not under any circumstances
be assigned by the Guarantor to any other person or entity without the express
prior written consent of each of the Banks.
9. Neither this Guaranty nor any provision hereof may be changed,
waived, discharged or terminated except with the written consent of each of the
Banks.
4
<PAGE>
10. In the event that either Bank shall receive any payments on account
of any of the Guaranteed Obligations, whether directly or indirectly, and it
shall subsequently be determined that such payments were for any reason
improper, or a claim shall be made against such Bank that the same were
improper, and such Bank pursuant to court order shall return the same, the
Guarantor shall be liable, with the same effect as if the said payment had never
been paid to, or received by such Bank, for t amount of such repaid or returned
payments, notwithstanding the fact that they may theretofore have been credited
on account of the Guaranteed Obligations or any of them. Moreover, this Guaranty
shall remain effective or be reinstated, as the case may be, if at any time
payment or performance, or any part thereof, or any or all of the Guarantors
obligations under this Guaranty is rescinded or must otherwise be restored or
returned by the Banks, or any of them, in connection with the insolvency,
bankruptcy or reorganization of the Guarantor or otherwise, all as though such
payment or performance had not been rendered. Notwithstanding any compromise,
release, discharge, settlement, extension or adjustment of the Debtors
obligations or any amendment, modification or stay of the Banks rights against
the Debtor that may occur in any bankruptcy or reorganization case or proceeding
concerning the Debtor, whether or not assented to by the Banks, the Guarantor
shall remain fully obligated to discharge the Guarantors obligations hereunder
in accordance with the terms of this Guaranty in effect on the date hereof. The
Guarantor assumes all risks of a bankruptcy or reorganization with respect to
the Debtor. In furtherance of this Section, the Banks shall not otherwise
indicate the satisfaction of the obligations of the parties represented herein
until the expiration of all applicable bankruptcy-related periods of time during
which the Debtor, the Guarantor or any third party would have the right to
commence a bankruptcy or reorganization proceeding with regard to the Debtor or
the Guarantor.
11. All notices and other communications provided for under this
Guaranty and under any other document executed in connection herewith shall be
in writing (including telegraphic or telefax communications) and, unless the
party to be notified otherwise notifies the other party in writing as provided
herein, notices shall be given by telecopier, by certified or registered mail or
by recognized overnight delivery service. If such notice is delivered to the
Guarantor such notice shall be addressed to the Guarantor at ,
-------------------
telecopier , Attn: and, if to the
-------------------- --------------------
Banks, at the Agents address listed on the signature pages of the Credit
Agreement; or as to each party, at such other address as shall be designated by
such party in a written notice to the other parties complying as to delivery
with the terms of this Section 11. Notices shall be effective: (a) if given by
registered or certified mail, on the third day after deposit in the mails with
postage prepaid, addressed as aforesaid; (b) if given by recognized overnight
delivery service, on the business day following deposit with such service,
addressed as aforesaid; and (c) if given by telecopy, when the telecopy is
transmitted to the telecopy number, as aforesaid; provided that all notices to
the Banks shall be effective on receipt.
12. This Guaranty and the rights and obligations of the Banks and of the
undersigned hereunder shall be governed and be construed in accordance with the
laws of the State of New York applicable to agreements made and to be wholly
performed in the State of New York. The Guarantor hereby irrevocably submits to
the jurisdiction of any New York State or United States Federal Court sitting in
New York County, Nassau County or Suffolk County
5
<PAGE>
over any action or proceeding arising out of or relat to the Guaranty, and the
Guarantor hereby irrevocably agrees that all claims in respect of such action or
proceeding may be heard and determined in such New York State or Federal court.
The Guarantor irrevocably consents to service of any and all process in any such
action or proceeding by the mailing (by registered or certified mail) of copies
of such process to it at its address specified in Section 11. The Guarantor
agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. The Guarantor further waives any objection
to venue in such State or Federal court and any objection to an action or
proceeding in such State or Federal court on the basis of forum non conveniens.
Nothing in this Section shall limit the rights of any Bank to serve legal
process in any other manner permitted by law or affect the right of the Banks to
bring any action or proceeding against the Guarantor in the courts of any other
jurisdiction. To the extent that the Guarantor has or hereafter may acquire
immunity from jurisdiction of any court or from any legal process with respect
to themselves or their property, the Guarantor hereby waives, to the extent
permitted by applicable law, such immunity in respect of its obligations
hereunder.
13. THE PARTIES HERETO WAIVE ANY RIGHT TO A TRIAL BY JURY IN CONNECTION
HEREWITH TO THE EXTENT PERMITTED BY APPLICABLE LAW.
IN WITNESS WHEREOF, the Guarantor have caused this Guaranty to be
executed and delivered as of .
-------------
THE GUARANTOR:
By:
-------------------------------------
President
6
<PAGE>
Exhibit E
---------
GUARANTORS
----------
SECURITY AGREEMENT
------------------
THIS SECURITY AGREEMENT (this Security Agreement) is made this day
-----
of August, 1997, by and between:
, a corporation, having an
-------------------- --------------------
office at
----------------------------------------------------------------------
(hereinafter referred to as the Debtor), and
EUROPEAN AMERICAN BANK, a New York banking corporation, having an office
at 730 Veterans Memorial Highway, Hauppauge, New York 11788 (the Agent) as
collateral agent for itself and any other Bank that is now or hereafter becomes
a party to the Credit Agreement referred to below (the Secured Parties).
W I T N E S S E T H
WHEREAS, PDK Labs Inc. and Futurebiotics, Inc. (the Co-Borrowers) and
the Secured Parties have entered into a Credit Agreement dated August 20, 1997
(as it may hereafter be amended or otherwise modified from time to time, being
the Credit Agreement) pursuant to which the Secured Parties may lend to the
Co-Borrowers the aggregate principal amounts set forth therein, upon and subject
to the terms and conditions thereof;
WHEREAS, the Debtor has executed a Guaranty dated the date hereof (as it
may hereafter be amended or otherwise modified from time to time, the Guaranty)
pursuant to which the Debtor has guaranteed the obligations of the Co-Borrowers
to the Secured Parties;
WHEREAS, it is a condition precedent to the obligation of the Secured
Parties to extend credit to the Co-Borrowers provided for in the Credit
Agreement that the Debtor shall execute and deliver this Security Agreement; and
WHEREAS, all capitalized terms used herein without definition shall have
the respective meanings ascribed thereto in the Credit Agreement.
NOW, THEREFORE, in consideration of the premises and in order to induce
the Secured Parties to continue to extend credit to the Co-Borrowers, the Debtor
agrees with the Secured Parties as follows:
1. Security Interest.
(a) Grant of Security. As security for the Obligations (as defined in
Section 1(b) hereof), the Debtor hereby assigns and pledges to the Agent on
behalf of the Secured Parties, and hereby grants to the Agent on behalf of the
Secured Parties a first priority security interest in, all of
<PAGE>
the Debtors right, title and interest, whether now existing or hereafter arising
or acquired, in and to the following (collectively, the Collateral):
(i) All personal property of the Debtor, whether now or hereafter
existing or now owned or hereafter acquired and wherever located, of every kind
and description, tangible or intangible, including, without limitation, the
balance of every deposit account now or hereafter existing of the Debtor with
the Secured Parties or any of them or any of their affiliates or with any agent
of the Secured Parties or any of them or any of their affiliates to the extent
such account is maintained such agent in its capacity as agent of any kind for
the Secured Parties or any of them or any of their affiliates, and all goods,
equipment, furniture, inventory (including, without limitation, all raw
materials, finished goods and work-in-process), accounts, contract rights,
chattel paper, notes receivable, instruments, documents (including, without
limitation, documents of title, warehouse receipts and all other shipping
documents and instruments of any kind whatsoever, whether relating to goods in
transit or otherwise), general intangibles, credits, claims, demands and any
other obligations of any kind, whether now or hereafter arising, of the Debtor,
and, as to all of the foregoing, any and all additions and accessions thereto,
all substitutions and replacements therefor and all products and proceeds
thereof (including, without limitation, all proceeds of insurance thereon).
