<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
REPORT ON FORM 10-KSB
|X| Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended November 30, 1996.
|_| Transition Report pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934
For the transition period from ___________________ to ___________________.
Commission File No. 0-24530
FUTUREBIOTICS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 11-3205937
(State of or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
145 Ricefield Lane
Hauppauge, New York 11788 11788
- ------------------------- ----------
(Address of Principal (Zip Code)
Executive Officers)
Registrant's telephone number, including area code: (516) 273-2630
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.0001 per share
----------------------------------------
(Title of Class)
Units consisting of two (2) shares of common stock, par value $.0001 per share
and two (2) Class A Redeemable Common Stock Purchase Warrants
(Title of Class)
Class A Redeemable Common Stock Purchase Warrants
(Title of Class)
<PAGE>
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of the Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year were $12,713,000.
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, computed by reference to the closing price of such stock as of
February 21, 1997, was approximately $1,706,000.
Number of shares outstanding of the issuers common stock, as of February
21, 1997, was 1,350,000.
DOCUMENTS INCORPORATED BY REFERENCE: None.
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PART I
Item 1. BUSINESS.
General
Futurebiotics, Inc., a Delaware corporation (the "Company"), was formed on
March 16, 1994. The Company is engaged in the distribution, marketing and sale
of vitamins, minerals, herbal formulations and specialty nutritional
supplements, which it markets principally to health food stores through regional
distributors.
The Company's primary product line consists of more than 125 items,
including multi-vitamin/mineral formulas, green superfood powders,
herbal/mineral tonics and herbal complexes, and specific specialty supplements.
All of the Company's products are supplied by PDK.
The Company relocated in February, 1996. Its new offices are located at
the headquarters of PDK, 145 Ricefield Lane, Hauppauge, New York 11788 (516)
273-2300.
On December 30, 1996, the Company effected a one-for-ten reverse stock
split with respect to its shares of Common Stock outstanding on December 30,
1996. All share and per share data included in this Form 10-KSB has been
restated to reflect the Company's one-for-ten reverse stock split.
Products and Product Development
The Company develops products for its own Futurebiotics line. Its products
include vitamins, minerals, herbs and specialty combinations. Each product
category contains numerous different dosage sizes and various and unique
combinations of ingredients. These product groups include nutrition products for
men, advanced women's formulas, super green foods, weight loss/management
products and vegetarian multiple vitamins.
The Company introduces new products in response to anticipated consumer
trends. As an example, in 1993 the Company developed its Vital K, with
additional ginseng in response to consumer preferences. Product concepts are
generally developed by the Company's management, key employees and consultants.
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Government Regulation
The Company's products and/or its business operations are subject to
regulation by one or more federal agencies, including The United States Postal
Service, the Federal Trade Commission ("FTC"), the Food and Drug Administration
("FDA") and the Consumer Product Safety Commission and the United States
Department of Agriculture. The FDA in particular, is primarily responsible for
regulation of the labeling, manufacture and sale of vitamins and mineral
supplements which the FDA believes to be unapproved drugs or food additives
rather than food supplements. The Company's activities are also regulated by
various agencies of the states and localities in which the Company's products
are sold.
The Company markets vitamins, minerals, herbs, amino acids and other
similar nutritional substances ("dietary supplements"), and some
over-the-counter ("OTC") drug products. These products are primarily regulated
by the FDA under the auspices of the Federal Food, Drug and Cosmetic Act (the
"FFDCA"). Under the FFDCA, most dietary supplements are currently regulated as
foods, which require no approval from the FDA prior to marketing. Therefore, the
regulation of dietary supplements is far less restrictive than that imposed upon
manufacturers and distributors of prescription drugs. Dietary supplements,
however, must be labeled correctly to avoid being misbranded under the FFDCA.
Health claims made by vitamin and dietary supplement companies with respect to
their product are specifically regulated by the FDA. If such products make
unapproved health claims, the FDA may consider them to unapproved drugs, which
require approval by the FDA prior to marketing.
Some of the products marketed by the Company may be classified as OTC
drugs. Under the FFDCA, drugs are deemed by the FDA either to be drugs which
require approval by the FDA prior to marketing ("new drugs"), or drugs which do
not require approval by the FDA prior to marketing because they are generally
recognized as safe and effective ("old drugs"). Old drugs must conform to
monographs developed by the FDA to be lawfully marketed. Most OTC drugs are old
drugs. Therefore, the regulation of OTC drugs is less restrictive than that
imposed upon manufacturers and distributors of new drugs.
To the extent the Company establishes its own manufacturing facilities in
the future and produces products deemed by the FDA now or in the future to be a
drug or a food, the operation of the Company's manufacturing facilities will be
subject to regulation by the FDA as a drug or food manufacturing facility and to
compliance with good drug or food manufacturing practices. Although the Company
does not anticipate any difficulties in complying with the necessary good drug
or food manufacturing practices, any such difficulties that are encountered
could have a material adverse affect on the Company.
Marketing misbranded or adulterated food or drugs, or unapproved new drugs
or food additives, can result in civil or criminal penalties, including, but not
limited to, product seizure, injunction and fines.
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On January 4, 1994, the FDA issued final regulations concerning dietary
supplements. It did so partially in response to the Nutritional Labeling and
Education Act of 1990 ("NLEA") and the Dietary Supplement Act of 1992 in order
to amend its food labeling regulations, setting forth specific regulations for
the nutrition labeling of vitamins and mineral supplements, establish up to date
reference standards for nutrients and food components and establish procedures
for FDA approval of health claim messages. The regulations subject dietary
supplement labels to the same standards as food labels under the Nutrition
Labeling and Education Act with regard to health claim messages and nutrition
labeling information. The regulations concerning health claim messages went into
effect on July 1, 1994 and the regulations concerning nutrition labeling went
into effect on July 5, 1995.
The regulations prohibit the use of any health claim on a dietary
supplement unless the health claim is supported by significant scientific
agreement and is pre-approved by the FDA. To date, the FDA has approved the use
of health claims only in connection with calcium products and osteoporosis, and
folic acid and neural tube defects. Accordingly, most dietary supplements will
be precluded from bearing most health claims. The Company's products include
multivitamins and minerals and specialty formulas. The FDA regulations do not at
present limit consumer access to dietary supplements, unless such products
present safety concerns. The Company cannot determine at this time whether the
new regulations will have any adverse effect on its operations, although it
believes that they will not have a material adverse effect.
In addition, the FDA issued an Advanced Notice of Proposed Rulemaking on
June 18, 1993 ("ANPR") requesting comments on the general regulation of certain
dietary supplements, such as herbs, fish and plant oils, fatty acids, fibers and
vegetable gums, carnitine and amino acids. Some of these substances are sold by
the Company. In connection therewith, the FDA commissioned the Federation of
American Societies for Experimental Biology ("FASEB") to conduct a study of the
safety of amino acids. The FASEB report published in September 1992 concluded
that there was insufficient research and information on amino acids to conclude
that added, manufactured, or incomplete mixtures of amino acids are safe and,
therefore, recommended that further research be conducted. The internal FASEB
report issued in connection with the ANPR contains recommendations concerning
the possible regulation of dietary supplements by category.
The Company cannot determine whether separate regulations will be issued
for these substances, or what effect any new regulations for such governmental
regulations or administrative orders concerning such substances, when and if
promulgated, could require the reformulation of certain products to meet new
standards or require the recall or discontinuance of certain products not
capable of reformulation.
The Dietary Supplement Act of 1992 requires that the Comptroller General
of the United States and the Director of the Office of Technology Assessment
undertake separate studies of FDA regulation of dietary supplements and make
recommendations in Congress which would reduce or modify the FDA's authority to
regulate dietary supplements. While these bills have not been
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enacted as law, there is a strong likelihood that Congress will again consider
such legislation. There is no assurance, however, that these bills will
ultimately be passed and signed into law.
Any such legislation reducing the FDA's authority to modify dietary
supplements could result in the Company being subject to fewer regulatory
requirements and would, therefore, have no adverse impact on the Company. Any
modification which increases the FDA's regulatory authority could subject the
Company to additional expenses in order to comply with more stringent
requirements and could have a materially adverse impact on the Company by
limiting products or causing the Company to incur additional expenses in order
to comply with these requirements.
Competition
The market for vitamins, dietary supplements, herbal-based products and
nutritional supplements is highly competitive in each of the Company's existing
and anticipated product lines and methods of distribution. Numerous
manufacturers and distributors compete with the Company for customers throughout
the United States and internationally in the packaged vitamin, mineral and
nutritional supplement industry selling products to retailers, such as mass
merchandisers, drug store chains, independent drug stores and health food
stores. Many of the Company's competitors are substantially larger and more
experienced than the Company, have longer operating histories and have
materially greater financial and other resources than the Company. Many of these
competitors are private companies, and therefore, the Company cannot compare its
revenues with respect to the sales volume of each competitor. The Company's
significant competitors include Nature's Bounty, Twin Labs, and Solgar. There
can be no assurance that the Company will be able to compete successfully with
its more established and better capitalized competitors.
Although certain of the Company's competitors are substantially larger
than the Company and have greater financial resources, the Company believes that
it competes favorably with other vitamin and nutritional supplement companies
because of its access to products, competitive pricing, quality of products,
sales support and diverse product line.
Marketing and Advertising
The Company markets its products through in-store demonstrations, point of
purchase displays, and promotional literature. Advertising is through consumer
and trade magazines, newspapers, in-store flyers, radio and distributors
catalogs. In particular, the Company has expended substantial sums on radio
advertising as well as consumer and trade print media. The Company also mails a
five color catalog directly to retail stores four times per year.
Trademarks and Patents
The marks Vital K, Hair, Skin & Nails, Trym Tone, Great Grapefruit Diet,
Jamaican Spa Diet, Relax & Sleep, Custom Fit are the property of the Company and
have been assigned to the
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Company by PDK. These trademarks have been registered with the United States
Patent and Trademark Office ("PTO"). To the Company's knowledge, the Company has
the common law right to use such servicemarks on its products and in the
marketing of its services. The Company has retained trademark counsel and
presently intends to make all appropriate filings and registrations and take all
other actions necessary, to protect all of its intellectual property rights.
Conflicts of Interests
As of November 30, 1996 PDK owned fifty one and nine tenths (51.9%)
percent of the Company's outstanding shares of Common Stock and one hundred
(100%) percent of its Preferred Stock. At present, PDK supplies all of the
Company's products, as well as certain management and administrative facilities
and personnel. It is anticipated that PDK will continue to supply a significant
percentage of the Company's products, at or near present levels, as well as
administrative and support services, and that the Company will continue to
operate its executive offices, distribution and packaging at facilities leased
and managed by PDK. In addition, several members of PDK's Board of Directors,
Michael Krasnoff, Stanley Krasnoff and Hartley T. Bernstein, are also members of
the Company's Board of Directors. Michael Krasnoff, a Director and Chief
Financial Officer of the Company, is PDK's Chairman of the Board, Chief
Executive Officer and President, and Reginald Spinello, the Company's President,
continues to serve as PDK's Executive Vice President and to receive salaries
from both the Company and PDK. Because of PDK's ownership interest in the
Company, the identity of certain management and PDK's role as a significant
supplier to the Company, certain conflicts of interest may occur between the
Company and PDK. In such instances, members of the Board of Directors who are
also members of the PDK Board of Directors may be precluded from participating
in corporate decisions.
Product Liability Insurance
The Company, like other manufacturers of products that are ingested, faces
inherent risk of exposure to product liability claims if, among other things,
the use of its products results in an injury. With respect to product liability
coverage, the Company currently has a product liability insurance policy. There
is no assurance that any judgment against the Company will not exceed liability
coverage. A judgment significantly in excess of the amount of insurance coverage
would have a material adverse effect on the Company.
Employees
As of February 20, 1997, the Company employs a total of 26 employees on a
full time basis, 22 employees in sales and marketing and 4 persons in
administration and finances. The Company utilizes PDK for a majority of its
administrative functions.
7
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Item 2. PROPERTIES.
The Company relocated its corporate, sales, and advertising offices in
February 1996. The new offices are located at the offices of PDK Labs Inc., 145
Ricefield Lane, Hauppauge, New York 11788 (516) 273-6300.
The lease is for 5,000 square feet for an initial one (1) year term with
yearly options to renew with escalations of five (5%) percent annually. The
initial annual rental is $50,000. The lease terminates in October, 2000 as does
the PDK Labs Inc. master lease.
Item 3. LEGAL PROCEEDINGS.
Except as set forth below, management is not aware of any material legal
proceeds pending against the Company.
Although the Company is not a party to any legal proceedings, PDK has been
named in a pending litigation.
On February 4, 1994 PDK was named as a defendant in a litigation entitled
Hillary L. Dufficy v. PDK Labs Inc in the Superior Court of the State of
Connecticut, alleging a product liability claim pursuant to Section 52-572m of
the Connecticut General Statutes. The action seeks unspecified monetary damages.
PDK intends to vigorously defend the lawsuit and has referred the action to its
product liability insurer.
On July 29, 1996, PDK served a complaint (the "Complaint") against a
former executive. The Complaint alleges, in pertinent part, that the former
executive breached his employment agreement with PDK by competing with PDK and
soliciting PDK's customers in violation of the terms of the agreement. The
complaint further alleges that the executive has defaulted on payments due to
PDK pursuant to a promissory note and that while serving as an officer of PDK
made inappropriate investments for PDK's Profit Sharing Plan and Trusts. By
virtue of the foregoing, PDK alleges that the executive has breached his
Employment Agreement and the Amendment, engaged in unfair competition, breached
the terms of the personal guarantee, defaulted upon the promissory note,
converted funds belonging to PDK and breached his fiduciary duty to PDK.
In his Answer and Counterclaim (the "Counterclaim"), the executive
offers general denials of these allegations and interposes both personal
counterclaims and claims. The executive's counterclaims, assert in pertinent
part, that PDK and certain officers and directors have breached their fiduciary
duty to him and that the Restrictive Covenant and agreement is unenforceable and
should be deemed a nullity. PDK and the directors deny that they engaged in any
improper conduct which would support the executive's counterclaims. Each intends
to vigorously defend against such claims and PDK intends to proceed with its
action against the executive.
Futurebiotics has not been named as a party in the former executive's
counterclaim.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On or about October 7, 1996 the Company received written consents in lieu
of a meeting of stockholders from holders of 7,000,000 shares of Common Stock
and 8,335,000 shares of Preferred Stock representing approximately 70.2% of the
total issued and outstanding shares of voting stock (i) electing five (5)
directors to hold office until their successors shall have been elected and
qualified, (ii) ratifying the appointment by the Board of Directors of Holtz
Rubenstein & Co., LLP to serve as independent certified public accountants for
the current fiscal year and (iii) adopting an amendment to the Company's
certificate of incorporation (the "Amendment"), which authorized a one-for-ten
reverse stock split of the Common Stock. The Amendment was effected by the
Company on December 30, 1996.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's securities commenced trading in the over-the-counter market
on the effectiveness of the Company's Initial Public Offering on August 19, 1994
in the form of Units each consisting of two (2) shares of pre-reverse split
Common Stock and two (2) Class A Warrants. The pre-reverse split Common Stock
was regularly quoted and traded on the Nasdaq
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system under the symbol VITK until [December 30, 1996]. The post-reverse split
Common Stock and Class A Warrants are regularly quoted and traded on the NASDAQ
system under the symbols VITKD and VITKW.
The following table indicates the high and low bid prices for the
Company's Common Stock and Class A Warrants for the period up to November 30,
1996 based upon information supplied by the NASDAQ system. Prices represent
quotations between dealers without adjustments for retail markups, markdowns or
commissions, and may not represent actual transactions.
Common Stock
1995 Calendar Year Quoted Bid Price
------------------ ----------------
High Low
---- ---
First Quarter 38 1/3 10 5/8
Second Quarter 26 7/8 23 3/4
Third Quarter 25 11 7/8
Fourth Quarter 14 3/8 2 3/16
1996 Calendar Year Quoted Bid Price
------------------ ----------------
High Low
---- ---
First Quarter 5 5/8 3 7/16
Second Quarter 3 3/4 2 3/16
Third Quarter 2 13/16 1 1/4
Fourth Quarter 2 13/16 1 1/4
Class A Warrants
1995 Calendar Year Quoted Bid Price
------------------ ----------------
High Low
---- ---
First Quarter 1 1/16 5/32
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Second Quarter 5/32 3/32
Third Quarter 7/32 1/8
Fourth Quarter 5/32 1/32
1996 Calendar Year Quoted Bid Price
------------------ ----------------
High Low
---- ---
First Quarter 1/8 1/16
Second Quarter 3/32 1/16
Third Quarter 1/16 1/32
Fourth Quarter 1/32 1/32
The Company effected a one-for-ten reverse stock split with respect to its
shares of Common Stock outstanding on December 30, 1996.
On February 21, 1997, the closing price of the Common Stock as reported on
NASDAQ National was $2.625. On February 18, 1997, the closing price of the Class
A Warrants reported on NASDAQ System was $.0625. On February 21, 1997, there
were 91 holders of record of Common Stock.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Results of Operations
Fiscal Year 1996 compared to Fiscal Year 1995
Net sales for the fiscal year 1996 were approximately $12,713,000 as
compared to net sales in 1995 of $10,647,000. This represents a 19% increase
over sales in 1995. The increase is principally attributable to continued
expansion and marketing efforts.
Gross profit amounted to approximately $7,194,000 in 1996 as compared with
$6,069,000 in 1995. Gross profit as a percentage of sales was 57% in 1996 and
1995.
Selling, general and administrative expenses were $7,566,000 in 1996 and
$5,553,000 in 1995. As a percentage of sales, selling, general and
administrative expenses were 60% in 1996 and 52% in 1995. The increase in
selling, general and administrative expenses is principally attributable to
promotional costs incurred in connection with an aggressive sales program
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designed to obtain shelf space at selected retailers for a contract period of
not less than one year. The cost of this promotion is being charged to
operations on a straight line basis, which is not necessarily proportional to
sales generated under this program. As of May 31, 1996, the Company ceased
signing on any new customers under this program.
The provision for income taxes reflects a current tax benefit of 27% in
1996 and an effective tax rate of 38% in 1995. The benefit in 1996 is a result
of the net operating loss which may be carried back to prior years.
Management believes that inflation did not have a material effect on
operations or financial condition in 1996 and 1995. Management also believes
that its business is not seasonal; however, significant promotional activities
can have a direct impact on sales volume in any given quarter.
Fiscal Year 1995 compared to Fiscal Year 1994
Net sales for the fiscal year 1995 were approximately $10,647,000 as
compared to net sales in 1994 of $7,415,000. This represents a 44% increase over
sales for 1994. The increase is principally attributable to the introduction of
new products and increased distribution as a result of greater advertising and
marketing efforts.
Gross profit amounted to approximately $6,069,000 or 57% of sales in 1995
as compared with $3,790,000 or 51% of sales in 1994. In December 1994, the
Company entered into an "Amended Sales and Management Agreement" with PDK
pursuant to which PDK manufactured the Company's entire product line at a price
equal to PDK's cost as compared to 115% of PDK's cost in 1994 and provided
certain administrative services on behalf of the Company.
Selling, general and administrative expenses were $5,553,000 in 1995 and
$2,896,000 in 1994. As a percentage of sales, selling, general and
administrative expenses were 52% in 1995 and 39% in 1994. This is attributable
to an increase in cooperative advertising with large distributors, greater
attendance at trade shows as well as demonstrations in retail stores for the
promotion of products. The company has also launched several promotions during
1995 in order to gain valuable shelf space for a contract period of not less
than one year at selected retailers. The cost of these promotions is being
charged to operations ratably over the term of the agreements.
The provision for income taxes reflects an effective tax rate of 38% in
1995 and 43% in 1994. The rate for 1995 was lower due to the effect of certain
permanent differences.
Management believes that inflation did not have a material effect on
operations or financial condition in 1995 and 1994. Management also believes
that its business is not seasonal; however, significant promotional activities
can have a direct impact on sales volume in any given quarter.
Liquidity and Capital Resources
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The Company had working capital of approximately $8,125,000 and $6,855,000
at the end of 1996 and 1995, respectively.
The Company's statement of cash flows for 1996 reflects cash provided by
operating activities of approximately $107,000 which reflects increases in
operating assets such as inventories ($1,354,000) and prepaid income taxes
($674,000), offset by a decrease in due from parent of ($291,000) and adjustment
for amortization expense for ($1,828,000). The change in inventory is a direct
result of increased sales volume and anticipated future sales growth.
The cash flow statement also reflects cash used in investing activities of
approximately ($1,752,000) attributable to the acquisition of property, plant
and equipment ($197,000) and intangible assets of approximately ($1,920,000),
offset by the sale and maturity of government securities ($365,000).
The cash flow statement also reflects cash of $1,750,000 provided by
financing activities resulting from borrowings under a secured revolving credit
agreement with a bank.
In September 1996, the Company and its parent entered into a Revolving
Credit Agreement with a bank whereby the Company may borrow up to $4,000,000.
The agreement replaces the existing credit facility and expires in September
1999. Borrowings under this agreement bear interest at the prime rate or 2%
above the Eurodollar rate (at the Company's option) and are collateralized by
all of the Company's assets. The revolving line of credit agreement, as amended,
contains various covenants pertaining to the maintenance of certain financial
ratio restrictions, limitations on dividends and restrictions on borrowings. The
Company and its parent are jointly and severally liable for the unpaid balance
of this credit line.
The Company expects to meet its cash requirements from operations, current
cash reserves, and existing financial arrangements.
Item 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See financial statements following Item 13 of this Annual Report on Form
10-KSB.
Item 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
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PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT OF THE
REGISTRANT.
The following persons are the current executive officers and directors.
Name Age Position Held
---- --- -------------
Alan Novich 51 Chairman of the Board
Reginald Spinello 43 President, Director
Michael Krasnoff 42 Chief Financial Officer,
Secretary, Treasurer,
Director
Stanley Krasnoff 69 Director
Hartley T. Bernstein 45 Director
Background of Executive Officers and Directors
Alan M. Novich is a practicing attorney. He has been a Director of the
Company since its inception. Mr. Novich was Vice President and the counsel for
Corporate Finance of Stratton Oakmont, Inc., a broker-dealer in securities from
January 1991 through July 1992. From June 1988 through December 1990, and since
July 1992, Mr. Novich was engaged in the private practice of law and dentistry.
From 1985 to June 1988, Mr. Novich attended law school and was engaged in the
private practice of dentistry. Mr. Novich also serves on the Board of Directors
of Health Care Imaging Services, Inc. and SMT Health Services, Inc., providers
of diagnostic imaging services.
Reginald Spinello has been the President and a Director of Futurebiotics
since its formation. In addition, he has been a Director of Superior
Supplements, Inc. since May 1, 1996. Superior Supplements, Inc. is a developer,
manufacturer and marketer of dietary supplements in bulk tablet, capsule and
powder form. In addition, he is the Executive Vice President of PDK Labs, a
position he has held since September 1993. Mr. Spinello joined PDK Labs in
September 1991 as Vice President of Operations. Prior to joining PDK, Mr.
Spinello was President and Founder of Internal Reinforcements from 1985 to 1991,
a specialty distributor and marketer of natural vitamins and supplements. Prior
to Internal Reinforcements, Mr. Spinello was Founder and President of Superior
Supplements (a company with no affiliation to the company of the same name of
which Mr. Spinello is now a director) from 1982 to 1985, a manufacturing and
private
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label distributor of dietary supplements for the health food industry. Mr.
Spinello sold his entire interest in this company in 1985 and the company was
dissolved in 1992. Mr. Spinello graduated from Bryant College with a B.S. Degree
in Business Administration. Additionally, he has studied in the field of
nutrition and is a non-practicing nutrition consultant.
Michael Krasnoff has been a director of the Company since its formation.
He has been the President, Chief Executive Officer and Chief Financial Officer
of PDK since July 31, 1991, Secretary since April 1, 1990, a director since
August 1, 1989, and Chairman of the Board of Directors, since July 31, 1991.
Prior to joining PDK in 1988, Mr. Krasnoff was an independent financial and
marketing consultant to PDK. From September 1982 to September 1988, Mr. Krasnoff
was President and Chairman of the Board of M-D Natural Vitamins, Inc., a company
which was engaged in the mail order and retail distribution of natural vitamins
and food supplements. Mr. Krasnoff received a B.A. degree from State University
of New York at Buffalo and an M.B.A. degree in Accounting and Finance from New
York University Graduate School of Business Administration. He is the son of
Stanley Krasnoff, who is also a director of the Company and of PDK.
Stanley Krasnoff has been a director of the Company since formation. He
has also served as a director of PDK since January 1991. He was a founder and
Executive Vice President of Nature's Bounty, Inc. from 1961 through 1982. Since
1982, Mr. Krasnoff has been a private investor. Mr. Krasnoff is a graduate of
the New York University School of Business Administration. Mr. Krasnoff is the
father of Michael Krasnoff, who is a director of the Company and President,
Chief Executive Officer and Secretary of PDK.
