SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended November 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-4465
SIRCO INTERNATIONAL CORP.
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(Exact name of Registrant as specified in its charter)
New York 13-2511270
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(State or other jurisdiction of (IRS employer
incorporation or organization) identification no.)
24 Richmond Hill Avenue, Stamford, Connecticut 06901
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(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (203) 359-4100
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 $.10 per share
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.
As of February 15, 1997, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was $2,538,800.
As of February 15, 1997, there were 1,317,700 shares outstanding of the
Registrant's Common Stock.
<PAGE>
Part I
Item 1: - Business
Sirco International Corp. (the "Company") designs, manufacturers and markets a
broad line of soft luggage, sports bags, backpacks, children's bags, tote bags
and related products. The Company's strategy is to produce a diverse line of
high quality, fashionable products at competitive prices. The Company believes
its ability to merchandise high quality products is facilitated by its creative
design, manufacturing and sourcing capabilities.
The Company sells its products under many trade names, including "Cross
Trainer," "Sirco Kids," and "Mondo," all of which are registered. In addition,
the Company sells its products under certain trademarked names licensed from
others, including "Cherokee," "Dunlop," "Generra," "Gold's Gym," "Hedgren,"
"Perry Ellis" and "Skechers". See "License Agreements." The Company also designs
and manufacturers soft luggage and sports bags on a contract basis for
unaffiliated retailers.
Virtually all of the Company's products are manufactured by foreign suppliers in
accordance with the Company's design specifications. During the fiscal year
ended November 30, 1996, approximately 64% of the Company's products were
manufactured in the People's Republic of China. The primary markets for the
Company's products are the United States and Canada. Reference is hereby made to
Note 9 of the Notes to Consolidated Financial Statements for information with
respect to the amount of net sales, net income (loss) and identifiable assets of
the Company's foreign operations. The Company engages in only one line of
business and does not consider such business to be divided into "industry
segments."
The Company was incorporated in New York in 1964.
Markets and Customers
The Company sells its products primarily to large national retail chain stores,
including Target, Sears, Kmart and Wal-Mart, and to regional discount store
chains, such as ShopKo, Bradlees and Caldor. The Company also sells to
department stores and other specialty stores, including J.C. Penney,
Bloomingdale's and Mervyn's, and to apparel chain stores, such as TJ
Maxx/Marshall's and Ross Stores. The Company also sells its products to sporting
goods retailers, such as The Sports Authority, and to warehouse clubs, such as
Price Costco. The loss by the Company of several of these customers would have
an adverse effect on the Company's profitability. However, the Company believes
that these customers, if lost, could be partially, if not completely, replaced
by others.
During the fiscal years ended November 30, 1996, 1995 and 1994, sales to Target
represented approximately 19%, 25% and 22%, respectively, of net sales and sales
to Kmart represented approximately 11% of net sales in fiscal 1996. No other
customer accounted for more than 10% of net sales in any of such fiscal years.
<PAGE>
The Company currently maintains showrooms in New York City and Ontario, Canada.
The Company solicits business directly from its customers, using the services of
both full-time sales persons and independent sales representatives. The
independent sales representatives represent a number of manufacturers or
wholesalers other than the Company, and are compensated on a commission basis,
typically pursuant to the terms of a non-exclusive sales representative
contract. The Company fills orders on the terms and conditions of standard
purchase orders it receives from customers.
The Company's percentage of sales by fiscal quarter for the fiscal years ended
November 30, 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
First Fiscal Quarter 23.7% 19.5% 17.1%
Second Fiscal Quarter 27.5 21.3 22.4
Third Fiscal Quarter 27.7 31.9 33.0
Fourth Fiscal Quarter 21.1 27.3 27.5
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
The Company typically experiences seasonality that yields stronger operating
results in the third and fourth quarters, and weaker operating results in the
first quarter. This trend did not occur in fiscal 1996 because of new selling
markets that the Company was able to pursue in the first and second quarters in
conjunction with the termination of a license agreement with FILA Sport S.p.A.
(see Item 7. - Management's Discussion and Analysis of Financial Condition and
Results of Operations.) Operating results in the Company's second fiscal quarter
are positively impacted by the strength of the Company's "back to school"
business.
Design and Merchandising
The Company's licensed and branded products feature dynamic and colorful new
styles that use innovative graphics and product designs and are constructed of
quality fabrics and other materials. In order to continue to provide
high-quality designs for both its licensed and non-licensed products, the
Company established a design development center employing creative and
merchandising professionals who work with state-of-the-art resources. In
addition, the Company actively solicits participation from key customers in the
development of specific products.
The Company's design and merchandising department, which includes four full-time
employees and is based out of the Company's headquarters, emphasizes creativity
and responsiveness to consumer preferences in the development of new products.
The design and merchandising department, together with the Company's marketing
personnel, evaluates the designs and fashion trends in the marketplace and
applies these in its product development. The Company's design and marketing
personnel frequently visit customers, suppliers and trade shows and conduct
market research to identify developing consumer trends and new product ideas.
The Company's existing customer base continues to be a significant source of
sales growth, and the Company remains committed to servicing their production
and quality needs. Management believes that the Company's responsiveness to
customer needs is widely recognized by retailers.
<PAGE>
License Agreements
The Company has licensing agreements with Berkenblad B.V., Dunlop Maxfli Sports
Corporation, The Generra Company, Cherokee Inc., Gold's Gym International Inc.,
Perry Ellis International, Inc. and Skechers USA Inc. Sales by the Company under
trademarked names licensed from others accounted for approximately 83%, 65% and
49% of the Company's net sales during the fiscal years ended November 30, 1996,
1995 and 1994, respectively.
The Company's licenses generally entitle the Company to use the names, symbols
and logos of the licensors on a non-exclusive basis in the manufacture and sale
of the Company's products. All of the Company's licenses call for a royalty to
be paid to the licensor based on a percentage of net sales, except for the
license with Berkenblad B.V. ("Hedgren"), which is based on a percentage of net
purchases. Royalties vary by product and licensor and generally range from 5.0%
to 7.0% of net sales. Minimum payments are applied against royalty fees either
over the term of the contract or annually, depending on the contract. In
addition, the licenses generally require payments by the Company to certain
promotional programs sponsored by the licensor.
The Company's license agreements generally have terms of three years. The terms
of renewal options are negotiated and vary on a license-by-license basis.
During fiscal 1996, the Company received notification from Airway Industries
Inc. ("Airway") that Airway would not renew its License Agreement with the
Company pursuant to which Sirco International (Canada) Limited, the Company's
Canadian subsidiary ("Sirco Canada"), was granted an exclusive license to sell
in Canada, luggage and luggage related products under the trade names "Atlantic"
and "Oleg Cassini" through December 31, 1996. During the fiscal years ended
November 30, 1996, 1995 and 1994, sales of Atlantic product approximated
$5,782,000, $3,571,000, and $1,190,000, respectively, which represented
approximately 20.8%, 14.4% and 4.3%, respectively, of the Company's total net
sales for those periods, and approximately 95.4%, 97.6% and 85.2%, respectively,
of the total net sales of Sirco Canada for those periods. Sirco Canada earned
approximately $434,000, $269,000, and lost approximately $122,000 in fiscal
years ended November 30, 1996, 1995 and 1994, respectively. In addition,
following receipt of notification from Airway and Douglas Turner, then the
President of Sirco Canada and a Director of the Company, that Airway and Mr.
Turner had mutually agreed to Airway's future employment of Mr. Turner in its
efforts to distribute directly its products in Canada, the Company terminated
its employment of Mr. Turner in September 1996.
The Company believes that the loss of the Airway license agreement may have an
adverse effect on the Company's results of operations for the fiscal year ending
November 30,1997. However, the Company has made a significant reduction in the
fixed overhead of Sirco Canada, and in December 1996, leased substantially all
of its warehouse to three tenants, and hired a new president. The Company
believes that the sales in Canada of the Atlantic product can be replaced over
the next two years by sales of other licensed products, including the recently
licensed "Perry Ellis," "Skechers" and "Hedgren" names.
<PAGE>
After extensive negotiations with FILA Sport S.p.A. ("FILA"), in February 1996,
the Company and FILA entered into an agreement pursuant to which the Company
ceased shipping FILA product under a non-exclusive license with FILA during
fiscal 1996. Net sales of the FILA product for the fiscal years ended November
30, 1996, 1995 and 1994 were approximately $8,584,000 (including approximately
$482,000 sold to FILA), $5,314,000, and $1,357,000, respectively, or 30.9%,
21.4% and 4.9%, respectively, of the Company's total net sales. Although the
loss of the ability to sell product bearing the FILA trademark may have an
adverse effect on the Company's results of operations through the fiscal quarter
ending August 31, 1997, the Company expects that a significant portion of the
sales of FILA product in fiscal 1996, will be replaced in fiscal 1997 with the
sales of product bearing the "Perry Ellis," "Skechers," or "Hedgren" labels.
However, future net sales could be negatively impacted if sales from new
licenses or increases in sales under the existing licenses do not replace the
sales of FILA product.
Trademarks
The Company sells products under proprietary trade names and logos, including
"Cross Trainer," "Mondo," and "Sirco Kids," all of which are registered in the
United States. The Company considers its trademarks to be of considerable value
to its business and intends to protect them to the fullest extent practicable.
The Company takes all reasonable measures to assure that any product bearing a
Company-owned trademark or logo reflects the consistency and quality associated
with its products bearing licensed trademarks or logos.
Backlog
A substantial portion of net sales is based on orders for immediate delivery and
therefore, backlog is not necessarily indicative of future net sales.
Suppliers
The Company's products are primarily produced by various manufacturers in the
People's Republic of China, the Philippines, Taiwan, Thailand and Vietnam.
Product made in Vietnam is supplied only to the Company's Canadian subsidiary.
Although the simultaneous loss of several of these manufacturers would
temporarily adversely affect the Company's business, the Company is of the
opinion that generally these manufacturers could be replaced by others. The
Company's business could also be adversely affected by a disadvantageous change
in the exchange rate of the dollar with certain foreign currencies, by changes
in tariffs or import restrictions, as well as political and economic conditions
in the countries from which it imports.
For the fiscal years ended November 30, 1996, 1995 and 1994, the Company's
products were manufactured in the following countries:
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
China .................... 63.86% 80.85% 76.20%
Taiwan ................... 17.47 6.87 16.80
Philippines .............. 7.28 3.62 0.35
Thailand ................. 3.33 7.31 6.27
Korea .................... 2.91 0.78 0.00
Vietnam .................. 3.76 0.24 0.00
Other .................... 1.39 0.33 0.38
------ ------ ------
100.00% 100.00% 100.00%
====== ====== ======
</TABLE>
Competition
The Company experiences substantial competition in most of its product
categories from a number of well established domestic and foreign distributors,
some of which have greater financial resources than the Company. The Company
believes the principal competitive factors affecting its business are styling,
pricing and distribution. Increased competition by existing and future
competitors could result in reductions in sales or prices of the Company's
products that could materially adversely affect the Company's profitability. In
addition, a substantial portion of the Company's products are sold under
non-exclusive licensing agreements. Although the Company has been successful in
obtaining and renewing such licenses, there can be no assurance that existing
competitors will not obtain competing licenses in the future or that additional
large, well-financed companies will not enter the licensed luggage, sport bag or
backpack business. Because the Company imports its manufactured goods from
overseas suppliers, delivery to its customers is dependent upon the timing of
overseas manufacturing and shipping schedules, which may put the Company at a
competitive disadvantage to domestic manufacturers.
Employees
At February 15, 1997, the Company employed 85 employees, of which 84 were
employed on a full-time basis and one was employed on a part-time basis, and had
approximately 27 independent sales representatives. At such date, approximately
17 of the Company's employees were employed in the Company's executive offices
in Stamford, Connecticut; approximately 65 were employed in the Company's
warehouse in La Mirada, California; one was employed in the Company's showroom
facility in New York, New York; and two were employed in the Company's Canadian
showroom and warehouse facilities in Ontario, Canada. The Company is not subject
to any collective bargaining agreement and believes that its relationship with
its employees is good.
<PAGE>
Item 2. - Properties
The following table sets forth pertinent facts concerning the Company's material
properties at February 15, 1997, all of which are owned or leased by either the
Company or one of its subsidiaries:
<TABLE>
<CAPTION>
Property Owned:
- ---------------
Location Use Approximate Square Feet
-------- --- -----------------------
<S> <C> <C>
1321 Blundell Road Showroom, Offices 35,000 (leases out 34,000 SF)
Mississauga
Ontario, Canada L4Y 1M6
<CAPTION>
Properties Leased:
- ------------------
Approximate Lease Annual
Location Use Square Feet Expires Rent(1)
-------- --- ----------- ------- -------
<S> <C> <C> <C> <C>
366 Fifth Avenue Showroom 3,340 10/18/06 $ 83,500
New York, NY 10001
24 Richmond Hill Avenue Executive Offices 7,800 9/14/00 $122,000
Stamford, CT. 06901
16000 Heron Avenue Warehouse, Offices 116,000(2) 3/31/00 $460,000
La Mirada, CA. 90638
(1) The Company is required to pay its proportionate share of any increase
during the term of the lease in real estate taxes and expenses of
maintaining the premises computed on the basis of the percentage of the
total square footage of the premises occupied by the Company.
(2) Approximately 38,000 square feet of warehouse and office space has been
subleased to Bueno of California, Inc., the purchaser of the Company's
former handbag division, through the end of the lease term at a rental rate
of $10,000 per month, increasing to $17,000 per month in the last year of
the lease term.
</TABLE>
The Company's owned and leased space is fully utilized for the purposes set
forth in the table above under the caption "Use," and believes that its
properties are suitable and adequate for the business of the Company.
Item 3. - Legal Proceedings
The Company is not involved in any pending legal proceeding other than
non-material ordinary routine litigation incidental to its business.
<PAGE>
Item 4. - Submission of Matters To a Vote of Security Holders
(a) The 1996 Annual Meeting of Shareholders of the Company (the "1996
Annual Meeting") was duly held on October 24, 1996.
(b) Inapplicable, as (i) proxies for the meeting were solicited
pursuant to Regulation 14 under the Act; (ii) there was no
solicitation in opposition to the management's nominees as listed
in the proxy statement relating to the 1996 Annual Meeting (the
"Proxy Statement"); and (iii) all of such nominees were duly
elected.
(c) Set forth below is a brief description of each other matter voted
upon at the 1996 Annual Meeting and the number of affirmative
votes and the number of negative votes cast:
i) The approval and adoption of an amendment to the 1995
Stock Option Plan of the Company. The information
contained in the Proxy Statement at pages 6 through 8
under the heading "Proposal to Amend the 1995 Stock Option
Plan" is incorporated by reference herein.
Votes for................................778,713
Votes against............................ 30,975
Votes abstaining ........................ 23,114
(ii) The approval of the 1996 Restricted Stock Award Plan of
the Company. The information contained in the Proxy Statement
at pages 8 through 10 under the heading "Proposal to Adopt the
1996 Restricted Stock Award Plan" is incorporated by reference
herein.
Votes for................................775,463
Votes against............................ 29,375
Votes abstaining......................... 27,992
(d) Not applicable.
<PAGE>
Part II
Item 5. - Market for the Company's Common Equity and Related Stockholder Matters
The Common Stock, $.10 par value (the "Common Stock"), of the Company is traded
in the over-the-counter market and is quoted on the NASDAQ inter-dealer
automated quotations system. The high and low bid quotations for each quarterly
period of the Company's last two fiscal years are listed below:
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Fiscal 1996
-----------
1st Quarter 5-1/2 2-1/4
2nd Quarter 5-1/2 3-5/8
3rd Quarter 5 3-1/8
4th Quarter 4-1/2 2-5/8
Fiscal 1995
-----------
1st Quarter 2-3/4 2-1/4
2nd Quarter 2-1/4 1-1/2
3rd Quarter 2 1-1/4
4th Quarter 2-1/2 1-1/2
</TABLE>
(The quotations set forth in the table above reflect inter-dealer prices,
without retail mark-up, mark-down or commission, and may not necessarily
represent actual transactions.)
As of February 15, 1997, there were 197 holders of record of the Common Stock.
The Company has not declared any cash dividends during the past fiscal year with
respect to the Common Stock. The declaration by the Company of any cash
dividends in the future will depend upon the determination of the Company's
Board of Directors as to whether, in light of the Company's earnings, financial
position, cash requirements and other relevant factors existing at the time, it
appears advisable to do so. The Company's current financing arrangements contain
certain restrictions regarding the payment of dividends.
<PAGE>
Item 6. - Selected Financial Data
The following selected financial information has been taken from the
consolidated financial statements of the Company. The information set forth
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the financial statements
and related notes included elsewhere in this report.
<TABLE>
<CAPTION>
Fiscal Years Ended November 30th
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Earnings Statement:
Net Sales .................. $ 27,746 $ 24,812 $ 27,600 $ 27,954 $ 30,551
Gross Profit ............... 7,088 6,130 6,067 6,620 8,736
Income (Loss) Before
Provision for Income Taxes
and Extraordinary Items .. 925 (996) (2,435) (948) 3
Net Income (Loss) .......... 622 (996) (2,435) (964) 63
Net Income (Loss) per
Common Share:
Primary ................ 0.47 (0.82) (2.01) (0.79) 0.05
Fully Diluted .......... 0.46 (0.82) (2.01) (0.79) 0.05
Cash Dividends ............. -- -- -- -- --
Balance Sheet:
Working Capital ............ $ 1,553 $ 1,142 $ 1,362 $ 4,031 $ 4,684
Property, Plant, Equipment . 888 650 773 832 990
Total Assets ............... 9,577 10,003 10,252 11,929 14,255
Long-Term Debt (Less current
Maturities) .............. 348 590 50 506 557
Stockholders' Equity ....... 2,780 1,897 2,898 5,374 6,362
</TABLE>
<PAGE>
Item 7. - Management's Discussions and Analysis of Financial Condition and
Results of Operations
Fiscal Year 1996 Compared to Fiscal Year 1995
Net sales for fiscal year 1996 increased by approximately $2,934,000 to
approximately $27,746,000 as compared to approximately $24,812,000 reported in
fiscal 1995. Net sales for the Company's luggage and backpack divisions
increased by approximately $1,974,000 during fiscal 1996. Net sales reported for
the Company's discontinued FILA product line (see below) increased by
approximately $3,270,000 to approximately $8,584,000 as compared to
approximately $5,314,000 reported in fiscal 1995 while sales for the Company's
non-FILA products decreased by approximately $1,296,000 during the same period.
Included in the sales increase for FILA was approximately $482,000 of FILA
product sold to FILA, of which approximately $320,000 was sold at the Company's
cost. The decrease in non-FILA sales is primarily attributable to increases in a
direct buy program to certain customers who purchased approximately $3,495,000
worth of the Company's products directly from the Company's suppliers in the Far
East. This amount was approximately $1,760,000 higher than the $1,735,000
purchased in fiscal 1995 by these customers. The Company receives commissions on
these sales and records these "direct buy" transactions as commission income. If
these sales had been made from product imported by the Company and then sold to
its customers, the net sales of non-FILA product would have increased by
approximately $464,000 during fiscal 1996. Net sales for the Company's Canadian
subsidiary increased by approximately $2,402,000 during fiscal 1996 due to
strong sales for its discontinued Atlantic luggage line (see below). Included in
the Company's net sales for fiscal 1995 were approximately $1,423,000 in net
sales attributable to the Company's former handbag division, which was sold on
March 20, 1995. The Company's gross profit for fiscal 1996 increased by
approximately $958,000 to approximately $7,088,000 from approximately $6,130,000
reported in fiscal 1995 and the gross profit percentage in fiscal 1996 increased
to 25.6% from 24.7% reported in fiscal 1995. Included in the Company's gross
profit for fiscal 1995 was approximately $81,000 attributable to the Company's
former handbag division.
Selling, warehouse, and general and administrative expenses decreased by
approximately $371,000 to approximately $5,905,000 from approximately $6,276,000
reported in fiscal 1995. Included in the Company's expenses for fiscal 1995,
were approximately $840,000 in expenses directly related to the Company's former
handbag division. Selling, warehouse, and general and administrative expenses
increased in fiscal 1996 for the Company's luggage and backpack divisions and
Canadian operation by approximately $469,000. Included in this increase was the
one-time write-off of restrictive covenants, with a book value of approximately
$152,000, which resulted from the pre-payment of the Company's obligations to
the Company's former parent Yashiro Company, Inc. and its affiliates ("Yashiro")
under the Non-Competition Agreements entered into between the Company and
Yashiro in March 1995 in connection with the sale of its former handbag
division. Additionally, the other major components of this increase in expenses
were approximately $150,000 in increased warehouse costs and approximately
$120,000 in increased selling expenses.
<PAGE>
Included in the Company's operating results for fiscal 1995 was a one-time
charge of approximately $425,000 attributable to the loss on the sale of the
Company's former handbag division in March 1995 to Bueno of California, Inc., an
affiliate of Yashiro.
Interest expense decreased by approximately $94,000 in fiscal 1996 due to lower
average borrowings.
Miscellaneous income increased by approximately $127,000 in fiscal 1996 as a
result of increases in the Company's "direct buy" business as discussed above.
The income tax provision increased in 1996 by approximately $303,000, primarily
due to profits in Canada.
In February 1996, the Company and FILA entered into an agreement pursuant to
which the Company ceased shipping products under the FILA license on June 30,
1996, subject to certain rights with respect to remaining inventory. The Company
believes that the loss of the FILA trademark may have an adverse effect on the
Company's results of operations through the fiscal quarter ending August 31,
1997. However, the Company expects that a significant portion of the net sales
of FILA products that would have been realized by the Company during the
remaining term of the FILA license will be replaced by sales of other licensed
products incorporating the recently licensed "Perry Ellis", "Hedgren" and
"Skechers" names, symbols and logos.
In August 1996, Airway notified the Company that it would not renew its license
agreement with the Company pursuant to which Sirco International (Canada)
Limited, the Company's Canadian subsidiary ("Sirco Canada"), was granted an
exclusive license to sell in Canada luggage and luggage related products under
the trade names "Atlantic" and "Oleg Cassini" through December 31, 1996. In
addition, following receipt of notification from Airway and Douglas Turner, then
President of Sirco Canada and a Director of the Company, that Airway and Mr.
Turner had mutually agreed to Airway's future employment of Mr. Turner in its
efforts to distribute directly its products in Canada, the Company terminated
its employment of Mr. Turner in September 1996. During fiscal years 1996 and
1995, the Company's net sales of Airway products amounted to approximately
$5,782,000 and $3,571,000, respectively, which represented approximately 20.8%
and 14.4%, respectively, of the Company's total net sales for those periods and
approximately 95.4% and 97.6%, respectively, of the total net sales of Sirco
Canada for those periods. Sirco Canada earned net profits after taxes of
approximately $434,000 and $269,000, respectively, for fiscal years 1996 and
1995. In November 1996, the Company entered into an Asset Purchase Agreement
with Airway, whereby Airway agreed, among other things, to purchase any
remaining Atlantic inventory owned by Sirco Canada on December 31, 1996, to
purchase certain fixed assets and to enter into a two year lease for a
substantial portion of the premises owned by Sirco Canada at fair market value.
In November 1996, the Company hired a new president to run its Canadian
operation and to market the Company's other licensed products in Canada,
including its recently licensed "Perry Ellis" and "Hedgren" names. The loss of
the Airway license could have an adverse effect on the Company's results of
operations for the fiscal year ended November 30, 1997. However, the Company
plans to recoup a significant portion of Airway sales from sales of its other
licensed products.
<PAGE>
The Company continuously evaluates potential licenses and determines the value
an individual trade name will add to its product mix. Licensed trade names can
help give the Company a marketing advantage with certain retailers over similar
products offered by competitors. Two successful trade names, FILA and Atlantic,
are no longer available to the Company because the licensors decided to sell
product bearing their trade name directly to retail establishments. The Company
does not anticipate losing any licenses in fiscal 1997, although the Company may
elect to terminate less successful licenses. Even though a licensed name can
help the Company sell a product, the Company strives to provide its customers
with excellent service and high quality product, regardless of what name is on
the product, so that its customers continuously come back to the Company for new
names and new products.
Fiscal Year 1995 Compared to Fiscal Year 1994
Net sales for fiscal year 1995 decreased by approximately $2,787,000 to
approximately $24,812,000 as compared to approximately $27,600,000 reported in
fiscal 1994. The reduction in net sales was primarily attributable to the sale
of the Company's handbag division in March 1995, which division accounted for
net sales of approximately $9,182,000 in fiscal 1994 as compared to
approximately $1,423,000 through the date of its sale in fiscal 1995. This
$7,759,000 decrease in fiscal year 1995 net sales was partially offset by
increases in net sales for the Company's luggage and backpack division, which
increased by approximately $2,871,000, and by increases in the Company's
Canadian sales, which increased by approximately $2,263,000.
Although the Company's net sales were lower in fiscal 1995 as compared to fiscal
1994, the Company's overall gross profit in fiscal 1995 increased by $63,000,
and the Company's gross profit percentage improved from 22.0% in fiscal 1994 to
24.7% in fiscal 1995. The ability of the Company to increase its gross profit
percentage and increase its overall gross profit was primarily attributed to the
increased sales of the Company's luggage and backpack division and the Company's
Canadian subsidiary, which have higher gross margins than the sales of the
former handbag division.
Selling, warehouse, general and administrative expenses decreased by
approximately $2,622,000 to approximately $6,276,000 in fiscal 1995 as compared
to $8,898,000 in fiscal 1994. The reduction in the above expenses was primarily
attributed to (i) the sale of the handbag division, resulting in cost and
expenses reductions aggregating approximately $1,600,000 in fiscal 1995, (ii)
certain non-recurring charges aggregating approximately $930,000 in the fourth
quarter of fiscal 1994, and (iii) management's continuing effort to reduce
operating costs.
Interest expense increased by approximately $78,000 from approximately $789,000
in fiscal 1994 to approximately $867,000 in fiscal 1995. The increase in
interest expense was primarily attributed to higher average outstanding
borrowings during fiscal 1995. Of such increase, approximately $28,000
represented interest expense incurred in connection with the restrictive
covenant and severance agreements entered into with the Company's former
controlling shareholders.
<PAGE>
The Company's sale of its former handbag division in the second quarter of
fiscal 1995 resulted in a non-recurring loss of approximately $425,000.
Miscellaneous income declined by approximately $693,000 in fiscal 1995 from
approximately $1,023,000 in fiscal 1994 to approximately $330,000 in fiscal
1995. This decline was primarily attributable to a one-time income item in
fiscal 1994 resulting from the reversal in fiscal 1994 of an accrued expense in
the amount of approximately $620,000 related to a potential claim by a former
tax exempt bondholder.
Liquidity and Capital Resources
At November 30, 1996, the Company had cash and cash equivalents of approximately
$390,000, and working capital of approximately $1,553,000, an increase of
approximately $214,000 and $411,000, respectively, over amounts reported at the
end of the prior fiscal year.
Net cash provided by (used in) operating activities aggregated approximately
$2,044,000, ($1,505,000) and ($441,000) in fiscal years 1996, 1995 and 1994,
respectively . The increase of approximately $3,549,000 in net cash provided by
operating activities in 1996, as compared to 1995, and the increase in net cash
in 1995 as compared to 1994, primarily reflects improved operating results and
for 1996 compared to 1995, the increase was also attributable to lower inventory
levels being required to generate sales.
Net cash provided by (used in) investing activities aggregated approximately
($332,000), $32,000 and ($110,000) in fiscal years 1996, 1995 and 1994,
respectively. The principal uses of cash from investing activities in 1996 was
for the renovation of the Company's New York showroom, and in 1994 for the
purchase of equipment. In fiscal 1995, the principal source of net cash from
investing activities was proceeds from the sale of a subsidiary.
