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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________________ TO ______________.
COMMISSION FILE NUMBER 1-13856
SEL-LEB MARKETING, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
NEW YORK 11-3180295
(State of incorporation) (I.R.S. Employer Identification No.)
1435 51 STREET, NORTH BERGEN, NEW JERSEY 07047
(Address of principal executive offices) (Zip Code)
ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE: (201) 864-3316
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of each exchange on
Title of each class Which registered
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Common Stock, $.01 par value Boston Stock Exchange
Redeemable Warrant to Purchase Common Stock Boston Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $.01 par value
(Title of Class)
Redeemable Warrant to Purchase Common Stock
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
-- --
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendments to this Form 10-KSB. [X]
The issuer's revenues for its most recent fiscal year were $13,522,746.
The aggregate market value of voting stock held by non-affiliates of the
registrant on March 31, 1997 was approximately $25,326,500. On such date, the
closing price of the issuer's common stock was $5.50 per share. Solely for the
purposes of this calculation, shares beneficially owned by directors, executive
officers and stockholders of the issuer that beneficially own more than 10% of
the issuer's voting stock have been excluded, except such shares, if any, with
respect to which such directors and officers disclaim beneficial ownership.
Such exclusion should not be deemed a determination or admission by the issuer
that such individuals are, in fact, affiliates of the registrant.
The number of shares of the registrant's Common Stock, $.01 par value,
outstanding on April 10, 1997 was 8,678,827.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Company's Proxy Statement in connection with its Annual Meeting
scheduled to be held on May 29, 1997 are incorporated in Part III. The
Company's Proxy Statement will be filed within 120 days after December 31, 1996.
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SEL-LEB MARKETING, INC.
Annual Report on Form 10-KSB
For the Fiscal Year Ended December 31, 1996
TABLE OF CONTENTS
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Page
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PART I
Item 1. Description of Business 3
Item 2. Description of Property 12
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 14
Item 6. Management's Discussion and Analysis or Plan of Operation 15
Item 7. Financial Statements 18
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 18
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 19
Item 10. Executive Compensation 19
Item 11. Security Ownership of Certain Beneficial Owners and Management 19
Item 12. Certain Relationships and Related Transactions 19
Item 13. Exhibits and Reports on Form 8-K 20
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Sel-Leb Marketing, Inc. (the "Company") is primarily engaged in the
distribution and marketing of consumer merchandise to retail sellers such as
mass merchandisers, discount chain stores and food, drug and electronic
retailers. The Company's business presently consists of the following
activities: (i) developing, marketing and selling the Company's own proprietary
brands of budget-line health, beauty aid and cosmetic products, which are
manufactured for the Company by contract manufacturers, (ii) opportunistic
purchasing and secondary sourcing (I.E., distributing merchandise on a wholesale
basis outside of normal distribution channels to retail merchants) of a broad
range of name-brand and off-brand products such as health and beauty aids,
cosmetics, fragrances, kitchen items and other household items,
(iii) representing manufacturers and distributors as a sales agent, on a
commission basis, in connection with the sale to mass merchandise retailers of
merchandise manufactured and distributed by such third parties and
(iv) developing, marketing and selling, or otherwise facilitating the
development marketing or sale of products to be promoted by celebrity
spokespersons and sold to mass merchandise retailers, as well as products which
will "tie in" to specific television shows and be sold by the Company either on
television in connection with those shows, with the intent to thereafter sell
such products to mass merchandise retailers, or directly to mass merchandise
retailers. The Company's strategy is to capitalize on increased consumer demand
for value and convenience resulting from the increased acceptance by consumers
of mass merchandisers, electronic retailers and other mass marketing retail
outlets, as well as on the popularity of consumer products endorsed by celebrity
spokespersons.
The Company, which was incorporated under the laws of the State of New York
in September 1993, consummated in July 1995 an initial public offering (the
"IPO") of units (the "Units"), each Unit consisting of one share of common
stock, par value $.01 per share ("Common Stock"), and one redeemable warrant to
purchase one share of Common Stock (the "Warrants"). Immediately following the
issuance of the Units in the IPO, the Common Stock and Warrants became
separately tradeable and transferable. On May 18, 1995, Linette Cosmetics, Inc.
("Linette Cosmetics"), a corporation founded in 1985 by Harold Markowitz, the
Chairman of the Board of the Company, and Jorge Lazaro, the Executive Vice
President and Secretary of the Company, was merged with and into the Company,
with the Company as the surviving corporation (the "Linette Merger"). Prior to
the Linette Merger, all of the outstanding capital stock of Linette Cosmetics
was owned by Mr. Markowitz, Mr. Lazaro and Paul Sharp, the President and Chief
Executive Officer of the Company, who together comprised the shareholders of the
Company until the IPO. In addition, immediately prior to the consummation of
the IPO, each of Messrs. Markowitz, Sharp and Lazaro contributed to the Company
his 20% equity interest in Lea Cosmetics, Inc. ("Lea Cosmetics") and the Company
acquired from the remaining shareholder his 40% equity interest in Lea Cosmetics
(the "Lea Acquisition"). As a result, Lea Cosmetics became a wholly-owned
subsidiary of the Company and, on August 3, 1995, Lea Cosmetics was merged with
and into the Company, with the Company as the surviving corporation.
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SALE OF PROPRIETARY BRAND NAME PRODUCTS. The Company is also currently
engaged in the development, marketing and sale of its own proprietary brand name
budget-line health, beauty aid and cosmetic products. The Company's beauty aid
and cosmetic products include budget-line lipsticks, lip pencils, nail polishes
and eye pencils, which are manufactured in a variety of colors and are sold
under the Linette-Registered Trademark-, Vea-Registered Trademark-,
Zia-Registered Trademark- and Loud Music-TM- brand names to retail chains and
other mass merchandisers located throughout the United States. All of the
Company's proprietary beauty aid and cosmetic products and all packaging
therefor are manufactured and supplied by third parties in accordance with the
Company's specifications. The Company purchases all materials for these
products (including raw materials and packaging) through individually placed
purchase orders to various suppliers. The Company has credit arrangements with
such suppliers that allow it to purchase merchandise on credit with payment
generally due 30 days after purchase. To date, the Company has not experienced
any shortages of or difficulties in obtaining the raw materials used in its
products or the materials used for the packaging of its products. Furthermore,
the Company believes that alternate sources of supply for such materials are
readily available and that the loss of any one of its suppliers would not have a
material adverse effect. The Company believes that it has good relationships
with the suppliers of raw materials and packaging for its proprietary products.
Typically, all materials purchased by the Company for its proprietary
beauty aid and cosmetic products are delivered directly by the suppliers to the
Company's contract manufacturers, which are engaged by the Company to provide
filling and packaging services and perform quality control and, in certain
cases, distribute the finished products and, if necessary, warehouse the
products. During the fiscal year ended December 31, 1996, one such contract
manufacturer -- LPD Packaging, Inc. -- accounted for approximately 95% of the
Company's filling and packaging services. All products are manufactured
pursuant to the Company's specifications on a purchase order basis. Although
the Company believes that its contract manufacturers have the capacity to
produce volumes of the Company's products sufficient to meet the Company's
foreseeable needs, there can be no assurance of such. Furthermore, although the
Company believes that it has a good relationship with its contract manufacturers
and that the Company will continue to obtain its finished beauty aid and
cosmetic products from such manufacturers in the foreseeable future, the Company
does not have written contracts with its manufacturers and there can therefore
be no assurance of such. In the event the Company were to experience
difficulties with or the loss of services of its present manufacturers, the
Company believes that it would be able to retain the services of other
manufacturers; however, there can be no assurance that such services could be
retained on a timely basis or on terms as favorable as those with its present
manufacturers.
As part of the Company's strategy of taking advantage of the growth in mass
merchandising and value retailing, the Company will seek to continue introducing
its own brand name products, thereby providing the Company with a supply of
products and making the Company less reliant on third party and/or opportunistic
sources of merchandise. The Company may also seek to acquire rights to
additional proprietary product lines through licensing or other arrangements,
although there can be no assurance of such.
OPPORTUNISTIC PURCHASING AND SECONDARY SOURCING ACTIVITIES. The Company
acts as a secondary sourcer of a broad range of name-brand and off-brand
merchandise, including health and beauty aids, cosmetics, fragrances, kitchen
items and other household products. The Company acquires its merchandise in
negotiated purchases either directly from consumer goods manufacturers or from
wholesalers, retailers, financially distressed businesses, duty-free
distributors and other secondary sources located both in the United States and,
to a limited extent, in Europe, and sells the merchandise to retail chains and
other mass merchandisers located throughout the United States and, more
recently, in Canada.
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During the year ended December 31, 1996, the Company purchased merchandise from
over 50 different suppliers and sold the merchandise to over 30 different
retailers, including, among others, BJ's Wholesale Club, McCrory's Stores,
Wal-Mart Stores, Bill's Dollar Stores and Hills Department Stores, which
accounted for approximately 36%, 10%, 8%, 7% and 5%, respectively, of the
Company's net sales in 1996. The Company believes that its longstanding
relationships with many of its suppliers and customers are important to the
secondary sourcing activities of the Company, and that its relationship with its
suppliers and customers are good.
In connection with its distribution activities, the Company has the ability
to repackage merchandise acquired by it or to provide other value-added services
at the request of a customer. For example, if the Company were to acquire
merchandise which had been packaged by the manufacturer as a four-pack item
(I.E., four items to the package), the Company could, if requested by the
customer, repackage the item as a ten-pack item prior to delivery of the
merchandise to the customer. Likewise, at a customer's request, the Company has
the ability to package several different items together to create a gift or
bonus package. The Company believes that its ability to provide such
value-added services allows it to service the ongoing needs of its customers and
to enhance its sales and customer relations.
Because the Company focuses on the opportunistic acquisition of merchandise
(other than designer fragrances) such as purchases of closed-out, overstocked
and/or change-of-packaging brand name items, the Company is generally able to
purchase such merchandise at a discount below wholesale cost. The Company then
sells the merchandise to discount retailers and other mass merchandisers who
seek to purchase products at discount prices in order to supplement their normal
inventory purchases or for special promotions. The merchandise is sold at prices
that are above the Company's cost, although at prices that are still generally
below wholesale. Although the Company typically purchases merchandise before it
has located customers for such merchandise, it has sold substantially all
merchandise acquired by it in each of the last three fiscal years.
The Company purchases the name-brand and off-brand merchandise which it
sells to retailers from over 50 suppliers, including consumer goods
manufacturers, wholesalers, retailers, financially distressed businesses,
duty-free distributors and other secondary sources. The Company is continually
seeking to locate new sources of merchandise. Generally, the Company will be
contacted by a manufacturer or other supplier when such supplier has excess
merchandise that is available for resale through the secondary market;
alternatively, the Company will also contact a supplier if it becomes aware that
the supplier has merchandise which it desires to sell. Although certain
suppliers may have provided a majority or all of a particular type of product or
particular category of merchandise, no supplier accounted for more than 10% of
the Company's total merchandise purchases for the year ended December 31, 1996
other than Stealth International, which accounted for approximately 14% of such
total purchases. During the year ended December 31, 1996, substantially all of
the Company's secondary sourcing merchandise was purchased from domestic
suppliers, with the remainder being purchased from suppliers located in Europe.
The Company believes that the loss of any one of its suppliers would not have a
material adverse effect on the Company and that alternative sources of
merchandise are readily available in all existing product categories as well as
additional product categories.
All merchandise is purchased by the Company from its suppliers through
individually placed purchase orders. The Company does not have any contractual
relationships with any of its suppliers and depends, instead, on its ongoing
relationships and prior dealings with such suppliers to obtain merchandise at
favorable prices when it becomes available to secondary suppliers. The Company
believes that such ongoing relationships with its suppliers have resulted from
its prior dealings with such suppliers,
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in many cases over a period of years, and its reliability and strength as a
customer. Several of the Company's principals have been involved in the
opportunistic purchasing business for more than 20 years and have developed many
on-going contacts with suppliers.
Currently, all purchasing and pricing decisions with respect to the
Company's opportunistic purchasing activities are made by Messrs. Markowitz,
Sharp and Lazaro, who locate sources of merchandise and determine whether any
given product will be suitable for wholesale distribution to mass merchandise
retailers or other customers. Generally, the Company believes that it has the
ability to sell all merchandise that is acquired by it. The Company has credit
arrangements with substantially all of its existing suppliers, thereby allowing
the Company to purchase merchandise on account. Generally, such credit
arrangements allow the Company to purchase merchandise with payment generally
due 30 days after the purchase.
The Company also acts as a wholesale distributor of prestige, designer
fragrances. Historically, manufacturers of such fragrances have sold their
products primarily to leading department stores. As a result, mass
merchandisers have traditionally only been able to obtain such items from
secondary sources such as the Company. Typically, the Company purchases these
fragrances from other secondary sources such as export and import companies,
duty-free distributors and department stores which are liquidating their excess
inventory. Unlike other merchandise which is acquired by the Company at prices
that are significantly below wholesale, the Company purchases the prestige
fragrances at above-wholesale prices (although still well below their normal
retail price). The Company, in turn, sells such items to mass merchandisers.
The Company believes that sales of such fragrances will continue to constitute a
portion of its sales, although there can be no assurance of such.
The Company believes that a portion of the prestige fragrances purchased by
it may include trademarked products manufactured in foreign countries and
trademarked products manufactured in the United States that may have been sold
to foreign distributors. From time to time, United States trademark owners and
their licensees and trade associations have initiated litigation or
administrative agency proceedings seeking to halt the importation into the
United States of such foreign manufactured or previously exported trademarked
products. Although the Company is not currently the subject of any such legal
or administrative actions, and is not aware of any such threatened legal or
administrative actions, there can be no assurance that the Company's business
activities will not become the subject of such actions in the future, or that
future judicial, legislative or administrative agency action will not limit or
eliminate some or all of the secondary sources of supply of prestige fragrances
used by the Company. However, the Company believes that any future limitation
on or elimination of its sources of supply for prestige fragrances for sale to
its customers would not have a material adverse effect on the Company, although
there can be no assurance of such.
COMMISSION SALES. In addition to establishing its own sources of
merchandise, the Company also acts as a sales agent for other manufacturers and
distributors of merchandise which is sold in the mass merchandise market. In
September 1994, the Company entered into a five-year agreement with Clyde
Duneier, Inc. ("Duneier"), a manufacturer and distributor of fine jewelry,
pursuant to which the Company acts as the exclusive sales agent for Duneier for
a specified account, in consideration for which the Company is paid a fixed
annual fee and royalty payments on net sales over certain specified amounts.
The Company has also entered into an informal arrangement with Knowlton
Cosmetics, Ltd. ("Knowlton"), a Canadian manufacturer and distributor of bath
items, pursuant to which the Company acts as a sales agent for Knowlton for
certain specified accounts, in consideration for which the Company
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is paid a commission on net sales to such accounts. The Company currently
anticipates that, in light of its present plans to develop and sell more of its
proprietary brand name products, the Company may not enter into any additional
arrangements pursuant to which it would sell, on a commission basis, products
that are manufactured and distributed by third parties. In addition, there can
be no guaranty that the Company's agreement with Duneier will be renewed upon
the expiration of such agreement in September 1999 or that its arrangement with
Knowlton will be continued or formalized.
DEVELOPMENT OF "CELEBRITY-ENDORSED" PRODUCTS. The Company believes that
the increasing popularity of consumer products endorsed by celebrities may
provide significant future opportunities for the Company. Accordingly, the
Company is seeking to develop products for promotion by celebrity spokespersons,
which products will be sold by the Company to mass merchandising and electronic
retailers. In this connection, the Company will seek to enter into agreements
with celebrities for whom it believes it will be able to successfully develop
products which will have consumer appeal.
In 1996, the Company entered into an arrangement with Regis Philbin,
co-host of the television program LIVE WITH REGIS AND KATHIE LEE, and Beau
Brummel, a leading New York City clothier, involving a line of menswear
accessories to be promoted by Mr. Philbin. Pursuant to such arrangement, the
Company provided a portion of the financing required in connection with Mr.
Philbin's live television appearances on QVC Network in December 1996 and March
1997. The Company is seeking to formalize and extend the terms of its
arrangement with such parties. In addition, the Company has previously
developed a line of products endorsed by best-selling author Jackie Collins
which were sold on Home Shopping Network in 1994 and 1995, and, in 1996, the
Company sold directly into the traditional retail market a line of "Jackie
Collins Wild-Registered Trademark-" fragrances. There can be no assurance that
the Company will be able to market additional amounts of celebrity-endorsed
products in the future, that it will be able to successfully participate in the
development and/or promotion of any other products for Mr. Philbin, Ms. Collins
or any other celebrities, that the Company will be able to retain the services
of any celebrities in the future or that the Company will be able to
successfully develop and/or promote any products for any celebrities. There can
be no assurance that any such products so developed for Mr. Philbin, Ms. Collins
or any other celebrities will meet with consumer acceptance or generate any
significant revenues.
In October 1996, the Company entered into an agreement with Viacom Consumer
Products, Inc. ("VCP") pursuant to which VCP has granted to the Company a
license to use the designs, trademarks, service marks, logos, visual
representations, characters and characterizations of the television series
CLUELESS-Registered Trademark- in connection with the manufacture and
distribution in the United States of a CLUELESS-Registered Trademark- line of
cosmetics (including, among others, nail care products, lip stick products,
cologne fragrances, mass market gift sets, signature gift sets and children's
gift sets). Pursuant to the agreement, the Company has the exclusive right to
sell such items in mass market stores, grocery stores, drug stores, beauty
outlets, discount chain stores and wholesale clubs, and the non-exclusive right
to sell such items in toy stores and department stores; provided, however, that
under certain conditions (including failure to make a timely royalty payment or
failure to meet certain sales targets), the Company's exclusive rights shall
become non-exclusive. The Company is required under the agreement to pay to VCP
a specified royalty fee on all items sold by the Company pursuant to the
agreement, and has paid to VCP a non-returnable advance of $90,000 (subject to
reduction in the event certain episodes of the show are not picked up for
broadcast) to be applied against the Company's royalty payments. In addition,
the Company shall be required to pay to VCP on March 31, 1998 a guarantee of
$225,000, less the amount of the non-returnable advance paid by the Company to
VCP and the aggregate amount of royalties paid by the Company to VCP through
such date. Furthermore, the Company is also required under the agreement to
spend a designated amount each year on advertising for the CLUELESS-Registered
Trademark- cosmetics line. The agreement commenced
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on October 15, 1996 and will continue, subject to certain conditions, until
October 31, 1999; provided, however, that in the event the Company shall have
met certain royalty targets during the initial term, the Company shall have the
right to extend the agreement for an additional two-year period, subject to
payment of an additional advance and an additional guarantee; and provided
further that, in the event CLUELESS-Registered Trademark- is not picked up for
broadcast under certain circumstances, the Company shall have the option to
terminate the agreement. As of the date hereof, the Company has commenced
manufacturing a line of CLUELESS-Registered Trademark- lipsticks, nail polishes
and mascaras, which line was launched in March 1997. However, there can be no
assurance that these products will meet with consumer acceptance or that the
CLUELESS-Registered Trademark- show will continue to be broadcast during the
anticipated term of the agreement.