Hartley T. Bernstein has been a director of the Company since its
formation and is a member of the law firm of Bernstein & Wasserman specializing
in corporate and securities law. He was associated with the firm of Parker
Chapin Flattau & Klimpl from 1976-1977, served as an Assistant District Attorney
for New York County from 1977-1979 and was associated with the law firm of
Guggenheimer & Untermyer from 1979-1982. In 1982, Mr. Bernstein formed his own
law practice which subsequently merged with his present firm. Mr. Bernstein also
serves as a director of PDK and Bev-Tyme, Inc. (formerly New Day Beverage,
Inc.). Mr. Bernstein is a member of the adjunct faculty of Yale Law School where
he teaches a course in securities law problems and has served previously on the
adjunct faculties of New York Law School and Mercy College. He has also served
as an instructor at the National Institute of Trial Advocacy and a member of the
Boards of Arbitration of the National Association of Securities Dealers and the
New York Stock Exchange. Mr. Bernstein serves as a commentator on securities law
matters on the nationally syndicated Money Radio Network. Mr. Bernstein
graduated from Columbia University with a B.A. in 1973 and received his J.D.
from New York University School of Law in 1976.
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Executive Compensation
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
-----------------------------------
Annual Compensation Awards Payouts
------------------------------------- ------------- --------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Restricted All
Other Stock LTIP Other
Annual Awards Options/ Payouts Compensation
Name and Principal Position Year Salary($) Bonus($) Compensation($) ($) SARs(#) ($) ($)
- ---------------------------- ---- --------- ------- ---------------- ------------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Reginald Spinello, CEO 1996 $50,000 $-0- $ -0- $ -0- -0- $ -0- $ -0-
1995 $50,000 $-0- $ -0- $ -0- -0- $ -0- $ -0-
1994 $50,000 $-0- $ -0- $ -0- -0- $ -0- $ -0-
Alan Novich, Chairman 1996 $225,000 $125,000 $ -0- $ -0- -0- $ -0- $ -0-
1995 $175,000 $-0- $ -0- $ -0- -0- $ -0- $ -0-
1994 $ 18,750 $-0- $ 125,000(1) $ -0- 41,668 $ -0- $ -0-
</TABLE>
(1) Represents issuance of options to acquire 41,668 shares of common stock at
$15.00 per share. Options were valued at $125,000
Option/SAR Grants -
Individual Grants
- --------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Number of
Securities % of Total
Underlying Options/SARs
Options/ Granted to
SARs Employees in Exercise or Base Expiration
Name Granted (#) Fiscal Year Price ($/Sh) Date
- ---- ----------- ----------- ---------------- --------------
Alan Novich 41,668 100% $15.00 March 21, 1999
15
<PAGE>
Aggregated Option/SAR Exercises -
and FY-End Option/SAR Values
- --------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End (#) FY-End (#)
Shares Acquired Exercisable/ Exercisable/
Name on Exercise (#) Value Realized($) Unexercisable Unexercisable
- ---- --------------- ----------------- ------------- -------------
Alan Novich,
Chairman -0- -0- 41,668 -0-
In April 1996, the company amended its five year employment agreement
with its chairman of the board providing for annual compensation of $225,000
plus benefits, commencing on the effective date of the initial public offering.
Additionally, this individual was granted options to purchase 41,668 shares of
the Company's common stock. The options have an exercise price of $15.00 and are
exercisable at any time through March 1999.
16
<PAGE>
Employment Agreements
The Company has agreed to pay its President, Reginald Spinello, a salary
of $50,000 per year. Mr. Spinello will continue to earn a salary of $150,000 per
year from PDK in consideration for his services as Executive Vice President of
PDK.
As of April 24, 1996, the Company amended an employment agreement with its
Chairman of the Board, Alan Novich, pursuant to which Mr. Novich receives an
annual salary of $225,000 with effect from December 1, 1995, a monthly
automobile allowance, and was granted options to purchase 41,668 shares of the
Company's common stock at a price of $15.00 per share.
Stock Option Plans
Incentive Option and Stock Appreciation Rights Plan -- As of March, 1994,
the Directors of the Company adopted and the stockholders of the Company
approved the adoption of the Company's 1994 Incentive Stock Option and Stock
Appreciation Rights Plan ("Incentive Option Plan"). The purpose of the Incentive
Option Plan is to enable the Company to encourage key employees and Directors to
contribute to the success of the Company by granting such employees and
Directors incentive stock options ("ISOs"), as well as non-qualified options and
stock appreciation rights ("SARs").
The Incentive Option Plan will be administered by the Board of Directors
or a committee appointed by the Board of Directors (the "Committee") which will
determine, in its discretion, among other things, the recipients of grants,
whether a grant will consist of ISOs, non-qualified options or SARs (in tandem
with an option or freestanding) or a combination thereof, and the number of
shares to be subject to such options and SARs.
The Incentive Option Plan provides for the granting of ISOs to purchase
Common Stock at an exercise price to be determined by the Board of Directors or
the Committee not less than the fair market value of the Common Stock on the
date the option is granted. Non-qualified options and freestanding SARs may be
granted with any exercise price. SARs granted in tandem with an option have the
same exercise price as the related option.
The total number of shares with respect to which options and SARs may be
granted under the Incentive Option Plan is 41,668. ISO's may not be granted to
an individual to the extent that in the calendar year in which such ISO's first
become exercisable the shares subject to such ISOs have a fair market value on
the date of grant in excess of $100,000. No option or SAR may be granted under
the Incentive Option Plan after March 14, 2004 and no option or SAR may be
outstanding for more than ten years after its grant. Additionally, no option or
SAR can be granted for more than five (5) years to a shareholder owning 10% or
more of the Company's outstanding Common Stock.
Upon the exercise of an option, the holder must make payment of the full
exercise price.
17
<PAGE>
Such payment may be made in cash or in shares of Common Stock, or in a
combination of both. The Company may lend to the holder of an option funds
sufficient to pay the exercise price, subject to certain limitations. SARs may
be settled, in the Board of Directors' discretion, in cash, Common Stock, or in
a combination of cash and Common Stock. The exercise of SARs cancels the
corresponding number of shares subject to the related option, if any, and the
exercise of an option cancels any associated SARs. Subject to certain
exceptions, options and SARs may be exercised any time up to three months after
termination of the holder's employment.
The Incentive Option Plan may be terminated or amended at any time by the
Board of Directors, except that, without stockholder approval, the Incentive
Option Plan may not be amended to increase the number of shares subject to the
Incentive Option Plan, change the class of persons eligible to receive options
or SARs under the Incentive Option Plan or materially increase the benefits of
participants.
To date no options or SARs have been granted under the Incentive Option
Plan. No determinations have been made regarding the persons to whom options or
SARs will be granted in the future, the number of shares which will be subject
to such options or SARs or the exercise prices to be fixed with respect to any
option or SAR.
Non-Qualified Option Plan -- As of March 1994, the Directors and
stockholders of the Company adopted the 1994 Non-Qualified Stock Option Plan
(the "Non-Qualified Option Plan"). The purpose of the Non-Qualified Option Plan
is to enable the Company to encourage key employees, Directors, consultants,
distributors, professionals and independent contractors to contribute to the
success of the Company by granting such employees, Directors, consultants,
distributors, professionals and independent contractors non-qualified options.
The Non-Qualified Option Plan will be administered by the Board of Directors or
the Committee in the same manner as the Incentive Option Plan.
The Non-Qualified Option Plan provides for the granting of non-qualified
options at such exercise price as may be determined by the Board of Directors,
in its discretion. The total number of shares with respect to which options may
be granted under the Non-Qualified Option Plan is 333,333.
Upon the exercise of an option, the holder must make payment of the full
exercise price. Such payment may be made in cash or in shares of Common Stock
(based on the fair market value of the Common Stock on the date prior to
exercise), or in a combination of both. The Company may lend to the holder of an
option funds sufficient to pay the exercise price, subject to certain
limitations. Subject to certain exceptions, options may be exercised any time up
to three months after termination of the holder's employment.
The Non-Qualified Option Plan may be terminated or amended at any time by
the Board of Directors, except that, without stockholder approval, the
Non-Qualified Option Plan may not be amended to increase the number of shares
subject to the Non-Qualified Option Plan, change the
18
<PAGE>
class of persons eligible to receive options under the Non-Qualified Option Plan
or materially increase the benefits of participants.
Item 11. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information, as of February __,
1997 with respect to the beneficial ownership of the outstanding Common Stock by
(i) any holder of more than five (5%) percent; (ii) each of the Company's
officers and directors; and (iii) the directors and officers of the Company as a
group:
Amount
and Nature Approximate
Name and Address Beneficial Percent of
of Beneficial Owner Ownership Class
- ------------------- --------- -----
PDK Labs, Inc.(2) 700,000 51.9%
145 Ricefield Lane
Hauppauge, NY 11788
Alan M. Novich 0 0
Futurebiotics, Inc.
145 Ricefield Lane
Hauppauge, NY 11788
Reginald Spinello 0 0
Futurebiotics, Inc.
145 Ricefield Lane
Hauppauge, NY 11788
Michael Krasnoff(3) 0 0
Futurebiotics, Inc.
145 Ricefield Lane
Hauppauge, NY 11788
Stanley Krasnoff 0 0
Futurebiotics, Inc.
145 Ricefield Lane
Hauppauge, NY 11788
19
<PAGE>
Hartley T. Bernstein 0 0
Bernstein & Wasserman, LLP
950 Third Avenue
New York, NY 10022
Directors and Officers 0 0
as a Group (5 persons)
- ----------
(1) Beneficial ownership as reported in the table above has been determined in
accordance with Instruction (4) to Item 403 of Regulation S-B of the
Securities Exchange Act.
(2) Does not include 8,335,000 shares of Preferred Stock held by PDK Labs Inc.
Each share of Preferred Stock has one Vote.
(3) Mr. Krasnoff owns 400,000 shares of common stock of PDK and possesses a
voting trust for an additional 550,000 shares of common stock, as to which
Mr. Krasnoff disclaims any beneficial ownership. Mr. Krasnoff, therefore,
votes 950,000 shares of common stock of PDK or 31.2%.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In April 1994, the Company entered into a Sales and Management Agreement
with PDK (the "Original Agreement") pursuant to which PDK agreed to provide
certain sales and management services and the Company agreed to pay PDK for
certain products and services at PDK's cost plus 15%.
On December 8, 1994, the Company entered into an amendment of the Original
Agreement ("Amended Agreement"). As in the Original Agreement, the Amended
Agreement provides that PDK has agreed to (i) provide the Company with certain
management services, including bookkeeping, order processing, computer services
and shipping and to, (ii) provide all of the products marketed by the Company.
The Amended Agreement provides that in consideration for the services, the
Company shall pay to PDK its costs for the Products, which is defined as actual
material costs, plus an amount representing PDK's actual direct labor costs plus
factory overhead, as determined in accordance with generally accepted accounting
principles.
In addition, the Amended Agreement provides for the Company to issue to
PDK 600,000 shares of the Company's Common Stock at $.0001 par value per share
(the "Stock"). The Stock is not transferrable for ten (10) years from the date
of issuance, except that PDK shall be permitted to demand the registration under
the Securities Act of 1933, as amended, of 60,000 shares of the
20
<PAGE>
Stock per year.
In January 1995, PDK sold 300,000 common shares of Futurebiotics to a
non-affiliated third party for gross proceeds of $2,250,000. After the sale, PDK
owns 700,000 shares of Common Stock of Futurebiotics, Inc. representing 51.9% of
the outstanding shares of Futurebiotics. PDK owns 8,335,000 shares of Preferred
Stock of Futurebiotics representing 100% of the outstanding Preferred Stock.
Each share of Preferred stock has one vote.
On January 3, 1995, the Company entered into a consulting agreement with
LIDCO, Ltd. ("LIDCO") to provide consulting services to the Company for a period
of seven (7) years. The agreement provides that the Company pay LIDCO the sum of
$210,000 and 60,000 shares of the Company's Common Stock in consideration for
the services.
On January 3, 1995, the Company entered into a consulting agreement with
K.A.M. Group, Inc. ("K.A.M.") to provide consulting services to the Company for
a period of seven (7) years. The agreement provides that the Company issue to
K.A.M. 60,000 shares of the Company's Common Stock.
In September 1996, the Company and its parent entered into a new revolving
credit agreement ("New Agreement") with its bank whereby the Company may borrow
up to $4,000,000. The New Agreement expires in September 1999. Borrowings under
the New Agreement bear interest at the bank's prime rate or 2% above the
Eurodollar rate (at the Company's option) and are collateralized by all the
Company's assets and require, among other things, the maintenance of minimum
tangible net worth and limitations on additional borrowings. The Company and its
parent are jointly and severally liable for the unpaid balance of this credit
line.
Miscellaneous
For the year ended November 30, 1996, legal fees of approximately $123,000
were incurred for services from the law firm of Bernstein & Wasserman, LLP. For
the year ended November 30, 1995, legal fees of approximately $70,000 were
incurred for services from the same firm. Hartley T. Bernstein, a partner in the
firm, is a Director of the Company hereunder.
General
The Company believes that material affiliated transactions between the
Company and its directors, officers, principal shareholders or any affiliates
thereof have been and will be in the future on terms no less favorable than
could be obtained from unaffiliated third parties.
21
<PAGE>
PART IV
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
(a)(1) Financial Statements.
The following financial statements are included in Part II, Item 8:
Index to Financial Statements and Schedules F-1
Report of Independent Certified Public Accountants F-2
Balance sheet as of November 30, 1996 F-3
Statements of operations for the years ended
November 30, 1996 and 1995 F-4
Statements of stockholders' equity for the years
ended November 30, 1996 and 1995 F-5
Statements of cash flows for the years ended
November 30, 1996 and 1995 F-6
Notes to financial statements F-7 - F-13
22
<PAGE>
(a)(3) Exhibits.
3.01* Certificate of Incorporation of the Company.
3.02* By-Laws of the Company.
3.03* Amendment to Certificate of Incorporation.
4.01* Specimen Certificate for shares of Common Stock.
4.02* Specimen Certificate for Class A Redeemable Common Stock Purchase
Warrant.
4.03* Form of Warrant Agreement by and among the Company, the Underwriter
and Continental Stock Transfer & Trust Company.
4.04* Form of Underwriter's Unit Purchase Option.
10.01* Employment Agreement between the Company and Alan Novich.
10.02* Form of Sales and Management Agreement between PDK Labs Inc. and the
Company
10.03* 1994 Incentive Stock Option and Stock Appreciation Rights Plan.
10.04* 1994 Non-Qualified Stock Option Plan.
10.05* Sales and Management Agreement by and between PDK Labs Inc. and the
Company.
10.06* Form of Consulting Agreement with Underwriter.
10.07* Revolving Credit Agreement between PDK Labs Inc. and Manufacturers
Hanover Trust Company, dated February 25, 1992
10.08* Security Agreement between PDK Labs Inc. and Manufacturers Hanover
Trust Company, dated February 25, 1992
10.09* Short Form Term Loan Agreement among PDK Labs Inc. and Chemical
Bank, dated November 30, 1992
10.10** Amendment of Sales and Management between PDK Labs Inc. and the
Company
23
<PAGE>
dated December 8, 1994
10.11** Consulting Agreement by and between the Company and Lidco, Ltd.
dated January 3, 1995
10.12** Consulting Agreement by and between the Company and K.A.M. Group
dated January 3, 1995
10.13 Amendment No. 1 to Employment Agreement between Alan Novich and the
Company dated as of December 1, 1995
10.14 Revolving Credit Agreement between PDK Labs Inc., Futurebiotics,
Inc., PDI Labs Inc., and The Chase Manhattan Bank dated September
25, 1996
10.15 First Amendment and Waiver to Revolving Credit Agreement between PDK
Labs Inc., Futurebiotics, Inc., PDI Labs Inc., and The Chase
Manhattan Bank dated February 26, 1997
- ----------
* Incorporated by Reference to the Company's Registration Statement on Form
SB-2, No. 33-78022
** Incorporated by Reference to the Company's Form 10-KSB for the year ended
November 30, 1994.
(B) Reports on Form 8-K.
None.
24
<PAGE>
FINANCIAL STATEMENTS
Index to Financial Statements and Schedules F-1
Report of Independent Certified Public Accountants F-2
Balance sheet as of November 30, 1996 F-3
Statements of operations for the years ended F-4
November 30, 1996 and 1995
Statements of stockholders' equity for the years F-5
ended November 30, 1996 and 1995
Statements of cash flows for the years ended F-6
November 30, 1996 and 1995
Notes to financial statements F-7 - F-13
F-1
<PAGE>
Independent Auditors' Report
Board of Directors and Stockholders
Futurebiotics, Inc.
Hauppauge, New York
We have audited the balance sheet of Futurebiotics, Inc. as of November 30, 1996
and the related statements of operations, stockholders' equity and cash flows
for each of the two years in the period ended November 30, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Futurebiotics, Inc. as of
November 30, 1996 and the results of its operations and its cash flows for each
of the two years in the period ended November 30, 1996, in conformity with
generally accepted accounting principles.
HOLTZ RUBENSTEIN & CO., LLP
Melville, New York
February 7, 1997
F-2
<PAGE>
FUTUREBIOTICS, INC.
BALANCE SHEET
NOVEMBER 30, 1996
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 484,285
Investment in marketable securities, at fair value 1,598,596
Accounts receivable (no allowance for doubtful accounts) (Note 8) 1,449,650
Inventories 3,261,595
Due from parent 470,356
Prepaid income taxes 416,685
Prepaid expenses and other current assets 452,608
Deferred income tax asset (Note 10) 76,152
--------------
Total current assets 8,209,927
INVESTMENT IN MARKETABLE SECURITIES 529,512
PROPERTY, PLANT AND EQUIPMENT, net (Note 3) 313,665
INTANGIBLE ASSETS, net (Note 4) 2,073,805
OTHER ASSETS 637,072
--------------
$ 11,763,981
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 85,078
--------------
Total current liabilities 85,078
--------------
REVOLVING CREDIT LINE (Note 5) 3,000,000
--------------
DEFERRED INCOME TAX LIABILITY (Note 10) 134,000
--------------
COMMITMENTS AND CONTINGENCIES (Notes 7 and 9)
STOCKHOLDERS' EQUITY: (Notes 6 and 13)
Common stock, $.0001 par value; authorized 40,000,000
shares; 1,350,000 issued and outstanding 135
Preferred stock, $.0001 par value; authorized, issued and
outstanding 8,335,000 shares 834
Additional paid-in capital 9,395,265
Unearned compensation (1,823,340)
Retained earnings 972,009
--------------
8,544,903
--------------
$ 11,763,981
==============
</TABLE>
See notes to financial statements
F-3
<PAGE>
FUTUREBIOTICS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended
November 30,
------------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
NET SALES (Note 8) $ 12,712,803 $ 10,646,911
-------------- --------------
COSTS AND EXPENSES: (Notes 2, 3, 4 and 7)
Cost of sales 5,519,066 4,577,512
Selling, general and administrative 7,565,595 5,553,144
-------------- --------------
13,084,661 10,130,656
-------------- --------------
OPERATING (LOSS) INCOME (371,858) 516,255
-------------- --------------
OTHER EXPENSES (INCOME):
Interest income (116,557) (228,575)
Interest expense 142,705 35,108
-------------- --------------
26,148 (193,467)
-------------- --------------
(LOSS) EARNINGS BEFORE (BENEFIT) PROVISION
FOR INCOME TAXES (398,006) 709,722
(BENEFIT) PROVISION FOR INCOME TAXES (Note 10) (108,000) 268,000
-------------- --------------
NET (LOSS) EARNINGS $ (290,006) $ 441,722
============== ==============
(LOSS) EARNINGS PER SHARE (Notes 6 and 13) $(.21) $.03
===== ====
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING (Notes 6 and 13) 1,350,000 1,327,643
========= =========
</TABLE>
See notes to financial statements
F-4
<PAGE>
FUTUREBIOTICS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(See Notes 6 and 13)
<TABLE>
<CAPTION>
Common Stock Preferred Stock
--------------------- ------------------- Additional
Par Par Paid-in Unearned
Shares Value Shares Value Capital Compensation
----------- ------ ----------- ------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at November 30, 1994 630,000 $ 63 8,335,000 $ 834 $ 7,187,767 $ (118,750)
Issuance of stock for services (Note 7) 720,000 72 - - 2,207,498 (2,271,048)
Amortization of unearned compensation - - - - - 278,206
Net earnings for the year ended
November 30, 1995 - - - - - -
----------- ------ ----------- ------ ------------ -------------
Balance at November 30, 1995 1,350,000 135 8,335,000 834 9,395,265 (2,111,592)
Amortization of unearned compensation - - - - - 288,252
Net loss for the year ended
November 30, 1996 - - - - - -
----------- ------ ----------- ------ ------------ -------------
Balance at November 30, 1996 1,350,000 $ 135 8,335,000 $ 834 $ 9,395,265 $ (1,823,340)
=========== ====== =========== ====== ============ =============
</TABLE>
<TABLE>
<CAPTION>
Retained
Earnings Total
------------- ------------
<S> <C> <C>
Balance at November 30, 1994 $ 820,293 $ 7,890,207
Issuance of stock for services (Note 7) - (63,478)
Amortization of unearned compensation - 278,206
Net earnings for the year ended
November 30, 1995 441,722 441,722
------------- ------------
Balance at November 30, 1995 1,262,015 8,546,657
Amortization of unearned compensation - 288,252
Net loss for the year ended
November 30, 1996 (290,006) (290,006)
------------- ------------
Balance at November 30, 1996 $ 972,009 $ 8,544,903
============= ============
</TABLE>
See notes to financial statements
F-5
<PAGE>
FUTUREBIOTICS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended
November 30,
------------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) earnings $ (290,006) $ 441,722
-------------- --------------
Adjustment to reconcile net (loss) earnings to
net cash provided by operating activities:
Depreciation and amortization 1,828,088 802,445
Deferred tax provision (benefit) 161,000 (35,000)
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (16,302) (376,029)
Inventories (1,353,665) (372,112)
Due from parent 290,539 (2,322,190)
Prepaid income taxes (673,642) (115,556)
Prepaid expenses and other current assets 135,975 (493,466)
Other assets 28,533 (315,863)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (3,754) 47,609
-------------- --------------
Total adjustments 396,772 (3,180,162)
-------------- --------------
Net cash provided by (used in) operating activities 106,766 (2,738,440)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (196,839) (44,723)
Acquisition of intangible assets (1,919,763) (988,177)
Decrease (increase) in marketable securities 364,715 (2,492,823)
-------------- --------------
Net cash used in investing activities (1,751,887) (3,525,723)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 1,750,000 1,250,000
Increase in unearned compensation - (63,478)
-------------- --------------
Net cash provided by financing activities 1,750,000 1,186,522
-------------- --------------
Net increase (decrease) in cash and cash equivalents 104,879 (5,077,641)
Cash and cash equivalents, beginning of year 379,406 5,457,047
-------------- --------------
Cash and cash equivalents, end of year $ 484,285 $ 379,406
============== ==============
</TABLE>
See notes to financial statements
F-6
<PAGE>
FUTUREBIOTICS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 1996 AND 1995
1. Summary of Significant Accounting Policies:
a. Description of business
Futurebiotics, Inc. (the "Company") is engaged in the distribution,
marketing and sales of vitamins, minerals, herbal formulations and specialty
nutritional supplements. The Company's parent, PDK Labs Inc. ("PDK"), owns 52%
of the Company's stock.
b. Investment in marketable securities
Investments in debt and equity securities are designated as trading,
held-to-maturity, or available for sale. Management considers the Company's
marketable securities, consisting principally of government and
government-backed debt securities, to be available-for-sale. Available-for-sale
securities are reported at amounts which approximate fair value. A decline in
the market value of any available-for-sale security below cost that is deemed
other than temporary is charged to earnings resulting in the establishment of a
new cost basis for the security.
At November 30, 1996, debt securities classified as non-current have
contractual maturities within 1-5 years.
c. Inventories
Inventories, consisting principally of finished goods, are valued at
the lower of cost (first-in, first-out method) or market.
d. Depreciation and amortization
Depreciation is computed using the straight-line method over the
estimated useful lives of the related assets. Amortization of leasehold
improvements is computed using the straight-line method over the estimated
useful lives of the related assets or the remaining term of the lease, whichever
is shorter.
Maintenance and repairs of property and equipment are charged to
operations and major improvements are capitalized. Upon retirement, sale or
other disposition of property and equipment, the cost and accumulated
depreciation are eliminated from the accounts and gain or loss is included in
operations.
Intangible assets are amortized using the straight-line method over
the following periods:
Deferred loan costs Term of related debt
Customer lists 5 years
Covenants not to compete 9 years
Goodwill 10 years
Distribution rights 1-2 years
e. Income taxes
Deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities,
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
F-7
<PAGE>
1. Summary of Significant Accounting Policies: (Cont'd)
f. Statement of cash flows
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
g. Concentration of credit risk
Financial instruments which potentially expose the Company to
concentrations of credit risk, as defined by Statement of Accounting Standards
No. 105, consist primarily of trade accounts receivable. Wholesale distributors
of nutritional supplements account for a substantial portion of trade
receivables. The risk associated with this concentration is limited due to the
large number of distributors and their geographic dispersion.
h. Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
i. Advertising
The Company charges to expense, advertising costs as incurred.
Advertising costs amounted to $1,449,000 and $1,103,000 for the years ended
November 30, 1996 and 1995, respectively.