Net cash provided by (used in) financing activities aggregated approximately
($1,503,000), $697,000 and $805,000 in fiscal years 1996, 1995 and 1994,
respectively. In fiscal 1996, approximately $1,293,000 of net cash was used to
repay short-term debt and approximately $460,000 was used to repay long-term
debt. In fiscal 1996, the Company received $250,000 in proceeds from the
exercise of stock options. In fiscal years 1995 and 1994, the Company's primary
sources of net cash from financing activities were from the proceeds of
short-term and long-term borrowings in excess of debt repayments.
In March 1995, the Company entered into an agreement with Yashiro pursuant to
which Yashiro agreed to issue or cause to be issued, until March 20, 1997,
unsecured trade letters of credit in an aggregate amount of up to the lesser of
$1,200,000 or 35% of the book value of the Company's inventory. Yashiro charges
the Company a handling fee of 3% for each letter of credit that is opened.
Interest is payable to Yashiro monthly at 2% above the prime rate. On August 28,
1996, the agreement was amended to, among other things, reduce the aggregate
amount of letters of credit to be issued to the lesser of $1,000,000 or 35% of
the book value of the Company's inventory. At November 30, 1996, the Company was
directly indebted to Yashiro for approximately $530,000 and had outstanding
letters of credit amounting to approximately $242,000.
<PAGE>
At November 30, 1996, the Company had an agreement with Rosenthal & Rosenthal,
Inc. ("Rosenthal") pursuant to which the Company sold accounts receivable to
Rosenthal on a pre-approved non-recourse basis. Under the terms of the
agreement, Rosenthal advanced funds to the Company on the basis of invoice
amounts. Interest on such advances was 1.75% per annum above the prime rate.
Additionally, Rosenthal provided inventory financing to the Company based on an
advance rate of up to 40% of the inventory value. At November 30, 1996,
Rosenthal had advanced the Company $1,071,000 for inventory financing. Interest
on such advances was 1.75% above the prime rate. At November 30, 1996, the prime
rate was 8.25%. The Company also paid a factoring commission of .75% of each
invoice amount, subject to a minimum of $96,000 per annum. This agreement was
terminated by the Company on December 17, 1996.
On December 17, 1996, the Company entered into a financing agreement with Coast
Business Credit ("Coast"), a division of Southern Pacific Thrift & Loan
Association, pursuant to which Coast will make available to the Company a line
of credit of $7,000,000 with advances based on 80% of the Company's eligible
accounts receivable and 50% of the Company's eligible inventory. Under the terms
of the agreement, inventory financing is not to exceed $3,000,000, including
letters of credit. Interest on the loan is 2% per annum above the prime rate.
In May 1996, Sirco Canada re-negotiated its financing agreement with the
National Bank of Canada. The agreement provided for a revolving loan in the
amount of approximately $876,000, with interest payable monthly at 1.25% above
the Canadian prime rate. Substantially all of the assets of Sirco Canada were
pledged as security for the revolving line of credit. At November 30, 1996,
Sirco Canada had no borrowings under the revolving line of credit but had
outstanding letters of credit totaling approximately $46,000. At November 30,
1996, the Canadian prime rate was 4.75%. Additionally, Sirco Canada has a
mortgage on its real property in the amount of approximately $355,000. The
mortgage is payable in monthly installments of approximately $3,500 including
interest at 10.25% with a balloon payment of approximately $325,000 in the year
2000. In January 1997, the bank advised Sirco Canada that it would no longer
provide Sirco Canada a revolving line of credit but would continue to provide
the real property mortgage. In fiscal 1997, the Company will use the letter of
credit facility from its financing agreement with Coast to open letters of
credit for purchases made directly by Sirco Canada. Management believes that
Sirco Canada has adequate working capital to operate without a revolving line of
credit.
In fiscal 1996, the Company had approximately $339,000 in capital expenditures,
of which approximately $219,000 was spent on renovation of the Company's new New
York showroom. Capital expenditures are not expected to be significant in fiscal
1997.
Management believes that the Company's present sources of financing, combined
with its present working capital and cash flow from operations, will be
sufficient to provide adequate liquidity and meet its capital requirements for
the next twelve months.
<PAGE>
Item 8. - Financial Statements and Supplementary Data
The financial statements and supplementary data to be provided pursuant to this
Item 8 are included under Item 14 of this Report.
Item 9. - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
<PAGE>
Part III
Item 10. - Directors and Executive Officers of the Company
The following table contains certain information regarding directors and
executive officers of the Company as of February 15, 1997.
<TABLE>
<CAPTION>
Name and Position Principal Occupation for Past 5 Years and
With the Company Age Current Public Directorships or Trusteeships
- ---------------- --- --------------------------------------------
<S> <C> <C>
Joel Dupre 43 Director since 1990; Chairman of
the Board and Chief Executive
Officer of the Company since March
1995; Executive Vice President from
November 1992 to March 1995 and a
Vice President from 1989 to 1992.
Eric M. Hellige 42 Director since 1995 and Secretary
of the Company; Partner for more
than five years of Pryor, Cashman,
Sherman & Flynn, counsel to the
Company.
Richard Pyles 40 Senior Vice President of the
Company since November 1996; Vice
President-Marketing and Sales from
September 1992 to November 1996;
Director of Marketing from June
1990 to September 1992, Elkei
Merchandise Corp., a fashion
accesory trading company.
Paul H. Riss 41 Director since 1995, and Chief
Financial Officer and Treasurer of
the Company since November 1996;
Chief Financial Officer of Sequins
International Inc., a manufacturer
of sequined fabrics and trimmings
from June 1992 to November 1996;
Chief Financial Officer, Treasurer
and Secretary of ComponentGuard
Inc., an administrator of extended
warranty contracts, from August
1990 to June 1992. ComponentGuard
Inc. filed a petition for
protection under Chapter 11 of the
United States Bankruptcy Code in
May 1992.
Eric Smith 52 Director since 1988; Vice
President-General Manager of West
Coast Distribution Center since
1983.
</TABLE>
<PAGE>
The term of office of the directors is one year, expiring on the date of the
next annual meeting and thereafter until their respective successors shall have
been elected and shall qualify, or until their death, resignation or removal.
Section 16(a) of the Exchange Act 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 ("10% Stockholders"), to file with the
Securities and Exchange Commission (the "Commission") initial reports of
ownership and reports of changes in ownership of common stock and other equity
securities of the Company. Officers, directors and 10% Stockholders are required
by Commission regulation to furnish the Company with copies of all Section 16(a)
forms they file.
Item 11. - Executive compensation
Summary of Cash and Certain Other Compensation
The following table sets forth, for the last three fiscal years, all
compensation awarded to, earned by or paid to the chief executive officer
("CEO") of the Company (Mr. Joel Dupre, the Chairman of the Board and Chief
Executive Officer of the Company since March 20, 1995; Mr. Yutaka Yamaguchi, the
Chairman of the Board and Chief Executive Officer of the Company prior to March
20, 1995), and all other executive officers of the Company who received more
than $100,000 in compensation during fiscal 1996 (collectively referred to as
the "Named Executives"):
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term
Annual Compensation Compensation Awards
- ---------------------------------------------------------------------------------------------------------------------
Other Annual
Name and Compensation Options All Other
Principal Position Year Salary(s) Bonus(s) ($) (#) Compensation
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Joel Dupre (1) 1996 $216,667 None None 40,000 None
Chairman of the Board 1995 170,000 None None None None
& Chief Exec. Officer 1994 170,000 $47,776 None None None
Yutaka Yamaguchi (2) 1996 None None None None None
Former Chairman of the 1995 None None None None None
Board & Chief Exec Officer 1994 None None None None None
Richard Pyles (3) 1996 98,341 6,000 None 67,500 None
Senior Vice President 1995 95,025 None None 10,000 None
1994 93,517 5,000 None None None
1. Mr. Dupre held the title of Executive Vice President of the Company during
the fiscal year ended November 30, 1994. In March 1995, Mr. Dupre was
elected Chairman of the Board and Chief Executive Officer of the Company.
2. Mr. Yamaguchi resigned as an officer and director of the Company effective
January 1, 1995.
3. Mr. Pyles was elected Senior Vice President in November 1996. At all other
times, Mr. Pyles served as Vice President-Marketing and Sales of the
Company.
</TABLE>
<PAGE>
Board of Directors Compensation
The Company does not currently compensate directors for service on the Board of
Directors.
Employment Agreement
In November 1996, the Company entered into an employment agreement with Paul
Riss that provides for the employment of Mr. Riss as Chief Financial Officer of
the Company, and his appointment as a director of the Company, through October
31, 1999, subject to certain rights of earlier termination. Pursuant to such
agreement, Mr. Riss will be entitled to a base salary of $125,000 per annum, to
participate in all bonus and incentive plans of the Company and to certain
insurance and automobile allowances and other benefits. In addition, pursuant to
such agreement, Mr. Riss received ten-year options to purchase up to 35,000
shares of Common Stock at an exercise price of $2.875 per share, of which 8,750
options vested on the date of grant and 8,750 options will vest on each of the
next three anniversaries of the date of the agreement. Upon consummation during
the term of such agreement of any debt (other than traditional asset-based
lending relationships or other traditional bank or factoring arrangements) or
equity financing in which gross proceeds to the Company equal or exceed
$1,000,000, the Company will grant to Mr. Riss an additional option to purchase
5,000 shares of Common Stock at an exercise price equal to the then fair market
value of the Common Stock. The agreement also contains confidentiality
provisions, and non-competition provisions that survive for a period of two
years following the termination of employment if the agreement is terminated by
the Company for "cause" (as defined) or by Mr. Riss for "good reason" (as
defined) or a period of one year if the agreement is terminated for any other
reason.
<PAGE>
Option Grant Table
The following table sets forth information as to the options granted to the
Named Executives and all other employees during the fiscal year ended November
30, 1996.
<TABLE>
<CAPTION>
Individual Grants
- ---------------------------------------------------------------------------------------------------------
Percent of
Total Potential Realizable
Number of Options/ Value at Assumed
Securities SARs Annual rates of Stock
Underlying Granted to Price Appreciation
Options/ Employees Exercise or for Option Term(3)
SARs in Fiscal Base Price Expiration
Name Granted(1) Year(2) ($/Share) Date 5% ($) 10% ($)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Joel Dupre ..... 40,000(4) 19.2% $ 2.75 02/02/01 $ 30,400 $ 67,200
Yutaka Yamaguchi -- -- -- -- -- --
Richard Pyles .. 60,000(5) 28.8 2.50 02/02/01 42,000 91,800
7,500(6) 3.6 2.75 11/08/01 5,700 12,600
All Other
Employees ...... 40,000(5) 19.2 2.50 02/02/01 28,000 61,200
35,000(7) 16.8 2.875 11/05/06 63,175 160,475
26,000(6) 12.4 2.75 11/08/01 19,760 43,680
(1) No SAR's were granted by the Company in fiscal 1996.
(2) In fiscal 1996, the Company granted options on 208,500 shares of the
Company's Common Stock to ten employees.
(3) The amounts shown in these two columns represent the potential realizable
values using the options granted and the exercise price. The assumed rates
of stock price appreciation are set by the Commission's executive
compensation disclosure rules and are not intended to forecast the future
appreciation of the Company's Common Stock.
(4) Options become exercisable subject to a four year vesting period with
10,000 shares vesting on each of the first, second, third and fourth
anniversary dates of the option grant date of February 2, 1996.
(5) Options become exercisable on the grant date.
(6) Options become exercisable on the first anniversary date of the option
grant date of November 8, 1996.
(7) Options become exercisable subject to a three year vesting period, with
8,750 shares vesting on the grant date of November 5, 1996, and on each of
the first, second and third year anniversaries of the grant date.
</TABLE>
<PAGE>
Stock Option Exercises
The following table contains information relating to the exercise of the
Company's stock options by the Named Executives in fiscal 1996 as well as the
number and value of their unexercised options as of November 30, 1996.
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options
Shares Fiscal Year-End(#)(1) at Fiscal Year End($)(2)
Acquired on Value ---------------------------- -----------------------------
Name Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Joel Dupre ...... -- N/A -- 40,000 -- $35,000
Yutaka Yamaguchi -- -- -- -- -- --
Richard Pyles ... 60,000 -- 10,000 7,500 $16,250 6,563
(1) The sum of the numbers under the Exercisable and Unexercisable column of
this heading represents each Named Executives total outstanding options to
purchase the Company's Common Stock.
(2) The dollar amounts shown under the Exercisable and Unexercisable columns of
the heading represent the number of exercisable and unexercisable Company
options, respectively, which were "In-the-Money" on November 30, 1996,
multiplied by the difference between the closing price of the Common Stock
on November 30, 1996, which was $3.625 per share, and the exercise price of
the Company options. For purposes of these calculations, In-the-Money
options are those with an exercise price below $3.625 per share.
</TABLE>
<PAGE>
Employee Retirement Plan
In June 1995, the Board of Directors of the Company determined to discontinue
benefit accruals under the Company's tax qualified Employee Retirement Plan (the
"Retirement Plan"). Pursuant to action taken by the Board of Directors at such
time, benefits ceased to accrue for all active participants under the Retirement
Plan on June 30, 1995. The Retirement Plan is administered by the Board of
Directors.
Each of the Company's United States-based employees was eligible to participate
in the Retirement Plan. However, effective as of July 1, 1995 and in connection
with the Board's action, the Retirement Plan was amended to provide that no
additional eligible employees may participate in the Retirement Plan and accrue
benefits thereunder. The following table discloses estimated annual benefits
payable upon retirement in specified compensation and years of service
classification.
<TABLE>
<CAPTION>
Projected Benefits at Retirement
Years of Service
- ------------------------------------------------------------------------------------------------
15 20 25 30 35
Salary(1)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 20,000 $ 3,750 $ 5,000 $ 6,250 $ 7,500 $ 8,750
25,000 4,625 6,250 7,313 9,375 10,938
30,000 5,625 7,500 9,375 11,250 13,125
35,000 6,563 8,750 10,938 13,125 15,313
40,000 7,500 10,000 12,500 15,000 17,500
50,000 9,980 12,604 15,625 18,750 21,875
75,000 17,105 22,104 26,948 31,986 37,249
100,000 24,730 31,604 38,873 46,236 53,874
125,000 31,355 41,104 50,698 60,406 70,499
150,000(2) 38,480 50,004 62,573 74,736 87,124
175,000 45,605 60,104 74,448 88,986 103,749
200,000 52,730 69,604 86,323 103,236 120,374(3)
(1) The annual benefits shown in the Table are integrated with Social Security
and there are no other offsets to benefits.
(2) In general, section 401(a)(17) of the Internal Revenue Code provides that
for 1994, compensation used for computing benefits under a tax-qualified
employee pension plan cannot exceed $150,000 (as adjusted).
(3) Under current law, the maximum annual benefit payable under the Retirement
Plan cannot exceed $120,000 (as adjusted).
</TABLE>
<PAGE>
The Retirement Plan is funded by the Company on an actuarial basis, and the
Company contributes annually the minimum amount required to cover the normal
cost for current service and to fund supplemental costs, if any, from the date
each supplemental cost was incurred. Contributions were intended to provide for
benefits attributed to service to date, and also for those expected to vest in
the future. Based on the assumption used in the actuarial valuation, the
Retirement Plan is fully funded.
The estimated credited years of service for each of the executive officers named
in the Summary Compensation Table is as follows: Joel Dupre (11 years), Yutaka
Yamaguchi (none) and Richard Pyles (2 years). $150,000 of Mr. Dupre's
compensation shown in the Summary Compensation Table was used to compute his
projected benefit under the Retirement Plan.
Benefits are computed on the basis of a straight-life annuity. Benefits under
the Retirement Plan are integrated with Social Security benefits.
The Retirement Plan will continue to comply with the applicable sections of the
Internal Revenue Code, the Employee Retirement Income Security Act, and
applicable Internal Revenue Services rules and regulations. In accordance with
the terms of the Retirement Plan, distributions will continue to be made to
retired and terminated employees who are participants in the Retirement Plan.
Board of Directors Interlocks and Insider Participation in Compensation
Decisions
The following former and present members of the Board of Directors were officers
of the Company or a subsidiary of the Company during the fiscal year ended
November 30, 1996: Joel Dupre, Eric Smith, Douglas Turner, Eric M. Hellige, Paul
Riss and Ian Mitchell. Such members participated in deliberations of the
Company's Board of Directors concerning executive officer compensation during
the fiscal year ended November 30, 1996.
Item 12. - Security Ownership of Certain Beneficial Owners and Management
The table on the following page sets forth, as of February 15, 1997, the names,
addresses and number of shares of common stock beneficially owned by all persons
known to the management of the Company to be beneficial owners of more than 5%
of the outstanding shares of Common Stock, and the names and number of shares
beneficially owned by all directors of the Company and all executive officers
and directors of the Company as a group (except as indicated, each beneficial
owner listed exercises sole voting power and sole dispositive power over the
shares beneficially owned):
<PAGE>
<TABLE>
<CAPTION>
Shares Percent of
Beneficially of Outstanding
Name and Address Owned Common Stock
---------------- ----- ------------
<S> <C> <C>
Joel Dupre(1) 693,000 52.2%
c/o Sirco International Corp.
24 Richmond Hill Avenue
Stamford, Connecticut 06901
Pacific Million Enterprise Ltd. (2)(3) 133,333 10.1%
The Gateway, Tower 2, Suite 1807
25 Canton Road
Tsimshatsui, Kowloon, Hong Kong
Joseph Takada(2)(3) 133,333 10.1%
c/o Pacific Million Enterprise Ltd.
The Gateway, Tower 2, Suite 1807
25 Canton Road
Tsimshatsui, Kowloon, Hong Kong
Cheng-Sen Wang(2) 88,889 6.7%
c/o Kao-Lien International Co., Ltd.
404 Jen-Air Road 6th Floor, Section 4
Taipei, Taiwan R.O.C.
Albert H. Cheng(2)(4) 44,444 3.4%
c/o Constellation Enterprises Co., Ltd.
199 Chung Ching North Road 11th Floor, Section 3
Taipei, Taiwan R.O.C.
Paul Riss(5) 18,750 1.4%
Richard Pyles (6) 10,000 less than 1%
Eric Smith(6) 10,000 less than 1%
Eric M. Hellige 0 0
All directors and executive officers 731,750 53.6%
of the Company as a group (five individuals)
(1) Includes 10,000 shares of Common Stock subject to options which are
presently exercisable and 266,666 shares for which Mr. Dupre has the right
to exercise sole voting control pursuant to a Voting Agreement dated as of
May 1, 1995 (the "Voting Agreement") under which Pacific, Mr. Wang and Mr.
Cheng granted Mr. Dupre the right to exercise sole voting control with
respect to 133,333; 88,889; and 44,444 shares, respectively, held of record
by them.
<PAGE>
<CAPTION>
(2) As a result of the Voting Agreement, Mr. Dupre, Pacific (together with Mr.
Takada - see Note 2), Mr. Wang and Mr. Cheng may be deemed to be a "group"
within the meaning of Section 13d-3 of the Securities Exchange Act of 1934,
and, therefore, deemed to beneficially own an aggregate of 681,000 shares
of Common Stock.
(3) Pacific has granted to Mr. Dupre an option to purchase all of the 133,333
shares it owns of record. By virtue of his ownership of 95% of the issued
and outstanding shares of common stock of Pacific, Joseph Takada may be
deemed to be the beneficial owner of all the shares of Common Stock
beneficially owned by Pacific.
(4) Mr. Cheng has granted to Mr. Dupre an option to purchase all of the 44,444
shares he owns of record.
(5) Consists of 18,750 shares of Common Stock subject to options which are
presently exercisable.
(6) Consists of 10,000 shares of Common Stock subject to options which are
presently exercisable
</TABLE>
Item 13. - Certain Relationships and Related Transactions
Mr. Joseph Takada, the beneficial owner of approximately 10.1% of the
outstanding shares of Common Stock, is the Managing Director of Ideal Pacific
Ltd, ("Ideal"), the Company's manufacturing agent in Hong Kong. During the
fiscal year ended November 30, 1996, the Company paid aggregate commissions of
approximately $467,000 to Ideal. Mr. Cheng-Sen Wang, the beneficial owner of
approximately 6.7% of the outstanding shares of Common Stock, is the Managing
Director of Kao-Lien International Co., Ltd., ("Kao-Lien"), the Company's
manufacturing agent in Taiwan. During the fiscal year ended November 30, 1996,
the Company paid aggregate commissions of approximately $319,000 to Kao-Lien.
Mr. Albert Cheng, the beneficial owner of 3.4% of the outstanding shares of
Common Stock, is the President of Constellation Enterprise Co., Ltd.
("Constellation"). During the fiscal year ended November 30, 1996, the Company
purchased approximately $355,000 of luggage and backpack products and $30,000 of
product equipment from Constellation.
Eric M. Hellige, a director of the Company, is a member of Pryor, Cashman,
Sherman & Flynn, counsel to the Company ("Pryor, Cashman"). Fees paid by the
Company to Pryor, Cashman for legal services rendered during the fiscal year
ended November 30, 1996 did not exceed 5% of such firm's or the Company's
revenues.
The Company believes that all purchases from affiliated parties were on terms
and at prices substantially similar to those available from unaffiliated third
parties.
<PAGE>
PART IV
Item 14. - Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Financial Statements.
2. Financial Statement Schedules
3. Exhibits
(3)(a) Certificate of Incorporation, as amended, incorporated by
reference to the Company's Registration Statement on Form
S-1 filed with the Securities and Exchange Commission on
August 27, 1969 under Registration Number 2- 34436.
(b) Certificate of Amendment of the Certificate of
Incorporation, incorporated by reference to the Company's
definitive proxy statement filed with the Securities and
Exchange commission in connection with the Company's
Annual Meeting of Shareholders held in May, 1984.
(c) Certificate of Amendment to the Certificate of
Incorporation, incorporated by reference to Exhibit 3(b)
to the Company's Annual Report on Form 10-K for the year
ended November 30, 1988.
(d) Certificate of amendment to the Certificate of
Incorporation, incorporated by reference to Exhibit 3(e)
to the Company's Annual Report on Form 10-K for the year
ended November 30, 1994, as amended.
(e) By-laws, amended and restated as of December, 1996.
(10) (a) Amended Letter of Credit Agreement, dated August 28,
1996, between the Company and Yashiro Co., Inc.,
incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q dated August 31, 1996.
(b) Lease Agreement dated February 14, 1990 between
Oro-May-Broward Investment Company and the Company for
property located in La Mirada, California, incorporated by
reference to Exhibit 10(j) to the Company's Annual Report
on Form 10-K for the year ended November 30, 1989, as
amended.
(c) Sirco International Corp. 1995 Stock Option Plan,
incorporated by reference to Exhibit 10(I) to the
Company's Annual Report on Form 10-K for the year ended
November 30, 1995, as amended.
(d) Amendment and Termination Agreement, dated as of August
28, 1996, among Yashiro Co., Inc., Yashiro Company, Ltd.,
Yutaka Yamaguchi, Takeshi Yamaguchi, Joel Dupre, Pacific
Million Enterprise Ltd., Cheng-Sen Wang, Albert H. Cheng,
Sirco International Corp. and Bueno of California, Inc.,
incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q dated August 31, 1996.
<PAGE>
(e) Sirco International Corp. 1996 Restricted Stock Award
Plan, incorporated by reference to Exhibit A to the
Company's Proxy Statement dated October 24, 1996.
(f) Employment Agreement, dated November 5, 1996 between the
Company and Paul Riss.
(g) Loan and Security Agreement, dated December 16, 1996,
between Sirco International Corp. and Coast Business
Credit, a division of Southern Pacific Thrift & Loan
Association.
(22) Subsidiaries of Company - The significant subsidiaries of
Company, all of which are wholly-owned by Company and
included in its consolidated financial statements, are as
follows:
Name Country of Organization
---- -----------------------
Sirco Industries, Limited Hong Kong
Sirco International (Canada) Limited Canada
(23.1) Consent of Nussbaum, Yates & Wolpow, P.C.
(23.2) Consent of Ernst & Young LLP
(23.3) Consent of Deloitte & Touche
(27) Financial Data Schedule.
(b) Reports on Form 8-K.
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized on the 24th day of February, 1997.
SIRCO INTERNATIONAL CORP.
(Company)
By:/s/ Joel Dupre
--------------------
Joel Dupre, Chairman of the Board and
Chief Executive 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 Company and in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Joel Dupre Chairman and Chief Executive February 26, 1997
- -------------- Officer (Principal Executive Officer)
Joel Dupre
/s/ Paul Riss Chief Financial Officer and Director February 26, 1997
- ------------- (Principal Financial and
Paul Riss Accounting Officer)
/s/ Eric M. Hellige Director February 26, 1997
- -------------------
Eric M. Hellige
/s/ Eric Smith Director February 26, 1997
- --------------
Eric Smith
</TABLE>
<PAGE>
FORM 10-K
ITEM 14(a)(1) AND (2)
SIRCO INTERNATIONAL CORP. AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of Sirco International Corp. and
Subsidiaries are included in Item 8:
Consolidated Balance Sheets - November 30, 1996 and 1995
Consolidated Statements of Operations - Years ended November 30,
1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity - Years ended
November 30, 1996, 1995 and 1994
Consolidated Statements of Cash Flows - Years ended November 30,
1996, 1995 and 1994
Notes to Consolidated Financial Statements - Years ended November
30, 1996, 1995 and 1994
The following consolidated financial statement schedules of Sirco International
Corp. and Subsidiaries are included in Item 14(d):
Schedule I - Condensed Financial Information of the Registrant (Parent)
Schedule II - Valuation and Qualifying Accounts - Years ended
November 30, 1996, 1995 and 1994
All other schedules are omitted because they are not required, are inapplicable,
or the information is included in the financial statements or notes thereto.
<PAGE>
[Company Logo]
Nussbaum Yates & Wolpow, P.C.
- --------------------------------------------------------------------------------
Certified Public Accountants
445 BROAD HOLLOW ROAD, MELVILLE, NY 11747
(516) 845-5252 FAX (516) 845-5279
Report of Independent Auditors
The Board of Directors and Shareholders
Sirco International Corp.
We have audited the accompanying consolidated balance sheets of Sirco
International Corp. and subsidiaries as of November 30, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years then ended. 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 did not audit the
financial statements of Sirco International (Canada) Limited, subsidiary of
Sirco International Corp., which statements reflect total assets of
approximately $2,851,000 and $2,213,000 as of November 30, 1996 and 1995, and
net sales of approximately $6,062,000 and $3,660,000 for the years ended
November 30, 1996 and 1995. Those financial statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to data included for that subsidiary, is based solely on the report of
the other auditors.
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 audit and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Sirco International
Corp. and its subsidiaries as of November 30, 1996 and 1995, and the
consolidated results of their operations and their consolidated cash flows for
the years then ended, in conformity with generally accepted accounting
principles.
We have also audited Schedule I and Schedule II for the years ended November 30,
1996 and 1995. In our opinion, these schedules present fairly, in all material
respects, the information required to be set forth therein.
/s/NUSSBAUM YATES & WOLPOW, P.C.
Melville, New York
February 7, 1997
<PAGE>
Report of Independent Auditors
The Board of Directors and Shareholders
Sirco International Corp.
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of Sirco International Corp. and
Subsidiaries for the year ended November 30, 1994. Our audit also included the
financial statement schedule for the year ended November 30, 1994 listed in the
index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audit. We did
not audit the financial statements of Sirco International (Canada) Limited,
subsidiary of Sirco International Corp., which statements reflect net sales of
approximately $1,397,000 for the year ended November 30, 1994. Those financial
statements were audited by other auditors whose report has been furnished to us
and our opinion, insofar as it relates to data included for that subsidiary, is
based solely on the report of other auditors.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated results of operations and cash flows of
Sirco International Corp. International Corp. and its Subsidiaries for the year
ended November 30, 1994, in conformity with generally accepted accounting
principles. Also, in our opinion, based on our audit and report of other
auditors, the related financial statement schedule, when considered in relation
to the basic financial; statements taken as a whole, present fairly in all
material respects information set forth therein.