In January 1997, the Company entered into an agreement with Bell Abbott
Haussmann Inc. ("BAHI") pursuant to which the Company has been granted the
exclusive right to use the trademark "Jabot-Registered Trademark-" in
connection with the production, marketing and distribution of certain
cosmetic and fragrance items (including, without limitation, perfumes,
colognes, toilet water, talcum powder, bath gels and personal deodorants) in
the United States and Canada, and has also been granted the exclusive right
to use the trademark "Jabot for the Young and the Restless
Generation-Registered Trademark-" in connection with the marketing and
distribution of such items in Canada. The "Jabot-Registered Trademark-" and
"Jabot for the Young and the Restless Generation-Registered Trademark-" marks
were inspired by the fictional name of a cosmetics company featured on a
leading daytime television drama. Pursuant to the agreement, the Company has
the right to sell the cosmetic and fragrance items through various retail
distribution channels, including mass merchandisers, retail stores,
catalogues, electronic media, direct response advertising, mail order,
telemarketing and other similar retail channels. The Company is required
under the agreement to pay to BAHI a specified royalty fee on all items sold
by the Company pursuant to the agreement, and has paid to BAHI a
nonrefundable $10,000 advance to be applied against the Company's royalty
payments. The agreement is for a term of five years commencing March 31,
1997, and shall be automatically extended for an additional term of five
years and a second additional term of ten years, in each case subject to
certain minimum royalty payments having been met during the preceding term,
and thereafter to subsequent additional terms of five years unless either
party does not wish to extend the term of the agreement. As of the date
hereof, the Company has developed a line of "Jabot-Registered Trademark-" and
"Jabot for the Young and the Restless Generation-Registered Trademark-"
products which the Company currently anticipates will be launched of 1997.
There can be no assurance that the Company will be successful in selling such
products or that any such products developed by the Company will meet with
consumer acceptance.
In September 1996, the Company entered into an arrangement with ACI, Inc.
("ACI"), a developer and marketer of cosmetic products, relating to the
distribution and marketing of products endorsed by celebrity spokespersons
through electronic media and other retail channels. Pursuant to this
arrangement, the Company will provide the financing required in connection with
developing, marketing and distributing the products to be promoted by such
celebrities and sold in the retail market. All profits and losses resulting
from the sale of such products are to be divided equally between the Company and
ACI. The Company has begun to develop products under this arrangement.
To date, all merchandise sold by the Company in connection with the "Jackie
Collins" line of products has been purchased by the Company from third-party
manufacturers and distributors, both in the United States and abroad. In
addition, the Company currently anticipates that all products developed by it as
television program "tie-in" products (including, without limitation, the
"Jabot-Registered Trademark-" and "Jabot for the Young and the Restless
Generation-Registered Trademark-" line of products to be marketed by the Company
pursuant to its agreement with BAHI and the CLUELESS-Registered Trademark- line
of products marketed by the Company pursuant to its agreement with VCP), as well
as other celebrity-endorsed products, if any, developed by the Company,
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will be purchased from third-party manufacturers. Typically, the Company
develops or will develop the design of the celebrity-endorsed products in
conjunction with the celebrity who is to promote such products, and the design
of any television "tie-in" products in conjunction with BAHI or VCP, as the case
may be. Once the product has been developed in accordance with applicable
design and quality specifications, the Company will arrange for the manufacture
of the product by a third-party manufacturer according to the Company's design
specifications. The Company does not enter into long-term contracts with its
third-party manufacturers, but instead purchases (and currently anticipates that
it will in the future continue to purchase) merchandise through individually
placed purchase orders. Accordingly, the Company is dependent on the ability of
its manufacturers to meet applicable design and quality specifications.
Although the Company believes that, in the event it were to experience
difficulties with or the loss of services of any of such manufacturers, it would
be able to engage other manufacturers who could be retained by the Company and
meet its production requirements on a timely basis, there can be no assurance of
such. The loss of any of such manufacturers, or any significant delays in
obtaining other manufacturers in the event of any such loss, could have an
adverse effect on the Company's business and results of operations.
Although the Company is seeking to develop the "celebrity-endorsed" product
area of its business, including by marketing and distributing in the traditional
retail market merchandise which is originally offered for sale on television or
by developing products to be promoted by celebrities and sold directly in such
traditional markets, there can be no assurance that the Company will be
successful in its endeavors. To date, the Company has not generated a
significant amount of revenues from such celebrity products, and there can be no
assurance that it will be able to successfully develop any such products or that
any such products developed by the Company will meet with consumer acceptance.
In addition, except as described above, as of the date hereof the Company has no
agreements, understandings or commitments related to such plan of development.
INVENTORY
Merchandise acquired by the Company for resale to its mass market customers
is either shipped by the supplier to the Company's warehouse facility, which is
currently located in North Bergen, New Jersey, or is shipped by the supplier
directly to a customer from whom the Company has received a purchase order. The
Company utilizes its North Bergen facility for the centralized receipt of goods
from suppliers, as well as the storage of inventory and the shipment of
inventory to its customers. In addition, value-added services such as
repackaging of goods are also performed at this facility.
Typically, all materials purchased by the Company for its proprietary
beauty aid and cosmetic products are delivered directly to the Company's
contract manufacturers, which provide filling and packaging services and perform
quality control and, in certain cases, distribute the finished products and, if
necessary, warehouse the products. The Company currently anticipates that,
following the Company's planned May 1997 relocation to new office and warehouse
facilities, the Company will perform the distribution activities and warehousing
of finished products previously performed by the Company's contract
manufacturers.
The Company has recently uncovered the theft of certain of its inventory
from its North Bergen, New Jersey premises. The Company is currently in the
process of investigating this matter, and has retained the services of an
investigator to assist the Company in determining the manner in which such theft
occurred and the amount of inventory in question. In addition, the Company is
currently reviewing its inventory security and control procedures in order to
determine any changes which must be made in
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order to prevent future theft. Based on information known to the Company to
date, the Company believes that the theft was committed by a limited number of
warehouse employees of the Company and occurred in the fourth quarter of 1996.
In addition, although the Company has not yet determined the amount of inventory
involved, the Company currently believes that the amount will be at least
$50,000 but is not expected to exceed $125,000. The loss of such inventory
during the year ended December 31, 1996 had an adverse effect on the results of
operations of the Company for the fiscal year ended December 31, 1996. Although
the Company has filed a notice of claim with its insurance carrier with respect
to this matter, the Company's current insurance policy provides coverage for
employee theft for only up to $100,000 per incident, with a $10,000 deductible.
There can be no assurance that the Company will be successful in its claim under
such insurance policy, or that the amount collected by the Company thereunder
will satisfy the full amount of its losses.
COMPETITION
The areas of business in which the Company engages are highly competitive
businesses. The secondary sourcing business is characterized by intense
competition, both in the products sold and in the retaining of relationships
with suppliers and customers. With respect to its ability to obtain
merchandise, the Company competes with other secondary sources, as well as with
wholesale distributors and retailers. The Company believes that its ability to
purchase a broad array of merchandise at competitive prices is critical to its
success. With respect to sales to its customers, the Company competes with
other secondary suppliers of merchandise, as well as with manufacturers who sell
directly to retail merchandisers. In addition, with respect to products sold
under the Company's Linette-Registered Trademark-, Vea-Registered Trademark-,
Zia-Registered Trademark- and Loud Music-TM- brand names, the Company competes
with other manufacturers at the retail store level for shelf space and
promotional space. Many of the Company's existing or potential competitors are
well established companies and have or will have substantially greater
financial, marketing and other resources than the Company. The Company believes
that it competes on the basis of value, product assortment and availability,
service to customers and reputation, as well as on the basis of its
long-standing and well-established relationships with both its suppliers and
customers. Although the Company believes that it will be able to compete
effectively on the basis of such factors, there can be no assurance of such.
In connection with its "celebrity-endorsed" products business, the Company
competes or will compete with manufacturers and marketing organizations that
seek out celebrities to endorse products and assist in marketing programs for
their merchandise. In addition, the Company believes that virtually all
celebrities have agents who can negotiate directly with retailers in order to
secure marketing contracts on their behalf. The Company believes that it
competes on the basis of its ability to design products which are consistent
with the celebrities' respective preferences and characters and to provide such
products to retailers at competitive prices. Furthermore, although the Company
is not aware of any other entities which currently manufacture, market or
develop television "tie-in" products to be sold on television during the airing
of the related program, the Company believes that any such products developed by
the Company will compete with other products sold in the electronic retailing
market (including through television infomercials and interactive television
shopping networks), and that these products, as well as the CLUELESS-Registered
Trademark- line of cosmetics to be sold by the Company, will compete with other
products sold in the traditional retail market which relate to characters or
themes of television shows or movies. The Company believes that it will compete
on the basis of the unique nature of such television "tie-in" products, as well
as on its ability to provide such products at competitive prices.
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TRADEMARK AND SERVICEMARK PROTECTION
Products developed by the Company are sold under the Linette-Registered
Trademark-, Vea-Registered Trademark-, Zia-Registered Trademark- and Jackie
Collins Wild-Registered Trademark- trademarks and the "Loud Music-TM-" mark.
The Company has registered the Linette-Registered Trademark-, Vea-Registered
Trademark-, Zia-Registered Trademark- and Jackie Collins Wild-Registered
Trademark- trademarks with the United States Patent and Trademark Office (the
"Trademark Office"). However, there can be no assurance that these marks do not
or will not violate the proprietary rights of others, that such marks would be
upheld if challenged or that the Company would not be prevented from using its
trademarks. The Company has also applied to the Trademark Office for the
registration of the trademark "Loud Music," the trademark under which the
Company sells certain proprietary cosmetics products. There can be no assurance
that registration of such trademark will be granted by the Trademark Office. In
addition, the Company has also applied to the Trademark Office to register
certain other trademarks which it intends to use in the future in connection
with its own proprietary brand name products, and intends to register other
brand names chosen by the Company for its own line of products. However, there
can be no assurance that the Company will be able to register any such marks.
Pursuant to the Company's agreement with VCP, the Company has been granted
a license to use the designs, trademarks, service marks, logos, visual
representations, characters and characterizations of the television series
CLUELESS-Registered Trademark- in connection with the manufacture and
distribution in the United States of a CLUELESS-Registered Trademark- line of
cosmetics (including, among others, nail care products, lip stick products,
cologne fragrances, mass market gift sets, signature gift sets and children's
gift sets). In addition, pursuant to the Company's agreement with BAHI, the
Company has been granted the exclusive right to use the trademark
"Jabot-Registered Trademark-" in connection with the production, marketing and
distribution of certain cosmetic and fragrance items (including, without
limitation, perfumes, colognes, toilet water, talcum powder, bath gels and
personal deodorants) in the United States and Canada, and has also been granted
the exclusive right to use the trademark "Jabot for the Young and the Restless
Generation-Registered Trademark-" in connection with the marketing and
distribution of such items in Canada.
PERSONNEL
The Company currently employs 17 full-time employees and approximately 25
part-time employees (the exact number of which fluctuates from time to time
based on the Company's needs), who are hired by the Company primarily to
repackage products and perform other similar services. All of the Company's
full-time employees are paid on a salaried basis. None of the Company's
employees are covered by any collective bargaining agreements. Management
believes that its employee relations are good.
INSURANCE
To date, no material product liability claims have been made against the
Company; however, as a distributor of merchandise, including health and beauty
aids, cosmetics, fragrances and household items, the Company could be exposed to
possible liability claims from others for personal injury or property damage due
to design or manufacturing defects or otherwise. The Company maintains a
product liability insurance policy that has a $1,000,000 per occurrence limit
and a $2,000,000 aggregate limit, and a $3,000,000 umbrella liability insurance
policy to cover claims in excess of the limits of its product liability
insurance. In addition, the Company believes that the suppliers from whom it
purchases such merchandise, including the manufacturers thereof, maintain
adequate levels of product liability insurance.
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The Company also maintains other insurance, including insurance relating to
property and personal injury, which the Company believes is similar to that
maintained by comparable businesses and in amounts which the Company currently
considers adequate. The Company believes that its insurance coverage, including
without limitation its product liability coverage, is adequate in light of prior
experience and future expectations. Nevertheless, a partially or completely
uninsured claim against the Company, if successful and of sufficient magnitude,
could have a material adverse effect on the Company.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company's principal executive offices are currently located at 1435 51
Street, North Bergen, New Jersey, 07047. Such premises include approximately
18,000 square feet of office and warehouse space, and are leased on a
month-to-month basis at a monthly rent of $5,833. The Company also leases
approximately 10,000 square feet of storage space in Middletown, New York from
LPD Packaging, Inc., one of the contract manufacturers of certain of the
Company's beauty aid and cosmetic products, which space the Company uses to
warehouse materials and finished products. Pursuant to the Company's written
agreement with such lessor, the Company leased such space during the period from
October 1995 to December 1995 at an annual rate of $30,000 and will continue to
lease the space during the three-year period commencing January 1, 1996 at an
annual rent of $35,000. In addition, the Company leases approximately 500 square
feet of office space located in Milford, Massachusetts on a month-to-month basis
at a monthly rent of $700. The Company also leases public warehouse space from
time to time on an as-needed basis for the storage of inventory.
The Company is currently in the process of moving its executive offices and
warehouse space to a new location in New Jersey. Commencing on or about May 1,
1997, the Company's principal executive offices will be located at 495 River
Street, Paterson, New Jersey, 07524, which premises include approximately 50,500
square feet of office and warehouse space. The lease is for a period of five
years commencing April 1, 1997, at a monthly rent of $8,310 in the first two
years, $16,476 in the third year and $20,643 in the fourth and fifth years. In
addition, the Company is required under the lease to purchase certain machinery
and equipment from the lessor at a cost of $110,000, of which $33,333 is payable
as of April 1, 1997 and the remainder of which is payable in two installments
through April 1, 1998. The Company is also obligated to reimburse the lessor in
the third, fourth and fifth years of the lease for the Company's proportionate
share of any increases in real estate taxes and assessments over the amount of
such taxes and assessments during calendar year 1997.
The Company believes that the space afforded by its properties will be
adequate for the current needs of its business and that, following the Company's
relocation to the Paterson, New Jersey facilities, the Company will generally no
longer be required to lease public warehouse space.
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ITEM 3. LEGAL PROCEEDINGS.
In December, 1995, the Company, Mr. Markowitz and Mr. Mirsky were named as
defendants-in-counterclaim in an action brought in the Supreme Court of the
State of New York, County of New York, entitled GERSTEN, SAVAGE, KAPLOWITZ &
CURTIN, LLP V. PETER Z. ROSNER AND HINDALENE ROSNER (95/126559). The
counterclaims alleged, among other things, that Mr. Rosner had acted as a
"finder" in connection with the Company's IPO and that he had entered into an
oral agreement with the Company and the underwriter engaged by the Company in
the IPO pursuant to which he would be compensated for his services out of the
proceeds of the IPO and would receive warrants to purchase Common Stock. In
January 1996, all counterclaims asserted against the Company, Mr. Markowitz and
Mr. Mirsky were dismissed by the court.
In February 1997, the Company and Paramount Pictures Corporation, an
affiliate of VCP ("Paramount"), were named as defendants in an action brought in
the United States District Court for the Southern District of California
entitled SASSABY, INC. V. PARAMOUNT PICTURES CORPORATION AND SEL-LEB MARKETING,
INC. (No. 97CV0197S (JFS)). The plaintiff in this action, a manufacturer of a
line of cosmetic products which are marketed under the trademark "Jane"-TM-, has
recently commenced marketing a type of makeup known as concealer under the name
"Clueless." Plaintiff alleges that the marketing and sale of the CLUELESS line
of cosmetics by the Company constitutes trademark infringement and unfair
competition, and seeks to enjoin the Company from using the CLUELESS mark.
Plaintiff also seeks damages in an unspecified amount. Pursuant to the
Company's agreement with VCP, Paramount (on behalf of VCP) is assuming the
defense of this action on behalf of the Company, and the Company shall be
entitled to be indemnified by VCP for any losses suffered by it as a result of
this action. The Company has been advised by Paramount that it believes that
plaintiff's claims are without merit and will be vigorously defended by
Paramount.
Except for proceedings in the normal course of business and the proceeding
described above, the Company is not a party to or involved in any pending legal
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company did not submit any matters to the vote of security holders
during the fourth quarter of the fiscal year ended December 31, 1996.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
A. MARKET INFORMATION.
The shares of Common Stock of the Company commenced trading on the Nasdaq
Small Capitalization Market under the symbol "SELB" on July 13, 1995. The range
of high and low reported closing sales prices for the Common Stock as reported
by Nasdaq since the commencement of trading were as follows:
HIGH LOW
---- ---
FISCAL YEAR 1995(1)
- -------------------
Quarter Ended:
July 13, 1995 to September 30, 1995 $3.17 $2.71
December 31, 1995 $5.50 $2.81
FISCAL YEAR 1996(1)
- -------------------
Quarter Ended:
March 31, 1996 $5.375 $4.50
June 30, 1996 $8.250 $6.00
September 30, 1996 $7.750 $5.625
December 31, 1996 $7.625 $5.125
____________________
(1) All share prices prior to February 29, 1996 have been adjusted to give
effect to a three-for-one stock split which was effected by the Company in
the form of a share distribution on February 29, 1996 (the "Share
Distribution"). Pursuant to the Share Distribution, each holder of record
of Common Stock on February 2, 1996 received two additional shares of
Common Stock for each share held on such date.
The prices set forth above reflect inter dealer prices, without retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions.
B. HOLDERS.
On March 31, 1997, as reported by the Company's transfer agent, shares of
Common Stock were held by 16 persons, based on the number of record holders,
including several holders who are nominees for an undetermined number of
beneficial owners.
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C. DIVIDENDS.
Prior to the Linette Merger, the Company and Linette Cosmetics were treated
as S Corporations for federal and certain state income tax purposes. As a
result, earnings of such companies during such period were taxed directly to
Harold Markowitz, the Chairman of the Board of the Company, Paul Sharp, the
President and Chief Executive Officer of the Company, and Jorge Lazaro, the
Executive Vice President and Secretary of the Company, who comprised all of the
shareholders of the Company and Linette Cosmetics during such period, rather
than to the Company or Linette Cosmetics, as the case may be. On May 17, 1995,
the Company declared a distribution payable to such shareholders in an amount
equal to the taxes payable on the earnings of the Company during the period from
the date of its formation on September 21, 1993 (and, in the case of Linette
Cosmetics, from January 1, 1994) to the date of the consummation of the Linette
Merger (the "S Corporation Distribution"), such distribution to be payable
following the consummation of the IPO after the amount thereof had been
determined. In September and October of 1995, the Company paid the S
Corporation Distribution to Messrs. Markowitz, Sharp and Lazaro in an aggregate
amount of approximately $156,250.
Other than the S Corporation Distribution, the Company has not declared or
paid a cash dividend on its Common Stock since its inception. The payment by
the Company of dividends, if any, is within the discretion of the Board of
Directors and will depend on the Company's earnings, if any, its capital
requirements and financial condition, as well as other relevant factors. The
Board of Directors does not intend to declare any dividends in the foreseeable
future, but instead intends to retain earnings, if any, for use in the Company's
business operations.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis of the Company's results of
operations, liquidity and financial condition should be read in conjunction with
the Financial Statements of the Company and related notes thereto.
RESULTS OF OPERATIONS
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
Net sales for the fiscal year ended December 31, 1996 were $13,318,088
compared to $11,286,114 for the fiscal year ended December 31, 1995,
representing an increase of 18%. This increase in net sales resulted primarily
from increased sales of the Company's own proprietary brand name line of beauty
aids and cosmetics.
Income from commissions increased from $194,021 in fiscal year 1995 to
$204,658 in fiscal year 1996.
