FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________________ to ___________________
COMMISSION FILE NUMBER 0-24928
THE SOLOMON-PAGE GROUP LTD.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 51-0353012
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1140 AVENUE OF THE AMERICAS, NEW YORK, NY 10036
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code________(212) 764-9200________
N/A
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(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of 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____
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: At May 6, 1997, there were
outstanding 5,129,285 shares of the Registrant's Common Stock, $.001 par value.
Transitional Small Business Disclosure Format:
Yes_____ No___X__
<PAGE>
THE SOLOMON-PAGE GROUP LTD.
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FORM 10-QSB
QUARTERLY REPORT
FOR THE SIX MONTHS ENDED MARCH 31, 1997
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INDEX
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PART I: FINANCIAL INFORMATION
ITEM 1: Financial Statements Page Number
------------
Consolidated Balance Sheet as of March 31, 1997 [Unaudited]....................1
Consolidated Statements of Operations for the three months and six months
ended March 31, 1997 and 1996 [Unaudited]......................................3
Consolidated Statements of Cash Flows for the three months and six months
ended March 31, 1997 and 1996 [Unaudited]......................................4
Notes to Consolidated Financial Statements [Unaudited].........................6
ITEM 2: Management's Discussion and Analysis or
Plan of Operation.......................................7
PART II: OTHER INFORMATION
ITEM 4: Submission of Matters to a Vote of Security Holders....10
ITEM 6: Exhibits and Reports on Form 8-K.......................10
SIGNATURES....................................................................11
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE SOLOMON-PAGE GROUP LTD.
CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1997 [UNAUDITED]
ASSETS:
CURRENT ASSETS:
Cash and Cash Equivalents $ 1,309,278
Short-Term Investments 2,032,832
Accounts Receivable - [Net of Allowance for
Doubtful Accounts of $96,900] 4,908,498
Other Current Assets 230,248
-----------
TOTAL CURRENT ASSETS 8,480,856
-----------
PROPERTY AND EQUIPMENT [NET OF ACCUMULATED
DEPRECIATION AND AMORTIZATION OF $531,922] 966,652
-----------
OTHER ASSETS:
Intangible Assets - [Net of Accumulated
Amortization of $78,421] 521,180
Due from Related Parties 176,283
Security Deposits 109,414
Restricted Investment 34,466
Other Assets 141,913
-----------
TOTAL OTHER ASSETS 983,256
-----------
TOTAL ASSETS $10,430,764
===========
See Notes to Consolidated Financial Statements.
1
<PAGE>
THE SOLOMON-PAGE GROUP LTD.
CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1997[UNAUDITED]
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accrued Salaries and Commissions $ 1,557,825
Accounts Payable and Accrued Expenses 509,201
Income Taxes Payable 82,316
Current Portion of Obligations Under Capital Leases 93,053
Other Current Liabilities 163,212
------------
TOTAL CURRENT LIABILITIES 2,405,607
------------
LONG-TERM LIABILITIES:
Obligations Under Capital Leases 65,401
Deferred Credit 313,604
------------
TOTAL LONG-TERM LIABILITIES 379,005
------------
STOCKHOLDERS' EQUITY:
Preferred Stock - Par Value $.001 Per Share; Authorized
2,000,000 Shares. None Issued or Outstanding --
Common Stock - Par Value $.001 Per Share;
Authorized 20,000,000 Shares, 5,139,285 Issued
less 10,000 Treasury Shares 5,139
Additional Paid-in Capital 8,488,247
Treasury Stock; 10,000 Shares at Cost (16,250)
Accumulated Deficit (830,984)
------------
TOTAL STOCKHOLDERS' EQUITY 7,646,152
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 10,430,764
============
See Notes to Consolidated Financial Statements.
2
<PAGE>
THE SOLOMON-PAGE GROUP LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
[UNAUDITED]
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUE $ 6,274,218 $ 3,472,717 $ 11,752,281 $ 6,472,382
------------ ------------ ------------ ------------
SELLING EXPENSES 4,920,474 2,570,403 8,944,111 4,757,650
GENERAL AND ADMINISTRATIVE 964,449 835,351 1,950,361 1,807,426
DEPRECIATION AND AMORTIZATION 79,292 58,381 154,108 112,896
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 5,964,215 3,464,135 11,048,580 6,677,972
------------ ------------ ------------ ------------
INCOME [LOSS] FROM OPERATIONS 310,003 8,582 703,701 (205,590)
------------ ------------ ------------ ------------
OTHER INCOME [EXPENSES]
Interest and Dividend Income 33,331 36,454 67,054 75,624
Interest Expense (10,002) (13,244) (22,169) (27,087)
Net Realized and Unrealized Gain on Investments 3,049 49,391 14,678 103,040
------------ ------------ ------------ ------------
TOTAL OTHER INCOME 26,378 72,601 59,563 151,577
------------ ------------ ------------ ------------
INCOME [LOSS] BEFORE INCOME TAX EXPENSE 336,381 81,183 763,264 (54,013)
INCOME TAX EXPENSE 80,959 -- 166,212 --
------------ ------------ ------------ ------------
NET INCOME [LOSS] $ 255,422 $ 81,183 $ 597,052 ($ 54,013)
============ ============ ============ ============
PRIMARY INCOME [LOSS] PER COMMON SHARE $ 0.05 $ 0.02 $ 0.12 ($ 0.01)
============ ============ ============ ============
FULLY DILUTED INCOME [LOSS] PER COMMON SHARE $ 0.05 $ 0.02 $ 0.11 ($ 0.01)
============ ============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
THE SOLOMON-PAGE GROUP LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
[UNAUDITED]
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
1997 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income [Loss] $ 597,052 ($ 54,013)
----------- -----------
Adjustments to Reconcile Net Income [Loss]
to Net Cash [Used for] Operating Activities:
Depreciation and Amortization 154,108 112,896
Provision for losses on Accounts Receivable 7,000 2,500
Deferred Credit 47,612 1,446
Net Realized and Unrealized Gain on Investments (14,678) (103,040)
Change in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable (755,408) (1,511,121)
Other Assets (131,132) (103,224)
Security Deposits (24,136) (5,578)
Increase [Decrease] in:
Accounts Payable and Accrued Expenses 96,878 406,125
Income Tax Payable 82,316 --
Other Liabilities 70,650 58,355
----------- -----------
Total Adjustments ($ 466,790) ($1,141,641)
----------- -----------
NET CASH - OPERATING ACTIVITIES-
FORWARD $ 130,262 ($1,195,654)
----------- -----------
INVESTING ACTIVITIES:
Capital Expenditures (149,794) (113,753)
Purchase of Investments (2,449,740) (3,050,677)
Proceeds from Sales of Investments 1,741,911 1,047,208
Purchase of Treasury Stock (16,250) --
Advances to Related Parties -- (3,487)
Transfer to Restricted Investment -- (5,281)
----------- -----------
NET CASH - INVESTING ACTIVITIES -
FORWARD ($ 873,873) ($2,125,990)
----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
THE SOLOMON-PAGE GROUP LTD.
CONSOLIDATED STATEMENT OF CASH FLOWS
[UNAUDITED]
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
1997 1996
---- ----
<S> <C> <C>
NET CASH - OPERATING ACTIVITIES -
FORWARD $ 130,262 ($1,195,654)
----------- -----------
NET CASH - INVESTING ACTIVITIES -
FORWARD ($ 873,873) ($2,125,990)
----------- -----------
FINANCING ACTIVITIES:
Principal Payments Under Capital
Lease Obligations (60,667) (54,650)
Payments from Related Parties -- 5,000
----------- -----------
NET CASH - FINANCING ACTIVITIES ($ 60,667) ($ 49,650)
----------- -----------
NET [DECREASE] INCREASE IN CASH (804,278) (3,371,294)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIODS 2,113,556 4,445,161
----------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIODS $ 1,309,278 $ 1,073,867
=========== ===========
SUPPLEMENTAL DISCLOSURES FOR CASH FLOW INFORMATION:
Cash paid during the periods for:
Interest $ 22,169 $ 27,087
Income Taxes $ 136,335 --
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
THE SOLOMON-PAGE GROUP LTD.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[UNAUDITED]
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[1] BASIS OF REPORTING
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310(b)
of Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
In the opinion of management, such statements include all adjustments
[consisting only of normal recurring items] which are considered necessary for a
fair presentation of the financial position of the Company at March 31, 1997 and
the results of its operations for the three and six months ended March 31, 1997
and 1996 and cash flows for the six months ended March 31, 1997 and 1996. The
results of operations for the periods presented are not necessarily indicative
of the results to be expected for the full year.
The accompanying unaudited consolidated financial statements include the
accounts of The Solomon-Page Group Ltd. and its wholly-owned subsidiary. All
significant intercompany balances and transactions have been eliminated in
consolidation.
It is suggested that these financial statements be read in conjunction with the
audited financial statements and notes for the fiscal year ended September 30,
1996 included in The Solomon-Page Group Ltd. Form 10-KSB.
[2] INCOME [LOSS] PER SHARE
Income [Loss] per share of common stock is based on the weighted average number
of common shares outstanding for each period presented. Common Stock equivalents
are included if dilutive. The number of weighted average common shares
outstanding utilized to compute primary income [loss] per share was 5,134,257
and 5,139,285 and to compute fully diluted income [loss] per share was 5,524,662
and 5,139,285 for the three and six month periods ended March 31, 1997 and 1996,
respectively.
[3] RECLASSIFICATION
Certain prior period amounts have been reclassified to conform with the current
period presentation.
6
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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OVERVIEW
The Company's business is organized into two primary operating
divisions: executive search and contingency recruitment as well as interim
staffing and consulting. The executive search and contingency recruitment
division, which provides full time placement services in the fields of capital
markets, accounting and finance, fashion services, information technology, human
resources, publishing and new media, legal and managed health care, generated
approximately 51% of the Company's revenue for the six months ended March 31,
1997. The interim staffing and consulting division, which provides services to
all companies seeking personnel in the information technology and accounting
areas, generated approximately 49% of the Company's revenue for the six months
ended March 31, 1997. The accounting interim staffing business commenced
operations during fiscal 1997.
The following is a summary of the Company's consolidated financial
and operating data.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
STATEMENT OF OPERATIONS DATA: 1997 1996 1997 1996
- ----------------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue $ 6,274,218 $ 3,472,717 $11,752,281 $ 6,472,382
Income [Loss] from Operations 310,003 8,582 703,701 (205,590)
Net Income [Loss] 255,422 81,183 597,052 (54,013)
Primary Income [Loss] Per Common Share $0.05 $0.02 $0.12 ($0.01)
BALANCE SHEET DATA: MARCH 31, 1997
- ------------------- --------------
Working Capital $ 6,075,249
Total Assets 10,430,764
Long-term Debt, Net of Current Maturities 65,401
Stockholders' Equity 7,646,152
</TABLE>
RESULTS OF OPERATIONS
The following discussion of the Company's financial condition and results of
operations should be read in conjunction with the financial statements and notes
thereto appearing elsewhere in this document.
Revenue increased to approximately $6,274,000 for the three month
period ended March 31, 1997 from approximately $3,473,000 for the three month
period ended March 31, 1996, an increase of approximately $2,801,000 or 81%.