/s/ERNST & YOUNG LLP
New York, New York
February 17, 1995
<PAGE>
Deloitte & Touche
[Company Logo]
Chartered Accountants
1 City Centre Drive Telephone: (905) 803-5100
Suite 1100 Facsimile: (905) 803-6101
Mississauga, Ontario, L5B 1M2
Auditors' Report
To the Shareholder of
Sirco International (Canada) Limited
We have audited the balance sheets of Sirco International (Canada) Limited as at
November 30, 1996 and 1995 and the statements of operations, and retained
earnings and changes in financial position for each of the years in the three
year period ended November 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance 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.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at November 30, 1996 and 1995
and the results of its operations and the changes in its financial position for
each of the years in the three year period ended November 30, 1996 in accordance
with generally accepted accounting principles.
/s/Deloitte & Touche
Chartered Accountants
December 18, 1996
<PAGE>
<TABLE>
<CAPTION>
SIRCO INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, 1996 AND 1995
ASSETS
(Note 2)
1996 1995
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents .................... $ 390,043 $ 176,241
Accounts receivable, trade - net of allowance
of $276,000 and $286,000 in 1996 and 1995
and including $1,244,000 and $1,286,000,
net of advances, due from factor in 1996
and 1995, respectively (Note 11) .......... 2,825,764 2,184,468
Inventories .................................. 4,406,066 5,762,828
Prepaid expenses ............................. 256,134 257,809
Other current assets (Note 13) ............... 123,245 276,815
----------- -----------
Total current assets .... 8,001,252 8,658,161
----------- -----------
Property, plant and equipment - at cost:
Land ......................................... 210,672 208,826
Building ..................................... 503,599 499,186
Machinery and equipment ...................... 841,455 728,299
Automobiles and trucks ....................... -- 7,241
Leasehold improvements ....................... 311,441 334,342
----------- -----------
1,867,167 1,777,894
Less accumulated depreciation and amortization 979,457 1,128,045
----------- -----------
887,710 649,849
----------- -----------
Other assets (Notes 10 and 13) ................... 147,402 154,233
----------- -----------
Investment in and advances to subsidiary (Note 12) 540,497 540,497
----------- -----------
Total assets ............ $ 9,576,861 $10,002,740
=========== ===========
(Continued)
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIRCO INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
NOVEMBER 30, 1996 AND 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
1996 1995
------------ ------------
<S> <C> <C>
Current liabilities:
Loans payable to financial institutions (Note 2) .............. $ 1,071,000 $ 2,323,279
Short-term loan payable to former related parties
(Note 8) ................................................... 529,821 571,205
Current maturities of long-term debt (Notes 5
and 13) .................................................... 6,735 222,119
Accounts payable .............................................. 2,919,511 2,866,658
Accrued expenses and taxes .................................... 1,920,897 1,532,253
------------ ------------
Total current liabilities ................ 6,447,964 7,515,514
------------ ------------
Long-term debt, less current maturities (Notes 5
and 13) ....................................................... 348,401 590,298
------------ ------------
Commitments and contingencies (Notes 2, 4 and 15)
Stockholders' equity (Notes 2 and 14):
Common stock, $.10 par value; 10,000,000
shares authorized, 1,315,200 and 1,215,200
shares issued in 1996 and 1995 ............................. 131,520 121,520
Preferred stock, $.10 par value; 1,000,000 shares
authorized, none issued
Capital in excess of par value ................................ 4,267,534 4,027,534
Retained earnings (deficit) ....................................... (1,019,367) (1,641,603)
Treasury stock at cost, 5,500 shares .......................... (27,500) (27,500)
Accumulated foreign currency translation
adjustment ................................................. (571,691) (583,023)
------------ ------------
Total stockholders' equity ............... 2,780,496 1,896,928
------------ ------------
Total liabilities and stockholders' equity $ 9,576,861 $ 10,002,740
============ ============
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIRCO INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED NOVEMBER 30, 1996, 1995 AND 1994
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net sales ..................................... $ 27,745,955 $ 24,812,147 $ 27,599,536
Cost of goods sold ............................ 20,657,633 18,682,304 21,532,520
------------ ------------ ------------
Gross profit .................................. 7,088,322 6,129,843 6,067,016
Selling, warehouse, general and adminis-
trative expenses .......................... 5,905,152 6,276,379 8,898,288
------------ ------------ ------------
Income (loss) from operations ................. 1,183,170 (146,536) (2,831,272)
Interest expense .............................. 772,812 866,597 789,109
Interest income ............................... (58,214) (111,710) (162,243)
Loss on sale of handbag division .............. -- 425,163 --
Commission and other income, net .............. (456,873) (330,087) (1,023,113)
------------ ------------ ------------
Income (loss) before provision for income taxes 925,445 (996,499) (2,435,025)
Provision for income taxes .................... 303,209 -- --
------------ ------------ ------------
Net income (loss) ............................. $ 622,236 ($ 996,499) ($ 2,435,025)
============ ============ ============
Earnings (loss) per common and common
equivalent share:
Primary:................................... $ .47 ($ .82) ($ 2.01)
============ ============ ============
Assuming full dilution..................... $ .46 ($ .82) ($ 2.01)
============ ============ ============
Shares used in computing earnings (loss) per
common and common equivalent share:
Primary:................................... $ 1,334,251 1,209,700 1,209,700
============ ============ ============
Assuming full dilution.. .................. 1,339,157 1,209,700 1,209,700
============ ============ ============
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIRCO INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED NOVEMBER 30, 1996, 1995 AND 1994
Common Stock Capital Retained Currency
Number of In Excess of Earnings Treasury Translation
Shares Amount Par Value (Deficit) Stock Adjustment
------ ------ --------- --------- ----- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, November 30, 1993 1,215,200 $ 121,520 $ 4,027,534 $ 1,789,921 -- ($ 565,455)
Net loss .............. -- -- -- (2,435,025) -- --
Purchase of Treasury
stock - 5,500 shares -- -- -- -- ($ 27,500) --
Currency translation
adjustment .......... -- -- -- -- -- (12,948)
--------- ----------- ----------- ----------- ----------- -----------
Balance, November 30, 1994 1,215,200 121,520 4,027,534 (645,104) (27,500) (578,403)
Net loss .............. -- -- -- (996,499) -- --
Currency translation
adjustment .......... -- -- -- -- -- (4,620)
--------- ----------- ----------- ----------- ----------- -----------
Balance, November 30, 1995 1,215,200 121,520 4,027,534 (1,641,603) (27,500) (583,023)
Net income ............ -- -- -- 622,236 -- --
Exercise of stock
options ............. 100,000 10,000 240,000 -- -- --
Currency translation
adjustment .......... -- -- -- -- -- 11,332
--------- ----------- ----------- ----------- ----------- -----------
Balance, November 30, 1996 1,315,200 $ 131,520 $ 4,267,534 ($1,019,367) ($ 27,500) ($ 571,691)
========= =========== =========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIRCO INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED NOVEMBER 30, 1996, 1995 AND 1994
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities:
Net income (loss) .................................... $ 622,236 ($ 996,499) ($2,435,025)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization ................... 254,321 195,634 152,849
Loss on sale of handbag division (see Note 13) .. -- 425,163 --
Provision for losses on accounts receivable
and other assets .............................. 32,000 128,000 560,000
Write-off of other current assets ............... -- -- 499,000
(Gain) loss on sale of property, plant and
equipment ..................................... (1,601) 525 --
Changes in operating assets and liabilities:
Accounts receivable ........................... (663,322) (477,148) 1,021,724
Inventories ................................... 1,354,698 (2,432,693) (256,443)
Prepaid expenses .............................. 1,643 62,525 80,901
Other current assets .......................... 1,134 157,707 59,280
Other assets .................................. 6,967 74,800 (120,053)
Accounts payable and accrued expenses ......... 121,671 1,357,217 (3,888)
Income taxes .................................. 314,425 -- 700
----------- ----------- -----------
Net cash provided by (used in) operating activities .. 2,044,172 (1,504,769) (440,955)
----------- ----------- -----------
Investing activities:
Purchases of property, plant and equipment ........ (339,179) (30,195) (110,036)
Proceeds from sale of property, plant and equipment 7,038 1,605 --
Cash inflow from agreement to sell subsidiary ..... -- 60,296 --
----------- ----------- -----------
Net cash provided by (used in) investing activities .. (332,141) 31,706 (110,036)
----------- ----------- -----------
(Continued)
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIRCO INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED NOVEMBER 30, 1996, 1995 AND 1994
1996 1995 1994
---------- ----------- -----------
<S> <C> <C> <C>
Financing activities:
Repayment of loans payable to financial institutions
and short-term loans payable to related parties .. ($1,258,197) ($1,761,501) ($ 746,608)
Proceeds from short-term borrowings ................ -- 2,506,995 --
Proceeds from long-term debt ....................... -- 357,455 1,579,263
Repayment of long-term debt ........................ (460,301) (441,440) --
Purchase of treasury stock ......................... -- -- (27,500)
Proceeds from (repayment of) officer loan .......... (35,000) 35,000 --
Proceeds from exercise of stock options ............ 250,000 -- --
---------- ----------- -----------
Net cash provided by (used in) financing activities ... (1,503,498) 696,509 805,155
---------- ----------- -----------
Effect of exchange rate changes on cash ............... 5,269 (3,074) (1,211)
---------- ----------- -----------
Increase (decrease) in cash and cash equivalents ...... 213,802 (779,628) 252,953
Cash and cash equivalents at beginning of year ........ 176,241 955,869 702,916
---------- ----------- -----------
Cash and cash equivalents at end of year .............. $ 390,043 $ 176,241 $ 955,869
=========== =========== ===========
Cash paid during the year for:
Interest ........................................... $ 675,006 $ 836,437 $ 780,482
Income taxes ....................................... $ -- $ -- $ --
</TABLE>
Supplemental disclosure of non-cash investing and financing activities:
On March 20, 1995, the Company sold inventory of its handbag division with a
book value of $1,889,368 for a sales price of $1,700,431 to Bueno of California,
Inc. Substantially all of the sales price was not received in cash, but was
offset by the Company against the repayment of indebtedness of the Company to
Bueno's parent company, Yashiro Co., Inc.
See accompanying notes to consolidated financial statements.
<PAGE>
SIRCO INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 1996, 1995 AND 1994
1. Description of Business and Summary of Accounting Principles
Description of Business and Concentration of Credit Risk
The Company is a wholesaler of children's bags, tote bags, sport bags,
backpacks, soft luggage and related products generally under trademarked
names and licensed from others principally in the United States and
Canada (see Note 15). The principal markets for the Company's products
are the large national retail chain stores, department stores, specialty
stores and sporting goods retailers. Prior to the sale of its handbag
division on March 20, 1995, the Company also was a wholesaler of handbags
(see Note 13).
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries after elimination of significant intercompany
balances and transactions.
Revenue Recognition
Revenue is recognized upon the shipment of merchandise.
Inventories
Inventories, consisting primarily of finished goods purchased for resale,
are stated at the lower of cost (first-in, first-out and average) or
market.
Property, Plant and Equipment and Depreciation
Depreciation is computed primarily by use of accelerated methods over the
estimated useful lives of the assts. The estimated useful lives are 20
years for building, 5 to 10 years for machinery and equipment, life of
lease for leasehold improvements, and 3 to 5 years for automobiles.
Foreign Currency Translation
Assets and liabilities of the Company's foreign subsidiaries are
translated at year-end exchange rates, and income and expenses are
translated at average exchange rates prevailing during the year with the
resulting adjustments accumulated in stockholders' equity.
Income Taxes
Effective December 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109").
As permitted under SFAS 109, the Company had elected not to restate the
financial statements of prior years. Application of SFAS 109 resulted in
the recognition of a net deferred tax asset as of December 1, 1993, of
<PAGE>
1. Description of Business and Summary of Accounting Principles (Continued)
approximately $1,900,000 primarily due to net operating loss
carryforwards, reserves for doubtful accounts, certain accrued expenses,
capitalization of inventory costs, depreciation and the agreement to sell
a subsidiary being treated as an installment sale for tax purposes (see
Note 12). The Company also recorded a valuation allowance of
approximately $1,900,000 due to uncertainty about the realizability of
this asset. Therefore, there was no effect on the Company's financial
statements as of December 1, 1993 from the adoption of SFAS 109.
Income taxes have not been provided on undistributed earnings of foreign
subsidiaries, which amount to approximately $3,080,000 as of November 30,
1996 because the Company expects to reinvest these earnings in the
business of subsidiaries.
Income (Loss) Per Share
Income (loss) per share is calculated based on the weighted average
number of common shares and in 1996, common equivalent shares,
outstanding.
Cash Equivalents
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents for purposes of
the consolidated statement of cash flows.
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
the 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. Significant estimates are used in accounting for accounts
receivable allowances, income taxes and investments in and advances to
its subsidiary.
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each class of significant financial instruments:
Cash and Cash Equivalents
The carrying amount approximates fair value because of the short
maturity of those instruments.
Investments and Advances to Subsidiary
The fair value of investments in and advances to subsidiary is
estimated based on discounted cash flow analyses using interest
rates currently offered for loans with similar terms to borrowers of
similar credit quality. The carrying amount approximates its fair
value.
<PAGE>
1. Description of Business and Summary of Accounting Principles (Continued)
Long-Term Debt
The fair value of the Company's long-term debt is estimated based on
current rates offered to the Company for debt of the same remaining
maturities and approximates the carrying amount.
Future Effect of Recently Issued Accounting Pronouncement
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123"), which will be effective for
the Company beginning December 1, 1996. SFAS 123 requires expanded
disclosures of stock-based compensation arrangements with employees and
encourages (but does not require) compensation cost to be measured based
on the fair value of the equity instrument awarded. Companies are
permitted, however, to continue to apply Accounting Principles Board
Opinion No. 25 ("APB 25"), which recognizes compensation cost based on
the intrinsic value of the equity instrument awarded. The Company will
continue to apply APB 25 to its stock-based compensation awards to
employees and will disclose the required pro forma effect on net income
and earnings per share beginning in fiscal 1997.
2. Loans Payable to Financial Institutions
On October 31, 1995, the Company amended its factoring agreement (see
Note 11) whereby it could borrow up to 40% (as amended) of the value of
its finished goods inventory. Interest is at prime plus 1.75% per annum
(10% at November 30, 1996). Borrowings are collateralized by the
inventory. The Company had outstanding $1,071,000 and $2,000,000 as of
November 30, 1996 and 1995 under this agreement.
On December 17, 1996, the aforementioned factoring agreement was
terminated and replaced with a financing agreement with Coast Business
Credit, a division of Southern Pacific Thrift and Loan Association
("Coast"), that provides for revolving loans and letter of credit
financing in the amount of the lesser of $7,000,000 or the sum of (a) 80%
of eligible accounts receivable (as defined) and (b) 50% of eligible
inventory (as defined), up to a maximum inventory loan of $3,000,000 less
50% of letter of credit financing outstanding. The amount of the facility
available for letter of credit financing is limited to $2,500,000. The
loan bears interest at 2% above the prime rate, matures on December 17,
1998, and is guaranteed by the Company's Chairman and Chief Executive
Officer. The Company has granted Coast a security interest in
substantially all of the Company's assets. The agreement with Coast
contains various restrictive covenants, including among others, a
restriction on the payment or declaration of any cash dividends, a
restriction on the acquisition of any assets other than in the ordinary
course of business in excess of $100,000, restrictions related to
mergers, borrowing and debt guarantees, a $100,000 annual limitation on
the acquisition or retirement of the Company's common and preferred
stock, limited to transactions with employees, directors and consultants
pursuant to terms of employment, consulting or other stock restriction
agreements with such persons. The agreement also requires the Company to
maintain a minimum tangible net worth of $1,400,000.
<PAGE>
2. Loans Payable to Financial Institutions (Continued)
On August 1, 1995, the Company's Canadian subsidiary entered into a
financing agreement with a Canadian bank that provides for a revolving
loan and letter of credit financing in the amount of the lesser of
$525,000 or the sum of a percentage of accounts receivable (as defined),
50% of letters of credit outstanding, and 25% of eligible finished goods
inventory (as defined) with interest payable monthly at 1.25% above the
Canadian prime rate. In May 1996, the agreement was amended to increase
the revolving loan to approximately $876,000. As of November 30, 1996,
the Canadian prime rate was 4.75%. As of November 30, 1996 and 1995, $-0-
and $323,279 was outstanding, respectively, under this agreement in
direct borrowings. As of November 30, 1996 and 1995, there were
outstanding letters of credit in the amount of $46,000 and $88,000,
respectively. In January 1997, the Company received notification from the
Canadian bank that the revolving loan agreement was terminated. In August
1995, the bank also refinanced a real property mortgage of approximately
$368,000 and a term loan of approximately $105,000. The mortgage is
payable in monthly installments of approximately $3,500 including
interest at 10.25% with a balloon payment of approximately $325,000 in
the year 2000. The term loan bore interest at 1.5% above the Canadian
prime rate and was due and paid in June 1996. Substantially all of the
assets of the Canadian subsidiary have been pledged as collateral for the
above loans. The Canadian subsidiary has agreed to certain financial
covenants (current ratio, debt-to-equity ratio, debt service coverage)
and not to pay dividends to the parent.
The Company had a prior bank credit agreement providing for a revolving
line of credit at 1% above prime for up to $2,000,000 which expired on
July 31, 1995 and was paid in full. The facility was secured by a
$500,000 certificate of deposit and the personal guaranty of the
Company's former chairman.
In fiscal 1994, the Company received two short-term advances of $600,000
and $350,000 from a factor (see Note 11) of which $350,000 was
outstanding at November 30, 1994. Interest on these advances was payable
at prime plus 2.5% per annum (9.75% at November 30, 1994). The second
advance was repaid in February 1995.
<PAGE>
3. Income Taxes
At November 30, 1996, the Company had net operating loss carryforwards
for Federal income tax purposes of approximately $3,300,000 expiring in
the years 2001 through 2010. There is an annual limitation of
approximately $187,000 on the utilization of approximately $2,600,000 of
net operating loss carryforwards under the provisions of Internal Revenue
Code Section 382. A net operating loss of approximately $700,000
generated during the year ended November 30, 1995 is available in
addition to the annual limitation.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's deferred tax assets and
liabilities as of November 30, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards ........... $ 1,360,000 $ 1,460,000
Allowance for doubtful accounts and accruals 483,000 610,000
Inventory cost capitalization .............. 90,000 110,000
Depreciation ............................... 110,000 120,000
----------- -----------
2,043,000 2,300,000
Deferred tax liabilities:
Installment sale of investment ............ (60,000) (60,000)
----------- -----------
1,983,000 2,240,000
Valuation allowance .......................... (1,970,000) (2,240,000)
----------- -----------
Net deferred tax assets ...................... $ 13,000 $ --
=========== ===========
</TABLE>
The valuation allowance at November 30, 1994 was $2,840,000.
<PAGE>
3. Income Taxes (Continued)
The following is a reconciliation of the tax provisions for the three years
ended November 30, 1996 with the statutory Federal income tax rates:
<TABLE>
<CAPTION>
Percentage of Pre-Tax Income
1996 1995 1994
----- ------- ------
<S> <C> <C> <C>
Statutory Federal income tax rate ................... 34.0% (34.0)% (34.0)%
State and local income taxes, net of
Federal income tax benefit ........................ .2 -- --
Differences in foreign and U.S. tax rates ........... 11.6
Utilization of United States net operating
loss carryforwards ................................ (7.1)
Utilization of foreign tax loss carryforwards ....... (6.8) (7.8) --
Operating losses generating no current tax
benefit:
United States ................................... -- 37.8 31.3
Foreign ......................................... -- 1.6 1.9
Other items, net .................................... .9 2.4 .8
----- ------- ------
32.8% -- % -- %
===== ======= ======
</TABLE>
4. Pension Plans
The Company has a defined benefit plan covering substantially all of its
domestic employees. The benefits provided are primarily based upon years
of service and compensation, as defined. The Company's funding policy is
to contribute annually the minimum amount required to cover the normal
cost and to fund supplemental costs, if any, from the date each
supplemental cost was incurred. Contributions were intended to provide
not only for benefits attributed to service to date, but also for those
expected to be earned in the future. Plan assets consist primarily of
investments in money market funds.
Effective June 30, 1995, the plan was frozen, ceasing all benefit
accruals and resulting in a plan curtailment. The Company recognized a
curtailment gain of approximately $112,500 in accordance with Statement
of Financial Accounting Standards No. 88 - "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits."
Net periodic pension cost (gain) (exclusive of the curtailment gain in
1995) included the following components:
<TABLE>
<CAPTION>
Year Ended November 30,
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Service cost - benefits earned in current year -- $ 39,355 $ 62,711
Interest cost on projected benefit obligation $ 53,707 54,221 53,733
Return on assets ............................. (69,235) (71,434) (66,109)
Net amortization and deferral ................ (6,199) (12,198) (4,452)
-------- -------- --------
($21,727) $ 9,944 $ 45,883
======== ======== ========
</TABLE>
<PAGE>
4. Pension Plans (Continued)
Following is a summary of significant actuarial assumptions used:
<TABLE>
<CAPTION>
November 30,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Weighted average discount rates ................. 7.5% 7.5% 7.25%
Rates of increase in compensation levels ........ 5.0% 5.0% 5.0%
Expected long-term rate of return on assets ..... 8.0% 8.0% 8.0%
</TABLE>
The following table sets forth the Plan's funded status and amounts
recognized in the Company's statement of financial position at:
<TABLE>
<CAPTION>
November 30,
1996 1995
--------- ---------
<S> <C> <C>
Accumulated benefit obligation, including vested
benefits of $758,758 and $742,330 at
November 30, 1996 and 1995, respectively .......... ($766,797) ($745,493)
========= =========
Projected benefit obligation for service rendered
to date ........................................... ($766,797) ($745,493)
Plan assets at fair value, primarily money market
funds ............................................. 830,636 868,442
--------- ---------
Plan assets in excess of projected benefit obligation 63,839 122,949
Unrecognized net gain from past experience
different from that assumed and effects of
changes in assumptions ............................ (8,773) (85,498)
Unrecognized net asset being amortized over
13 years from December 1, 1987 .................... (16,327) (20,439)
--------- ---------
Prepaid pension cost ................................ $ 38,739 $ 17,012
========= =========
</TABLE>
<PAGE>
5. Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Subsidiary mortgage payable (see Note 2) ......... $355,136 $357,975
Subsidiary term loan (see Note 2) ................ -- 56,092
Restrictive covenant obligation (see Note 13) .... -- 198,350
Severance agreement with former shareholders
(see Note 13) ................................. -- 200,000
-------- --------
355,136 812,417
Less current maturities .......................... 6,735 222,119
-------- --------
$348,401 $590,298
======== ========
</TABLE>
Principal payments are due as follows:
Year ended November 30,
1997 $ 6,735
1998 7,459
1999 8,260
2000 332,682
--------
$355,136
========
6. Commitments
The Company conducts a substantial portion of its operations utilizing
leased facilities. Rent expense, charged to operations, was $659,000,
$725,000 and $825,000 in 1996, 1995 and 1994, respectively. In addition
to the annual rent, the Company pays real estate taxes, insurance and
other occupancy costs on its leased facilities. A portion of one
warehouse facility is subleased to a subsidiary of Yashiro (see Note 8)
under a sublease which expires in May, 2000. Total minimum sublease
rentals to be received in the future amounted to $517,000 at November 30,
1996.
<PAGE>
6. Commitments (Continued)
The minimum annual rental commitments exclusive of sublease rentals under
all operating leases that have remaining non-cancelable terms in excess
of one year are approximately as follows:
Year ended November 30,
1997 $ 687,000
1998 688,000
1999 726,000
2000 465,000
2001 157,000
Thereafter 404,000
------------
$ 3,127,000
============
The Company has entered into various licensing agreements under which it
has obtained the right to market children's bags, tote bags and related
products with trade names. The terms of such agreements vary through June
1999. The agreements provide for royalties based upon net sales with
certain stated minimum annual amounts. The amount of future minimum
royalties aggregate approximately $1,490,000 at November 30, 1996.
Royalty expense amounted to $1,160,000, $937,000 and $883,000 in 1996,
1995 and 1994, respectively. As of November 30, 1996 and 1995,
approximately $471,000 and $480,000, respectively, had been accrued for
unpaid royalties.
During fiscal 1996, the Company modified its agreement with a licensor
whereby the Company ceased to ship its product under this license after
June 30, 1996. Sales of this licensed product amounted to approximately
29% and 21% of the Company's net sales in 1996 and 1995.
7. Miscellaneous Income
Accrued expenses at November 30, 1993 included $620,000 related to a
claim by a former tax-exempt bondholder. Management believes that it is
remote that the Company would be required to pay this claim and,
accordingly, miscellaneous income for 1994 includes the reversal of this
accrual.
8. Related Party Transactions
On March 20, 1995, the Company entered into a Letter of Credit Agreement
with Yashiro Co. Inc. (together with its affiliates "Yashiro"), which
prior to March 20, 1995, owned approximately 56% of the Company, to
provide for short-term financing for import purchases. Pursuant to this
agreement, Yashiro has agreed to issue, until March 20, 1997, unsecured
trade letters of credit in an aggregate amount of up to the lesser of
$1,200,000, or 35% of the Company's inventory. Amounts borrowed under
this agreement are repayable 100 days after delivery of the goods. On
August 28, 1996, the agreement was amended to, among other things, reduce
the aggregate amount of letters of credit to be issued to the lesser of
$1,000,000 or 35% of the Company's inventory. In addition to interest,
which is payable monthly at 2% above the prime rate, Yashiro is paid a
handling fee of 3% of the cost of the goods. The Company, prior to March
<PAGE>
8. Related Party Transactions (Continued)
20, 1995, had a product supply agreement with Yashiro whereby the Company
was free to purchase goods from other suppliers if it could do so on more
favorable terms. The Company purchased $9,000 of goods from Yashiro in
1994 and none thereafter. The Company's liability to Yashiro was
approximately $530,000 and $536,000 at November 30, 1996 and 1995 and had
outstanding letters of credit approximately $242,000 at November 30,
1996. In fiscal 1996, 1995 and 1994, interest and handling and other fees
paid to Yashiro amounted to approximately $105,000, $417,000 and
$300,000, respectively.
At November 30, 1993, the Company was due approximately $132,000 from
Yashiro which primarily related to inventory returns and merchandise
damage claims and was included in other current assets. Approximately
$36,000 of such amounts were received in 1994, and the balance was
written off as uncollectible in the fourth quarter of fiscal 1994. In
addition, selling, warehouse, general and administrative expenses for the
year ended November 30, 1994 includes $100,000 charged by Yashiro for
services provided to the Company by an officer of Yashiro.
During the years ended November 30, 1996, 1995 and 1994, the Company
purchased approximately $-0-, $734,000 and $3,489,000, respectively, of
handbags and accessories from an affiliate of Yashiro. In addition,
approximately $21,000 was paid to this affiliate for services rendered
during the year ended November 30, 1994.
During the years ended November 30, 1996 and 1995, the Company purchased
approximately $355,000 and $193,000 of luggage and backpack products from
a related party.
During the years ended November 30, 1996, 1995 and 1994, the Company paid
approximately $786,000, $602,000 and $245,000, respectively, as buying
commissions to related parties.
As of November 30, 1995, short-term loans payable to related parties
included a $35,000 demand loan from the Company's Chairman and Chief
Executive Officer that bore interest at 6%. The loan was repaid in 1996.