The term accounts shall mean, without limiting the generality of the
foregoing, any and all now existing or hereafter arising rights to payment held
by the Debtor, whether in the form of accounts receivable, notes, drafts,
acceptances or other forms of obligations and receivables now or hereafter
received by or belonging to the Debtor for (A) inventory sold or leased by it,
(B) services rendered by it, or (C) advances or loans made by it to any Person;
together with all guarantees and security therefor and all proceeds thereof,
whether cash proceeds or otherwise, including, without limitation, all right,
title and interest of the Debtor in the inventory that gave rise to any such
accounts, including, without limitation, the right to stoppage in transit and
all returned, rejected, rerouted or repossessed inventory.
(ii) All choses in action, any rights arising under any judgment,
statute or rule, all corporate and business records, customer lists, credit
files, computer program print-outs, and other computer materials and records
contained in any and all types of storage media, now in use or hereafter
created, including, but not limited to, floppy disks, hard disks,
magneto-optical disks, or CD-ROM disks, whether on-site or at a different
location, all inventories, trademarks, trade styles, trade names, designs,
patents, copyrights, licenses, license agreements, and any applications for
patents and/or trademarks.
(iii) Any and all additions and accessions to the foregoing
Collateral, all substitutions and replacements therefor and all products and
proceeds thereof (including, without limitation, proceeds of insurance thereon).
(b) Security for Obligations. This Security Agreement secures the
payment of all obligations of Debtor to the Secured Parties, or any of them, now
or hereafter existing under the Guaranty or this Security Agreement, including,
in each case, any modifications or amendments thereto, or otherwise, whether for
principal, interest, fees, expenses or otherwise, together with all
2
<PAGE>
costs of collection or enforcement, including, without limitation, reasonable
attorneys fees incurred in any collection efforts or in any judicial proceeding
(including, without limitation, bankruptcy or reorganization) (all such
obligations being the Obligations).
(c) Debtor Remains Liable. Anything herein to the contrary
notwithstanding, (i) the Debtor shall remain liable to perform all of its duties
and obligations under the transactions giving rise to the Collateral to the same
extent as if this Security Agreement had not been executed, (ii) the exercise by
the Agent on behalf of the Secured Parties of any of the rights hereunder shall
not release the Debtor from any of its duties or obligations under the
transactions giving rise to the Collateral, which shall remain unchanged as if
this Security Agreement had not been executed, and (iii) neither the Agent nor
any of the Secured Parties shall have any obligation or liability under the
transactions giving rise to the Collateral by reason of this Security Agreement,
nor shall the Agent or any of the Secured Parties be obligated to perform any of
the obligations or duties of the Debtor thereunder or to take any action to
collect or enforce any claim for payment assigned hereunder.
(d) Continuing Agreement. This Security Agreement shall create a
continuing security interest in the Collateral and shall remain in full force
and effect until payment in full of the Obligations and until the Guaranty shall
no longer be in effect.
2. Debtors Title; Liens and Encumbrances.
The Debtor represents and warrants that the Debtor is, or to the extent
that this Security Agreement states that the Collateral is to be acquired after
the date hereof, will be, the owner of the Collateral, having good and
marketable title thereto, free from any and all liens, security interests,
encumbrances and claims. The Debtor will not create or assume or permit to exist
any such lien, security interest, encumbrance or claim on or against the
Collateral except as created by this Securi Agreement and as permitted under
Section 8.2 of the Credit Agreement, and the Debtor will promptly notify the
Agent of any such other claim, lien, security interest or other encumbrance made
or asserted against the Collateral and will defend the Collateral against any
such claim, lien, security interest or other encumbrance.
3. Representations and Warranties;
Location of Collateral and Records;
Business and Trade Names of Debtor.
(a) The Debtor represents and warrants that it has no place of business,
offices where Debtors books of account and records are kept, or places where the
Collateral is used, stored or located, except as set forth on Schedule I annexed
hereto, and covenants that the Debtor will promptly notify the Agent of any
change in the foregoing representation. The Debtor shall at all times maintain
its records as to the Collateral at its chief place of business at the address
referred to on Sched and at none other. The Debtor further covenants that except
for Collateral delivered to the Agent or an agent for the Agent, the Debtor will
not store, use or locate any of the Collateral at any place other than as listed
on Schedule I annexed hereto. To the extent that any Collateral is located at a
location which is not owned by the Debtor, the Debtor shall deliver to the Agent
for the benefit of the Secured Parties landlords waivers in form and substance
satisfactory to the Agent.
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<PAGE>
(b) The Debtor represents and warrants that it currently uses, and
during the last five years has used, no business or trade names, except as set
forth on Schedule I annexed hereto, and covenants that the Debtor will promptly
notify the Agent, in sufficient detail, of any changes in, additions to, or
deletions from the business or trade names used by the Debtor for billing
purposes.
(c) The Debtor represents and warrants that it has complied and is in
compliance with the provisions of the Fair Labor Standards Act, including,
without limitation, the minimum wage and overtime rules of that Act, and
covenants that the Debtor will continue to comply with the provisions of such
Act.
4. Perfection of Security Interest.
The Debtor will execute all such financing statements pursuant to the
Uniform Commercial Code or other notices appropriate under applicable law as the
Agent or the Secured Parties may require, each in form satisfactory to the Agent
and will pay all filing or recording costs with respect thereto, and all costs
of filing or recording this Security Agreement or any other instrument,
agreement or document executed and delivered pursuant hereto to the Guaranty or
to the Credit Agreement (includi the cost of all federal, state or local
mortgage, documentary, stamp or other taxes), in each case, in all public
offices where filing or recording is deemed by the Agent to be necessary or
desirable. The Debtor hereby authorizes the Agent to take all action (including,
without limitation, the filing of any Uniform Commercial Code financing
statements or amendments thereto without the signature of the Debtor or by
signing of the Debtors name to any such financing statements as its
attorney-in-fact,) which the Agent may deem necessary or desirable to perfect or
otherwise protect the liens and security interests created hereunder and to
obtain the benefits of this Security Agreement.