Revenues from the Company's executive search and contingency recruitment
division experienced an increase of 35% to approximately $3,240,000 for the
three months ended March 31, 1997 compared to approximately $2,398,000 for the
same period in 1996. Revenues from the Company's interim staffing and consulting
division were approximately $3,034,000 for the three month period ended March
31, 1997 compared to approximately $1,074,000 for the same period in 1996, an
increase of approximately $1,960,000 or 182%. Revenue increased to approximately
$11,752,000 for the six month period ended March 31, 1997 from approximately
$6,472,000 for the six month period ended March 31, 1996, an increase of
approximately $5,280,000 or 82%. Revenues from the Company's executive search
and contingency recruitment division increased 31% to approximately $6,022,000
for the six months ended March 31, 1997 compared to approximately $4,585,000 for
the same period in 1996. Revenues from the Company's interim staffing and
consulting division were approximately $5,730,000 for the six month period ended
March 31, 1997 compared to approximately $1,887,000 for the same period in 1996,
an increase of approximately $3,843,000 or 204%.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION [CONTINUED]
- --------------------------------------------------------------------------------
The increase in revenues for the three and six months ended March
31, 1997 compared to the three and six months ended March 31, 1996 for the
Company's executive search and contingency recruitment division can be
attributed to the expansion of its client base, strong demand for personnel from
existing clients and hiring of additional experienced counselors. In addition,
the expansion into the publishing and new media industry, as well as increased
penetration on the West Coast within the managed health care business
contributed to the increase in revenues for the three and six months ended March
31, 1997. The Company's information technology interim staffing and consulting
business experienced significant increases in revenues for three and six months
ended March 31, 1997 compared to the same periods in 1996. The increases were
attributable to the retention of experienced sales and recruiting personnel,
establishment of various customer relationships as well as the expansion into
new geographical markets.
Selling expenses for the three months ended March 31, 1997 totaled
approximately $4,920,000 (78% of revenues) compared with approximately
$2,570,000 (74% of revenues) for the three months ended March 31, 1996. Selling
expenses for the six months ended March 31, 1997 totaled approximately
$8,944,000 (76% of revenues) compared to approximately $4,758,000 (74% of
revenues) for the six months ended March 31, 1997. The increase in selling
expenses as a percentage of revenues is directly related to the Company's
interim staffing and consulting division, which incurred startup costs during
fiscal 1997 associated with the commencement of operations in the accounting
interim staffing and consulting business in New York and California. In
addition, the Company has incurred costs due to the retention of senior level
counselors within various segments of the executive search and contingency
recruitment division. The Company's interim staffing and consulting business
accounted for approximately $2,474,000 and $4,770,000 for the three and six
months ended March 31, 1997, respectively. Such costs consist primarily of
payroll relating to interim staffing requirements, salaries and commissions of
sales and recruiting personnel, employee benefits, telephone and advertising.
General and Administrative expenses increased to approximately
$964,000 (15% of revenues) and $1,950,000 (17% of revenues), respectively, for
the three and six months ended March 31, 1997 compared to approximately $835,000
(24% of revenues) and $1,807,000 (28% of revenues), respectively, for the three
and six months ended March 31, 1996. The improvements as a percentage of
revenues relates to operating efficiencies and economies of scale associated
with increased revenues.
Depreciation and Amortization expense for the three and six months
ended March 31, 1997 totaled approximately $79,000 and $154,000 compared to
approximately $58,000 and $113,000 for same periods in 1996. The increase is due
to amortization of intangible assets related to the acquisition of trade names
and the acquisition of furniture and equipment.
Income Tax Expense for the three and six months ended March 31,
1997 were approximately $81,000 and $166,000, respectively, compared with $0 for
the three and six months ended March 31, 1996. At September 30, 1996, the
Company had net operating loss carryforwards of approximately $1,300,000 to
apply to taxable income. The Company's effective tax rate for the period ended
March 31, 1997 was approximately 22%, due to the application of net operating
loss carryforwards.
Income from operations was approximately $310,000 and $704,000 for
the three and six months ended March 31, 1997, respectively, compared to
approximately $9,000 for the three months ended March 31, 1996 and a loss from
operations of approximately $206,000 for the six months ended March 31, 1996.
The Company's operating results for the three months ended March 31, 1997
include charges of approximately $150,000 relating to the startup of its
accounting interim staffing and consulting business.
Net income was approximately $255,000 and $597,000 for the three and
six months ended March 31, 1997 respectively, compared to approximately $81,000
for the three months ended March 31, 1996 and a net loss of approximately
$54,000 for the six months ended March 31, 1996.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION [CONTINUED]
- --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1997, the Company's sources of liquidity included
approximately $3,342,000 in cash and cash equivalents and short-term
investments. In addition, the Company had working capital of approximately
$6,075,000 at March 31, 1996.
In February 1997, the Company entered into a one year $4,000,000
demand line of credit facility agreement with The Dime Savings Bank which is
collateralized by all the Company's assets. The agreement provides for
borrowings at the Dime Reference Rate + 1% (currently 9.25%) in amounts not
exceeding 80% of eligible accounts receivable (as defined therein) and expires
on February 28, 1998, on which date the outstanding principal amount is required
to be repaid. To date, the Company has not made any borrowings under this
facility.
During the first six months of fiscal 1997, the Company generated
net cash from operations of approximately $130,000, resulting primarily from an
increase in earnings. Cash used in investing activities for the six months ended
March 31, 1996 totaled approximately $874,000, most of which was used for the
purchase of short-term investments.
In April 1997, the Company leased approximately 9,400 square feet
of additional office space at its current headquarters. The minimum annual
rental and utility obligations for the additional office space through July 14,
1999 is approximately $190,000, approximately $300,000 from July 15, 1999
through December 31, 2001 and is approximately $345,000 from January 1, 2002
through September 30, 2006. The Company anticipates occupying this space in July
1997.
Capital expenditures for the remainder of fiscal 1997 are expected
to be approximately $300,000, which will primarily relate to the additional
rental space.
The Company believes that its current cash position and investment
balances, together with financing available under its working capital facility
will be sufficient to support current working capital requirements for the next
twelve to eighteen months.
NEW AUTHORITATIVE ACCOUNTING PRONOUNCEMENTS
The FASB has also issued SFAS No. 123, "Accounting for Stock-Based
Compensation," in October of 1995. SFAS No. 123 uses a fair value based method
of accounting for stock options and similar equity instruments as contrasted to
the intrinsic value based method of accounting prescribed by Accounting
Principles Board [APB] Opinion No. 25, Accounting for Stock Issued to Employees.
The accounting requirements of SFAS No. 123 are effective for transactions
entered into in fiscal years that begin after December 15, 1995; the disclosure
requirements of SFAS No. 123 are effective for financial statements for fiscal
years beginning after December 15, 1995. The Company anticipates continuing to
account for stock-based compensation using the intrinsic value method. SFAS No.
123 will not have an impact on the Company's results of operations or financial
position.
The Financial Accounting Standards Board [FASB] issued Statement of
Financial Accounting Standards [SFAS] No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities" in June 1996.
SFAS No. 125 provides accounting and reporting standards which are based on
consistent application of a "financial-components approach" that focuses on
control. Under that approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the liabilities it
has incurred, derecognizes financial assets when control has been surrendered,
and derecognizes liabilities when extinguished. SFAS No. 125 is effective for
transfers and servicing of financial assets and extinguishment of liabilities
occurring after December 31, 1996. Adoption of SFAS No. 125 is not expected to
have an impact on the Company's financial statements.
The FASB issued [SFAS] No. 128, "Earnings Per Share" in February
1997. SFAS No. 128 specified the computation, presentation and disclosure
requirements for earnings per share (EPS) for entities with publicly held common
stock or potential common stock. SFAS No. 128 is effective for financial
statements for both interim and annual periods ending after December 15, 1997.
Adoption of SFAB No. 128 will not have a material impact on the Company's basic
EPS and diluted EPS.
9
<PAGE>
PART II: OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of the Corporation
was held on March 31, 1997. Votes were cast with respect to the
election of two directors to Class I of the Board of Directors to
serve until the 2000 Annual Meeting of Stockholders as follows:
NUMBER OF SHARES OF COMMON
NUMBER OF SHARES OF COMMON STOCK STOCK AS TO WHICH AUTHORITY
NOMINEES VOTED IN FAVOR TO VOTE WAS WITHHELD
- -------- -------------- --------------------
Lloyd B. Solomon 4,640,027 24,400
Joel A. Klarreich 4,640,027 24,400
The Stockholders approved the 1996 Stock Option Plan by a vote of
2,202,650 in favor, 296,650 shares against, the holders of 27,980
shares abstaining from voting.
The Stockholders also ratified the appointment of Moore
Stephens, P.C. (successor to Mortenson & Associates, P.C.) as the
independent public accountants for the Corporation for the fiscal
year ending September 30, 1997 by a vote of 4,631,247 shares in
favor, 13,900 shares against, the holders of 19,280 shares
abstaining from voting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
10.1 Demand Grid Note, dated February 24, 1997 between
the Company and The Dime Savings Bank.
10.2 Continuing General Security Agreement, dated
February 24, 1997 between the Company and The Dime
Savings Bank.
27 Financial Data Schedule
(B) REPORTS ON FORM 8-K: NONE
10
<PAGE>
THE SOLOMON-PAGE GROUP LTD.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
THE SOLOMON-PAGE GROUP LTD.___________
(Registrant)
Date: May 6, 1997 /s/ Lloyd B. Solomon
----------------------------------------
Lloyd B. Solomon, Chief Executive Officer
Date: May 6, 1997 /s/ Eric M. Davis
-----------------------------------
Eric M. Davis, Chief Financial Officer
Vice President - Finance
11
DEMAND GRID NOTE
New York, New York
$4,000,000.00 Date: 2/24, 97
ON DEMAND, the undersigned ("Maker") promises to pay to the order of THE
DIME SAVINGS BANK OF NEW YORK, FSB ("Bank") at its corporate headquarters
located at 589 Fifth Avenue, New York, New York 10017 or at any of its banking
offices in New York as Bank may designate by written notice to Maker, the
principal sum of FOUR MILLION ($4,000,000.00) DOLLARS or so much thereof, as
shall be advanced by Bank to Maker, in Bank's sole discretion and not repaid,
together with interest on the unpaid principal amount hereof from time to time
outstanding from the date hereof until the date on which this Note is paid in
full at the rate set forth below.
Interest on the unpaid principal of this Note will be due and payable when
demand is made for payment of the principal of this Note and (indicate whichever
is applicable):
[x] on the last day of each month.
[ ] on the day of each
Prior to the date that demand is made for payment of the principal hereof,
this Note shall bear interest at a rate (the "Contract Rate") equal to (indicate
whichever is applicable):
[ ] a fixed rate of _ % per annum..
[X] a fluctuating rate of 1% per annum above the Reference Rate (as
defined below), such rate to change without notice from time to
time with each change in the Reference Rate.
After demand is made for payment of the principal of this Note, interest under
this Note shall be payable on demand and shall accrue at a fluctuating rate per
annum equal to 2% per annum above (i) if the Contract Rate is a fixed rate, the
Contract Rate, or (ii) if the Contract Rate is a fluctuating rate, the greater
from time to time of (x) the Contract Rate in effect on the date that the
principal became due and (y) the Contract Rate that would have been in effect
from time to time if the principal had not become due. Interest shall be
calculated on the basis of a 360-day year for actual days elapsed. In no event
shall the interest rate applicable at any time to this Note exceed the maximum
rate permitted by law. As used herein, "Reference Rate" means the rate
established by Bank from time to time at its principal domestic office as its
reference lending rate for domestic commercial loans. Bank may make loans to
customers above, at or below the Reference Rate.