<PAGE>
9. Segment Reporting
<TABLE>
<CAPTION>
United Hong
Consolidated States Canada Kong
------------ ------ ------ ----
(See Note 15)
<S> <C> <C> <C> <C>
Year ended November 30, 1996:
Net sales ..................... $ 27,745,955 $ 21,683,680 $ 6,062,275 $ --
============ ============ ============ ============
Net income (loss) and income
(loss) before provision for
income taxes ........... $ 925,445 $ 193,752 $ 735,747 ($ 4,054)
============ ============ ============ ============
Identifiable assets ........... $ 9,576,861 $ 6,724,377 $ 2,850,942 $ 1,542
============ ============ ============ ============
Year ended November 30, 1995:
Net sales ..................... $ 24,812,147 $ 21,132,714 $ 3,660,079 $ 19,354
============ ============ ============ ============
Net income (loss) and income
(loss) before provision for
income taxes ........... ($ 996,499) ($ 1,154,408) $ 269,488 ($ 111,579)
============ ============ ============ ============
Identifiable assets ........... $ 10,002,740 $ 7,780,427 $ 2,213,154 $ 9,159
============ ============ ============ ============
Year ended November 30, 1994:
Net sales ..................... $ 27,599,536 $ 26,039,666 $ 1,397,411 $ 162,459
============ ============ ============ ============
Net loss and loss before
provision for income taxes ($ 2,435,025) ($ 2,183,590) ($ 121,933) ($ 129,502)
============ ============ ============ ============
Identifiable assets ........... $ 10,251,735 $ 8,686,936 $ 1,335,118 $ 229,681
============ ============ ============ ============
</TABLE>
10. Sale of Real Property
In fiscal 1992, the Company sold real property for $1,300,000 in cash and
the right to receive the consideration under an easement agreement that
was assigned to the buyer. The present value of the consideration to be
received under the easement agreement was recorded as a receivable in the
accompanying financial statements. The net gain on this sale amounted to
approximately $317,000. In the fourth quarter of fiscal 1994, the Company
established a reserve of $125,000 due to doubts about the collectibility
of the amount due from the buyer. Through November 30, 1996, all required
payments have been made. As of November 30, 1996, the Company is carrying
a receivable of approximately $37,000, net of a reserve of $81,000.
<PAGE>
11. Accounts Receivable and Major Customers
The Company had an agreement with a factor pursuant to which the Company
sold substantially all of its accounts receivable on a pre-approved
non-recourse basis. Under the terms of the agreement, the factor advanced
funds to the Company based on invoice amounts. Interest on such advances
was payable at 2% in excess of the prime rate through October 31, 1995
and 1.75% in excess of the prime rate thereafter. The Company also paid a
factoring commission of 1% (.75% after November 1, 1995) of the invoice
amount subject to a minimum of $96,000 per annum. As described in Note 2,
the agreement was terminated on December 17, 1996.
Substantially all of the Company's accounts receivable that were not
financed by the factor were not collateralized. The Company periodically
reviews the status of its accounts receivable and, accordingly,
establishes reserves for uncollectible accounts. In the fourth quarter of
fiscal 1994, the Company established additional accruals for future
credits totaling approximately $440,000. In addition, the Company wrote
off merchandise damage claims of approximately $33,000 and uncollectible
amounts related to a subsidiary of approximately $170,000 in the fourth
quarter of fiscal 1994.
Sales to one customer amounted to 19%, 25%, and 22% of net sales in
fiscal 1996, 1995 and 1994, respectively. Sales to another customer
amounted to 11% in fiscal 1996.
12. Investment In and Advances to Subsidiary
Effective July 15, 1992, the Company entered into an agreement to sell
all of the stock of its then wholly-owned subsidiary, Sirco Leatherwares
Limited (the "Subsidiary"). In exchange for the stock, the Company
received a non-interest bearing $650,000 note. The note is guaranteed by
an officer of the Subsidiary who is also an officer of the buyer and,
until December 1996, served on the Board of Directors of the Company. The
agreement also requires the Company to forgive a portion of the amounts
due to it from the Subsidiary. The Company's ability to collect the note
receivable and the balance of the receivable from the Subsidiary is
dependent upon cash flows from the Subsidiary's operations and/or the
buyer's ability to refinance the obligations. Under the terms of the
agreement, the Company is also required to provide the Subsidiary (i) a
$200,000 line of credit through 1997 and (ii) design and production
services. As the risks and other incidents of ownership have not
transferred to the buyer with sufficient certainty, this transaction has
not been accounted for as a sale for accounting purposes.
The Company recorded a loss on this transaction in fiscal 1992, as the
present value of the amounts to be received under the note and the
revised accounts receivable were less than (i) the carrying value of the
Company's investment in the Subsidiary plus (ii) the amounts receivable
from the Subsidiary.
The non-interest bearing $650,000 note received in exchange for stock in
the Subsidiary ("the Stock Note") was due in thirty-two equal quarterly
installments of $20,213 beginning in August 1992. Payments were being
received on a current basis through November 30, 1995.
<PAGE>
12. Investment In and Advances to Subsidiary (Continued)
During fiscal 1996, the parties agreed to a one year payment moratorium
as to the Stock Note. On February 6, 1997, the parties agreed to modify
the remaining repayment terms and to resume payments. The note, as
modified, is to be repaid as follows: $10,156 on February 7, 1997,
$10,156 on March 10, 1997, four quarterly payments of $10,156 commencing
on May 1, 1997 and ending on February 1, 1998, five quarterly payments of
$20,313 commencing on May 1, 1998 and ending on May 1, 1999, and four
quarterly payments of $50,781 commencing on August 1, 1999 and ending on
May 1, 2000.
Also, pursuant to the agreement to sell the Company's investment in the
Subsidiary, the Subsidiary agreed to pay interest at 8.5% per annum on a
receivable of approximately $720,000. This interest is payable quarterly
commencing in August 1992. If the Subsidiary is not in default on the
payment of interest, the Company will forgive a portion of the
receivable, in amounts as defined, through May 1, 1998. An amount of
$40,000 was forgiven in each of 1996, 1995 and 1994. The total amount
forgiven will be $280,000. The remaining receivable of approximately
$400,000 is payable in ten equal quarterly installments commencing in
August 1998. Amounts outstanding after May 1, 1998 will bear interest at
the prime rate. Payments are being received on a current basis.
In the fourth quarter of fiscal 1994, the Company established a reserve
of $275,000 due to doubts about the collectibility of the amounts due
from the subsidiary.
13. Loss on Sale of Handbag Division
On March 20, 1995, the Company sold its handbag division to Bueno of
California, Inc. ("Bueno"), a subsidiary of Yashiro. The Company and
Bueno entered into an Asset Purchase Agreement pursuant to which the
Company sold to Bueno all of the inventory relating to the Company's
handbag division, and certain equipment relating to the Company's handbag
division for $1,785,666, of which $86,168 was paid in cash and $1,699,448
was applied by the Company to the repayment of indebtedness of the
Company to Yashiro. This sale resulted in a loss to the Company of
$425,163. Net sales of the Company's handbag division for the years ended
November 30, 1995 and 1994 were $1,423,000 and $9,182,000, and gross
profits on these sales were $81,000 and $1,878,000, respectively.
In connection therewith, the Company had entered into six year
non-competition agreements covering North America with Yashiro, another
affiliate of Yashiro, Mr. Yutaka Yamaguchi and Mr. Takeshi Yamaguchi,
former stockholders and/or officers of the Company. Aggregate
consideration to these parties was $240,000 payable in three annual
installments of $80,000 including interest at 10% which commenced March
31, 1996. The present value of the restrictive covenant ($198,350) was
being amortized over the life of the agreement. During 1996, the Company
repaid its non-competition agreement liability in full, the
non-competition agreement was terminated, and the Company wrote off the
remaining balance of the restrictive covenant asset.
In addition, the Company had agreed to pay severance pay to Mr. Takeshi
Yamaguchi in the amount of $200,000, payable in two annual installments
of $100,000 plus interest at 10% per annum which commenced March 31,
1996. This amount had been charged to operations in 1995. During 1996,
the Company repaid its severance agreement liability in full.
<PAGE>
14. Stockholders' Equity
On August 17, 1995, the stockholders of the Company (i) approved an
increase in the number of authorized shares of common stock from
3,000,000 shares to 10,000,000 shares; (ii) authorized the Company to
issue 1,000,000 shares of preferred stock, par value $.10 per share, with
rights and privileges to be determined by the board of directors; and
(iii) approved the 1995 Stock Option Plan of the Company (the "Plan").
The Plan provides for the grant of incentive stock options, non-qualified
stock options, tandem stock appreciation rights, and stock appreciation
rights exercisable in conjunction with stock options to purchase up to an
aggregate of 200,000 shares of common stock. On October 24, 1996, the
stockholders of the Company approved an amendment to the Plan to increase
the number of shares of common stock that may be issued to 400,000
shares. At November 30, 1996, 91,750 options were exercisable under the
Plan.
<TABLE>
<CAPTION>
Number Exercise Price
of Shares Per Share
--------- ---------
<S> <C> <C>
Outstanding, December 1, 1994 .................. -0- --
Granted during year ended November
30, 1995 .................................... 73,000 $ 2.00
--------
Outstanding, November 30, 1995 ................. 73,000 $ 2.00
Granted during year ended November
30, 1996 .................................... 218,500 $2.50 - $3.375
Exercised during year ended November
30, 1996 .................................... (100,000) $ 2.50
--------
Outstanding November 30, 1996 .................. 191,500 $2.00 - $3.375
========
</TABLE>
On October 24, 1996, the shareholders of the Company adopted the Sirco
International Corp. 1996 Restricted Stock Award Plan (the "Restricted
Stock Award Plan"). An aggregate of 200,000 shares of common stock of the
Company has been reserved for issuance in connection with awards granted
under the Restricted Stock Award Plan. Such shares may be awarded from
either authorized and unissued shares or treasury shares. The maximum
number of shares that may be awarded under the Restricted Stock Award
Plan to any individual officer or key employee is 100,000. Approximately
five employees of the Company and its subsidiaries are currently eligible
to participate in the Restricted Stock Award Plan. No shares were awarded
during 1996.
15. Canadian Operations
During fiscal 1996, the Company received notification from Airway
Industries Inc. ("Airway") that the licensing agreement with the
Company's Canadian subsidiary, Sirco International (Canada) Limited
("Sirco Canada"), would cease on December 31, 1996. On November 22, 1996,
<PAGE>
15. Canadian Operations (Continued)
Sirco Canada leased substantially all of its facility to Airway for a
two-year period commencing on January 1, 1997 for a rental of $90,000 per
annum. On December 31, 1996, Sirco Canada sold its remaining inventory,
supplies, furniture and fixtures to Airway, and substantially all of
Sirco Canada's employees terminated their employment with Sirco Canada
and were then hired by Airway. Sirco Canada did not incur any significant
gain or loss on the sale of such assets to Airway.
As the sales from the licensed products accounted for substantially all
of Sirco Canada's sales, its future viability will depend on its ability
to successfully introduce new products into the Canadian marketplace.
See Note 9 to the consolidated financial statements for information with
respect to Sirco Canada's operations.
<PAGE>
<TABLE>
<CAPTION>
SIRCO INTERNATIONAL CORP. AND SUBSIDIARIES
SCHEDULE I
CONDENSED FINANCIAL STATEMENTS OF THE REGISTRANT (PARENT)
BALANCE SHEET
NOVEMBER 30, 1996 AND 1995
ASSETS
1996 1995
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................. $ 129,892 $ 167,082
Accounts receivable, trade - net of allowance of
$276,000 and $282,000 in 1996 and 1995 and
including $1,244,000 and $1,286,000, net of
advances, due from factor ........................... 1,098,582 1,188,211
Inventories ........................................... 4,062,680 5,077,646
Prepaid expenses ...................................... 248,846 244,004
Other current assets .................................. 123,245 276,815
----------- -----------
5,663,245 6,953,758
----------- -----------
Property, plant and equipment - at cost .................. 996,408 909,763
Less accumulated depreciation and amortization ........ 609,943 777,824
----------- -----------
386,465 131,939
----------- -----------
Other assets ............................................. 134,170 154,233
----------- -----------
Investment in and advances to subsidiaries, net of
advances from subsidiaries ............................ 2,142,157 1,530,409
----------- -----------
$ 8,326,037 $ 8,770,339
=========== ===========
<PAGE>
<CAPTION>
SIRCO INTERNATIONAL CORP. AND SUBSIDIARIES
SCHEDULE I (CONTINUED)
CONDENSED FINANCIAL STATEMENTS OF THE REGISTRANT (PARENT)
BALANCE SHEET
NOVEMBER 30, 1996 AND 1995
SIRCO INTERNATIONAL CORP. AND SUBSIDIARIES
1996 1995
----------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loans payable to financial institutions ............... $ 1,071,000 $ 2,000,000
Short-term loan payable to related parties ............ 529,821 571,205
Current maturities of long-term debt .................. -- 160,000
Accounts payable ...................................... 2,724,135 2,650,547
Accrued expenses and taxes ............................ 1,220,585 1,253,309
----------- -----------
Total current liabilities ....... 5,545,541 6,635,061
----------- -----------
Long-term debt, less current maturities .................. -- 238,350
----------- -----------
Commitments and contingencies
Stockholders' equity:
Common stock, $.10 par value; 10,000,000 shares
authorized, 1,315,200 and 1,215,200 shares issued
in 1996 and 1995 .................................... 131,520 121,520
Preferred stock, $.10 par value; 1,000,000 shares
authorized, none issued ............................. -- --
Capital in excess of par value ........................ 4,267,534 4,027,534
Retained earnings deficit ............................. (1,019,367) (1,641,603)
Treasury stock - at cost .............................. (27,500) (27,500)
Accumulated foreign currency translation adjustment ... (571,691) (583,023)
----------- -----------
2,780,496 1,896,928
----------- -----------
$ 8,326,037 $ 8,770,339
=========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIRCO INTERNATIONAL CORP. AND SUBSIDIARIES
SCHEDULE I (CONTINUED)
CONDENSED FINANCIAL STATEMENTS OF THE REGISTRANT (PARENT)
STATEMENT OF OPERATIONS
YEARS ENDED NOVEMBER 30, 1996 AND 1995
1996 1995
----------- -----------
<S> <C> <C>
Net sales ................................................ $21,683,680 $21,132,714
Cost of goods sold ....................................... 16,665,575 16,164,170
----------- -----------
Gross profit ............................................. 5,018,105 4,968,544
Selling, warehouse, general and administrative expenses .. 4,588,545 5,310,442
----------- -----------
Income (loss) from operations ............................ 429,560 (341,898)
Interest expense ......................................... 724,612 803,202
Interest income .......................................... (58,214) (111,412)
Loss on sale of handbag division ......................... -- 425,163
Miscellaneous income, net ................................ (430,590) (304,443)
----------- -----------
Income (loss) before provisions for income taxes ......... 193,752 (1,154,408)
Provision for income taxes ............................... 1,880 --
----------- -----------
Income (loss) before equity in net income of subsidiaries 191,872 (1,154,408)
Equity in net income of subsidiaries .................... 430,364 157,909
----------- -----------
Net income (loss) ........................................ $ 622,236 ($ 996,499)
=========== ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIRCO INTERNATIONAL CORP. AND SUBSIDIARIES
SCHEDULE I (CONTINUED)
CONDENSED FINANCIAL STATEMENTS OF THE REGISTRANT (PARENT)
STATEMENT OF CASH FLOWS
YEARS ENDED NOVEMBER 30, 1996 AND 1995
1996 1995
----------- -----------
<S> <C> <C>
Cash provided by (used in) operations .................. $ 1,417,723 ($1,058,536)
----------- -----------
Financing activities:
Repayment of loans payable to financial institutions and
short-term loans payable to related parties ........ (935,384) (1,761,501)
Proceeds from short-term borrowings .................... -- 2,186,205
Repayment of long-term debt ............................ (398,350) --
Proceeds from exercise of stock options ................ 250,000 --
Proceeds (repayment) of officer loan ................... (35,000) 35,000
----------- -----------
(1,118,734) 459,704
----------- -----------
Investing activities:
Cash inflow from agreement to sell subsidiary .......... -- 60,296
Purchases of property, plant and
equipment .......................................... (339,179) (27,586)
Proceeds from sale of property, plant and equipment .... 3,000 --
----------- -----------
(336,179) 32,710
----------- -----------
Net decrease in cash ................................... ($ 37,190) ($ 566,122)
=========== ===========
</TABLE>
<PAGE>
SIRCO INTERNATIONAL CORP. AND SUBSIDIARIES
SCHEDULE I (CONTINUED)
CONDENSED FINANCIAL STATEMENTS OF THE REGISTRANT (PARENT)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 1996 AND 1995
1. Long-Term Debt (Net of Current Portion)
1995
Restrictive covenant obligation $138,350
Severance agreement with former shareholders 100,000
--------
$238,350
========
2. Dividends from Subsidiaries
There were no dividends paid to Sirco International Corp. by its
consolidated subsidiaries during the years ended November 30, 1996 and
1995.
3. Commitments and Contingencies (Not Disclosed in the Consolidated
Financial Statements)
None.
<PAGE>
<TABLE>
<CAPTION>
SIRCO INTERNATIONAL CORP. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED NOVEMBER 30, 1996, 1995 AND 1994
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
Balance at Charged to Accounts Balance at
Beginning Costs and Written End of
Description of Period Expenses* Off Period
----------- --------- --------- --- ------
<S> <C> <C> <C> <C>
Year ended November 30, 1996:
Allowance for doubtful accounts $ 286,000 $ 32,000 $ 42,000 $ 276,000
Valuation allowance for deferred
tax asset ................... $2,240,000 ($ 270,000) -- $1,970,000
Year ended November 30, 1995:
Allowance for doubtful accounts $ 322,000 $ 128,000 $ 164,000 $ 286,000
Valuation allowance for deferred
tax asset ................... $2,840,000 ($ 600,000) -- $2,240,000
Year ended November 30, 1994:
Allowance for doubtful accounts $ 242,000 $ 160,000 $ 80,000 $ 322,000
Valuation allowance for deferred
tax asset (1) ............... $1,900,000 $ 940,000 $ -- $2,840,000
Investments in and advances to
subsidiary and other assets . $ -- $ 400,000 $ -- $ 400,000
* Net of recoveries
(1) A valuation allowance of $1,900,000 was established upon the adoption of
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes", effective December 1, 1993.
</TABLE>
<PAGE>
EXHIBIT 3(e)
(Amended and Restated as of December 1996)
BY-LAWS
OF
SIRCO INTERNATIONAL CORP.
A New York Corporation
ARTICLE I
Shareholders
SECTION 1. Annual Meeting. The annual meeting of shareholders for the
election of directors and for the transaction of such other business as may
properly come before the meeting shall be held at the office of the Corporation
in the State of New York or at such other place within or without the State of
New York as may be determined by the Board of Directors and as shall be
designated in the notice of said meeting, on such date and at such time as may
be determined by the Board of Directors.
SECTION 2. Special Meetings. Special meetings of the shareholders for
the transaction of such business as may properly come before the meeting shall
be held at the office of the Corporation in the State of New York, or at such
other place within or without the State of New York as may be designated from
time to time by the Board of Directors. Whenever the Board of Directors shall
fail to fix such place, or whenever shareholders entitled to call a special
meeting shall call the same, the meeting shall be held at the office of the
Corporation in the State of New York or at the principal executive offices of
the Corporation. Special meetings of the shareholders shall be held upon call of
the Board of Directors or of the Chief Executive Officer or any Vice-President
or the Secretary or any director, at such time as may be fixed by the Board of
Directors or the Chief Executive Officer or such Vice-President or the Secretary
or such director, as the case may be, and as shall be stated in the notice of
said meeting, except when the New York Business Corporation Law (the "Business
Corporation Law") confers upon the shareholders the right to demand the call of
such meeting and fix the date thereof. At any special meeting of the
shareholders, duly called as provided in these By-laws, any director or
directors may be removed from office by the shareholders, either with or without
cause, and such director's successor or directors' successors may be elected at
such meeting.
SECTION 3. Notice of Meetings. The notice of all meetings shall be in
writing, shall state the place, date and hour of the meeting and, unless it is
the annual meeting, shall indicate that it is being issued by or at the
direction of the person or persons calling the meeting. The notice of an annual
meeting shall state that the meeting is called for the election of directors and
for the transaction of such other business as may properly come before the
meeting and shall state the purpose or purposes of the meeting if any other
action is to be taken at such annual meeting which could be taken at a special
meeting. The notice of a special meeting shall, in all instances, state the
purpose or purposes for which the meeting is called. If the Board of Directors
shall adopt, amend or repeal a By-law regulating an impending election of
directors, the notice of the next meeting for the election of directors shall
contain the By-law so adopted, amended or repealed, together with a concise
<PAGE>
statement of the changes made. If any action is proposed to be taken which
would, if taken, entitle shareholders to receive payment for their shares, the
notice shall include a statement of that purpose and to that effect and shall be
accompanied by a copy of Section 623 of the Business Corporation Law or an
outline of its material terms. A copy of the notice of any meeting shall be
served either personally or by first class mail, not less than 10 nor more than
50 days before the date of the meeting, to each shareholder at such
shareholder's record address or at such other address as such shareholder may
have furnished by request in writing to the Secretary of the Corporation. If a
meeting is adjourned to another time or place and if any announcement of the
adjourned time or place is made at the meeting, it shall not be necessary to
give notice of the adjourned meeting unless the Board of Directors, after
adjournment, fixes a new record date for the adjourned meeting. Notice of a
meeting need not be given to any shareholder who submits a signed waiver of
notice before or after the meeting. The attendance of a shareholder at a meeting
without protesting prior to the conclusion of the meeting the lack of notice of
such meeting shall constitute a waiver of notice by such shareholder.
SECTION 4. Shareholder Lists. A list of shareholders as of the record
date, certified by the corporate officer responsible for its preparation, or by
the transfer agent, if any, shall be produced at any meeting of shareholders
upon the request thereat or prior thereto of any shareholder. If the right to
vote at any meeting is challenged, the inspectors of election, if any, or the
person presiding thereat, shall require such list of shareholders to be produced
as evidence of the right of the persons challenged to vote at such meeting, and
all persons who appear from such list to be shareholders entitled to vote
thereat may vote at such meeting.
SECTION 5. Quorum. Except as otherwise provided by law or the
Corporation's Certificate of Incorporation, a quorum for the transaction of
business at any meeting of shareholders shall consist of the holders of record
of a majority of the issued and outstanding shares of the capital stock of the
Corporation entitled to vote at the meeting, present in person or by proxy. At
all meetings of the shareholders at which a quorum is present, all matters,
except as otherwise provided by law or in the Certificate of Incorporation,
shall be decided by the vote of the holders of a majority of the shares entitled
to vote thereat, present in person or by proxy. If there be no such quorum, the
holders of a majority of such shares so present or represented may adjourn the
meeting from time to time, without further notice, until a quorum shall have
been obtained. When a quorum is once present to organize a meeting, it is not
broken by the subsequent withdrawal of any shareholder.
SECTION 6. Organization. Meetings of shareholders shall be presided
over by the Chairman, if any, or if none or in the Chairman's absence the Chief
Executive Officer, or if none or in the Chief Executive Officer's absence a
Vice-President, or, if none of the foregoing is present, by a Chairman to be
chosen by the shareholders entitled to vote who are present in person or by
proxy at the meeting. The Secretary of the Corporation, or in the Secretary's
absence an Assistant Secretary, shall act as secretary of every meeting, but if
neither the Secretary nor an Assistant Secretary is present, the presiding
officer of the meeting shall choose any person present to act as secretary of
the meeting.
SECTION 7. Voting; Proxies; Required Vote; Ballots. At each meeting of
shareholders, every shareholder shall be entitled to vote in person or by proxy
appointed by instrument in writing, subscribed by such shareholder or by such
shareholder's duly authorized attorney-in-fact, and shall have one vote for each
<PAGE>
share entitled to vote and registered in such shareholder's name on the books of
the Corporation on the applicable record date fixed pursuant to these By-laws.
No proxy shall be valid after the expiration of 11 months from the date thereof
unless otherwise provided in the proxy. Every proxy shall be revocable at the
pleasure of the shareholder executing it, except as otherwise provided by the
Business Corporation Law. At all elections of directors the voting may but need
not be by ballot and a plurality of the votes cast thereat shall elect. Except
as otherwise required by law or the Certificate of Incorporation, any other
action shall be authorized by a majority of the votes cast.
SECTION 8. Inspectors. The Board of Directors, in advance of any
meeting, may appoint one or more inspectors to act at the meeting or any
adjournment thereof. If an inspector or inspectors are not so appointed, the
person presiding at the meeting may, and on the request of any shareholder
shall, appoint one or more inspectors. In case any person appointed fails to
appear or act, the vacancy may be filled by appointment made by the Board of
Directors in advance of the meeting or at the meeting by the person presiding
thereat. Each inspector, if any, before entering upon the discharge of such
inspector's duties, shall take and sign an oath to execute faithfully the duties
of inspector at such meeting with strict impartiality and according to the best
of such inspector's ability. The inspectors, if any, shall determine the number
of shares outstanding and the voting power of each, the shares represented at
the meeting, the existence of a quorum, and the validity and effect of proxies,
and shall receive votes, ballots or consents, hear and determine all challenges
and questions arising in connection with the right to vote, count and tabulate
all votes, ballots or consents, determine the result, and do such acts as are
proper to conduct the election or vote with fairness to all shareholders. On
request of the person presiding at the meeting or any shareholder, the
inspectors shall make a report in writing of any challenge, question or matter
determined by them and execute a certificate as to any fact found by them.
SECTION 9. Actions Without Meetings. Whenever shareholders are required
or permitted to take any action by vote, such action may be taken without a
meeting on written consent, setting forth the action so taken, signed by the
holders of all outstanding shares entitled to vote thereon. This section shall
not be construed to alter or modify any provision of law or of the Certificate
of Incorporation under which the written consent of the holders of less than all
outstanding shares is sufficient for corporate action.
SECTION 10. Meaning of Certain Terms. As used herein in respect of the
right to notice of a meeting of shareholders or a waiver thereof or to
participate or vote thereat or to consent or dissent in writing in lieu of a
meeting, as the case may be, the terms "share" and "shareholder" or
"shareholders" refer to an outstanding share or shares and to a holder or
holders of record of outstanding shares, respectively, when the Corporation is
authorized to issue only one class of shares, and said references are also
intended to include any outstanding share or shares and any holder or holders of
record of outstanding shares of any class upon which or upon whom the
Certificate of Incorporation confers such rights, where there are two or more
classes or series of shares, or upon which or upon whom the Business Corporation
Law confers such rights; notwithstanding that the Certificate of Incorporation
may provide for more than one class or series of shares, one or more of which
are limited in or denied such rights thereunder.
<PAGE>
ARTICLE II
Board of Directors
SECTION 1. General Powers. The business, property and affairs of the
Corporation shall be managed by or under the direction of its Board of
Directors.
SECTION 2. Qualification; Number; Term. (a) Each director shall be at
least 18 years of age. A director need not be a shareholder, a citizen of the
United States, or a resident of the State of New York. The number of directors
constituting the entire Board of Directors shall be at least three, except that
where all the shares are owned beneficially and of record by fewer than three
shareholders, the number of directors may be less than three but not less than
the number of shareholders. Subject to the foregoing limitation and except for
the first Board of Directors, such number may be fixed from time to time by
action of the Board of Directors or of the shareholders, or, if the number of
directors is not so fixed, the number shall be five. The number of directors may
be increased or decreased by action of the Board of Directors or shareholders,
provided that any action of the Board of Directors to effect such increase or
decrease shall require the vote of a majority of the entire Board of Directors.
The use of the phrase "entire Board of Directors" herein refers to the total
number of directors which the Corporation would have if there were no vacancies.
(b) The first Board of Directors shall be elected by the incorporator
or incorporators of the Corporation and shall hold office until the first annual
meeting of shareholders or until their respective successors have been elected
and qualified. Thereafter, directors who are elected at an annual meeting of
shareholders, and directors who are elected in the interim to fill vacancies and
newly created directorships, shall hold office until the next annual meeting of
shareholders or until their respective successors have been elected and
qualified. In the interim between annual meetings of shareholders or special
meetings of shareholders called for the election of directors, newly created
directorships and any vacancies in the Board of Directors, including vacancies
resulting from the removal of directors for cause or without cause, may be
filled by the vote of a majority of the directors then in office, although less
than a quorum exists.