5. General Covenants.
The Debtor shall:
(a) furnish the Agent from time to time at the Agents request written
statements and schedules further identifying and describing the Collateral in
such detail as the Agent may reasonably require;
(b) advise the Agent promptly, in sufficient detail, of any substantial
change in the Collateral, and of the occurrence of any event which would have a
material adverse effect on the value of the Collateral or on the Secured Parties
security interest therein;
(c) comply with all acts, rules, regulations and orders of any
legislative, administrative or judicial body or official applicable to the
Collateral or any part thereof or to the operation of the Debtors business
except where the failure to comply (a) is non-material and (b) has no effect on
the value of the Collateral or on the ability of the Secured Parties to exercise
its rights and remedies hereunder; provided, however, that the Debtor may
contest any acts, rules, regulations, orde and directions of such bodies or
officials in any reasonable manner which will
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<PAGE>
not, in the Agents opinion, adversely affect Agents or the Secured Parties
rights or the priority of their security interests in the Collateral;
(d) perform and observe all covenants, restrictions and conditions
contained in the Credit Agreement and applicable to the Co-Borrowers providing
for payment of taxes, maintenance of insurance and otherwise relating to the
Collateral, as though such covenants, restrictions and conditions were fully set
forth in this Security Agreement and were applicable to it;
(e) promptly notify the Agent of all disputes with account debtors
involving amounts in excess of $250,000.00;
(f) promptly execute and deliver to the Agent such further deeds,
mortgages, assignments, security agreements or other instruments, documents,
certificates and assurances and take such further action as the Agent may from
time to time in its sole discretion deem necessary to perfect, protect or
enforce the Agents or the Secured Parties security interests in the Collateral
or otherwise to effect the intent of this Security Agreement;
(g) keep or cause to be kept the Collateral in good working order,
repair, running and marketable condition, ordinary wear and tear excepted, at
the Debtors own cost and expense; and
(h) not assign, sell, mortgage, lease, transfer, pledge, grant a
security interest in or lien upon, encumber or otherwise dispose of or abandon,
any part or all of the Collateral, without the express prior written consent of
the Agent (exercisable in the sole discretion of the Secured Parties), except
(i) for the sale from time to time in the ordinary course of business of the
Debtor of such items of Collateral as may constitute part of the business
inventory of the Debtor; and (ii) as otherwise expressly provided in the Credit
Agreement.
6. Assignment of Insurance.
At or prior to the date hereof, the Debtor shall deliver to Secured
Parties copies of, or certificates of the issuing companies with respect to,
endorsements of any and all policies of insurance owned by the Debtor covering
or in any manner relating to the Collateral, in form and substance satisfactory
to the Secured Parties naming the Secured Parties as additional insured party as
their interests may appear with respect to liability coverage and the Agent on
behalf of the Secured Parties a loss payee with respect to property and extended
insurance coverage, and indicating that no such policy will be terminated, or
reduced in coverage or amount, without at least thirty (30) days prior written
notice from the insurer to the Agent. As further security for the due payment
and performance of the Obligations, the Debtor hereby assigns to the Agent for
the benefit of the Secured Parties all sums, including returned or unearned
premiums, which may become payable under or in respect of any policy of
insurance owned by the Debtor covering or in any manner relating to the
Collateral, and the Debtor hereby directs each insurance company issuing any
such policy to make payment of sums directly to the Agent for the benefit of the
Secured Parties. The Debtor hereby appoints the Agent as the Debtors
attorney-in-fact and authorizes the Agent in the Debtors or in the Agents name
to endorse any check or draft representing any such payment and to execute any
proof of claim, subrogation receipt and any other document required by such
insurance company as a condition to or otherwise in connection with such
5
<PAGE>
payment, and, upon the occurrence of any Default or Event of Default, to cancel,
assign or surrender any such policies. All such sums received by the Agent shall
be applied by the Agent to satisfaction of the Obligations or, to the extent
that such sums represent unearned premiums in respect of any policy of insurance
on the Collateral refunded by reason of cancellation, toward payment for similar
insurance protecting the respective interests of the Debtor and the Secured
Parties, or as otherwise required by applicable law.
7. Fixtures.
It is the intent of the Debtor and the Secured Parties that none of the
Collateral is or shall be regarded as fixtures, as that term is used or defined
in Article 9 of the Uniform Commercial Code, and the Debtor represents and
warrants that it has not made and is not bound by any lease or other agreement
which is inconsistent with such intent. Nevertheless, if the Collateral or any
part thereof is or is to become attached or affixed to any real estate, the
Debtor will, upon request, furnis the Agent with a disclaimer or subordination
in form satisfactory to the Agent or the holder of any interest in the real
estate to which the Collateral is attached or affixed, together with the names
and addresses of the record owners of, and all other persons having interest in,
and a general description of, such real estate.
8. Collections.
(a) The Debtor may collect all checks, drafts, cash or other remittances
(i) in payment of any of its accounts, contract rights or general intangibles
constituting part of the Collateral, (ii) in payment of any Collateral sold,
transferred, leased or otherwise disposed of, or (iii) in payment of or on
account of its accounts, contracts, contract rights, notes, drafts, acceptances,
general intangibles, choses in action and all other forms of obligations
relating to any of the Collateral sold, transferred, or leased or otherwise
disposed of, and all of the foregoing amounts so collected after the occurrence
of an Event of Default shall be held in trust by the Debtor for, and as the
property of, the Secured Parties and shall not be commingled with other funds,
money or property of the Debtor.
(b) Upon the written request of the Agent, the Debtor will immediately
upon receipt of all such checks, drafts, cash or other remittances in payment of
any of its accounts, contract rights or general intangibles constituting part of
the Collateral, deliver any such items to the Agent for the benefit of the
Secured Parties accompanied by a remittance report in form supplied or approved
by the Agent, such items to be delivered to the Agent in the same form received,
endorsed or otherwise assigned by the Debtor where necessary to permit
collection of such items and, regardless of the form of such endorsement, the
Debtor hereby waives presentment, demand, notice of dishonor, protest, notice of
and all other notices with respect thereto.
(c) Upon the written request of the Agent, the Debtor will immediately
upon receipt of all such checks, drafts, cash or other remittances in payment
for any Collateral sold, transferred, leased or otherwise disposed of, or in
payment or on account of its accounts, contracts,
6
<PAGE>
contract rights, notes, drafts, acceptances, general intangibles, choses in
action and all other forms of obligations relating to any of the Collateral so
sold, transferred, leased or otherwise disposed of, deliver such items to the
Agent accompanied by a remittance report in form supplied or approved by the
Agent, such items to be delivered to the Agent in the same form received,
endorsed or otherwise assigned by the Debtor where necessary to permit
collection of such items and, regardless of the form of such endorsement, the
Debtor hereby waives presentment, demand, notice of dishonor, protest, notice of
protest and all other notices with respect thereto.
(d) Upon the written request of the Agent, the Debtor will promptly
notify the Agent in writing of the return or rejection of any goods represented
by any accounts, contract rights or general intangibles and the Debtor shall
forthwith account therefor to the Agent for the benefit of the Secured Parties
in cash without demand or notice and until such payment has been received by the
Agent the Debtor will receive and hold all such goods separate and apart, in
trust for and subject to the security interest in favor of the Agent for the
benefit of the Secured Parties, and the Agent is authorized to sell, for the
Debtors account and at the Debtors sole risk, all or any part of such goods.
(e) All of the foregoing remittances shall be applied and credited by
the Agent first to satisfaction of the Obligations or as otherwise required by
applicable law, and to the extent not so credited or applied, shall be paid over
to the Debtor.