Cost of sales increased from $8,868,566 in 1995 to $10,601,237 in 1996.
The cost of goods sold increased as a percentage of sales from 78.6% in 1995 to
79.6% in 1996. The Company has recently uncovered the theft of certain of its
inventory from its North Bergen, New Jersey premises. Based on information
known to the Company to date, the Company believes that the theft was committed
by a limited number of warehouse employees of the Company and occurred in the
fourth quarter of 1996. Although the Company has not yet determined the amount
of inventory involved, the Company currently
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anticipates that the amount will be at least $50,000, but is not expected to
exceed $125,000. This loss had an adverse effect on cost of goods sold for
1996.
Selling, general and administrative ("SG&A") expenses increased from
$2,016,412 in 1995 to $2,631,839 in 1996. The principal components of SG&A
generally are payroll, rent, commissions, insurance, legal, accounting and other
fees paid to third parties and travel and promotional expenses. The increase in
SG&A expenses in 1996 resulted primarily from costs incurred in connection with
the development of new product lines, including the Company's
"Clueless-Registered Trademark-," "Loud Music-TM-," "Jabot-Registered
Trademark-" and "Jabot for the Young and Restless Generation-Registered
Trademark-" lines, increased payroll and rent expenses resulting from the
Company's having hired additional employees to manage its increased cosmetics
business and having leased additional warehouse space to store materials used in
producing its cosmetic products, increased travel expenses incurred in
connection with sales activities and an increase in the allowance for doubtful
accounts relating to certain past-due receivables of the Company.
As a result of the increase in the cost of sales and the increase in the
SG&A expenses, total operating expenses increased from $10,884,978 in 1995 to
$13,233,076 in 1996.
As a result of the increase in the Company's operating expenses, operating
income decreased from $595,157 in 1995 to $289,670 in 1996.
Other income was $2,540 for 1996 compared to $101,489 for the year 1995.
Other income in 1995 was primarily comprised of proceeds of approximately
$49,000 resulting from the settlement of an insurance claim and restitution by a
former employee in the amount of $52,000.
The provision for income taxes was $118,000 in 1996, compared to $234,000
in 1995. The provision for income taxes in 1995 reflects taxes owed by the
Company with respect to earnings of the Company during the period following the
termination of its status as an S Corporation.
LIQUIDITY AND CAPITAL RESOURCES
During 1995, the Company completed the IPO, in which it sold an aggregate
(after giving effect to the Share Distribution) of 2,760,000 units (the
"Units"), with each unit consisting of one share of Common Stock and one
redeemable warrant to purchase one share of Common Stock (a "Warrant"), at a
price of $1.67 per Unit for gross proceeds of $4,600,000.
After deducting fees and expenses of the IPO of approximately $1,274,000,
the net proceeds of the IPO were used to repay $850,000 of loans outstanding
under the Company's then existing borrowing arrangement with a bank and a
$250,000 note (the "Bridge Note") which had been issued to a bridge investor
(the "Bridge Investor") in connection with certain bridge financing secured by
the Company. The remaining $2,226,000 was added to working capital.
In connection with the Company's IPO, the balance of loans to the Company
by related parties, which was $769,000 at such time, was reduced by $300,000.
The debt of $300,000 was converted into conversion units (equivalent to the
Units sold in the IPO) at the rate of $1.67 per conversion unit for an aggregate
of 180,000 conversion units (after giving effect to the Share Distribution).
The remaining $469,000 was scheduled to be repaid by the Company with interest
at an annual rate of 8% on January 20, 1997 out of available working capital, if
available, on such terms as were to be determined by the
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board of directors of the Company. On March 21, 1996, the Company repaid such
remaining balance at a discount of $46,900 and increased additional paid-in
capital by a corresponding amount.
Prior to the consummation of the Linette Merger, the Company and Linette
Cosmetics were treated as S Corporations. As a result, earnings of such
companies during such period were taxed for federal and certain state income tax
purposes directly to the shareholders of the companies. On May 17, 1995, the
Company declared the S Corporation Distribution payable to the shareholders of
such companies prior to the Linette Merger in an amount equal to the taxes
payable on earnings of the Company during the period of its S Corporation
status, which distribution was payable following the consummation of the IPO
after the amount thereof had been determined. In September and October of 1995,
the Company paid S Corporation Distributions in the aggregate amount of
approximately $156,250.
In May 1995, the Company borrowed, for working capital purposes and to pay
a portion of the expenses of the IPO, an aggregate of $250,000 (the "Bridge
Financing") from the Bridge Investor, an accredited investor unaffiliated with
the Company or any of its executives or directors. In connection with the
Bridge Financing, the Company issued to the Bridge Investor (i) the Bridge Note,
which bore interest at the rate of 8% per annum and was due and payable on the
earlier of the consummation of the IPO or November 23, 1995 and (ii) 3,000,000
warrants (the "Bridge Warrants"), each of which was exercisable until November
23, 1995 and entitled the holder thereof to purchase one share of Common Stock
for $2.00 (after giving effect to the Share Distribution). Upon the
consummation of the IPO, each Bridge Warrant automatically converted into a
warrant having the same terms as the Warrants. The Company used a portion of
the proceeds of the IPO to repay the entire principal amount of the Bridge Note,
plus accrued interest thereon.
On November 6, 1995, the Company entered into a Loan and Security Agreement
(the "Loan Agreement") with United Jersey Bank (the "Lender") pursuant to which
it obtained a revolving line of credit for general working capital purposes in
an aggregate principal amount up to $2,000,000, subject to a borrowing base
limitation. The line of credit bears interest at fluctuating rates per annum
based on the "Prevailing Base Rate" (as defined in the Loan Agreement) of the
Lender. As of April 8, 1997, the outstanding balance under this line of credit
was $750,000. Any funds borrowed by the Company under the Loan Agreement are
secured primarily by the inventory and receivables of the Company. The Loan
Agreement terminates on May 31, 1997. Although the Company anticipates that it
will renew the Loan Agreement upon its termination, there can be no assurance
that the Loan Agreement will be renewed at such time.
During the fiscal year ended December 31, 1996, Warrants to purchase
813,477 shares of Common Stock were exercised, resulting in net proceeds to the
Company of $1,372,333. Subsequent to December 31, 1996, an aggregate of 383,768
shares of Common Stock were issued by the Company upon the exercise of Warrants,
options and warrants held by an affiliate of the Company, resulting in net
proceeds to the Company of $623,077.
At December 31, 1996, the Company had working capital of $5,575,016 and
cash and short-term investments of $129,538.
The Company believes that, based upon the Company's existing cash balances,
including cash generated from the exercise of outstanding options and Warrants,
anticipated cash flow from the Company's operations, anticipated growth and the
availability of additional funds under the Loan Agreement, the Company will be
able to satisfy the Company's cash requirements for at least twelve
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months. In the event the Company's plans change (due to unanticipated expenses
or difficulties or otherwise), or if the Company's existing cash balances and
projected cash flow otherwise prove insufficient to fund operations, the Company
could be required to seek additional financing sooner than currently
anticipated. Except for the Loan Agreement, which expires on May 31, 1997, the
Company has no current arrangements with respect to, or sources of, additional
financing. Accordingly, there can be no assurance that additional financing
will be available to the Company when needed, on commercially reasonable terms,
or at all. The Company's inability to obtain such additional financing could
have a material adverse effect on the Company's long-term liquidity and on the
proposed business expansion plans of the Company.
CAUTIONARY STATEMENT
This Annual Report on Form 10-KSB contains certain forward-looking
statements, including statements concerning the adequacy of the Company's
sources of cash to finance its current and future operations. Actual results
could differ materially from those projected as a result of various factors,
including but not limited to general trends in the retail industry, the ability
of the Company to successfully implement its expansion plans, consumer
acceptance of any products developed and sold by the Company, and the ability of
the Company to develop its "celebrity" product business.
ITEM 7. FINANCIAL STATEMENTS
The financial statements of the Company are set forth in a separate section
of this Annual Report on Form 10-KSB. See "Item 13. Exhibits and Reports on
Form 8-K" and the Index to Financial Statements on page F-1 of this Annual
Report on Form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
See the section captioned "Election of Directors" included in the Company's
Proxy Statement in connection with its Annual Meeting scheduled to be held on
May 29, 1997, which section is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
See the section captioned "Executive Compensation" included in the
Company's Proxy Statement in connection with its Annual Meeting scheduled to be
held on May 29, 1997, which section is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
See the section captioned "Principal Shareholders of the Company" included
in the Company's Proxy Statement in connection with its Annual Meeting scheduled
to be held on May 29, 1997, which section is incorporated herein by reference.
(b) SECURITY OWNERSHIP OF DIRECTORS AND OFFICERS
See the section captioned "Principal Shareholders of the Company" included
in the Company's Proxy Statement in connection with its Annual Meeting scheduled
to be held on May 29, 1997, which section is incorporated herein by reference.
(c) CHANGES IN CONTROL
The Company knows of no contractual arrangements which may, at a subsequent
date, result in a change of control of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See the section captioned "Certain Transactions" included in the Company's
Proxy Statement in connection with its Annual Meeting scheduled to be held May
29, 1997, which section is incorporated herein by reference.
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ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
(1) The financial statements of the Company and the report thereon listed
on the Index to Financial Statements on page F-1 hereof are being filed as
part of this Annual Report on Form 10-KSB.
(2) The following exhibits are being filed as part of this Annual Report
on Form 10-KSB:
1.1 Underwriting Agreement dated July 13, 1995 between the Company and
Duke & Co., Inc. (incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-QSB for the quarterly period
ended September 30, 1995).
2.1 Agreement and Plan of Merger of Lea Cosmetics, Inc. into the
Company dated July 31, 1995, together with Certificate of Merger
filed with the Secretary of State of the State of Delaware on
August 3, 1995 (incorporated by reference to Exhibit 2.1 to the
Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1995).
3.1 Certificate of Incorporation of the Company, as amended
(incorporated by reference to Exhibit 3.1 to the Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1995).
3.2 Amended and Restated By-Laws of the Company (incorporated by
reference to Exhibit 3.2 to the Company's Quarterly Report on Form
10-QSB for the quarterly period ended June 30, 1995).
4.1 Form of Certificate for Common Stock (incorporated by reference to
Exhibit 4.1 to Amendment No. 2 to the Company's Registration
Statement on Form SB-2 (Registration No. 33-88134), as filed with
the Securities and Exchange Commission on June 28, 1995 ("Amendment
No. 2")).
4.2 Warrant Agreement dated as of July 20, 1995 between the Company,
Continental Stock Transfer & Trust Company and Duke & Co., Inc.
(incorporated by reference to Exhibit 4.1 to the Company's
Quarterly Report on Form 10-QSB for the quarterly period ended June
30, 1995).
4.3 Form of Warrant Certificate (incorporated by reference to Exhibit
4.3 to Amendment No. 2).
4.4 Underwriter's Warrant dated July 20, 1995, issued by the Company to
Duke & Co., Inc. (incorporated by reference to Exhibit 4.2 to the
Company's Quarterly Report on Form 10-QSB for the quarterly period
ended June 30, 1995).
4.5 Warrant and Registration Agreement dated as of July 20, 1995
between the Company and Jan Mirsky (incorporated by reference to
Exhibit 4.5 to the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1995).
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4.6 Registration Rights Agreement dated as of May 19, 1995 between the
Company and Wellington Corporation N.V. (incorporated by reference
to Exhibit 4.7 to Amendment No. 1 to the Company's Registration
Statement on Form SB-2 (Registration No. 33-88134), as filed with
the Securities and Exchange Commission on May 24, 1995 ("Amendment
No. 1")).
4.7 1995 Stock Option Plan of the Registrant (incorporated by reference
to Exhibit 4.3 to the Company's Quarterly Report on Form 10-QSB for
the period ended June 30, 1995).
4.8 1995 Nonemployee Directors' Stock Option Plan of the Registrant
(incorporated by reference to Exhibit 10.3 to the Company's
Quarterly Report on Form 10-QSB for the period ended June 30,
1995).
4.9 Form of Stock Option Agreements under the 1995 Stock Option Plan
(incorporated by reference to Exhibit 4.3 to the Company's
Registration Statement on Form S-8, as filed with the Commission on
January 10, 1997).
4.10 Form of Stock Option Agreement under the 1995 Nonemployee
Directors' Stock Option Plan (incorporated by reference to Exhibit
4.4 to the Company's Registration Statement on Form S-8, as filed
with the Commission on January 10, 1997).
10.1 Agreement dated November 1, 1993 between Chances, Inc. and Linette
Cosmetics, Inc., together with Assignment of Contract by Linette
Cosmetics, Inc. to the Company and letter dated May 9, 1995
(incorporated by reference to Exhibit 10.1 to Amendment No. 1).
10.1(A) Agreement dated July 19, 1995 by and between Chances, Inc. and the
Company (incorporated by reference to Exhibit 10.1(A) to the
Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1995).
10.2 Agreement dated January 1, 1994 between Carlton Varney and the
Company (incorporated by reference to Exhibit 10.2 to Amendment No.
1).
10.3 Product Promotion Agreement dated August 23, 1994 between American
Pop, Inc. and the Company (incorporated by reference to Exhibit
10.3 to Amendment No. 1).
10.4 Product Promotion Agreement dated December 1994 between Linda
Levinson and the Company (incorporated by reference to Exhibit
10.4(A) to Amendment No. 1).
10.5 Product Promotion Agreement dated August 1994 between Eden Ventures
Corporation and the Company (incorporated by reference to Exhibit
10.4(B) to Amendment No. 1).
10.6 Product Promotion Agreement dated March 1995 between Best Buddies
International, Inc. and the Company (incorporated by reference to
Exhibit 10.12 to Amendment No. 1).
10.7 Agreement dated September 1994 between Clyde Duneier, Inc. and
Linette Cosmetics, Inc. (incorporated by reference to Exhibit 10.5
to Amendment No. 1).
21
<PAGE>
10.8 Agreement dated October 25, 1993 between Tri-Star Products, Inc.
and Linette Cosmetics, Inc. (incorporated by reference to Exhibit
10.6 to Amendment No. 1).
10.9 Agreement dated April 1995 between River Products, Inc. and the
Company (incorporated by reference to Exhibit 10.13 to Amendment
No. 1).
10.10 Financial Advisory and Investment Banking Agreement, dated as of
July 20, 1995, between the Company and Duke & Co., Inc.
(incorporated by reference to Exhibit 10.4 to the Company's
Quarterly Report on Form 10-QSB for the quarterly period ended June
30, 1995).
10.11 Letter Agreement dated September 10, 1992 between Linette
Cosmetics, Inc. and H. Howlin International, Inc. (incorporated by
reference to Exhibit 10.11 to Amendment No. 1).
10.12 1995 Stock Option Plan of the Company (incorporated by reference to
Exhibit 10.2 to the Company's Quarterly Report on Form 10-QSB for
the quarterly period ended June 30, 1995).
10.13 1995 Nonemployee Directors' Stock Option Plan (incorporated by
reference to Exhibit 10.3 to the Company's Quarterly Report on Form
10-QSB for the quarterly period ended June 30, 1995).
10.14 Stock Purchase Agreement dated May 18, 1995 between the Company and
Larry H. Pallini (incorporated by reference to Exhibit 10.14 to
Amendment No. 1).
10.15 Employment Agreement dated as of June 30, 1995 between the Company
and Harold Markowitz (incorporated by reference to Exhibit 10.7 to
the Company's Quarterly Report on Form 10-QSB for the quarterly
period ended June 30, 1995).
10.16 Employment Agreement dated as of June 30, 1995 between the Company
and Paul Sharp (incorporated by reference to Exhibit 10.8 to the
Company's Quarterly Report on Form 10-QSB for the quarterly period
ended June 30, 1995).
10.17 Employment Agreement dated as of June 30, 1995 between the Company
and Jan Mirsky (incorporated by reference to Exhibit 10.9 to the
Company's Quarterly Report on Form 10-QSB for the quarterly period
ended June 30, 1995).
10.18 Employment Agreement dated as of June 30, 1995 between the Company
and Jorge Lazaro (incorporated by reference to Exhibit 10.10 to the
Company's Quarterly Report on Form 10-QSB for the quarterly period
ended June 30, 1995).
10.19 Employment Agreement dated as of September 27, 1995 between the
Company and Jack Koegel (incorporated by reference to Exhibit 10.19
to the Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1995).
10.20 Subscription Agreement executed May 19, 1995 by Wellington
Corporation N.V. (incorporated by reference to Exhibit 10.20 to
Amendment No. 2).
22
<PAGE>
10.21 Agreement dated as of July 8, 1995 between Larry H. Pallini and the
Company (incorporated by reference to Exhibit 10.21 to the
Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1995).
10.22 Contribution Agreement dated as of July 13, 1996 by and among the
Company and Harold Markowitz, Paul Sharp and Jorge Lazaro
(incorporated by reference to Exhibit 10.13 to the Company's
Quarterly Report on Form 10-QSB for the quarterly period ended
September 30, 1995).
10.23 Debt Conversion Agreement dated as of July 13, 1995 by and among
the Company, Harold Markowitz, Paul Sharp and Jorge Lazaro
(incorporated by reference to Exhibit 10.14 to the Company's
Quarterly Report on Form 10-QSB for the quarterly period ended
September 30, 1995).
10.24 Loan and Security Agreement dated as of November 6, 1995 by and
between United Jersey Bank and the Company (incorporated by
reference to Exhibit 10.15 to the Company's Quarterly Report on
Form 10-QSB for the quarterly period ended September 30, 1995).
10.25 Trademark License Agreement dated January 28, 1997 between Bell
Abbott Haussmann Inc. and the Company.
10.26 Letter Agreement between the Company and LPD Packaging, Inc
(incorporated by reference to Exhibit 10.26 to the Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1995).
10.27 Merchandising License Agreement dated as of October 16, 1996
between Viacom Consumer Products, Inc. and the Company.
10.28 Lease dated as of February 5, 1997 between Bascom Corp. and the
Company.
11.1 Statement re: computation of per share earnings (not required
because the relevant computation can be clearly determined from
material contained in the financial statements).
23 Consent of Goldstein Golub Kessler & Company, P.C.
27 Financial Data Schedule.
(b) REPORTS ON FORM 8-K
The Company did not file any Reports on Form 8-K during the fiscal
year ended December 31, 1996.
23
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
SEL-LEB MARKETING, INC.
(Registrant)
By: /s/ Harold Markowitz
----------------------------
Harold Markowitz
Chairman of the Board
Date: April 15, 1997
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
NAME TITLE DATE
---- ----- ----
/s/ Harold Markowitz
- -----------------------
Harold Markowitz Chairman of the Board and Director April 15, 1997
/s/ Paul Sharp
- -----------------------
Paul Sharp President, Chief Executive Officer and April 15, 1997
Director
(principal executive officer)
/s/ Jan S. Mirsky
- -----------------------
Jan S. Mirsky Executive Vice President - Finance, April 15, 1997
Chief Operating Officer and Director
(principal financial and accounting
officer)
/s/ Jack Koegel
- -----------------------
Jack Koegel Vice Chairman of the Board and April 15, 1997
Director
/s/ Jorge Lazaro
- -----------------------
Jorge Lazaro Executive Vice President, Secretary and April 15, 1997
Director
24
<PAGE>
/s/ Stanley R. Goodman
- -----------------------
Stanley R. Goodman Director April 15, 1997
/s/ Edward C. Ross
- -----------------------
Edward C. Ross Director April 15, 1997
/s/ L. Douglas Bailey
- -----------------------
L. Douglas Bailey Director April 15, 1997
25
<PAGE>
SEL-LEB MARKETING, INC.