2. Sales and Management Agreement:
In December 1994, the Company amended its "Sales and Management
Agreement" (the "Amended Agreement") with PDK. The Amended Agreement is for a
fixed ten (10) year term under which PDK, in exchange for 600,000 shares of
unregistered common stock, provides the Company with its entire line of products
at PDK's cost. The agreement provides PDK with registration rights for up to
60,000 shares of the stock per year in order to effect transfers of such shares.
During 1996 and 1995, the Company purchased approximately $6,870,000 and
$4,950,000, respectively of products from PDK.
The Amended Agreement further provides that in the event that PDK is
unable to supply products having a cost of at least $2,000,000 during any fiscal
year (such shortage being defined as the "PDK Deficiency") then PDK shall
forfeit to the Company either (i) fifteen percent (15%) of the PDK Deficiency in
cash, or (ii) a portion of the 60,000 shares of stock, determined by multiplying
the 60,000 shares of stock by a percentage which is arrived at by dividing the
PDK Deficiency by $2,000,000.
3. Property, Plant and Equipment:
Property, plant and equipment, at cost, consist of the following at
November 30, 1996:
Equipment $ 33,788
Office equipment and fixtures 361,335
Leasehold improvements 35,625
-----------
430,748
Less accumulated depreciation and amortization 117,083
-----------
$ 313,665
===========
F-8
<PAGE>
3. Property, Plant and Equipment: (Cont'd)
Depreciation and amortization of property, plant and equipment for the
years ended 1996 and 1995 approximated $55,000 and $34,000, respectively.
4. Intangible Assets:
Intangible assets consist of the following at November 30, 1996:
Distribution rights $ 2,562,253
Customer lists 384,212
Covenants not to compete 845,000
Goodwill 300,000
Other 68,039
--------------
4,159,504
Less accumulated amortization 2,085,699
--------------
$ 2,073,805
==============
The Company has implemented a marketing program with select retail stores
and distributors in order to obtain premium shelf space. Contracts with
retailers are for a fixed period of not less than one year. Costs associated
with these distribution rights are being charged to operations ratably over the
lives of the agreements.
Amortization expense for the years ended 1996 and 1995 approximated
$1,485,000 and $491,000, respectively.
5. Revolving Credit Agreement:
The Company and its parent, as co-borrowers, have secured a revolving
credit agreement with a bank. The agreement provides for aggregate borrowings of
up to $15,000,000, with a sublimit of $4,000,000 for the Company and $11,000,000
for the parent. Interest is charged monthly on the outstanding balance at prime.
Unpaid interest and principal is due on September 29, 1999. This loan agreement
is secured by all the assets of the Company and its parent. The Company and its
parent are jointly and severally liable for the unpaid balance of this credit
line.
The revolving line of credit agreement, as amended, contains various
covenants pertaining to the maintenance of certain financial ratio restrictions,
limitations on dividends, and restrictions on borrowings.
The prime rate at November 30, 1996 was 8 1/4%.
6. Stockholders' Equity:
a. Capitalization
The Company's authorized capital consists of 40,000,000 shares of
common stock and 8,335,000 shares of preferred stock. All stock has a $.0001 par
value. Each share of common and preferred has one vote per share in all matters.
The preferred shares have priority over the Company's common stock in respect to
dividend rights and liquidation preferences.
F-9
<PAGE>
6. Stockholders' Equity: (Cont'd)
b. Warrants
In August 1994, the Company completed a public offering of 115,000
units, each unit consisting of two shares of common stock and two Class A
Warrants. Each Class A Warrant entitles the holder to purchase one share of
common stock at $36.00 per share. The warrants are exercisable at any time
during the four year period commencing one year from the date of the offering.
The Class A Warrants are redeemable by the Company, for $.50 per warrant, if the
average price of the common stock equals or exceeds $60.00 per share for any
twenty trading days within a period of thirty consecutive trading days ending
five days prior to the date of the notice of redemption.
Effective with the closing of the offering, the Company entered into a
five-year consulting agreement with the underwriter. The consulting fee of
$100,000 is being charged to operations ratably over the term of the agreement.
c. (Loss) earnings per share
(Loss) earnings per share were computed by dividing net (loss)
earnings by the weighted average number of common shares and equivalents
outstanding. Outstanding stock options have not been included as their effect on
(loss) earnings per share would have been anti-dilutive in 1996 and was not
material in 1995.
d. Reserved shares
At November 30, 1996, the Company has approximately 651,700 shares of
common stock reserved for future issuance.
e. Stock option plan
The Company has adopted a Non-qualified Option Plan (the "Plan")
covering 333,333 shares of common stock of the Company. Options under the Plan
are granted at terms set by the Board of Directors at the time of issuance.
Options may be exercised at any time up to three months after termination.
The Company has also adopted an Incentive Option and Stock
Appreciation Rights Plan (the "1994 Plan") covering 41,668 shares of the
Company's common stock. Incentive stock options under the 1994 Plan are granted
at an exercise price (not less than the fair market value) at the date of grant.
Non-qualified options and freestanding stock appreciation rights may also be
granted with any exercise price.
To date, no options or stock appreciation rights have been granted
under either plan.
7. Commitments and Contingencies:
a. Employment agreement
The Company has an employment agreement with its Chairman of the Board
which provides for annual compensation, as amended, of $225,000 plus benefits.
Additionally, this individual was granted options to purchase 41,668 shares of
the Company's common stock. The options have an exercise price of $15.00 per
share and are exercisable at any time through March 1999. This grant was valued
at $125,000 and is being charged to operations ratably over the term of the
employment agreement. The agreement expires in 1999.
F-10
<PAGE>
7. Commitments and Contingencies: (Cont'd)
a. Employment agreement (Cont'd)
In December 1995, the Company entered into two-year employment
agreements with two employees which provide for aggregate annual salaries of
$140,000. The Company can terminate the agreements on 30 days notice, for which
it would be liable for severance pay equal to six months' salary. In addition,
the employees were granted options to acquire 5,000 common shares at a price of
$10.00 per share.
b. Consulting agreements
In January 1995 the Company entered into two separate seven year
consulting agreements. As consideration for these services, the Company issued
60,000 shares of common stock to each of the companies and a consulting fee of
$210,000 to one company. Consideration paid, including the value of the common
stock granted, is being charged to operations ratably over the lives of the
consulting agreements.
c. Lease commitment
The Company leases warehouse and office space from PDK under an
agreement which provides for monthly lease payments approximating $4,200.
d. Guarantee of debt
The Company is a guarantor of a term loan of its parent in the amount
of $348,000.
e. Litigation
On July 29, 1996, PDK served a complaint against a former executive
citing that he, among other things, breached his agreement with PDK by competing
with PDK and soliciting PDK's customers in violation of his separation
agreement.
The former executive has denied PDK's allegations and, through a
counterclaim, asserts that PDK, an officer and an outside director have breached
their fiduciary duty to PDK and its stockholders. PDK, the officer, and the
director deny that they engaged in any improper conduct which would support the
former executive's counterclaim. Each intends to vigorously defend against such
claims and PDK intends to proceed with its action against the former executive.
Futurebiotics has not been named as a party in the former executive's
counterclaim.
8. International Sales and Major Customer Information:
Sales to foreign customers accounted for approximately 7% of net sales
for each of the years ended 1996 and 1995, respectively.
Sales to one customer approximated 13% of total sales for the year ended
November 30, 1996. Sales to another customer approximated 10% of total sales for
the year ended November 30, 1995.
9. Retirement Plan:
Qualified employees are eligible to participate in a salary reduction
plan under Section 401(k) of the Internal Revenue Code. Participation in the
plan is voluntary, and any participant may elect to contribute up to 17% of
earnings. The Company may, at its discretion, contribute up to 3% of an
employee's earnings. Contributions on the part of the Company approximated
$22,000 and $14,000 for the years ended November 30, 1996 and 1995,
respectively.
F-11
<PAGE>
10. Income Taxes:
The (benefit) provision for income taxes consists of the following:
Years Ended
November 30,
----------------------------------
1996 1995
------------ -----------
Current:
Federal $ (273,000) $ 290,000
State 4,000 13,000
------------ -----------
(269,000) 303,000
------------ -----------
Deferred:
Federal 184,000 (32,000)
State (23,000) (3,000)
------------ -----------
161,000 (35,000)
------------ -----------
$ (108,000) $ 268,000
============ ===========
Net deferred income tax asset (liability) are comprised of the following
at November 30, 1996:
Net Net
Deferred Deferred
Income Tax Income Tax
Asset (Liability)
------------ ------------
Inventories $ 41,825 $ -
Property, plant and equipment - (24,667)
Tax carryforwards 54,000 -
Unearned compensation - (275,340)
Other (19,673) 8,890
Intangibles - 157,117
------------ ------------
$ 76,152 $ (134,000)
============ ============
A reconciliation of the federal statutory rate to the Company's effective
tax rate is as follows:
% of
Pre-Tax Earnings
---------------------------
Years Ended
November 30,
---------------------------
1996 1995
----- ------
U.S. Federal statutory income tax rate 34.0% 34.0%
State income tax, net of federal tax benefit 3.2 4.0
Permanent differences (9.4) (1.4)
Other (.7) 1.2
----- ------
27.1% 37.8%
===== =====
F-12
<PAGE>
11. Supplemental Information - Statement of Cash Flows:
Cash paid during the years for:
Years Ended
November 30,
--------------------------------
1996 1995
---------- -----------
Interest $ 142,000 $ 35,000
========== ===========
Income taxes $ 514,000 $ 270,000
========== ===========
In 1995, the Company issued stock to various parties in consideration of
services to be provided (see Note 7).
12. Fair Value of Financial Instruments:
In 1996, the Company adopted Financial Accounting Standards Board
Statement No. 107, which requires disclosures about the fair value of the
Company's financial instruments. The methods and assumptions used to estimate
the fair value of the following classes of financial instruments were:
Current Assets and Current Liabilities: The carrying amount of cash and
temporary cash investments, current receivables and payables and certain
other short-term financial instruments approximate their fair value.
The carrying amount and fair value of the Company's financial instruments
at November 30, 1996 are as follows:
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
------------- --------------
<S> <C> <C>
Cash and cash equivalents $ 484,300 $ 484,300
Investments in marketable securities, at fair value 2,128,100 2,128,100
Accounts receivable 1,449,700 1,449,700
Accounts payable and accrued expenses 85,100 85,100
Revolving credit line 3,000,000 3,000,000
</TABLE>
13. Subsequent Events:
On December 30, 1996, the Company's Board of Directors authorized a one
for ten reverse stock split of common stock outstanding. All per share and
weighted average share amounts have been restated to reflect this stock split.
F-13
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: New York, New York
February 26, 1997
FUTUREBIOTICS, INC.
By:/s/ Reginald Spinello
------------------------
President
By:/s/ Michael Krasnoff
-------------------------
Chief Financial Officer and Principal
Accounting Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement or Amendments thereto has been signed below by the
following persons in the capacities and on the dates indicated.
Signature Title Date
/s/ Alan Novich Chairman of February 26, 1997
- ------------------------- the Board
Alan Novich
/s/ Reginald Spinello President, February 26, 1997
- ------------------------- Director
Reginald Spinello
/s/ Michael Krasnoff Chief Financial February 26, 1997
- ------------------------- Officer, Secretary,
Michael Krasnoff Treasurer, Director
/s/ Stanley Krasnoff Director February 26, 1997
- -------------------------
Stanley Krasnoff
/s/ Hartley T. Bernstein Director February 26, 1997
- -------------------------
Hartley T. Bernstein
25
<PAGE>
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
This Amendment No.1, dated as of December 1, 1995, to that certain
Employment Agreement (this "Amendment"), dated as of March 21, 1994, by and
between Futurebiotics, Inc., a Delaware corporation (the "Company"), and Alan
Novich (the "Executive").
W I T N E S S E T H :
WHEREAS, the Company and the Executive entered into that certain
Employment Agreement dated as of March 21, 1994 (the "Agreement"); and
WHEREAS, the Company and the Executive desire to amend the Agreement to
effect the changes provided for herein.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the receipt and sufficiency of which is hereby acknowledged,
the parties hereto agree as follows:
1. Effective as of the date hereof, the Agreement is hereby amended by
replacing paragraphs 1, 2, 3 and 4 with the following:
"1. The Company hereby agrees to employ Novich and
Novich hereby agrees to be employed as the Company's Chairman
of the Board of Directors. Novich shall have the title
"Chairman of the Board of Directors" and shall have (a) the
duties commensurate with such title , and (b) such additional
duties as may be required by the Board of Directors from time
to time, including the investigation of overseas opportunities
for the Company's products.
2. The term of this Agreement shall be for the period
of eight (8) years commencing on the date first set forth
above; provided, however, that this Agreement may be cancelled
by the Company, at its sole direction, at any time after March
20, 1995, upon ninety (90) days' written notice to Employee.
Each twelve month period during the term of this Agreement
(i.e. March 21 through March 20) is sometimes hereinafter
referred to as a "Contract Year." The territory covered by
this Agreement shall be every place where the Company
presently does business or may do business during the term
hereof.
3. As consideration for Novich's agreement to provide his
services to the Company, the Company hereby agrees to pay to
Novich a salary of $225,000 per annum, plus an annual
discretionary bonus to be determined by the Board of
Directors, for each year during the term hereof (the "Term").
Such salary shall be payable by the Company on a bi-weekly
basis.
<PAGE>
4. Upon the execution hereof, the Corporation shall deliver to
Employee options to purchase 250,000 shares of the Company's
common stock at an exercise price of $2.50 per share (the
"Common Stock") at any time during the period from the date
set forth above to March 21, 1999, inclusive. The options and
shares of Common Stock which may be obtained by employee
hereunder will not registered pursuant to the Securities Act
of 1933 as amended or the securities laws of any state and may
not be transferred unless registered thereunder or qualifying
for an exemption from registration."
2. This Amendment shall be governed by and construed in accordance
with the laws of the State of New York, without regard to principles of
conflicts of law.
3. Except as otherwise specifically set forth herein, all of the terms
and provisions of the Existing Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment
as of the day and year first above written.
FUTUREBIOTICS, INC.
By: /s/ Reginald Spinello
--------------------------
Name: Reginald Spinello
Title: President
/s/ Alan Novich
-----------------------------
Alan Novich
2
<PAGE>
$15,000,000
REVOLVING CREDIT AGREEMENT
dated September 25, 1996
among
PDK LABS, INC. and
FUTUREBIOTICS, INC., as Co-Borrowers
and
THE CHASE MANHATTAN BANK, as Agent,
and
THE "BANKS" PARTY HERETO
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . 1
Section 1.1. Defined Terms . . . . . . . . . . 1
Section 1.2. Use of Defined Terms . . . . . . 12
Section 1.3. Accounting Terms . . . . . . . . 13
ARTICLE 2. AMOUNT AND TERMS OF THE REVOLVING CREDIT LOANS . . 13
Section 2.1. Revolving Credit Loans . . . . . 13
Section 2.2. The Notes . . . . . . . . . . . . 13
Section 2.3. Notice of Borrowing; Minimum
Amounts . . . . . . . . . . . . . . 14
Section 2.4. Commitment Fee . . . . . . . . . 15
Section 2.5. Termination or Reduction of
Commitment; Acceleration of
Termination Date . . . . . . . . . 15
Section 2.6. Changes in Capital Requirements . 15
Section 2.7. Voluntary Prepayments .. . . . . 16
Section 2.8. Computation of Interest and Commitment
Fee; Payments . . . . . . . . . 16
Section 2.9. Inability to Determine Rate . . . 16
Section 2.10. Illegality . . . . . . . . . . . 16
Section 2.11. Requirements of Law . . . . . . . 17
Section 2.12. Indemnification . . . . . . . . . 17
Section 2.13. Use of Proceeds . . . . . . . . . 18
Section 2.14. Authorization to Debit Co-Borrowers'
Accounts . . . . . . . . . . . . . 18
Section 2.15. Default Interest . . . . . . . . 18
Section 2.16. Interest Adjustments . . . . . . 18
Section 2.17. Participations, Etc . . . . . . . 19
ARTICLE 3. CONDITIONS OF BORROWING . . . . . . . . . . . . . . 19
Section 3.1. Conditions of Initial Revolving Credit
Loan . . . . . . . . . . . . . . 19
Section 3.2. Additional Conditions Precedent . 23
ARTICLE 4. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . 24
Section 4.1. Corporate Existence . . . . . . . 24
Section 4.2. Corporate Power and Authorization 24
Section 4.3. No Legal Bar to Loans . . . . . . 24
Section 4.4. No Material Litigation . . . . . 25
Section 4.5. No Default . . . . . . . . . . . 25
- 1 -
<PAGE>
Section 4.6. Ownership of Properties; Liens . 25
Section 4.7. Taxes . . . . . . . . . . . . . . 25
Section 4.8. Financial Condition . . . . . . . 25
Section 4.9. Filing of Statements and Reports 25
Section 4.10. ERISA . . . . . . . . . . . . . . 26
Section 4.11. Environmental Matters . . . . . . 26
Section 4.12. Licenses, Permits, etc. . . . . . 26
Section 4.13. Material Agreements . . . . . . . 26
Section 4.14. Margin Credit . . . . . . . . . . 26
Section 4.15. Use of Proceeds . . . . . . . . . 27
Section 4.16. Properties Affected . . . . . . . 27
Section 4.17. Guarantors . . . . . . . . . . . 27
Section 4.18. Subsidiaries . . . . . . . . . . 27
Section 4.19. Solvency . . . . . . . . . . . . 27
ARTICLE 5. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . 27
Section 5.1. Financial Statements . . . . . . 27
Section 5.2. Payment and Performance of
Obligations . . . . . . . . . . . 29
Section 5.3. Maintenance of Properties;
Insurance . . . . . . . . . . . . 29
Section 5.4. Notices . . . . . . . . . . . . . 30
Section 5.5. Conduct of Business and
Maintenance of Existence . . . . . 30
Section 5.6. Inspection of Property, Books and
Records . . . . . . . . . . . . . 30
Section 5.7. Hazardous Material . . . . . . . 30
Section 5.8. Subsidiary Guaranties . . . . . . 31
Section 5.9. Pension Funding . . . . . . . . . 31
ARTICLE 6. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . 31
Section 6.1. Limitation on Indebtedness . . . 32
Section 6.2. Limitation on Liens . . . . . . . 32
Section 6.3. Limitation on Contingent
Obligations . . . . . . . . . . . 33
Section 6.4. Prohibition of Fundamental
Changes. . . . . . . . . . . . . . 33
Section 6.5. Limitation on Investments, Loans and
Advances . . . . . . . . . . . . 33
Section 6.6. Prohibition of Certain
Prepayments . . . . . . . . . . . 34
Section 6.7. Limitation on Leases . . . . . . 34
Section 6.8. Sale and Leaseback . . . . . . . 34
Section 6.9. Prohibitions Regarding Subordinated
Debt . . . . . . . . . . . . . . 34
Section 6.10. Maintenance of Consolidated
Indebtedness to Consolidated Tangible
Net Worth Ratio . . . . . . . . 35
- 2 -
<PAGE>
Section 6.11. Maintenance of Consolidated Coverage
Ratio . .. . . . . . . . . . . . . 35
Section 6.12. Consolidated Net Income . . . . . 35
Section 6.13. Maintenance of Consolidated Quick
Ratio . . . . . . . . . . . . . . 35
Section 6.14. Transactions with Affiliates . . 35
Section 6.15. Management . . . . . . . . . . . 35
Section 6.16. Change in Control . . . . . . . . 35
Section 6.17. Limitation on Capital
Expenditures . . . . . . . . . . . 35
Section 6.18. Limitation on Dividends and Stock
Acquisitions . . . . . . . . . . 35
ARTICLE 7. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . 36
Section 7.1. Events of Default . . . . . . . . 36
Section 7.2. Remedies on Default . . . . . . . 38
ARTICLE 8. THE AGENT; RELATIONS AMONG BANKS . . . . . . . . . 38
Section 8.1. Appointment, Powers and Immunities of
Agent . . . . . . . . . . . . . . 38
Section 8.2 Reliance by Agent . . . . . . . . 39
Section 8.3 Defaults . . . . . . . . . . . . 39
Section 8.4 Rights of Agent as a Bank . . . . 39
Section 8.5 Indemnification of Agent . . . . 40
Section 8.6 Documents . . . . . . . . . . . . 40
Section 8.7 Non-Reliance on Agent and Other
Banks . . . . . . . . . . . . . . 40
Section 8.8 Failure of Agent to Act . . . . . 41
Section 8.9 Resignation or Removal of Agent . 41
Section 8.10 Amendments Concerning Agency
Function . . . . . . . . . . . . . 41
Section 8.11 Liability of Agent . . . . . . . 41
Section 8.12 Transfer of Agency Function . . . 41
Section 8.13 Non-Receipt of Funds by the Agent. 42
Section 8.14 Several Obligations and Rights of
Banks . . . . . . . . . . . . . . 42
Section 8.15 Pro Rata Treatment of Loans, Etc . 42
Section 8.16 Sharing of Payments Among Banks. . 42
ARTICLE 9. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . 43
Section 9.1. Limited Role of Banks . . . . . . 43
Section 9.2. Choice of Law Construction . . . 43
Section 9.3. Consent to Jurisdiction . . . . 43
Section 9.4. WAIVER OF JURY TRIAL . . . . . . 43
Section 9.5. Notices . . . . . . . . . . . . 43
Section 9.6. Entire Agreement; No Waiver; Cumulative
Remedies; Amendments; Setoff . . 44
Section 9.7. Reference to Subsidiaries and
Guarantors . . . . . . . . . . . . 45
-3-
<PAGE>
Section 9.8. Joint and Several Obligations. . . 45
Section 9.9. Captions . . . . . . . . . . . . . 45
Section 9.10. Exhibits . . . . . . . . . . . . . 45
Section 9.11. Payment of Fees. . . . . . . . . . 45
Section 9.12. Survival of Agreements . . . . . . 46
Section 9.13. Successors and Assigns . . . . . . 46
Section 9.14. Interest . . . . . . . . . . . . . 46
-4-
<PAGE>
REVOLVING CREDIT AGREEMENT, dated as of September 25, 1996, among
PDK LABS INC., a New York corporation having its principal place of business at
145 Ricefield Lane, Hauppauge, New York 11788 ("PDK"), FUTUREBIOTICS, INC., a
Delaware corporation having its principal place of business at 145 Ricefield
Lane, Hauppauge, New York ("Futurebiotics"; collectively with PDK, the "Co-
Borrowers"), each of the Banks which is a party hereto and THE CHASE MANHATTAN
BANK, a New York banking corporation having an office at 395 North Service Road,
Suite 302, Melville, New York 11747 ("Chase"), as agent for the Banks (in such
capacity, together with its successors in such capacity, the "Agent").
RECITALS:
WHEREAS, Chase has previously extended credit to Futurebiotics
pursuant to the Futurebiotics Credit Agreement and to PDK pursuant to the PDK
Credit Agreement; and
WHEREAS, the Co-Borrowers have requested the Banks to extend credit
hereunder to replace the existing revolving credit made available by Chase to
Futurebiotics and to PDK and, in that connection, the Co-Borrowers have agreed
to use the proceeds of the initial borrowings hereunder to repay such revolving
credit indebtedness; and
WHEREAS, the Banks are willing to extend such credit to the
Co-Borrowers, on a joint and several basis, on the terms and conditions set
forth herein;
NOW, THEREFORE, the parties hereto agree as follows:
A1. DEFINITIONS
S1. Defined Terms. As used in this Agreement, the following terms
shall have the following meanings, unless the context otherwise requires:
"Accumulated Funding Deficiency" shall have the meaning set forth in
Section 302 of ERISA.
"Affiliate" shall mean, with respect to any Person, any Person which
(a) directly or indirectly, is in control of, is controlled by, or is under
common control with, such Person; (b) is a partnership in which such Person is
a general partner; or (c) is
<PAGE>
a limited liability company in which such Person is a member. For purposes of
this definition, "control" of a Person means the power, direct or indirect,
either (i) to vote 10% or more of the securities having ordinary voting power
for the election of directors of such Person or (ii) to direct or cause the
direction of the management and policies of such Person, whether by contract or
otherwise.
"Agreement" shall mean this Credit Agreement and any amendments or
supplements thereto.
"Alternate Base Rate" shall mean, for any day, a rate per annum
(rounded upwards, if necessary, to the next 1/6 of 1%) equal to the greatest of:
(a) the Prime Rate in effect on such day;
(b) the Base CD Rate in effect on such day plus 1%;
and
(c) the Federal Funds Effective Rate in effect on such day plus
1/2 of 1%.
For purposes of this definition:
"Prime Rate" shall mean the rate of interest per annum publicly
announced from time to time by the Agent as its prime rate in effect as its
principal office in New York City. The Prime Rate is not intended to be the
lowest rate of interest charged by the Agent in connection with extensions of
credit to debtors.
"Base CD Rate" shall mean the sum of (a) the product of (i) the
Three-Month Secondary CD Rate and (ii) a fraction, the numerator of which is
one and the denominator of which is one minus the CD Reserve Percentage and
(b) the CD Assessment Rate.