9. Rights and Remedies.
In the event of the occurrence and continuance of any Event of Default,
the Agent, on behalf of the Secured Parties, shall at any time thereafter have
the right, with or without (to the extent permitted by applicable law) notice to
the Debtor, as to any or all of the Collateral, by any available judicial
procedure or without judicial process, to take possession of the Collateral and
without liability for trespass to enter any premises where the Collateral may be
located for the purpose of taking possession of or removing the Collateral, and,
generally, to exercise any and all rights afforded to a secured party under the
Uniform Commercial Code or other applicable law. Without limiting the generality
of the foregoing, the Debtor agrees that the Agent, on behalf of the Secured
Parties shall have the right to sell, lease, or otherwise dispose of all or any
part of the Collateral, either at public or private sale or at any brokers
board, in lots or in bulk, for cash or for credit, with or without warranties or
representations, and upon such terms and conditions, all as the Agent in its
sole discretion may deem advisable, and it or any of the Secured Parties shall
have the right to purchase at any such sale; and, if any Collateral shall
require rebuilding, repairing, maintenance, preparation, or is in process or
other unfinished state, the Agent shall have the right, at its sole option and
discretion, to do such rebuilding, repairing, preparation, processing or
completion of manufacturing, for the purpose of putting the Collateral in such
saleable or disposable form as it shall deem appropriate. At the Agents request,
the Debtor shall assemble the Collateral and make it available to the Agent at
places which the Agent shall select, whether at the Debtors premises or
elsewhere, and make available to the Agent, without rent, all of the Debtors
premises and facilities for the purpose of the Agents taking possession of,
removing or putting the Collateral in saleable or disposable form. The proceeds
of any such sale, lease or other disposition of the Collateral shall be applied
first to the expenses of retaking, holding, storing, processing and
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<PAGE>
preparing for sale, selling, and the like, and to the reasonable attorneys fees
and legal expenses incurred by the Agent and/or the Secured Parties, and then to
satisfaction of the Obligations, and to the payment of any other amounts
required by applicable law, after which the Agent shall account to the Debtor
for any surplus proceeds. If, upon the sale, lease or other disposition of the
Collateral, the proceeds thereof are insufficient to pay all amounts to which
the Secured Parties are legally entitled, the Debtor will be liable for the
deficiency, together with interest thereon, at the rate prescribed in the Credit
Agreement, and the reasonable fees of any attorneys employed by the Agent and/or
the Secured Parties to collect such deficiency. To the extent permitted by
applicable law, the Debtor waives all claims, damages and demands against the
Agent and the Secured Parties arising out of the repossession, removal,
retention or sale of the Collateral.
10. Costs and Expenses.
Any and all fees, costs and expenses, of whatever kind or nature,
including reasonable attorneys fees and legal expenses incurred by the Agent
and/or the Secured Parties, in connection with the preparation of this Security
Agreement and all other documents relating hereto and the consummation of this
transaction, the filing or recording of financing statements and other documents
(including all taxes in connection therewith) in public offices, the payment or
discharge of any taxes, insuran premiums, encumbrances or otherwise protecting,
maintaining or preserving the Collateral and the Secured Parties security
interest therein, whether through judicial proceedings or otherwise, or in
defending or prosecuting any actions or proceedings arising out of or related to
the transaction to which this Security Agreement relates, shall be borne and
paid by the Debtor on demand by the Agent and the Secured Parties and until so
paid shall be added to the principal amount of the Obligations and shall bear
interest at the rate prescribed in the Credit Agreement.
11. Power of Attorney.
The Debtor authorizes the Agent and does hereby make, constitute and
appoint the Agent, and any officer or agent of the Agent, with full power of
substitution, as the Debtors true and lawful attorney-in-fact, with power, in
its own name or in the name of the Debtor: (a) to endorse any notes, checks,
drafts, money orders, or other instruments of payment (including payments
payable under or in respect of any policy of insurance) in respect of the
Collateral that may come into possession of t Agent; (b) to sign and endorse any
invoice, freight or express bill, bill of lading, storage or warehouse receipts,
drafts against debtors, assignments, verifications and notices in connection
with accounts, and other documents relating to Collateral; (c) to pay or
discharge any taxes, liens, security interest or other encumbrances at any time
levied or placed on or threatened against the Collateral; (d) to demand,
collect, receipt for, compromise, settle and sue for monies due in respect of
the Collateral; (e) to receive, open and dispose of all mail addressed to the
Debtor and to notify the Post Office authorities to change the address for
delivery of mail addressed to the Debtor to such address as the Agent may
designate; and (f) generally to do, at the Agents option and at the Debtors
expense, at any time, or from time to time, all acts and things which the Agent
deems necessary to protect, preserve and realize upon the Collateral and the
Secured Parties security interest therein in order to effect the intent of this
Security Agreement, the Guaranty and the Credit Agreement, all as fully and
effectually as the Debtor might or could do; and the Debtor
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<PAGE>
hereby ratifies all that said attorney shall lawfully do or cause to be done by
virtue hereof. All acts of said attorney or designee are hereby ratified and
approved and said attorney or designee shall not be liable for any acts of
commission or omission, nor for any error or judgment or mistake of fact or law
except for its own gross negligence or willful misconduct. This power of
attorney shall be irrevocable for the term of this Security Agreement and
thereafter as long as any of the Obligations shall be outstanding.
12. Notices.
Unless the party to be notified otherwise notifies the other party in
writing as provided in this Section, notices shall be given hereunder by
telecopy, by certified or registered mail or by recognized overnight delivery
services to any party at its address on the signature page of this Security
Agreement. Notices shall be effective (a) if given by registered or certified
mail, on the third day after deposit in the mails with postage prepaid,
addressed as aforesaid; (b) if given by recogni overnight delivery service, on
the business day following deposit with such service, addressed as aforesaid; or
(c) if given by telecopy, when the telecopy is transmitted to the telecopy
number as aforesaid; provided that all notices to the Agent and the Secured
Parties shall be effective on receipt.
13. Other Security.
To the extent that the Obligations are now or hereafter secured by
property other than the Collateral or by the guarantee, endorsement or property
of any other person, then the Agent shall have the right in its sole discretion
to pursue, relinquish, subordinate, modify or take any other action with respect
thereto, without in any way modifying or affecting any of the Agents and/or the
Secured Parties rights and remedies hereunder.
14. Deposits.
Any and all deposits or other sums at any time credited by or due from
any of the Secured Parties to the Debtor, whether in regular or special
depository accounts or otherwise, shall at all times constitute additional
Collateral for the Obligations, and may be set-off by the Secured Parties, or
any of them, against any Obligations at any time, whether or not other
collateral held by the Agent on behalf of the Secured Parties is considered to
be adequate.
15. Miscellaneous.
(a) Beyond the safe custody thereof, the Agent shall have no duty as to
the collection of any Collateral in its possession or control or in the
possession or control of any agent or nominee of the Agent, or any income
thereon or as to the preservation of rights against prior parties or any other
rights pertaining thereto.
(b) No course of dealing between the Debtor and the Agent or the Secured
Parties, nor any failure to exercise, nor any delay in exercising, on the part
of the Agent or the Secured Parties, any right, power or privilege hereunder,
under the Guaranty or under the Credit
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Agreement shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, power or privilege hereunder or thereunder preclude any
other or further exercise thereof or the exercise of any other rig power or
privilege.
(c) All of the Agents and the Secured Parties rights and remedies with
respect to the Collateral, whether established hereby, by the Guaranty or by the
Credit Agreement, or by any other agreements, instruments or documents or by
law, shall be cumulative and may be exercised singly or concurrently.
(d) The provisions of this Security Agreement are severable, and if any
clause or provision shall be held invalid or unenforceable in whole or in part
in any jurisdiction, then such invalidity or unenforceability shall affect only
such clause or provision, or part thereof, in such jurisdiction and shall not in
any manner affect such clause or provision in any other jurisdiction, or any
other clause or provision of this Security Agreement in any jurisdiction.
(e) This Security Agreement (including this subsection) is subject to
modification only by a writing signed by all of the parties hereto.