SECTION 3. Quorum and Manner of Vote. A majority of the entire Board of
Directors shall constitute a quorum for the transaction of business. A majority
of the directors present, whether or not a quorum is present, may adjourn a
meeting to another time and place without notice. Except as herein otherwise
provided, the vote of a majority of the directors present at the time of the
vote, at a meeting duly assembled, a quorum being present at such time, shall be
the act of the Board of Directors.
SECTION 4. Places of Meetings. Meetings of the Board of Directors shall
be held at such place within or without the State of New York as may from time
to time be fixed by resolution of the Board of Directors, or as may be specified
in the notice of the meeting. Regular meetings of the Board of Directors shall
be held at such times and places as may from time to time be fixed by resolution
of the Board of Directors, and special meetings may be held at any time and
place upon the call of the Chairman of the Board, if any, or of the Chief
Executive Officer or any Vice-President or the Secretary or any director by
oral, telegraphic or notice duly served as set forth in these By-laws.
<PAGE>
SECTION 5. Annual Meeting. Following the annual meeting of
shareholders, the newly elected Board of Directors shall meet for the purpose of
the election of officers and the transaction of such other business as may
properly come before the meeting. Such meeting may be held without notice
immediately after the annual meeting of shareholders at the same place at which
such shareholders meeting is held.
SECTION 6. Notice of Meetings. A notice of the place, date, time and
purpose or purposes of each meeting of the Board of Directors shall be given to
each director by mailing the same at least two days before the meeting, or by
telegraphing or telephoning the same or by delivering the same personally not
later than the day before the day of the meeting. Notice need not be given of
regular meetings of the Board of Directors held at times and places fixed by
resolution of the Board of Directors. Any requirements of furnishing a notice
shall be waived by any director who signs a waiver of notice before or after the
meeting, or who attends the meeting without protesting, prior thereto or at its
commencement, the lack of notice to such director. The notice of any meeting
need not specify the purpose of the meeting, and any and all business may be
transacted at such meeting.
SECTION 7. Organization. At all meetings of the Board of Directors, the
Chairman, if any, or if none or in the Chairman's absence or inability to act
the Chief Executive Officer, or in the Chief Executive Officer's absence or
inability to act any Vice-President who is a member of the Board of Directors,
or in such Vice-President's absence or inability to act a chairman chosen by the
directors, shall preside. The Secretary of the Corporation shall act as
secretary at all meetings of the Board of Directors when present, and in the
Secretary's absence, the presiding officer may appoint any person to act as
secretary.
SECTION 8. Resignation. Any director may resign at any time upon
written notice to the Corporation and such resignation shall take effect upon
receipt thereof by the Chief Executive Officer or Secretary, unless otherwise
specified in the resignation. Except as otherwise provided by law or by the
Certificate of Incorporation, any or all of the directors may be removed, with
or without cause, by the holders of a majority of the shares of stock
outstanding and entitled to vote for the election of directors.
SECTION 9. Vacancies. Unless otherwise provided in these By-laws,
vacancies among the directors, whether caused by resignation, death,
disqualification, removal, an increase in the authorized number of directors or
otherwise, may be filled by the affirmative vote of a majority of the remaining
directors, although less than a quorum, or by a sole remaining director, or, at
a special meeting of the shareholders, by the holders of shares entitled to vote
for the election of directors.
SECTION 10. Actions by Written Consent. Any action required or
permitted to be taken by the Board of Directors or by any committee thereof may
be taken without a meeting if all members of the Board of Directors or of any
such committee consent in writing to the adoption of a resolution authorizing
the action and the writing or writings are filed with the minutes of the
proceedings of the Board of Directors or of any such committee.
SECTION 11. Electronic Communication. Any one or more members of the
Board of Directors or any committee thereof may participate in a meeting of the
Board of Directors or any such committee by means of a conference telephone or
similar communications equipment allowing all persons participating in the
meeting to hear each other at the same time. Participation by such means shall
constitute presence in person at a meeting.
<PAGE>
ARTICLE III
Committees
SECTION 1. Appointment. From time to time the Board of Directors by a
resolution adopted by a majority of the whole Board may appoint any committee or
committees for any purpose or purposes, to the extent lawful, which shall have
powers as shall be determined and specified by the Board of Directors in the
resolution of appointment. The Board of Directors shall have full power, at any
time, to fill vacancies in, to change membership of, to designate alternate
members of, or to discharge any such committee.
SECTION 2. Procedures, Quorum and Manner of Acting. Each committee
shall fix its own rules of procedure, and shall meet where and as provided by
such rules or by resolution of the Board of Directors. Except as otherwise
provided by law, the presence of a majority of the then appointed members of a
committee shall constitute a quorum for the transaction of business by that
committee and in every case where a quorum is present the affirmative vote of a
majority of the members of the committee present shall be the act of the
committee. Each committee shall keep minutes of its proceedings, and actions
taken by a committee shall be reported to the Board of Directors.
SECTION 3. Action by Written Consent. Any action required or permitted
to be taken at any Meeting of any committee of the Board may be taken without a
meeting if all the members of the committee consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the committee.
SECTION 4. Term; Termination. In the event any person shall cease to be
a director of the Corporation, such person shall simultaneously therewith cease
to be a member of any committee appointed by the Board of Directors.
ARTICLE IV
Officers
SECTION 1. Election and Qualification. The Board of Directors shall
elect the officers of the Corporation, which shall include a Chief Executive
Officer and a Secretary, and may include, by election or appointment, one or
more Vice Presidents (any one or more of whom may be given an additional
designation of rank or function), a Treasurer and such other officers as the
Board may from time to time deem proper. Each officer shall have such powers and
duties as may be prescribed by these By-laws and as may be assigned by the Board
of Directors or the Chief Executive Officer. Any two or more offices may be held
by the same person except the offices of Chief Executive Officer and Secretary.
When all of the issued and outstanding stock of the Corporation is owned by one
person, such person may hold all or any combination of offices.
SECTION 2. Term of Office and Remuneration. The term of office of all
officers shall be one year and until their respective successors have been
elected and qualified, but any officer may be removed from office, either with
or without cause, at any time by the Board of Directors. Any vacancy in any
office arising from any cause may be filled for the unexpired portion of the
term by the Board of Directors.
SECTION 3. Resignation; Removal. Any officer may resign at any time
upon written notice to the Corporation and such resignation shall take effect
upon receipt thereof by the Chief Executive Officer or Secretary, unless
otherwise specified in the resignation. Any officer shall be subject to removal,
with or without cause, at any time by vote of a majority of the whole Board.
<PAGE>
SECTION 4. Chairman of the Board. The Chairman of the Board of
Directors, if there be one, shall preside at all meetings of the Board of
Directors and shall have such other powers and duties as may from time to time
be assigned by the Board of Directors.
SECTION 5. President and Chief Executive Officer. The chief executive
officer (the "Chief Executive Officer") of the Corporation shall have general
management and supervision of the property, business and affairs of the
Corporation and over its other officers and shall have the title of President or
Chief Executive Officer or both. The Chief Executive Officer shall preside at
all meetings of the shareholders and, in the absence or disability of the
Chairman of the Board of Directors, or if there be no Chairman, shall preside at
all meetings of the Board of Directors. The Chief Executive Officer may appoint
and remove assistant officers and other agents and employees, other than
officers referred to in Section 1 hereof. The Chief Executive Officer may
execute and deliver in the name of the Corporation powers of attorney,
contracts, bonds and other obligations and instruments.
SECTION 6. Vice President. A Vice President may execute and deliver in
the name of the Corporation contracts and other obligations and instruments
pertaining to the regular course of such Vice President's duties, and shall have
such other authority as from time to time may be assigned by the Board of
Directors or the Chief Executive Officer.
SECTION 7. Treasurer. The Treasurer shall in general have all duties
incident to the position of Treasurer and such other duties as may be assigned
by the Board of Directors or the Chief Executive Officer.
SECTION 8. Secretary. The Secretary shall in general have all the
duties incident to the office of Secretary and such other duties as may be
assigned by the Board of Directors or the Chief Executive Officer.
SECTION 9. Assistant Officers. Any assistant officer shall have such
powers and duties of the officer such assistant officer assists an such officer
or the Board of Directors shall from time to time prescribe.
ARTICLE V
Books and Records
SECTION 1. Location. The Corporation shall keep correct and complete
books and records of account and shall keep minutes of the proceedings of the
shareholders, of the Board of Directors, and/or of any committee which the Board
of Directors may appoint, and shall keep at the principal executive offices of
the Corporation or at the office of the transfer agent or registrar, if any, of
the Corporation a record containing the names and addresses of all shareholders,
the number and class of shares held by each, and the dates when such
shareholders respectively became the owners of record thereof. Any of the
foregoing books, minutes or records may be in written form or in any other form
capable of being converted into written form within a reasonable time.
SECTION 2. Addresses of Shareholders. Notices of meetings and all other
corporate notices may be delivered personally or mailed to each shareholder at
said shareholders address as it appears on the records of the Corporation.
<PAGE>
SECTION 3. Fixing Date for Determination of Shareholders of Record. For
the purpose of determining the shareholders entitled to notice of or to vote at
any meeting of shareholders or any adjournment thereof, or to express to consent
to or dissent from any proposal without a meeting, or for the purpose of
determining shareholders entitled to receive payment of any dividend or the
allotment of any rights, or for the purpose of any other action, the Board of
Directors may fix, in advance, a record date, which shall be not more than 50
nor less than 10 days before the date of such meeting, nor more than 50 days
prior to any other action. If no record date is fixed, the record date for
determining shareholders entitled to notice of or to vote at a meeting of
shareholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held. The record date for
determining shareholders for any purpose other than that specified in the
preceding sentence shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto. A determination of
shareholders of record entitled to notice of or to vote at a meeting of
shareholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
ARTICLE VI
Certificates Representing Shares
SECTION 1. Certificates; Signatures. (a) The shares of the Corporation
shall be represented by certificates representing shares, in such form not
inconsistent with the Certificate of Incorporation as the Board of Directors may
from time to time prescribe. Certificates representing shares shall have set
forth thereon the statements prescribed by law and shall be signed by the
Chairman of the Board or the Chief Executive Officer or a Vice President and by
the Secretary or an Assistant Secretary or a Treasurer or an Assistant Treasurer
and may be sealed with the corporate seal or a facsimile thereof. Any and all
signatures on any such certificate may be facsimiles if the certificate is
countersigned by a transfer agent or registered by a registrar other than the
Corporation itself or its employee, or the shares are listed on a registered
national securities exchange. In case any officer who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer before such certificate is issued, it may be issued by the
Corporation with the same effect as if such officer were an officer at the date
of its issue.
(b) Each certificate representing shares issued by the Corporation, if
the Corporation is authorized to issue shares of more than one class, shall set
forth upon the face or back of the certificate, or shall state that the
Corporation will furnish to any shareholder upon request and without charge, a
full statement of the designation, relative rights, preferences and limitations
of the shares of each class authorized to be issued and, if the Corporation is
authorized to issue any class of preferred shares in series, the designation,
relative rights, preferences and limitations of each such series so far as the
same have been fixed and the authority of the Board of Directors to designate
and fix the relative rights, preferences and limitations of other series.
(c) Each certificate representing shares shall state upon the face
thereof:
(1) That the Corporation is formed under the laws of the State of New
York;
<PAGE>
(2) The name of the person or persons to whom issued; and
(3) The number and class of shares, and the designation of the
series, if any, which such certificate represents.
(d) The name of the holder of record of the shares represented thereby,
with the number of shares and the date of issue, shall be entered on the books
of the Corporation.
SECTION 2. Transfer of Shares. Upon compliance with provisions
restricting the transferability of shares, if any, transfers of shares of the
Corporation shall be made only on the share record of the Corporation by the
registered holder thereof, or by such holder's attorney-in-fact thereunto
authorized by power of attorney duly executed and filed with the Secretary of
the Corporation or with a transfer agent or a registrar, if any, and upon the
surrender of the certificate or certificates for such shares properly endorsed
and the payment of all taxes due thereon. A certificate representing shares
shall not be issued until the full amount of consideration therefor has been
paid, except as the Business Corporation Law may otherwise permit.
SECTION 3. Fractional Shares. The Corporation may, but shall not be
required to, issue certificates for fractions of a share where necessary to
effect transactions authorized by the Business Corporation Law, which shall
entitle the holder, in proportion to such holder's fractional holdings, to
exercise voting rights, receive dividends and participate in liquidating
distributions; or the Corporation may pay in cash the fair value of fractions of
a share as of the time when those entitled to receive such fractions are
determined; or it may issue scrip in registered or bearer form over the manual
or facsimile signature of an officer of the Corporation or of its agent,
exchangeable as therein provided for full shares, but such scrip shall not
entitle the holder to any rights of a shareholder except as therein provided.
The Board of Directors shall have power and authority to make all such rules and
regulations as it may deem expedient concerning the issue, transfer and
registration of certificates representing shares of the Corporation.
SECTION 4. Lost, Stolen or Destroyed Certificates. The Corporation may
issue a new certificate of stock in place of any certificate, theretofore issued
by it, alleged to have been lost, stolen or destroyed, and the Board of
Directors may require the owner of any lost, stolen or destroyed certificate, or
his legal representative, to give the Corporation a bond sufficient to indemnify
the Corporation against any claim that may be made against it on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
any such new certificate.
ARTICLE VII
Dividends
Subject always to the provisions of law and the Certificate of
Incorporation, the Board of Directors shall have full power to determine whether
any, and, if any, what part of any, funds legally available for the payment of
dividends shall be declared as dividends and paid to shareholders; the division
of the whole or any part of such funds of the Corporation shall rest wholly
within the lawful discretion of the Board of Directors, and it shall not be
required at any time, against such discretion, to divide or pay any part of such
<PAGE>
funds among or to the shareholders as dividends or otherwise; and before payment
of any dividend, there may be set aside out of any funds of the Corporation
available for dividends such sum or sums as the Board of Directors from time to
time, in its absolute discretion, thinks proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the Corporation, or for such other purpose as the Board of Directors
shall think conducive to the interest of the Corporation, and the Board of
Directors may modify or abolish any such reserve in the manner in which it was
created.
ARTICLE VIII
Ratification
Any transaction, questioned in any law suit on the ground of lack of
authority, defective or irregular execution, adverse interest of director,
officer or shareholder, non-disclosure, miscomputation, or the application of
improper principles or practices of accounting, may be ratified, before or after
judgment, by the Board of Directors or by the shareholders and if so ratified
shall have the same force and effect as if the questioned transaction had been
originally duly authorized. Such ratification shall be binding upon the
Corporation and its shareholders and shall constitute a bar to any claim or
execution of any judgment in respect of such questioned transaction.
ARTICLE IX
Corporate Seal
The corporate seal shall have inscribed thereon the name of the
Corporation and the year of its incorporation, and shall be in such form and
contain such other words and/or figures as the Board of Directors shall
determine. The corporate seal may be used by printing, engraving, lithographing,
stamping or otherwise making, placing or affixing, or causing to be printed,
engraved, lithographed, stamped or otherwise made, placed or affixed, upon any
paper or document, by any process whatsoever, an impression, facsimile or other
reproduction of said corporate seal.
ARTICLE X
Fiscal Year
The fiscal year of the Corporation shall be fixed, and shall be subject
to change, by the Board of Directors. Unless otherwise fixed by the Board of
Directors, the fiscal year of the Corporation shall end on November 30.
ARTICLE XI
Waiver of Notice
Whenever notice is required to be given by these By-laws or by the
Certificate of Incorporation or by law, a written waiver thereof, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent to notice.
<PAGE>
ARTICLE XII
Indemnification
The Corporation, to the full extent permitted and in the manner
required by the laws of the State of New York as in effect at the time of the
adoption of this Article XII or as the law may be amended from time to time, may
(i) indemnify any person (and the heirs and legal representatives of such
person) made, or threatened to be made, a party in an action or proceeding
(including, without limitation, one by or in the right of the Corporation to
procure a judgment in its favor), whether civil or criminal, including an action
by or in the right of any other corporation of any type or kind, domestic or
foreign, or any partnership, joint venture, trust, employee benefit plan or
other enterprise, which any director or officer of the Corporation served in any
capacity at the request of the Corporation, by reason of the fact that such
director or officer, or such director's or officer's testator or intestate, was
a director or officer of the Corporation or served such other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise in
any capacity, and (ii) provide to any such person (and the heirs and legal
representatives of such person) advances for expenses incurred in pursuing such
action or proceeding, upon receipt of an undertaking by or on behalf of such
director or officer to repay such amount as, and to the extent, required by
Section 725(a) of the Business Corporation Law.
ARTICLE XIII
Bank Accounts, Drafts, Contracts, Etc,
SECTION 1. Bank Accounts and Drafts. In addition to such bank accounts
as may be authorized by the Board of Directors, the Treasurer or any person
designated by the Treasurer, whether or not an employee of the Corporation, may
authorize such bank accounts to be opened or maintained in the name and on
behalf of the Corporation as such person may deem necessary or appropriate, and
may authorize payments from such bank accounts to be made upon and according to
the check of the Corporation in accordance with the written instructions of the
Treasurer, or other person so designated by the Treasurer.
SECTION 2. Contracts. The Board of Directors may authorize any person
or persons, in the name and on behalf of the Corporation, to enter into or
execute and deliver any and all deeds, bonds, mortgages, contracts and other
obligations or instruments, and such authority may be general or confined to
specific instances.
SECTION 3. Proxies; Powers of Attorney; Other Instruments. The
Chairman, the Chief Executive Officer or any other person designated by either
of them shall have the power and authority to execute and deliver proxies,
powers of attorney and other instruments on behalf of the Corporation in
connection with the rights and powers incident to that ownership of stock by the
Corporation. The Chairman, the Chief Executive Officer or any other person
authorized by proxy or power of attorney executed and delivered by either of
them on behalf of the Corporation may attend and vote at any meeting of
shareholders of any company in which the Corporation may hold stock, and may
exercise on behalf of the Corporation any and all of the rights and powers
incident to the ownership of such stock at any such meeting, or otherwise as
specified in the proxy or power of attorney so authorizing any such person. The
Board of Directors, from time to time, may confer like powers upon any other
person.
<PAGE>
SECTION 4. Financial Reports. The directors may appoint the Treasurer
or other fiscal officer and/or the Secretary or any other officer to cause to be
prepared and furnished to shareholders entitled thereto any special financial
notice and/or financial statement, as the case may be, which may be required by
any provision of law.
ARTICLE XIV
Amendments
The shareholders entitled to vote in the election of directors may
amend or repeal the By-laws and may adopt new By-laws. Except as otherwise
required by law or by the provisions of these By-laws, the Board of Directors
may also amend or repeal the By-laws and adopt new By-laws, but By-laws adopted
by the Board of Directors may be amended or repealed by the said shareholders.
<PAGE>
EXHIBIT 10(f)
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of November 5, 1996, by and between SIRCO
INTERNATIONAL CORP., a New York corporation (the "Company"), and PAUL RISS, an
individual residing at 126 Greenridge Avenue, White Plains, New York 10605 (the
"Employee").
W I T N E S S E T H:
WHEREAS, the Company desires to employ the Employee as its Chief
Financial Officer and wishes to acquire and be assured of Employee's services on
the terms and conditions hereinafter set forth;
WHEREAS, the Employee desires to be employed by the Company as its
Chief Financial Officer and to perform and to serve the Company on the terms and
conditions hereinafter set forth; and
NOW, THEREFORE, in consideration of the mutual terms, covenants, agreements
and conditions hereinafter set forth, the Company and the Employee hereby agree
as follows:
1. Employment.
(a) The Company hereby employs the Employee to serve as a full time
employee of the Company, and the Employee hereby accepts such employment with
the Company, for the period set forth in Section 2 hereof. The Employee's
principal place of employment shall be at the Company's offices in Stamford,
Connecticut, or at such other location as shall be acceptable to the Employee
and the Company.
(b) The Employee affirms and represents that (i) the Employee is under
no obligation to any former employer or other party that is in any way
inconsistent with, or that imposes any restriction upon, the Employee's
acceptance of employment hereunder with the Company, the employment of the
Employee by the Company, or the Employee's undertakings under this Agreement and
(ii) his performance of all the terms of this Agreement and his employment by
the Company does not and will not breach any agreement to keep in confidence
proprietary information acquired by him in confidence or in trust prior to his
employment by the Company.
2. Term.
Unless earlier terminated as provided in this Agreement, the term of
the Employee's employment under this Agreement shall be for a period beginning
on the date hereof and ending on October 31, 1999 (such period or, if the
Employee's employment hereunder is earlier terminated, such shorter period,
being hereinafter called the "Employment Term").
3. Duties.
(a) The Employee shall be employed as the Chief Financial Officer of
the Company, shall faithfully and competently perform such duties at such times
and places and in such manner as the Company may from time to time reasonably
direct or such other duties appropriate to a senior executive managerial
position as the Board of Directors or Chief Executive Officer of the Company
shall from time to time determine. Employee shall be appointed as a director of
the Company during the Employment Term, and shall serve in such capacity without
additional compensation.
<PAGE>
(b) Except as may otherwise be approved in writing by the Board of
Directors or Chief Executive Officer of the Company, and except during vacation
periods and reasonable periods of absence due to sickness, personal injury or
other disability, the Employee shall devote Employee's full time throughout the
Employment Term to the services required of Employee hereunder. The Employee
shall render Employee's services exclusively to the Company during the
Employment Term and shall use Employee's best efforts, judgment and energy to
improve and advance the business and interests of the Company in a manner
consistent with the duties of Employee's position.
4. Salary and Bonus.
(a) Salary. In consideration for the services of the Employee rendered
to the Company hereunder (including any services Employee may render as a
director of the Company), the Company shall pay the Employee a base salary at an
annual rate of $125,000 during the Employment Term, payable in regular intervals
in accordance with the Company's payroll practices (the "Base Salary").
(b) Stock Options. (i) Upon the execution and delivery of this
Agreement, the Company shall grant a stock option to Employee pursuant to and
subject to the terms and conditions of the 1995 Stock Option Plan of the Company
(the "Stock Option Plan") to purchase 35,000 shares of Common Stock, par value
$.10 per share (the "Common Stock"), of the Company, at an exercise price of
$2.875 per share. Such option shall vest in four equal annual installments of
8,750 shares each, with the first installment vesting on the date hereof, and
shall expire on the tenth anniversary of the date hereof.
(ii) Upon consummation by the Company during the Employment Term
of any debt (other than traditional asset-based lending arrangements or
other traditional bank or factoring arrangements) or equity financing
in which the gross proceeds to the Company equal or exceed $1,000,000,
the Company shall grant a stock option to Employee pursuant to and
subject to the terms and conditions of the Stock Option Plan to
purchase 5,000 shares of Common Stock at an exercise price per share
equal to Fair Market Value (as defined in the Stock Option Plan) of the
Common Stock on the date of consummation of such financing. Any such
option shall vest in two equal annual installments of 2,500 shares
commencing on the date of grant and shall expire on the tenth
anniversary of the date of grant.
(c) Additional Bonuses. In addition to the Base Salary and the stock
options set forth in paragraph (b) above, the Company shall pay to Employee such
bonuses and other compensation as the Board of Directors, in its sole
discretion, deems appropriate.
(d) Withholding, Etc. The payment of any salary or bonus hereunder
shall be subject to income tax, social security and other applicable
withholdings, as well as such deductions as may be required under the Company's
employee benefit plans.
5. Benefits.
(a) During the Employment Term, the Employee shall be:
(i) eligible to participate in all employee fringe benefits and
any pension and/or profit sharing plans that may be provided by the
Company for its key executive employees in accordance with the
provisions of any such plans, as the same may be in effect on and after
the date hereof;
<PAGE>
(ii) eligible to participate in any medical and health plans or
other employee welfare benefit plans that may be provided by the
Company for its key executive employees in accordance with the
provisions of any such plans, as the same may be in effect on and after
the date hereof;
(iii) entitled to three (3) weeks of paid vacation each year,
which shall be taken at such time or times as will not unreasonably
hinder or interfere with the Company's business or operations;
(iv) entitled to sick leave, sick pay and disability benefits in
accordance with any Company policy that may be applicable on and after
the date hereof to key executive employees; and
(v) entitled to reimbursement for all reasonable and necessary
out-of-pocket business expenses incurred by the Employee in the
performance of the Employee's duties hereunder in accordance with the
Company's policies applicable (on and after the date hereof) thereto.
(b) The Company shall reimburse the Employee for the Employee's
automobile lease, insurance and maintenance expenses (to the extent such
automobile is used in connection with the Employee's performance of its duties
hereunder) up to an amount equal to $350 per month.
(c) Employee shall cooperate with the Company in the event the Company
wishes to obtain key-man insurance on the Employee. Such cooperation shall
include, but not be limited to, taking any physical examinations that may be
requested by the insurance company.
6. Inventions and Confidential Information.
The Employee hereby covenants, agrees and acknowledges as follows:
(a) The Company is engaged in a continuous program of research, design,
development, production, marketing and servicing with respect to its businesses.
(b) The Employee's employment hereunder creates a relationship of
confidence and trust between the Employee and the Company with respect to
certain information pertaining to the business of the Company and its Affiliates
(as hereinafter defined) or pertaining to the business of any client or customer
of the Company or its Affiliates which may be made known to the Employee by the
Company or any of its Affiliates or by any client or customer of the Company or
any of its Affiliates or learned by the Employee during the period of Employee's
employment by the Company.
(c) The Company possesses and will continue to possess information that
has been created, discovered or developed by, or otherwise become known to it
(including, without limitation, information created, discovered or developed by,
or made known to, the Employee during the period of Employee's employment or
arising out of Employee's employment) or in which property rights have been or
may be assigned or otherwise conveyed to the Company, which information has
commercial value in the business in which the Company is engaged and is treated
by the Company as confidential.
<PAGE>
(d) Any and all inventions, products, discoveries, improvements,
processes, manufacturing, marketing and services methods or techniques,
formulae, designs, styles, specifications, data bases, computer programs
(whether in source code or object code), know-how, strategies and data, whether
or not patentable or registrable under copyright or similar statutes, made,
developed or created by the Employee (whether at the request or suggestion of
the Company, any of its Affiliates, or otherwise, whether alone or in
conjunction with others, and whether during regular hours of work or otherwise)
during the period of Employee's employment by the Company which may pertain to
the business, products, or processes of the Company or any of its Affiliates
(collectively hereinafter referred to as "Inventions"), will be promptly and
fully disclosed by the Employee to an appropriate executive officer of the
Company (other than the Employee) without any additional compensation therefor,
all papers, drawings, models, data, documents and other material pertaining to
or in any way relating to any Inventions made, developed or created by Employee
as aforesaid. For the purposes of this Agreement, the term "Affiliate" or
"Affiliates" shall mean any person, corporation or other entity directly or
indirectly controlling or controlled by or under direct or indirect common
control with the Company. For the purposes of this definition, "control" when
used with respect to any person, corporation or other entity means the power to
direct the management and policies of such person or entity, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
(e) The Employee will keep confidential and will hold for the Company's
sole benefit any Invention which is to be the exclusive property of the Company
under this Section 6 for which no patent, copyright, trademark or other right or
protection is issued.
(f) The Employee also agrees that the Employee will not without the
prior written consent of the Board of Directors or Chief Executive Officer of
the Company (i) use for Employee's benefit or disclose at any time during
Employee's employment by the Company, or thereafter, except to the extent
required by the performance by the Employee of the Employee's duties as an
employee of the Company, any information obtained or developed by Employee while
in the employ of the Company with respect to any Inventions or with respect to
any customers, clients, suppliers, products, employees, financial affairs, or
methods of design, distribution, marketing, service, procurement or manufacture
of the Company or any of its Affiliates, or any confidential matter, except
information which at the time is generally known to the public other than as a
result of disclosure by the Employee not permitted hereunder, or (ii) take with
the Employee upon leaving the employ of the Company any document or paper
relating to any of the foregoing or any physical property of the Company or any
of its Affiliates.