"CD Assessment Rate" shall mean, for any day, the net annual
assessment rate (rounded upwards, if necessary, to the next 1/100 of 1%)
determined by the Agent to be payable on such day to the Federal Deposit
Insurance Corporation or any successor ("FDIC") for FDIC's insuring time
deposits made in Dollars at office of the Agent in the United States.
- 2 -
<PAGE>
"CD Reserve Percentage" shall mean, for any day, as applied to any
calculation of the Base CD Rate, that percentage (expressed as a decimal) which
is in effect on such day, as prescribed by the Board for determining the maximum
reserve required for a Depositary Institution (as defined in Regulation D of the
Board) in respect of new non-personal time deposits in Dollars having a maturity
of 30 days or more.
"Three-Month Secondary CD Rate" shall mean for any day, the
secondary market rate for three-month certificates of deposit reported as being
in effect on such day (or, if such day is not a Business Day, the next preceding
Business Day) by the Board through the public information telephone line of the
Federal Reserve Bank of New York (which rate will, under the current practices
of the Board, be published in Federal Reserve Statistical Release H.15(519)
during the week following such day), or if such rate is not so reported, the
average (rounded upwards to the nearest 1/100 of 1%) of the secondary market
quotations for three-month certificates of deposit of major money center banks
in New York City received at approximately 10:00 a.m., New York City time, on
such day or next preceding Business Day by the Agent from three New York City
negotiable certificate of deposit dealers of recognized standing selected by it.
"Federal Funds Effective Rate" shall mean, for any day, the weighted
average of the rates on overnight Federal Funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published on the
next succeeding Business Day by the Federal Reserve Bank of New York, or, if
such rate is not so published for any day that is a Business Day, the average
quotations, for the day, of such transactions received by the Agent from three
Federal funds brokers of recognized standing selected by it.
If for any reason the Agent shall have determined (which determination shall be
conclusive absent clearly demonstrable error) that it is unable to ascertain the
Base CD Rate or the Federal Funds Effective Rate or both for any reason,
including the inability or failure of the Agent to obtain sufficient quotations
in accordance with the terms thereof, the Alternate Base Rate shall be
determined without regard to clause (b) or (c), or both, as appropriate, until
the circumstances giving rise to such inability
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<PAGE>
no longer exist. Any change in the Alternate Base Rate due to a change in the
Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds Effective
Rate shall be effective as of the opening of business on the date of such
change.
"Banks" means each of Chase and the other Banks, if any, signatory
hereto and each Bank which hereinafter becomes a "Bank" pursuant to the terms
hereof.
"Base Rate Loan" shall mean a Loan at such time as it is made or
maintained at a rate of interest based on the Alternate Base Rate.
"Board of Governors" shall mean the Board of Governors of the Federal
Reserve System of the United States of America.
"Business Day" shall mean a day other than a Saturday, Sunday or
other day on which the Agent is authorized to close under the laws of the State
of New York.
"Capital Expenditures" shall mean, for any Person, for a particular
period, the aggregate amount of any expenditures during such period (including
purchase money Liens) made by such Person for assets (including fixed assets
acquired under Capital Leases) which it is contemplated will be used or usable
in fiscal years subsequent to the year of acquisition.
"Capital Lease" shall mean all leases which have been or should be
capitalized on the books of the lessee in accordance with GAAP.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"Commitment" means, with respect to each Bank, subject to the other
provisions of this Agreement, the obligation of such Bank to extend credit to
the Co-Borrowers hereunder in the following aggregate principal amounts, as
such amounts may be reduced or otherwise modified from time to time:
Bank Commitment
---- ----------
Chase $15,000,000
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<PAGE>
"Commitment Proportion" shall mean with respect to each Bank, at the
time of determination, that portion that its Commitment bears to the Total
Commitment.
"Commonly Controlled Entity" shall mean an entity, whether or not
incorporated, which is under common control with the Co-Borrowers within the
meaning of Section 4001 of ERISA.
"Consolidated Coverage Ratio" shall mean, with respect to PDK and
its Subsidiaries, for any twelve month period, the ratio of (i) the sum of
Consolidated Net Income, tax expense, depreciation expense, amortization of
intangibles, other noncash charges and interest expense, minus any unfunded
Capital Expenditures, minus any cash dividends paid (common or preferred) as
permitted by this Agreement, minus any cash paid to purchase shares of the
Co-Borrowers' stock in accordance with Section 6.5(m) hereof minus cash taxes
paid, to (ii) the sum of interest expense during the preceding four fiscal
quarters plus installments of principal on all long term Consolidated
Indebtedness scheduled to be paid during the subsequent four fiscal quarters.
For purposes of this definition and the calculation of this ratio, long term
Consolidated Indebtedness shall include one-seventh (1/7) of the principal
amount outstanding under this revolving credit facility at the end of such
twelve month period.
"Consolidated Current Liabilities" shall mean, at a particular date,
all amounts which would, in conformity with GAAP, be included under current
liabilities on a consolidated balance sheet of PDK and its Subsidiaries as at
such date, including, without limitation, (a) all obligations payable on demand
or within one year after the date on which the determination is made and (b)
one-seventh (1/7) of the then outstanding principal amount hereunder.
"Consolidated Indebtedness" shall mean, at a particular date, the
aggregate amount for PDK and its Subsidiaries of (i) indebtedness or liability
for borrowed money; (ii) indebtedness for the deferred purchase price of
property or services (including trade obligations or trade letters of credit) ;
(iii) obligations of a lessee under Capital Leases; (iv) current liabilities in
respect of unfunded vested benefits under any Plan; (v) obligations under
stand-by letters of credit issued for the account of the Co-Borrowers, or either
of them, or any Subsidiary for purposes other than to support trade indebtedness
that would be included in clause
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<PAGE>
(ii) above; (vi) obligations arising under acceptance facilities; (vii) all
guaranties, endorsements (other than for collection or deposit in the ordinary
course of business) and other contingent obligations to purchase, to provide
funds for payment, to supply funds to invest in any Person, or otherwise to
assure a creditor against loss; (viii) obligations secured by any Lien on
property owned by the Co-Borrowers, or any of them, or any Subsidiary whether or
not the obligations have been assumed; and (ix) all other liabilities recorded
as such, or which should be recorded as such, on the consolidated financial
statements of PDK and its Subsidiaries in accordance with GAAP.
"Consolidated Intangibles" shall mean at a particular date, the
aggregate amount of all assets of PDK and its Subsidiaries, determined on a
consolidated basis at such date, that would be classified as intangible assets
in accordance with GAAP, but in any event including, without limitation,
customer lists, unamortized debt discount expense, unamortized organization and
reorganization expense, costs in excess of the net asset value of acquired
companies, patents, trade or service marks, franchises, trade names, goodwill
and the amount of any write-up in the book value of any assets resulting from
the revaluation (other than revaluations arising out of foreign currency
valuations in accordance with GAAP) thereof.
"Consolidated Liquid Assets" shall mean, at a particular date, all
amounts which would, in conformity with GAAP, be included under cash, marketable
securities and accounts receivable on a consolidated balance sheet of PDK and
its Subsidiaries at such date.
"Consolidated Net Income" shall mean, at a particular date, the
aggregate amount which would, in accordance with GAAP, be classified as
consolidated net income, after taxes, in a consolidated income statement of PDK
and its Subsidiaries as at such date.
"Consolidated Quick Ratio" shall mean the ratio of (i) Consolidated
Liquid Assets to (ii) Consolidated Current Liabilities.
"Consolidated Tangible Net Worth" shall mean, at any time
outstanding, the amount by which (i) the par value (or value stated on the
books) of all classes of the capital stock of PDK plus (or
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<PAGE>
minus in the case of a deficit) the amount of the consolidated surplus, whether
capital or earned, of PDK and its Subsidiaries exceeds (ii) the sum of the
amount of Consolidated Intangibles, plus treasury stock, plus leasehold
improvements, plus loans and advances to officers, stockholders, and employees
of the Co-Borrowers or their Subsidiaries plus loans to, or Investments in any
other Person which is not a Guarantor. For the purposes of this definition,
Investments shall be deemed to include only those types of investments described
in Section 6.5(g), Section 6.5(h), Section 6.5(k) and Section 6.5(m) hereto.
"Consolidated Total Assets" shall mean, at a particular date, all
amounts which would, in conformity with GAAP, be included under total assets on
a consolidated balance sheet of a Co-Borrower and its Subsidiaries at such date.
"Consolidated Total Liabilities" shall mean, at a particular date,
all amounts which would, in conformity with GAAP, be included under total
liabilities on a consolidated balance sheet of a Co-Borrower and its
Subsidiaries at such date.
"Default" shall mean any of the events specified in Section 7.1
hereof, whether or not any requirement for the giving of notice or the lapse of
time or both or any other condition has been satisfied.
"Dollars" or "$" shall mean United States Dollars.
"ERISA" shall mean the Employee Retirement Income act of 1974, as
amended from time to time.
"ERISA Affiliate" shall mean any trade or business (whether or not
incorporated) which together with any other Person would be treated, with such
Person, as a single employer under Section 4001 of ERISA.
"Eurodollar Loan" shall mean a Loan at such time as it is made or
maintained at a rate of interest based on the Eurodollar Rate.
"Eurodollar Rate" shall mean for each Interest Period the rate per
annum, adjusted as provided in the following sentence, at which U.S. dollar
deposits are offered to the Agent's Eurodollar lending office (the "Lending
Office") in the interbank eurodollar
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<PAGE>
market in which such Lending Office customarily deals as at the relevant local
time of such Lending Office, two (2) Working Days prior to the first day of such
Interest Period for delivery on the first day of such Interest Period, for the
number of days in such Interest Period in an amount equal to, for each
Eurodollar Loan, the amount of such Eurodollar Loan which will be outstanding
during such Interest Period. The interest rate determined under this paragraph
shall be adjusted by dividing such interest rate by the number equal to 1.00
minus the Reserve Requirement. As used in this definition, "relevant local time"
shall mean 11:00 A.M. local time in London, England when the Lending Office
operates on London time or 10:00 A.M. New York time when the Lending Office
operates on New York time.
"Event of Default" shall mean any of the events specified in
Section 7.1 hereof, provided that any requirement for the giving of notice or
the lapse of time or both has been satisfied.
"Existing Term Loans" shall mean the existing term loans made by
Chase to PDK and evidenced by the Existing Term Notes.
"Existing Term Notes" shall mean the promissory notes of PDK in
favor of the Chase dated November 30, 1992, July 6, 1995 and March 28, 1996,
respectively, and evidencing the Existing Term Loans.
"Futurebiotics Credit Agreement" shall mean the Revolving Credit
Agreement dated as of December 13, 1994 by and between Futurebiotics and Chase
(formerly known as Chemical Bank), as amended by a First Amendment dated as of
February 27, 1995, a Second Amendment, dated as of July 6, 1995, a Third
Amendment, dated as of March 28, 1996 and a Fourth Amendment dated as of June
11, 1996.
"Futurebiotics Notes" shall mean the promissory notes of the
Co-Borrowers payable to the order of each Bank, in substantially the form of
Exhibit A-2 hereto, evidencing the indebtedness of the Co-Borrowers to such Bank
incurred in connection with Loans made for the benefit of Futurebiotics in
accordance with the terms hereof.
"Futurebiotics Sublimit" shall mean $4,000,000 or such lesser amount
as may be in effect from time to time hereunder.
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<PAGE>
"GAAP" shall mean Generally Accepted Accounting Principles.
"Generally Accepted Accounting Principles" shall mean those
generally accepted accounting principles and practices which are recognized as
such by the American Institute of Certified Public Accountants acting through
the Financial Accounting Standards Board ("FASB") or through other appropriate
boards or committees thereof and which are consistently applied for all periods
so as to properly reflect the financial condition, operations and cash flows of
PDK and its Subsidiaries, except that any accounting principle or practice
required to be changed by the FASB (or other appropriate board or committee of
the FASB) in order to continue as a generally accepted accounting principle or
practice may be so changed. Any dispute or disagreement between the
Co-Borrowers and the Banks relating to the determination of Generally Accepted
Accounting Principles shall, in the absence of manifest error, be conclusively
resolved for all purposes hereof by the written opinion with respect thereto,
delivered to the Agent, of the independent accountants selected by the
Co-Borrowers and approved by the Banks for the purpose of auditing the
periodic financial statements of the Co-Borrowers.
"Guarantor" or "Guarantors" shall mean PDI and all present and future
Subsidiaries of the Co-Borrowers and the Guarantors.
"Guarantor's Security Agreement" shall mean each Guarantor's Security
Agreement executed by a Guarantor in favor of the Agent for the benefit of the
Banks hereunder in substantially the form of Exhibit D annexed hereto.
"Guaranty" or "Guaranties" shall mean each guaranty executed and
delivered by a Guarantor hereunder in substantially the form of Exhibit C
annexed hereto.
"Hazardous Materials" shall mean, without limit, any flammable
explosives, radioactive materials, hazardous materials, hazardous wastes,
hazardous or toxic substances, or related materials defined in the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended (42
U.S.C. Sections 9601, et. seq.), the Hazardous Materials Transportation Act, as
amended (49 U.S.C. Section 1801 et. seq.), the Resource Conservation and
Recovery Act, as amended (42 U.S.C. Sections 9601
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<PAGE>
et. seq.), and in the regulations adopted and publications promulgated pursuant
thereto, or any other federal, state or local environmental law, ordinance, rule
or regulation.
"Insolvency" shall mean with respect to any Multiemployer Plan, the
condition that such Plan is insolvent within the meaning of such term as used in
Section 4245 of ERISA.
"Insolvent" shall pertain to the condition of Insolvency.
"Interest Period" shall mean with respect to any Eurodollar Loan,
initially, the period commencing on the date of borrowing with respect to such
Eurodollar Loan and ending one, two or three months thereafter as selected by
the Company in its notice of borrowing as provided in Section 2.3 and
thereafter, each period commencing on the last day of the next preceding
Interest Period applicable to such Eurodollar Loan and ending one, two or three
months thereafter, as selected by the Company by irrevocable notice to the Agent
not less than three (3) Working Days prior to the last day of the then current
Interest Period with respect to such Eurodollar Loan; provided that:
(A) no Interest Period shall end later than the
Termination Date;
(B) if any Interest Period would end on a day
which is not a Working Day, that Interest Period shall be
extended to the next succeeding Working Day unless the
result of such extension would be to carry such Interest
Period into another calendar month in which event such
Interest Period shall end on the immediately preceding
Working Day; and
(C) any Interest Period that begins on the last Working
Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the
end of such Interest Period) shall end on the last Working
Day of a calendar month.
"Investment" shall mean any stock, evidence of debt or other security
of any Person, any loan, advance, contribution of capital, extension of credit
or commitment therefor, including without limitation the guaranty of loans made
to others (except for current trade and customer accounts receivable for
services
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<PAGE>
rendered in the ordinary course of business and payable in accordance with
customary trade terms in the ordinary course of business), to another Person,
and any purchase of (i) any security of another Person or (ii) any business or
undertaking of any Person or any commitment or option to make any such purchase,
or any other investment.
"Letter of Credit Outstandings" shall mean the aggregate sum of the
amounts available to be drawn under letters of credit issued by the Banks for
the account of the Co-Borrowers and any Guarantor and the amounts of
unreimbursed drawings under such letters of credit.
"Lien" shall mean any mortgage, deed of trust, pledge, security
interest, hypothecation, assignment, deposit arrangement, encumbrance, lien
(statutory or other), or preference, priority, or other security agreement or
preferential arrangement, charge or encumbrance of any kind or nature
whatsoever, including, without limitation, any conditional sale or other title
retention agreement, any financing lease having substantially the same economic
effect as any of the foregoing, and the filing of any financing statement under
the Uniform Commercial Code or comparable law of any jurisdiction to evidence
any of the foregoing.
"Loan" or "Loans" shall mean one or more of the revolving credit
loans made by the Banks to the Co-Borrowers pursuant to Section 2.1 hereof and
shall include Base Rate Loans and Eurodollar Loans.
"Loan Documents" shall mean any and all of the Agreement, the Notes,
the Security Agreements, the Guaranties, the Guarantor's Security Agreements,
any agreements or documents referred to in Article 3 hereof and all other
documents and instruments executed in connection herewith.
"Material Adverse Change" shall mean, with respect to any Person,
(i) a material adverse change in the financial condition, business, operations,
properties, or assets of such Person or (ii) the occurrence of any event with
respect to such Person which could have a material adverse effect on the ability
of such Person to perform its obligations under the Loan Documents.
"Multiemployer Plan" shall mean a Plan which is a multiemployer plan
as defined in Section 4001(a)(3) of ERISA.
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"Notes" shall mean the Futurebiotics Notes and the PDK Notes.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA.
"PDI" shall mean PDI Labs, Inc., a New York corporation having its
principal place of business at 145 Ricefield Lane, Hauppauge, New York 11788.
"PDK Credit Agreement" shall mean the Amended and Restated Revolving
Credit Agreement, dated July 6, 1995 by and between PDK and Chase (formerly
known as Chemical Bank), as amended by a First Amendment, dated as of August 31,
1995, a Second Amendment, dated as of March 28, 1996 and a Third Amendment,
dated as of June 11, 1996.
"PDK Notes" shall mean the promissory notes of the Co-Borrowers
payable to the order of each Bank, in substantially the form of Exhibit A-1
annexed hereto, evidencing the indebtedness of the Co-Borrowers to such Bank
resulting from loans made by such Bank made for the benefit of PDK in accordance
with the terms hereof.
"PDK Sublimit" shall mean $11,000,000 or such lesser amount as may be
in effect from time to time hereunder.
"Permitted Acquisition" means the acquisition by the Co-Borrowers,
or either of them, of the stock or assets of any Person engaged in a similar
type of business as the Co-Borrowers (an "Eligible Business") provided that: (i)
after giving effect thereto, the nature and scope of the business of the
Co-Borrowers shall not have been materially changed; (ii) the Permitted
Acquisition Purchase Price of all such purchases shall not exceed $6,000,000 in
the aggregate during any fiscal year of the Co-Borrowers, and that the
Permitted Acquisition Purchase Price of any such acquisition does not exceed
$5,000,000 and that not more than $5,000,000 of the Permitted Acquisition
Purchase Price of all such acquisitions in the aggregate during any fiscal year
of the Borrower shall be paid in cash; (iii) prior to giving effect to such
acquisition, the Agent shall be provided with satisfactory evidence that such
acquisition shall not be a "hostile" acquisition or other "hostile"
transaction (i.e., such transactions shall have
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<PAGE>
been approved by the Board of Directors of the Eligible Business); or (iv) such
Eligible Business, in the case of a purchase of stock, shall be incorporated in
or organized under the laws of a State of the United States or, if such
acquisition is of assets, such assets shall be located in the United States. In
addition, no acquisition shall be a Permitted Acquisition hereunder unless on or
before the 30th day prior to the closing of such acquisition, the Agent shall
have been provided satisfactory evidence that:
(i) on a proforma basis, that the acquisition shall not (i) increase
by 100% or more the Consolidated Total Liabilities of the Co-Borrowers, or
either of them, and (ii) result in a leverage ratio as measured by Consolidated
Total Liabilities to Consolidated Total Assets (the "Leverage Ratio") higher
than 50% for PDK and its subsidiaries or for Futurebiotics and its Subsidiaries.
For purposes of this definition (x) Consolidated Total Liabilities shall include
all forms of Indebtedness reflected on a consolidated balance sheet of the
relevant entity and its Subsidiaries and claims including all Subordinated Debt
and non-perpetual preferred stock, which shall mean preferred stock that has a
maturity date and that can be redeemed at the option of the holder of the
instrument and (y) Consolidated Total Assets shall include intangible assets;
(ii) such acquisition shall not (A) result in a Leverage Ratio
higher than 75% for either Co-Borrower and its Subsidiaries and (B) cause 25% or
more of the Consolidated Total Liabilities of either Co-Borrower and its
Subsidiaries after the acquisition to be derived from past or present buyouts,
acquisitions or recapitalizations.
For purposes of clause (ii) (B) above, an acquisition shall be deemed to
result in more than 25% of the Consolidated Total Liabilities of a Co-Borrower
and its Subsidiaries to be derived from past or present buyouts, acquisitions or
recapitalizations if the total liabilities of the acquired entity plus the then
current balance of indebtedness, excluding trade payables, incurred or created
in connection with all prior acquisitions equals or exceeds 25% of the
Consolidated Total Liabilities of such Co-Borrower and its Subsidiaries.
"Permitted Acquisition Purchase Price" shall mean, with respect to
any Permitted Acquisition, collectively, without duplication, (i) all cash paid
by the Co-Borrowers or any of their
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Subsidiaries in connection with such Permitted Acquisition, including in respect
of transaction costs, fees and other expenses incurred by the Co-Borrowers or
any of their Subsidiaries in connection with such Permitted Acquisition, (ii)
all indebtedness created, and all indebtedness assumed, by the Co-Borrowers or
any of their Subsidiaries in connection with such Permitted Acquisition, (iii)
the value of all capital stock issued by the Co-Borrowers or any of their
Subsidiaries in connection with such Permitted Acquisition and (iv) any deferred
portion of the purchase price or any other costs paid by the Co-Borrowers or
any of their Subsidiaries in connection with such Permitted Acquisition,
including but not limited to consulting agreements and non-compete agreements.
"Person" shall mean an individual, partnership, corporation,
business trust, joint stock company, limited liability company, trust,
unincorporated association, joint venture, government authority or other entity
of whatever nature.
"Plan" shall mean at any particular time, any employee benefit plan
which is covered by ERISA and in respect of which the Co-Borrowers, or either of
them, or a Commonly Controlled Entity is (or, if such plan were terminated at
such time, would under Section 4069 of ERISA be deemed to be) an employer as
defined in Section 3(5) of ERISA.
"Prohibited Transaction" shall mean any transaction set forth in
Section 406 of ERISA or Section 4975 of the Internal Revenue Code of 1986, as
amended from time to time.
"Regulation D" shall mean Regulation D of the Board of Governors, as
the same may be amended and in effect from time to time.
"Regulation G" shall mean Regulation G of the Board of Governors, as
the same may be amended and in effect from time to time.
"Regulation T" shall mean Regulation T of the Board of Governors, as
the same may be amended and in effect from time to time.
"Regulation U" shall mean Regulation U of the Board of
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<PAGE>
Governors, as the same may be amended and in effect from time to time.
"Regulation X" shall mean Regulation X of the Board of Governors, as
the same may be amended and in effect from time to time.
"Reorganization" shall mean, with respect to any Multiemployer Plan,
the condition that such Plan is in reorganization within the meaning of such
term as used in Section 4241 of ERISA.
"Reportable Event" shall mean any of the events set forth in Section
4043(b) of ERISA, other than those events as to which the thirty-day notice
period is waived under subsections .13, .14, .16, .18, .19 or .20 of PBGC
Reg. Section 2615.
"Required Banks" shall mean, at any time, Banks having at least
66-2/3% of the total Commitments.
"Reserve Requirement" means, with respect to each Interest Period
for each Eurodollar Loan, the aggregate of the maximum rates (expressed as a
percentage and rounded upwards if necessary to the nearest 1/100th of 1%) of
reserve requirements current on the date two Working Days prior to the beginning
of such Interest Period (including, without limitation, basic, supplemental,
marginal and emergency reserves under any regulations of the Board of Governors
of the Federal Reserve System or other governmental authority having
jurisdiction with respect thereto), as now and/or from time to time hereafter in
effect, relating to reserve requirements prescribed for eurocurrency funding
maintained by a member bank of such system. Such reserve percentages shall
include, without limitation, those imposed under Regulation D. Eurodollar Loans
shall be deemed to constitute "eurocurrency liabilities" (as defined in
Regulation D) and, as such, shall be deemed to be subject to such reserve
requirements without benefit of or credit for proration, exemptions or offsets
which may be available to any bank under Regulation D. The Reserve Requirement
shall be adjusted automatically on and as of the effective date of any change in
any such reserve percentage.
"Security Agreement" shall mean each security agreement executed by
a Co-Borrower in favor of the Agent for the benefit of the Banks hereunder
substantially in the form of Exhibit B annexed
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<PAGE>
hereto.
"Single Employer Plan" shall mean any Plan which is covered by Title
IV of ERISA, but which is not a Multiemployer Plan.
"Solvent" means, when used with respect to any Person on a particular
date, that on such date: (a) the fair saleable value of its assets is in
excess of the total amount of its liabilities, including, without limitation,
the reasonable expected amount of such Person's obligations with respect to
contingent liabilities, (b) the present fair saleable value of the assets of
such Person is not less than the amount that will be required to pay the
probable liability of such Person on its indebtedness as they become absolute
and matured, (c) such Person does not intend to, and does not believe that it
will, incur indebtedness or liabilities beyond such Person's ability to pay as
such indebtedness and liabilities mature and (d) such Person is not engaged in
business or a transaction for which such Person's property would constitute an
unreasonably small capital.
"Subordinated Debt" shall mean all indebtedness of a Person, the
repayment of which the obligee has agreed in writing, on terms approved in
advance by the Agent in writing, shall be subordinated in right of payment to
all indebtedness of such Person to the Banks.