(f) The benefits and burdens of this Security Agreement shall inure to
the benefit of and be binding upon the respective successors and assigns of the
parties hereto; provided, however, that the rights and obligations of the Debtor
under this Security Agreement shall not be assigned or delegated without the
prior written consent of the Agent and the Secured Parties (exercisable in their
sole discretion), and any purported assignment or delegation without such
consent shall be void.
16. Term of Agreement.
The term of this Security Agreement shall commence on the date hereof
and this Security Agreement shall continue in full force and effect, and be
binding upon the Debtor, until all of the Obligations have been fully paid and
performed and such payment and performance have been acknowledged in writing by
the Agent on behalf of the Secured Parties, whereupon this Security Agreement
shall terminate.
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WITNESS the execution hereof as of the day and year first above written.
, as Debtor
--------------------
By:
-------------------------------------
President
Address for Notices:
The Banks:
EUROPEAN AMERICAN BANK,
as Agent and as a Secured Party
By:
-------------------------------------
Stuart N. Berman
Vice President
Address for Notices:
European American Bank
730 Veterans Memorial Highway
Hauppauge, New York 11788
Telephone: (516) 360-7113
Telecopier: (516) 360-7112
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SCHEDULE I
TO
SECURITY AGREEMENT
------------------
Offices Where Records Are Kept:
-------------------------------
Other Locations Where Collateral
Is Stored, Used or Located:
---------------------------
Business and Trade Names
Used by Debtor:
---------------
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SCHEDULE A
TO
UCC-1 FINANCING STATEMENT
NAMING , AS DEBTOR, AND
--------------------
EUROPEAN AMERICAN BANK,
AS AGENT FOR ITSELF AND CERTAIN OTHER BANKS,
AS SECURED PARTIES
------------------
All of the Debtors right, title and interest, whether now existing or
hereafter arising, in and to the following:
(a) All personal property of the Debtor, whether now or hereafter
existing or now owned or hereafter acquired and wherever located, of every kind
and description, tangible or intangible, including, without limitation, the
balance of every deposit account now or hereafter existing of the Debtor with
the Secured Parties or any of them or any of their affiliates or with any agent
of the Secured Parties or any of them or any of their affiliates to the extent
such account is maintained by such agent in its capacity as agent of any kind
for the Secured Parties or any of them or any of their affiliates and all goods,
equipment, furniture, inventory (including, without limitation, all raw
materials, finished goods and work-in-process), accounts, contract rights,
chattel paper, notes receivable, instruments, documents (including, without
limitation, documents of title, warehouse receipts and all other shipping
documents and instruments of any kind whatsoever, whether relating to goods in
transit or otherwise), general intangibles, credits, claims, demands and any
other obligations of any kind, whether now or hereafter arising, of the Debtor
and, as to all the foregoing, any and all additions and accessions thereto, all
substitutions and replacements therefor and all products and proceeds thereof
(including, without limitation, proceeds of insurance thereon).
The term accounts shall mean, without limiting the generality of the
foregoing, any and all now existing or hereafter arising rights to payment held
by the Debtor, whether in the form of accounts receivable, notes, drafts,
acceptances or other forms of obligations and receivables now or hereafter
received by or belonging to the Debtor for (A) inventory sold or leased by it,
(B) services rendered by it, or (C) advances or loans made by it to any Person,
together with all guarantees and security therefor and all proceeds thereof,
whether cash proceeds or otherwise, including, without limitation, all right,
title and interest of the Debtor in the inventory which gave rise to any such
accounts, including, without limitation, the right to stoppage in transit and
all returned, rejected, rerouted or repossessed inventory.
(b) All choses in action, any rights arising under any judgment, statute
or rule, all corporate and business records, customer lists, credit files,
computer program print-outs, and other computer materials and records contained
in any and all types of storage media, now in use or hereafter created,
including, but not limited to, floppy disks, hard disks, magneto-optical disks,
or CD-ROM disks, whether on-site or at a different location, all inventories,
trademarks, trade styles, trade name designs, patents, copyrights, licenses,
license agreements, and any applications for patents and/or trademarks.
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<PAGE>
(c) Any and all additions and accessions to the foregoing Collateral,
all substitutions and replacements therefor and all products and proceeds
thereof (including, without limitation, proceeds of insurance thereon).
(d) All sums, including returned or unearned premiums, which may become
payable under or in respect of any policy of insurance owned by the Debtor
covering or in any manner relating to the Collateral.
(e) Any and all deposits or other sums at any time credited by or due
from the Secured Parties to the Debtor whether in regular or special depository
accounts or otherwise.
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Exhibit W
TRADEMARK SECURITY AGREEMENT
THIS AGREEMENT is made on the ____ day of October, 1997, and entered
into between PDK Labs Inc. ("Debtor") and European American Bank, a New York
banking corporation, as Agent for the Banks (the "Secured Party"). All
capitalized terms used herein without definition shall have the respective
meanings ascribed thereto in the Credit Agreement (as defined below).
WHEREAS, Debtor and its affiliate, Futurebiotics, Inc. (the
"Co-Borrowers"), and Banks have entered into a Credit Agreement dated as of the
date hereof (as it may be hereafter amended, supplemented or otherwise modified
from time to time, being the "Credit Agreement") pursuant to which Secured Party
may lend to Co-Borrowers the aggregate principal amounts set forth therein, upon
and subject to the terms and conditions thereof;
WHEREAS, Debtor has executed a Security Agreement in favor of Secured
Party, dated as of August 20, 1997 (the "Security Agreement");
WHEREAS, Debtor wishes to grant further security and assurance to
Secured Party in order to secure the performance by Debtor of its obligations
under the Credit Agreement and all documents executed in connection therewith,
including all interest due thereunder ("Obligations"), and to that effect Debtor
agrees to grant to Secured Party a lien upon and securing interest in certain
trademark rights as more fully described herein.
NOW, THEREFORE, in consideration of the premises and in order to induce
the Banks to extend credit to Debtor, Debtor agrees with Secured Party as
follows:
1. To secure the complete and timely satisfaction of all Obligations,
Debtor hereby grants to Secured Party a lien upon and security interest in all
of Debtor's right, title and interest in and to the trademarks listed on
Schedule A hereto (as they may be amended pursuant hereto from time to time),
all proceeds thereof (including but not limited to license royalties and
proceeds of infringement suits thereon), the right to sue for past, present and
future infringements, all rights corresponding thereto throughout the world, all
reissues, divisions, continuations, renewals, extensions and
continuations-in-part thereof, and all applications for trademarks and
trademarks of Debtor hereafter filed or acquired, together with all goodwill
associated with any and all of the foregoing and all proceeds of any and all of
the foregoing (collectively, the "Trademarks"). Debtor is granting only a lien
upon and security interest in the Trademarks and, subject to such lien and
security interest, Debtor expressly retains full title to and ownership of, and
all goodwill associated with, the Trademarks.
2. Debtor represents, warrants and covenants that:
(a) The Trademarks are subsisting and have not been adjudged
invalid or unenforceable, in whole or in part;
<PAGE>
(b) To the best of Debtor's knowledge and belief after due
inquiry, each of the Trademarks is valid and enforceable and, to the
best of Debtor's knowledge, no material infringement or unauthorized
use is presently being made of any Trademarks;
(c) Debtor is the sole and exclusive owner of the entire and
unencumbered right, title and interest in and to each of the
Trademarks, free and clear of any liens, charges and encumbrances,
including, without limitation, pledges, assignments, licenses, shop
rights and covenants by Debtor not to sue third persons;
(d) Debtor has the unqualified right to enter into this Agreement
and perform its terms;
(e) Debtor's chief executive office is located at 145 Ricefield
Lane, Hauppauge, New York 11788; and
(f) Debtor has used, and will continue to use for the duration of
this Agreement, consistent standards of quality in its manufacture of
products sold under the Trademarks.