INDEX TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT F-2
FINANCIAL STATEMENTS:
Balance Sheet F-3
Statement of Income F-4
Statement of Shareholders' Equity F-5 - F-6
Statement of Cash Flows F-7
Notes to Financial Statements F-8 - F-17
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Sel-Leb Marketing, Inc.
We have audited the accompanying balance sheet of Sel-Leb Marketing, Inc. as of
December 31, 1996 and the related statements of income, shareholders' equity,
and cash flows for each of the two years in the period ended December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sel-Leb Marketing, Inc. as of
December 31, 1996 and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
New York, New York
March 23, 1997
F-2
<PAGE>
SEL-LEB MARKETING, INC.
BALANCE SHEET
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
ASSETS (Note 6)
Current Assets:
Cash and cash equivalents (Note 1) $ 129,538
Accounts receivable, less allowance for doubtful
accounts of $275,000 3,247,812
Inventory (Note 1) 3,746,124
Due from officer 23,274
Prepaid expenses and other current assets 304,797
Deferred income tax asset, net of valuation allowance
(Note 10) 95,000
- --------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 7,546,545
Property and Equipment - at cost, net of accumulated
depreciation and amortization (Notes 1 and 3) 356,251
Goodwill (Note 2) 252,063
Other Assets 60,125
- --------------------------------------------------------------------------------
TOTAL ASSETS $8,214,984
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses (Note 4) $1,420,609
Loan payable - bank (Note 6) 300,000
Due to affiliate (Note 9) 64,398
Income taxes payable (Note 10) 186,522
- --------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,971,529
- --------------------------------------------------------------------------------
Commitments and Contingency (Notes 5, 6 and 12)
Shareholders' Equity (Notes 7 and 8):
Common stock - $.01 par value; authorized 40,000,000
shares, issued and outstanding 8,268,477 shares 82,685
Additional paid-in capital 5,632,512
Retained earnings 588,258
Less receivable in connection with equity transactions (60,000)
- --------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 6,243,455
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $8,214,984
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
See Notes to Financial Statements
F-3
<PAGE>
SEL-LEB MARKETING, INC.
STATEMENT OF INCOME
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1996 1995
- --------------------------------------------------------------------------------
Revenue:
Net sales (Notes 1 and 11) $13,318,088 $11,286,114
Commission income (Note 1) 204,658 194,021
- --------------------------------------------------------------------------------
Total revenue 13,522,746 11,480,135
- --------------------------------------------------------------------------------
Operating expenses:
Cost of sales (Note 9) 10,601,237 8,868,566
Selling, general and administrative expenses
(Notes 1 and 5) 2,631,839 2,016,412
- --------------------------------------------------------------------------------
Total operating expenses 13,233,076 10,884,978
- --------------------------------------------------------------------------------
Operating income 289,670 595,157
Interest expense, net of interest income of $11,755
and $34,972, respectively (Note 9) (16,475) (83,809)
Other income 2,540 101,489
- --------------------------------------------------------------------------------
Income before provision for income taxes and minority
interest in earnings of subsidiary 275,735 612,837
Provision for income taxes (Note 10) (118,000) (234,000)
- --------------------------------------------------------------------------------
Income before minority interest in earnings of
subsidiary 157,735 378,837
Minority interest in earnings of subsidiary (Note 1) - (39,414)
- --------------------------------------------------------------------------------
Net income $ 157,735 $ 339,423
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Earnings per share $ .02
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Pro forma information (unaudited) (Notes 1 and 13):
Net income $ 341,423
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Primary earnings per share $ .05
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Fully diluted earnings per share $ .04
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
See Notes to Financial Statements
F-4
<PAGE>
<TABLE>
<CAPTION>
SEL-LEB MARKETING, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
Years ended December 31, 1996 and 1995
- ------------------------------------------------------------------------------------------------------------------
Receivable
Additional in Connection
Common Stock Paid-In Retained with Equity Shareholders'
Shares Amount Capital Earnings Transactions Equity
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 4,320,000 $ 1,000 $ 87,799 $ 346,455 $(23,000) $ 412,254
Adjustment of par value - 42,200 (42,200) - - -
Capital contribution of imputed
interest on noninterest-bearing
loans (Note 9) - - 4,225 - - 4,225
Collection of receivable - - - - 21,000 21,000
Issuance of stock warrants (Note 8) - - 10,000 - - 10,000
Adjustment resulting from
termination of S Corporation
status (Note 7) - - 255,355 (255,355) - -
Issuance of common stock in
connection with acquisition of
subsidiary (Notes 1 and 2) 180,000 1,800 380,575 - 2,000 384,375
Conversion of long-term debt into
common shares (Note 9) 180,000 1,800 298,200 - - 300,000
Net proceeds from sale of stock
(Note 7) 2,760,000 27,600 3,298,852 - - 3,326,452
(continued)
</TABLE>
See Notes to Financial Statements
F-4
<PAGE>
<TABLE>
<CAPTION>
SEL-LEB MARKETING, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
Years ended December 31, 1996 and 1995
- ------------------------------------------------------------------------------------------------------------------
Receivable
Additional in Connection
Common Stock Paid-In Retained with Equity Shareholders'
Shares Amount Capital Earnings Transactions Equity
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Distribution to shareholders
(Note 10) - - $ (156,243) - - $ (156,243)
Net income - - - $ 339,423 - 339,423
- ------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 7,440,000 $74,400 4,136,563 430,523 - 4,641,486
Net proceeds from exercise of stock
warrants (Note 8) 813,477 8,135 1,424,198 - $(60,000) 1,372,333
Proceeds from exercise of stock
options (Note 8) 15,000 150 24,850 - - 25,000
Discounts on loans payable to
shareholders (Note 9) - - 46,901 - - 46,901
Net income - - - 157,735 - 157,735
- ------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 8,268,477 $82,685 $5,632,512 $ 588,258 $(60,000) $6,243,455
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements
F-6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEL-LEB MARKETING, INC.
STATEMENT OF CASH FLOWS
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Year ended December 31, 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 157,735 $ 339,423
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization 136,128 25,947
Deferred income tax benefit (43,000) (52,000)
Allowance for doubtful accounts 175,000 40,000
Imputed interest contributed to capital - 4,225
Interest expense related to issuance of warrants - 10,000
Minority interest in earnings of subsidiary - 39,414
Changes in operating assets and liabilities:
Increase in accounts receivable (1,246,999) (400,026)
Increase in inventory (1,276,038) (1,301,391)
(Increase) decrease in prepaid expenses and other current assets 48,760 (220,491)
Increase in other assets (56,514) -
Increase (decrease) in accounts payable and accrued expenses 479,367 (310,669)
Decrease in due to affiliate (53,912) (56,630)
Increase (decrease) in income taxes payable (83,003) 183,877
- -----------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (1,762,476) (1,698,321)
- -----------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Repayments from affiliates - 122,510
Purchase of property and equipment (192,916) (275,515)
Amounts due from officer (23,274) -
- -----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (216,190) (153,005)
- -----------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net proceeds from loan payable - bank 300,000 -
Net repayments of notes payable - bank - (800,000)
Repayment of long-term debt to related parties (422,099) -
Net proceeds from sale of stock and warrants - 3,440,003
Net proceeds from exercise of stock warrants 1,372,333 -
Proceeds from exercise of stock options 25,000 -
Distributions to shareholders - (156,243)
Collection of receivable in connection with sale of common stock purchase warrant - 21,000
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,275,234 2,504,760
- -----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (703,432) 653,434
Cash and cash equivalents at beginning of year 832,970 179,536
- -----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 129,538 $ 832,970
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 31,357 $ 112,568
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Income taxes $ 244,003 $ 16,475
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Supplemental schedule of noncash investing and financing activities:
In May 1995, the Company issued warrants to purchase 3,000,000 shares of the
Company's common stock and charged operations for $10,000 of interest expense
(Notes 7 and 8).
In December 1995, the Company issued 180,000 shares of the Company's common
stock, valued at $384,375, in connection with the 40% acquisition of Lea (Note
2).
In July 1995, shareholders converted $300,000 of long-term debt into 180,000
shares of the Company's common stock and warrants to purchase 180,000 shares
of the Company's common stock.
In March 1996, the Company received a $46,901 discount on its notes payable to
shareholders.
See Notes to Financial Statements
F-7
<PAGE>
SEL-LEB MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. ORGANIZATION, Sel-Leb Marketing, Inc. (Sel-Leb) was incorporated under the
PRESENTATION, laws of the State of New York on September 21, 1993. On May
PRINCIPAL 18, 1995, Linette Cosmetics, Inc. (Linette), a company
BUSINESS having the same ownership as Sel-Leb, merged with and into
ACTIVITY AND Sel-Leb. On July 13, 1995, the shareholders of Sel-Leb
SIGNIFICANT contributed their 60% interest in Lea Cosmetics, Inc. (Lea)
ACCOUNTING to Sel-Leb and Sel-Leb purchased the remaining 40% interest
POLICIES: (the 40% Interest) (see Note 2). As a result, Lea became a
wholly owned subsidiary of Sel-Leb and was subsequently
merged with and into Sel-Leb. The merger of Linette with
and into Sel-Leb and the contribution of the 60% interest in
Lea to Sel-Leb, have been reported at historical cost in a
manner similar to a pooling of interests. The purchase of
the 40% Interest in Lea by Sel-Leb has been accounted for as
a purchase. All significant intercompany transactions and
balances among Sel-Leb, Linette and Lea (collectively the
Company) through the dates of the mergers and the
acquisition of the 40% Interest have been eliminated.
The statement of income for the Company for the year ended
December 31, 1995 includes the results of operations of
Sel-Leb and Linette for the 12 months ended December 31,
1995 and the results of operations of Lea for the 15 months
ended December 31, 1995. The results of operations for Lea
for the 3-month period from October 1, 1994 to December 31,
1994, included in the statement of income for 1995, were not
material.
The Company is a secondary sourcer (distributing merchandise
on a wholesale basis outside normal distribution channels to
retail merchants) of a broad range of name-brand and
off-brand merchandise. The Company also packages and
wholesales beauty aid and cosmetic products. In addition,
the Company develops marketing programs to sell consumers
products through television home-shopping networks and other
electronic media by using celebrity spokespersons. Revenue
from marketing programs for the years ended December 31,
1996 and 1995 were not significant.
The preparation of financial statements in conformity with
generally accepted accounting principles requires the use of
estimates by management affecting the reported amounts of
assets and liabilities and revenue and expenses and the
disclosure of contingent assets and liabilities. Actual
results could differ from those estimates.
Inventory, consisting primarily of finished goods, is stated
at the lower of cost, determined by the first-in, first-out
method, or market.
Depreciation of property and equipment is provided for by
the straight-line method over the estimated useful lives of
the related assets. Amortization of leasehold improvements
is provided for over the term of the lease.
Sales revenue is recognized on the date the merchandise is
shipped.
Commission income is recognized upon the sale of the related
product.
Product development costs are expensed as incurred. Such
costs amounted to $134,204 for the year ended December 31,
1996.
F-8
<PAGE>
SEL-LEB MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Advertising costs are charged to operations when incurred.
Advertising costs for the years ended December 31, 1996 and
1995 amounted to approximately $27,000 and $12,000,
respectively.
Cash equivalents consist of money market accounts.
The fair value of the amount due from officers approximates
the carrying amount due to its short-term nature.
Pro forma earnings per share for 1995 are computed based on
the weighted average number of shares actually outstanding
plus the shares that would be outstanding assuming the
exercise of dilutive stock options and warrants, all of
which are considered common stock equivalents, using the
modified treasury stock method. For the pro forma fully
diluted computation for 1995, the weighted average number of
shares outstanding includes the number of shares that would
be issued from the exercise of stock options and warrants
reduced by the number of shares which would have been
purchased from the proceeds of such exercise at the market
price of the Company's common stock on December 31, 1995,
because those prices were higher than the average market
prices during the year. A similar computation was not made
for 1996 earnings per share because the average market price
for the year was higher than the price at December 31, 1996
and because the effect of including the stock options and
warrants would be to increase earnings per share. For the
year ended December 31, 1995, the number of shares used in
the computation of pro forma primary earnings per share and
pro forma fully diluted earnings per share were 8,429,726
and 8,491,491, respectively. For the year ended December
31, 1996, the number of shares used in the computation of
earnings per share was 7,659,359.
The Company maintains cash in bank accounts which, at times,
may exceed federally insured limits. The Company has not
experienced any losses on these accounts.
Additionally in 1996, the Company elected to continue to
measure compensation cost using Accounting Principles Board
(APB) Opinion No. 25 as is permitted by SFAS No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION, and has elected to
comply with other provisions and the disclosure requirements
of SFAS No. 123 (see Note 8).
2. ACQUISITION: In July 1995, Sel-Leb purchased the 40% Interest in Lea in a
business combination accounted for as a purchase. The
purchase price was 180,000 shares of newly issued,
unregistered shares of Sel-Leb's common stock, 90,000 of
which were issued at the time of purchase and 90,000 of
which were issued in January 1996. The accompanying
financial statements reflect the issuance of these shares of
common stock as if they were issued on December 31, 1995.
The fair value of the assets acquired, including
approximately $283,000 allocated to goodwill, which is being
amortized over 10 years, amounted to approximately $384,000
and liabilities assumed amounted to approximately $101,000.
Amortization of goodwill charged to operations in the years
ended December 31, 1996 and 1995 amounted to $28,760 and
$2,445, respectively.
At each balance sheet date the Company evaluates the period
of amortization of goodwill. The factors used in evaluating
the period of amortization include: (i)
F-9
<PAGE>
SEL-LEB MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
current operating results, (ii) projected future operating
results, and (iii) any other material factors that affect
the continuity of the business.
3. PROPERTY AND Property and equipment, at cost, consists of the following:
EQUIPMENT:
Estimated
Useful Life
-------------------------------------------------------------
Machinery and equipment $221,184 5 to 7 years
Display fixtures 220,896 2 to 3 years
Computer equipment 43,354 3 to 5 years
Leasehold improvements 22,545 10 years
-------------------------------------------------------------
507,979
Less accumulated depreciation
and amortization 151,728
-------------------------------------------------------------
$356,251
-------------------------------------------------------------
-------------------------------------------------------------
4. ACCOUNTS Accounts payable and accrued expenses consist of the
PAYABLE AND following:
ACCRUED
EXPENSES: Trade accounts payable $1,306,133
Accrued professional fees 75,552
Accrued commissions 18,972
Accrued payroll 19,952
-------------------------------------------------------------
$1,420,609
-------------------------------------------------------------
-------------------------------------------------------------
5. COMMITMENTS: In 1996, the Company entered into a new noncancelable
operating lease for office and warehouse facilities
commencing April 1, 1997 and expiring March 31, 2002. In
connection with the lease, the Company is required to
purchase machinery and equipment from the lessor amounting
to $110,000. The lease also requires payments for real
estate taxes and other operating costs. The Company leases
warehouse and production facilities from one of its contract
manufacturers under a noncancelable operating lease which
expires December 31, 1998.
The future minimum rental payments under the leases are as
follows:
Year ending December 31,
1997 $ 148,000
1998 185,000
1999 223,000
2000 286,000
2001 298,000
2002 75,000
-------------------------------------------------------------
$1,215,000
-------------------------------------------------------------
-------------------------------------------------------------
F-10
<PAGE>
SEL-LEB MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Company leases additional offices and warehouse
facilities on a month-to-month basis.
Rent expense for the years ended December 31, 1996 and 1995
amounted to approximately $141,000 and $74,000,
respectively.
The Company has entered into employment agreements with five
officers which expire at various times through July 2000.
The aggregate minimum commitment for future salaries is as
follows:
Year ending December 31,
1997 $ 590,000
1998 450,000
1999 375,000
2000 188,000
-------------------------------------------------------------
$1,603,000
-------------------------------------------------------------
-------------------------------------------------------------
The Company has various promotional agreements whereby it
pays royalty fees to celebrities based upon a percentage of
net sales attributable to the celebrities' appearances.
The Company has a license agreement to sell certain cosmetic
products under the licensor's trademark. The agreement
expires on October 31, 1999 and the Company has the option
to extend the agreement for an additional two years upon the
achievement of certain sales volume. The agreement requires
the Company to make royalty payments of 10% of licensed
sales, as defined. The Company is required to pay a minimum
royalty of $225,000 by March 31, 1998, $90,000 of which was
prepaid by December 31, 1996, and to commit to minimum
advertising expenditures of $50,000 per year through the
expiration of the agreement. As of December 31, 1996, the
Company had not yet sold any merchandise under this
agreement.
6.LINE OF CREDIT: The Company has a line of credit with a bank expiring May
31, 1997 which provides for borrowings not to exceed the
lesser of $2,000,000 or prescribed levels of eligible
accounts receivable and inventory, as defined. Borrowings
under the line of credit bear interest at the bank's
prevailing base rate (8.25% at December 31, 1996), as
defined in the agreement. As of December 31, 1996, $300,000
was outstanding under the line of credit. The loan is
collateralized by substantially all of the assets of the
Company. The fair value of the loan payable approximates
the carrying amount due to the short-term nature of the
instrument.
F-11
<PAGE>
SEL-LEB MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7. SHAREHOLDERS' Accumulated earnings during the period in which the Company
EQUITY: was an S Corporation (see Note 10) have been included in the
accompanying financial statements as additional paid-in
capital.
On January 4, 1995, the Company increased its authorized
number of shares to 10,000,000 shares of common stock,
effected a 17,760.8-for-1 stock split and changed the par
value of its common stock from no par to $.01 par. On May
18, 1995, the Company effected a .810706 reverse stock
split. In February 1996, the Company increased its
authorized number of shares to 40,000,000 shares of common
stock and effected a 3-for-1 stock split. The increase in
authorized shares and the stock splits have been given
retroactive effect in the accompanying financial statements.
On July 13, 1995, the Company completed its initial public
offering (IPO) of 2,760,000 shares of the Company's common
stock and 2,760,000 warrants. Each warrant entitles the
holder to purchase one share of the Company's common stock
at an exercise price of $2.00 per share. The net proceeds
to the Company were approximately $3,326,000 after deducting
underwriters' commissions and expenses of the offering which
totaled approximately $1,274,000.
8. OPTIONS AND The Company has a Stock Option Plan (the Option Plan) in
WARRANTS: which 1,350,000 common shares have been reserved for future
issuance. The Option Plan provides for the issuance of
incentive stock options and nonincentive stock options for
the sale of shares of common stock to employees of the
Company at a price not less than the fair market value of
the shares on the date of the option grant, provided that
the exercise price of any incentive stock option granted to
an employee owning more than 10% of the outstanding common
shares of the Company may not be less than 110% of the fair
market value of the shares on the date of the incentive
stock option grant. The term of each option and the manner
of exercise are determined by the board of directors.
Employees are fully vested in the options 3 years after the
date of grant and the options are exercisable up to 10 years
after the date of grant.
In addition, the Company has a Nonemployee Directors' Stock
Option Plan (the Directors' Plan) in which 300,000 common
shares have been reserved for future issuance. The
Directors' Plan provides for the sale of shares of common
stock to nonemployee directors of the Company at a price not
less than the fair market value of the shares on the date of
the option grant. The term of each option and the manner of
exercise is determined by the board of directors, but in no
case can the options be exercisable 10 years beyond the date
of grant. Upon election to the board of directors, and
after each re-election, each nonemployee director is granted
an option to purchase 5,000 common shares exercisable upon
the date of grant.