This Note evidences loans made by Bank to Maker in Bank's sole discretion,
from time to time. The unpaid principal balance of this Note at any time shall
be the total amount advanced by Bank to Maker in Bank's sole discretion, less
the total amount of principal payments made hereon by Maker. The date and amount
of each such loan and each payment on account of principal thereof may be
endorsed by Bank on the grid attached to and made a part of this Note, and when
so endorsed shall represent evidence thereof binding upon Maker in the absence
of manifest error. Any failure by Bank to so endorse shall in no way mitigate or
discharge the obligation of Maker to repay any loans actually made. Maker may
prepay this Note in whole at any time with all accrued interest to the date of
repayment. So long as Maker is not in default under this Note, Maker may prepay
this Note in part at any time with accrued interest to the date of prepayment on
the principal amount prepaid.
Requests for loans to Maker from Bank and directions as to the disposition
of the proceeds thereof may be given orally (including by telephone) or in
writing to Bank by the officers of Maker or other persons authorized to borrow
on Maker's behalf by borrowing resolutions of Maker's Board of Directors
heretofore delivered to Bank, as such resolutions may be amended or superseded
from time to time, provided that any such amending or superseding resolutions
shall have been certified by the Secretary or an Assistant Secretary of Maker,
and a copy thereof, so certified, shall have been delivered to an officer of
Bank at its office for payment. Bank may conclusively rely on the authorities
contained in said resolutions. Any such loan so made shall be conclusively
presumed to have been made to or for the benefit of Maker and Maker shall be
liable in respect thereof when made in accordance with any such request or
direction, or when deposited to any account of Maker with Bank, even though
persons other than those authorized to borrow on behalf of Maker may have
authority to draw against such account. Bank may rely on any such request or
direction which it believes to be genuine, and Bank shall be fully protected in
so doing without any duty to make further inquiry as to such genuineness. By
making a request for a loan, Maker shall be deemed to be representing and
warranting to Bank that on such date Maker is not in breach of any of its
covenants to Bank set forth in this Note or in any other document or instruments
of Maker to Bank and no event of default has occurred and is continuing with
respect to any Obligations (as defined below).
This Note shall be payable in lawful money of the United States of America
in immediately available funds. Except as otherwise provided herein with respect
to prepayments, all payments on this Note shall be applied to the payment of
accrued interest before being applied to the payment of principal. Any payment
which is required to be made on a day which is not a banking business
<PAGE>
day in the City of New York shall be payable on the next succeeding banking
business day and such additional time shall he included in the computation of
interest. In the event that any other Obligations are due at any time that Bank
receives a payment from Maker on account of this Note or any such other
Obligations, Bank may apply such payments to amounts due under this Note or any
such other Obligations in such manner as Bank, in its discretion, elects,
regardless of any instructions from Maker to the contrary.
Maker acknowledges that this Note is an obligation which is payable on
demand and that notwithstanding anything to the contrary in any other
instrument, agreement or other document to which Maker and/or Bank is a party,
the enumeration in any such document of specific events of default, conditions
and/or covenants relating to the loan evidenced by this Note or to any other
Obligation, shall not be construed to qualify, define or otherwise limit in any
way Bank's right, power or ability, at any time, to make demand for payment of
the principal of and interest on this Note, and Maker agrees that the occurrence
of any event of default or breach of any condition or covenant in any such
document is not the only basis for demand to be made on this Note.
To induce Bank, in its sole discretion, to make loans to Maker, Maker
represents, warrants and covenants to Bank that (i) Maker is duly organized and
validly existing in good standing under the laws of its jurisdiction, with full
power and authority to make, deliver and perform this Note; (ii) the execution,
delivery and performance by Maker of this Note have been duly authorized by all
necessary legal action and do not and will not violate or conflict with its
organizational documents or any law, rule, regulation or order binding on Maker
or any agreement or instrument to which Maker is a party or which may be binding
on Maker; (iii) this Note has been fully executed by an authorized
representative of Maker anti constitutes a legal, valid, binding and enforceable
obligation of Maker; (iv) no authorization, consent, approval, license,
exemption of or filing or registration with, any court or government or
governmental agency is or will be necessary to the valid execution, delivery or
performance by Maker of this Note; (v) the loans evidenced by this Note will be
used solely for working capital purposes; (vi) there are no pending or
threatened actions, suits or proceedings against or affecting Maker by or before
any court, commission, bureau or other governmental agency or instrumentality,
which individually or in the aggregate, if determined adversely to Maker, would
have a material adverse effect on the business, properties, operations, or
condition, financial or otherwise, of Maker; and (vii) the most recent financial
statements of Maker heretofore delivered to Bank are complete and correct and
since the date thereof there has not occurred any material adverse change in the
financial condition or operations of Maker from that shown on said financial
statements.
Upon the occurrence of any of the following (each, an "Event of Default")
with respect to any Maker, indorser or guarantor of the indebtedness evidenced
by this Note: (i) default in payment of any amount due under this Note or in the
payment or performance of any other Obligation or agreement of any nature or
description to or with Bank; (ii) any of them shall commence any case,
proceeding or other action under any law relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief entered
with respect to any of them, or seeking to adjudicate any of them a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with respect to any of
them or any of their debts, or seeking appointment of a receiver, trustee,
custodian or other similar official for any of them or for all or any
substantial part of the assets of any of them, or any of them shall make a
general assignment for the benefit of its creditors, or there shall be commenced
against any of them any case, proceeding or other action of a nature referred to
in this clause (ii), or there shall be commenced against any of them any case,
proceeding or other action seeking issuance of a warrant of attachment,
execution, distraint or similar process against all or any substantial part of
the assets of any of them which results in the entry of an order for any such
relief, or any of them shall take any action in furtherance of, or indicating
its consent to, approval of, or acquiescence in, any of the acts set forth in
this clause (ii), or any of them shall generally not, or shall be unable to, or
shall admit in writing its inability to, pay its debts as they become due; (iii)
entry of a judgment against any of them; (iv) failure to pay or remit any tax
when assessed or due; (v) death or dissolution; (vi) making a bulk transfer or
sending notice of intent to do so; (vii) granting any security interest (other
than to Bank); (viii) suspension or liquidation of the usual business; (ix)
failing to furnish Bank with any requested financial information or failing to
permit inspection of books or records by Bank or any of its agents, attorneys or
accountants; (x) making any misrepresentation to Bank in obtaining credit for
any of them; (xi) impairment of financial responsibility of any of them in
Bank's good faith opinion; (xii) Bank shall in good faith deem itself insecure
at any time; or (xiii) the occurrence of a default or event of default under any
guarantee or security agreement guaranteeing or securing any Obligations of
Maker; then, in the case of any Event of Default other than those referred to in
clause (ii) of this sentence, Bank may declare by notice to Maker any and all
Obligations of Maker to be immediately due and payable, and in case of any Event
of Default referred to in clause (ii) of this sentence all of the Obligations of
Maker shall automatically become due and payable immediately without notice or
demand.
Bank shall have a continuing lien and/or right of set-off on, and is hereby
granted a security interest in, all deposits (general and special) and credits
with Bank or any Bank Affiliate of any Maker and indorser, and may apply all or
part of the same to any Obligations, at any time or times, without notice. Bank
shall have a continuing lien on, and is hereby granted a security interest in,
all property of every Maker and indorser and the proceeds thereof held or
received by or for Bank or any Bank Affiliate for any purpose, whether or not
for the express purpose of serving as collateral security for the Obligations.
As used in this Note, the term "Bank Affiliate" includes any individual,
partnership or corporation acting as nominee or agent for Bank, and any
corporation or bank which is directly or indirectly owned or controlled by, or
under common control with, Bank. Any notice of disposition of property shall be
deemed reasonable if mailed at least five days before such disposition to the
last address of Maker or indorser on Bank's records. If the Obligations
evidenced by this Note are secured by a security agreement and/or other security
documents which Maker has separately delivered to Bank (whether or not such
documents make specific reference to this Note), reference to such documents is
made for a description of the collateral provided thereby and of the rights of
Maker and Bank therein. The rights and remedies of Bank provided for hereunder
are cumulative with the rights and remedies available to Bank under any other
instruments or agreements or under applicable law. As used in this Note, the
term "Obligations" means all amounts payable under this Note and any and all
other indebtedness, obligations and liabilities of Maker to Bank, and all claims
of Bank against Maker, now existing or hereafter arising, direct or indirect
(including participations or any interest of Bank in indebtedness of Maker to
others), acquired outright, conditionally, or as collateral security from
another, absolute or contingent, joint or several, secured or unsecured, matured
or unmatured, monetary or non-monetary, arising out of contract or tort,
liquidated or unliquidated, arising by operation of law or otherwise, and all
extensions, renewals, refundings, replacements and modifications of any of the
foregoing.
-2-
<PAGE>
In case of the occurrence of an Event of Default, each Maker and indorser
shall be jointly and severally liable for all costs of enforcement and
collection of the Note incurred by Bank or any other holder of this Note,
including but not limited to reasonable attorney's fees, disbursements and court
costs.
Maker and each indorser hereby separately waive presentment, notice of
dishonor, protest and notice of protest, and any or all other notices or demands
(other than demand for payments) in connection with the delivery, acceptance,
performance, default, endorsement or guarantee of this Note. The liability of
any Maker or indorser hereunder shall be unconditional and shall not be in any
manner affected by any indulgence whatsoever granted or consented to by the
holder hereof, including but not limited to any extension of time, renewal,
waiver or other modification. Any failure of the holder to exercise any right
hereunder shall not be construed as a waiver of the right to exercise the same
or any other right at any time and from time to time thereafter. Bank or any
holder may accept late payments, or partial payments, even though marked
"payment in full" or containing words of similar import or other conditions,
without waiving any of its rights. No amendment, modification or waiver of any
provision of this Note nor consent to any departure by Maker therefrom shall be
effective, irrespective of any course of dealing, unless the same shall be in
writing and signed by Bank, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given. This
Note cannot be changed or terminated orally or by estoppel or waiver or by any
alleged oral modification regardless of any claimed partial performance
referable thereto.
Any notice from Bank to Maker or any indorser shall be deemed given when
delivered to Maker or such indorser by hand or when deposited in the United
States mail and addressed to Maker or such indorser at the last address of Maker
or such indorser appearing on Bank's records.
This Note shall be governed by and construed in accordance with the laws of
the State of New York applicable to instruments made and to be performed wholly
within that state. If any provision of this Note is held to be illegal or
unenforceable for any reason whatsoever, such illegality or unenforceability
shall not affect the validity of any other provision hereof.