3. Debtor agrees that, until all of the Obligations shall have been
satisfied in full, it will not enter into any agreement which is inconsistent
with Debtor's obligations under this Agreement, without Secured Party's prior
written consent.
4. If, before the Obligations shall have been satisfied in full, Debtor
shall become entitled to the benefit of trademark application or trademark for
any reissue, division, continuation, renewal, extension, or continuation-in-part
of any trademark or any improvement on the Trademarks, the provisions of
paragraph 1 shall automatically apply thereto and Debtor shall give to Secured
Party prompt notice thereof in writing.
5. Debtor authorizes Secured Party to modify this Agreement by amending
Schedule A hereto to include any future trademarks and trademark applications
which are Trademarks under paragraph 1 or paragraph 4 hereof.
6. If any Event of Default shall have occurred and be continuing,
Secured Party shall have, in addition to all other rights and remedies given
them by this Agreement or the Security Agreement, those rights and remedies
allowed by law and the rights and remedies of a secured party under the Uniform
Commercial Code as enacted in any jurisdiction in which the Trademarks may be
located and, without limiting the generality of the foregoing, the Secured Party
may immediately, upon 10 days' prior written notice during which time, for
purposes of this Agreement only, Debtor shall have an opportunity to cure such
Event of Default, sell at public or private sale or otherwise realize upon, the
whole or from time to time any part of the Trademarks, or any interest which the
Debtor may have therein, and after deducting from the proceeds of sale or other
disposition of the Trademarks all expenses (including all reasonable expenses
for brokers' fees and legal services), shall apply the residue of such proceeds
toward the
2
<PAGE>
payment of the Obligations. Any remainder of the proceeds after payment in full
of the Obligations shall be paid over to the Debtor.
7. If any Event of Default shall have occurred and be continuing,
Debtor hereby authorizes and empowers Secured Party to make, constitute and
appoint any officer or agent of Secured Party, as Secured Party may select in
their exclusive discretion, as Debtor's true and lawful attorney-in-fact, with
the power to endorse Debtor's name on all applications, documents, papers and
instruments necessary for Secured Party to use the Trademarks, or to grant or
issue any exclusive or nonexclusive license under the Trademarks to any third
person. Debtor hereby ratifies all that such attorney shall lawfully do or cause
to be done by virtue hereof. This power of attorney shall be irrevocable for the
life of this Agreement.
8. Any and all fees, costs and expenses, of whatever kind or nature,
including the reasonable attorneys' fees and disbursements incurred by Secured
Party in connection with the preparation of this Agreement and all other
documents relating hereto and the consummation of this transaction, the filing
or recording of any documents (including all taxes in connection therewith) in
public offices, the payment or discharge of any taxes, counsel fees, maintenance
fees, encumbrances or otherwise protecting, maintaining or preserving the
Trademarks, or in defending or prosecuting any actions or proceedings arising
out of or related to the Trademarks, shall be borne and paid by Debtor on demand
by Secured Party.
9. Debtor shall have the duty, until the Obligations are paid in full
to file and prosecute any and all continuations, continuations-in-part,
applications for reissue, applications for certificate of correction and like
matters, and to preserve and maintain all rights in the Trademarks, including,
without limitation, the payment of all maintenance fees when due. Any expenses
incurred in connection with the foregoing shall be borne by Debtor. The Debtor
shall not abandon any Trademark without the consent of Secured Party.
10. Debtor shall use all reasonable efforts to detect any infringers of
rights described herein and shall advise Secured Party in writing of any
material infringements detected. Secured Party shall have the right to demand
the Debtor to bring suit and, if Debtor fails to do so or at any time after a
Default or an Event of Default under the Credit Agreement, to bring suit in
their name, and to join Debtor, if necessary, as a party to such suit, to
enforce the Trademarks and any licenses thereunder. Debtor shall promptly, upon
demand, reimburse and indemnify Secured Party for all damages, costs and
expenses, including reasonably attorneys' fees and disbursements, incurred by
Secured Party pursuant to this paragraph 10. Notwithstanding the foregoing,
Secured Party shall have no duties with respect to the Trademarks, other than
the duties expressly set forth herein, and, without limiting the generality of
the foregoing, shall have no duty to prosecute any action for trademark
infringement.
11. Debtor hereby grants to Secured Party and its employees and agents
the right to visit Debtor's plants and facilities which manufacture, inspect or
store products sold under any of the trademarks included in the Trademarks, and
to inspect the products and quality control records relating thereto at
reasonable times during regular business hours upon notice. Debtor shall do any
and all acts required by Secured Party to ensure Debtor's compliance with
3
<PAGE>
paragraph 2(f) hereof. Secured Party agrees to comply in all respects with
applicable governmental regulations in connection herewith.
12. All of Secured Party's rights and remedies with respect to the
Trademarks, whether established hereby or by the Security Agreement, or by any
other agreements or by law shall be cumulative and may be exercised singularly
or concurrently.
13. The provisions of this Agreement are severable, and if any clause
or provision shall be held invalid and unenforceable in whole or in part in any
jurisdiction, then such invalidity or unenforceability shall affect only such
clause or provision, or part thereof, in such jurisdiction, and shall not in any
manner affect such clause or provision in any other jurisdiction, or any other
clause or provision of this Agreement in any jurisdiction.
14. No course of dealing between Debtor and Secured Party, nor any
failure to exercise, nor any delay in exercising, on the part of Secured Party,
any right, power or privilege hereunder or under the Security Agreement shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, power or privilege hereunder or thereunder preclude any other or further
exercise thereof or the exercise of any other right, power or privilege.
15. This Agreement is subject to modification only by a writing signed
by the parties, except as provided in paragraph 5.
16. The benefits and burdens of this Agreement shall inure to the
benefit of and be binding upon the respective successors and permitted assigns
of the parties.
17. The validity and interpretation of this Agreement and the rights
and obligations of the parties shall be governed by the laws of the State of New
York applicable to agreements made and to be wholly performed in the State of
New York.
IN WITNESS WHEREOF, the execution hereof under seal as of the day and
year first above written.
PDK LABS, INC.
ATTEST-CORPORATE SEAL By:
--------------------------
Name:
- ------------------------- Title:
ACCEPTED:
EUROPEAN AMERICAN BANK, as Agent
By:
-------------------------------
Name: Stuart N. Berman
Title: Vice President
4
<PAGE>
SCHEDULE A
TRADEMARKS - PDK LABS INC.
Mark Registration No. Registration Date
- ---- ---------------- -----------------
Herb Alert 1,785,187 August 3, 1993
Jump Start 1,866,191 December 6, 1994
Pseudo 60's 1,979,774 June 11, 1996
Super Pseudo 60's 2,030,696 January 14, 1997
Two-Way 2,018,410 November 19, 1996
<PAGE>
PACKAGING AGREEMENT
This Packaging Agreement (the "Agreement") is made and entered into
as of the 30th day of November, 1997 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, pursuant to that certain Non-Exclusive Supply Agreement
dated as of May 14, 1996, as amended (the "Supply Agreement"), by and between
SSI and PDK, SSI manufactures certain vitamins and food supplements in bulk
tablet form to PDK's specifications (the "Pills"); and
WHEREAS, SSI and PDK desire that SSI shall package product for PDK in
the "Futurebiotics" product range (the "Futurebiotics' Pills") and shall deliver
all such Futurebiotics' Pills in "finished goods" format upon the terms of this
Agreement; and
NOW, THEREFORE, the parties for good and valuable consideration the
receipt and sufficiency of which is hereby acknowledged, agree as follows:
1. Packaging of Futurebiotics' Pills.
(a) During the term hereof (the "Term"), as defined at
paragraph 3 hereof, SSI shall package Futurebiotics' Pills for PDK pursuant to
the Supply Agreement and shall deliver all such Futurebiotics' Pills to PDK in
"finished goods" format.