(g) The Employee acknowledges and agrees that a remedy at law for any
breach or threatened breach of the provisions of this Section 6 would be
inadequate and, therefore, agrees that the Company and its Affiliates shall be
entitled to injunctive relief in addition to any other available rights and
remedies in case of any such breach or threatened breach; provided, however,
that nothing contained herein shall be construed as prohibiting the Company or
any of its Affiliates from pursuing any other rights and remedies available for
any such breach or threatened breach.
(h) The Employee agrees that upon termination of Employee's employment
by the Company for any reason, the Employee shall immediately return to the
Company all documents and other property in Employee's possession belonging to
the Company or any of its Affiliates.
<PAGE>
(i) Without limiting the generality of Section 9 hereof, the Employee
hereby expressly agrees that the foregoing provisions of this Section 6 shall be
binding upon the Employee's heirs, successors and legal representatives.
7. Termination.
(a) The Employee's employment hereunder shall be terminated upon the
occurrence of any of the following:
(i) death of the Employee;
(ii) termination of the Employee's employment hereunder by the
Employee at any time for any reason whatsoever (including, without
limitation, resignation or retirement) other than for "good reason" as
contemplated by clause (v)(B) below;
(iii) termination of the Employee's employment hereunder by the
Company because of the Employee's inability to perform Employee's
duties on account of disability or incapacity for a period of ninety
(90) or more days, whether or not consecutive, occurring within any
period of twelve (12) consecutive months;
(iv) termination of the Employee's employment hereunder by the
Company at any time for "cause" (as hereinafter defined), such
termination to take effect immediately upon written notice from the
Company to the Employee; and
(v) termination of the Employee's employment hereunder (A) by the
Company at any time, other than termination by reason of disability or
incapacity as contemplated by clause (iii) above or termination by the
Company for "cause" as contemplated by clause (iv) above and (B) by the
Employee for "good reason" (as hereinafter defined).
The following actions, failures or events shall constitute "cause" for
termination within the meaning of clause (iv) above: (i) the Employee's
conviction of, admission of guilt to or plea of nolo contendere or similar plea
(which, through lapse of time or otherwise, is not subject to appeal) with
respect to any crime or offense that constitutes a felony in the jurisdiction
involved; (2) acts of dishonesty or moral turpitude which are materially
detrimental to the Company and/or its Affiliates, (3) failure by the Employee to
obey the reasonable and lawful orders of the Board of Directors or Chief
Executive Officer of the Company, (4) any act by the Employee in violation of
Section 8 hereof, any statement or disclosure by the Employee in violation of
Section 6 hereof, or any material breach by the Employee of a representation or
warranty contained in Section 1(b) hereof; (5) following written notice from the
Board of Directors or Chief Executive Officer of the Company of prior similar
actions by Employee, excessive absenteeism (other than by reason of disability);
(6) following written notice from the Board or Directors of Chief Executive
Officer of the Company of prior similar actions by Employee, excessive
alcoholism or addiction to drugs not prescribed by a qualified physician or (7)
gross negligence by the Employee in the performance of, or willful disregard by
the Employee of, the Employee's obligations hereunder.
The following actions, failures or events shall constitute "good
reason" within the meaning of clause (V)(B) above: (1) a material breach by the
Company of its obligations under this Agreement or (2) a material diminution of
the Employee's responsibilities or authority hereunder.
<PAGE>
(b) In the event that the Employee's employment is terminated by the
Company for any reason other than "cause" or by Employee for "good reason," then
the Company shall pay to the Employee, as severance pay or liquidated damages or
both, the amount of Base Salary, if any, which the Employee would have otherwise
been entitled to receive pursuant to Section 4(a) hereof from the date of
termination had the Employee's employment not been so terminated until six
months after the date of such termination or occurrence (such amount being
herein referred to as the "Severance Payments" and such period being herein
referred to as the "Severance Period"); provided, however, that the Severance
Payments shall be reduced by any salary, bonus or other compensation received by
the Employee in respect of such Severance Period or received by the Employee in
respect of any other employment or consulting arrangement secured by the
Employee subsequent to the termination of the Employee's employment hereunder.
(c) Notwithstanding anything to the contrary expressed or implied
herein, except as required by applicable law and except as set forth in
paragraph (b) above, the Company (and its Affiliates) shall not be obligated to
make any payments to the Employee or on Employee's behalf of whatever kind or
nature by reason of the Employee's cessation of employment (including, without
limitation, by reason of termination of the Employee's employment by the Company
for "cause"), other than (i) such amounts, if any, of Employee's salary and
bonus as shall have accrued and remained unpaid as of the date of said cessation
and (ii) such other amounts which may be then otherwise payable to the Employee
from the Company's benefits plans or reimbursement policies, if any.
(d) No interest shall accrue on or be paid with respect to any portion
of any payments hereunder.
8. Non-Competition.
(a) The term "Non-Compete Term" shall mean the period during which
Employee is employed hereunder and (x) in the event Employee's employment is
terminated by the Company for any reason other than "cause" or by Employee for
"good reason," the one-year period following such termination, (y) in the event
Employee's employment is terminated by the Company for "cause" or by Employee
for any reason other than "good reason," the two-year period following such
termination. During the Non-Compete Term:
(i) the Employee will not make any statement or perform any act
intended to advance an interest of any existing or prospective
competitor of the Company or any of its Affiliates in any way that will
or may injure an interest of the Company or any of its Affiliates in
its relationship and dealings with existing or potential customers or
clients, or solicit or encourage any other employee of the Company or
any of its Affiliates to do any act that is disloyal to the Company or
any of its Affiliates or inconsistent with the interest of the Company
or any of its Affiliate's interests or in violation of any provision of
this Agreement;
(ii) the Employee will not discuss with any existing or potential
customers or clients of the Company or any of its Affiliates the
present or future availability of services or products of a business,
if the Employee has or expects to acquire a proprietary interest in
such business or is or expects to be an employee, officer or director
of such business, where such services or products are competitive with
services or products which the Company or any of its Affiliates
provides;
<PAGE>
(iii) the Employee will not make any statement or do any act
intended to cause any existing or potential customers or clients of the
Company or any of its Affiliates to make use of the services or
purchase the products of any competitive business in which the Employee
has or expects to acquire a proprietary interest or in which the
Employee is or expects to be made an employee, officer or director, if
such services or products in any way compete with the services or
products sold or provided or expected to be sold or provided by the
Company or any of its Affiliates to any existing or potential customer
or client; and
(iv) the Employee will not directly or indirectly (as a director,
officer, employee, manager, consultant, independent contractor, advisor
or otherwise) engage in competition with, or own any interest in,
perform any services for, participate in or be connected with (i) any
business or organization which engages in competition with the Company
or any of its Affiliates in any geographical area where any business is
presently carried on by the Company or any of its Affiliates, or (ii)
any business or organization which engages in competition with the
Company or any of its Affiliates in any geographical area where any
business shall be hereafter, during the period of the Employee's
employment by the Company, carried on by the Company or any of its
Affiliates, if such business is then being carried on by the Company or
any of its Affiliates in such geographical area; provided, however,
that the provisions of this Section 8(a) shall not be deemed to
prohibit the Employee's ownership of not more than one percent (1%) of
the total shares of all classes of stock outstanding of any publicly
held company.
(b) During the Non-Compete Term, the Employee will not directly or
indirectly hire, engage, send any work to, place orders with, or in any manner
be associated with any supplier, contractor, subcontractor or other person or
firm which rendered manufacturing or other services, or sold any products, to
the Company or any of its Affiliates if such action by Employee would have a
material adverse effect on the business, assets or financial condition of the
Company or any of its Affiliates.
(c) (i) For purposes of this Section 8, a person or entity
(including, without limitation, the Employee) shall be deemed to be a
competitor of the Company or any of its Affiliates, or a person or
entity (including, without limitation, the Employee) shall be deemed to
be engaging in competition with the Company or any of its Affiliates,
only if such person or entity derives at least 40% of its net revenues
on a consolidated basis from conducting, operating, carrying out or
engaging in the business of designing, manufacturing or marketing soft
luggage, sport bags, backpacks, children's bags or tote bags or related
products in North America or such other business or businesses as the
Company may in the future conduct in such geographical area or areas as
such business or businesses are conducted by the Company.
<PAGE>
(ii) In connection with the foregoing provisions of this Section
8, the Employee represents that Employee's experience, capabilities and
circumstances are such that such provisions will not prevent Employee
from earning a livelihood. The Employee further agrees that the
limitations set forth in this Section 8 (including, without limitation,
any time or territorial limitations) are reasonable and properly
required for the adequate protection of the businesses of the Company
and its Affiliates. It is understood and agreed that the covenants made
by the Employee in this Section 8 (and in Section 6 hereof) shall
survive the expiration or termination of this Agreement.
(iii) For purposes of this Section 8, proprietary interest in a
business is ownership, whether through direct or indirect stock
holdings or otherwise, of one percent (1%) or more of such business.
The Employee shall be deemed to expect to acquire a proprietary
interest in a business or to be made an officer or director of such
business if such possibility has been discussed with any officer,
director, employee, agent, or promoter of such business.
(iv) The Employee acknowledges and agrees that a remedy at law
for any breach or threatened breach of the provisions of this Section 8
would be inadequate and, therefore, agrees that the Company and any of
its Affiliates shall be entitled to injunctive relief in addition to
any other available rights and remedies in cases of any such breach or
threatened breach; provided, however, that nothing contained herein
shall be construed as prohibiting the Company or any of its Affiliates
from pursuing any other rights and remedies available for any such
breach or threatened breach.
9. Non-Assignability.
(a) Neither this Agreement nor any right or interest hereunder shall be
assignable by the Employee, Employee's beneficiaries, or legal representatives
without the Company's prior written consent; provided, however, that nothing in
this Section 9(a) shall preclude the Employee from designating a beneficiary to
receive any benefit payable hereunder upon Employee's death or incapacity.
(b) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation or to exclusion,
attachment, levy or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to effect any such action shall be null, void
and of no effect.
10. Binding Effect.
Without limiting or diminishing the effect of Section 9 hereof, this
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective heirs, successors, legal representatives and assigns.
<PAGE>
11. Notice.
Any notice required or permitted to be given under this Agreement shall
be sufficient if in writing and either delivered in person or sent by first
class certified or registered mail, postage prepaid, if to the Company, at the
Company's principal place of business, attention: Chief Executive Officer (with
a copy to Pryor, Cashman, Sherman & Flynn, 410 Park Avenue, New York, New York
10022, Attention: Eric M. Hellige, Esq.), and if to the Employee, at Employee's
home address set forth above, or to such other address or addresses as either
party shall have designated in writing to the other party hereto.
12. Severability.
The Employee agrees that in the event that any court of competent
jurisdiction shall finally hold that any provision of Section 6 or 8 hereof is
void or constitutes an unreasonable restriction against the Employee, such
provision shall not be rendered void but shall apply with respect to such extent
as such court may judicially determine constitutes a reasonable restriction
under the circumstances. If any part of this Agreement other than Section 6 or 8
is held by a court of competent jurisdiction to be invalid, illegible or
incapable of being enforced in whole or in part by reason of any rule of law or
public policy, such part shall be deemed to be severed from the remainder of
this Agreement for the purpose only of the particular legal proceedings in
question and all other covenants and provisions of this Agreement shall in every
other respect continue in full force and effect and no covenant or provision
shall be deemed dependent upon any other covenant or provision.
13. Waiver.
Failure to insist upon strict compliance with any of the terms,
covenants or conditions hereof shall not be deemed a waiver of such term,
covenant or condition, nor shall any waiver or relinquishment of any right or
power hereunder at any one or more times be deemed a waiver or relinquishment of
such right or power at any other time or times.
14. Entire Agreement; Modifications.
This Agreement constitutes the entire and final expression of the
agreement of the parties with respect to the subject matter hereof and
supersedes all prior agreements, oral and written, between the parties hereto
with respect to the subject matter hereof. This Agreement may be modified or
amended only by an instrument in writing signed by both parties hereto.
15. Relevant Law.
This Agreement shall be construed and enforced in accordance with the
internal laws of the State of New York without regard to the conflicts of law
principles thereof.
16. Counterparts.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
17. Survival.
The termination of Employee's employment hereunder shall not affect the
enforceability of Sections 6 or 8.
<PAGE>
18. Further Assurances.
The parties agree to execute and deliver all such further instruments
and take such other and further action as may be reasonably necessary or
appropriate to carry out the provisions of this Agreement.
19. Headings.
The Section headings appearing in this Agreement are for purposes of
easy reference and shall not be considered a part of this Agreement or in any
way modify, amend or affect its provisions.
<PAGE>
IN WITNESS WHEREOF, the Company and the Employee have duly executed and
delivered this Agreement as of the day and year first above written.
SIRCO INTERNATIONAL CORP.
By: /s/Joel Dupre
---------------------------
JOEL DUPRE
Title: Chief Executive Officer
/s/Paul Riss
------------
PAUL RISS
<PAGE>
EXHIBIT 10(g)
Coast
Loan and Security Agreement
Borrower: SIRCO INTERNATIONAL CORP.,
a New York corporation
Address: 24 Richmond Hill Avenue
Stamford, Connecticut 06901
Date: December 16, 1996
THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between COAST
BUSINESS CREDIT, a division of Southern Pacific Thrift & Loan Association
("Coast"), a California corporation, with offices at 12121 Wilshire Boulevard,
Suite 1111, Los Angeles, California 90025, and the borrower named above (the
"Borrower"), whose chief executive office is located at the above address
("Borrower's Address"). The Schedule to this Agreement (the "Schedule") shall
for all purposes be deemed to be a part of this Agreement, and the same is an
integral part of this Agreement. (Definitions of certain terms used in this
Agreement are set forth in Section 8 below.)
1. LOANS.
1.1 Loans. Coast will make loans to Borrower (the "Loans"), in amounts
determined by Coast in its sole discretion exercised in good faith, up to the
amounts and up to the percentages (the "Credit Limit") shown on the Schedule,
provided no Default or Event of Default has occurred and is continuing.
1.2 Interest. All Loans and all other monetary Obligations shall bear
interest at the rate shown on the Schedule, except where expressly set forth to
the contrary in this Agreement. Interest shall be payable monthly, on the last
day of the month. Interest may, in Coast's discretion, be charged to Borrower's
loan account, and the same shall thereafter bear interest at the same rate as
the other Loans. Regardless of the amount of Obligations that may be outstanding
from time to time, Borrower shall pay Coast minimum monthly interest during the
term of this Agreement with respect to the Receivable Loans and the Inventory
Loans in the amount set forth on the Schedule (the "Minimum Monthly Interest").
1.3 Fees. Borrower shall pay Coast the fee(s) shown on the Schedule, which
are in addition to all interest and other sums payable to Coast and are not
refundable.
1.4 Conditions Precedent. The obligation of Coast to make the Loans is
subject to the satisfaction, in the sole discretion of Coast, at or prior to the
first advance of funds hereunder, of each, every and all of the following
conditions:
(a) Status of Accounts at Closing. No account payable shall be due
and unpaid ninety (90) days past its due date except for such accounts payable
being contested in good faith in appropriate proceedings and for which adequate
reserves have been provided;
(b) Minimum Availability. Borrower shall have minimum availability
immediately following the initial funding of the Loans of at least Two Hundred
Thousand Dollars ($200,000);
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(c) Landlord Waiver. Coast shall have received duly executed
landlord waivers in form an substance reasonably satisfactory to Coast, in
Coast's sole and absolute discretion, and in form for recording in the
appropriate recording office, with respect to all locations where Borrower
maintains any inventory or equipment;
(d) Executed Loan Documents. Coast shall have received this
Agreement duly executed and in form and substance reasonably satisfactory to
Coast in its sole and absolute discretion;
(e) Opinion of Borrower's Counsel. Coast shall have received an
opinion of Borrower's counsel, in form and substance reasonably satisfactory to
Coast in its sole and absolute discretion;
(f) Licensing Agreements. Coast and its legal counsel shall have
completed a review of each of the Licensing Agreements and Coast shall have
received letters of consent and acknowledgment of Coast's rights from each of
the licensors on the License Agreements, in form and substance satisfactory to
Coast in its sole and absolute discretion;
(g) Schedule of Due Dates. Coast shall have received from Borrower a
schedule of due dates of each of Borrower's currently open letters of credit, in
form and substance satisfactory to Coast in its sole and absolute discretion;
(h) Priority of Coast's Liens. Coast shall have received the results
of "of record" searches satisfactory to Coast in its sole and absolute
discretion, reflecting its Uniform Commercial Code filings against Borrower
indicating that Coast has a perfected, first priority lien in and upon all of
the Collateral, subject only to Permitted Liens;
(i) Insurance. Coast shall have received copies of the insurance
binders or certificates evidencing Borrower's compliance with Section 5.2
hereof, including lender's loss payee endorsements;
(j) Corporate Existence. Coast shall have received copies of
Borrower's Articles or Certificate of Incorporation and all amendments thereto,
and a Certificate of Good Standing, each certified by the Secretary of State of
the state of Borrower's incorporation, and dated a recent date prior to the
Closing Date, and Coast shall have received Certificates of Foreign
Qualification for Borrower from the Secretary of State of each state wherein the
failure to be so qualified could have a Material Adverse Effect;
(k) Corporate Documents. Coast shall have received copies of
Borrower's Bylaws and all amendments thereto, and Coast shall have received
copies of the resolutions of the board of directors of Borrower, authorizing the
execution and delivery of this Agreement and the other documents contemplated
hereby, and authorizing the transactions contemplated hereunder and thereunder,
and authorizing specific officers of Borrower to execute the same on behalf of
Borrower, in each case certified by the Secretary or other acceptable officer of
Borrower as of the Closing Date;
(l) Taxes. Coast shall have received evidence from Borrower that
Borrower has complied with all tax withholding and Internal Revenue Service
regulations, in form and substance satisfactory to Coast in its sole and
absolute discretion;
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(m) Due Diligence. Coast shall have completed its due diligence with
respect to Borrower, including, but not limited to, satisfactory review of
Borrower's consolidated and consolidating financial statements for the fiscal
year ended November 30, 1995; and
(n) Other Documents and Agreements. Coast shall have received such
other agreements, instruments and documents, including, but not limited to, the
Dupre Guaranty, Validity Guaranty of Eric Smith, UCC-1 financing statements,
fixture filings, termination statements and security agreements (including
covering copyrights, patents and trademarks), as Coast may require in connection
with the transactions contemplated hereby, all in form and substance
satisfactory to Coast in Coast's sole and absolute discretion, and in form for
filing in the appropriate filing office.
1.5 Letters of Credit. At the request of Borrower, Coast may, in its sole
discretion exercised in good faith, arrange for the issuance of letters of
credit for the account of Borrower (collectively, "Letters of Credit"), by
issuing guarantees to the issuer of the letter of credit or by other means. All
Letters of Credit shall be in form and substance satisfactory to Coast in its
sole discretion. The aggregate face amount of all outstanding Letters of Credit
from time to time shall not exceed the amount shown on the Schedule (the "Letter
of Credit Sublimit"), and shall be reserved against Loans which would otherwise
be available hereunder. Borrower shall pay all bank charges for the issuance of
Letters of Credit. Any payment by Coast under or in connection with a Letter of
Credit shall constitute a Loan hereunder on the date such payment is made. Each
Letter of Credit shall have an expiry date no later than thirty (30) days prior
to the Maturity Date. Borrower hereby agrees to indemnify, save, and hold Coast
harmless from any loss, cost, expense, or liability, including payments made by
Coast, expenses, and reasonable attorneys' fees incurred by Coast arising out of
or in connection with any Letters of Credit. Borrower agrees to be bound by the
regulations and interpretations of the issuer of any Letters of Credit
guarantied by Coast and opened for Borrower's account or by Coast's
interpretations of any Letter of Credit issued by Coast for Borrower's account,
and Borrower understands and agrees that Coast shall not be liable for any
error, negligence, or mistake, whether of omission or commission, in following
Borrower's instructions or those contained in the Letters of Credit or any
modifications, amendments, or supplements thereto. Borrower understands that
Letters of Credit may require Coast to indemnify the issuing bank for certain
costs or liabilities arising out of claims by Borrower against such issuing
bank. Borrower hereby agrees to indemnify and hold Coast harmless with respect
to any loss, cost, expense, or liability incurred by Coast under any Letter of
Credit as a result of Coast's indemnification of any such issuing bank. The
provisions of this Loan Agreement, as it pertains to Letters of Credit, and any
other present or future documents or agreements between Borrower and Coast
relating to Letters of Credit are cumulative.
2. SECURITY INTEREST.
2.1 Security Interest. To secure the payment and performance of all of the
Obligations when due, Borrower hereby grants to Coast a security interest in all
of Borrower's interest in the following, whether now owned or hereafter
acquired, and wherever located: All Receivables, Inventory, Equipment, and
General Intangibles, including, without limitation, all of Borrower's Deposit
Accounts, and all money, and all property now or at any time in the future in
Coast's possession (including claims and credit balances), and all proceeds of
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any of the foregoing (including proceeds of any insurance policies, proceeds of
proceeds, and claims against third parties), all products of any of the
foregoing, and all books and records related to any of the foregoing (all of the
foregoing, together with all other property in which Coast may now or in the
future be granted a lien or security interest, is referred to herein,
collectively, as the "Collateral").
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
In order to induce Coast to enter into this Agreement and to make Loans,
Borrower represents and warrants to Coast as follows, and Borrower covenants
that the following representations will continue to be true, and that Borrower
will at all times comply with all of the following covenants:
3.1 Corporate Existence and Authority. Borrower, if a corporation, is and
will continue to be, duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation. Borrower is and will continue
to be qualified and licensed to do business in all jurisdictions in which any
failure to do so would have a Material Adverse Effect. The execution, delivery
and performance by Borrower of this Agreement, and all other documents
contemplated hereby (a) have been duly and validly authorized by the Board of
Directors of Borrower, (b) are enforceable against Borrower in accordance with
their terms (except as enforcement may be limited by equitable principles and by
bankruptcy, insolvency, reorganization, moratorium or similar laws relating to
creditors' rights generally), and (c) do not violate Borrower's articles or
certificate of incorporation, or Borrower's by-laws, or any law or any material
agreement or instrument which is binding upon Borrower or its property, and (d)
do not constitute grounds for acceleration of any material indebtedness or
obligation under any material agreement or instrument which is binding upon
Borrower or its property.
3.2 Name; Trade Names and Styles. The name of Borrower set forth in the
heading to this Agreement is its legal name. Listed on the Schedule are all
prior names of Borrower and all of Borrower's present and prior trade names.
Borrower shall give Coast thirty (30) days' prior written notice before changing
its name or doing business under any other name. Borrower has complied, and will
in the future comply, with all laws relating to the conduct of business under a
fictitious business name where the failure to so comply could have a Material
Adverse Effect.
3.3 Place of Business; Location of Collateral. The address set forth in
the heading to this Agreement is Borrower's chief executive office. In addition,
Borrower has places of business and Collateral is located only at the locations
set forth on the Schedule. Borrower will give Coast at least thirty (30) days
prior written notice before opening any additional place of business, changing
its chief executive office, or moving any of the Collateral to a location other
than Borrower's Address or one of the locations set forth on the Schedule.
3.4 Title to Collateral; Permitted Liens. Borrower is now, and will at all
times in the future be, the sole owner of all the Collateral, except for items
of Equipment which are leased by Borrower. The Collateral now is and will remain
free and clear of any and all liens, charges, security interests, encumbrances
and adverse claims, except for Permitted Liens. Coast now has, and will continue
to have, a first-priority perfected and enforceable security interest in all of
the Collateral, subject only to the Permitted Liens, and Borrower will at all
times defend Coast and the Collateral against all claims of others. None of the
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Collateral now is or will be affixed to any real property in such a manner, or
with such intent, as to become a fixture. Borrower is not and will not become a
lessee under any real property lease pursuant to which the lessor may obtain any
rights in any of the Collateral and no such lease now prohibits, restrains,
impairs or will prohibit, restrain or impair Borrower's right to remove any
Collateral from the leased premises. Whenever any Collateral is located upon
premises in which any third party has an interest (whether as owner, mortgagee,
beneficiary under a deed of trust, lien or otherwise), Borrower shall, whenever
requested by Coast, use its best efforts to cause such third party to execute
and deliver to Coast, in form reasonably acceptable to Coast, such waivers and
subordinations as Coast shall specify, so as to ensure that Coast's rights in
the Collateral are, and will continue to be, superior to the rights of any such
third party. Borrower will keep in full force and effect, and will comply with
all the terms of, any lease of real property where any substantial part of the
Collateral now or in the future may be located.
3.5 Maintenance of Collateral. Borrower will maintain the Collateral in
good working condition, and Borrower will not use the Collateral for any
unlawful purpose. Borrower will timely advise Coast in writing of any material
loss or damage to the Collateral.
3.6 Books and Records. Borrower has maintained and will maintain at
Borrower's Address complete and accurate books and records, comprising an
accounting system in accordance with generally accepted accounting principles.
3.7 Financial Condition, Statements and Reports. All financial statements
now or in the future delivered to Coast have been, and will be, prepared in
conformity with generally accepted accounting principles (except, in the case of
unaudited financial statements, for the absence of footnotes and subject to
normal year-end adjustments) and now and in the future will fairly reflect the
financial condition of Borrower, at the times and for the periods therein
stated. Between the last date covered by any such statement provided to Coast
and the date hereof, there has been no Material Adverse Effect. Borrower is now
and will continue to be solvent.
3.8 Tax Returns and Payments; Pension Contributions. Borrower has timely
filed, and will timely file, all tax returns and reports required by foreign,
federal, state and local law, and Borrower has timely paid, and will timely pay,
all foreign, federal, state and local taxes, assessments, deposits and
contributions now or in the future owed by Borrower. Borrower may, however,
defer payment of any contested taxes, provided that Borrower (i) in good faith
contests Borrower's obligation to pay the taxes by appropriate proceedings
promptly and diligently instituted and conducted, (ii) notifies Coast in writing
of the commencement of, and any material development in, the proceedings, and
(iii) posts bonds or takes any other steps required to keep the contested taxes
from becoming a lien upon any of the Collateral. As of the date hereof, Borrower
is unaware of any claims or adjustments proposed for any of Borrower's prior tax
years which could result in additional taxes becoming due and payable by
Borrower. Borrower has paid, and shall continue to pay all amounts necessary to
fund all present and future pension, profit sharing and deferred compensation
plans in accordance with their terms, and Borrower has not and will not withdraw
from participation in, permit partial or complete termination of, or permit the
occurrence of any other event with respect to, any such plan which could result
in any liability of Borrower, including any liability to the Pension Benefit
Guaranty Corporation or its successors or any other governmental agency.
Borrower shall, at all times, utilize the services of an outside payroll service
providing for the automatic deposit of all payroll taxes payable by Borrower.
<PAGE>
3.9 Compliance with Law. Borrower has complied, and will comply, in all
material respects, with all provisions of all material foreign, federal, state
and local laws and regulations relating to Borrower, including, but not limited
to, those relating to Borrower's ownership of real or personal property, the
conduct and licensing of Borrower's business, and environmental matters, where
the failure to so comply could have a Material Adverse Effect.
3.10 Litigation. Except as disclosed in the Schedule, there is no claim,
suit, litigation, proceeding or investigation pending or (to best of Borrower's
knowledge) threatened by or against or affecting Borrower in any court or before
any governmental agency (or any basis therefor known to Borrower) which may
result, either separately or in the aggregate, in a Material Adverse Effect.
Borrower will timely inform Coast in writing of any claim, proceeding,
litigation or investigation in the future threatened or instituted by or against
Borrower involving any single claim of Fifty Thousand Dollars ($50,000) or more,
or involving One Hundred Thousand Dollars ($100,000) or more in the aggregate.