MAKER AND EACH INDORSER AGREE THAT ANY ACTION, DISPUTE, PROCEEDING, CLAIM
OR CONTROVERSY BETWEEN MAKER OR SUCH INDORSER AND BANK, WHETHER SOUNDING IN
CONTRACT, TORT OR OTHERWISE ("DISPUTE" OR "DISPUTES") SHALL, AT BANK'S ELECTION,
WHICH ELECTION MAY BE MADE AT ANY TIME PRIOR TO THE COMMENCEMENT OF A JUDICIAL
PROCEEDING BY BANK, OR IN THE EVENT OF A JUDICIAL PROCEEDING INSTITUTED BY MAKER
OR SUCH INDORSER AT ANY TIME PRIOR TO THE LAST DAY TO ANSWER AND/OR RESPOND TO A
SUMMONS AND/OR COMPLAINT MADE BY MAKER OR SUCH INDORSER, BE RESOLVED BY
ARBITRATION IN ACCORDANCE WITH THE PROVISIONS OF THIS PARAGRAPH AND SHALL, AT
THE ELECTION OF BANK, INCLUDE ALL DISPUTES ARISING OUT OF OR IN CONNECTION WITH
(1) THIS NOTE OR ANY RELATED AGREEMENTS OR INSTRUMENTS, (2) ALL PAST, PRESENT
AND FUTURE AGREEMENTS INVOLVING MAKER OR SUCH INDORSER AND BANK, (3) ANY
TRANSACTION RELATED TO THIS NOTE AND ALL PAST, PRESENT AND FUTURE TRANSACTIONS
INVOLVING MAKER OR SUCH INDORSER AND BANK, AND (4) ANY ASPECT OF THE PAST,
PRESENT OR FUTURE RELATIONSHIP OF MAKER OR SUCH INDORSER AND BANK. Bank may
elect to require arbitration of any Dispute with Maker or any indorser without
thereby being required to arbitrate all Disputes between Bank and Maker or such
indorser. Any such Dispute shall he resolved by binding arbitration in
accordance with Article 75 of the New York Civil Practice Law and Rules and the
Commercial Arbitration Rules of the American Arbitration Association ("AAA"). In
the event of any inconsistency between such Rules and these arbitration
provisions, these provisions shall supercede such Rules. All statutes of
limitations which would otherwise be applicable shall apply to any arbitration
proceeding under this paragraph. In any arbitration proceeding subject to this
paragraph, the arbitration panel ("the arbitrator") is specifically empowered to
decide (by documents only, or with a hearing, at the arbitrator's sole
discretion) pre-hearing motions which are substantially similar to pre-hearing
motions to dismiss and motions for summary adjudication. In any such arbitration
proceeding, the arbitrator shall not have the power or authority to award
punitive damages to any party. Judgment upon the award rendered may be entered
in any court having jurisdiction. Whenever an arbitration is required, the
parties shall select an arbitrator in the manner provided in this paragraph. No
provision of, nor the exercise of any rights under, this paragraph shall limit
the right of Bank (1) to foreclose against any real or personal property
collateral through judicial foreclosure, by the exercise of the power of sale
under a deed of trust, mortgage or other security agreement or instrument,
pursuant to applicable provisions of the Uniform Commercial Code, or otherwise
herein pursuant to applicable law, (2) to exercise self-help remedies including
but not limited to set-off and repossession, or (3) to request and obtain from a
court having jurisdiction before, during or after the pendency of any
arbitration, provisional or ancillary remedies and relief including but not
limited to injunctive or mandatory relief or the appointment of a receiver. The
institution and maintenance of an action or judicial proceeding for, or pursuit
of, provisional or ancillary remedies or exercise of self-help remedies shall
not constitute a waiver of the right of Bank, even if Bank is the plaintiff, to
submit the Dispute to arbitration if Bank would otherwise have such right.
Whenever an arbitration is required under this paragraph, the arbitrator shall
be selected, except as otherwise herein provided, in accordance with the
Commercial Arbitration Rules of the AAA. A single arbitrator shall decide any
claim of $100,000 or less and he or she shall be an attorney with at least five
years' experience. Where the claim of any party exceeds $ 100,000, the Dispute
shall be decided by a majority of three arbitrators, at least two of whom shall
he attorneys (at least one of whom shall have not less than five years'
experience representing commercial banks). The arbitrator shall have the power
to award recovery of all costs and fees (including attorneys' fees,
administrative fees, arbitrator's fees, and court costs) to the prevailing
party. In the event of any Dispute governed by this paragraph, each of the
parties shall, subject to the award of the arbitrator, pay an equal share of the
arbitrator's fees.
MAKER AND EACH INDORSER AGREE THAT ANY ACTION, SUIT OR PROCEEDING IN
RESPECT OF OR ARISING OUT OF THIS NOTE MAY BE INITIATED AND PROSECUTED IN THE
STATE OR FEDERAL COURTS, AS THE CASE MAY BE, LOCATED IN NEW YORK COUNTY, NEW
YORK AND ANY ARBITRATION PROCEEDING PURSUANT HERETO SHALL BE CONDUCTED IN NEW
YORK, NEW YORK. MAKER AND EACH INDORSER CONSENT TO AND SUBMIT TO THE EXERCISE OF
JURISDICTION OVER ITS PERSON BY ANY SUCH COURT HAVING JURISDICTION OVER THE
SUBJECT MATTER, WAIVE PERSONAL SERVICE OF ANY AND ALL PROCESS
-3-
<PAGE>
UPON IT AND CONSENT THAT ALL SUCH SERVICE OF PROCESS BE MADE BY REGISTERED MAIL
DIRECTED TO MAKER OR SUCH INDORSER AT ITS ADDRESS SET FORTH BELOW OR TO ANY
OTHER ADDRESS AS MAY APPEAR IN BANK'S RECORDS AS THE ADDRESS OF MAKER OR SUCH
INDORSER.
IN ANY ACTION, SUIT OR PROCEEDING IN RESPECT OF OR ARISING OUT OF THIS
NOTE, BANK, MAKER AND EACH INDORSER WAIVE TRIAL BY JURY, AND MAKER AND EACH
INDORSER ALSO WAIVE (I) THE RIGHT TO INTERPOSE ANY DEFENSE BASED UPON ANY CLAIMS
OR LACHES OR SET-OFF OR COUNTERCLAIM OF ANY NATURE OR DESCRIPTION, (II) ANY
OBJECTION BASED ON FORUM NON CONVENIENS OR VENUE, AND (III) ANY CLAIM FOR
CONSEQUENTIAL, PUNITIVE OR SPECIAL DAMAGES.
Bank is authorized to fill in any blank spaces and to otherwise complete
this Note and correct any patent errors herein.
THE SOLOMON-PAGE GROUP
Name of Maker
By: /s/ Eric M. Davis
----------------------------------
Signature of Authorized Signatory
Eric M. Davis, CFO, V.P. Finan
----------------------------------
Print Name and Title
1140 Avenue of the Americas New York, New York 10036
----------------------------------
Address for Notices
The Maker signing above is a:
[ ] partnership organized under the laws of
_________________
[ ] limited partnership organized under the laws of
_________________
[X] corporation organized under the laws of Delaware
[ ] limited liability company organized under the laws of
__________________
[ ] other (specify): _________________________
-4-
<PAGE>
LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
Amount Of Unpaid
Loan Amount of Principal Principal Notation
Date No. Loan Paid Balance Made By
<S> <C> <C> <C> <C> <C>
- ------------ ------------ ------------ ------------ ------------ ------------
- ------------ ------------ ------------ ------------ ------------ ------------
- ------------ ------------ ------------ ------------ ------------ ------------
- ------------ ------------ ------------ ------------ ------------ ------------
- ------------ ------------ ------------ ------------ ------------ ------------
- ------------ ------------ ------------ ------------ ------------ ------------
- ------------ ------------ ------------ ------------ ------------ ------------
- ------------ ------------ ------------ ------------ ------------ ------------
- ------------ ------------ ------------ ------------ ------------ ------------
- ------------ ------------ ------------ ------------ ------------ ------------
- ------------ ------------ ------------ ------------ ------------ ------------
- ------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
-5-
CONTINUING GENERAL SECURITY AGREEMENT
Dated: 2/24/97
As used in this Agreement:
"Collateral" means all right, title and interest of the Obligor in and to any
and all of the following property, whether now or hereafter existing or acquired
and wherever located, all products and Proceeds (including but not limited to
insurance proceeds) of such property, wherever located and in whatever form, and
all books and records pertaining to such property and all other property of the
Obligor in which Bank now or hereafter is granted a security interest pursuant
to this Agreement or otherwise:
[mark or initial the applicable boxes]
Accounts, [ ] All Accounts (including, without limitation, all
General accounts receivable), General Intangibles (including,
Intangibles, without limitation, contract rights and tax refunds)
Chattel Paper and all returned or repossessed Goods, all Chattel
and Instruments Paper (including, without limitation, leases) and
Instruments, and all interests of the Obligor in all
guarantees, security agreements and other property
securing the payment or performance of obligations
under any of the foregoing.
Imported [ ] All Imported Inventory, and all Documents (including,
Inventory and without limitation, all documents of title, transport
Documents or otherwise) relating to such Inventory.
Inventory [ ] All Inventory of every description (including, without
and Documents limitation, Imported Inventory, raw materials, work in
process and finished Goods), and all Documents
(including, without limitation, all documents of title,
transport or otherwise) relating to such Inventory.
Equipment [ ] All Equipment of every description and all Accessions
thereto.
Fixtures [ ] All Fixtures of every description an all Accessions
thereto located at the Collateral Location or at
Specific [ ] All of the following property:
Property
All [X]* All property of every description (including, without
Property limitation, all Accounts, General Intangibles, Chattel
Paper, Instruments, Inventory, Documents, Equipment,
Fixtures, Goods and all Accessions to any of the
foregoing).
* If no box is marked, Collateral shall mean All Property.
"Collateral Location" means the following address(es) where all Collateral
consisting of Inventory, Equipment, Fixtures or other tangible property is
located: 1140 Avenue of the Americas New York. New York 10036
"Obligor" means The Solomon-Page Group Ltd. and its successors and assigns, and
if more than one Person is named as Obligor, "Obligor" shall mean each, any or
all of them, and their liabilities and obligations hereunder shall be joint and
several. Obligor is/are:
[ ] individual(s).
[X] a corporation organized under the laws of Delaware
[ ] a partnership organized under the laws of
[ ] a limited partnership organized under the laws of
[ ] a limited liability company organized under the laws of
[ ] other (specify)
In consideration of any extension of credit or other financial
accommodation heretofore, now or hereafter made by Bank to or for the account of
the Obligor, or to or for the account of any other Person made by Bank at the
request of the Obligor or with respect to which the Obligor's agreements
hereunder have been required by Bank, and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged by the Obligor, the
Obligor agrees as follows:
1. Security Interest; Right of Set-Off. As security for the prompt and
unconditional payment of any and all Obligations, the Obligor does hereby
grant to Bank a continuing lien upon and security interest in, and does
hereby pledge, assign and transfer to Bank, all of the Collateral. In order
to secure further the payment of the Obligations, Bank is hereby given a
continuing lien upon and is granted a security interest in any and all
monies, securities and any and all other property
<PAGE>
of the Obligor and the proceeds thereof, now or hereafter actually or
constructively held or received by or in transit in any manner to or from
Bank, its correspondents or agents from or for the Obligor, whether for
safekeeping, custody, pledge, transmission, collection or for any other
purpose (whether or not for the express purpose of being used by Bank as
collateral security), or coming into the possession of Bank or its
correspondents or agents in any way, or placed in any safe deposit box
leased by Bank to the Obligor, and all such monies, securities and other
property shall also constitute "Collateral" and shall be held subject to
all the terms of this Agreement as collateral security for the prompt and
unconditional payment of any and all Obligations. Obligor hereby assigns
and grants Bank a security interest in, and Bank is also given a continuing
lien on and/or right of set-off for the amount of the Obligations with
respect to, any and all deposits (general or special) and credits of the
Obligor with, any and all claims of the Obligor against, Bank at any time
existing, and Bank is hereby authorized at any time or times, without prior
notice, to apply such deposit or credits, or any part thereof, to the
Obligations in such amounts as Bank may elect, although the Obligations may
be contingent or unmatured, and whether the collateral security therefor is
deemed adequate or not.