"Subsidiary" shall mean with respect to any Person, any corporation,
partnership or joint venture whether now existing or hereafter organized or
acquired: (i) in the case of a corporation, of which a majority of the
securities having ordinary voting power for the election of directors (other
than securities having such power only by reason of the happening of a
contingency) are at the time owned by such Person and/or one or more
Subsidiaries of such Person or (ii) in the case of a partnership or joint
venture, of which a majority of the partnership or other ownership interests are
at the time owned by such Person and/or one or more of its Subsidiaries.
"Termination Date" shall mean the earlier of September 25, 1999 or
the date the Commitments may be terminated.
"Total Commitment" means, at any time, the aggregate of the
Commitments in effect from time to time.
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"Working Day" shall mean any day on which dealings in foreign
currencies and exchange between banks may be carried on in the places where the
Agent's eurodollar lending office is located and in New York.
S1. Use of Defined Terms. All terms defined in this Agreement shall
have the defined meanings when used in the Notes, the Loan Documents,
certificates, reports or other documents made or delivered pursuant to this
Agreement unless the context shall otherwise require.
S2. Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP.
A1. AMOUNT AND TERMS OF THE REVOLVING CREDIT LOANS
S1.
Revolving Credit Loans. Subject to the terms and conditions of this Agreement,
each of the Banks severally (but not jointly) agree to make Loans in Dollars to
the Co-Borrowers at any time and from time to time on or after the date hereof,
to and including the Termination Date, in an aggregate principal amount
outstanding at any one time up to but not exceeding its Commitment Proportion of
the difference between (i) the Total Commitments and (ii) the Letter of Credit
Outstandings. The Loans may be outstanding as Base Rate Loans or Eurodollar
Loans; provided, however, that during the occurrence and continuance of a
Default or an Event of Default, the Banks shall have no obligation to make
Eurodollar Loans. Subject to the foregoing limits, the Co-Borrowers may use the
Commitment by borrowing, repaying and reborrowing, all in accordance with the
terms and conditions of this Agreement. Notwithstanding the foregoing, in no
event shall the aggregate principal amount of Loans made available to PDK exceed
PDK Sublimit and in no event shall the aggregate principal amount of Loans made
available to Futurebiotics exceed the Futurebiotics Sublimit.
S2.
The Notes. The Loans made by each Bank for the benefit of PDK shall be
evidenced by a single promissory note in favor of such Bank substantially in the
form of Exhibit A-1 annexed hereto with appropriate insertions, duly executed
and completed by the Co-Borrowers. The Loans made by each Bank for the benefit
of Futurebiotics shall be evidenced by a single promissory note in favor of such
Bank substantially in the form of Exhibit A-2 annexed
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<PAGE>
hereto with appropriate insertions, duly executed and completed by the
Co-Borrowers. Each Bank is hereby authorized to record the date, type and amount
of each Loan, the date and amount of each payment of principal thereof, the
principal amount subject thereto and the interest rate and Interest Period with
respect thereto in the Bank's records and/or on schedules annexed to and
constituting a part of the Notes, and, absent manifest error, any such
recordation shall constitute conclusive evidence of the information so recorded;
provided, that the failure to make such recordation shall not in any way affect
the obligations of the Co-Borrowers to repay the Loans. The Notes (a) shall be
dated the date hereof, (b) be stated to mature on the Termination Date and (c)
bear interest on the unpaid principal amount thereof as follows:
(a)
Each Base Rate Loan shall bear interest on the unpaid principal amount thereof
at a rate per annum equal to the Alternate Base Rate. Interest on Base Rate
Loans shall be payable monthly on the first Business Day of each month
commencing on the first such date after a Base Rate Loan is made and upon
payment or prepayment in full of the unpaid principal amount thereof.
(b)
Each Eurodollar Loan shall bear interest on the unpaid principal amount thereof
at a rate per annum equal to 2% above the Eurodollar Rate. Interest on each
Eurodollar Loan shall be payable on the last day of each Interest Period
applicable thereto, and upon payment or prepayment in full of the unpaid
principal amount thereof. If applicable, interest on each Eurodollar Loan with
an Interest Period greater than one month shall also be payable on the first
Business Day of each month from the date of such Eurodollar Loan, and on the
first Business Day of each month thereafter.
(c)
The unpaid principal amount of all Base Rate Loans and Eurodollar Loans shall be
payable on the Termination Date. If all or a portion of any principal amount of
any loan shall not be paid when due (whether as stated, by acceleration or
otherwise), such loan, if a Eurodollar Loan, shall be converted to a Base Rate
Loan at the end of the relevant Interest Period applicable thereto, and any such
overdue principal amount shall bear interest at a rate per annum
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which is 2% above the rate which would otherwise be applicable pursuant to the
terms of this Section 2.2.
S3.
Notice of Borrowing; Minimum Amounts. (a) The Co-Borrowers shall give the Agent
prior telephonic notice followed by written, telegraphic or tested telex
confirmation of the date, the borrowing option, the applicable Interest Period,
if any, and the amount of each borrowing pursuant to the Commitment at least by
11:00 a.m. (i) on the borrowing date of any Base Rate Loan, and (ii) at least
three (3) Working Days prior to the borrowing date of any Eurodollar Loan. Each
such notice, which shall be effective only upon receipt thereof by the Agent,
shall also include a certification, if form and substance satisfactory to the
Agent, indicating which of the Co-Borrowers will receive the proceeds of such
Loan. Notice of receipt of any such notice shall be provided by the Agent to
each Bank with reasonable promptness.
(b) Each Bank will make its share of each borrowing available to the
Agent by 12:00 p.m. on the date of such borrowing in immediately available
funds. Unless any applicable condition specified in Article 3 has not been
satisfied, the amounts so received by the Agent will be made available to the
Co-Borrowers by credit to an account of the Co-Borrowers maintained at the
Agent. All Loans requested by the Co-Borrowers to benefit PDK shall be credited
to an account of PDK maintained at the Agent and all Loans represented by the
Co-Borrowers to benefit Futurebiotics shall be credited to an account of
Futurebiotics maintained at the Agent.
(c) At least three (3) Working Days prior to the last day of any
Interest Period with respect to any Eurodollar Loan, the Co-Borrowers may give
the Agent notice of their election to continue such Eurodollar Loan, specifying
the resulting Interest Period. If the Co-Borrowers shall fail to give such
notice, any loan affected thereby shall be automatically converted to a Base
Rate Loan at the end of such Interest Period. Upon at least three (3) Working
Days' prior written notice, the Co-Borrowers may give the Agent notice of their
election to convert a Base Rate Loan to a Eurodollar Loan, specifying the
resulting Interest Period. Notice of receipt of any such notice shall be
provided by the Agent to the Banks with reasonable promptness. The Banks may,
but shall be under no obligation to, continue any Eurodollar Loan as such or to
convert any Base Rate Loan to a Eurodollar Loan, when any Default or Event of
Default has occurred and is continuing, but any such Eurodollar
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Loan shall be automatically converted to a Base Rate Loan on the last day of the
Interest Period applicable thereto, and any such Base Rate Loan shall be
continued as a Base Rate Loan, as the case may be.
(d) Except for borrowings which exhaust the full remaining amount of
the Commitments, each borrowing of Base Rate Loans shall be in an amount at
least equal to $100,000 and, if greater, in integral multiples of $100,000 in
excess thereof, and each borrowing of Eurodollar Loans shall be in an amount at
least equal to $500,000, and, if greater, in integral multiples of $100,000 in
excess thereof.
S1.
Commitment Fee. The Co-Borrowers agree to pay to the Agent for the pro rata
account of each Bank a commitment fee for the period from and including the date
hereof to and including the Termination Date, computed at the rate of 1/4 of 1%
per annum on the average daily unused portion of the Total Commitments in effect
during the period for which payment is made. Such commitment fee shall be
payable on the last day of each March, June, September and December, and on the
Termination Date.
S2.
Termination or Reduction of Commitment; Acceleration of Termination Date. The
Co-Borrowers shall have the right, upon not less than three (3) Business Days
prior written notice to the Agent, to terminate the Commitment in whole at any
time or to reduce the Commitments in part from time to time, or to accelerate
the Termination Date, provided that (a) any reduction of the Commitments shall
be accompanied by prepayment, together with accrued interest on the amount so
prepaid and any payment required by Section 2.12(iv), to the extent, if any,
that the aggregate unpaid principal amount of the Note exceeds the Commitment as
then reduced, (b) any termination of the Commitments shall be accompanied by
payment in full of the unpaid principal amount of the Notes, together with
accrued interest thereon and any payment required by Section 2.12(iv), and the
payment of any commitment fee then accrued hereunder, (c) any acceleration of
the Termination Date shall be accompanied by the payment of any commitment fee
then accrued hereunder and any payment required by Section 2.12 (iv) and (d) any
partial reduction in the Commitments shall reduce the Futurebiotics Sublimit
and/or PDK Sublimit in such amounts as the Co-Borrowers' may elect in their
notice to the Agent. If the Co-
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<PAGE>
Borrowers do not specify a different allocation in the notice required to be
delivered to the Agent hereunder, any reduction in the Commitment shall be
applied to reduce the Futurebiotics Sublimit and PDK Sublimit proportionately.
Any partial reduction shall be in an aggregate principal amount of $50,000 or a
multiple thereof and shall reduce permanently the Commitments then in effect
hereunder. The Commitments, once reduced or terminated, shall not be increased
or reinstated, as the case may be.
S3.
Changes in Capital Requirements. If after the date hereof, any Bank shall have
determined that the adoption of any applicable law, rule or regulation regarding
capital adequacy, or any change therein, or any change in the interpretation or
administration thereof, by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by any Bank with any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on such Bank's capital as a consequence of its obligations hereunder to a level
below that which such Bank could have achieved but for such adoption, change or
compliance (taking into consideration such Bank's policies with respect to
capital adequacy) by an amount deemed by such Bank to be material, then such
Bank shall notify the Agent and the Co-Borrowers of such event and within 15
days after such notice is delivered by such Bank hereunder, the Co-Borrowers
shall pay to the Agent for the benefit of such Bank such additional amount or
amounts as will compensate such Bank for such reduction.
1. Voluntary Prepayments. The Co-Borrowers may prepay any Base Rate Loan
without premium or penalty in whole at any time or in part from time to time,
and any Eurodollar Loan without premium or penalty in whole or in part on the
last day of any Interest Period applicable thereto. Eurodollar Loans may not be
prepaid during an Interest Period without the prior written consent of the
Agent. Partial prepayments of the Loans shall be in the principal amount of
$25,000 or multiples thereof if repayment is of a Base Rate Loan, and $250,000
or multiples thereof if repayment is of a Eurodollar Loan, together with payment
of accrued interest thereon to the date of the prepayment (and, if applicable,
the payment required by Section 2.12 (iv)). The Co-Borrowers shall give to the
Agent and each Bank at least three (3) Business Days prior written,
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telegraphic or tested telex notice of any repayment or prepayment, specifying
the date and the amount thereof.
S1. Computation of Interest and Commitment Fee; Payments. Commitment fees, if
any, and interest shall be calculated on the basis of a 360 day year for the
actual days elapsed. Any change in the interest rate on the Notes resulting from
a change in the Base Rate shall become effective as of the opening of business
on the day on which such change in the Base Rate shall become effective. All
payments (including prepayments) by the Co-Borrowers on account of principal
and interest on the Loans and the commitment fee hereunder shall be made not
later than 10:00 a.m. on the date specified herein to the Agent for the benefit
of the Banks, at the Agent's office located at 395 North Service Road, Suite
302, Melville, New York 11747 in Dollars in immediately available funds. If any
payment on a Base Rate Loan becomes due and payable on a day other than a
Business Day the maturity thereof shall be extended to the next succeeding
Business Day and interest thereon shall be payable at the then applicable rate
during such extension. If any payment on a Eurodollar Loan becomes due and
payable on a day other than a Working Day, the maturity thereof shall be
extended to the next succeeding Working Day unless the result of such extension
would be to extend such payment into another calendar month in which event such
payment shall be made on the immediately preceding Working Day.
S2. Inability to Determine Rate. If with respect to any Interest Period
pertaining to a Eurodollar Loan, the Agent determines that extraordinary
circumstances affecting the relevant market make it impracticable to ascertain
the interest rate applicable for such Interest Period, the Agent shall promptly
notify the Co-Borrowers and each Bank of such determination and no additional
Eurodollar Loans shall be made nor shall there be any conversions thereto until
such notice is withdrawn. If any Eurodollar Loan is outstanding on the date of
such notice and such notice has not been withdrawn on the last day of the then
current Interest Period applicable thereto, the Co-Borrowers may on the last day
of such Interest Period either convert such Eurodollar Loan to a Base Rate Loan
or prepay the outstanding principal balance thereof and accrued interest thereon
in full.
S3. Illegality. Notwithstanding any other provisions of this Agreement, if
any law, regulation, treaty or directive or any
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change therein or in the interpretation or application thereof, shall make it
unlawful for any Bank to make or maintain Eurodollar Loans as contemplated by
this Agreement, then (a) such Bank shall promptly notify the Agent thereof (with
a copy to the Co-Borrowers) and such Bank's obligation to make or maintain
Eurodollar Loans or convert Base Rate Loans to Eurodollar Loans shall forthwith
be suspended until such time as such Bank may again make and maintain such Loans
and (b) Loans then outstanding as Eurodollar Loans, if any, shall be converted
to Base Rate Loans on the last day of the Interest Period applicable thereto or
within such earlier period as required by law. The Co-Borrowers hereby agree to
promptly pay to the Agent for the benefit of the affected Bank, upon the demand
of such Bank through the Agent, any amounts required by Section 2.12(iv)
resulting from a prepayment of a Eurodollar Loan.
S4. Requirements of Law. In the event that any law, regulation, treaty or
directive or any change therein or in the interpretation or application thereof
or compliance by any Bank with any request or directive (whether or not having
the force of law) from any central bank or other governmental authority, agency
or instrumentality:
(i) does or shall subject such Bank to any tax of any kind
whatsoever with respect to this Agreement, its Commitment,
the Notes or any Loans made hereunder, or change the basis of
taxation of payments to such Bank of principal, commitment fee,
interest or any other amount payable hereunder (except for
changes in the rate of any tax presently imposed on such Bank);
(ii) does or shall impose, modify or hold applicable any
reserve, special deposit, compulsory loan or similar requirement
against assets held by, or deposits or other liabilities in or
for the account of, advances or loans by, or other credit extended
by, or any other acquisition of funds by, any office of such
Bank which are not otherwise included in the determination of
the Eurodollar Rate hereunder;
(iii) does or shall impose on such Bank any other condition;
and the result of any of the foregoing is to increase the cost to such Bank of
making, renewing or maintaining commitments, advances or extensions of credit to
the Co-Borrowers or to reduce any amount
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<PAGE>
receivable from the Co-Borrowers thereunder then, in any such case, the
Co-Borrowers shall promptly pay to the Agent for the account of each Bank, upon
the demand of such Bank through the Agent, any additional amounts necessary to
compensate such Bank for such additional cost or reduced amount receivable which
such Bank deems to be material as determined by such Bank with respect to this
Agreement, its Commitment, the Notes or the Loans made hereunder. If any Bank
becomes entitled to claim any additional amounts pursuant to this Section 2.11,
it shall promptly notify the Co-Borrowers and the Agent of the event by reason
of which it has become so entitled. A certificate setting forth calculations as
to any additional amounts payable pursuant to the foregoing sentence submitted
by such Bank to the Agent the Co-Borrowers shall be conclusive in the absence of
manifest error.
S1. Indemnification. The Co-Borrowers agree to indemnify each Bank (including,
without limitation, the Agent) and to hold each Bank harmless from any loss or
expense which such Bank may sustain or incur as a consequence of (i) default by
the Co-Borrowers in payment when due of the principal amount of or interest on
any Eurodollar Loan, (ii) default by the Co-Borrowers in making a borrowing of,
conversion into or continuation of Eurodollar Loans after the Co-Borrowers have
given a notice requesting the same in accordance with the provisions of this
Agreement, (iii) default by the Co-Borrowers in making any prepayment after the
Co-Borrowers have given a notice thereof in accordance with the provisions of
this Agreement, or (iv) the making of a prepayment of Eurodollar Loans on a day
which is not the last day of an Interest Period with respect thereto, including,
without limitation, in each case, any such loss (including lost profits) or
expense arising from the reemployment of funds obtained by it or from fees
payable to terminate the deposits from which such funds were obtained. This
covenant shall survive the termination of this Agreement and the payment of the
Notes and all other amounts payable hereunder.
S2. Use of Proceeds. (a) No part of the proceeds of any borrowing hereunder
will be used to purchase or carry any margin stock or to extend credit to others
for the purpose of purchasing or carrying any margin stock. If requested by the
Agent, the Co-Borrowers will furnish to the Agent a statement in conformity
with the requirements of Federal Reserve Form U-1 referred to in Regulation U
and to the foregoing effect. No part of the proceeds of the Loans will be used
for any purpose which
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<PAGE>
violates, or which is inconsistent with, the provisions of Regulation G,
Regulation T, Regulation U or Regulation X.
(a) The proceeds of the Loans shall be used (i) to refinance all
obligations of the Co-Borrowers (other than the obligations of PDK with respect
to the Existing Term Loans), under the Futurebiotics Credit Agreement and PDK
Credit Agreement; and (ii) subject to the Futurebiotics Sublimit and PDK
Sublimit, to finance the ongoing working capital needs and capital expenditures
of the Co-Borrowers. The proceeds of the Loans shall not be used to finance
acquisitions.
S3. Authorization to Debit Co-Borrowers' Accounts. The Agent is hereby
authorized to debit any account of the Co-Borrowers or of either Co-Borrower
maintained with the Agent for (i) all scheduled payments of principal and/or
interest under the Notes, and (ii) the commitment fee and all other amounts due
hereunder; all such debits to be made on the days such payments are due in
accordance with the terms hereof.
S4. Default Interest. Upon the occurrence and during the continuation of a
Default, the Co-Borrowers shall pay interest on all amounts owing under the
Notes and this Agreement (after as well as before judgment) at a rate per annum
(computed on the basis of the actual number of days elapsed and a year of 360
days) equal to 2% in excess of the interest rate otherwise in effect hereunder.
S5. Interest Adjustments. (a) If the provisions of this Agreement or the
Notes would at any time otherwise require payment by the Co-Borrowers to the
Agent for the benefit of the Banks of any amount of interest in excess of the
maximum amount then permitted by applicable law the interest payments shall be
reduced to the extent necessary so that the Banks shall not receive interest in
excess of such maximum amount. To the extent that, pursuant to the foregoing
sentence, the Banks shall receive interest payments hereunder or under the Notes
in an amount less than the amount otherwise provided, such deficit (hereinafter
called the "Interest Deficit") will cumulate and will be carried forward
(without interest) until the termination of this Agreement. Interest otherwise
payable to the Banks hereunder and under the Notes for any subsequent period
shall be increased by such maximum amount of the Interest Deficit that may be so
added without causing the Banks to receive interest in excess of the maximum
amount then permitted by applicable law.
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<PAGE>
(a) To the extent permitted by law, the amount of the Interest
Deficit shall be treated as a prepayment penalty and paid in full at the time of
any optional prepayment by the Co-Borrowers to the Banks of all outstanding
Loans.
S6. Participations, Etc. Each Bank shall have the right at any time, with or
without notice to the Co-Borrowers, to sell, assign, transfer or negotiate all
or any part of its Notes or its Commitments or grant participations therein
to one or more banks (foreign or domestic, including an affiliate of any Bank),
insurance companies or other financial institutions, pension funds or mutual
funds. The Co-Borrowers and the Guarantors agree and consent to the Agent
providing financial and other information regarding their business and
operations to prospective purchasers or participants and further agree that to
the extent that any Bank should sell, assign, transfer or negotiate all or any
part of the Notes or the Commitment, such Bank shall be forever released and
discharged from its obligations under the Notes, the Commitment and this
Agreement to the extent same is sold, assigned, transferred or negotiated. Each
Bank shall have the right, at any time and from time to time, to pledge the
Notes to any Federal Reserve Bank. In the event that any Bank sells, assigns or
transfers all or any part of its Commitment hereunder to another bank, such
other bank shall be deemed to be a "Bank" for all purposes hereof and shall
execute such documents or instruments as are required by the Agent to give
effect to the provisions of this Section 2.17 including, without limitation, an
intercreditor agreement and a collateral agency agreement, in form and substance
satisfactory to the Agent.
A1. CONDITIONS OF BORROWING
S1. Conditions of Initial Revolving Credit Loan. The obligation of the Banks
to make the initial Loan hereunder shall be subject to the fulfillment of
the following conditions precedent:
(a) the Agent shall have received on or before the date hereof each
of the following, with copies for each Bank, each in form and substance
reasonably satisfactory to the Agent and its counsel:
(i) this Agreement and the Notes executed in favor of the Banks
duly executed by the Co-Borrowers;
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(ii) a certificate of the Secretary of each of the Co-Borrowers
and each of the Guarantors, dated the Closing Date, attesting to all
corporate action taken by such entity, including resolutions of its
Board of Directors authorizing the execution, delivery and performance
of the Loan Documents and each other document to be delivered pursuant
to this Agreement, together with certified copies of the certificate
or articles of incorporation and the by-laws of each of the Co-
Borrowers and each of the Guarantors; and, such certificate shall
state that the resolutions and corporate documents thereby certified
have not been amended, modified, revoked or rescinded as of the date
of such certificate;
(iii) a certificate of the Secretary of each of the Co-Borrowers
and each of the Guarantors, dated the Closing Date, certifying the
names and true signatures of the officers of such entity authorized to
sign the Loan Documents and the other documents to be delivered by
such entity under this Agreement;
(iv) a certificate of a duly authorized officer of each of the
Co-Borrowers, dated the Closing Date, stating that the representations
and warranties in Article 4 are true and correct on such date as
though made on and as of such date and that no event has occurred and
is continuing which constitutes a Default or Event of Default;
(v) Security Agreements duly executed by each of the
Co-Borrowers and Guarantor's Security Agreements executed by each of
the Guarantors, together with (A) fully completed and executed
financing statements on Form UCC-1, in proper form for filing duly
filed under the Uniform Commercial Code in all jurisdictions necessary
or, in the reasonable discretion of the Agent, desirable to perfect
the security interests to be granted hereunder and under the Security
Agreements and the Guarantor's Security Agreements and (B) UCC search
results identifying all of the financing statements
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on file with respect to each Co-Borrower and each Guarantor in all
jurisdictions referred to under clause (A) hereof, indicating that no
party claims an interest in any of the Collateral;
(vi) Guaranties, duly executed by each Guarantor;
(vii) a favorable opinion of counsel for the Co-Borrowers and
Guarantors, dated the Closing Date, in form and substance
satisfactory to the Agent and its counsel;
(viii) satisfactory evidence that the Co-Borrowers and the
Guarantors are duly organized, validly existing and in good standing
under the laws of their respective jurisdictions of incorporation and
each other jurisdiction where qualification is necessary;
(ix) audited consolidated balance sheet of PDK and its
Subsidiaries as of November 30, 1995, and consolidated income
statement and statement of cash flows of PDK and its Subsidiaries for
the fiscal year then ended, all prepared in accordance with GAAP,
together with the unqualified opinion thereon of Holtz Rubenstein &
Co., LLP, independent certified public accountants, together with
corresponding management prepared consolidating financial statements
of PDK and its Subsidiaries, all prepared in accordance with GAAP
under the supervision of the chief financial officer of PDK, and
unaudited consolidated and consolidating balance sheets of PDK and its
Subsidiaries as at May 31, 1996, together with consolidated and
consolidating income statements and statements of cash flows of PDK
and its Subsidiaries, for the fiscal quarter ended May 31, 1996, and
for the period commencing at the end of the previous fiscal year and
ending with the end of such quarter, each prepared by or under the
supervision of the chief financial officer of PDK in accordance with
GAAP.
(x) an audited balance sheet of
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Futurebiotics as of November 30, 1995 and income statement and
statement of cash flows of Futurebiotics for the fiscal year then
ended, all prepared in accordance with GAAP, together with an
unqualified opinion thereon of Holtz Rubenstein & Co., LLP,
independent certified public accountants and an unaudited balance
sheet of Futurebiotics as at May 31, 1996, together with an income
statement and statement of cash flows of Futurebiotics for the fiscal
quarter ended May 31, 1996 and for the period ending at the end of the
previous fiscal year and ending with the end of such quarter, each
prepared by or under the supervision of the chief financial officer of
Futurebiotics in accordance with GAAP;
(xi) certificates of insurance covering the Collateral and the
other assets and the business of the Co-Borrowers and the Guarantors,
which certificates shall designate the Agent as the "loss payee" and
as an "additional insured", in form and substance and in amounts and
with carriers satisfactory to the Agent in all respects;
(xii) evidence satisfactory to the Agent that the products
liability insurance referred to in Section 5.3 hereof is in full force
and effect on the date hereof;
(xiii) a complete copy of the supply agreement executed by and
between PDK and Futurebiotics, together with all amendments,
supplements or modifications thereof;
(xiv) for each of PDK and Futurebiotics, a summary accounts
receivable aging and a detailed aging for its 10 largest customers for
the most recent month then ended, in form and substance satisfactory
to the Agent;
(xv) landlord's waivers, in form and substance satisfactory to
the Agent, for each location leased by the Co-
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Borrowers or the Guarantors, or any of them, where assets of the
Co-Borrowers or the Guarantors, or any of them, are located;
(xvi) a certified copy of the certificate of dissolution of C&C
Enterprises, Inc; and
(xvii) such other documents, instruments, approvals, opinions
and evidence as the Agent may reasonably require.