3.11 Use of Proceeds. All proceeds of all Loans shall be used solely for
lawful business purposes. Borrower is not purchasing or carrying any "margin
stock" (as defined in Regulation G of the Board of Governors of the Federal
Reserve System) and no part of the 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."
4. RECEIVABLES.
4.1 Representations Relating to Receivables. Borrower represents and
warrants to Coast as follows: Each Receivable with respect to which Loans are
requested by Borrower shall, on the date each Loan is requested and made,
represent an undisputed bona fide existing unconditional obligation of the
Account Debtor created by the sale, delivery, and acceptance of goods or the
rendition of services in the ordinary course of Borrower's business.
4.2 Representations Relating to Documents and Legal Compliance. Borrower
represents and warrants to Coast as follows: All statements made and all unpaid
balances appearing in all invoices, instruments and other documents evidencing
the Receivables are and shall be true and correct and all such invoices,
instruments and other documents and all of Borrower's books and records are and
shall be genuine and in all respects what they purport to be. All sales and
other transactions underlying or giving rise to each Receivable shall fully
comply with all applicable laws and governmental rules and regulations. All
signatures and indorsements on all documents, instruments, and agreements
relating to all Receivables are and shall be genuine, and all such documents,
instruments and agreements are and shall be legally enforceable in accordance
with their terms.
4.3 Schedules and Documents relating to Receivables. Borrower shall
deliver to Coast transaction reports and loan requests, schedules of
Receivables, and schedules of collections, all on Coast's standard forms;
provided, however, that Borrower's failure to execute and deliver the same shall
not affect or limit Coast's security interest and other rights in all of
Borrower's Receivables, nor shall Coast's failure to advance or lend against a
specific Receivable affect or limit Coast's security interest and other rights
therein. Loan requests received after 10:30 AM will not be considered by Coast
<PAGE>
until the next Business Day. Together with each such schedule, or later if
requested by Coast, Borrower shall furnish Coast with copies (or, at Coast's
reasonable request, originals) of all contracts, orders, invoices, and other
similar documents, and all original shipping instructions, delivery receipts,
bills of lading, and other evidence of delivery, for any goods the sale or
disposition of which gave rise to such Receivables, and Borrower warrants the
genuineness of all of the foregoing. Borrower shall also furnish to Coast an
aged accounts receivable trial balance in such form and at such intervals as
Coast shall request. In addition, Borrower shall deliver to Coast the originals
of all instruments, chattel paper, security agreements, guarantees and other
documents and property evidencing or securing any Receivables, upon receipt
thereof and in the same form as received, with all necessary indorsements, all
of which shall be with recourse. Borrower shall also provide Coast with copies
of all credit memos as and when requested by Coast.
4.4 Collection of Receivables. Borrower shall have the right to collect
all Receivables, unless and until an Event of Default has occurred. Borrower
shall hold all payments on, and proceeds of, Receivables in trust for Coast, and
Borrower shall deliver all such payments and proceeds to Coast within one (1)
Business Day after receipt by Borrower, in their original form, duly endorsed to
Coast, to be applied to the Obligations in such order as Coast shall determine.
Coast may, in its discretion, require that all proceeds of Collateral be
deposited by Borrower into a lockbox account, or such other "blocked account" as
Coast may specify, pursuant to a blocked account agreement in such form as Coast
may specify. Coast or its designee may, at any time, notify Account Debtors that
Coast has been granted a security interest in the Receivables.
4.5 Remittance of Proceeds. All proceeds arising from the disposition of
any Collateral shall be delivered to Coast within one (1) Business Day after
receipt by Borrower, in their original form, duly endorsed to Coast, to be
applied to the Obligations in such order as Coast shall determine. Borrower
agrees that it will not commingle proceeds of Collateral with any of Borrower's
other funds or property, but will hold such proceeds separate and apart from
such other funds and property and in an express trust for Coast. Nothing in this
Section limits the restrictions on disposition of Collateral set forth elsewhere
in this Agreement.
4.6 Disputes. Borrower shall notify Coast promptly of all disputes or
claims relating to Receivables. Borrower shall not forgive (completely or
partially), compromise or settle any Receivable for less than payment in full,
or agree to do any of the foregoing, except that Borrower may do so, provided
that: (a) Borrower does so in good faith, in a commercially reasonable manner,
in the ordinary course of business, and in arm's length transactions, which are
reported to Coast on the regular reports provided to Coast; (b) no Default or
Event of Default has occurred and is continuing; and (c) taking into account all
such discounts settlements and forgiveness, the total outstanding Loans will not
exceed the Credit Limit. Coast may, at any time after the occurrence of an Event
of Default, settle or adjust disputes or claims directly with Account Debtors
for amounts and upon terms which Coast considers advisable in its reasonable
credit judgment and, in all cases, Coast shall credit Borrower's Loan account
with only the net amounts received by Coast in payment of any Receivables.
4.7 Returns. Provided no Event of Default has occurred and is continuing,
if any Account Debtor returns any Inventory to Borrower in the ordinary course
of its business, Borrower shall promptly determine the reason for such return
and promptly issue a credit memorandum to the Account Debtor in the appropriate
amount. In the event any attempted return occurs after the occurrence of any
<PAGE>
Event of Default, Borrower shall (a) hold the returned Inventory in trust for
Coast, (b) segregate all returned Inventory from all of Borrower's other
property, (c) conspicuously label the returned Inventory as subject to Coast's
security interest, and (d) timely notify Coast of the return of any Inventory,
specifying the reason for such return, the location and condition of the
returned Inventory, and on Coast's reasonable request deliver such returned
Inventory to Coast.
4.8 Verification. Coast may, from time to time, verify directly with the
respective Account Debtors the validity, amount and other matters relating to
the Receivables, by means of mail, telephone or otherwise, either in the name of
Borrower or Coast or such other name as Coast may choose.
4.9 No Liability. Coast shall not under any circumstances be responsible
or liable for any shortage or discrepancy in, damage to, or loss or destruction
of, any goods, the sale or other disposition of which gives rise to a
Receivable, or for any error, act, omission, or delay of any kind occurring in
the settlement, failure to settle, collection or failure to collect any
Receivable, or for settling any Receivable in good faith for less than the full
amount thereof, nor shall Coast be deemed to be responsible for any of
Borrower's obligations under any contract or agreement giving rise to a
Receivable. Nothing herein shall, however, relieve Coast from liability for its
own gross negligence or willful misconduct.
5. ADDITIONAL DUTIES OF THE BORROWER.
5.1 Financial and Other Covenants. Borrower shall at all times comply with
the financial and other covenants set forth in the Schedule.
5.2 Insurance. Borrower shall, at all times insure all of the tangible
personal property Collateral and carry such other business insurance, with
insurers reasonably acceptable to Coast, in such form and amounts as Coast may
reasonably require, and Borrower shall provide evidence of such insurance to
Coast, so that Coast is satisfied that such insurance is, at all times, in full
force and effect. All liability insurance policies of Borrower shall name Coast
as an additional insured, and all property casualty and related insurance
policies of Borrower shall name Coast as a loss payee thereon and Borrower shall
cause a lenders loss payee endorsement in form reasonably acceptable to Coast.
Upon receipt of the proceeds of any such insurance, Coast shall apply such
proceeds in reduction of the Obligations as Coast shall determine in its sole
discretion, except that, provided no Default or Event of Default has occurred
and is continuing, Coast shall release to Borrower insurance proceeds with
respect to Equipment totaling less than Two Hundred Fifty Thousand Dollars
($250,000), which shall be utilized by Borrower for the replacement of the
Equipment with respect to which the insurance proceeds were paid. Coast may
require reasonable assurance that the insurance proceeds so released will be so
used. If Borrower fails to provide or pay for any insurance, Coast may, but is
not obligated to, obtain the same at Borrower's expense. Borrower shall timely
deliver to Coast copies of all reports made to insurance companies.
5.3 Reports. Borrower, at its expense, shall provide Coast with the
written reports set forth in the Schedule, and such other written reports with
respect to Borrower (including budgets, sales projections, operating plans and
other financial documentation), as Coast shall from time to time reasonably
specify.
<PAGE>
5.4 Access to Collateral, Books and Records. At reasonable times, and on
one (1) Business Day's notice, Coast, or its agents, shall have the right to
inspect, audit and copy Borrower's books and records and the Collateral (the
"Audits"). Coast shall take reasonable steps to keep confidential all
confidential information obtained in any Audit, but Coast shall have the right
to disclose any such information to its auditors, regulatory agencies, and
attorneys, and pursuant to any subpoena or other legal process. The Audits shall
be at Borrower's expense and the charge for the Audits shall be Five Hundred
Fifty Dollars ($550) per person per day (or such higher amount as shall
represent Coast's then current standard charge for the same), plus reasonable
out of pocket expenses. Borrower will not enter into any agreement with any
accounting firm, service bureau or third party to store Borrower's books or
records at any location other than Borrower's Address, without first notifying
Coast of the same and obtaining the written agreement from such accounting firm,
service bureau or other third party to give Coast the same rights with respect
to access to books and records and related rights as Coast has under this Loan
Agreement.
5.5 Negative Covenants. Borrower shall not, without Coast's prior written
consent, do any of the following:
(a) merge or consolidate with another corporation or entity, except
in a transaction in which (i) the shareholders of the Borrower hold at least 50%
of the common stock and all other capital stock of the surviving corporation
immediately after such merger or consolidation, and (ii) the Borrower is the
surviving corporation;
(b) acquire any assets, except (i) in the ordinary course of
business, or (ii) in a transaction or a series of transactions not involving the
payment of an aggregate amount in excess of One Hundred Thousand Dollars
($100,000);
(c) enter into any other transaction outside the ordinary course of
business;
(d) sell or transfer any Collateral, except for the sale of finished
Inventory in the ordinary course of Borrower's business, and except for the sale
of obsolete or unneeded Equipment in the ordinary course of business;
(e) store any Inventory or other Collateral with any warehouseman or
other third party;
(f) sell any Inventory on a sale-or-return, guaranteed sale,
consignment, or other contingent basis;
(g) make any loans of any money or other assets, except (i) advances
to customers or suppliers in the ordinary course of business, (ii) travel
advances, employee relocation loans and other employee loans and advances in the
ordinary course of business, and (iii) loans to employees, officers and
directors for the purpose of purchasing equity securities of the Borrower;
(h) incur any debts, outside the ordinary course of business, which
would have a Material Adverse Effect;
(i) guarantee or otherwise become liable with respect to the
obligations of another party or entity;
(j) pay or declare any dividends on Borrower's stock (except for
dividends payable solely in stock of Borrower);
<PAGE>
(k) redeem, retire, purchase or otherwise acquire, directly or
indirectly, any of Borrower's stock, except that Borrower may repurchase stock
owned by employees, directors and consultants of Borrower pursuant to terms of
employment, consulting or other stock restriction agreements at such time as any
such employee, director or consultant terminates his or her affiliation with the
Borrower, for an aggregate purchase price not to exceed One Hundred Thousand
Dollars ($100,000) in any fiscal year;
(l) make any change in Borrower's capital structure which would have
a Material Adverse Effect; or
(m) dissolve or elect to dissolve. Transactions permitted by the
foregoing provisions of this Section are only permitted if no Default or Event
of Default would occur as a result of such transaction.
5.6 Litigation Cooperation. Should any third-party suit or proceeding be
instituted by or against Coast with respect to any Collateral or relating to
Borrower, Borrower shall, without expense to Coast, make available Borrower and
its officers, employees and agents and Borrower's books and records, to the
extent that Coast may deem them reasonably necessary in order to prosecute or
defend any such suit or proceeding.
5.7 Indemnity. Borrower hereby agrees to indemnify Coast and hold Coast
harmless from and against any and all claims, debts, liabilities, demands,
obligations, actions, causes of action, penalties, reasonable costs and expenses
(including reasonable attorneys' fees), of every nature, character and
description, which Coast may sustain or incur based upon or arising out of any
of the Obligations, any actual or alleged failure to collect and pay over any
withholding or other tax relating to Borrower or its employees, any relationship
or agreement between Coast and Borrower, any actual or alleged failure of Coast
to comply with any writ of attachment or other legal process relating to
Borrower or any of its property, or any other matter, cause or thing whatsoever
occurred, done, omitted or suffered to be done by Coast relating to Borrower or
the Obligations (except any such amounts sustained or incurred as the result of
the gross negligence or willful misconduct of Coast). Notwithstanding any
provision in this Agreement to the contrary, the indemnity agreement set forth
in this Section shall survive any termination of this Agreement and shall for
all purposes continue in full force and effect.
5.8 Further Assurances. Borrower agrees, at its expense, on request by
Coast, to execute all documents and take all actions, as Coast, may deem
reasonably necessary or useful in order to perfect and maintain Coast's
perfected security interest in the Collateral, and in order to fully consummate
the transactions contemplated by this Agreement.
6. TERM.
6.1 Maturity Date. This Agreement shall continue in effect until the
maturity date set forth on the Schedule (the "Maturity Date"); provided that the
Maturity Date shall automatically be extended, and this Agreement shall
automatically and continuously renew, for successive additional terms of one
year each, unless one party gives written notice to the other, not less than
sixty (60) days prior to the next Maturity Date, that such party elects to
terminate this Agreement effective on the next Maturity Date. If this Agreement
is renewed under this Section 6.1, Borrower shall pay to Coast a renewal fee
(the "Renewal Fee") in the amount shown on the Schedule. The Renewal Fee shall
be due and payable on the effective date of renewal and thereafter shall bear
interest at a rate equal to the rate applicable to the Receivable Loans.
<PAGE>
6.2 Early Termination. This Agreement may be terminated prior to the
Maturity Date as follows: (a) by Borrower, effective three (3) Business Days
after written notice of termination is given to Coast; or (b) by Coast at any
time after the occurrence of an Event of Default, without notice, effective
immediately. If this Agreement is terminated by Borrower or by Coast under this
Section 6.2, Borrower shall pay to Coast a termination fee (the "Early
Termination Fee") in the amount shown on the Schedule. The Early Termination Fee
shall be due and payable on the effective date of termination and thereafter
shall bear interest at a rate equal to the rate applicable to the Receivable
Loans.
6.3 Payment of Obligations. On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay and perform in full all
Obligations, whether evidenced by installment notes or otherwise, and whether or
not all or any part of such Obligations are otherwise then due and payable.
Without limiting the generality of the foregoing, if on the Maturity Date, or on
any earlier effective date of termination, there are any outstanding Letters of
Credit issued by Coast or issued by another institution based upon an
application, guarantee, indemnity or similar agreement on the part of Coast,
then on such date Borrower shall provide to Coast cash collateral in an amount
equal to the face amount of all such Letters of Credit plus all interest, fees
and cost due or to become due in connection therewith, to secure all of the
Obligations relating to said Letters of Credit, pursuant to Coast's then
standard form cash pledge agreement. Notwithstanding any termination of this
Agreement, all of Coast's security interests in all of the Collateral and all of
the terms and provisions of this Agreement shall continue in full force and
effect until all Obligations have been paid and performed in full; provided
that, without limiting the fact that Loans are subject to the discretion of
Coast, Coast may, in its sole discretion, refuse to make any further Loans after
termination. No termination shall in any way affect or impair any right or
remedy of Coast, nor shall any such termination relieve Borrower of any
Obligation to Coast, until all of the Obligations have been paid and performed
in full. Upon payment and performance in full of all the Obligations and
termination of this Agreement, Coast shall promptly deliver to Borrower
termination statements, requests for reconveyances and such other documents as
may be required to fully terminate Coast's security interests.
7. EVENTS OF DEFAULT AND REMEDIES.
7.1 Events of Default. The occurrence of any of the following events shall
constitute an "Event of Default" under this Agreement, and Borrower shall give
Coast immediate written notice thereof:
(a) Any material warranty, representation, statement, report or
certificate made or delivered to Coast by Borrower or any of Borrower's
officers, employees or agents, now or in the future, shall be untrue or
misleading in a material respect; or
(b) Borrower shall fail to pay when due any Loan or any interest
thereon or any other monetary Obligation; or
(c) the total Loans and other Obligations outstanding at any time
shall exceed the Credit Limit; or
(d) Borrower shall fail to deliver the proceeds of Collateral to
Coast as provided in Section 4.5 above, or shall fail to give Coast access to
its books and records or Collateral as provided in Section 5.4 above, or shall
breach any negative covenant set forth in Section 5.5 above; or
<PAGE>
(e) Borrower shall fail to comply with the financial covenants (if
any) set forth in the Schedule or shall fail to perform any other non-monetary
Obligation which by its nature cannot be cured; or
(f) Borrower shall fail to perform any other non-monetary
Obligation, which failure is not cured within five (5) Business Days after the
date due; or
(g) Any levy, assessment, attachment, seizure, lien or encumbrance
(other than a Permitted Lien) is made on all or any part of the Collateral which
is not cured within ten (10) days after the occurrence of the same; or
(h) any default or event of default occurs under any obligation
secured by a Permitted Lien, which is not cured within any applicable cure
period or waived in writing by the holder of the Permitted Lien; or
(i) Borrower breaches any material contract or obligation, which has
or may reasonably be expected to have a Material Adverse Effect; or
(j) Dissolution, termination of existence, insolvency or business
failure of Borrower; or appointment of a receiver, trustee or custodian, for all
or any part of the property of, assignment for the benefit of creditors by, or
the commencement of any proceeding by Borrower under any reorganization,
bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, now or in the future in effect;
or
(k) the commencement of any proceeding against Borrower or any
guarantor of any of the Obligations under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or in the future in effect, which is not cured
by the dismissal thereof within thirty (30) days after the date commenced; or
(l) revocation or termination of, or limitation or denial of
liability upon, any guaranty of the Obligations or any attempt to do any of the
foregoing, or commencement of proceedings by any guarantor of any of the
Obligations under any bankruptcy or insolvency law; or
(m) revocation or termination of, or limitation or denial of
liability upon, any pledge of any certificate of deposit, securities or other
property or asset of any kind pledged by any third party to secure any or all of
the Obligations, or any attempt to do any of the foregoing, or commencement of
proceedings by or against any such third party under any bankruptcy or
insolvency law; or
(n) Borrower makes any payment on account of any indebtedness or
obligation which has been subordinated to the Obligations, other than as
permitted in the applicable subordination agreement, or if any Person who has
subordinated such indebtedness or obligations terminates or in any way limits
his subordination agreement; or
(o) there shall be a change in the record or beneficial ownership of
an aggregate of more than 20% of the outstanding shares of stock of Borrower, in
one or more transactions, compared to the ownership of outstanding shares of
stock of Borrower in effect on the date hereof, without the prior written
consent of Coast; or
<PAGE>
(p) Borrower shall generally not pay its debts as they become due,
or Borrower shall conceal, remove or transfer any part of its property, with
intent to hinder, delay or defraud its creditors, or make or suffer any transfer
of any of its property which may be fraudulent under any bankruptcy, fraudulent
conveyance or similar law; or
(q) there shall be any Material Adverse Effect; or
(r) Coast, acting in good faith and in a commercially reasonable
manner, deems itself insecure because of the occurrence of an event prior to the
effective date hereof of which Coast had no knowledge on the effective date or
because of the occurrence of an event on or subsequent to the effective date.
Coast may cease making any Loans hereunder during any of the above cure periods,
and thereafter if an Event of Default has occurred.
7.2 Remedies. Upon the occurrence, and during the continuance, of any
Event of Default, Coast, at its option, and without notice or demand of any kind
(all of which are hereby expressly waived by Borrower), may do any one or more
of the following:
(a) Cease making Loans or otherwise extending credit to Borrower
under this Agreement or any other document or agreement;
(b) Accelerate and declare all or any part of the Obligations to be
immediately due, payable, and performable, notwithstanding any deferred or
installment payments allowed by any instrument evidencing or relating to any
Obligation;
(c) Take possession of any or all of the Collateral wherever it may
be found, and for that purpose Borrower hereby authorizes Coast without judicial
process to enter onto any of Borrower's premises without interference to search
for, take possession of, keep, store, or remove any of the Collateral, and
remain on the premises or cause a custodian to remain on the premises in
exclusive control thereof, without charge for so long as Coast deems it
reasonably necessary in order to complete the enforcement of its rights under
this Agreement or any other agreement; provided, however, that should Coast seek
to take possession of any of the Collateral by Court process, Borrower hereby
irrevocably waives:
(i) any bond and any surety or security relating thereto
required by any statute, court rule or otherwise as an incident to such
possession;
(ii) any demand for possession prior to the commencement of
any suit or action to recover possession thereof; and
(iii) any requirement that Coast retain possession of, and not
dispose of, any such Collateral until after trial or final judgment;
(d) Require Borrower to assemble any or all of the Collateral and
make it available to Coast at places designated by Coast which are reasonably
convenient to Coast and Borrower, and to remove the Collateral to such locations
as Coast may deem advisable;
<PAGE>
(e) Complete the processing, manufacturing or repair of any
Collateral prior to a disposition thereof and, for such purpose and for the
purpose of removal, Coast shall have the right to use Borrower's premises,
vehicles, hoists, lifts, cranes, equipment and all other property without
charge;
(f) Sell, lease or otherwise dispose of any of the Collateral, in
its condition at the time Coast obtains possession of it or after further
manufacturing, processing or repair, at one or more public and/or private sales,
in lots or in bulk, for cash, exchange or other property, or on credit, and to
adjourn any such sale from time to time without notice other than oral
announcement at the time scheduled for sale. Coast shall have the right to
conduct such disposition on Borrower's premises without charge, for such time or
times as Coast deems reasonable, or on Coast's premises, or elsewhere and the
Collateral need not be located at the place of disposition. Coast may directly
or through any affiliated company purchase or lease any Collateral at any such
public disposition, and if permissible under applicable law, at any private
disposition. Any sale or other disposition of Collateral shall not relieve
Borrower of any liability Borrower may have if any Collateral is defective as to
title or physical condition or otherwise at the time of sale;
(g) Demand payment of, and collect any Receivables and General
Intangibles comprising Collateral and, in connection therewith, Borrower
irrevocably authorizes Coast to endorse or sign Borrower's name on all
collections, receipts, instruments and other documents, to take possession of
and open mail addressed to Borrower and remove therefrom payments made with
respect to any item of the Collateral or proceeds thereof, and, in Coast's sole
discretion, to grant extensions of time to pay, compromise claims and settle
Receivables and the like for less than face value;
(h) Offset against any sums in any of Borrower's general, special or
other Deposit Accounts with Coast; and
(i) Demand and receive possession of any of Borrower's federal and
state income tax returns and the books and records utilized in the preparation
thereof or referring thereto. All reasonable attorneys' fees, expenses, costs,
liabilities and obligations incurred by Coast with respect to the foregoing
shall be due from the Borrower to Coast on demand. Coast may charge the same to
Borrower's loan account, and the same shall thereafter bear interest at the same
rate as is applicable to the Receivable Loans. Without limiting any of Coast's
rights and remedies, from and after the occurrence of any Event of Default, the
interest rate applicable to the Obligations shall be increased by an additional
three percent per annum.
7.3 Standards for Determining Commercial Reasonableness. Borrower and
Coast agree that a sale or other disposition (collectively, "sale") of any
Collateral which complies with the following standards will conclusively be
deemed to be commercially reasonable:
(a) Notice of the sale is given to Borrower at least seven (7) days
prior to the sale, and, in the case of a public sale, notice of the sale is
published at least seven (7) days before the sale in a newspaper of general
circulation in the county where the sale is to be conducted;
(b) Notice of the sale describes the collateral in general,
non-specific terms;
<PAGE>
(c) The sale is conducted at a place designated by Coast, with or
without the Collateral being present;
(d) The sale commences at any time between 8:00 a.m. and 6:00 p.m;
(e) Payment of the purchase price in cash or by cashier's check or
wire transfer is required;
(f) With respect to any sale of any of the Collateral, Coast may
(but is not obligated to) direct any prospective purchaser to ascertain directly
from Borrower any and all information concerning the same. Coast shall be free
to employ other methods of noticing and selling the Collateral, in its
discretion, if they are commercially reasonable.
7.4 Power of Attorney. Upon the occurrence, and during the continuance, of
any Event of Default, without limiting Coast's other rights and remedies,
Borrower grants to Coast an irrevocable power of attorney coupled with an
interest, authorizing and permitting Coast (acting through any of its employees,
attorneys or agents) at any time, at its option, but without obligation, with or
without notice to Borrower, and at Borrower's expense, to do any or all of the
following, in Borrower's name or otherwise, but Coast agrees to exercise the
following powers in a commercially reasonable manner:
(a) Execute on behalf of Borrower any documents that Coast may, in
its sole discretion, deem advisable in order to perfect and maintain Coast's
security interest in the Collateral, or in order to exercise a right of Borrower
or Coast, or in order to fully consummate all the transactions contemplated
under this Agreement, and all other present and future agreements;
(b) Execute on behalf of Borrower any document exercising,
transferring or assigning any option to purchase, sell or otherwise dispose of
or to lease (as lessor or lessee) any real or personal property which is part of
Coast's Collateral or in which Coast has an interest;
(c) Execute on behalf of Borrower, any invoices relating to any
Receivable, any draft against any Account Debtor and any notice to any Account
Debtor, any proof of claim in bankruptcy, any Notice of Lien, claim of
mechanic's, materialman's or other lien, or assignment or satisfaction of
mechanic's, materialman's or other lien;
(d) Take control in any manner of any cash or non-cash items of
payment or proceeds of Collateral; endorse the name of Borrower upon any
instruments, or documents, evidence of payment or Collateral that may come into
Coast's possession;
(e) Endorse all checks and other forms of remittances received by
Coast;
(f) Pay, contest or settle any lien, charge, encumbrance, security
interest and adverse claim in or to any of the Collateral, or any judgment based
thereon, or otherwise take any action to terminate or discharge the same;
(g) Grant extensions of time to pay, compromise claims and settle
Receivables and General Intangibles for less than face value and execute all
releases and other documents in connection therewith;
(h) Pay any sums required on account of Borrower's taxes or to
secure the release of any liens therefor, or both;
<PAGE>
(i) Settle and adjust, and give releases of, any insurance claim
that relates to any of the Collateral and obtain payment therefor;
(j) Instruct any third party having custody or control of any books
or records belonging to, or relating to, Borrower to give Coast the same rights
of access and other rights with respect thereto as Coast has under this
Agreement; and
(k) Take any action or pay any sum required of Borrower pursuant to
this Agreement and any other present or future agreements. Any and all
reasonable sums paid and any and all reasonable costs, expenses, liabilities,
obligations and attorneys' fees incurred by Coast with respect to the foregoing
shall be added to and become part of the Obligations, and shall be payable on
demand. Coast may charge the foregoing to Borrower's loan account and the
foregoing shall thereafter bear interest at the same rate applicable to the
Receivable Loans. In no event shall Coast's rights under the foregoing power of
attorney or any of Coast's other rights under this Agreement be deemed to
indicate that Coast is in control of the business, management or properties of
Borrower.
7.5 Application of Proceeds. All proceeds realized as the result of any
sale of the Collateral shall be applied by Coast first to the reasonable costs,
expenses, liabilities, obligations and attorneys' fees incurred by Coast in the
exercise of its rights under this Agreement, second to the interest due upon any
of the Obligations, and third to the principal of the Obligations, in such order
as Coast shall determine in its sole discretion. Any surplus shall be paid to
Borrower or other persons legally entitled thereto; Borrower shall remain liable
to Coast for any deficiency. If, Coast, in its sole discretion, directly or
indirectly enters into a deferred payment or other credit transaction with any
purchaser at any sale of Collateral, Coast shall have the option, exercisable at
any time, in its sole discretion, of either reducing the Obligations by the
principal amount of purchase price or deferring the reduction of the Obligations
until the actual receipt by Coast of the cash therefor.