2. Representations of Obligor. The Obligor represents and warrants to Bank
that (a) no financing statement or other filing listing any of the
Collateral as collateral is on file in any jurisdiction (other than any
financing statement filed on behalf of Bank, as secured party); (b) the
chief executive office of the Obligor, if any, is located at the address
set forth in the space provided therefor in this Agreement; (c) all
Collateral, other than intangible property and property which is in the
possession of Bank or its agents, is located at the Collateral Location(s)
and the Obligor has no place of business other than the chief executive
office specified herein, if any, and the Collateral Location(s); (d) the
Obligor has not created and is not aware of any Lien on or affecting any
Collateral other than the Lien created by this Agreement in favor of Bank;
(e) if the Obligor is not a natural person, the execution, delivery and
performance of this Agreement have been duly authorized by all required
corporate, partnership or other applicable actions of the Obligor; (f) this
Agreement constitutes a valid, binding and enforceable obligation of the
Obligor; (g) the execution, delivery and performance of this Agreement do
not violate any law or any agreement or undertaking to which the Obligor is
a party or by which the Obligor may be bound and do not result in the
imposition of any Lien upon any Collateral other than the Lien in favor of
Bank created by this Agreement; (h) all consents, approvals,
authorizations, permits and licenses necessary for the Obligor to enter and
perform its obligations under this Agreement and the Obligations and/or to
conduct its business have been obtained; (i) the Obligor did not have or
conduct business under any name or trade name in any jurisdiction during
the past six years other than its name and trade names, if any, set forth
on the signature page of this Agreement, and the Obligor is entitled to use
such name and trade names; and (j) the Obligor is the legal and beneficial
owner of all Collateral specifically identified on page 1 of this Agreement
(alongside the box designated "Specific Property") and any Collateral
specifically identified in any rider, schedule or exhibit to this
Agreement.
3. Covenants Unless and until all of the Obligations have been indefeasibly
paid in full and all commitments of Bank to extend credit which, once
extended, would give rise to Obligations, have expired or been terminated,
the Obligor shall: (a) keep the Collateral free and clear of any Lien of
any kind other than the lien created by this Agreement; (b) promptly pay,
when due, all taxes and transportation, storage, warehousing and other
charges and fees affecting or arising out of the Collateral and defend the
Collateral against all claims and demands of all Persons at any time
claiming any interest therein adverse to or the same as that of Bank; (c)
at all times keep all insurable Collateral insured at the expense of the
Obligor to Bank's satisfaction against loss by fire, theft and any other
risks to which the Collateral may be subject, and cause all such policies
to be endorsed in favor of Bank and to name Bank as loss payee and as an
additional insured, and, if Bank so requests, deposit the same with Bank,
and cause all such policies to provide that each insurer will give Bank not
less than 30 days notice in writing prior to the exercise of any right of
cancellation; (d) keep the Collateral in good condition at all times
(normal wear and tear excepted) and provide Bank with such information as
Bank may from time to time request with respect to the location of the
Collateral and the Obligor's places of business; (e) give Bank at least 30
days' prior written notice before changing the Obligor's name or chief
executive office or changing the location or disposing of any Collateral
(other than in connection with the sale of any Inventory in the ordinary
course of business); (f) not sell or otherwise dispose of any Collateral
except on commercially reasonable terms and in the ordinary course of
business; (g) permit Bank, by its officers and agents, to have access to,
examine and copy at all reasonable times the Collateral, properties, minute
books and other corporate or partnership records, books of accounts, and
financial and other business records of the Obligor (including, without
limitation, all books, records, ledger cards, computer programs, tapes and
computer disks and diskettes and other property recording, evidencing or
relating to any Collateral); (h) promptly notify Bank upon the occurrence
of any Event of Default of which the Obligor has knowledge; (i) maintain,
with financially sound and reputable insurers, with companies and in form
satisfactory to the Bank, fire, hazard, vandalism, malicious mischief,
business interruption, public liability, flood and other insurance, all in
coverage and amounts and upon other terms customary for companies engaged
in the same or similar business and similarly situated to the Borrower as
the Bank may from time to time require, and deliver to the Bank
certificates of all such insurance in effect, provided, that the amount of
such insurance in effect from time to time shall in no event be less than
One Million ($ 1 ,000,000) Dollars, in the aggregate. Each such insurance
policy shall (aa) name the Bank and its successors and assigns as their
interests may appear, as additional insured and as sole loss payee, as the
case may he, (bb) insure the interests of the Bank and its successors and
assigns regardless of any breach of or violation by the Borrower of any
representations, warranties or conditions contained therein, and (cc)
provide that no cancellation, reduction in amount or change in coverage
thereof shall be effective until at least thirty (30) days after receipt by
the Bank of written notice thereof. The Borrower shall deliver to the Bank
copies of renewals of each insurance policy maintained by the Borrower not
later than thirty (30) days prior to the expiration date of such insurance
policy. Regarding proceeds of insurance, the Bank may at its options apply
such proceeds to the repayment of any of the Obligor's outstanding
obligations to the Bank; (j) within 90 days of the end of each fiscal year,
from the (late hereof throughout the term of this Agreement, furnish the
Bank with a balance sheet and income financial statement, prepared by an
independent accountant satisfactory to the Bank based on a review of
Borrower's books and records. Such statements shall be accompanied by a
letter addressed to the Bank of said independent accountant satisfactory to
the Bank certifying that the statements have been prepared in accordance
with generally accepted accounting principles and practices applied on a
consistent basis and that they are a fair presentation consistent with that
of the preceding year; (k) within 60 days of the end of each six-month
period from the date hereof throughout the term of this Agreement, furnish
the Bank with a balance sheet and income financial statement, prepared
-2-
<PAGE>
by an independent accountant satisfactory to the Bank based on a review of
Borrower's books and records. Such statements shall be accompanied by a
letter addressed to the Bank of said independent accountant satisfactory to
the Bank certifying that the statements have been prepared in accordance
with generally accepted accounting principles and practices applied on a
consistent basis and that they are a fair presentation consistent with that
of the preceding six-month interim report; and (1) deliver to the Bank from
the date hereof throughout the term of this Agreement, by the 15th day of
each month of this Agreement, the following: (aa) a complete list of
accounts receivable agings of the immediately preceding month, (bb) a
report on any and all sales occurring in the immediately preceding month,
and (cc) an inventory valuation report on the immediately preceding month,
each of the aforementioned (aa), (bb) and (cc) shall be certified by an
affidavit from the Chief Financial Officer of the Borrower to be a complete
and accurate representation of same.
4. Events of Default. The occurrence of any of the following events shall
constitute an Event of Default: (a) the failure of the Obligor to pay when
due any of the Obligations; (b) any representation or warranty of the
Obligor to Bank in this Agreement or any other instrument or agreement with
or in favor of Bank shall prove to be inaccurate or untrue; (c) the breach
by the Obligor of any covenant in this Agreement or in any other instrument
or agreement with or in favor of Bank; (d) Bank shall in good faith deem
itself insecure at any time with respect to the Obligor's financial
condition or ability to pay the Obligations; or (e) Bank shall have
determined in good faith that the value of the Collateral has materially
decreased after the date of this Agreement. The occurrence of any of the
following events with respect to any Obligor, maker, endorser, acceptor,
surety or guarantor of, or any other party to, the Obligations or the
Collateral shall also constitute an Event of Default: (aa) a default in
respect of any liabilities, obligations or agreements, present or future,
absolute or contingent, secured or unsecured, matured or unmatured, several
or joint, original or acquired, of any of the Responsible Parties to or
with Bank; (bb) death (in the case of any of the Responsible Parties who is
an individual) or dissolution (in the case of any of the Responsible
Parties which is not a matured person); (cc) death or suspension of the
usual business activities of any member of any partnership included in the
term "the Responsible Parties"; (dd) making, or sending a notice of, an
intended bulk transfer; (ee) granting a security interest to anyone other
than Bank in any property including, without limitation, the rights of any
of the Responsible Parties in the Collateral; (ff) suspension of payment;
(gg) the whole or partial suspension or liquidation of its usual business;
(hh) failing, after demand, to furnish to Bank any financial information or
to permit inspection of books and records of account; (ii) making any
misrepresentation to Bank for the purpose of obtaining credit or an
extension of credit; (jj) failing to pay any tax, or failing to withhold,
collect or remit any tax or tax deficiency when assessed or due; (kk)
failing to pay when due any obligations, whether or not in writing; (11)
making of any tax assessment by the United States or any state or foreign
country; (mm) entry of a judgment or issuance of an order of attachment or
an injunction against, or against any of the property of, any of the
Responsible Parties; (nn) commencement against any of the Responsible
Parties of any proceeding for enforcement of a money judgment under Article
52 of the New York Civil Practice Law and Rules or amendments thereto; (oo)
if any of the Responsible Parties or if any of the Obligations or
Collateral at any time fails to comply with Regulation U of the Federal
Reserve Board or any amendments thereto; (pp) the issuance of any warrant,
process or order of attachment, garnishment or lien, and/or the filing of a
Lien as a result thereof against any of the property of the Obligor whether
or not Collateral; (qq) any of the Responsible Parties challenges or any
proceeding, or any proceedings are instituted, which challenge the
validity, binding effect or enforceability of this Agreement; (rr) any of
the Responsible Parties makes, receives or retains any payment on account
of indebtedness subordinated to the Obligations in violation of the terms
of such subordination; (ss) any of the Responsible Parties or any
partnership of which any of the Responsible Parties is a member is expelled
from or suspended by any stock or securities exchange or other exchange;
(tt) any of the Responsible Parties shall make an assignment for the
benefit of creditors or a composition with creditors, shall be unable or
admit in writing an inability to pay its respective debts as they mature,
shall file a petition in bankruptcy, shall become insolvent (however such
insolvency may be evidenced), shall be adjudicated insolvent or bankrupt,
shall petition or apply to any tribunal for the appointment of any
receiver, liquidator or trustee of or for any of the Responsible Parties or
any substantial part of the property of assets of any of the Responsible
Parties, shall commence any proceedings relating to it under any
bankruptcy, reorganization, arrangement, readjustment of debt,
receivership, dissolution or liquidation law or statute of any
jurisdiction, whether now or hereafter in effect, or there shall be
commenced against any of the Responsible Parties any such proceeding, or
any order, judgment or decree approving the petition in any such proceeding
shall be entered, or any of the Responsible Parties shall by any act or
failure to act indicate its consent to, approval of or acquiescence in any
such proceeding or in the appointment of any receiver, liquidator or
trustee of or for any of the Responsible Parties or any substantial part of
the property or assets of any of the Responsible Parties, or shall suffer
any such appointment, or any of the Responsible Parties shall take any
action for the purpose of effecting any of the foregoing, or any court of
competent jurisdiction shall assume jurisdiction with respect to any such
proceeding or a receiver or trustee or other officer or representative of
the court or of creditors, or any court, governmental officer or agency,
shall under color of legal authority, take and hold possession of any
substantial part of the Collateral or the property or assets of any of the
Responsible Parties; or (uu) Bank shall in good faith deem itself insecure
with respect to the financial condition of any of the Responsible Parties.
5. Remedies of Rank.
(a) After the occurrence of an Event of Default, Bank shall have no
obligation to make further loans, extensions of credit or other
financial accommodations to or on behalf of the Obligor, anything in
any other agreement to the contrary notwithstanding.
(b) After the occurrence of an Event of Default, other than an Event of
Default referred to in clause (tt) of the second sentence of Section
4, Bank may declare by notice to the Obligor, any and all Obligations,
to be immediately due and payable and in the case of any Event of
Default referred to in clause (tt) of the second sentence of Section 4
all of the Obligations shall automatically be and become due and
payable in either case without presentment, demand, protest or notice
of any kind, all of which are hereby waived by the Obligor, anything
in any other agreement to the contrary notwithstanding.