F-12
<PAGE>
SEL-LEB MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A summary of the status of the Company's options as of
December 31, 1996 and 1995, and changes during the years
then ended is presented below:
<TABLE>
<CAPTION>
1996 1995
------------------------------------------------------------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning
of year 1,114,500 $2.06 - -
Granted 169,000 6.00 1,380,000 $1.98
Canceled (50,000) 4.33 (265,500) 1.67
Exercised (15,000) 1.67 - -
------------------------------------------------------------------------
Outstanding at end of year 1,218,500 2.52 1,114,500 2.06
------------------------------------------------------------------------
------------------------------------------------------------------------
Options exercisable at
year-end 609,500 323,625
------------------------------------------------------------------------
------------------------------------------------------------------------
Weighted-average fair
value of options granted
during the year $ 2.69 $ .88
------------------------------------------------------------------------
------------------------------------------------------------------------
The following table summarizes information about fixed stock
options outstanding at December 31, 1996:
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------------------
Number Weighted- Number
Outstanding Average Weighted- Exercisable Weighted-
at Remaining Average at Average
Range of December 31, Contractual Exercise December 31, Exercise
Exercise Prices 1996 Life Price 1996 Price
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$1.67 694,500 8.5 $1.67 369,750 $1.67
$2.75 375,000 8.75 2.75 187,500 2.75
$5.63 - $7.00 149,000 9.84 5.91 52,250 6.13
----------------------------------------------------------------------------------------
$1.67 - $7.00 1,218,500 8.74 $2.52 609,500 $2.38
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
</TABLE>
The Company has elected, in accordance with the provisions
of SFAS No. 123, to apply the current accounting rules under
APB Opinion No. 25 and related interpretations in accounting
for its stock options and, accordingly, has presented the
disclosure-only information as required by SFAS No. 123. If
the Company had elected to recognize compensation cost based
on the fair value of the options granted at the grant date
as prescribed by SFAS No. 123, the Company's net
F-13
<PAGE>
SEL-LEB MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
income and earnings per common share for the years ended
December 31, 1996 and 1995 would approximate the pro forma
amounts indicated in the table below.
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995
---------------------------------------------------------------------------
<S> <C> <C>
Net income - as reported in 1996 and pro forma
(see Note 13) in 1995 $ 157,735 $341,423
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Net income (loss) - pro forma $(106,211) $132,359
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Pro forma primary earnings per share - as reported
(see Note 13) $ .05
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Pro forma fully diluted earnings per share - as reported
(see Note 13) $ .04
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Pro forma primary earnings per share - pro forma $ .02
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Pro forma fully diluted earnings per share - pro forma $ .02
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Earnings per share - as reported $ .02
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Earnings (loss) per share - pro forma $ (.01)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
</TABLE>
The fair value of each option grant is estimated on the date
of grant using the Black-Scholes option-pricing model with
the following weighted-average assumptions used for the
years ended December 31, 1996 and 1995: expected volatility
of 40.0%; risk-free interest rate of 6.3%; expected lives of
5 years; and no expected dividends.
At December 31, 1996, the Company has outstanding warrants
to purchase 490,689 shares of the Company's common stock by
an officer of the Company. The warrants are exercisable
through March 21, 2000 at an aggregate exercise price of
$315,000.
In May 1995, the Company borrowed $250,000 from an investor,
which was subsequently repaid out of the proceeds of the IPO
(see Note 7). In connection with this financing, the
Company issued the investor 3,000,000 warrants, each of
which entitles the holder to purchase 1 share of common
stock at a price of $2.00 per share, exercisable for a
3-year period commencing July 13, 1996. Upon issuance of
the warrants the Company charged operations for $10,000 and
increased additional paid-in capital by a corresponding
amount.
Upon consummation of the Company's IPO (see Note 7), the
Company sold warrants (the Underwriter Warrants) to purchase
up to 240,000 units at an exercise price of $2.50 per unit
to the underwriter and its designees for an
F-14
<PAGE>
SEL-LEB MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
aggregate of $10.00. Each unit consisted of one share of
common stock and a warrant entitling the holder to purchase
one share of common stock at an exercise price of $2.00 per
share. In August 1996, the Underwriter Warrants were
exercised.
During the year ended December 31, 1996, warrants to
purchase 813,477 shares of common stock were exercised.
Net proceeds to the Company amounted to $1,372,333.
At December 31, 1996, common stock was reserved for the
following reasons:
Exercise of common stock options 1,218,500
Exercise of common stock warrants 6,097,212
-------------------------------------------------------------
Subsequent to December 31, 1996, 383,768 additional shares
of common stock were issued upon the exercise of warrants
and options for $623,077 of proceeds.
9. RELATED PARTY Prior to the IPO, the Company had loans payable to its
TRANSACTIONS: shareholders and/or entities owned by such shareholders
amounting to $769,000 of which $169,000 was noninterest-
bearing. Interest on that amount was imputed, charged to
operations and treated as a contribution to capital in 1995.
Immediately prior to the IPO, $300,000 of such loans was
converted into 180,000 conversion units, each unit
consisting of 1 share of common stock and 1 warrant
entitling the holder to purchase 1 share of common stock at
an exercise price of $2.00 per share. The balance of
$469,000 was repaid in March 1996. The Company received a
discount of $46,901 on the outstanding balance and increased
additional paid-in capital by a corresponding amount.
Interest expense for the years ended December 31, 1996 and
1995 amounted to $8,070 and $49,602, respectively.
At December 31, 1994, the Company had goods on consignment
from a company which is 50% owned by a shareholder of the
Company. In 1995, the Company purchased the consigned
inventory from this company. Purchases from this company
amounted to $69,768 for the year ended December 31, 1995.
At December 31, 1996, the amount due to this company was
$64,398.
10. INCOME TAXES: The shareholders of Sel-Leb and Linette had consented that
each company be taxed as a small business corporation (S
Corporation) under the provisions of the federal income tax
laws. On May 18, 1995, the merger of Linette with and into
Sel-Leb (see Note 1) terminated the S Corporation status of
both entities. The Company distributed $156,243 to these
shareholders following the consummation of the Company's IPO
(see Note 7). This amount represented the taxes payable on
the earnings of Sel-Leb from its inception through the date
its S Corporation status was terminated and on the earnings
of Linette from January 1, 1994 through the date its S
Corporation status was terminated.
F-15
<PAGE>
SEL-LEB MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Deferred income tax asset consists of the following:
Capital loss carryforward $ 84,000
Allowance for bad debts 95,000
----------------------------------------------------------
179,000
Valuation allowance (84,000)
----------------------------------------------------------
Net deferred income tax asset $ 95,000
----------------------------------------------------------
----------------------------------------------------------
The provision for income taxes consists of the following:
Year ended December 31, 1996 1995
----------------------------------------------------------
Federal income taxes:
Current $170,000 $222,000
Deferred (43,000) (40,000)
----------------------------------------------------------
Total federal income taxes 127,000 182,000
----------------------------------------------------------
State income taxes:
Current (9,000) 64,000
Deferred - (12,000)
----------------------------------------------------------
Total state income taxes (9,000) 52,000
----------------------------------------------------------
Total provision for income taxes $118,000 $234,000
----------------------------------------------------------
----------------------------------------------------------
The provision for income taxes differs from the amount
computed using the federal statutory rate of 34% as a result
of the following:
Year ended December 31, 1996 1995
----------------------------------------------------------
Tax at federal statutory rate 34% 34%
Flow-through of S Corporation taxable income
to shareholders - 1
State income taxes, net of federal income
tax effect 2 7
Effect of permanent differences 7 -
Other items, net - (4)
----------------------------------------------------------
43% 38%
----------------------------------------------------------
----------------------------------------------------------
11. SIGNIFICANT During the year ended December 31, 1996, approximately 36%
CUSTOMERS: and 10% of the Company's sales were to two customers.
During the year ended December 31, 1995, approximately 26%
and 11% of the Company's sales were to two customers. As of
December 31, 1996, approximately 39% of accounts receivable
are due from one customer.
F-16
<PAGE>
SEL-LEB MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
12. LITIGATION: The Company is involved in various claims and lawsuits
incidental to its business. Management believes that the
probable resolution of such contingencies will not
materially affect the financial position or results of
operations of the Company.
13. PRO FORMA The pro forma net income in the accompanying statement of
FINANCIAL income for the year ended December 31, 1995 includes a pro
INFORMATION forma adjustment for income taxes on a C Corporation basis
(unaudited): as indicated below:
Income before provision for income taxes and minority
interest in earnings of subsidiary before pro forma
adjustment for income taxes $612,837
----------------------------------------------------------
Pro forma provision for income taxes:
Federal 180,000
State 52,000
----------------------------------------------------------
232,000
----------------------------------------------------------
Income before minority interest in earnings
of subsidiary 380,837
Minority interest in earnings of subsidiary (39,414)
----------------------------------------------------------
Pro forma net income $341,423
----------------------------------------------------------
----------------------------------------------------------
The pro forma provision for income taxes differs from the
amount of pro forma income tax determined by applying the
applicable federal statutory rates primarily because of the
effect of state and local taxes.
F-17
<PAGE>
EXHIBIT 10.25
TRADEMARK LICENSE AGREEMENT
This TRADEMARK LICENSE AGREEMENT (the "Agreement"), is made and entered
into this 28th day of January, 1997 by and between Bell Abbott Haussmann Inc.,
an Ontario Corporation, doing business as Jabot Cosmetics with offices at 44
Nello Street, St. Catharines, Ontario, L2N 1G6 and with a mailing address at
Post Office Box 314, Genoa City, WI 53128 (the "Licensor"), and Sel-Leb
Marketing, Inc., a New York corporation with offices at 1435 51st Street, North
Bergen, New Jersey 07047 (the "Licensee").
RECITALS
WHEREAS, Licensor is the owner of the trademark "JABOT" which was
registered with the United States Patent and Trademark Office on June 12, 1990,
Registration No. 1600204, and with the Canadian Trademarks office on November
17, 1989, registration No. 363524 for use in connection with perfumes, colognes,
toilet water, talcum powder, bath gel and personal deodorants in International
Class 3 and U.S. Class 51; and,
WHEREAS, Licensor is the owner of the trademark "JABOT FOR THE YOUNG AND
THE RESTLESS GENERATION" which was registered with the Canadian Trademarks
office on November 10, 1989, registration No. 363273 for use in connection with
perfumes, colognes and toilet water; and,
WHEREAS, the Licensor has granted an exclusive license for the trademark
"JABOT" pursuant to an agreement dated June 13, 1996, by and between Licensor
and Direct Access Group, LLC (the "Direct Access Agreement"); and,
WHEREAS, pursuant to the Direct Access Agreement, Licensee was an approved
sub-licensee of Direct Access Group, LLC; and,
WHEREAS, the Licensee is aware that Direct Access Group, LLC had breached
its obligations under the Direct Access Agreement and that said breach is
grounds for terminating the Direct Access Agreement if said breach is not cured;
and,
WHEREAS, Licensee is a manufacturer and distributor of cosmetic
preparations and desires to use the trademarks "JABOT" and "JABOT FOR THE YOUNG
AND THE RESTLESS GENERATION" (hereinafter collectively referred to as, the
"Licensed Marks") in connection with the production, marketing and distribution
of perfumes, colognes, toilet water, talcum powder, bath gel, personal
deodorants and other cosmetic preparations; and
WHEREAS, the Licensor and Licensee have agreed that it is in their mutual
best interest to provide for their legal relationship in the event Direct Access
Group, LLC fails to cure said breach and the Direct Access Agreement is
terminated; and,
WHEREAS, in the event the Direct Access Agreement is terminated by reason
of Direct Access Group, LLC failing to cure its breach thereof, Licensor is
willing to grant Licensee an exclusive license to use the Licensed Marks in the
United States and Canada for such production, marketing and distribution on the
terms and conditions specified herein;
<PAGE>
NOW, THEREFORE, in consideration of the forgoing and the mutual covenants
and agreements hereinafter set forth, the parties hereto hereby agree as
follows:
1. DEFINITIONS:
As used in this Agreement, the following terms shall have the
following respective meanings:
(A) As used herein the term "Licensed Territory" shall mean any and
all mass merchandisers, retail stores, catalogue sales, electronic media, direct
response advertising, mail order, telemarketing, and other traditional retail
distribution channels within the United States and Canada and each of their
territories. It is understood that the Licensed Mark, "Jabot For The Young and
The Restless Generation"is registered in Canada only and the Licensed Territory
with respect to said Licensed Mark is therefore restricted to Canada.
(B) As used herein, the term "Licensed Products" shall mean perfumes,
colognes, toilet water, talcum powder, bath gel, personal deodorants and other
cosmetic preparation included in Trademark International Class 3 and U.S. Class
51.
(C) As used herein, the term "Marketing Date" shall mean March 31,
1997.
(D) As used herein, the term "Net Sales" shall mean the gross invoice
price billed customers, less customary and usual rebates, credits, returns,
freight and insurance charges, value added taxes, sales taxes, and/or other
similar taxes and duties, approved credits, credits allowed for quantity
discounts and returns, and allowances for damaged or defective goods but only to
the extent that such rebates, credits, allowances, returns, and/or taxes are
customary and usual and actually paid or credited by Licensee, with respect to
any customer accounts; provided, however, under no circumstances shall any
returns experienced by Licensee require a net repayment by Licensor to Licensee.
Nothing herein shall be construed to require that any royalty payment or other
compensation be provided to Licensor unless and until Licensee shall have
actually received payment with respect to any units of the Licensed Products
distributed in furtherance of this Agreement. Licensee shall have the right to
distribute without charge, on a royalty-free basis, and not for resale, a
reasonable number of review, promotional and samples of the Licensed Products.
2. GRANT OF LICENSE:
Subject to the terms and conditions hereinafter set forth, Licensor
hereby grants to Licensee and its related and affiliated entities, the exclusive
right and license to utilize the Licensed Marks in connection with the
production, marketing and distribution of the Licensed Products in the Licensed
Territory.
3. TERM:
This Agreement shall be effective as of the date the Guaranteed
Consideration set forth in Section 4(a) is received by the Licensor, however,
the term of this Agreement with respect to Licensed Products referred to above
shall commence on the Marketing Date and shall
2
<PAGE>
continue, unless sooner terminated as provided for herein, for a period of five
(5) years from the Marketing Date (the "Initial Term").
(A) Licensor may terminate this Agreement if it is not paid at least
ONE HUNDRED THOUSAND DOLLARS ($100,000.00) in royalty payments pursuant to
Section 4 hereof for the period up to and including one (1) year from the
Marketing Date, or during any subsequent year of the Initial Term.
(B) The Initial Term of this Agreement shall be automatically
extended for an additional five (5) year period (the "Additional Term") in the
event Licensor is paid at least ONE HUNDRED AND FIFTY THOUSAND DOLLARS
($150,000.00) in royalty payments pursuant to Section 4 hereof during the period
beginning April 1, 2001 and ending March 31, 2002.
(I) The Licensor shall have the right to terminate this
Agreement if it is not paid at least ONE HUNDRED THOUSAND DOLLARS ($100,000.00)
in royalty payments pursuant to Section 4 hereof during any year of the
Additional Term.
(C) The Additional Term of this Agreement shall be automatically
extended for an additional ten (10) year period (the "Second Additional Term")
in the event Licensor is paid at least THREE HUNDRED THOUSAND DOLLARS
($300,000.00) in royalty payments pursuant to Section 4 hereof during the period
beginning April 1, 2006 and ending March 31, 2007.
(I) The Licensor shall have the right to terminate this
Agreement if it is not paid at least ONE HUNDRED AND FIFTY THOUSAND DOLLARS
($150,000.00) in royalty payments pursuant to Section 4 hereof during any year
of the Second Additional Term.
(D) The Second Additional Term shall be automatically extended for
successive periods of five (5) years each (the "Successive Term" or "Successive
Terms"), unless either party provides written notice to the other, no less than
one hundred and eighty (180) days prior to the expiration of the Second
Additional Term or any Successive Term that it does not wish to further extend
the term of this Agreement.
(E) The extension of the Initial Term, Additional Term, Second
Additional Term, or any Successive Term of this Agreement shall be upon the same
terms and conditions in force and effect hereunder at the time of each such
extension or as otherwise agreed to in writing by the parties.
4. CONSIDERATION:
In full consideration for the rights, licenses and privileges herein
granted to Licensee, Licensee shall pay to Licensor the following royalty
payments:
(A) GUARANTEED CONSIDERATION: For the rights herein granted,
within the five day period following the receipt by the Licensee of a fully
executed Agreement, Licensee shall cause to be paid to Licensor the sum of TEN
THOUSAND DOLLARS ($10,000.00), by United States draft, guaranteed by Licensee's
bank (the "Advance"). The Advance paid by Licensee pursuant to this Section
4(a) shall be applied against such royalties that become due
3
<PAGE>
to Licensor under Section 4(b) below but shall be non-refundable not-
withstanding any other provision of this Agreement and notwithstanding its
termination for cause.
(B) ROYALTY PAYMENTS: With respect to the Licensed Products,
Licensee shall pay to Licensor royalty fees as follows: (i) on the first TEN
MILLION DOLLARS ($10,000,000.00) of Net Sales under this Agreement, a five (5%)
percent royalty; (ii) on the next FIVE MILLION DOLLARS ($5,000,000.00) of Net
Sales under this Agreement, a four (4%) percent royalty; (iii) on the next FIVE
MILLION DOLLARS ($5,000,000.00) of Net Sales under this Agreement, a three (3%)
percent royalty; (iv) on all remaining Net Sales under this Agreement
thereafter, a two (2%) percent royalty.
(C) ROYALTY REPORTS: Within thirty (30) days following the end of
each calendar quarter after the Marketing Date (in the event Royalties are
generated prior to the Marketing Date, the first Royalty Report due Licensor
shall be delivered within thirty (30) days following the end of the first
calendar quarter of 1997) during the term of this Agreement, Licensee shall
furnish to Licensor complete and accurate statements showing the number of each
Licensed Product sold, the country in which sold or to which shipped,
description and gross sales price, itemized deductions from gross sales price,
and Net Sales derived from the Licensed Products sold by Licensee or any of its
affiliated, associated or subsidiary companies during the preceding calendar
quarter, together with any returns made during the preceding calendar quarter.
Such statements shall be furnished to Licensor whether or not any of the
Licensed Products have been sold during calendar quarters to which such
statements refer. Receipt or acceptance by Licensor of any of the statements
furnished pursuant to this Agreement or of any sums paid hereunder shall not
preclude Licensor from questioning the correctness thereof at any time, and in
the event that any inconsistencies or mistakes are discovered in such statements
or payments, they shall immediately be rectified and the appropriate payments
made by Licensee. Licensee shall be entitled to withhold a reserve for returns,
to be reconciled and liquidated quarterly, equal to ten (10%) percent of the
sales for the quarter being reported. In conjunction with such royalty
statement, Licensee shall pay Licensor the royalties due on account of Net Sales
during the preceding calendar quarter. In the event Licensee overpays royalties
to Licensor in any particular quarter, said overpayment shall be credited to
Licensee in connection with the quarterly report and royalty payment tendered by
Licensee to Licensor in the Quarter immediately following the time at which
Licensee becomes aware of said overpayment. Royalties generated from the sale
of Licensed Products in the United States shall be payable in U.S. Dollars,
likewise, Royalties generated from the sale of Licensed Products in Canada shall
be payable in Canadian Dollars. Royalty Reports shall convert Canadian Dollars
to U.S. Dollars at the average exchange rate for that calendar quarter for the
purpose of calculating Royalties received by Licensor under the sliding scale
percentage basis set forth in Section 4(b).