(b) the Co-Borrowers shall have paid or caused to be paid in full
all fees and expenses required to be paid hereunder or in connection herewith,
and including all fees and expenses of the Agent incurred in connection with the
preparation, execution and delivery of this Agreement and the other Facility
Documents and the consummation of the transactions contemplated thereby;
(c) the Co-Borrowers and the Guarantors shall have obtained all
consents, permits and approvals required in connection with the execution,
delivery and performance by the Co-Borrowers and the Guarantors of their
obligations hereunder and such consents, permits and approvals shall continue in
full force and effect;
(d) the Futurebiotics Credit Agreement shall have been terminated
and Chase shall be satisfied that the proceeds of the initial Loans hereunder
shall be applied to pay the obligations of Futurebiotics under the Futurebiotics
Credit Agreement in full;
(e) Chase and PDK shall have entered into an amendment to the PDK
Credit Agreement pursuant to which Chase's obligation to extend additional
credit to PDK shall be terminated and Chase shall be satisfied that the proceeds
of the initial Loans hereunder shall be applied to pay the obligations of PDK
under the PDK Credit Agreement (other than its obligations with respect to the
Existing Term Loans) in full;
(f) Chase and PDK shall have entered into an amendment to the
agreements giving rise to the Existing Term Loans pursuant to which PDK
reaffirms its duty to pay to Chase in full its obligations thereunder;
(g) the Agent shall be satisfied with the form and content of all
Schedules delivered by the Co-Borrowers pursuant to
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this Agreement or any document delivered in connection herewith;
(h) the Co-Borrowers shall provide reasonably satisfactory evidence
that none of them nor any Guarantor is in default with respect to any
contractual obligations to which it is a party, the effect of which may be
material and adverse to any Co-Borrower or any Guarantor, or to the ability of
any Co-Borrower or any Guarantor to perform its obligations hereunder or under
the other Loan Documents;
(i) results satisfactory to the Agent of all due diligence with
respect to the Co-Borrowers and the Guarantors including, without limitation,
trade checkings, customer checkings and litigation checkings and all due
diligence with respect to management of the Co-Borrowers and/or the Guarantors;
(j) receipt and satisfactory review by the Agent of (i) all material
loan documents or credit agreements entered into by any Co-Borrower or
Guarantor; (ii) all shareholder, and management agreements entered into by any
Co-Borrower or Guarantor; (iii) any employment agreement entered into by any Co-
Borrower or any Guarantor and any officer of any such entity; and (iv) all lease
agreements entered into by any Co-Borrower or Guarantor;
(k) copies of each of the Co-Borrowers' customer lists, certified by
the President or Chief Financial Officer of such Co-Borrower to be complete and
accurate as of a date reasonably acceptable to the Agent;
(l) since November 30, 1995, nothing shall have occurred which in
the Agent's sole judgment could, individually or in the aggregate, have a
material adverse effect upon (i) the rights and remedies of the Agent or the
Banks under this Agreement or the other Loan Documents; (ii) the ability of
any of the Co-Borrowers or the Guarantors to perform its obligations hereunder
or under any other Document; or (iii) the business, property, assets,
liabilities, condition (financial or otherwise), operations, results of
operations or prospects of any Co-Borrower or any Guarantor after giving effect
to the transactions contemplated hereby;
(m) the Agent and its counsel shall be satisfied in all respects
with their review of any litigation pending against the Co-Borrowers or any
Guarantor and shall have been provided with
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a letter from the Co-Borrower's counsel describing the status of a litigation
captioned PDK Labs Inc. v. Perry D. Krape, which is pending in New York State
Court in Suffolk County; and
(n) all legal matters in connection with this financing shall be
reasonably satisfactory to the Agent and its counsel.
S2. Additional Conditions Precedent.
The obligation of the Banks to make any Loan shall be subject to the
further conditions precedent (which shall be in addition to, and shall not be
deemed to limit or modify, any of the other terms and conditions hereunder) that
on the date of such Loan, the Agent shall have received the following:
(a) a certificate executed by the Chief Financial Officer of each of
the Co-Borrowers, dated as of such date, stating that (i) the representations
and warranties contained in Article 4 hereof, which for purposes of this
Section, shall be deemed to relate to the Co-Borrowers and to each Subsidiary as
if each such Person were the subject of each such representation and warranty,
are true and correct in all material respects on and as of the date of such Loan
as though made on and as of such date (except when such representation or
warranty by its terms relates to the date hereof or another specific date); and
(ii) no Default or Event of Default has occurred and is continuing or would
result from any such Loan;
(b) a certificate executed by the Chief Financial Officer of each of
the Co-Borrowers, dated as of such date, in form and substance satisfactory to
the Agent stating that the Aggregate Outstandings after giving effect to the
proposed borrowing will not exceed the Commitment and demonstrating compliance,
after giving effect to the proposed borrowing, the aggregate principal balance
of loans made for the account of PDK shall not exceed PDK Sublimit and the
aggregate principal balance of loans made for the account of Futurebiotics shall
not exceed the Futurebiotics Sublimit;
(c) copies of all invoices, bills, contracts and paid receipts in
connection with any capital expenditure to be purchased, made or financed with
the proceeds of any Loan; and
(d) all other instruments and legal and corporate
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proceedings in connection with the transactions contemplated by this Agreement
shall be satisfactory in form and substance to the Agent and its counsel, and
the Agent shall have received copies of all documents which it may have
reasonably requested in connection therewith.
A1. REPRESENTATIONS AND WARRANTIES
In order to induce the Agent and the Banks to enter into this
Agreement and to make the Loans herein provided for, the Co-Borrowers and the
Guarantors hereby represent and warrant that:
S1. Corporate Existence. Each of the Co-Borrowers and the Guarantors is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and each has the corporate power to own its
assets and to transact the business in which it is presently engaged, and is
duly qualified as a foreign corporation and in good standing under the laws of
each jurisdiction in which failure to so qualify or be in good standing could
result in a Material Adverse Change in such Co-Borrower or Guarantor.
S2. Corporate Power and Authorization. Each of the Co-Borrowers and the
Guarantors has the corporate power, authority and legal right to make, deliver
and perform the Loan Documents to which it is a party and, with respect to the
Co-Borrowers, to borrow hereunder and has taken all necessary corporate action
to authorize the borrowings hereunder and the Guaranties on the terms and
conditions of this Agreement, the Notes, and the Guaranties. No consent of any
other party (including stockholders of the Co-Borrowers or the Guarantors), and
no consent, license, approval or authorization of, or registration or
declaration with, any governmental authority, bureau or agency is required in
connection with the execution, delivery, performance, validity or enforceability
of the Loan Documents. The Loan Documents when delivered hereunder will have
been duly executed and delivered on behalf of the Co-Borrowers and the
Guarantors, as the case may be, and will be legal, valid and binding obligations
of the Co-Borrowers and the Guarantors, as the case may be, enforceable against
the Co-Borrowers or the Guarantors in accordance with their respective terms.
S3. No Legal Bar to Loans. The execution, delivery and performance of the
Loan Documents will not violate any provision of any existing law or regulation
or of any order or decree of any
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court or governmental instrumentality, or of the certificates of incorporation
or by-laws of the Co-Borrowers, or either of them or any of the Guarantors, or
of any mortgage, indenture, contract or other agreement to which the
Co-Borrowers, or either of them, or any of the Guarantors is a party or by which
the Co-Borrowers, or either of them, or any of the Guarantors or any of their
property or assets may be bound, and will not result in the creation or
imposition of any Lien on any of its properties pursuant to the provisions of
such mortgage, indenture, contract or other agreement.
S4. No Material Litigation. Except as set forth on Schedule 4.4 hereto, no
litigation or administrative proceedings of or before any court, tribunal or
governmental body is presently pending, or, to the knowledge of the
Co-Borrowers, threatened against the Co-Borrowers, or either of them, or any of
the Guarantors or any of its or their properties or with respect to the Loan
Documents which, if adversely determined, could result in, in the opinion of the
Co-Borrowers, a Material Adverse Change in the Co-Borrowers, or either of them,
or any of the Guarantors.
S5. No Default. Except as set forth on Schedule 4.5 hereto, neither the
Co-Borrowers, nor either of them, nor any of the Guarantors is in default in any
material manner in the payment or performance of any of their obligations or in
the performance of any contract, agreement or other instrument to which any of
them is a party or by which any of them or any of their assets may be bound, and
no Default hereunder has occurred and is continuing.
S6. Ownership of Properties; Liens. Each of the Co-Borrowers and each of the
Guarantors has good and marketable title to all of their properties and assets,
real and personal, and none of such properties and assets are subject to any
Lien except as permitted in Section 6.2 hereof and except as set forth on
Schedule 4.6 hereto.
S7. Taxes. Each Co-Borrower and each of the Guarantors has filed or caused to
be filed all tax returns which to the knowledge of the Company are required to
be filed, and has paid all taxes shown to be due and payable on said returns or
on any assessments made against them (other than those being contested in good
faith by appropriate proceedings for which adequate reserves have been provided
on the books of such Co-Borrower or such Guarantor, as the case may be), and no
tax liens have been filed
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and, to the best of the knowledge of the Co-Borrowers and the Guarantors, no
claims are being asserted with respect to any taxes.
S8. Financial Condition. The financial statements referred to in Section
3.1(ix) and (x) hereof heretofore furnished to the Agent, each present fairly
the financial condition of PDK and its Subsidiaries and Futurebiotics as at the
dates of said statements and the results of their operations for the periods
covered by such statements. All such financial statements have been prepared in
accordance with GAAP and since the date of the annual financial statement
mentioned above, there has been no Material Adverse Change in the Co-Borrowers,
or either of them, or any of the Guarantors from that shown by said statements
as of said date and since the date of the quarterly financial statements
mentioned above, there has been no material increase in liabilities of PDK and
its Subsidiaries or of Futurebiotics. Neither of the Co-Borrowers nor any of the
Guarantors has any material obligation, liability or commitment, direct or
contingent, which is not reflected in the foregoing financial statements (and
the related notes thereto) as of said dates.
S9. Filing of Statements and Reports. Each of the Co-Borrowers and each of
the Guarantors have filed copies of all material statements and reports which,
to the knowledge of the Co-Borrowers or the Guarantors, are required to be filed
with any governmental authority, agency, commission, board or bureau.
S10. ERISA. Each Co-Borrower and each of the Guarantors, and each ERISA
Affiliate are in compliance in all material respects with all applicable
provisions of ERISA. Neither a Reportable Event nor a Prohibited Transaction has
occurred and is continuing with respect to any Plan; no notice of intent to
terminate a Plan has been filed nor has any Plan been terminated; no
circumstances exist which constitute grounds under to terminate, or appoint a
trustee to administrate, a Plan, nor has the PBGC instituted any such
proceedings; none of the Co-Borrowers or the Guarantors, nor any ERISA
Affiliate has completely or partially withdrawn under Sections 4201 or 4204 of
ERISA from a Multiemployer Plan; each Co-Borrower and each of the Guarantors and
each ERISA Affiliate have met their minimum funding requirements under ERISA
with respect to all of their Plans and the present fair market value of all Plan
assets exceeds the present value of all vested benefits under each Plan, as
determined on the most recent valuation date of the Plan in accordance with
the provisions of
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ERISA for calculating the potential liability of each Co-Borrower and each of
the Guarantors or any ERISA Affiliate to PBGC or the Plan under Title IV of
ERISA; and none of the Co-Borrowers, nor any of the Guarantors nor any ERISA
Affiliate, or any of them, has incurred any liability to the PBGC under ERISA.
S11. Environmental Matters. Each Co-Borrower and each of the Guarantors are in
compliance with all federal, state or local laws, ordinances, rules, regulations
or policies governing Hazardous Materials and none of the Co-Borrowers nor any
of the Guarantors have used Hazardous Materials on, from, or affecting any
property now owned or occupied or hereafter owned or occupied by such
Co-Borrower or Guarantor in any manner which violates federal, state or local
laws, ordinances, rules, regulations or policies governing the use, storage,
treatment, transportation, manufacture, refinement, handling, production or
disposal of Hazardous Materials, and that to the best knowledge of the
Co-Borrowers and the Guarantors, no prior owner of any such property or any
tenant, subtenant, prior tenant or prior subtenant have used Hazardous Materials
on, from or affecting such property in any manner which violates federal, state
or local laws, ordinances, rules, regulations, or policies governing the use,
storage, treatment, transportation, manufacture, refinement, handling,
production or disposal of Hazardous Materials.
S12. Licenses, Permits, etc. Each Co-Borrower and each of the Guarantors
possess all licenses, permits, franchises, patents, copyrights, trademarks and
trade names, or rights thereto, to conduct their respective businesses
substantially as now conducted and as presently proposed to be conducted, and
none of the Co-Borrowers nor the Guarantors is in violation of any similar
rights of others.
S13. Material Agreements. None of the Co-Borrowers or the Guarantors is a
party to any indenture, loan or credit agreement or any other agreement, lease
or instrument or subject to any charter or corporate restriction the violation
of which could result in a Material Adverse Change in the Co-Borrowers, or
either of them, or any Guarantor.
S14. Margin Credit. The Co-Borrowers are not engaged in the business of
extending credit for the purpose of purchasing or carrying margin stock
(within,the meaning of Regulation U), and no proceeds of any Loan will be used
to purchase or carry any
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margin stock or to extend credit to others for the purpose of purchasing or
carrying any margin stock or in any other way which will violate the provisions
of Regulation G, T, U or X.
S15. Use of Proceeds. The proceeds of each Loan shall be used for the purposes
set forth in Section 2.13 hereof.
S16. Properties Affected. Neither the business nor the properties of any
Co-Borrower or any Guarantor are affected by any fire, explosion, accident,
strike, hail, earthquake, embargo, act of God or of the public enemy, or other
casualty (whether or not covered by insurance), which could result in a Material
Adverse Change in the Co-Borrowers, or either of them, or any Guarantor.
S17. Guarantors. The liability of each Guarantor as a result of the execution
of its Guaranty and the execution of this Agreement shall not cause the
liabilities (including contingent liabilities) of such Guarantor to exceed the
fair saleable value of its assets. Each Guarantor acknowledges it has derived or
expects to derive a financial or other advantage from the Loans obtained by the
Company from the Banks.
S18. Subsidiaries. As of the date hereof, the Guarantors are the only existing
Subsidiaries of the Co-Borrowers, other than C&C Enterprises, Inc., which has
assets having a value of not more than $1,000.
S19. Solvency. Without giving effect to any Guaranty executed in connection
with this Agreement, each of the Co-Borrowers, on both a stand-alone and
consolidated basis, and each of the Guarantors, is Solvent. After giving effect
to any such Guaranty, the Co-Borrowers and the Guarantors, taken as a whole, are
Solvent.
A1. AFFIRMATIVE COVENANTS
Each of the Co-Borrowers and each of the Guarantors hereby covenant
that so long as the Notes remain outstanding and unpaid or so long as the
Commitments remain unterminated, each Co-Borrower and each of the Guarantors
will, and shall cause any Subsidiary to, unless otherwise consented to in
writing by the Banks acting through the Agent:
S1. Financial Statements. Furnish to each Bank:
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(a) as soon as available, but in any event not later than 120
days after the close of each fiscal year of PDK, a copy of the annual audit
report for such fiscal year of PDK and its Subsidiaries, including therein the
consolidated and consolidating balance sheets of PDK and its Subsidiaries as at
the end of such fiscal year, and related consolidated and consolidating
statements of income and retained earnings of PDK and its Subsidiaries for such
fiscal year, setting forth in each case in comparative form the corresponding
figures for the preceding fiscal period, all in reasonable detail, prepared in
accordance with GAAP, such consolidated financial statements being certified by
independent certified public accountants of recognized standing selected by PDK
and acceptable to the Agent and each of the Banks and such consolidating
financial statements being prepared by the Chief Financial Officer of PDK;
(b) as soon as available, but in any event not later than 120
days after the close of each fiscal year of Futurebiotics, a copy of the annual
audit report for such fiscal year of Futurebiotics and its Subsidiaries,
including therein the consolidated and consolidating balance sheets of
Futurebiotics and its Subsidiaries as at the end of such fiscal year, and
related consolidated and consolidating statements of income and retained
earnings of Futurebiotics and its Subsidiaries for such fiscal year, setting
forth in each case in comparative form the corresponding figures for the
preceding fiscal period, all in reasonable detail, prepared in accordance with
GAAP, such consolidated financial statements being certified by independent
certified public accountants of recognized standing selected by Futurebiotics
and acceptable to the Agent and each of the Banks and such consolidating
financial statements being prepared by the Chief Financial Officer of
Futurebiotics;
(c) as soon as available, but in any event not later than 60
days after the end of each of the first three quarterly periods of each fiscal
year of PDK and of Futurebiotics, each such entity's 10Q reports for such fiscal
quarter;
(d) concurrently with the delivery of the financial statements
referred to in clauses (a), (b) and (c) above, a
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certificate of the Chief Financial Officer of each of the Co-Borrowers stating
that, to the best of his knowledge, the Co-Borrowers during such period have
kept, observed, performed and fulfilled each and every covenant and condition
contained in this Agreement and in the Notes and that he has obtained no
knowledge of any Events of Default or Defaults hereunder except as specifically
indicated, with computations evidencing compliance with the covenants set
forth in Sections 6.10, 6.11, 6.12 and 6.13;
(e) promptly after the same are sent, copies of all financial
statements and reports which the Co-Borrowers, or either of them, send to their
stockholders, and promptly after the same are filed, copies of all financial
statements and reports which the Co-Borrowers, or either of them, may make to,
or file with, any governmental authority, agency, commission, board or bureau;
(f) as soon as possible and in any event within 30 days after
either Co-Borrower knows or has reason to know of the following events: (i) the
occurrence or expected occurrence of any Reportable Event with respect to any
Plan or any withdrawal from, or the termination, Reorganization or Insolvency
of, any Multiemployer Plan or (ii) the institution of proceedings or the taking
of any other action by the PBGC, the Co-Borrowers, or either of them, or any
Commonly Controlled Entity, or any Multiemployer Plan with respect to the
withdrawal from, or the terminating, Reorganization or Insolvency of, any Plan
the Co-Borrowers shall deliver to the Agent and each of the Banks a certificate
of the Chief Financial Officer of each of the Co-Borrowers setting forth the
details thereof and the action the Co-Borrowers or the Commonly Controlled
Entity proposes to take with respect thereto;
(g) within 30 days of the expiration date of each policy,
updated copies of all insurance coverage binders; and
(h) promptly upon receipt thereof, copies of any reports
submitted to any Co-Borrower or any Guarantor by independent certified public
accountants in connection with examination of the financial statements of either
Co-Borrower and their Subsidiaries made by such accountants;
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(i) promptly after the furnishing thereof, copies of any
statement or report furnished to any other party pursuant to the terms of any
indenture, loan, or credit or similar agreement and not otherwise required to be
furnished to the Agent and the Banks pursuant to any other clause of this
Section 5.1;
(j) no later than 30 days after the end of each fiscal quarter
of each Co-Borrower, an accounts receivable aging schedule for each Co-Borrower,
in form and substance reasonably satisfactory to the Agent and each of the
Banks;
(k) annually, updated copies of each of the Co-Borrowers'
customer lists, certified by the President or Chief Financial Officer of such
Co-Borrower to be complete and accurate as of a date reasonably acceptable to
the Agent and each of the Banks;
(l) promptly, copies of all financial, legal or other
information and/or documentation as the Agent may require pertaining to any
Permitted Acquisitions involving a Permitted Acquisition Purchase Price in
excess of $2,000,000 in any one case or in the aggregate during any fiscal year
of the Co-Borrowers;
(m) concurrently with the delivery of the financial statements
referred to in clauses (a), (b) and (c) above, a status report, in form and
substance satisfactory to the Bank, on the litigation captioned PDK Labs Inc.
v. Perry D. Krape, which is pending in New York State Supreme Court in Suffolk
County; and
(n) promptly, such additional financial and other information
as the Agent may from time to time reasonably request including, without
limitation, copies of all material shareholders agreements, consulting
agreements, management agreements, employment agreements, noncompete agreements,
employee benefit plans, stock option plans or voting trust agreements relating
to the Co-Borrowers, or either of them.
S2. Payment and Performance of Obligations. Perform and comply with each of
the provisions of each and every agreement of which the failure to perform or
comply could result in a Material Adverse Change in the Co-Borrowers, or either
of them, or any of
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the Guarantors. Pay and discharge, and cause the Guarantors to pay and
discharge, at or before maturity all of their respective obligations and
liabilities, including without limitation tax liabilities, except where the same
may be contested in good faith, and maintain, in accordance with GAAP,
appropriate reserves for the accrual of any of the same.
S3. Maintenance of Properties; Insurance. Keep, and cause the Guarantors to
keep, all properties useful and necessary in the business of the Co-Borrowers
and the Guarantors in good working order and condition; maintain, and cause the
Guarantors to maintain, with financially sound and reputable insurance
companies, insurance on all their properties in such amounts as are proper in
accordance with sound business practices against such risks as are usually
insured against in the same general area and by companies engaged in the same or
a similar business, including but without limitation, product liability
insurance in an aggregate amount not less than $5,000,000 for the Co-Borrowers
at any time, such insurance to be in form and substance satisfactory to the
Agent and each of the Banks; pay, and cause the Guarantors to pay, all insurance
premiums, and, upon written request, any other information as to the insurance
carried.
S4. Notices. Promptly give notice in writing to the Agent of (a) the
occurrence of any Default under this Agreement or of any default under any
material instrument or other agreement of any Co-Borrower or any Guarantor,
(b) any litigation, proceeding, investigation or dispute which may exist at any
time between any Co-Borrower or any Guarantor and any governmental regulatory
body which could result in a Material Adverse Change in the Co-Borrowers, or
either of them, or any of the Guarantors, (c) all litigation and proceedings
affecting the Co-Borrowers, or either of them, or any of the Guarantors in which
the amount involved is $50,000 in excess of applicable insurance coverage or in
which injunctive or similar relief is sought, (d) any of the Co-Borrowers or
Guarantors establishing or contributing to any Plan and (e) any change in the
management of the Co-Borrowers, the Guarantors or any of them.
S5. Conduct of Business and Maintenance of Existence. Continue, and cause the
Guarantors to continue, to engage in business of the same general type as now
conducted by the Co-Borrowers and the Guarantors, and preserve, renew and keep
in full force and effect their corporate existence and take all reasonable
action to
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maintain their rights, privileges and franchises necessary or desirable in the
normal conduct of business; provided that nothing herein contained shall prevent
any of the Co-Borrowers or any Guarantor from discontinuing a part of its
business which is not a substantial part of the business of such entity if such
discontinuance is, in the opinion of the Board of Directors of such entity, in
the interest of such entity, and not disadvantageous to the Banks.
S6. Inspection of Property, Books and Records. Permit, and cause the
Guarantors to permit, any representatives of the Agent to (a) visit and inspect
any of their respective properties, (b) conduct an environmental audit of any of
their respective properties and (c) examine and make abstracts from any of the
books and records of any Co-Borrower and any Guarantor at any reasonable time
during normal business hours and as often as may reasonably be desired.
S7. Hazardous Material. None of the Co-Borrowers or the Guarantors shall
cause or permit any property owned or occupied by the Co-Borrowers or the
Guarantors to be used to generate, manufacture, refine, transport, treat, store,
handle, dispose, transfer, produce or process Hazardous Materials, except in
compliance with all applicable federal, state and local laws or regulations nor
shall any such entity cause or permit, as a result of any intentional or
unintentional act or omission on the part of such entity or any tenant or
subtenant, a release of Hazardous Materials onto any property owned or occupied
by any such entity or onto any other property. Each of the Co-Borrowers and the
Guarantors shall comply with all applicable federal, state and local laws,
ordinances, rules and regulations, whenever and by whomever triggered, and shall
obtain and comply with, any and all approvals, registrations or permits required
thereunder. Each of the Co-Borrowers and the Guarantors shall execute any
documentation required by any Bank in connection with the covenants contained
herein. The Co-Borrowers and the Guarantors shall indemnify each Bank
(including, without limitation, the Agent) against any liability, loss, cost,
damage or expense (including, without limitation, reasonable attorneys' fees)
arising from (a) the imposition or recording of a Lien by any local, state, or
federal governments or governmental agency or authority pursuant to any federal,
state or local statute or regulation relating to Hazardous Materials or the
removal thereof; (b) claims of any private parties regarding violations of laws
regulating Hazardous Materials; and
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(c) costs and expenses (including, without limitation, reasonable attorneys'
fees and fees incidental to the securing of repayment of such costs and
expenses) incurred by the Agent in connection with the removal of any such Lien
or in connection with compliance by the Agent or any such entity with any
statute, regulation or order regulating Hazardous Materials.