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(c) After the occurrence of an Event of Default, Bank may, without notice
to or demand (other than any notice required by law, the giving of
which is not waivable), upon the Obligor (all of which are hereby
waived by the Obligor), without releasing the Obligor from any
obligation under this Agreement or any other instruments or agreements
with Bank and without waiving any rights Bank may have or impairing
any declaration of default or election to cause the Collateral to be
sold or any sale proceeding predicated on the same; (i) demand,
collect or receive upon all or any part of the Collateral and assemble
or require the Obligor, at the Obligor's expense, to assemble all or
any part of the Collateral and, if Bank so requests, the Obligor shall
assemble the Collateral and make it available to Bank at a place to be
designated by Bank; (ii) without notice, demand or other process and
without charge enter any of the Obligor's premises and without breach
of peace until Bank completes the enforcement of its rights in the
Collateral, take possession of such premises or place custodians in
exclusive control thereof, remain on such premises and use the same
and any of the Obligor's equipment for the purpose of completing any
work-in-process, preparing any Collateral for disposition and
disposing of or collecting any Collateral, and in exercise of its
rights under this Agreement, without payment of compensation of any
kind, use any and all trademarks, trade styles, trade names, patents,
patent applications, licenses, franchises and the like to the extent
of the Obligor's rights therein and the Obligor hereby grants a
license and the right to grant sublicenses for that purpose; (iii) in
such manner and to such extent as Bank may deem necessary to protect
the Collateral or the interests, rights, powers or duties of Bank,
enter into and upon any premises of the Obligor and take and hold
possession of all or any part of the Collateral (the Obligor hereby
waiving and releasing any claim for damages in respect of such
taking) and exclude the Obligor and all other Persons from the
Collateral, operate and manage the Collateral and rent and lease the
same, perform such reasonable acts of repair or protection as may be
reasonably necessary or proper to conserve the value of the
Collateral, collect any and all income, rents, issues, profits and
proceeds from the Collateral, the same being hereby assigned and
transferred to Bank, and from time to time apply or accumulate such
income, rents, issues, profits and proceeds in such order and manner
as Bank, in its sole discretion, shall instinct, it being understood
that the collection or receipt of income, rents, issues, profits or
proceeds from the Collateral after declaration of default and election
to cause the Collateral to be sold under and pursuant to the terms of
this Agreement shall not affect or impair any event of default or
declaration of default under any agreement or instrument between the
Obligor and Bank or election to cause any Collateral to be sold or any
sale proceedings predicated on the same, but such proceedings may be
conducted and sale effected notwithstanding the collection or receipt
of any such income, rents, issues, profits and proceeds; (iv) take
control of any and all of the Accounts, contractual or other rights
that are included in the Collateral and Proceeds arising from any such
Accounts or contractual or other rights, enforce collection, either in
the name of Bank or in the name of the Obligor, of any or all of the
Accounts, release or exchange all or any part of such Collateral or
compromise, settle, extend or renew (whether or not longer than the
original period) any indebtedness under such Collateral; (v) sell all
or any part of the Collateral at public or private sale at such place
or places and at such time or times and in such manner and upon such
terms, whether for cash or credit, as Bank in its sole discretion may
determine; (vi) endorse in the name of Obligor any Instrument, however
received by Bank, representing Collateral or Proceeds of any of the
Collateral; (vii) require the Obligor to turn over, or instruct the
financial institutions holding the same to turn over, all monies and
investments in any of Obligor's accounts to Bank; and (viii) exercise
all the rights and remedies granted to a secured party under the New
York Uniform Commercial Code and all other rights and remedies given
to Bank under this Agreement or any other instrument or agreement or
otherwise available at law or in equity. Bank shall be under no
obligation to make any of the payments or do any of the acts referred
to in this Section 5 or elsewhere in this Agreement and any of the
actions referred to in this Section 5 or elsewhere in this Agreement
may be taken regardless of whether any notice of default or election
to sell has been given under this Agreement (provided, however, that
all notices required by law, the giving of which may not be waived,
shall be given in accordance with such law) without regard to the
adequacy of the security for the Obligations.
(d) The Obligor hereby waives notice of the sale of any Collateral by Bank
pursuant to any provision of this Agreement or any applicable
provisions of the Uniform Commercial Code or other applicable law. In
the event that notice of the sale of Collateral cannot be waived or
Bank gives notice of such sale to the Obligor, Bank will give the
Obligor notice of the time and place of any public sale of the
Collateral or of the time after which any private sale or any other
intended disposition thereto is to be made by sending notice, as
provided led below, at least five days before the time of the sale or
disposition, which provisions for notice the Obligor and Bank agree
are reasonable. No such notice need be given by Bank with respect to
Collateral which is perishable or threatens to decline speedily in
value or is of a type customarily sold on a recognized market.
(e) Bank may apply the net proceeds of any sale, lease or other
disposition of Collateral, after deducting all costs and expenses of
every kind incurred thereon or incidental to the retaking, holding,
preparing for sale, selling, leasing, or the like of the Collateral or
in any way relating to the rights of Bank thereunder, including
attorneys' fees and expenses hereinafter provided for, to the payment,
in whole or in part, in such order as Bank may elect, of one or more
of the Obligations, whether due or not due, absolute or contingent,
making proper rebate for interest or discount on items not then due,
and only after so applying such net proceeds and after the payment by
Bank of any other amounts requited by any existing or future provision
of law (including Section 9-504(1)(c) of the Uniform Commercial Code
of any jurisdiction in which any of the Collateral may at the time be
located) need Bank account for the surplus, if any. The Obligor shall
remain liable to Bank for the payment of any deficiency, with interest
at the default rate provided for in the instruments, if any,
evidencing the Obligations, but if there is no such instrument with
respect to any Obligation or no default rate is specified therein, at
a variable rate equal to 4% above the Bank's reference lending rate
applicable to domestic commercial loans as established by Bank from
time to time, but in no event shall such rate exceed the maximum rate
allowed by law. Bank may make loans to its customers above, at or
below its reference rate.
(f) Whether or not an Event of Default shall have occurred, Bank may sell
all or any part of the Collateral, although the Obligations may be
contingent or unmatured (1, whenever in its discretion Bank considers
such sale necessary
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<PAGE>
for its protection. Any such sale may be made without prior demand for
payment on account, margin or additional margin or any other demands
whatsoever, the making of any such demands shall not establish a
course of conduct nor constitute a waiver of the right of Bank to sell
the Collateral as herein provided or of the right of Bank to
accelerate the maturity of the Obligations as herein provide !.
6. Additional Rights of Bank and Duties of Obligor Regarding Obligations and
Collateral.
(a) If the Obligor, as registered holder of any Collateral, shall become
entitled to receive or does receive any stock certificate, option or
right, whether as an addition to, in substitution of, or in exchange
for, such Collateral, or otherwise, the Obligor agrees to accept same
as Bank's agent and to hold same in trust for Bank, and to forthwith
deliver the same to Bank in the exact form received, with the
Obligor's endorsement when necessary or requested by Bank, to be held
by Bank as Collateral.
(b) The Obligor waives protest, demand for payment, notice of default or
nonpayment to the Obligor or any other party liable for or upon any of
said Obligations or Collateral.
(c) The Obligor consents that the obligation of any party upon or of any
guarantor, surety or indemnitor for any Obligations or any Collateral
may, from time to time, in whole or in part, be renewed, extended,
modified, accelerated, compromised, settled or released and that any
Collateral or Liens for any Obligations may, from time to time, in
whole or in part, be exchanged, sold, released or surrendered, by
Bank, all without any notice to, or further assent by, or any
reservation of rights against, the Obligor, and all without in any way
affecting or releasing the liability of the Obligor with respect to
such Obligations or any security interest hereby created.
(d) Bank shall not be liable for failure to collect or realize upon the
Obligations or upon the Collateral, or any part thereof, or for any
delay in so doing, nor shall Bank be under any obligation to take any
action whatsoever with regard thereto. Bank shall use reasonable care
in the custody and preservation of the Collateral in its possession
but need not take any steps to preserve rights against prior parties
or to keep the Collateral identifiable. Bank shall have no obligation
to comply with any recording, re-recording, filing, re-filing or other
legal requirements necessary to establish or maintain the validity,
priority or enforceability of, or Bank's right in and to the
Collateral or any part thereof. Bank may exercise any right of the
Obligor with respect to any Collateral. Bank shall have no duty to
exercise any of the aforesaid rights, privileges or options with
respect to any Collateral and shall not be responsible for any failure
to do so or delay in so doing.
(e) In any statutory or non- statutory proceeding affecting the Obligor or
any Collateral, Bank or its nominee may, whether or not an Event of
Default shall have occurred and regardless of the amount of the
Obligations, file a proof of claim for the full amount of any
Collateral and vote such Claim for the full amount thereof (i) for or
against any proposal or resolution; (ii) for a trustee or trustees or
for a committee of creditors; and/or (iii) for the acceptance or
rejection of any proposed arrangement, plan of reorganization, wage
earners' plan, composition or extension; and Bank or its nominee may
receive any payment or distribution and give acquaintance therefor and
may exchange or release any Collateral.
(f) Whether or not an Event of Default shall have occurred, Bank may,
without notice to or demand upon the Obligor, (i) commence, appear in
or defend any action or proceeding purporting to affect all or any
part of the Collateral or the interests, rights, powers or duties of
Bank, whether brought by or against the Obligor or Bank; and/or (ii)
pay, purchase, contest or compromise any claim, debt, lien, charge or
encumbrance which in the judgment of Bank may affect or appear to
affect the Collateral or the interests, rights, powers or duties of
Bank.
(g) Any and all stocks, bonds or other securities held by Bank as
Collateral hereunder may, without notice (and whether or not a default
exists), be registered in the name of Bank or its nominee without
disclosing that Bank is a pledgee. Bank (whether or not a default
exists and regardless of the amount of the Obligations) or its nominee
may, without notice, exercise all voting and corporate rights at any
meeting of any corporation issuing such stocks, bonds or other
securities, and exercise any and all rights of conversion, exchange,
subscription or any other rights, privileges or options pertaining to
such stocks, bonds or other securities as if the absolute owner
thereof, including, without limitation, the right to exchange, at its
discretion, any and all of such stocks, bonds or other securities for
other stocks, bonds, securities or any other property upon the merger,
consolidation, reorganization, recapitalization or other readjustment
of any corporation issuing the same or upon the exercise by the
issuing corporation or Bank of any right, privilege or option
pertaining to such stocks, bonds or other securities, and in
connection therewith, to deposit and deliver any and all of such
stocks, bonds or other securities with any committee, depository,
transfer agent, registrar or other designated agency upon such terms
and conditions as it may determine, all without liability except to
account for property actually received by it. Bank shall have no duty
to exercise any of the aforesaid rights, privileges or options and
shall not be responsible for any further to do so or for any delay in
so doing.
7. Sale of Collateral Consisting of Securities. The Obligor recognizes that
Bank may be unable to effect a public sale of any securities which may
constitute a portion of the Collateral by reason of certain prohibitions
contained in the Securities Act of 1933 and applicable state securities
laws and instead may resort to one or more private sales of such Collateral
to a restricted group of purchasers who would be obliged to agree, among
other things, to acquire such securities for their own account for
investment and not with a view to the distribution or resale thereof. The
Obligor recognizes and agrees that, because of this restriction, sales of
securities may result in prices and other terms less favorable to the
seller than if the disposition were made pursuant to a public sale and,
notwithstanding such circumstances, agrees that any such private or limited
sale or sales shall be deemed to have been made in a commercially
reasonable manner. Bank shall be under no obligation to delay a sale of any
of any of the securities constituting part of the Collateral for the period
of time
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<PAGE>
necessary to permit the issuer of such securities to register them for
public sale under the Securities Act of 1933 or under applicable state
securities law.