(I) Royalty payments that are not paid by Licensee to Licensor
within the thirty (30) day period following the end of the calendar quarter in
which said royalties are generated shall bear interest at one percent (1%) above
the Prime Rate of interest of the Royal Bank of Canada.
(II) All accrued royalties which have not yet been paid by
Licensee to Licensor pursuant to this Section 4 ("Accrued Royalties") shall be
held by Licensee, prior to payment thereof, as trust funds for the benefit of
the Licensor only. Accrued Royalties shall be deemed to be impressed as trust
funds for the benefit of the Licensor immediately upon their accrual pursuant to
this Section 4.
4
<PAGE>
5. RESERVATION OF RIGHTS:
(A) Licensee acknowledges that Licensor retains all rights not
expressly and exclusively conveyed to Licensee hereunder. Further that the
Licensed Marks and all rights therein (with the exception of those rights
expressly granted to Licensee hereunder) and the goodwill pertaining thereto
belong exclusively to Licensor and that all Licensed Products sold by the
licensee pursuant to this Agreement shall carry the Licensed Mark(s), notifying
the public that "Jabot Cosmetics, Genoa City, WI 53128" is the owner of the
Mark.
(B) Notwithstanding anything contained herein to the contrary,
Licensor expressly agrees that the Licensee is the sole and exclusive owner of
any artistic expression in Licensee's commercial exploitation of the Licensed
Marks during the term of this Agreement in connection with the Licensed Products
("Property Rights"). Nothing contained herein shall be construed as an
assignment to Licensor of any right, title or interest in the Property Rights.
Licensor recognizes the value of the goodwill which shall be developed in
connection with the Licensed Products and the commercial exploitation of the
Licensed Marks. It is understood that the Property Rights attach only to those
Licensed Products actually produced and marketed hereunder, and not to any
products or property rights, including the commercial packaging, copies of which
are on file at the United States Patent and Trademark office, otherwise owned or
exploited by Licensor, and the Property Rights and all rights therein and the
goodwill pertaining thereto belong exclusively to the Licensee.
6. BOOKS AND RECORDS:
(A) Licensee shall keep, maintain and preserve (in Licensee's
principal place of business) for at least two (2) years following termination or
expiration of the term of this Agreement or any renewals or extensions hereof,
complete and accurate records of accounts including, without limitation,
invoices, correspondence, banking and financial, and other records pertaining to
the various items required to be submitted by Licensee. Such records and
accounts shall be made available for inspection and audit by the Licensor at the
offices of the Licensee during normal business hours, upon no less than ten (10)
days notice during the term of this Agreement or any renewal(s) or extensions
hereof, but not more frequently than twice per calendar year. All materials
shall be held in confidence and not used for any purpose except for purposes of
enforcing the terms of this Agreement. Any such inspections or audits shall be
conducted at Licensor s expense unless the audit establishes an underpayment of
five (5%) percent or more for the period subject to audit, in which case the
expense of such audit shall be borne by Licensee. All books and records
maintained by the Licensee pursuant to this Agreement are the sole and exclusive
property of the Licensee and may not at any time be copied or removed from
Licensee's offices.
(B) All Royalty Reports and Royalty Payments tendered by Licensee to
Licensor pursuant to this Agreement shall be deemed accepted by the Licensor if
not disputed, in writing, within one (1) year of their being received by
Licensor.
7. INDEMNIFICATIONS:
(A) Licensor hereby indemnifies and agrees to defend and hold
Licensee and its affiliates and their respective agents, servants, employees,
officers, and directors harmless from and against any and all claims, losses,
damages, liabilities, and associated expenses (including
5
<PAGE>
reasonable attorneys' fees) arising out of or relating to any claims or suits
that may be brought or made against Licensee arising out of or relating to
Licensor's breach of any provision of this Agreement or its warranties and
representations as set forth in Section 11 hereof, or any claim by a third party
that the "Jabot" Licensed Mark infringes the rights of said third party.
(B) Licensee hereby indemnifies and agrees to defend and hold
Licensor and its affiliates and their respective agents, servants, employees,
officers, and directors harmless from and against any and all claims, losses,
damages, liabilities, and associated expenses (including reasonable attorneys'
fees) arising out of or relating to any claims or suits that may be brought or
made against Licensor arising out of or relating to Licensee's breach of any
provision of this Agreement or its warranties and representations as set forth
in Section 11 hereof or any claim by a third party that the "Jabot For The Young
And The Restless Generation" Licensed Mark infringes the rights of said third
party.
(C) Licensee agrees to maintain comprehensive general liability
insurance, including contractual and product liability insurance in the amount
of One Million Dollars ($1,000,000.00) per incident and Three Million Dollars
($3,000,000.00) umbrella excess coverage.
(D) The provisions of this Section 7 shall survive the termination of
this Agreement.
(E) The indemnifications provided for herein are conditioned upon the
indemnified party's furnishing the indemnifying party with prompt written notice
of any such claim or suit and upon the indemnified party's furnishing of
reasonable cooperation and witnesses, if necessary, in defense of such claim or
suit. In such event, the indemnifying party shall have the option and right to
undertake and conduct the defense of any such claim or suit.
8. TRADEMARKS:
(A) Licensee agrees that it will not apply for, or seek to obtain
trademark registration for the Licensed Marks.
(B) Licensee agrees that if it receives knowledge of the unauthorized
use of Licensed Marks or of any use confusingly similar thereto, Licensee will
promptly call such fact to the attention of Licensor. Licensor shall then have
the option to institute legal proceedings to prevent such use, and Licensee
shall cooperate and assist, and, if requested by Licensor, join in the
prosection of any such action. Any such legal proceedings shall be the sole
expense of Licensor. If Licensee is joined in such proceeding, Licensor shall
indemnify and hold harmless Licensee from and against any claim, sanction,
liability, damages, attorney s fees, judgments, or orders of any kind arising
out of such proceeding.
9. QUALITY OF LICENSED PRODUCTS:
(A) Licensee agrees that the Licensed Products shall be of high
standard and of such style, appearance and quality as shall be adequate and
suitable to their promotion, distribution and sale to the best advantage of
Licensee and Licensor. Licensee shall furnish to Licensor, free of cost, a
sample of each such product together with its cartons and containers, including
packaging and wrapping material.
6
<PAGE>
(B) Subject to the terms hereof, Licensee may utilize the Licensed
Marks for such advertising, promotional and display materials for the Licensed
Products as in its judgment will best promote the sale of said Licensed
Products. A reasonable number of production copies of all such advertising,
promotional and display materials will be furnished to Licensor free of
charge.
10. DISTRIBUTION; SUBLICENSE/MANUFACTURE:
(A) The Licensee shall sell the Licensed Products either to jobbers,
wholesalers, distributors, retailers, or by direct marketing for sale or resale
and distribution directly to the public. If Licensee sells or distributes the
Licensed Products at a special price, directly or indirectly, to itself
including, without limitation, any subsidiary of the Licensee or to any other
person, firm or corporation affiliated with the Licensee or its officers,
directors or major stockholders, for ultimate sale to unrelated third parties,
the Licensee shall pay royalties with respect to such sales or distribution as
set forth in Section 4(b), which royalties shall be calculated based upon the
greater of the gross invoice price at which the Licensee sells, directly or
indirectly, to itself or to such subsidiary or affiliated entity, or the gross
invoice price at which such subsidiary or affiliated entity sells to a third
party.
(B) Licensee shall be prohibited from sublicensing any of its rights
under this Agreement. However, in the event Licensee is not the manufacturer of
the Licensed Products, Licensee shall be entitled to utilize a third party
manufacturer in connection with the manufacture and production of the Licensed
Products. In such event, Licensee shall remain primarily obligated under all of
the provisions of this Agreement. In no event shall any such sub-contract
manufacture agreement include the right to grant any further subcontracts on the
part of the subcontractee.
11. WARRANTIES AND REPRESENTATIONS:
(A) Each party represents to the other party, respectively, that:
(I) it is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization;
(II) it has full power and authority to execute and deliver
this Agreement, and to perform its obligations hereunder; and,
(III) this Agreement constitutes a valid and legally binding
obligation of it, enforceable against it in accordance with its terms, subject
to bankruptcy, insolvency, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights and general
equity principals.
(B) Licensor represents and warrants to Licensee that:
(I) It has registered the licensed mark "JABOT" in Canada and
the United States and registered the Licensed Mark "JABOT FOR THE YOUNG AND
RESTLESS GENERATION" in Canada only. It shall be the Licensor's responsibility
to renew the registrations of the Licensed Marks over the duration of this
Agreement and to file the appropriate registered user agreements for use by the
Licensee pursuant to the terms of this Agreement to reasonably ensure the
continued validity of the Licensed Marks. Should the Licensee require any
further maintenance of the
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Licensed Marks, Licensee may do so at its own expense upon Licensor's consent,
which consent shall not be unreasonably withheld or delayed. Any such
maintenance precludes any third party claim(s) for which the Licensee has been
indemnified in Section 7(a);
(II) It has, and will have throughout the term of this
Agreement, the right to license the Licensed Mark "JABOT" in accordance with the
terms and provisions of this Agreement. Licensor has, as of the date hereof,
the right to license the Licensed Mark "JABOT FOR THE YOUNG AND THE RESTLESS
GENERATION" in accordance with the terms and provisions of this Agreement.
Further, in the case of the Licensed Mark, "JABOT FOR THE YOUNG AND THE RESTLESS
GENERATION" the warranty does not extend beyond the territorial limits of
Canada; and,
(III) The making of this Agreement by Licensor does not violate
any agreements, rights or obligations existing between Licensor and any other
person, firm or corporation.
(C) Licensee represents and warrants to Licensor that:
(I) Licensee acknowledges that Licensor does not provide any
warranty with respect to the Licensed Mark, "Jabot For The Young And The
Restless Generation," but for reasonably ensuring its continued validity and
registration with the Canadian Trademarks Office. Therefore, any use of the
Licensed Mark "Jabot For The Young And The Restless Generation" shall be at the
Licensee's own risk.
(II) The making of this Agreement by Licensee does not violate
any agreements, rights or obligations existing between Licensee and any other
person, firm or corporation.
(D) The provisions of this Section 11 shall survive termination of
this Agreement.
12. SPECIFIC UNDERTAKING OF LICENSEE:
During the term and any renewal or extension period herein provided
for, Licensee agrees that:
(A) it will not harm, misuse or bring into disrepute the Licensed
Marks or their reputation or that of their owners;
(B) it will manufacture, sell and distribute the Licensed Products in
an ethical manner and in accordance with the terms and intent of this Agreement;
(C) it will not incur or create any expenses chargeable to Licensor;
(D) it will protect to the best of its ability its right to
manufacture, sell and distribute the Licensed Products hereunder;
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(E) it will comply with all laws and regulations pertaining to the
manufacture, sale, advertising or use of the Licensed Products and shall
maintain the highest quality and standards, and shall comply with any regulatory
agencies which shall have jurisdiction over the Licensed Products; and,
(F) it will use its reasonable best efforts to manufacture,
distribute and sell the Licensed Products throughout the Territory.
13. TERMINATION BY LICENSOR:
(A) Licensor shall have the right to terminate this Agreement without
prejudice to any rights that it may have hereunder, whether in law, or in
equity, or otherwise, upon the occurrence of any one or more of the following
events (herein called "Defaults"):
(I) If Licensee defaults in the performance of any of its
material obligations provided for in this Agreement;
(II) If Licensee shall have failed to maintain in full force
and effect the insurance referred to in Section 7 hereof;
(III) If Licensee breaches this Agreement by failing to make
any payment due hereunder on the date due and fails to cure such breach within
thirty (30) days of its receipt of written notice by Licensor;
(IV) If Licensee breaches this Agreement by failing to deliver
any of the statements or records referred to herein or to give access to the
premises and/or its records to Licensor's authorized representatives for the
purposes permitted hereunder, and Licensee fails to cure such breach within
thirty (30) days after its receipt of written notice by Licensor;
(V) If Licensee shall become insolvent or unable to pay its
debts when due, or shall make any assignment for the benefit of creditors, or
shall file any petition under the bankruptcy or insolvency laws of any nation,
jurisdiction, county or place, or shall have a receiver or trustee appointed for
its business or property, or be adjudicated a bankrupt or an insolvent;
(VI) In the event that Licensee does not commence in good
faith to manufacture, distribute and sell Licensed Products throughout the
Territory on or before the Marketing Date specified in Subclause 1(c);
(B) In the event any of these defaults occur, Licensor shall give
notice of termination in writing to Licensee by certified mail. The Licensee
shall have thirty 30 days after receipt of such notice in which to correct any
of these defaults, and if such defaults remain uncured upon the expiration of
the thirty (30) day period, this Agreement shall terminate, and any and all
payments then or later due from Licensee hereunder (including Guaranteed
Consideration) shall be due and payable within sixty (60) days of termination,
and no portion of prior payments shall be refunded to Licensee.
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14. SELL-OFF PERIOD:
Licensee shall deliver, as soon as practicable, to Licensor, following
expiration (pursuant to Section 3) or termination (pursuant to Section 13), a
statement indicating the number and description of Licensed Products on hand or
in the process of manufacture at the time notice of termination is received by
Licensee or at the time of expiration of this Agreement. Following expiration or
termination, Licensee may continue to manufacture its goods in the process of
manufacture, but may manufacture no more Licensed Products in association with
the Licensed Marks; Licensee may continue to distribute and sell its remaining
inventory and goods in the process of manufacture for a period not to exceed ten
(10) months following such termination or expiration, subject to the provisions
of Section 4 above. Thereafter, neither Licensee (directly or indirectly) or
any subsidiary, person, firm, or corporation affiliated with Licensee or its
officers and directors, shall make any use of the Licensed Marks whatsoever, or
any marks confusingly similar thereto, or in any manner associated with either
of the Licensed Marks, either in or on products, advertising, publicity,
promotional or display materials in commerce.
15. PAYMENTS AND NOTICES:
All notices hereunder (a) shall be in writing, (b) shall be forwarded
by hand delivery, ordinary first-class or certified or registered U.S. or
Canadian mail (postage prepaid), by Federal Express or other nationally
recognized overnight courier service, (c) shall be addressed to the recipient at
its address as specified below (or in the case of a change, as shall have been
specified by the recipient in a notice given hereunder), and (d) shall be
effective on receipt. The applicable addresses with respect to such notices,
and the addresses for accounting payments and statements, are as follows:
IF TO LICENSOR: IF TO LICENSEE:
Bell Abbott Haussmann Inc. Sel-Leb Marketing, Inc.
44 Nello Street 1435 51st Street
St. Catharines, Ontario L2N 1G6 North Bergen, New Jersey 07047
Attention: Denis McNulty Attention: Jan Mirsky
WITH A COPY TO: WITH A COPY TO:
Chown Cairns Markowitz Roshco & Adelman
80 King Street 666 Third Avenue - 18th Floor
9th Floor Corbloc New York, New York 10017
P.O. Box 760 Attention: Seth P. Markowitz, Esq.
St. Catharines, Ontario
L2R 6Y8
Attention: John Willey, Esq.
16. CONFIDENTIALITY:
Each party agrees that, without the express consent of the other
party, none of its employees or agents shall disclose to any other party, or use
for any purpose other than the performance of this Agreement, any tangible or
intangible information or material that the other party
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designates as confidential (including without limitation the terms and
conditions of this Agreement, and the content of any source code, object code or
technical documentation relating to the Licensed Products) unless such
information or material, (a) is or becomes publicly known through no wrongful
act of the receiving party; (b) is received from a third party without
restriction and without breach of any confidentiality obligation to the other
party; (c) is independently developed by the receiving party; or (d) is required
by law to be disclosed (provided that the other party is given advance notice of
and an opportunity to contest any such requirement).
17. NO PARTNERSHIP:
This Agreement does not constitute and shall not be construed as
constituting a partnership or joint venture between Licensor and Licensee.
Neither party shall have any right to obligate or bind the other party in any
manner whatsoever, and nothing herein contained shall give, or is intended to
give, any rights of any kind to any third persons.
18. NON-ASSIGNABILITY:
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, provided, that this
Agreement may not be assigned in whole or in part by Licensee, except to an
affiliate of Licensee (as defined and promulgated under the Securities and
Exchange Act of 1934, as amended) or to any other entity that succeeds to the
business of Licensee associated with the Licensed Products other than by
operation of law, such as by sale of assets without the express prior written
consent of Licensor, which consent shall not be unreasonably withheld.
19. GOVERNING LAW:
This Agreement shall be construed in accordance with the laws of the
State of New York of the United States of America, excluding any conflict of
laws rules of said State which would have the affect of applying the laws of any
other jurisdiction.
20. ENTIRE AGREEMENT, WAIVER, MODIFICATION:
This agreement represents the entire agreement between the parties
hereto pertaining to the subject matter hereof, and supersedes all prior oral
and written negotiations and agreements. No waiver, modification or
cancellation of any terms or condition of this Agreement shall be effective
unless executed in writing by the party to be charged therewith. No written
waiver shall excuse the performance of any act other than those specifically
referred to therein.
21. SEVERABILITY:
Should any provision of this Agreement for any reason be declared
invalid or unenforceable, such declaration shall not affect the validity or
enforceability of any other provision of this Agreement, all of which other
provisions shall remain in full force and effect, and the application of such
invalid or unenforceable provision to persons or circumstances other than those
as to which it is held invalid or unenforceable shall be valid and be enforced
to the fullest extent permitted by law.
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22. SURVIVAL:
The respective representations and warranties of the parties set forth
herein and the provisions hereof regarding confidentiality, indemnification,
accounting and payment of royalties, audit rights and ownership of intellectual
property shall survive any expiration or termination of this Agreement, together
with any monetary obligations accrued but as yet unpaid as of the time of such
expiration or termination.
23. CURRENCY:
All amounts payable to Licensor pursuant to this Agreement, or
referred to in this Agreement, are in U.S. Dollars unless otherwise specifically
stated herein.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement by their
duly authorized representatives as of the day and year first above written.
LICENSOR: Bell Abbott Haussmann Inc.
LICENSEE: Sel-Leb Marketing, Inc.
/s/ Denis McNulty /s/ Jan Mirsky
- -------------------------- ---------------------------------
By: Denis McNulty By: Jan Mirsky, Exec. Vice Pres.
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EXHIBIT 10.27
MERCHANDISING LICENSE AGREEMENT
Dated as of October 16, 1996
1. PARTIES: VIACOM CONSUMER PRODUCTS, INC. ("VCP")
5555 Melrose Avenue
Los Angeles, California 90038
SEL-LEB MARKETING, INC. ("Licensee")
1435 51st Street
North Bergen, NJ 07047
Attn: Hal Markowitz
2. PROPERTY:
As used herein, the term "Property" shall mean the characters,
characterizations,designs and visual representations which appear, and only
as they appear, in the television series entitled "CLUELESS" (the "Series")
including the names and likenesses of only those performers approved in
writing by VCP, and only as they appear as characters in the Series; but
not including, without the prior written consent of VCP, any actual
material from the Series, such as footage (Film, tape, disc or other
medium), outtakes, music, effects track, voice track or sound track of the
Series.