S8. Subsidiary Guaranties. Cause any Subsidiary of any Co-Borrower or any
Guarantor hereafter formed to execute and deliver to the Agent, for the benefit
of the Banks, a Guaranty substantially in the form of Exhibit C hereto and to
execute a Guarantor's Security Agreement substantially in the form of Exhibit D
hereto, pursuant to which it shall grant to the Agent, for the benefit of the
Banks, a lien upon all of its personal property in order to secure its
obligations under its guaranty.
S9. Pension Funding. Comply with the following and cause each ERISA
Affiliate of the Co-Borrowers or any Guarantor to comply with the following:
(i) engage solely in transactions which would not subject any
of such entities to either a civil penalty assessed pursuant to
Section 502 (i) of ERISA or a tax imposed by Section 4975 of the
Internal Revenue Code in either case in an amount in excess of
$25,000;
(ii) make full payment when due of all amounts which, under
the provisions of any Plan or ERISA, such Co-Borrower, Guarantor or
ERISA Affiliate of any of same is required to pay as contributions
thereto;
(iii) all applicable provisions of the Internal Revenue Code
and the regulations promulgated thereunder, including but not
limited to Section 412 thereof, and all applicable rules,
regulations and interpretations of the Accounting Principles Board
and the Financial Accounting Standards Board;
(iv) not fail to make any payments in an aggregate amount
greater than $25,000 to any Multiemployer Plan that such Co-Borrower,
Guarantor or any ERISA Affiliate may be required to make under any
agreement relating to such Multiemployer Plan, or any law pertaining
thereto; or
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(v) not take any action regarding any Plan which could
result in the occurrence of a Prohibited Transaction.
S10. Dissolution of C&C Enterprises, Inc. Cause to be dissolved, within 90
days of the date hereof, C&C Enterprises, Inc., and furnish a certified copy of
the certificate of dissolution to the Agent.
A1. NEGATIVE COVENANTS
Each Co-Borrower and each of the Guarantors hereby covenant that so
long as the Notes remain outstanding and unpaid or so long as the Commitments
remain unterminated, neither the Co-Borrowers, nor any of them, nor any of the
Guarantors will, nor will they permit any Subsidiary to, directly or indirectly,
without the prior written consent of the Banks acting through the Agent:
S1. Limitation on Indebtedness. Create, incur, assume or suffer to exist, any
Consolidated Indebtedness, except (a) the Notes and letters of credit issued by
the Agent in connection herewith; (b) accounts payable (other than for borrowed
money) incurred in the ordinary course of business as presently conducted,
provided that the same shall not be overdue or, if overdue, are being contested
in good faith and by appropriate proceedings; (c) indebtedness between
Co-Borrowers or Guarantors and between a Guarantor and a Co-Borrower; (d) other
indebtedness owing by the Co-Borrowers or the Guarantors on the date of this
Agreement and which was reflected in the balance sheet referred to in Section
4.8 hereof provided same is not extended, renewed or refinanced; (e)
Subordinated Debt; (f) indebtedness which constitutes the deferred purchase
price of any property or assets, not in excess of $250,000 in any fiscal year of
the Co-Borrowers (computed on a non-cumulative basis), (g) purchase money
indebtedness incurred to finance specific Capital Expenditures, subject to the
limitations of Section 6.2(g) of this Agreement with respect to purchase money
mortgages and purchase money security interests; and (h) indebtedness resulting
from notes issued by the Co-Borrowers or either of them in connection with and
subject to the limitations of Section 6.5(g) of this Agreement, provided,
however, that said indebtedness shall not exceed $6,000,000 in the aggregate at
any time.
S2. Limitation on Liens. Create, incur, assume or suffer
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to exist, any Lien of any kind upon any of their property or assets, income or
profits, whether now owned or hereafter acquired, except (a) the Liens existing
as of the date of this Agreement referred to in the financial statements
referred to in Section 4.8 hereof, provided, however, that such Liens are not
spread to cover other or additional indebtedness or property of any Co-Borrower
or Guarantor; (b) Liens for taxes not yet due or which are being contested in
good faith and by appropriate proceedings if adequate reserves with respect
thereto are maintained on the books of a Co-Borrower or Guarantor, as the case
may be, in accordance with GAAP; (c) carriers', warehousemen's, mechanics',
materialmen's, repairmen's or other like Liens arising in the ordinary course of
business for sums which are not overdue for a period of more than 45 days or
which are being contested in good faith and by appropriate proceedings; (d)
pledges or deposits in connection with worker's compensation, unemployment
insurance and other social security legislation; (e) deposits to secure the
performance of bids, trade contracts (other than for borrowed money), leases,
statutory obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of business; (f)
easements, rights-of-way, restrictions and other similar encumbrances incurred
in the ordinary course of business which, in the aggregate, are not substantial
in amount, and which do not in any case materially detract from the value of the
property subject thereto or interfere with the ordinary conduct of the business
of any Co-Borrower or any Guarantor; (g) Liens covering real or personal
property in existence at the time of acquisition thereof by a Co-Borrower or a
Guarantor, and purchase money mortgages and purchase money security interests
(including the Lien or retained security title of a conditional vendor) covering
real or personal property hereafter acquired by a Co-Borrower or a Guarantor in
the ordinary course of business, provided such Lien shall not exceed 100% of the
purchase price of the property so encumbered and no such Lien covers, or is
extended to cover, any other property owned by a Co-Borrower or a Guarantor; (h)
Liens in favor of the Agent; and (i) Liens granted in connection with Section
6.1(i), provided, however, that said Liens are granted solely on customer lists
hereafter acquired by the Co-Borrowers and do not exceed a value of $6,000,000
in the aggregate during the term of this Agreement.
S3. Limitation on Contingent Obligations. Assume, guarantee, indorse or
otherwise in any way be or become responsible or liable for the obligations of
any Person (all such transactions
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being herein called "guarantees"), whether by agreement to purchase or
repurchase obligations, or by agreement to supply funds for the purpose of
paying, or enabling such entity to pay, any obligations (whether through
purchasing stock, making a loan, advance or capital contributions or by means or
agreeing to maintain or cause such Person to maintain, a minimum working capital
or net worth of any such Person, or otherwise) in an aggregate amount exceeding
$1,000,000, provided, however, that the aggregate amount permitted under this
Section 6.3 and Section 6.5(h) and (k) of this Agreement shall not exceed
$2,000,000 with respect to any one Person and $2,500,000 in the aggregate at any
time, except (a) guarantees by endorsement of instruments for deposit or
collection in the ordinary course of business, and (b) guarantees in respect of
indebtedness of Subsidiaries, provided that the indebtedness in respect of which
such guarantees are given is permitted by subsection 6.1 hereof; and guarantees
in favor of the Banks.
S4. Prohibition of Fundamental Changes. Enter into any transaction of merger
or consolidation or liquidate or dissolve itself (or suffer any liquidation or
dissolution) or convey, sell, lease, transfer or otherwise dispose of, in one
transaction or a series of related transactions, all or a substantial part of
its property, business, or assets, including its accounts receivable, or stock
or securities convertible into stock of any Subsidiary, or make any material
change in the present method of conducting business, except that: (a) any
Guarantor may be merged into, or consolidated with, a Co-Borrower (provided that
the Co-Borrower shall be the continuing or surviving corporation) or with any
one or more Guarantors and (b) any Subsidiary may sell, lease, transfer or
otherwise dispose of any of its assets to the Co-Borrowers.
S5. Limitation on Investments, Loans and Advances. Make or suffer to exist
any advances or loans to, or Investments (by way of transfers of property,
contributions to capital, acquisitions of stock, or securities or evidences of
indebtedness, acquisitions of businesses or acquisitions of assets other than in
the ordinary course of business, or otherwise), in, any Person except (a)
Investments in certificates of deposit issued by any domestic commercial bank
with a capital and surplus of at least $250,000,000 provided, however, that such
certificates of deposit shall have a maturity of one year or less from the date
of purchase; (b) investments in direct obligations of the United States of
America or any agency thereof, or marketable obligations directly and fully
guaranteed by the United States of America, provided, however, that
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any such obligations shall have a maturity of five years or less from the date
of acquisition; (c) investments in money market mutual funds having assets in
excess of $2,500,000,000; (d) investments in commercial paper or medium term
notes, provided, however, that any such commercial paper or medium term notes
shall have a maturity of three years or less from the date of acquisition and
shall be rated at least "A-1" or the equivalent thereof by Standard & Poors
Corporation (or has a similar rating by any similar organization which rates
commercial paper or medium term notes); (e) investments in repurchase
obligations with a term of not more than seven days for underlying securities of
the type described in clause (b); (f) stock or obligations issued in settlement
of claims against any other Person by reason of any event of bankruptcy or
composition or readjustment of debt or reorganization of any debtor of any
Co-Borrower, any Guarantor or any Subsidiary; (g) Permitted Acquisitions; (h)
loans and advances to any other Person not to exceed $2,500,000, provided,
however, that the aggregate amount permitted under this Section 6.5(h) and
6.5(k) and Section 6.3 of this Agreement shall not exceed $2,000,000 with
respect to any one Person and $2,500,000 in the aggregate at any time; (i) loans
or advances to a Guarantor; (j) purchases of securities publicly traded on a
national exchange in an aggregate amount not to exceed $250,000; (k) any other
Investments in any Person(s) not to exceed $2,000,000, provided, however, that
the aggregate amount permitted under this Section 6.5(k) and 6.5(h) and
Section 6.3 of this Agreement shall not exceed $2,000,000 with respect to any
one Person and $2,500,000 in the aggregate at any time; (l) tax exempt
securities rated A or better by Standard & Poors or Moody's Investors Service;
and (m) purchases by either Co-Borrower of shares of such Co-Borrowers' capital
stock, provided that prior to and immediately following such purchases, there
shall exist no Default or Event of Default under Agreement or any related Loan
Documents and provided that the aggregate consideration paid for such purchases
on a consolidated basis shall not exceed $1,000,000 in any fiscal year or
$2,000,000 during the term of this Agreement.
S6. Prohibition of Certain Prepayments. Make any prepayment of principal of
any debt, with a maturity of more than one year, for borrowed money (except the
Notes and the Existing Term Notes) or for the deferred purchase price of
property or services, except (i) at the stated maturity of such debt, (ii) as
required by mandatory prepayment provisions relating thereto (subject to any
subordination provisions applicable thereto), and
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(iii) with respect to existing loans made by Chase to the Co-Borrowers, or
either of them, according to the terms of said loans.
S7. Limitation on Leases. Enter into any agreement, or be or become liable
under any agreement, for the lease, hire or use of any personal property (other
than the presently outstanding leases described on Schedule 6.7 hereof
provided that such leases are not amended, modified or supplemented) which would
cause the aggregate maximum amount of all obligations of the Co-Borrowers and
the Guarantors pursuant to such agreements in any fiscal year of the
Co-Borrowers to exceed $750,000. This provision shall not apply to Capital
Leases.
S8. Sale and Leaseback. Enter into any arrangement with any person whereby
any Co-Borrower or Guarantor shall sell or transfer any property, real or
personal, whether now owned or hereafter acquired, and thereafter rent or lease
such property or other property which such Co-Borrower or Guarantor intends to
use for substantially the same purpose or purposes as the property being sold or
transferred.
S9. Prohibitions Regarding Subordinated Debt. Make any optional prepayment of,
or purchase, redeem or otherwise acquire, or amend any provision pertaining to
the subordination or the terms of payment of, any Subordinated Debt.
S10. 0 Maintenance of Consolidated Indebtedness to Consolidated Tangible Net
Worth Ratio. Permit the ratio of Consolidated Indebtedness to Consolidated
Tangible Net Worth to exceed 1.0 to 1.0 at any time.
S11. Maintenance of Consolidated Coverage Ratio. Permit the Consolidated
Coverage Ratio to fall below 1.25 to 1.00 at any time.
S12. Consolidated Net Income. Permit Consolidated Net Income to be less than
$250,000 for any consecutive four quarterly period.
S13. Maintenance of Consolidated Quick Ratio. Permit the Consolidated Quick
Ratio to fall below 1.35 to 1.00 at any time.
S14. Transactions with Affiliates. Enter into any transaction, including,
without limitation, the purchase, sale, or exchange of property or the
rendering of any service, with any Affiliate, except in the ordinary course of
business and pursuant to the
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reasonable requirements of a Co-Borrower's or a Guarantor's business and upon
fair and reasonable terms no less favorable to such Co-Borrower or such
Guarantor than it would obtain in a comparable arm's length transaction with a
Person not an Affiliate.
S15. Management. Fail to retain Michael B. Krasnoff in a reasonably active
full time capacity in the management of the Co-Borrowers.
S16. Change in Control. At any time from the date hereof (i) a majority of the
members of the Board of Directors of PDK have been elected, having been
nominated other than by the management or preceding Board of Directors or (ii)
PDK shall fail or cease to maintain the voting control of such classes of voting
stock of Futurebiotics which at all times will entitle the holder thereof to
elect a majority of the members of the Board of Directors of Futurebiotics.
S17. Limitation on Capital Expenditures. Make any Capital Expenditures
(excluding Capital Expenditures resulting from acquisitions of property, plant
and equipment described in Section 6.5(g) of this Agreement) including purchase
money indebtedness if, after giving effect thereto, the aggregate amount of such
expenditures by PDK and its Subsidiaries would exceed (i) $2,750,000 during the
Co-Borrowers' fiscal year ending November 30, 1996 or (ii) $2,000,000 during any
fiscal year thereafter.
S18. Limitation on Dividends and Stock Acquisitions. Declare or pay any
dividends or make any other distribution (whether in cash or property) on any
shares of its capital stock now or hereafter outstanding, or except as permitted
under Section 6.5 (m) hereof, purchase, redeem, retire or otherwise acquire for
value any shares of its capital stock or warrants or, options therefor now or
hereafter outstanding (all such dividends, distributions, purchases and other
actions being hereinafter collectively called "Stock Payments", except that (a)
a Subsidiary may make Stock Payments to the Co-Borrowers, or either of them; (b)
the Co-Borrowers may declare stock splits and pay dividends payable solely in
shares of any class of their capital stock; and (c) PDK may declare or pay
dividends on its preferred stock in an aggregate amount not to exceed $362,000
in the aggregate in each fiscal year of PDK.
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A1. EVENTS OF DEFAULT
S1. Events of Default. Any of the following events shall be an "Event of
Default":
(a) failure by the Co-Borrowers to pay the principal of or any
installment of the principal of the Notes when due, or failure to
pay any interest on the Notes or any commitment fee or any other
amount owing hereunder or under the Loan Documents within five days
after any such interest or commitment fee becomes due;
(b) if any representation or warranty made by the Co-Borrowers
or any Guarantor in this Agreement, any other Loan Document or in any
certificate, financial or other statement furnished at any time under
or in connection with this Agreement shall prove to have been untrue
or misleading in any material respect;
(c) default by the Co-Borrowers, or any of them, or any
Guarantor in an observance or performance of any of the covenants or
agreements contained in Section 6 of this Agreement, in any other Loan
Document or in any other document delivered to Agent or the Banks in
connection herewith;
(d) default by the Co-Borrowers, or any of them, or any
Guarantor in the observance or performance of any other covenant or
agreement contained in this Agreement, and the continuance of the same
for 30 days after the earlier of (i) the Co-Borrowers having knowledge
of such default or (ii) notice of such default being given to the
Co-Borrowers by the Agent;
(e) if the Co-Borrowers, or any of them, or any Guarantor shall
(i) default in the payment of principal or interest on the Existing
Term Loans; (ii) default in the payment of principal or interest on
any obligation in excess of $100,000 for borrowed money (other than
the Notes), or for the deferred purchase price of property, beyond the
period of grace, if any, provided with respect thereto; or (iii)
default in the performance or observance of any other term, condition
or agreement contained in any such obligation or in any agreement
relating thereto if the effect thereof is to cause, or permit the
holder or holders of such obligation (or a trustee on behalf of such
holder or holders) to cause, such
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obligation to become due prior to its stated maturity;
(f) (i) the Co-Borrowers, or either of them, any Guarantor or
any of their Subsidiaries shall commence any case, proceeding or other
action (A) under any existing or future law of any jurisdiction,
domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for
relief entered with respect to it, or seeking to adjudicate it a
bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, liquidation, dissolution, composition or other relief with
respect to it or its debts, or (B) seeking appointment of a receiver,
trustee, custodian or other similar official for it or for all or any
substantial part of its property, or the Company, any Guarantor or any
of their Subsidiaries shall make a general assignment for the benefit
of its creditors; or (ii) there shall be commenced against the
Co-Borrowers, or either of them, any Guarantor or any of their
Subsidiaries any case, proceeding or other action of a nature referred
to in clause (i) above or seeking issuance of a warrant of attachment,
execution, distraint or similar process against all or any substantial
part of its property, which case, proceeding or other action (x)
results in the entry of an order for relief or (y) remains
undismissed, undischarged or unbonded for a period of 60 days; or
(iii) the Co-Borrowers, or either of them, any Guarantor or any of
their Subsidiaries shall take any action indicating its consent to,
approval of, or acquiescence in, or in furtherance of, any of the acts
set forth in clause (i) or (ii) above; or (iv) the Co-Borrowers, or
either of them, any Guarantor or any of their Subsidiaries shall
generally not, or shall be unable to, pay its debts as they become due
or shall admit in writing its inability to pay its debts;
(g) (i) any Person shall engage in any "prohibited transaction"
(as defined in Section 406 or ERISA or Section 4975 of the Code)
involving any Plan, (ii) any "accumulated funding deficiency" (as
defined in Section 302 of ERISA), whether or not waived, shall exist
with respect to any Plan, (iii) a Reportable Event shall occur with
respect to, or proceedings shall commence to have a trustee appointed,
or a trustee shall be appointed, to administer or to terminate, any
Single Employer Plan, which Reportable Event or commencement of
proceedings or appointment of a trustee is, in the
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reasonable opinion of the Banks, likely to result in the termination
of such Plan for purposes of Title IV of ERISA, (iv) any Single
Employer Plan shall terminate for purposes of Title IV of ERISA, (v)
the Co-Borrowers, or either of them, or any Commonly Controlled
Entity shall, or is, in the reasonable opinion of the Banks, likely
to, incur any liability in connection with a withdrawal from, or the
Insolvency or Reorganization of, a Multiemployer Plan or (vi) any
other event or condition shall occur or exist with respect to a Plan;
and in each case in clauses (i) through (vi) above, such event or
condition, together with all other such events or conditions, if any,
could subject the Co-Borrowers, or either of them, or any of the
Guarantors or any of their Subsidiaries to any tax, penalty or other
liabilities in the aggregate material in relation to the business,
operations, property or financial or other condition of the Co-
Borrowers, or either of them, or any of the Guarantors or any of their
Subsidiaries;
(h) default by any Co-Borrower or Guarantor in the performance
of the terms of any Loan Documents to which such entity is a party or
if any Loan Documents shall cease to be in full force and effect or
shall be declared to be null and void, or the validity or
enforceability of any Loan Document shall be contested by any such
Co-Borrower or Guarantor or such party shall deny that it has any
further liability to the Banks, or any of them, with respect thereto;
(i) final judgment for payment of money in excess of $100,000
shall be rendered against the Co-Borrowers, or either of them, any
Guarantor or any Subsidiary, and the same shall remain undischarged
for a period of 30 days during which execution of such judgment shall
not be effectively stayed; or
(j) any Material Adverse Change shall occur.
S2. Remedies on Default. Upon the occurrence and continuance of an Event of
Default, the Agent may, upon request of the Required Banks, by notice to the
Co-Borrowers, (i) terminate the Commitment, (ii) declare the Notes, all interest
thereon and all other amounts payable under this Agreement to be forth with due
and payable, whereupon the Notes, all such interest and all such amounts shall
become and be forthwith due and payable, without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived by the
Co-Borrowers and (iii)
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proceed to enforce the rights of the Agent and the Banks whether by suit in
equity or by action at law, whether for specific performance of any covenant or
agreement contained in this Agreement or any Loan Document, or in aid of the
exercise of any power granted in either this Agreement or any, Loan Document or
proceed to obtain judgment or any other relief whatsoever appropriate to the
enforcement of its rights, or proceed to enforce any other legal or equitable
right which the Agent and the Banks may have by reason of the occurrence of any
Event of Default hereunder or under any Loan Document, provided, however, that
upon the occurrence of an Event of Default referred to in Section 7.1(f) the
Commitment shall be automatically terminated, the Notes, all interest thereon
and all other amounts payable under this Agreement shall be immediately due and
payable without presentment, demand, protest or further notice of any kind, all
of which are hereby expressly waived by the Co-Borrowers. Any amounts collected
pursuant to action taken under this Section 7.2 shall be applied first, to the
payment of any costs incurred by the Agent, acting on behalf of any of the
Banks, in taking such action, including but without limitation reasonable
attorneys fees, second, to the payment of the accrued interest on the Notes, and
third, to the payment of the unpaid principal of the Notes.
A2.THE AGENT; RELATIONS AMONG BANKS
Section 8.1. Appointment, Powers and Immunities of Agent. Each
Bank hereby irrevocably (but subject to removal by the Required Banks pursuant
to Section 8.9) appoints and authorizes the Agent to act as its agent hereunder
and under any other Loan Document with such powers as are specifically delegated
to the Agent by the terms of this Agreement and any other Loan Document,
together with such other powers as are reasonably incidental thereto. The Agent
shall have no duties or responsibilities except those expressly set forth in
this Agreement and any other Loan Document, and shall not by reason of this
Agreement be a trustee for any Bank. The Agent shall not be responsible to the
Banks for any recitals, statements, representations or warranties made by the
Co-Borrowers, or any officer or official of the Co-Borrowers, or any other
Person contained in this Agreement or any other Loan Document, or in any
certificate or other document or instrument referred to or provided for in, or
received by any of them under, this Agreement or any other Loan Document, or for
the value, legality, validity, effectiveness, genuineness, enforceability or
sufficiency of this Agreement or any other Loan Document or any
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other document or instrument referred to or provided for herein or therein, or
for the failure by the Co-Borrowers to perform any of their obligations
hereunder or thereunder. The Agent may employ agents and attorneys-in-fact and
shall not be responsible, except as to money or securities received by it or its
authorized agents, for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it with reasonable care. Neither the Agent nor any
of its directors, officers, employees or agents shall be liable or responsible
for any action taken or omitted to be taken by it or them hereunder or under any
other Loan Document or in connection herewith or therewith, except for its or
their own gross negligence or willful misconduct. The Co-Borrowers shall pay any
fee agreed upon with respect to the Agent's services hereunder as set forth in a
letter from the Agent to the Co-Borrowers dated the date hereof.
Section 8.2 Reliance by Agent. The Agent shall be entitled to
rely upon any certification, notice or other communication (including any
thereof by telephone, telefax, telex, telegram or cable) believed by it to be
genuine and correct and to have been signed or sent by or on behalf of the
proper Person or Persons, and upon advice and statements of legal counsel,
independent accountants and other experts selected by the Agent. The Agent may
deem and treat each Bank as the holder of the Loans made by it for all purposes
hereof unless and until a notice of the assignment or transfer thereof
satisfactory to the Agent signed by such Bank shall have been furnished to the
Agent but the Agent shall not be required to deal with any Person who has
acquired a participation in any Loan from a Bank. As to any matters not
expressly provided for by this Agreement or any other Loan Document, the Agent
shall in all cases be fully protected in acting, or in refraining from acting,
hereunder in accordance with instructions signed by the Required Banks, and such
instructions of the Banks and any action taken or failure to act pursuant
thereto shall be binding on all of the Banks and any other holder of all or any
portion of any Loan.
Section 8.3 Defaults. The Agent shall not be deemed to have
knowledge of the occurrence of a Default or Event of Default (other than the
non-payment of principal of or interest or fees on the Loans to the extent the
same is required to be paid to the Agent for the account of the Banks) unless
the Agent has received notice from a Bank or the Co-Borrowers specifying such
Default or Event of Default. In the event that the Agent receives such a notice
of the occurrence of a Default or Event of Default, the
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Agent shall give prompt notice thereof to the Banks (and shall give each Bank
prompt notice of each such non-payment). The Agent shall (subject to Section
8.8) take such action with respect to such Default or Event of Default which is
continuing as shall be directed by the Required Banks; provided that, unless and
until the Agent shall have received such directions, the Agent may take such
action, or refrain from taking such action, with respect to such Default or
Event of Default as it shall deem advisable in the best interest of the Banks;
and provided further that the Agent shall not be required to take any such
action which it determines to be contrary to law.
Section 8.4 Rights of Agent as a Bank. With respect to its
Commitment and the Loans made by it, the Agent in its capacity as a Bank
hereunder shall have the same rights and powers hereunder as any other Bank and
may exercise the same as though it were not acting as the Agent, and the term
"Bank" or "Banks" shall, unless the context otherwise indicates, include the
Agent in its capacity as a Bank. The Agent or any Bank and their respective
affiliates may (without having to account therefor to any other Bank) accept
deposits from, lend money to (on a secured or unsecured basis), and generally
engage in any kind of banking, trust or other business with, the Co-Borrowers or
the Guarantors (and any of their affiliates). In the case of the Agent, it may
do so as if it were not acting as the Agent, and the Agent may accept fees and
other consideration from the Co-Borrowers or the Guarantors for services in
connection with this Agreement or otherwise without having to account for the
same to the Banks. Although the Agent or a Bank or their respective affiliates
may in the course of such relationships and relationships with other Persons
acquire information about the Co-Borrowers or the Guarantors or affiliates and
such other Persons neither the Agent nor such Bank shall have any duty to
disclose such information to the other Banks.