8. Collection Rights of Bank. The Obligor agrees that at any time, whether or
not an Event of Default shall have occurred, Bank shall have the right to
notify an account debtor (with respect to any Collateral consisting of
Accounts), or the obligor on any Instrument or other right or claim of the
Obligor to any payment which is Collateral, to make payment directly to
Bank, whether or not Event of Default shall have occurred and whether or
not the Obligor was theretofore making collections on such Collateral, and
also to take control of any Proceeds Bank is entitled to under Section
9-306 of the New York Uniform Commercial Code. If any Collateral consists
of Accounts, Instruments or other rights or claims of the Obligor to any
payment, then at Bank's request, the Obligor shall promptly notify, (in
manner, form and substance satisfactory to Bank) all Persons obligated to
the Obligor under any such Accounts, Instruments or other rights or claims
of the Obligor to any payment that Bank possesses a security interest in
such Accounts, Instruments or other rights or claims of the Obligor to any
payment and that all payments in respect of such Accounts, Instruments, or
other rights or claims of the Obligor to any payment are to be made
directly to Bank. The Obligor shall not settle, compromise or adjust any
disputed amount, or allow any credit, rebate or discount with respect to
any Account, Instrument or other right or claim of the Obligor to any
payment which constitutes Collateral. After Bank shall have given any
notice of the type specified in the first sentence of this Section 8, any
and all amounts received by the Obligor from the account debtor or other
obligor so notified shall be promptly remitted to Bank, and until so
remitted shall be segregated by the Obligor and held in trust for Bank.
9. Additional Security. If Bank shall at any time hold security for any
Obligations in addition to the Collateral, Bank may enforce the terms of
this Agreement or otherwise realize upon the Collateral, at its option,
either before or concurrently with the exercise of remedies as to such
other security or, after a sale is made of such other security, it may
apply the proceeds upon the Obligations without affecting the status of or
waiving any right to exhaust all or any other security, including the
Collateral, and without waiving any breach or default or any right or power
whether exercised under this Agreement, contained in this Agreement, or
provided for in respect of any such security.
10. Preservation and Protection of Security Interest; Power of Attorney. The
Obligor will faithfully preserve and protect the Lien in the Collateral
created by this Agreement and will, at its own cost and expense, cause'
such Lien to be perfected and continue to be perfected and to be and remain
prior to all other Liens, so long as all or any part of the Obligations are
outstanding and unpaid, and for such purpose the Obligor will from time to
time at the request of Bank (i) make notations of the security interest in
certificates of title of Collateral, a security interest in which is
perfected by such notation, and deliver the same to Bank, (ii) deliver
possession of Collateral (concurrent with the acquisition of such
Collateral) to Bank, a security interest in which is perfected by the
taking of possession, and (iii) file or record, or cause to be filed or
recorded, such instruments, documents and notices, including financing
statements and continuation statements, as Bank may reasonably deem
necessary or advisable from time to time in order to perfect and continue
to perfect such Liens and to maintain their priority over all other Liens.
The Obligor will do all such other acts and things and will execute and
deliver all such other instruments and documents, including further
security agreements, pledges, endorsements, assignments and notices as Bank
may reasonably deem necessary or advisable from time to time in order to
perfect and preserve the priority of the Liens in the Collateral as
contemplated by this Agreement. Bank, acting through its officers,
employees and authorized agents, is hereby irrevocably appointed the
attorney-in-fact of the Obligor to do, at the Obligor's expense, all acts
and things which Bank may reasonably deem necessary or advisable to
preserve, perfect, continue to perfect and/or maintain the priority of such
Liens in the Collateral, including the signing of financing, continuation
or other similar statements and notices on behalf of the Obligor, and which
the Obligor is required to do by the terms of the Agreement. The Obligor
hereby authorizes Bank to sign and file financing statements with respect
to the Collateral without the signature of the Obligor. The Obligor shall
pay all filing fees for financing statements with respect to the
Collateral.
11. Risk of loss; Insurance. Risk of loss, damage to or destruction of the
Collateral is and shall remain upon the Obligor. If the Obligor fails to
obtain and keep in force insurance covering the Collateral as required by
Section 3 of this Agreement, or fails to pay the premiums on such insurance
when due, Bank may, but is not obligated to do so for the account of the
Obligor and the cost of so doing shall thereupon become an Obligation. Such
amounts shall be payable by the Obligor upon demand by the Bank and
following demand shall bear interest at a variable rate equal to 4 % above
the Bank's reference lending rate applicable to domestic commercial loans
as established by Bank from time to time, but in no event shall such rate
exceed the maximum rate allowed by law. Bank, acting through its officers,
employees and authorized agents, is hereby irrevocably appointed the
attorney-in-fact of the Obligor to endorse any draft or check that may be
payable to the Obligor in order to collect the proceeds of such insurance
or any return or unearned premiums.
12. Change of Law. In the event of the passage, after the date of this
Agreement, of any law which has the effect of changing in any way the laws
now in force for the taxation of security documents such as this Agreement
or debts secured by such security documents or the manner of the collection
of any such taxes so as in any case to affect this Agreement or to impose
payment of the whole or any portion of any taxes, assessments or other
similar charges against the Collateral upon Bank, the Obligations shall
immediately become due and payable at the option of Bank and upon 30 days'
notice to the Obligor.
13. Expenses. The Obligor hereby agrees to pay any and all expenses incurred by
Bank in enforcing any rights under this Agreement or in defending any of
its rights to any amounts received hereunder. Without limiting the
foregoing, the Obligor agrees that whenever any attorney is used by Bank to
obtain payment hereunder, to advise it as to its rights, to adjudicate the
rights of the parties hereunder or for the defense of any of its rights to
amounts secured, received or to be received hereunder, Bank shall be
entitled to recover all reasonable attorneys' fees and distributions, court
costs and all other expenses attributable thereto.
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14. Notices. Each notice or other communication hereunder shall be in writing,
shall be sent by messenger, by registered or certified mail or by facsimile
transmitter or tested telex, and shall be effective when sent, and shall be
sent as follows:
If to the Obligor, to the address set forth below its signature or such
other address as it may designate, by written notice to Bank as herein
provided or to any other address as may appear in the records of Bank as
Obligor's address.
If to Bank, The Dime Savings Bank of New York, FSB, 589 Fifth Avenue, New
York, New York 10017, Attention: Robert Zabawa, or such other address as it
may designate, by written notice to the Obligor as herein provided.
15. Additional Definitions. The following terms have the following meaning
unless otherwise specified herein:
"Accessions," "Account," "Chattel Paper," "Equipment," "Fixtures," "General
Intangibles," "Goods," "Instrument" and "Inventory" have the meanings
assigned to those terms by the New York Uniform Commercial Code, as
amended.
"Agreement" means this Continuing General Security Agreement.
"Bank" means The Dime Savings Bank of New York, FSB, a federally chartered
savings bank, and any Person acting as agent or nominee for The Dime
Savings Bank of New York, FSB and any corporation the stock of which is
owned or controlled directly or indirectly by, or is under common control
with, The Dime Savings Bank of New York, FSB.
"Claims" means each "claim" as that term is defined under Section 101(4) of
the United States Bankruptcy Code, and any amendments thereto (Title 11,
United States Code).
"Event of Default" means any of the events described in Section 4 of this
Agreement.
"Imported Inventory" means all Inventory of the Obligor of every
description (including, without limitation, raw materials, work in process
and finished Goods) imported from outside of the United States, including
but not limited to Inventory consisting of parts or components produced in
whole or in part in the the United States and sent outside of the United
States for assembly, completion or packaging.
"Lien" means any lien, security interest, pledge, hypothecation,
encumbrance or other claim in or with respect to any property.
"Obligations" means any and all indebtedness, obligations and liabilities
of the Obligor to Bank, including those arising from or related to letters
of credit issued on behalf of the Obligor through the Bank, and all Claims
of Bank against the Obligor, now existing or hereafter arising, direct or
indirect (including participation or any interest of Bank in indebtedness
of the Obligor to others), acquired outright, conditionally, or as
collateral security from another, absolute or contingent, joint or several,
secured or unsecured, matured or unmatured, monetary or non-monetary,
arising out of contract or tort, liquidated or unliquidated, arising by
operation of law or otherwise, and all extensions, renewals, refundings,
replacements and modifications of any of the foregoing.
"Person" means any natural person, corporation, partnership, trust,
government or other association or legal entity.
"Proceeds" has the meaning assigned to the term by the New York Uniform
Commercial Code, as amended, and also means all "proceeds," "products,"
"offspring," "rents," or "profits" of any property, as such quoted terms
are used in the United States Bankruptcy Code, and any amendment thereto
(Title 11, United States Code).
"Responsible Parties" includes all Obligors and all makers, endorsors,
acceptors, sureties and guarantors of, and all other parties, to the
Obligations or the Collateral.
16. Miscellaneous. This Agreement shall remain in full force and effect and
shall be binding upon the Obligor, its successors and assigns, in
accordance with its terms, notwithstanding any increase, decrease or change
in the partners of the Obligor, if it should be a partnership, or the
merger, consolidation, or reorganization of the Obligor, if it be a
corporation, or any other change concerning the form, structure or
substance of any such entity or any other legal entity. If there is more
than one Person named as an Obligor in this Agreement, this Agreement shall
be binding upon each of the Obligors who execute and deliver this Agreement
to Bank even if this Agreement is not executed by any other Person or
Persons also named as an Obligor herein. Bank may assign all or a portion
of its rights under this Agreement and may deliver the Collateral, or any
part thereof, to any assignee and such assignee shall thereupon become
vested with all the powers and rights given to Bank in respect thereof; and
Bank shall thereafter be forever relieved and discharged from any liability
or responsibility in the matter but with respect to any Collateral not so
delivered or assigned, Bank shall retain all powers and rights given to it
hereby. The execution and delivery hereafter to Bank by the Obligor of a
new security agreement shall not terminate, supercede or cancel this
Agreement, unless expressly provided therein, and this Agreement shall not
terminate, supersede or cancel any security agreement previously delivered
to Bank by the Obligor, and all rights and remedies of Bank hereunder or
under any security agreement hereafter or heretofore executed and delivered
to Bank by the Obligor shall be cumulative and may be exercised singly or
concurrently. This Agreement may not be changed or terminated orally, but
only by a writing executed by the Obligor and a duly authorized officer of
Bank. Unless Bank, in its discretion, otherwise agrees, the security
interests granted in this Agreement shall not terminate until all of the
Obligations have been indefeasibly paid in full and all commitments of Bank
to extend credit which, once, extended, would give right to Obligations
have expired or been terminated. No delay on the part of Bank in exercising
any of its options, powers or rights, or partial or single exercise
thereof, shall constitute a waiver thereof. No modification or waiver of
this Agreement or any provision hereof or of any other agreement or
instrument made or issued in connection herewith or contemplated hereby,
nor consent to any departure by the Obligor therefrom, shall in any event
be effective,
-7-
<PAGE>
irrespective of any course of dealing between the parties, unless the same
shall be in a writing executed by a duly authorized officer of Bank, and
then such waiver or consent shall be effective only in the specific
instance and for the specific purpose of which given. No notice to or
demand on the Obligor in any case shall thereby entitle the Obligor to any
other or further notice or demand in the same, similar or other
circumstances. The remedies herein provided are cumulative and not
exclusive of any other remedies provided at equity or by law and all such
remedies may be exercised singly or concurrently. If any one or more of the
provisions contained in this Agreement or any document executed in
connection herewith shall be invalid, illegal or unenforceable in any
respect under any applicable law, the validity, legality and enforceability
of the remaining provisions contained herein shall not (to the full extent
permitted by law) in any way be affected or impaired. The descriptive
headings used in this Agreement are for convenience only and shall not be
deemed to affect the meaning or construction of any provision hereof. The
word "including" shall be deemed to be followed by the words "without
limitation. The Obligor waives any and all notice of the acceptance of
this Agreement by Bank, or of the creation, accrual or maturity (whether by
declaration or otherwise) of any and all Obligations, or of any renewals or
extensions thereof from time to time, or of Bank's reliance on this
Agreement.