3. LICENSED ARTICLES:
Licensee shall use the Property in connection with the manufacture and
distribution of the following items (the below listed items will be
referred to individually and collectively as the "Licensed Articles"):
(a) Nail Care Products including polishes, top coats, removers, hardeners
and quick-drys as well as artificial nail sets, nail files/clipper
sets.
(b) Lip Stick Products including sticks, glosses and liners.
(c) Cologne Fragrances including bottled cologne sprays and body sprays.
(d) Mass Market Gift Set/Bags including combinations of the items listed
in 3(a), (b) and (C), which will be targeted to the mass market.
(e) Signature Gift Set/Bags including combinations of the items listed in
3(a), (b) and (c), which will be targeted to the "upstairs" market.
(f) Specialty "kid-tween" Gift Set/bags including combinations of the
items listed in 3(a), (b) and (c), which will be targeted for toy
distribution.
(g) Licensee shall have the option until December 10, 1996 to add bath
products (including bath gels, bubble baths and bath lotions). If
Licensee exercises such option, it must give VCP written notice by
December 10, 1996 and pay any and all amounts as shall be due to VCP
in respect of such bath products as provided hereinbelow no later than
December 15, 1996, and all applicable terms and conditions of this
Agreement shall apply. Moreover, Licensee shall pay VCP an additional
15% on any amounts due hereunder, as applicable. A "*" shall indicate
each payment which may be affected by the exercising of this option.
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4. TERRITORY:
United States, its territories and possessions, including Puerto Rico.
5. TERM:
(a) The initial term hereof shall commence on October 15, 1996 and shall
continue until October 31, 1999, unless sooner terminated or extended
as provided in this Agreement ("Initial Term").
(b) If Licensee earns in Royalties (as defined in Paragraph 9(b) below)
and pays to VCP a minimum of $500,000.00 by August 1, 1999, then
Licensee shall have the option to extend this Agreement for a period
of two (2) years ("Extended Term"). In order to exercise this option,
License must give VCP written notice ninety (90) days prior to the
expiration of the Initial Term. If Licensee does exercise such
option, Licensee shall pay VCP an additional Advance ("Additional
Advance") of $90,000.00* upon the execution of the option and an
additional Guarantee ("Additional Guarantee") of $270,000.00* payable
$90,000.00* as the Additional Advance, $90,000.00* on or before
November 1, 2000 and $90,000.00* upon the expiration of the Extended
Term payable to the extent not earned out by the Additional Advance
and Royalties.
(c) Wherever the word "Term" is used in this Agreement, it refers
generally to the Initial Term and any and all Extended Terms, if
applicable.
6. LICENSE:
(a) VCP hereby grants to Licensee and Licensee hereby accepts, the
exclusive (subject to Paragraphs 7 and 8(d) below) right, license and
privilege to manufacture the designated Licensed Articles based upon
and incorporating the Property, and to distribute, offer for sale,
sell, promote and advertise the Licensed Articles in the Territory
during the Term, subject to the provisions of this Agreement.
(b) The license granted herein includes the non-exclusive right to use, in
the Territory and for the Term, subject to all the terms and
conditions hereof, the title of the Series and the trade and service
marks and names, and the logos and art work, if any, used in
connection with the Series (all of which are, except where dealt with
individually, referred to hereinafter as the "Trademarks"). Inclusion
of artwork is contingent upon VCP's right to grant permission for the
use thereof without payment of any nature to any third party in
connection therewith.
(c) Licensee shall not use the Property or the Trademarks in any manner
not specifically authorized by this Agreement, except with VCP's prior
written consent.
7. RESERVATION OF RIGHTS:
(a) All rights in and to the Property, the Trademarks and the Series not
expressly granted herein to Licensee are hereby expressly reserved to
VCP or its designees without restriction.
(b) Licensee acknowledges that the license granted herein does not include
any right, title or interest in or to the Property or the Series, nor
to any copyrights, patents, and/or trademarks therein or associated
therewith. Furthermore, this Agreement relates solely to the Series.
Licensee is not, by virtue of this Agreement, acquiring any right
whatsoever in any motion picture or television production or other
endeavor which is based upon,
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derivative of inspired by or otherwise related to the Series,
including without limitation, remakes, sequels, sound recordings,
publications, or other endeavors in which the characters,
characterizations, designs and/or visual representations contained in
the Series may appear; as between VCP and Licensee, all right, title
and interest in and to the foregoing is retained by VCP.
(c) VCP reserves unto itself and/or its designees the right to
manufacture, distribute, offer for sale, sell, advertise, promote,
display and otherwise exploit articles similar and/or identical to the
Licensed Articles (and articles directly or indirectly competitive
with the Licensed Articles), for use in connection with premium sales
or give-aways, promotional give-aways, in-theater sales and sales
outlets immediately adjacent to motion picture theaters, sales at or
adjacent to theme parks, amusement parks, entertainment centers or
other amusement attractions, sales through cable delivery systems and
on line services, mail/telephone order sales, sales through catalogue
houses, vending machine sales, home television sales (e.g. home
shopping club), radio sales, computer shopping services, sales by or
through fan clubs and conventions, sales through home video retail
outlets, and/or sales in or in connection with facilities owned,
operated and/or controlled by VCP, its parent, affiliated and/or
subsidiary companies. Notwithstanding the foregoing, VCP agrees to
use all reasonable efforts to cause its parent, affiliates or
designees to source such items from Licensee, subject to Licensee's
ability to meet the required specifications and requirements of any
such project. Licensee agrees to furnish to VCP, at its best
wholesale distribution price, any number of Licensed Articles ordered
by VCP for sale in or in connection with any of the foregoing reserved
activities. For purposes hereof, "cable delivery systems" shall mean
those systems which deliver through home television set top
converters; "on-line services" shall mean those systems which deliver
through telephone, cable and/or satellite delivery channels to
consumers' personal computers. If the Property licensed hereunder is
a Series, this Agreement applies to the Series only and not to any
sequels, motion pictures or any other production based on, derived
from or inspired by the Series.
8. MANUFACTURING AND DISTRIBUTION OBLIGATIONS/MARKETING DATE:
(a) Licensee shall manufacture, distribute and commence the marketing of a
substantial number of items of the Licensed Articles by the Spring of
1997 ("Marketing Date").
(b) If Licensee fails to meet the Marketing Date for any Licensed Article,
VCP may terminate the rights granted to Licensee with respect to such
Licensed Article on thirty (30) days prior written notice, provided
Licensee shall not have commenced distribution of such Licensed
Article within such thirty day period. If, subsequent to the
commencement of marketing and distribution of any Licensed Article,
Licensee fails to actively continue marketing and distributing any
units of said Licensed Article in any country or substantial portion
of the Territory, VCP may terminate the rights granted to Licensee
with respect to that particular country or portion of the Territory on
thirty (30) days prior written notice, provided licensee shall not
have recommenced distribution of such Licensed Article within such
country or portion of the Territory within such thirty day period.
Termination of this Agreement, or any portion thereof, by VCP pursuant
to this subparagraph 8(b) shall in no way reduce, proportionally or
otherwise, the Guarantee required to be paid to VCP hereunder.
(c) Licensee acknowledges that VCP is entering into this Agreement not
only in consideration of the payments to be made to it hereunder, but
also in consideration of the promotional value to it and to the Series
of the widespread distribution, sale, advertising and promotion of
each of the Licensed Articles. Accordingly, Licensee shall procure
the greatest volume of sales of the Licensed Articles consistent with
high quality and shall make and maintain timely and adequate
arrangements for their manufacture, distribution, advertising and
promotion. Additionally, Licensee must commit to a minimum advertising
expenditure of not less than
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$50,000.00 per year. If Licensee fails to make any such minimum
annual advertising expenditure, then any deficiencies shall be paid
directly to VCP.
(d) Licensee shall distribute and sell the Licensed Articles outright at a
competitive price, and not on approval, consignment, sale-or-return,
or any similar basis, and further, only to the mass market, toy
stores, grocery stores, drug stores, beauty stores, beauty supply
outlets and department stores. Licensee shall not sell or distribute
the Licensed Articles for publicity or promotional tie-in purposes,
premium give-aways, or any other means of distributing, marketing or
merchandising reserved to VCP under Paragraph 7. Subject to
Paragraphs 6(b) and 7 above, Licensee's rights shall be exclusive in
the mass market, grocery stores, drug stores, beauty outlets, discount
chain stores and wholesale club/membership stores and non-exclusive
for toy stores and department stores. However, this shall not limit
Licensee's commitments under Paragraph 3 above. Moreover, Licensee's
exclusive rights shall revert to non-exclusive in the event that:
(i) Licensee is late on a scheduled Royalty (as defined in Paragraph
9(b) below) or cash installment payment, and is unable to correct
the problem within ten (10) business days; or
(ii) Licensee sells less than:
$1,000,000.00 in wholesale sales for the period beginning with
the Market Date through March 31, 1998;
$2,000,000.00 in wholesale sales for the period April 1, 1998
through March 31, 1999;
$2,000,000.00 in wholesale sales for the period April 1, 1999
through March 31, 2000;
$2,000,000.00 in wholesale sales for the period April 1, 2000
through March 31, 2001 (if applicable); or
$1,000,000.00 in wholesale sales for the period April 1, 2000
through October 31, 2001 (if applicable).
(e) Licensee may not enter into any agreement with any third party for the
manufacturing or distribution of any of the Licensed Articles without
VCP's prior written consent, not to be unreasonably withheld.
Licensee shall manufacture the Licensed Articles in the United States
and Canada.
(f) Licensee further agrees and acknowledges that any and all lists of
names and addresses compiled by Licensee in connection with Licensee's
marketing of the Licensed Articles hereunder as customers or potential
customers thereof, including but not limited to any so-called
registration cards as completed and sent to Licensee by purchasers of
the Licensed Articles hereunder, shall be deemed for purposes of this
Agreement, the joint property of VCP and Licensee shall be provided to
VCP upon its request therefor. VCP acknowledges that Licensee shall
be permitted to maintain and update such list (without purging any
names included therein) at the address set forth above throughout the
Term of this Agreement.
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9. PAYMENT:
Licensee shall pay VCP the following:
(a) A non-returnable advance ("Advance") of Ninety Thousand Dollars
*($90,000.00) payable upon the earlier of the execution hereof by
Licensee or November 4,1996, to be applied against royalties payable
pursuant to Paragraph 9(b) below. Notwithstanding the above, if the
back nine (9) episodes of the Series are not picked-up for broadcast
for the 1996/1997 season, then Licensee Shall have the option to
terminate this Agreement within five (5) business days of VCP giving
Licensee notice that the Series has not been picked-up. If Licensee
exercise this option, Forty Thousand Dollars *($40,000.00) of the
Advance shall be refunded to Licensee (such refund shall not be
payable earlier than January 1,1997 nor later than January 15, 1997)
and this Agreement shall terminate as of April 31, 1998. At such
time, all rights granted hereunder shall immediately revert to VCP and
no further Guarantee payments (as defined in Paragraph 9(c) below)
shall be due. However, the termination of this Agreement and the
refund of such Forty Thousand Dollars *($40,000.00) shall in no way
reduce any Royalties (as defined in Paragraph 9(b) below) which may be
payable to VCP pursuant to this Agreement. If Licensee does not
exercise this option, then this Agreement shall continue according to
the terms set forth herein.
(b) A royalty ("Royalty") of Ten Percent (10%) of the greater of
Licensee's published gross wholesale price, or such amount as Licensee
may actually receive for each Licensed Article, except that Licensee
may deduct from its receipts hereunder: (i) returns for defective or
damaged goods; (ii) actual deductions for customary trade discounts,
except that the aggregate amount of such deductions shall not exceed
Twelve Percent (12%) of the total gross wholesale price (during the
same accounting period, as specified in Paragraph 10 below); (iii)
actual deductions for returns of sale-or-return goods, except that the
aggregate amount of such deductions may not exceed Twelve Percent
(12%) of the total number of units distributed annually; and (iv)
actual freight charges incurred in shipping the Licensed Articles to
customers. Said Royalty shall be paid to VCP on all Licensed Articles
as if sold by Licensee at its customary price without discount
Further, where the billed price for any Licensed Article is less than
Licensee's customary price, or if Licensee sells any Licensed Articles
to any person, firm or corporation related to or affiliated with
Licensee for a price which is less than Licensee's customary price,
then the Royalty payable to VCP on such Licensed Articles shall be
computed as if sold by Licensee at its customary price without
discount. VCP agrees and acknowledges that Licensee shall be
permitted to distribute a reasonable amount of Licensed Articles to
its trade customers free of charge for purposes of promoting sales of
same, such reasonable amount to be determined in keeping with
Licensee's sound business judgment
(c) A guarantee of Two Hundred and Twenty Five Thousand Dollars
*($225,000.00) ("Guarantee") payable, to the extent not then already
paid to VCP under subparagraphs 9(a) and 9(b), above, by March 31,
1998 or earlier termination of this Agreement.
(d) Notwithstanding the above, upon VCP's confirmation to Licensee that
the Series has been picked-up for the 199711998 season, an additional
Forty Five Thousand Dollars ($45,000.00) shall be added to the
Guarantee to be payable not later than March 31, 1999 or the earlier
termination of this Agreement. Notwithstanding the above, if VCP
informs Licensee that the Series has not been picked-up for the
199711998 season, the Licensee shall have the option, to be exercised
within ninety (90) days of such notice, to terminate this Agreement If
Licensee exercises such option, all rights granted hereunder shall
revert to VCP as of October 31, 1998. The exercising of such option
shall in no way decrease the amounts payable pursuant to subparagraphs
3(g), (if applicable) 9(a) and 9(c) above.
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10. ACCOUNTING AND AUDIT:
(a) Licensee shall render accounting statements (in the form of Exhibit
"A" attached hereto and made a part hereof) to VCP on a quarterly
(calendar year) basis within 25 days of the end of each quarter,
whether or not any payment is shown to be due to VCP thereunder, and
remit payments due VCP along with such statements, addressed as
follows: Via regular mail to Paramount Merchandising, P.O. Box 100590,
Pasadena, CA 91189-0590 and via overnight courier to First Chicago
National Processing Corporation, Arroyo Parkway Plaza, Suite 150, 1111
South Arroyo Parkway, Pasadena, CA 91105, Attn: Paramount
Merchandising, Box 100590, with copies to CONTROLLER, FINANCE AND
ADMINISTRATION, Viacom Consumer Products, 5555 Melrose Avenue, Los
Angeles, CA 90038. If the Territory of the Agreement covers more than
one country, accounting statements shall be separated on a country-by-
country basis. All payments shall be made without setoff of any
amount or nature whatsoever, whether based upon any claimed debt or
liability of VCP to Licensee. All sums not paid when due shall bear
interest at the rate of ten percent (10%) per annum without prejudice
to any other rights of VCP in connection therewith. The receipt and
deposit of monies by VCP shall not prevent or limit VCP's right to
contest the accuracy and/or correctness of any statement in respect of
such monies.
(b) Licensee shall keep accurate books of account and records covering all
transactions relating to this Agreement and shall retain all other
documents and materials in its possession or under its control
relating to the subject matter hereof, at Licensee's principal place
of business for not less than two (2) years after the expiration of
the Term or earlier termination of the Agreement and shall allow VCP
and its representatives, upon prior written notice, and no more than
once per calendar year, to audit said books of account and records and
to make copies thereof at VCP's expense. If any such audit reveals
Royalties due to VCP in excess of ten percent (10%) of the Royalties
paid to VCP for the period covered by such audit, all reasonable
auditing fees, costs and expenses shall be borne by Licensee, in
addition to which interest (at the rate provided above in subparagraph
(a)) shall be added to the amount discovered to be due, to be computed
from the first day of the first accounting period covered by the
audit. If the services of attorneys are engaged by VCP in collection
of the monies due to it hereunder, their reasonable fees, expenses and
costs shall be borne by Licensee or, if paid by VCP, promptly
reimbursed to It by Licensee. If any such audit reveals Royalty
payments due to VCP in excess of twenty percent (20%) of the Royalties
paid to VCP for the period covered by such audit, then, in addition to
any and all other rights, legal and/or equitable, of VCP, VCP shall
have the right, effective immediately upon giving notice to such
effect to Licensee, to terminate the Term of this Agreement
11. APPROVALS/ARTWORK:
(a) The quality of the Licensed Articles as well as the quality of all
packaging, hang-tags, labels, press releases, advertising,
promotional, display and any other material prepared in connection
with the Licensed Articles (collectively, "Packaging and Promotional
Material") which includes the Property and/or Trademarks shall be of
the highest standard, no less than the best quality of similar
articles, packaging, advertising, promotional and display materials
presently manufactured, distributed, sold and/or used by Licensee in
the Territory and shall be in full conformity with all applicable laws
and regulations.
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(b) VCP SHALL HAVE ABSOLUTE APPROVAL OF THE LICENSED ARTICLES AND ALL
PACKAGING AND PROMOTIONAL MATERIAL AT ALL STAGES OF THE DEVELOPMENT
AND APPLICATION THEREOF. LICENSEE MAY NOT MANUFACTURE, USE, OFFER FOR
SALE, SELL, ADVERTISE, PROMOTE, SHIP OR DISTRIBUTE ANY LICENSED
ARTICLES NOR ANY PACKAGING AND PROMOTIONAL MATERIAL UNTIL AND UNLESS
LICENSEE HAS RECEIVED VCP'S APPROVAL THEREFOR IN THE MANNER PRESCRIBED
HEREINBELOW AND IN EXHIBIT "B" HERETO. ANY ACTS BY LICENSEE CONTRARY
TO THE TERMS OF THIS PARAGRAPH AND/OR EXHIBIT "B" SHALL BE DEEMED A
MATERIAL BREACH OF THIS AGREEMENT, ENTITLING VCP, IN ADDITION TO ANY
AND ALL REMEDIES IT MAY HAVE AT LAW AND IN EQUITY, TO TERMINATE THIS
AGREEMENT.
(c) Licensee shall, in an timely manner and in sufficient time for review
and consideration, submit for VCP's discretional approval all
materials relating to the Licensed Articles, including, without
limitation, drawings, plans, blueprints, models, computer graphics,
prototype samples and component parts of the Licensed Articles and all
Packaging and Promotional Material in connection therewith prior to
any use thereof by Licensee; the same shall be submitted as required
by Exhibit "B". All submissions shall be made prior to any use
thereof, or public disclosure thereof, by or on behalf of Licensee.
ANY SUBMISSION NOT APPROVED IN WRITING BY VCP WITHIN FOURTEEN (14)
DAYS SHALL BE DEEMED DISAPPROVED (SEE EXHIBIT "B" (APPROVAL
GUIDELINES) WHICH IS ATTACHED HERETO AND MADE A PART HEREOF). All
approvals requested of VCP under this Agreement may be granted or
withheld by VCP in its sole and absolute discretion.
(d) VCP shall furnish to Licensee, at Licensee's cost, such artwork as may
be reasonably necessary for the manufacture, advertising and promotion
of the Licensed Articles, subject to availability and to VCP's
absolute right of approval (the "Artwork"); all such Artwork shall be
and remain the property of VCP, notwithstanding its creation or
modification (which is also subject to VCP's absolute approval) by
Licensee, and shall be returned to VCP after its use by Licensee.
Licensee shall not use the Artwork in any other manner.