(b) SSI will supply all materials used in connection with the
packaging of the Futurebiotics' Pills. All packaging for the Futurebiotics'
Pills shall meet PDK's specifications.
(c) On the date hereof, PDK will sell to SSI all packaging
components and labels in PDK's inventory on such date, at PDK's Material Cost.
For purposes of this Agreement, "Material Cost" shall mean PDK's actual material
expenses incurred in the purchase by PDK of such packaging components, labels
and bulk tablets.
2. Packaging Price and Payment. PDK will pay for the packaging of the
Futurebiotics' Pills as follows:
<PAGE>
(a) PDK will pay to SSI, SSI's component cost ("Component
Cost") plus the amount set forth in the schedule below per bottle of
Futurebiotics' Pills. For purposes of this Agreement "Component Cost" shall mean
SSI's actual material expenses incurred in the packaging of the Futurebiotics'
Pills. Such expenses shall not exceed the fair market value of materials used in
packaging at the time of purchase by SSI.
PRICING SCHEDULE
----------------
BOTTLE UNIT CHARGE
------ -----------
50 CC .25
75 CC .25
100 CC .25
120 CC .25
150 CC .25
180-200 CC .25
225-275 CC .35
300 + CC .35
(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 two
(2) 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.
2
<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. 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 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.
5. Minimum Annual Purchase by PDK. PDK hereby covenants with SSI, and
agrees to purchase from SSI during each year of the Term hereof a minimum of
1,000,000 bottles of Futurebiotics' Pills per annum (the "Minimum Packaging
Amount"). In the event that PDK fails to purchase the Minimum Packaging 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 Packaging Amount actually purchased by PDK during such year) as
liquidated damages. PDK's obligations pursuant to this Section 5 shall be
terminated in the event that (a) the packaging for the Futurebiotics' Pills does
not meet PDK's specifications, (b) SSI is unable to purchase materials for
packaging 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 6 below. All payments made hereunder are solely
for packaging and shall not be included towards the cost of the Futurebiotics'
Pills supplied pursuant to the Supply Agreement.
6. 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 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
3
<PAGE>
or a significant portion of a party's property; (v) 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; or (vi) the termination of the Supply Agreement. 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.
7. 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.
8. 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.
9. 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 9):
4
<PAGE>
If to SSI, to:
Superior Supplements, Inc.
270 Oser Avenue
Hauppauge, NY 11788
Attn: Lawrence D. Simon
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
10. 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.
11. 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.
5
<PAGE>
12. 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.
13. 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.
14. Amendment. This Agreement may be amended only by a writing signed
by all parties hereto.
15. 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 B. Krasnoff
-----------------------
6
<PAGE>
ASSIGNMENT AND ASSUMPTION AGREEMENT
Reference is made to the Credit Agreement dated as of August 20, 1997 (as it may
be amended, modified, extended or restated from time to time, the "Credit
Agreement"), among PDK Labs Inc. and Futurebiotics, Inc. (the "Co-Borrowers"),
European American Bank, as Agent, and the certain financial institutions that
become party thereto.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings assigned to such terms in the Credit Agreement.
1. European American Bank, in its capacity as a Bank and not as Agent
(the "Assignor") hereby sells and assigns, without recourse, to Bank Leumi USA
(the "Assignee"), and the Assignee hereby purchases and assumes, without
recourse, from the Assignor, effective as of the Assignment Effective Date set
forth below, the interests set forth below (the "Assigned Interest") in the
Assignor's rights and obligations under the Credit Agreement and the other
Facility Documents, including, without limitation, the interests set forth below
in the Revolving Credit Commitment and the Term Loan Commitment of the Assignor
on the Assignment Effective Date and the Revolving Credit Loans and the Term
Loans owing to the Assignor which are outstanding on the Assignment Effective
Date, together with unpaid interest accrued on the assigned Loans to the
Assignment Effective Date and the amount, if any, set forth below of the fees
accrued to the Assignment Effective Date for the account of the Assignor. From
and after the Assignment Effective Date, (i) the Assignee shall, if it is not
already a Bank under the Credit Agreement, be a party to and be bound by the
provisions of the Credit Agreement and, to the extent of the interests assigned
by this Assignment Agreement, have the rights and obligations of a Bank
thereunder and under the other Credit Documents and (ii) the Assignor shall, to
the extent of the interests assigned by this Assignment Agreement, relinquish
its rights and be released from its obligations under the Credit Agreement.
2. Notice of this Assignment Agreement is being delivered to the Agent
and the Co-Borrowers pursuant to Section 12.5 of the Credit Agreement.
3. This Assignment Agreement shall be governed by and construed in
accordance with the laws of the New York.
Date of Assignment: January 16, 1998
Legal Name of Assignor: European American Bank
Legal Name of Assignee: Bank Leumi USA
Assignment Effective Date: January 16, 1998
Revolving Credit Commitment Assigned: $3,525,000 23.50%
Revolving Credit Loans Assigned: $2,232,500
<PAGE>
Term Loan Commitment Assigned: $1,997,500 23.50%
Term Loans Assigned: $1,635,991.67
Fees Assigned: $5,522.50
THE TERMS SET FORTH ABOVE ARE HEREBY
AGREED TO:
EUROPEAN AMERICAN BANK,
AS ASSIGNOR
By: /s/ Anthony V. Pantina
---------------------------
Name: Anthony V. Pantina
Title: Assistant Vice President
BANK LEUMI USA,
AS ASSIGNEE
By: /s/ Paul Tine
---------------------------
Name: Paul Tine
Title: Vice President
By: /s/ Richard Silverstein
---------------------------
Name: Richard Silverstein
Title: First Vice President
CONSENTED TO:
EUROPEAN AMERICAN BANK,
as Agent
By: /s/ Anthony V. Pantina
---------------------------
Name: Anthony V. Pantina
Title: Assistant Vice President
PDK LABS INC.
By: /s/ Michael B. Krasnoff
---------------------------
Name: Michael B. Krasnoff
Title: President
FUTUREBIOTICS, INC.
By: /s/ Reginald Spinello
---------------------------
Name: Reginald Spinello
Title: President
2
<PAGE>
ASSIGNMENT AND ASSUMPTION AGREEMENT
Reference is made to the Credit Agreement dated as of August 20, 1997 (as it may
be amended, modified, extended or restated from time to time, the "Credit
Agreement"), among PDK Labs Inc. and Futurebiotics, Inc. (the "Co-Borrowers"),
European American Bank, as Agent, and the certain financial institutions that
become party thereto.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings assigned to such terms in the Credit Agreement.