17. Governing Law; Consent in Jurisdiction; Service of Process. This Agreement
shall be governed by and construed in accordance with the laws of the State
of New York applicable to contracts made and to be performed wholly within
that state. The Obligor hereby consents to the jurisdiction of the courts
of the State of New York and the courts of the United States of America for
the Southern District of New York and consents that any action or
proceeding hereunder may be brought in such courts, and waives any
objection that it may now or hereafter have to the venue of any such action
or proceeding in any such court or that such action or proceeding was
brought in an inconvenient court and agrees not to plead or claim the same;
and authorizes the service of process on the Obligor by registered or
certified mail sent to any address authorized in Section 14 as an address
for the sending of notices.
18. RIGHT OF BANK TO ARBITRATE DISPUTES.
(a) THE OBLIGOR AGREES THAT ANY ACTION, DISPUTE, PROCEEDING, CLAIM OR
CONTROVERSY BETWEEN OR AMONG THE PARTIES WHETHER SOUNDING IN CONTRACT,
TORT OR OTHERWISE ("DISPUTE" OR "DISPUTES") SHALL, AT BANK'S ELECTION,
WHICH ELECTION MAY BE MADE AT ANY TIME PRIOR TO THE COMMENCEMENT OF A
JUDICIAL PROCEEDING BY BANK, OR IN THE EVENT OF A JUDICIAL PROCEEDING
INSTITUTED BY THE OBLIGOR AT ANY TIME PRIOR TO THE LAST DAY TO ANSWER
AND/OR RESPOND TO A SUMMONS AND/OR COMPLAINT MADE BY THE OBLIGOR, BE
RESOLVED BY ARBITRATION IN NEW YORK, NEW YORK IN ACCORDANCE WITH THE
PROVISIONS OF THIS SECTION 18 AND SHALL, AT THE ELECTION OF BANK,
INCLUDE ALL DISPUTES ARISING OUT OF OR IN CONNECTION WITH (I) THIS
AGREEMENT OR ANY RELATED AGREEMENTS OR INSTRUMENTS, (II) ALL PAST,
PRESENT AND FUTURE AGREEMENTS INVOLVING THE PARTIES, (III) ANY
TRANSACTION CONTEMPLATED HEREBY AND ALL PAST, PRESENT AND FUTURE
TRANSACTIONS INVOLVING THE PARTIES AND (IV) ANY ASPECT OF THE PAST,
PRESENT OR FUTURE RELATIONSHIP OF THE PARTIES. Bank may elect to
require arbitration of any Dispute with the Obligor without thereby
being required to arbitrate all Disputes between Bank and the Obligor.
Any such Dispute shall be resolved by binding arbitration in
accordance with Article 75 of the New York Civil Practice Law and
Rules and the Commercial Arbitration Rules of the American Arbitration
Association ("AAA"). In the event of any inconsistency between such
Rules and these arbitration provisions, these provisions shall
supersede such Rules. All statutes of limitations which would
otherwise be applicable shall apply to any arbitration proceeding
under this subsection 18(a). In any arbitration proceeding subject to
these provisions, the arbitration panel (the "arbitrator") is
specifically empowered to decide (by documents only, or with a
hearing, at the arbitrator's sole discretion) pre-hearing motions
which are substantially similar to pre-hearing motions to dismiss and
motions for summary adjudication. In any such arbitration proceeding,
the arbitrator shall not have the power or authority to award punitive
damages to any party. Judgment upon the award rendered may be entered
in any court having jurisdiction. Whenever an arbitration is required,
the parties shall select an arbitrator in the manner provided in
subsection 18(d).
(b) No provision of, nor the exercise of any rights under, subsection
18(a) shall limit the right of any party (i) to foreclose against any
real or personal property collateral through judicial foreclosure, by
the exercise of a power of sale under a deed of trust, mortgage or
other security agreement or instrument, pursuant to applicable
provisions of the Uniform Commercial Code, or otherwise pursuant to
applicable law, (ii) to exercise self help remedies including but not
limited to setoff and repossession, or (iii) to request and obtain
from a court having jurisdiction before, during or after the pendency
of any arbitration, provisional or ancillary remedies and relief
including but not limited to injunctive or mandatory relief or the
appointment of a receiver. The institution and maintenance of an
action or judicial proceeding for, or pursuit of, provisional or
ancillary remedies or exercise of self help remedies shall not
constitute a waiver of the right of Bank, even if Bank is the
plaintiff, to submit the Dispute to arbitration if Bank would
otherwise have such right.
(c) Bank may require arbitration of any Dispute(s) concerning the
lawfulness, unconscionableness, propriety, or reasonableness of any
exercise of Bank of its right to take or dispose of any Collateral or
its exercise of any other right in connection with Collateral
including, without limitation, judicial foreclosure, exercising a
power of sale under a deed of trust or mortgage, obtaining or
executing a writ of attachment, taking or disposing of property with
or without judicial process pursuant to Article 9 of the Uniform
Commercial Code or otherwise as permitted by applicable law,
notwithstanding any such exercise by Bank.
(d) Whenever an arbitration is required under subsection 18(a), the
arbitrator shall be selected, except as otherwise herein provided, in
accordance with the Commercial Arbitration Rules of the AAA. A single
arbitrator shall decide any claim of $100,000 or less and he or she
shall be an attorney with at lease five years' experience. Where the
claim of any party exceeds $100,000, the Dispute shall be decided by
a majority vote of three
-8-
<PAGE>
arbitrators, at least two of whom shall be attorneys (at least one of
whom shall have not less than five years' experience representing
commercial banks).
(e) In the event of any Dispute governed by this Section 18, each of the
parties shall, subject to the award of the arbitrator, pay an equal
share of the arbitrator's fees. The arbitrator shall have the power to
award recovery of all costs and fees (including attorneys' fees,
administrative fees, arbitrator's fees, and court costs) to the
prevailing party.
19. WAIVER OF TRIAL BY JURY. EACH OF BANK AND THE OBLIGOR HEREBY WAIVES TRIAL
BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY OR AGAINST IT
ON ANY MATTERS WHATSOEVER, IN CONTRACT OR IN TORT, ARISING OUT OF OR IN ANY
WAY CONNECTED WITH THIS AGREEMENT OR THE OBLIGATIONS.
20. WAIVER OF CERTAIN OTHER RIGHTS. THE OBLIGOR HEREBY WAIVES THE RIGHT TO
INTERPOSE ANY DEFENSE BASED UPON ANY CLAIMS OR LACHES OR SET-OFF OR
COUNTERCLAIM OF ANY NATURE OR DESCRIPTION, ANY OBJECTION BASED ON FORUM NON
CONVENIENS OR VENUE, AND ANY CLAIM FOR CONSEQUENTIAL, PUNITIVE OR SPECIAL
DAMAGES.
IN WITNESS WHEREOF. the Obligor(s) has/have executed this Continuing
General Security Agreement.
THE SOLOMON-PAGE GROUP LTD.
Name of the Obligor, if an Entity
Chief Executive Office:
By: /s/ Eric M. Davis
1140 Avenue of the Americas -----------------------------
New York, New York 10036 Title: CFO, V.P. Finance
[Corporate Acknowledgment]
STATE OF NEW YORK
COUNTY OF NEW YORK
On this 24th day of February, 1997 before me personally came Eric M. Davis
to me known who, being duly sworn, deposes and says that he is the___________ of
The Solomon-Page Group Ltd., the corporation described in and which executed the
above Instruments that he knows the seal of the corporation; that the seal
affixed to said instrument is such corporate seal; that it was so affixed by
order of the Board of Directors of said corporation and he signed his name by
like order.
[Illegible]
----------------------------------
Notary Public
May 31, 1997
<PAGE>
CERTIFICATE
I, Eric M. Davis , do hereby certify as follows:
1. I am the duly elected, qualified and acting Secretary of The Solomon-Page
Group Ltd., a Delaware corporation (the "Company"), and as such, have the
care and custody of the books and records of the Company, have personal
knowledge of the matters set forth herein, and have authority to make this
Certificate for and on behalf of the Company.
2. At a special meeting of the Board of Directors of the Company, called in
accordance with the provisions of the organizational documents of the
Company and held on February 13, 1997, or pursuant to the unanimous written
consent of the Board of Directors of the Company dated ____________ , 1997,
as authorized by the organizational documents of the Company. the following
resolutions were adopted by unanimous vote or consent:
WHEREAS, the Company desires The Dime Savings Bank of New York, FSB
(hereinafter referred to as the "Bank") hereafter to extend credit or other
financial accommodations to the Company upon such terms and conditions as
may be required by the Bank.
IT IS, THEREFORE, RESOLVED, that the Company borrow and accept
$4,000,000.00 from the Bank and shall grant to the Bank a security interest
in property of the Company designated by any duly authorized representative
of the Company to secure any and all obligations of the Company to the
Bank, whether now existing or hereafter incurred; and
FURTHER RESOLVED, that any duly authorized representative of the Company
be, and each of them hereby is, authorized and directed to execute, and the
President or Secretary of the Company is hereby authorized and directed to
attest to and to affix the seal of the Company to, any security agreements
and other instruments or documents related thereto, in the form required by
the Bank: and
FURTHER RESOLVED, that the Company shall agree to submit to arbitration and
to waive the right of trial by jury with respect to any dispute arising
under such security agreement or any related document.
3. I further certify that the foregoing resolutions remain in full force and
effect and have not been rescinded or modified in any manner whatsoever and
neither their adoption nor their implementation violate the Company's
organizational documents or constitute a default under any agreement or
indenture to which the Company is a party or by which it is bound.
IN WITNESS WHEREOF, I have set my hand and the seal of The Solomon-Page Group
Ltd at New York, New York this 13 day of February, 1997.
[SEAL] THE SOLOMON-PAGE GROUP LTD.
By: /s/ Eric M. Davis
----------------------------
Title:.Secretary
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Form 10-QSB for the six months ended March 31, 1997 and is
qualified in its entirety by reference to such FInancial Statements and Notes,
thereto.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,309,278
<SECURITIES> 2,032,832
<RECEIVABLES> 5,005,398
<ALLOWANCES> 96,900
<INVENTORY> 0
<CURRENT-ASSETS> 8,480,856
<PP&E> 966,652
<DEPRECIATION> 154,108
<TOTAL-ASSETS> 10,430,764
<CURRENT-LIABILITIES> 2,405,607
<BONDS> 0
0
0
<COMMON> 5,139
<OTHER-SE> 7,641,013
<TOTAL-LIABILITY-AND-EQUITY> 10,430,764
<SALES> 11,752,281
<TOTAL-REVENUES> 11,752,281
<CGS> 8,944,111
<TOTAL-COSTS> 11,048,580
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,169
<INCOME-PRETAX> 763,264
<INCOME-TAX> 166,212
<INCOME-CONTINUING> 703,701
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 597,052
<EPS-PRIMARY> .12
<EPS-DILUTED> .11
</TABLE>