7.6 Remedies Cumulative. In addition to the rights and remedies set forth
in this Agreement, Coast shall have all the other rights and remedies accorded a
secured party under the California Uniform Commercial Code and under all other
applicable laws, and under any other instrument or agreement now or in the
future entered into between Coast and Borrower, and all of such rights and
remedies are cumulative and none is exclusive. Exercise or partial exercise by
Coast of one or more of its rights or remedies shall not be deemed an election,
nor bar Coast from subsequent exercise or partial exercise of any other rights
or remedies. The failure or delay of Coast to exercise any rights or remedies
shall not operate as a waiver thereof, but all rights and remedies shall
continue in full force and effect until all of the Obligations have been fully
paid and performed.
8. DEFINITIONS.
As used in this Agreement, the following terms have the following
meanings:
"Account Debtor" means the obligor on a Receivable.
"Affiliate" means, with respect to any Person, a relative, partner,
shareholder, director, officer, or employee of such Person, or any parent or
subsidiary of such Person, or any Person controlling, controlled by or under
common control with such Person.
<PAGE>
"Business Day" means a day on which Coast is open for business.
"Closing Date" date of the initial funding under this Agreement.
"Code" means the Uniform Commercial Code as adopted and in effect in the
State of California from time to time.
"Collateral" has the meaning set forth in Section 2.1 above.
"Default" means any event which with notice or passage of time or both,
would constitute an Event of Default.
"Deposit Account" has the meaning set forth in Section 9105 of the Code.
"Dupre Guaranty" means that certain Continuing Guaranty, of even date
herewith, executed by Joel Dupre, an individual, in favor of Coast.
"Eligible Inventory" means Inventory which Coast, in its sole judgment,
deems eligible for borrowing, based on such considerations as Coast may from
time to time deem appropriate. Without limiting the fact that the determination
of which Inventory is eligible for borrowing is a matter of Coast's discretion,
Inventory which does not meet the following requirements will not be deemed to
be Eligible Inventory: Inventory which (i) consists of finished goods or
finished goods in-transit, in good, new and salable condition which is not
perishable, not obsolete or unmerchantable, and is not comprised of raw
materials, work in process, packaging materials or supplies; (ii) meets all
applicable governmental standards; (iii) has been manufactured in compliance
with the Fair Labor Standards Act; (iv) conforms in all material respects to the
warranties and representations set forth in this Agreement; (v) is at all times
subject to Coast's duly perfected, first priority security interest; (vi) is
covered by a consent and acknowledgment, in form and substance reasonably
satisfactory to Coast in its discretion, from the licensor who is a party to the
License Agreement pursuant to which the Inventory was designed, manufactured or
imported; and (vii) is situated at Borrower's La Mirada, California location (as
set forth on the Schedule) or consists of finished goods in-transit, i.e. on the
water or in port.
"Eligible Receivables" means Receivables arising in the ordinary course of
Borrower's business from the sale of goods or rendition of services, which
Coast, in its good faith business judgment, shall deem eligible for borrowing,
based on such considerations as Coast may from time to time deem appropriate.
"Equipment" means all of Borrower's present and hereafter acquired
machinery, molds, machine tools, motors, furniture, equipment, furnishings,
fixtures, trade fixtures, motor vehicles, tools, parts, dyes, jigs, goods and
other tangible personal property (other than Inventory) of every kind and
description used in Borrower's operations or owned by Borrower and any interest
in any of the foregoing, and all attachments, accessories, accessions,
replacements, substitutions, additions or improvements to any of the foregoing,
wherever located.
"Event of Default" means any of the events set forth in Section 7.1 of
this Agreement.
<PAGE>
"General Intangibles" means all general intangibles of Borrower, whether
now owned or hereafter created or acquired by Borrower, including, without
limitation, all choses in action, causes of action, corporate or other business
records, Deposit Accounts, inventions, designs, drawings, blueprints, patents,
patent applications, trademarks and the goodwill of the business symbolized
thereby, names, trade names, trade secrets, goodwill, copyrights, registrations,
licenses, franchises, customer lists, security and other deposits, rights in all
litigation presently or hereafter pending for any cause or claim (whether in
contract, tort or otherwise), and all judgments now or hereafter arising
therefrom, all claims of Borrower against Coast, rights to purchase or sell real
or personal property, rights as a licensor or licensee of any kind, royalties,
telephone numbers, proprietary information, purchase orders, and all insurance
policies and claims (including without limitation life insurance, key man
insurance, credit insurance, liability insurance, property insurance and other
insurance), tax refunds and claims, computer programs, discs, tapes and tape
files, claims under guaranties, security interests or other security held by or
granted to Borrower, all rights to indemnification and all other intangible
property of every kind and nature (other than Receivables).
"Inventory" means all of Borrower's now owned and hereafter acquired
goods, merchandise or other personal property, wherever located, to be furnished
under any contract of service or held for sale or lease (including without
limitation all raw materials, work in process, finished goods and goods in
transit, and including without limitation all farm products), and all materials
and supplies of every kind, nature and description which are or might be used or
consumed in Borrower's business or used in connection with the manufacture,
packing, shipping, advertising, selling or finishing of such goods, merchandise
or other personal property, and all warehouse receipts, documents of title and
other documents representing any of the foregoing.
"Licensing Agreements" means, collectively, the licensing agreements and
related documents entered into between Borrower and each of Skechers, Perry
Ellis, Gold's Gym, Genera, Dunlop and Cherokee.
"Material Adverse Effect" means a material adverse effect on (i) the
business, assets, condition (financial or otherwise) or results of operations of
Borrower or any subsidiary of Borrower, (ii) the ability of Borrower to perform
its obligations under this Agreement (including, without limitation, repayment
of the Obligations as they come due) or (iii) the validity or enforceability of
this Agreement or any other agreement or document entered into by any party in
connection herewith, or the rights or remedies of Coast hereunder or thereunder.
"Maximum Dollar Amount" has the meaning set forth in Section 1 of the
Schedule.
"Obligations" means all present and future Loans, advances, debts,
liabilities, obligations, guaranties, covenants, duties and indebtedness at any
time owing by Borrower to Coast, whether evidenced by this Agreement or any note
or other instrument or document, whether arising from an extension of credit,
opening of a letter of credit, banker's acceptance, loan, guaranty,
indemnification or otherwise, whether direct or indirect (including, without
limitation, those acquired by assignment and any participation by Coast in
Borrower's debts owing to others), absolute or contingent, due or to become due,
including, without limitation, all interest, charges, expenses, fees, attorney's
fees, expert witness fees, audit fees, letter of credit fees, collateral
monitoring fees, closing fees, facility fees, termination fees, minimum interest
charges and any other sums chargeable to Borrower under this Agreement or under
any other present or future instrument or agreement between Borrower and Coast.
<PAGE>
"Permitted Liens" means the following:
(a) purchase money security interests in specific items of
Equipment;
(b) leases of specific items of Equipment;
(c) liens for taxes not yet payable;
(d) additional security interests and liens consented to in writing
by Coast, which consent shall not be unreasonably withheld;
(e) security interests being terminated substantially concurrently
with this Agreement;
(f) liens of materialmen, mechanics, warehousemen, carriers, or
other similar liens arising in the ordinary course of business and securing
obligations which are not delinquent;
(g) liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by liens of the type described above in
clauses (a) or (b) above, provided that any extension, renewal or replacement
lien is limited to the property encumbered by the existing lien and the
principal amount of the indebtedness being extended, renewed or refinanced does
not increase; or
(h) liens in favor of customs and revenue authorities which secure
payment of customs duties in connection with the importation of goods.
Coast will have the right to require, as a condition to its consent
under subparagraph (d) above, that the holder of the additional security
interest or lien sign an intercreditor agreement on Coast's then standard form,
acknowledge that the security interest is subordinate to the security interest
in favor of Coast, and agree not to take any action to enforce its subordinate
security interest so long as any Obligations remain outstanding, and that
Borrower agree that any uncured default in any obligation secured by the
subordinate security interest shall also constitute an Event of Default under
this Agreement.
"Person" means any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
government, or any agency or political division thereof, or any other entity.
"Receivables" means all of Borrower's now owned and hereafter acquired
accounts (whether or not earned by performance), letters of credit, contract
rights, chattel paper, instruments, securities, documents and all other forms of
obligations at any time owing to Borrower, all guaranties and other security
therefor, all merchandise returned to or repossessed by Borrower, and all rights
of stoppage in transit and all other rights or remedies of an unpaid vendor,
lienor or secured party.
"Tangible Net Worth" means consolidated stockholders' equity, less,
goodwill, patents, trademarks, copyrights, franchises, formulas, leaseholds,
non-compete agreements, engineering plans, deferred tax benefits and
organization costs.
<PAGE>
Other Terms. All accounting terms used in this Agreement, unless otherwise
indicated, shall have the meanings given to such terms in accordance with
generally accepted accounting principles, consistently applied. All other terms
contained in this Agreement, unless otherwise indicated, shall have the meanings
provided by the Code, to the extent such terms are defined therein.
9. GENERAL PROVISIONS.
9.1 Interest Computation. In computing interest on the Obligations, all
checks, wire transfers and other items of payment received by Coast (including
proceeds of Receivables and payment of the Obligations in full) shall be deemed
applied by Coast on account of the Obligations three (3) Business Days after
receipt by Coast of immediately available funds, and, for purposes of the
foregoing, any such funds received after 10:30 AM on any day shall be deemed
received on the next Business Day. Coast shall not, however, be required to
credit Borrower's account for the amount of any item of payment which is
unsatisfactory to Coast in its sole discretion, and Coast may charge Borrower's
loan account for the amount of any item of payment which is returned to Coast
unpaid.
9.2 Application of Payments. All payments with respect to the Obligations
may be applied, and in Coast's sole discretion reversed and re-applied, to the
Obligations, in such order and manner as Coast shall determine in its sole
discretion.
9.3 Charges to Accounts. Coast may, in its discretion, require that
Borrower pay monetary Obligations in cash to Coast, or charge them to Borrower's
Loan account, in which event they will bear interest at the same rate applicable
to the Loans. Coast may also, in its discretion, charge any monetary Obligations
to Borrower's Deposit Accounts maintained with Coast.
9.4 Monthly Accountings. Coast shall provide Borrower monthly with an
account of advances, charges, expenses and payments made pursuant to this
Agreement. Such account shall be deemed correct, accurate and binding on
Borrower and an account stated (except for reverses and reapplications of
payments made and corrections of errors discovered by Coast), unless Borrower
notifies Coast in writing to the contrary within thirty (30) days after each
account is rendered, describing the nature of any alleged errors or omissions.
9.5 Notices. All notices to be given under this Agreement shall be in
writing and shall be given either personally or by reputable private delivery
service or by regular first-class mail, or certified mail return receipt
requested, addressed to Coast or Borrower at the addresses shown in the heading
to this Agreement, or at any other address designated in writing by one party to
the other party. Notices to Coast shall be directed to the Commercial Finance
Division, to the attention of the Division Manager or the Division Credit
Manager. All notices shall be deemed to have been given upon delivery in the
case of notices personally delivered, or at the expiration of one (1) Business
Day following delivery to the private delivery service, or two (2) Business Days
following the deposit thereof in the United States mail, with postage prepaid.
9.6 Severability. Should any provision of this Agreement be held by any
court of competent jurisdiction to be void or unenforceable, such defect shall
not affect the remainder of this Agreement, which shall continue in full force
and effect.
<PAGE>
9.7 Integration. This Agreement and such other written agreements,
documents and instruments as may be executed in connection herewith are the
final, entire and complete agreement between Borrower and Coast and supersede
all prior and contemporaneous negotiations and oral representations and
agreements, all of which are merged and integrated in this Agreement. There are
no oral understandings, representations or agreements between the parties which
are not set forth in this Agreement or in other written agreements signed by the
parties in connection herewith.
9.8 Waivers. The failure of Coast at any time or times to require Borrower
to strictly comply with any of the provisions of this Agreement or any other
present or future agreement between Borrower and Coast shall not waive or
diminish any right of Coast later to demand and receive strict compliance
therewith. Any waiver of any default shall not waive or affect any other
default, whether prior or subsequent, and whether or not similar. None of the
provisions of this Agreement or any other agreement now or in the future
executed by Borrower and delivered to Coast shall be deemed to have been waived
by any act or knowledge of Coast or its agents or employees, but only by a
specific written waiver signed by an authorized officer of Coast and delivered
to Borrower. Borrower waives demand, protest, notice of protest and notice of
default or dishonor, notice of payment and nonpayment, release, compromise,
settlement, extension or renewal of any commercial paper, instrument, account,
General Intangible, document or guaranty at any time held by Coast on which
Borrower is or may in any way be liable, and notice of any action taken by
Coast, unless expressly required by this Agreement.
9.9 No Liability for Ordinary Negligence. Neither Coast, nor any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing Coast shall be liable for any claims, demands, losses or
damages, of any kind whatsoever, made, claimed, incurred or suffered by Borrower
or any other party through the ordinary negligence of Coast, or any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing Coast, but nothing herein shall relieve Coast from
liability for its own gross negligence or willful misconduct.
9.10 Amendment. The terms and provisions of this Agreement may not be
waived or amended, except in a writing executed by Borrower and a duly
authorized officer of Coast.
9.11 Time of Essence. Time is of the essence in the performance by
Borrower of each and every obligation under this Agreement.
9.12 Attorneys Fees, Costs and Charges. Borrower shall reimburse Coast for
all reasonable attorneys' fees and all filing, recording, search, title
insurance, appraisal, audit, and other reasonable costs incurred by Coast,
pursuant to, or in connection with, or relating to this Agreement (whether or
not a lawsuit is filed), including, but not limited to, any reasonable
attorneys' fees and costs Coast incurs in order to do the following: prepare and
negotiate this Agreement and the documents relating to this Agreement; obtain
legal advice in connection with this Agreement or Borrower; enforce, or seek to
enforce, any of its rights; prosecute actions against, or defend actions by,
Account Debtors; commence, intervene in, or defend any action or proceeding;
initiate any complaint to be relieved of the automatic stay in bankruptcy; file
or prosecute any probate claim, bankruptcy claim, third-party claim, or other
claim; examine, audit, copy, and inspect any of the Collateral or any of
Borrower's books and records; protect, obtain possession of, lease, dispose of,
or otherwise enforce Coast's security interest in, the Collateral; and otherwise
<PAGE>
represent Coast in any litigation relating to Borrower. If either Coast or
Borrower files any lawsuit against the other predicated on a breach of this
Agreement, the prevailing party in such action shall be entitled to recover its
reasonable costs and attorneys' fees, including (but not limited to) reasonable
attorneys' fees and costs incurred in the enforcement of, execution upon or
defense of any order, decree, award or judgment. Borrower shall also pay Coast's
standard charges for returned checks and for wire transfers, in effect from time
to time. All attorneys' fees, costs and charges to which Coast may be entitled
pursuant to this Paragraph may be charged by Coast to Borrower's loan account
and shall thereafter bear interest at the same rate as the Receivable Loans.
9.13 Benefit of Agreement. The provisions of this Agreement shall be
binding upon and inure to the benefit of the respective successors, assigns,
heirs, beneficiaries and representatives of Borrower and Coast; provided,
however, that Borrower may not assign or transfer any of its rights under this
Agreement without the prior written consent of Coast, and any prohibited
assignment shall be void. No consent by Coast to any assignment shall release
Borrower from its liability for the Obligations.
9.14 Publicity. Coast is hereby authorized, at its expense, to issue
appropriate press releases and to cause a tombstone to be published announcing
the consummation of this transaction and the aggregate amount thereof.
9.15 Joint and Several Liability. If Borrower consists of more than one
Person, their liability shall be joint and several, and the compromise of any
claim with, or the release of, any Borrower shall not constitute a compromise
with, or a release of, any other Borrower.
9.16 Limitation of Actions. Any claim or cause of action by Borrower
against Coast, its directors, officers, employees, agents, accountants or
attorneys, based upon, arising from, or relating to this Loan Agreement, or any
other present or future document or agreement, or any other transaction
contemplated hereby or thereby or relating hereto or thereto, or any other
matter, cause or thing whatsoever, occurred, done, omitted or suffered to be
done by Coast, its directors, officers, employees, agents, accountants or
attorneys, shall be barred unless asserted by Borrower by the commencement of an
action or proceeding in a court of competent jurisdiction by the filing of a
complaint within one year after the first act, occurrence or omission upon which
such claim or cause of action, or any part thereof, is based, and the service of
a summons and complaint on an officer of Coast, or on any other person
authorized to accept service on behalf of Coast, within thirty (30) days
thereafter. Borrower agrees that such one-year period is a reasonable and
sufficient time for Borrower to investigate and act upon any such claim or cause
of action. The one-year period provided herein shall not be waived, tolled, or
extended except by the written consent of Coast in its sole discretion. This
provision shall survive any termination of this Loan Agreement or any other
present or future agreement.
9.17 Paragraph Headings; Construction. Paragraph headings are only used in
this Agreement for convenience. Borrower and Coast acknowledge that the headings
may not describe completely the subject matter of the applicable paragraph, and
the headings shall not be used in any manner to construe, limit, define or
interpret any term or provision of this Agreement. The term "including",
whenever used in this Agreement, shall mean "including (but not limited to)".
This Agreement has been fully reviewed and negotiated between the parties and no
uncertainty or ambiguity in any term or provision of this Agreement shall be
construed strictly against Coast or Borrower under any rule of construction or
otherwise.
<PAGE>
9.18 Governing Law; Jurisdiction; Venue. This Agreement and all acts and
transactions hereunder and all rights and obligations of Coast and Borrower
shall be governed by the laws of the State of California. As a material part of
the consideration to Coast to enter into this Agreement, Borrower (a) agrees
that all actions and proceedings relating directly or indirectly to this
Agreement shall, at Coast's option, be litigated in courts located within
California, and that the exclusive venue therefor shall be Los Angeles County;
(b) consents to the jurisdiction and venue of any such court and consents to
service of process in any such action or proceeding by personal delivery or any
other method permitted by law; and (c) waives any and all rights Borrower may
have to object to the jurisdiction of any such court, or to transfer or change
the venue of any such action or proceeding.
9.18 Mutual Waiver of Jury Trial. BORROWER AND COAST EACH HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE
INSTRUMENT OR AGREEMENT BETWEEN COAST AND BORROWER, OR ANY CONDUCT, ACTS OR
OMISSIONS OF COAST OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH COAST OR BORROWER, IN ALL
OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
BORROWER:
SIRCO INTERNATIONAL CORP.,
a New York corporation
By:
---------------------------
President or Vice President
By:
----------------------------
Secretary or Ass't Secretary
COAST:
COAST BUSINESS CREDIT,
a division of Southern Pacific
Thrift & Loan Association
By: ----------------------------
Title:
<PAGE>
Coast
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
Borrower: SIRCO INTERNATIONAL CORP.,
a New York corporation
Address: 24 Richmond Hill Avenue
Stamford, CT 06901
Date: December 16, 1996
This Schedule forms an integral part of the Loan and Security Agreement between
Coast Business Credit, a division of Southern Pacific Thrift & Loan Association,
and the above-borrower of even date.
1. CREDIT LIMIT
(Section 1.1): Loans in a total amount at any time outstanding not to
exceed the lesser of a total of Seven Million Dollars
($7,000,000) at any one time outstanding (the "Maximum
Dollar Amount"), or the sum of (a) and (b) below:
(a) Loans (the "Receivable Loans") in an amount not to
exceed eighty percent (80%) of the amount of Borrower's
Eligible Receivables (as defined in Section 8 above),
with eligibility up to sixty (60) days past due date of
invoice not to exceed one hundred twenty (120) days
from invoice date, plus
(b) Loans (the "Inventory Loans") in an amount not to
exceed the lesser of:
(1) fifty percent (50%) of the value of Borrower's
Eligible Inventory (as defined in Section 8 above),
calculated at the lower of cost or market value and
determined on a first-in, first-out basis, or
(2) Three Million Dollars ($3,000,000) less fifty
percent (50%) of the aggregate amount of Letters of
Credit outstanding from time to time hereunder.
Letter of Credit
Sublimit
(Section 1.5): Two Million Five Hundred Thousand Dollars ($2,500,000),
with a fifty percent (50%) reserve against the Credit
Limit.
<PAGE>
2. INTEREST.
Interest Rate
(Section 1.2): A rate equal to the "Prime Rate" plus two percent
(2.0%) per annum, calculated on the basis of a 360-day
year for the actual number of days elapsed. The
interest rate applicable to all Loans shall be adjusted
monthly as of the first day of each month, and the
interest to be charged for each month shall be based on
the highest "Prime Rate" in effect during said month,
but in no event shall the rate of interest charged on
any Loans in any month be less than nine percent (9.0%)
per annum. "Prime Rate" means the actual "Reference
Rate" or the substitute therefor of the Bank of America
NT & SA whether or not that rate is the lowest interest
rate charged by said bank. If the Prime Rate, as
defined, is unavailable, "Prime Rate" shall mean the
highest of the prime rates published in the Wall Street
Journal on the first business day of the month, as the
base rate on corporate loans at large U.S. money center
commercial banks.
Minimum Monthly
Interest
(Section 1.2): An amount per month equal to interest which would
accrue at the Interest Rate set forth above on a loan
with a daily average outstanding balance of One Million
Five Hundred Thousand Dollars ($1,500,000).
3. FEES
(Section 1.3): Line Fee: Seventy Thousand Dollars ($70,000) fully
earned on the Closing Date, payable Thirty-Five
Thousand Dollars ($35,000) on the Closing Date, and
Thirty-Five Thousand Dollars ($35,000) on the first
anniversary hereof.
Facility Fee: Five Thousand Dollars ($5,000), per
calendar quarter, payable in advance (prorated for any
partial calendar quarter the beginning of the term of
this Agreement).
Letter of Credit Fees: .1667% per month, plus
applicable bank charges and fees.
4. MATURITY DATE
(Section 6.1): The last Business Day of the twenty-fourth (24th) full
calendar month after the month in which the initial
funding of the Loans takes place, subject to automatic
renewal as provided in Section 6.1 above, and early
termination as provided in Section 6.2 above.
<PAGE>
Renewal Fee
(Section 6.1): one half of one percent (1/2%) of the Maximum Dollar
Amount per year after the second year of the term
hereof.
Early Termination An amount equal to two percent (2.0%) of the Maximum
Fee Dollar Amount (as defined in this Schedule), if
(Section 6.2): termination occurs on or before the first anniversary
of the date of this Agreement; and one percent (1.0%)
of the Maximum Dollar Amount, if termination occurs
after the first anniversary and before the second
anniversary of the date of this Agreement.
5. REPORTING.
(Section 5.3): Borrower shall provide Coast with the following:
(1) Monthly Receivable agings, aged by invoice date,
within ten (10) days after the end of each month.
(2) Monthly accounts payable agings, aged by invoice
date, and outstanding or held check registers within
ten (10) days after the end of each month.
(3) Monthly perpetual inventory reports for the
Inventory valued on a first-in, first-out basis at the
lower of cost or market (in accordance with generally
accepted accounting principles) or such other inventory
reports as are reasonably requested by Coast, all
within ten (10) days after the end of each month.
(4) Monthly internally prepared financial statements,
as soon as available, and in any event within thirty
(30) days after the end of each month.
(5) Quarterly internally prepared financial statements,
as soon as available, and in any event within
forty-five (45) days after the end of each fiscal
quarter of Borrower.
(6) Quarterly customer lists, including customer name,
address, and phone number within thirty (30) days after
the end of each fiscal quarter of Borrower.
(7) Audited annual consolidated and consolidating
financial statements, as soon as available, and in any
event within ninety (90) days following the end of
Borrower's fiscal year, audited by independent
certified public accountants acceptable to Coast.
<PAGE>
6. BORROWER INFORMATION:
Prior Names of Borrower
(Section 3.2): None
Prior Trade Names of
Borrower
(Section 3.2): None
Existing Trade Names of
Borrower
(Section 3.2): None
Other Locations and
Addresses (Section 3.3): 16000 Heron Avenue
La Mirada, California 90638
366 5th Avenue
New York, New York 10001
Material Adverse
Litigation (Section 3.10): None
7. OTHER PROVISIONS
(Section 5.1): (1) Coast shall complete an appraisal of the Inventory
within sixty (60) days of the Closing Date. Coast shall
have the right to reduce the advance rate applicable to
the Inventory Loans in accordance with the results of
such appraisal, if in Coast's sole and absolute
discretion a reduction in such advance rate is
warranted by the results of such appraisal.
(2) Borrower shall maintain at all times a Tangible Net
Worth of at least One Million Four Hundred Thousand
Dollars ($1,400,000).
(3) Within ninety (90) days of the Closing Date
Borrower shall have fully established, in form and
content acceptable to Coast, a credit policy and credit
procedures for credit checking, handling, setting
credit limits, following and reporting on all aspects
of its sales activity, Receivables and collections.
[Company Logo]
Nussbaum Yates & Wolpow, P.C.
- --------------------------------------------------------------------------------
Certified Public Accountants
445 BROAD HOLLOW ROAD, MELVILLE, NY 11747
(516) 845-5252 FAX (516) 845-5279
CONSENT OF INDEPENDENT AUDITORS
We have issued our report dated February 7, 1997 accompanying the consolidated
financial statements and schedules included in the Annual Report of Sirco
International Corp. and subsidiaries on Form 10-K for the year ended November
30, 1996. We hereby consent to the incorporation by reference of said report in
Registration Statement No. 333-637 of Sirco International Corp. on Form S-8 and
in Registration Statement No. 333-481 of Sirco International Corp. on Form S-3.
/s/NUSSBAUM YATES & WOLPOW, P.C.
--------------------------------
NUSSBAUM YATES & WOLPOW, P.C.
Melville, New York
February 24, 1997
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-3 No. 33-3481) of Sirco International Corp. and in the related Prospectus, and
in the Registration Statement (Form S-8 No. 33-3637) of our report dated
February 17, 1995, with respect to the consolidated financial statements and
schedule of Sirco International Corp. as of November 30, 1994 included in this
Annual Report (Form 10-K) for the year ended November 30, 1996.
/s/ERNST & YOUNG LLP
--------------------
ERNST & YOUNG LLP
New York, New York
February 24, 1997
Deloitte & Touche
[Company Logo]
Chartered Accountants
1 City Centre Drive Telephone: (905) 803-5100
Suite 1100 Facsimile: (905) 803-6101
Mississauga, Ontario, L5B 1M2
CONSENT OF INDEPENDENT AUDITORS
We have issued our report dated December 18, 1996 on the financial statements of
Sirco International (Canada) Limited for the years ended November 30, 1996 and
November 30, 1995 accompanying the consolidated financial statements and
schedules included in the Annual Report of Sirco International Corp. and
subsidiaries on Form 10-K for the year ended November 30, 1996. We hereby
consent to the incorporation by reference of said report in Registration
Statement No. 333-637 of Sirco International Corp. on Form S-8 and in
Registration Statement No. 333-481 of Sirco International Corp. on Form S-3.
We have not reported on the financial statements of Sirco International Corp.
for the year ended November 30, 1996.
/s/Deloitte & Touche
- --------------------
Deloitte & Touche
Chartered Accountants
February 24, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-END> NOV-30-1996
<CASH> 390,043
<SECURITIES> 0
<RECEIVABLES> 3,101,764
<ALLOWANCES> 276,000
<INVENTORY> 4,406,066
<CURRENT-ASSETS> 8,001,252
<PP&E> 1,867,167
<DEPRECIATION> 979,457
<TOTAL-ASSETS> 9,576,861
<CURRENT-LIABILITIES> 6,447,964
<BONDS> 348,401
0
0
<COMMON> 131,520
<OTHER-SE> 2,648,976
<TOTAL-LIABILITY-AND-EQUITY> 9,576,861
<SALES> 27,745,955
<TOTAL-REVENUES> 28,202,828
<CGS> 20,657,633
<TOTAL-COSTS> 5,905,152
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 772,812
<INCOME-PRETAX> 925,445
<INCOME-TAX> 303,209
<INCOME-CONTINUING> 622,236
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 622,236
<EPS-PRIMARY> .47
<EPS-DILUTED> .46
</TABLE>