1. European American Bank, in its capacity as a Bank and not as Agent
(the "Assignor") hereby sells and assigns, without recourse, to National Bank of
Canada (the "Assignee"), and the Assignee hereby purchases and assumes, without
recourse, from the Assignor, effective as of the Assignment Effective Date set
forth below, the interests set forth below (the "Assigned Interest") in the
Assignor's rights and obligations under the Credit Agreement and the other
Facility Documents, including, without limitation, the interests set forth below
in the Revolving Credit Commitment and the Term Loan Commitment of the Assignor
on the Assignment Effective Date and the Revolving Credit Loans and the Term
Loans owing to the Assignor which are outstanding on the Assignment Effective
Date, together with unpaid interest accrued on the assigned Loans to the
Assignment Effective Date and the amount, if any, set forth below of the fees
accrued to the Assignment Effective Date for the account of the Assignor. From
and after the Assignment Effective Date, (i) the Assignee shall, if it is not
already a Bank under the Credit Agreement, be a party to and be bound by the
provisions of the Credit Agreement and, to the extent of the interests assigned
by this Assignment Agreement, have the rights and obligations of a Bank
thereunder and under the other Credit Documents and (ii) the Assignor shall, to
the extent of the interests assigned by this Assignment Agreement, relinquish
its rights and be released from its obligations under the Credit Agreement.
2. Notice of this Assignment Agreement is being delivered to the Agent
and the Co-Borrowers pursuant to Section 12.5 of the Credit Agreement.
3. This Assignment Agreement shall be governed by and construed in
accordance with the laws of the New York.
Date of Assignment: January 16, 1998
Legal Name of Assignor: European American Bank
Legal Name of Assignee: National Bank of Canada
Assignment Effective Date: January 16, 1998
Revolving Credit Commitment Assigned: $3,525,000 23.50%
Revolving Credit Loans Assigned: $2,232,500.00
<PAGE>
Term Loan Commitment Assigned: $1,997,500 23.50%
Term Loans Assigned: $1,635,991.67
Fees Assigned: $5,522.50
THE TERMS SET FORTH ABOVE ARE HEREBY
AGREED TO:
EUROPEAN AMERICAN BANK,
AS ASSIGNOR
By: /s/ Anthony V. Pantina
---------------------------
Name: Anthony V. Pantina
Title: Assistant Vice President
NATIONAL BANK OF CANADA,
AS ASSIGNEE
By: /s/ Joseph M. Triscoli
---------------------------
Name: Joseph M. Triscoli
Title: Assistant Vice President
By: /s/ Gaetan R. Frosina
---------------------------
Name: Gaetan R. Frosina
Title: Vice President
CONSENTED TO:
EUROPEAN AMERICAN BANK,
as Agent
By: /s/ Anthony V. Pantina
---------------------------
Name: Anthony V. Pantina
Title: Assistant Vice President
PDK LABS INC.
By: /s/ Michael B. Krasnoff
---------------------------
Name: Michael B. Krasnoff
Title: President
FUTUREBIOTICS, INC.
By: /s/ Reginald Spinello
---------------------------
Name: Reginald Spinello
Title: President
<PAGE>
FIRST AMENDMENT AND WAIVER
FIRST AMENDMENT AND WAIVER dated as of February 18, 1998,
(the "Amendment and Waiver"), with respect to the Credit Agreement dated as
of August 20, 1997 (the "Credit Agreement"), by and
among PDK LABS INC. and
FUTUREBIOTICS, INC., as Co-Borrowers (the " Co-Borrowers "), and EUROPEAN
AMERICAN BANK, a New York banking corporation ("EAB"), as Agent and as a
Bank and the Banks party hereto.
RECITALS
The Co-Borrowers have requested and the Banks have agreed,
subject to the terms and conditions of this Amendment and Waiver, to waive
and amend certain provisions of the Credit Agreement as herein set forth.
Capitalized terms used herein and not defined herein shall have
the meanings given to them in the Credit Agreement.
Accordingly, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, the parties hereto agree as
follows:
I. Amendment.
Section 7.10 of the Credit Agreement is hereby amended and
restated to provide in its entirety as follows:
On or before May 15, 1998, cause PDI Labs Inc. to be
dissolved and provide the Agent with a certified copy of
its Certificate of Dissolution.
II. Waiver.
Compliance by the Co-Borrowers with Section 7.10 of the
Credit Agreement is hereby waived through the date of this Amendment and
Waiver.
III. Miscellaneous.
(a) This Amendment and Waiver shall be governed by and
construed in accordance with the laws of the State of New York.
(b) All terms used herein shall have the same meaning as in
the Credit Agreement, as amended hereby, unless specifically defined herein.
<PAGE>
(c) This Amendment and Waiver shall constitute a Facility
Document.
(d) As expressly amended hereby, the Credit Agreement
remains in full force and effect in accordance with the terms thereof. The
Credit Agreement is ratified and confirmed in all respects by the
Co-Borrowers. The amendments and waivers herein are limited specifically to
the matters set forth above and for the specific instance and purposes for
which given and do not constitute directly or by implication an amendment or
waiver of any other provisions of the Credit Agreement or a waiver of any
Event of Default or event which upon notice, lapse of time or both would
constitute an Event of Default which may occur or may have occurred under
the Credit Agreement or any other Loan Document.
(e) The Co-Borrowers hereby represent and warrant that (i)
the representations and warranties by the Co-Borrowers and each Guarantor
pursuant to the Credit Agreement and each other Facility Document are true
and correct on the date hereof, and (ii) after giving effect to this
Amendment and Waiver, no Event of Default or event which upon notice, lapse
of time or both would constitute an Event of Default exists under the Credit
Agreement or any other Facility Document.
(f) This Amendment and Waiver may be executed in one or more
counterparts, each of which shall constitute an original, but all of which,
when taken together, shall constitute but one Amendment and Waiver.
IN WITNESS WIIEREOF, the Co-Borrowers, the Agent and the
Banks have caused this Amendment and Waiver to be duly executed by their
duly authorized officers as of the day and year first above written.
PDK LABS INC.
By: /s/ Michael Krasnoff
--------------------
Title: President
FUTUREBIOTICS, INC.
By: /s/ Reginald Spinello,
----------------------
Title: President
<PAGE>
EUROPEAN AMERICAN BAM,
as Agent and as a Bank
By: /s/ Anthony E. Pantina
----------------------
Title: Assistant Vice President
BANK LEUMI USA, as a Bank
By: /s/ Paul Tine
-------------
Title: Vice President
By: /s/ Richard Silverstein
-----------------------
Title: First Vice President
NATIONAL BANK OF CANADA, as a Bank
By: /s/ Joseph M. Triscoli
----------------------
Title: Assistant Vice President
By: /s/ Gaetan R. Frosina.
----------------------
Title: Vice President
<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>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> NOV-30-1997
<CASH> 3,733,652
<SECURITIES> 2,375,570
<RECEIVABLES> 8,981,236
<ALLOWANCES> 54,000
<INVENTORY> 26,061,702
<CURRENT-ASSETS> 44,153,185
<PP&E> 10,020,892
<DEPRECIATION> 5,353,453
<TOTAL-ASSETS> 54,221,463
<CURRENT-LIABILITIES> 5,988,628
<BONDS> 15,433,614
0
4,981
<COMMON> 35,572
<OTHER-SE> 28,264,342
<TOTAL-LIABILITY-AND-EQUITY> 54,221,463
<SALES> 51,351,803
<TOTAL-REVENUES> 51,351,803
<CGS> 25,841,733
<TOTAL-COSTS> 25,841,733
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,253,103
<INCOME-PRETAX> 1,671,324
<INCOME-TAX> 610,000
<INCOME-CONTINUING> 1,559,309
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,559,309
<EPS-PRIMARY> .41
<EPS-DILUTED> .41
</TABLE>