Section 8.5 Indemnification of Agent. The Banks agree to
indemnify the Agent (to the extent not reimbursed under Section 2.12 or under
the applicable provisions of the Loan Documents, but without limiting the
obligations of the Co-Borrowers under Section 2.12 or such provisions) ratably
in accordance with the aggregate unpaid principal amount of the Loans made by
the Banks (without giving effect to any participation, in all or any portion of
such Loans, sold by them to any other Person) (or, if no Loans are at the time
outstanding, ratably in accordance with their respective Commitments), for any
and all liabilities, obligations, losses,
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damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind and nature whatsoever which may be imposed on, incurred by or
asserted against the Agent in any way relating to or arising out of this
Agreement, any other Loan Document or any other documents contemplated by or
referred to herein or the transactions contemplated hereby or thereby
(including, without limitation, the costs and expenses which the Co-Borrowers
are obligated to pay under Sections 2.12 or otherwise or under the applicable
provisions of any other Loan Document but excluding, unless a Default or Event
of Default has occurred, normal administrative costs and expenses incidental to
the performance of its agency duties hereunder) or the enforcement of any of the
terms hereof or thereof or of any such other documents or instruments; provided
that no Bank shall be liable for any of the foregoing to the extent they arise
from the gross negligence or willful misconduct of the party to be indemnified.
Section 8.6 Documents. The Agent will forward to each Bank,
promptly after the Agent's receipt thereof, a copy of each report, notice or
other document required by this Agreement or any other Facility Document to be
delivered to the Agent for such Bank.
Section 8.7 Non-Reliance on Agent and Other Banks. Each Bank
agrees that it has, independently and without reliance on the Agent or any other
Bank, and based on such documents and information as it has deemed appropriate,
made its own credit analysis of the Co-Borrowers and the Guarantors and decision
to enter into this Agreement and that it will, independently and without
reliance upon the Agent or any other Bank, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
analysis and decisions in taking or not taking action under this Agreement or
any other Loan Document. The Agent shall not be required to keep itself informed
as to the performance or observance by the Co-Borrowers or the Guarantors of
this Agreement or any other Loan Document or any other document referred to or
provided for herein or therein or to inspect the properties or books of the
Co-Borrowers or the Guarantors. Except for notices, reports and other documents
and information expressly required to be furnished to the Banks by the Agent
hereunder, the Agent shall not have any duty or responsibility to provide any
Bank with any credit or other information concerning the affairs, financial
condition or business of the Co-Borrowers or the Guarantors (or any of their
affiliates) which may come into the possession of the Agent or of its
affiliates. The Agent shall not
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be required to file this Agreement, any other Loan Document or any document or
instrument referred to herein or therein, for record or give notice of this
Agreement, any other Facility Document or any document or instrument referred to
herein or therein, to anyone.
Section 8.8 Failure of Agent to Act. Except for action
expressly required of the Agent hereunder, the Agent shall in all cases be fully
justified in failing or refusing to act hereunder unless it shall have received
further assurances (which may include cash collateral) of the indemnification
obligations of the Banks under Section 8.5 in respect of any and all liability
and expense which may be incurred by it by reason of taking or continuing to
take any such action.
Section 8.9 Resignation or Removal of Agent. Subject to the
appointment and acceptance of a successor Agent as provided below, the Agent may
resign at any time by giving written notice thereof at least ten Business Days
prior thereto to the Banks and the Co-Borrowers, the Agent may be removed at any
time with cause by the Required Banks and the Agent may be removed at any time
without cause by the Required Banks if with the prior written consent of the
Co-Borrowers; provided that the Co-Borrowers and the other Banks shall be
promptly notified thereof. Upon any such resignation or removal, the Required
Banks shall have the right to appoint a successor Agent. If no successor Agent
shall have been so appointed by the Required Banks and shall have accepted such
appointment within 30 days after the retiring Agent's giving of notice of
resignation or the Required Banks' removal of the retiring Agent, then the
retiring Agent may, on behalf of the Banks, appoint a successor Agent, which
shall be a Bank. The Required Banks or the retiring Agent, as the case may be,
shall upon the appointment of a successor Agent promptly so notify the
Co-Borrowers and the other Banks. Upon the acceptance of any appointment as
Agent hereunder by a successor Agent, such successor Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Agent, and the retiring Agent shall be discharged from its
duties and obligations hereunder. After any retiring Agent's resignation or
removal hereunder as Agent, the provisions of this Article 8 shall continue in
effect for its benefit in respect of any actions taken or omitted to be taken by
it while it was acting as the Agent.
Section 8.10 Amendments Concerning Agency Function. The Agent
shall not be bound by any waiver, amendment, supplement
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or modification of this Agreement or any other Loan Document which affects its
duties hereunder or thereunder unless it shall have given its prior consent
thereto.
Section 8.11 Liability of Agent. The Agent shall not have any
liabilities or responsibilities to the Co-Borrowers on account of the failure of
any Bank to perform its obligations hereunder or to any Bank on account of the
failure of the Borrower to perform its obligations hereunder or under any other
Loan Document.
Section 8.12 Transfer of Agency Function. Without the consent
of the Co-Borrowers or any Bank, the Agent may at any time or from time to time
transfer its functions as Agent hereunder to any of its offices wherever
located, provided that the Agent shall promptly notify the Co-Borrowers and the
Banks thereof.
Section 8.13 Non-Receipt of Funds by the Agent. Unless the
Agent shall have been notified by a Bank or the Co-Borrowers (either one as
appropriate being the "Payor") prior to the date on which such Bank is to make
payment hereunder to the Agent of the proceeds of a Loan or the Co-Borrowers are
to make payment to the Agent, as the case may be (either such payment being a
"Required Payment"), which notice shall be effective upon receipt, that the
Payor does not intend to make the Required Payment to the Agent, the Agent may
assume that the Required Payment has been made and may, in reliance upon such
assumption (but shall not be required to), make the amount thereof available to
the intended recipient on such date and, if the Payor has not in fact made the
Required Payment to the Agent, the recipient of such payment shall, on demand,
repay to the Agent the amount made available to it together with interest
thereon for the period commencing on the date such amount was so made available
by the Agent until the date the Agent recovers such amount at a rate per annum
equal to the Federal Funds Rate for such day (when the Agent recovers such
amount from a Bank) or equal to the rate of interest applicable to such Loan
(when the Agent recovers such amount from the Co-Borrowers) and, if such
recipient shall fail to make such payment promptly, the Agent shall be entitled
to recover such amount, on demand, from the Payor, with interest as aforesaid.
Section 8.14 Several Obligations and Rights of Banks. The
failure of any Bank to make any Loan to be made by it on the date specified
therefor shall not relieve any other Bank of its
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obligation to make its Loan on such date, but no Bank shall be responsible for
the failure of any other Bank to make a Loan to be made by such other Bank. The
amounts payable at any time hereunder to each Bank shall be a separate and
independent debt, and each Bank shall be entitled to protect and enforce its
rights arising out of this Agreement, and it shall not be necessary for any
other Bank to be joined as an additional party in any proceeding for such
purpose.
Section 8.15 Pro Rata Treatment of Loans, Etc. Except to the
extent otherwise provided: (a) each borrowing shall be made from the Banks, each
reduction or termination of the amount of the Commitments shall be applied to
the Commitments of the Banks, and each payment of the fees shall be made by and
held for the account of the Banks, pro rata in accordance with their respective
Commitment Proportions; (b) each prepayment and payment of principal of or
interest on Loans of a particular type and a particular Interest Period shall be
made to the Agent for the account of the Banks holding Loans of such type and
Interest Period pro rata in accordance with the respective unpaid principal
amounts of such Loans of such Interest Period held by such Banks.
Section 8.16 Sharing of Payments Among Banks. If a Bank shall
obtain payment of any principal of or interest on any Loan made by it through
the exercise of any right of setoff, banker's lien, counterclaim, or by any
other means, it shall promptly purchase from the other Banks a participation in
the Loans made by the other Banks in such amounts, and make such other
adjustments from time to time as shall be equitable to the end that all the
Banks shall share the benefit of such payment (net of any expenses which may be
incurred by such Bank in obtaining or preserving such benefit) pro rata in
accordance with the unpaid principal and interest on the Loans held by each of
them. To such end the Banks shall make appropriate adjustments among themselves
(by the resale of any such participation sold or otherwise) if such payment is
rescinded or must otherwise be restored. The Co-Borrowers agree that any Bank so
purchasing a participation in the Loans made by other Banks may exercise all
rights of setoff, banker's lien, counterclaim or similar rights with respect to
such participation. Nothing contained herein shall require any Bank to exercise
any such right or shall affect the right of any Bank to exercise, and retain the
benefits of exercising, any such right with respect to any other indebtedness of
the Co-Borrowers.
- 59 -
<PAGE>
A1. MISCELLANEOUS
S1. Limited Role of Banks. The relationship between the Co-Borrowers and the
Banks shall be solely that of borrower and lender, respectively. Neither the
Agent nor the Banks shall have any fiduciary responsibilities to the
Co-Borrowers and no joint venture exists between the Co-Borrowers and the
Agent or any of the Banks. The Co-Borrowers, the Agent and the Agent or the
Banks each hereby severally acknowledge that there are no representations,
warranties, covenants, undertakings or agreements by the parties hereto as to
the Loan Documents except as specifically provided herein and therein.
S2. Choice of Law Construction. The Loan Documents (other than those
containing a contrary express choice of law provision) shall be construed in
accordance with the internal laws (and not the law of conflicts) of the State of
New York. If any provision of the Loan Documents shall be or become
unenforceable or illegal under any law, the other provisions shall remain in
full force and effect.
S3. Consent to Jurisdiction. (a) The Co-Borrowers and the Guarantors hereby
irrevocably submit to the non-exclusive jurisdiction of any United States
federal or New York state court sitting in New York City in any action or
proceedings arising out of or relating to any Loan Documents and the
Co-Borrowers and the Guarantors hereby irrevocably agree that all claims in
respect of such action or proceeding may be heard and determined in any such
court and irrevocably waives any objection it may now or hereinafter have as to
the venue of any such action or proceeding brought in such a court or the fact
that such court is an inconvenient forum.
(a) The Co-Borrowers and the Guarantors irrevocably and
unconditionally consent to the service of process in any such action or
proceeding in any of the aforesaid courts by the mailing of copies of such
process to it, by certified or registered mail at its address specified in
Section 8.5.
S4. WAIVER OF JURY TRIAL. THE CO-BORROWERS, THE GUARANTORS, THE AGENT AND THE
BANKS HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING INVOLVING DIRECTLY
OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN
ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT OR THE
RELATIONSHIP ESTABLISHED THEREUNDER.
- 60 -
<PAGE>
S5. Notices. All notices, requests and demands to or upon the respective
parties hereto shall be deemed to have been given or made when deposited to the
mail, postage prepaid, in the case of telegraphic notice, when delivered to the
telegraph company, or in the case of tested telex, upon confirmation of receipt,
addressed as set forth below or to such other address as may be hereafter
designated in writing by the respective parties hereto:
The Agent: The Chase Manhattan Bank
395 North Service Road, Suite 302
Melville, New York 11747
Attention: PDK Labs Inc. Account Officer
The Banks: With respect to each Bank, at the
address specified on the signature pages
hereto.
The Co-Borrowers or the Guarantors:
PDK LABS INC.
145 Ricefield Lane
Hauppauge, New York 11788
with a copy to: Bernstein & Wasserman, LLP
950 Third Avenue
New York, New York 10022-2705
Attention: Steven F. Wasserman
S1. Entire Agreement; No Waiver; Cumulative Remedies; Amendments; Setoff.
a) This Agreement and the other Loan Documents constitute, the entire
agreement among the parties hereto and thereto as to the subject matter hereof
and thereof and supersede any previous agreement, oral or written, as to such
subject matter.
(a) No failure to exercise and to delay in exercising, on the
part of the Agent or any of the Banks or the Co-Borrowers, any right, power or
privilege hereunder or under the Notes, shall operate as a waiver thereof; nor
shall any single or partial exercise of any right, power or privilege hereunder
preclude any
- 61 -
<PAGE>
other or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein provided are cumulative and not
exclusive of any rights or remedies provided by law. No modification or waiver
of any provision of this Agreement, or the Notes, nor consent to any departure
by the Co-Borrowers or the Guarantors from the provisions hereof or thereof,
shall be effective unless the same shall be in writing from the Agent and then
such waiver or consent shall be effective only in the specific instance and for
the purpose for which it is given. No notice to the Co-Borrowers or the
Guarantors shall entitle the Co-Borrowers or the Guarantors to any other or
further notice in other or similar circumstances unless expressly provided for
herein. No course of dealing between the Co-Borrowers or the Guarantors and the
Agent or any of the Banks shall operate as a waiver of any of the rights of the
Agent or any Bank under this Agreement.
(b) In addition to any rights or remedies of the Agent or any
Bank provided by law, upon the occurrence of any Event of Default, the Agent and
each of the Banks are hereby authorized without notice to the Co-Borrowers or
the Guarantors to setoff and appropriate and apply all deposits (general and
special) and other indebtedness at any time held or owing by the Agent or any
Bank to or for the credit or the account of the Co-Borrowers, the Guarantors,
or any of them, against and on account of all obligations, liabilities and
claims of the Co-Borrowers or the Guarantors to any Bank, and in such amounts as
the Agent or such Bank may elect, although such obligations, liabilities and
claims may be contingent or unmatured.
S1. Reference to Subsidiaries and Guarantors. If the Co-Borrowers have no
Subsidiaries and/or if there are no Guarantors, then the provisions of this
Agreement relating to Subsidiaries and/or Guarantors shall be deemed surplusage
without affecting the applicability of the provisions of this Agreement to the
Co-Borrowers alone.
S2. Joint and Several Obligations. Each of the Co-Borrowers acknowledges and
agrees that all obligations of the Co-Borrowers, or any of them, for the
payment or performance of any obligations hereunder shall be joint and several
obligations of all Co-Borrowers.
S3. Captions. The captions of the various sections and
- 62 -
<PAGE>
subsections of this Agreement have been inserted only for the purposes of
convenience, and shall not be deemed in any manner to modify, explain, enlarge
or restrict any of the provisions of this Agreement.
S4. Exhibits. All Exhibits and all Schedules annexed hereto shall constitute
integral parts of this Agreement.
S5. Payment of Fees. (a) The Co-Borrowers agree to pay or reimburse the Agent
and each of the Banks for all of their reasonable costs and expenses incurred,
in connection with the preparation and execution of this Agreement and any
subsequent amendment, supplement or modification of the Loan Documents
including, without limitation, the fees and disbursements of counsel to the
Agent up to a maximum of $23,000 plus disbursements and, in the case of internal
counsel, allocated costs of such internal counsel. The Agent shall request such
payment or reimbursement in writing.
(a) The Co-Borrowers agree to pay all reasonable costs and
expenses of the Agent and each of the Banks in enforcing or preserving any of
the rights and remedies available to them under this Agreement, the Notes, or
under any other Loan Documents, instruments or writings executed and delivered
to the Agent or any Bank in connection herewith including, without limitation,
reasonable legal fees, costs and disbursements.
S6. Survival of Agreements. All agreements, representations and warranties
made herein and in any certificates delivered pursuant hereto shall survive the
execution and delivery of this Agreement, the Notes, and the making and renewal
of loans hereunder, and shall continue in full force and effect until the
indebtedness of the Co-Borrowers under the Notes has been paid in full.
S7. Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the Co-Borrowers, the Guarantors, the Agent and the Banks and
their respective successors and assigns, except that the Co-Borrowers and the
Guarantors may not transfer or assign any of its rights or interests hereunder
without the prior written consent of the Banks, acting through the Agent.
S8. Interest. Anything in this Agreement or in the Notes to the contrary
notwithstanding, the Banks shall not charge, take or
- 63 -
<PAGE>
receive, and the Co-Borrowers shall not be obligated to pay interest in excess
of the maximum rate from time to time permitted by applicable law.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
THE CO-BORROWERS:
PDK LABS INC.
By: /s/ Michael Krasnoff
______________________________
Michael Krasnoff
President
FUTUREBIOTICS, INC.
By: /s/ Reginald Spinello
______________________________
Reginald Spinello
President
THE GUARANTOR:
PDI LABS, INC.
By: /s/ Michael Krasnoff
______________________________
Michael Krasnoff
President
THE AGENT:
THE CHASE MANHATTAN BANK
By: /s/ Scott M. Grossman
______________________________
Scott M. Grossman
Vice President
- 64 -
<PAGE>
THE BANKS:
THE CHASE MANHATTAN BANK
By: /s/ Scott M. Grossman
______________________________
Scott M. Grossman
Vice President
- 65 -
<PAGE>
FIRST AMENDMENT AND WAIVER dated as of February
26, 1997 to the REVOLVING CREDIT AGREEMENT dated
as of September 25, 1996 (the "Credit Agreement")
by and among PDK LABS INC., a New York corporation
having its principal place of business at 145
Ricefield Lane, Hauppauge, New York 11788 ("PDK"),
FUTUREBIOTICS, INC., a Delaware corporation having
its principal place of business at 145 Ricefield
Lane, Hauppauge, New York 11788 ("Futurebiotics";
collectively with PDK, the "Co-Borrowers") and THE
CHASE MANHATTAN BANK, a New York banking
corporation, having an office at 395 North Service
Road, Melville, New York 11747 (the "Bank").
WHEREAS, the Co-Borrowers have requested and the Bank has agreed, subject to the
terms and conditions of this FIRST AMENDMENT AND WAIVER, to amend and waive
compliance with certain provisions of the Credit Agreement to reflect the
requests herein set forth.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants and
agreements hereinafter set forth, the parties hereto agree as follows:
1. Waiver of ARTICLE 5. AFFIRMATIVE COVENANTS.
Section 5.1. Financial Statements. (j).
Compliance with Section 5.1 (j) of the Credit Agreement is hereby waived to
permit (i) the non-receipt of the accounts receivable aging schedule for each
Co-Borrower for the fiscal quarter ended May 30, 1996 and (ii) the late
receipt of the accounts receivable aging schedule for each Co-Borrower for
the fiscal quarter ended November 30, 1996, provided, however, that the
Co-Borrowers shall each deliver to the Bank an accounts receivable aging
schedule as of November 30, 1996 no later than March 17, 1997.
2. Waiver of ARTICLE 5. AFFIRMATIVE COVENANTS.
Section 5.10. Dissolution of C&C Enterprises, Inc.
Compliance with Section 5.10 of the Credit Agreement is hereby waived,
provided, however, that C&C Enterprises shall be dissolved and the
Co-Borrowers shall deliver to the Bank a certified copy of the certificate of
dissolution of C&C Enterprises, Inc. no later than May 22, 1997.
3. Waiver of ARTICLE 6. NEGATIVE COVENANTS.
Section 6.10. Maintenance of Consolidated Indebtedness to Consolidated
Tangible Net Worth Ratio.
Compliance with Section 6.10 of the Credit Agreement is hereby waived to
permit the ratio of Consolidated Indebtedness to Consolidated Tangible Net
Worth to exceed 1.0 to 1.0 during the fiscal quarter ended November 30, 1996,
provided, however, that the ratio of Consolidated Indebtedness to
Consolidated Tangible Net Worth did not exceed 1.29 to 1.0 during the fiscal
quarter ended November 30, 1996.
<PAGE>
- 2 -
4. Waiver of ARTICLE 6. NEGATIVE COVENANTS.
Section 6.18. Limitation on Dividends and Stock Acquisitions.
Section 6.18 of the Credit Agreement is hereby waived to permit PDK to pay
cash dividends in excess of $362,000 during its fiscal year ended November
30, 1996, provided, however, that cash dividends paid by PDK during its
fiscal year ended November 30, 1996 did not exceed $362,382.
5. Amendment to ARTICLE 6. NEGATIVE COVENANTS.
Section 6.10. Maintenance of Consolidated Indebtedness to Consolidated
Tangible Net Worth Ratio.
Section 6.10 of the Credit Agreement is hereby amended by deleting "1.0 to
1.0" and substituting therefore "1.75 to 1.0".
6. Amendment to ARTICLE 6. NEGATIVE COVENANTS.
Section 6.18. Limitation on Dividends and Stock Acquisitions.
Section 6.18 of the Credit Agreement is hereby amended by deleting "362,000"
and substituting therefore "362,382".
This FIRST AMENDMENT AND WAIVER shall be governed by and construed in accordance
with the laws of the State of New York applicable to agreements made and to be
performed in said State.
All capitalized terms not otherwise defined herein are used with the respective
meanings given to such terms in the Credit Agreement.
Except as expressly waived hereby, the Credit Agreement shall remain in full
force and effect in accordance with the original terms thereof. This FIRST
AMENDMENT AND WAIVER herein contained is limited specifically to the matters set
forth above and does not constitute directly or by implication a waiver or
amendment of any other provision of the Credit Agreement or any default which
may occur or may have occurred under the Credit Agreement.
The Co-Borrowers hereby represent and warrant that, after giving effect to this
FIRST AMENDMENT AND WAIVER, no Event of Default or event which with the giving
of notice or lapse of time or both would constitute an Event of Default exists
under the Credit Agreement or any documents relating thereto.
This FIRST AMENDMENT AND WAIVER may be executed in any number of counterparts,
each of which shall constitute an original, but all of which, when taken
together, shall constitute but one FIRST AMENDMENT AND WAIVER. This FIRST
AMENDMENT AND WAIVER shall become effective when (i) duly executed counterparts
hereof which, when taken together, bear the signatures of each of the parties
hereto shall have been delivered to the Bank and (ii) the Co-Borrowers have
delivered to the Bank the duly executed letter from the Agent to the
Co-Borrowers relating to the Agent's fee, as provided in Section 8.1 of the
Credit Agreement and which letter is attached hereto.
IN WITNESS WHEREOF, the Co-Borrowers and the Bank have caused this FIRST
AMENDMENT AND WAIVER to be duly executed by their duly authorized officers, all
as of the day and year first above written.
PDK LABS INC.
By: /s/ Reginald Spinello
Title: V.P.
<PAGE>
- 3 -
FUTUREBIOTICS, INC.
By: /s/ Reginald Spinello
Title: President
THE CHASE MANHATTAN BANK
By: /s/ Scott M. Grossman
Vice President
CONSENT
The undersigned, as Guarantor of the obligations of the Co-Borrowers hereby
consents to the execution and delivery by the Co-Borrowers of this FIRST
AMENDMENT AND WAIVER and hereby confirms that it will remain fully bound by the
terms of the Corporate Guaranty dated September 25, 1996 to which it is a party.
PDI LABS, INC.
By: /s/ Reginald Spinello
Title: Asst. Sec.
<PAGE>
February 26, 1997
PDK Labs, Inc.
Futurebiotics, Inc.
145 Ricefield Ave.
Hauppauge, New York 11787
Re: $15,000,000 Revolving Credit Agreement, dated
September 25, 1996 by and between The Chase Manhattan
Bank, as Bank, and PDK Labs, Inc. and Futurebiotics, Inc.,
as Co-Borrowers (the "Credit Agreement")
Ladies and Gentlemen:
Reference is made to the captioned Credit Agreement. Pursuant to the terms
of the Credit Agreement, The Chase Manhattan Bank (the "Bank") has agreed to act
as agent for the "Banks" which are now or hereafter become party to the Credit
Agreement. In consideration of the Bank agreeing to act as Agent, you hereby
agree to pay the Bank an annual agency fee of $10,000. This fee shall be due and
payable upon the Closing Date and upon each anniversary of the date of the
Credit Agreement.
Please indicate your agreement to the foregoing terms by signing the
enclosed copy of this letter and returning it to us.
Very truly yours,
THE CHASE MANHATTAN BANK
By: /s/ Scott M. Grossman
Name: Scott M. Grossman
Title: Vice President
ACKNOWLEDGED AND AGREED:
PDK LABS, INC.
By: /s/ Reginald Spinello
Name: Reginald Spinello
Title: V.P.
FUTUREBIOTICS, INC.
By: /s/ Reginald Spinello
Name: Reginald Spinello
Title: Pres.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the financial
statements and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-END> NOV-30-1996
<CASH> 484,285
<SECURITIES> 1,598,596
<RECEIVABLES> 1,449,650
<ALLOWANCES> 0
<INVENTORY> 3,261,595
<CURRENT-ASSETS> 8,209,927
<PP&E> 430,748
<DEPRECIATION> 117,083
<TOTAL-ASSETS> 11,763,981
<CURRENT-LIABILITIES> 85,078
<BONDS> 3,000,000
0
834
<COMMON> 135
<OTHER-SE> 8,543,934
<TOTAL-LIABILITY-AND-EQUITY> 11,763,981
<SALES> 12,712,803
<TOTAL-REVENUES> 12,712,803
<CGS> 5,519,066
<TOTAL-COSTS> 5,519,066
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 142,705
<INCOME-PRETAX> (398,006)
<INCOME-TAX> (108,000)
<INCOME-CONTINUING> (290,006)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (290,006)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.21)
</TABLE>