(e) In order that VCP may be assured that the provisions of this Agreement
are being observed, Licensee shall allow VCP or its designee to enter
upon Licensee's premises during regular business hours, upon prior
notice, for the purpose of inspecting the Licensed Articles, Packaging
and Promotional Material and the facilities in which they are
manufactured and packaged. In the event that the quality standards
hereinabove referred to are not met, or in the event that said quality
standards are not maintained throughout the period of manufacture of
any Licensed Articles hereunder, then, upon written notice from VCP,
Licensee shall immediately discontinue the manufacture and
distribution of such Licensed Articles that do not meet VCP's quality
standards, and/or the Packaging and Promotional Material related
thereto, unless Licensee shall have remedied such failure of quality
to VCP's satisfaction within thirty (30) days after Licensee's receipt
of notice thereof; failure to effect such remedial measures shall
entitle VCP to terminate this Agreement upon notice to Licensee.
12. SAMPLES:
Licensee shall furnish to VCP sixty (60) samples of each Licensed Article,
i.e. each product type, as opposed to each SKU, at the commencement of
distribution thereof. Upon VCP's request, Licensee shall furnish
additional samples, at cost, such samples not to be resold by VCP.
13. GOODWILL, PATENTS, TRADEMARKS AND COPYRIGHT:
(a) Licensee recognizes and acknowledges that:
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(i) the title of the Property and/or Series (and, if the Series is a
sequel to a prior work, or if there are now or are later
developed sequels to the Series, the titles of such prior work
and of such sequels) and the logos and/or artwork (including
artwork developed for advertising and promotional use) embodying
such title or titles are, as between VCP and Licensee, trademarks
of VCP on behalf of Paramount Pictures Corporation ("PPC"),
whether or not registered as such;
(ii) the good will associated with the Property and the Trademarks
inures solely and exclusively to VCP on behalf of PPC; and
(iii) the Property and the Trademarks have acquired, and will
continue indefinitely to have and to acquire, a secondary
meaning in the minds of the public.
(b) Licensee shall not acquire any rights in the Property and/or
Trademarks as a result of Licensee's use thereof, and all use by
Licensee shall inure to VCP's benefit Licensee shall not, directly or
indirectly, during the Term or thereafter, attack PPC's ownership of
the Property, the Trademarks or the validity thereof or attack the
validity of the license granted herein, or apply for any registration
or file any document or take any action which would affect PPC's
ownership of the Property or Trademarks or aid or abet anyone else in
doing so, or use or authorize the use of any trademark, trade name or
words, symbols or combination thereof or other designation identical
with or confusingly similar to the Trademarks or to any element of the
Property, whether or not such element shall have been protected by
patent, trademark or copyright.
(c) Ownership of all copyright, patent and trademark rights in the
Licensed Articles and Packaging and Promotional Material shall be in
PPC's name. Licensee shall cause such copyright, patent and trademark
notices to appear on or within each unit of the Licensed Articles
and/or the Packaging and Promotional Material as may be designated and
approved by VCP. Any and all additions to, and new renderings,
modifications or embellishments of, the artwork shall, notwithstanding
their invention, creation and use by Licensee or its agents, be and
remain the property of PPC, and VCP and PPC may use, and license
others to use, the same, subject only to the provisions of this
Agreement. Licensee shall enter into written agreements with all of
its employees and independent contractors (i) providing that all
artwork and designs created by them in the course of Licensee's
performance under this Agreement shall be the property of PPC either
as works for hire under U.S. copyright law or otherwise; and (ii)
obligating them to assign all rights in such artwork and designs to
PPC. Licensee shall submit to VCP for VCP's approval copies of all
such agreements prior to use thereof. Licensee shall not permit any
of its employees or independent contractors to obtain or reserve, by
written or oral agreement or otherwise, any rights as "authors" or
"inventors" of any such artwork or designs (as such terms are used in
present or future U.S. copyright and/or patent statutes or judicial
decisions). Licensee shall furnish to VCP, at VCP's request, full
information concerning the invention and creation of such artwork and
designs, together with the originals of assignments of all rights
therein obtained from all such third parties to VCP (free and clear of
any and all claims, encumbrances, interests or rights of any nature of
such third parties, of licensee, or of any and all third parties).
(d) Licensee shall cooperate with VCP and/or PPC in the prosecution and
defense of the Property and/or the Trademarks, the filing and
prosecution of any patent, trademark or copyright application or other
applications, the recording of this Agreement or any other agreements,
and the publication of any notices or the doing of any other act or
acts with respect to the Property and/or Trademarks, including the
prevention of the use thereof by any unauthorized person, firm or
corporation, that in VCP's or PPC's judgment may be necessary or
desirable under any law, regulation or decree of the Territory. In
connection with any of the foregoing, Licensee shall arrange for VCP
to be promptly
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<PAGE>
supplied with any such information or materials as VCP may reasonably
require. In the event that Licensee learns of any unauthorized use of
the Property and/or Trademarks in the Territory, Licensee shall
promptly advise VCP in writing of the nature and extent of same. VCP
and/or PPC may, in its sole discretion, take, or elect not to take,
such action as it deems advisable against any infringing party, in its
own name and/or Licensee's name, and may prosecute, settle or
otherwise dispose of such action without consultation with, or
responsibility to, Licensee. VCP and/or PPC shall incur no liability
to Licensee by reason of VCP's and/or PPC's failure or refusal to
prosecute, or failure or refusal to permit Licensee to prosecute, any
alleged infringement or imitation by third parties, nor by reason of
any settlement to which VCP and/or PPC may agree.
(e) If the Territory covers countries outside of the United States,
Licensee shall not use the Trademarks or other trademarks or service
marks included in the Property in any such country without first
requesting, and receiving, a Notification of Availability from VCP;
failing which, VCP's indemnification obligation as provided under
subparagraph 14(d), below, shall not apply to the use of the
Trademark, trademarks or service marks in such country for such goods
or services.
14. WARRANTIES AND INDEMNIFICATION:
(a) Licensee represents and warrants that it is duly organized under
applicable law; that it has the unencumbered right and authority to
enter into and perform its obligations under this Agreement and under
all collateral agreements to be entered into by it in furtherance of
the provisions hereof Licensee further represents and warrants that it
will comply with all applicable governmental laws, rules and
regulations in connection with its manufacture, distribution, or use
of the Licensed Articles and its activities pursuant to this
Agreement.
(b) VCP represents and warrants that it is duly organized under applicable
law; that it has the right and authority to enter into and perform
this Agreement and to grant the rights granted hereunder. VCP makes
no representation or warranty as to the amount of receipts Licensee
will derive hereunder or as to the quality or success of the Series or
Property or reception it will receive by the public, nor shall VCP be
obligated to continue the exhibition, distribution or other
exploitation of the Series or continue the use of any element of the
Property.
(c) Licensee shall indemnify, hold harmless, and defend VCP, its parent,
affiliated and subsidiary companies, and its and their officers,
directors, agents and employees ("Indemnitees") from and against any
and all liabilities, claims, causes of action, suits, losses, damages,
fines, judgments, settlements and expenses (including any and all
attorneys' fees and court costs) which may be suffered, made or
incurred by any of such Indemnitees arising out of any breach or
alleged breach of any of the covenants, warranties, representations
and agreements made by Licensee herein, including without limitation,
claims relating to or based upon:
(i) unauthorized use of, or infringement of any patent, trademark,
design, copyright or other proprietary or privacy right of any
third party by Licensee;
(ii) libel or slander against, or invasion of the right of privacy,
publicity or property of, or violation or misappropriation of
any other right of any third party, unless such claim arises
from Licensee's use of material provided to it by VCP and is
used by Licensee in such manner as is expressly approved by
VCP hereunder;
9
<PAGE>
(iii) artwork or other material relating to the Property created,
modified and/or used by Licensee in connection with the
Licensed Articles without VCP's approval; and/or
(iv) defects in the Licensed Articles, despite VCP's approval
thereof, it being understood and agreed that any governmental
order of recall or injunction against distribution and/or sale
shall, as between VCP and Licensee, be deemed conclusive proof
of such defect for the purpose of invoking the
indemnifications set forth herein; and/or
(v) agreements or alleged agreements made or entered into by
Licensee to effectuate the terms of this Agreement.
VCP and Licensee shall give the other prompt written notice of the
institution of any action or the making of any claim alleging a breach
hereunder. VCP shall have the right to control all aspects of the
disposition of such claim, and Licensee shall cooperate with VCP in
connection therewith.
(d) VCP shall indemnify, hold harmless and defend Licensee from and
against any and all liabilities, claims, causes of action, suits,
losses, damages, fines, judgments and expenses (including reasonable
attorneys' fees and court costs) which may be suffered, made or
incurred by Licensee arising solely out of use by Licensee of the
Property as authorized in this Agreement. Licensee shall give VCP
prompt written notice of the institution of any action or the making
of any such claims. VCP shall control all aspects of the disposition
of such claims and Licensee shall cooperate fully with VCP in
connection therewith.
15. INSURANCE:
Licensee shall obtain and maintain throughout the Term, at Licensee's sole
expense, standard Product Liability Insurance, Advertiser's Liability
Insurance and Errors and Omission Insurance from a reputable insurance
company qualified to do business in the State of California, naming VCP,
its parent company, and their respective subsidiaries and affiliated
companies, including all directors, officers, employees, agents and
representatives, as additional insureds. Coverage under each policy will
be a minimum of One Million Dollars ($1,000,000) for each instance and
Three Million Dollars ($3,000,000) in the aggregate. Each such policy
shall require that VCP receive at least thirty (30) days written notice of
the cancellation, amendment or endorsement of each such policy. Licensee
shall furnish VCP upon execution of this Agreement by Licensee with
certificates of insurance and certified policy endorsements evidencing that
the insurance coverage is in full force and effect.
16. TERMINATION:
(a) In the event Licensee fails to perform any of its obligations under
this Agreement, including without limitation the active marketing and
distribution of any and/or all of the Licensed Articles; or breaches
any covenant, representation, warranty or agreement contained herein,
files a petition in bankruptcy, or is adjudged a bankrupt, or if a
petition in bankruptcy is filed against Licensee, or if Licensee
becomes insolvent, or makes an assignment for the benefit of
creditors, or if Licensee discontinues its business or if a receiver
is appointed for Licensee or Licensee's business who is not discharged
within thirty (30) days, VCP may terminate this Agreement on thirty
(30) days prior written notice, provided Licensee shall not have
remedied such failure to VCP's satisfaction within such thirty (30)
day period. Time is of the essence of this Agreement.
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<PAGE>
(b) In the event of termination of this Agreement by VCP for any of the
reasons set forth in Subparagraph 16(a) above, no creditor, agent,
representative, receiver or trustee of Licensee shall have the right
to dispose of any units of the Licensed Articles without the prior
written consent of VCP; until payment of all monies due to VCP from
Licensee, VCP shall have a lien on any units of the Licensed Articles
not then disposed of by Licensee at any time in respect of sales of
the Licensed Articles; and on any monies due Licensee from any jobber,
wholesaler, distributor, licensee, or other third parties, in respect
of sales of the Licensed Articles; VCP may treat all of the aforesaid
third parties as VCP's direct licensees with no obligation to the
Licensee.
(c) In the event of termination of this Agreement by VCP due to breach of
any of the terms or conditions hereof by Licensee, Licensee shall have
no right to sell, distribute or otherwise dispose of any units of the
Licensed Articles without VCP's prior written consent, not to be
unreasonably withheld.
(d) Upon the expiration of the Term or earlier termination of this
Agreement:
(i) All rights, licenses and privileges granted to Licensee
hereunder shall automatically revert to VCP and licensee shall
execute any and all documents evidencing such automatic
reversion;
(ii) Licensee shall, in VCP's discretion, either deliver to VCP
materials which reproduce the Licensed Articles or give to VCP
satisfactory proof of the destruction thereof;
(iii) All sums due VCP hereunder, whether in the form of unpaid
Advance, Royalties and/or Guarantee shall become immediately
due and payable in full to VCP without set off of any kind;
(iv) Licensee shall, within one (1) month after such expiration or
termination, deliver to VCP a complete and accurate statement,
certified to be true by an officer of Licensee, indicating the
number, description and whereabouts of all units of the
Licensed Articles on hand and/or in the process of
manufacture, as of both the date of such expiration or
termination and the date of such statement;
(v) VCP shall have the right, upon forty-eight (48) hours prior
written notice, to enter onto Licensee's premises during
normal business hours to conduct physical inventories to
verify the accuracy of the aforesaid statement;
(vi) Provided Licensee is not in breach of this Agreement, Licensee
may, upon expiration of the Term of this Agreement, sell off
existing inventories of the Licensed Articles, on a
non-exclusive basis, for a period of one hundred eighty (180)
days, subject to all the other terms and conditions hereof,
and provided the same have not been manufactured solely or
principally for sale during such period and only after first
giving VCP the opportunity to purchase the same at Licensee's
cost of manufacture thereof, which purchase may be of some or
81 of such units, in VCP's sole discretion. In the event of
early termination of this Agreement due to breach by Licensee,
Licensee shall have no right to sell oft existing inventories;
(vii) In the event of a default by Licensee of this Agreement, VCP,
at its discretion. may terminate this Agreement and any and
all other agreements entered into between VCP and Licensee.
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17. INJUNCTION:
Licensee acknowledges that its failure to perform any of the terms or
conditions of this Agreement, or its failure to cease the manufacture,
distribution and sale of the Licensed Articles upon the expiration of the
Term or earlier termination of the Agreement shall result in immediate and
irreparable damage to VCP. Licensee also acknowledges that there may be no
adequate remedy at law for such failures and that in the event thereof VCP
shall be entitled to equitable relief in the nature of injunction and to
all other available relief, at law and/or in equity.
18. CONFIDENTIALITY:
Other than as may be required by any applicable law, government order or
regulation, or by order or decree of any court of competent jurisdiction,
Licensee shall not publicly divulge or announce, or in any manner disclose
to any third party, any information or matters revealed to Licensee
pursuant hereto, or any of the specific terms and conditions of this
Agreement, and Licensee shall do all such things as are reasonably
necessary to prevent any such information becoming known to any party other
than the parties involved with the transaction.
19. ASSIGNMENT:
The rights and obligations of Licensee hereunder may not be assigned,
delegated, or sublicensed without the prior written consent of VCP, not to
be unreasonably withheld. Licensee may not enter into any agreement with
any third party for the manufacturing or distribution of any of the
Licensed Articles without VCP's prior written consent not to be
unreasonably withheld. VCP may assign all or part of its rights hereunder,
and/or may delegate its obligations hereunder, in whole or in part, to any
third party.
20. FORCE MAJEURE:
The parties shall be released from their respective obligations hereunder
in the event government regulations or other causes arising out of a state
of war or other national emergency, or other causes beyond the reasonable
control of the parties, render performance of such obligations reasonably
impracticable. If such event continues for a period of sixty (60) days,
this Agreement shall be terminable, upon written notice, by either party.
Upon such termination, all royalties due on sales theretofore made shall
become then immediately due and payable, and no Advance, Royalties or
Guarantee theretofore paid shall be repayable. In the event neither party
elects to terminate this Agreement as immediately hereinabove provided, the
Term of this Agreement shall be extended automatically for a period of time
equal to the period or such "Force Majeure" event but not to exceed six
months from the date of first occurrence.
21. FURTHER INSTRUMENTS:
Licensee shall furnish VCP with (and shall execute, acknowledge and deliver
and cause to be executed, acknowledged and delivered to VCP) any further
instruments, in such form and substance as shall be approved or designated
by VCP, which VCP may reasonably require or deem necessary, from time to
time, in its discretion, to evidence, establish, protect, enforce, defend
or secure to VCP any or all of its rights, titles, properties or interests
or more fully to effectuate or carry out the purposes, provisions or intent
of this Agreement VCP, at its sole discretion, shall have the right to
record such instruments at the appropriate Registry or other place of
registration in some or all of the various Countries comprising the
Territory, at VCP's expense. Licensee agrees to cooperate as requested by
VCP in arranging such recordation,
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and in cancelling or amending such registration, if so requested by VCP,
upon the expiration, termination, or amendment of this Agreement, as may be
appropriate.
22. PARAGRAPH HEADINGS:
Paragraph headings contained in this Agreement are for convenience only and
shall not otherwise be given any legal effect.
23. NO PARTNERSHIP: NO THIRD PARTY BENEFICIARIES:
Nothing herein contained shall constitute a partnership between or joint
venture by the parties hereto, or constitute either party the agent of the
other. Neither party shall hold itself out contrary to the terms of this
paragraph and neither party shall become liable by any representation, act
or omission of the other contrary to the provisions hereof. This Agreement
is not for the benefit of any third party and shall not be deemed to give
any right or remedy to any such party, whether referred to herein or not.
24. NO WAIVERS, CUMULATIVE RIGHTS:
No waiver by either party hereto of any breach of this Agreement shall be
deemed to be a waiver of any preceding or succeeding breach of the same or
any other provision hereof. The exercise of any right granted to either
party hereunder shall not operate as a waiver. The normal expiration of
the Term of this Agreement shall not relieve either party of its respective
obligations accruing prior thereto, nor impair or prejudice the respective
rights of either party against the other, which rights by their nature
survive such expiration.
25. NO VIOLATION OF LAW:
Nothing herein contained shall be construed so as to require the commission
of any act contrary to law, and wherever there is any conflict between any
provision of this Agreement and material statute, law or ordinance contrary
to which the parties have no legal right to contract, the latter shall
prevail, but in such event the provision of this Agreement affected shall
be curtailed and limited only to the extent necessary to bring it within
the legal requirements.
26. NOTICES:
Notices hereunder shall be given in writing and sent by registered or
certified mail, return receipt requested, or by prepaid telegram or
nationally recognized express carrier, addressed to VCP at the address
indicated in the Agreement, to the attention of Legal Department, or to
Licensee at the addresses indicated in Paragraph I above, to the attention
of such official as Licensee shall designate in writing. Each party shall
notify the other in writing promptly after any change of address. Notices
shall be effective upon either party's receipt of written notice.
Requirements relating to submission for approvals shall be governed by
Paragraphs 11 and 12 above.
27. GOVERNING LAW:
This Agreement shall be construed and interpreted pursuant to the laws of
the State of California applicable to agreements made and to be performed
entirely therein, and the parties hereto submit and consent to the
jurisdiction of the courts of the State of California, including Federal
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Courts located therein, should Federal jurisdiction requirements exist, in
any action brought to enforce (or otherwise relating to this contract
Licensee shall designate an agent In California for service of process who
Is reasonably acceptable to VCP; falling which, Licensee consents to
service of process in any manner permitted by the laws of the State of
California.
28. ENTIRE AGREEMENT:
This Agreement (including any exhibits and schedules which are attached
hereto and made a part hereof by this reference), when signed by the
parties, shall constitute the entire understanding of the parties with
respect to the subject matter, superseding all prior and contemporaneous
promises, agreements and understandings, whether written or oral,
pertaining thereto and cannot be modified except by a written instrument
signed by the parties hereto, nor may it be amended or rescinded, other
than as provided by its terms, except by a writing duly executed by an
authorized officer of the party to be charged. If there is any
inconsistency between this portion of the Agreement (i.e., inclusive of all
preceding paragraphs and this paragraph) and the attached exhibits and/or
schedules, this portion of the Agreement shall prevail.
29. ACCEPTANCE BY VCP:
This Agreement shall not be binding until accepted by VCP and executed by a
duly authorized officer of VCP and VCP shall have received any Advances
payable hereunder. No additions, amendments or modifications to this
Agreement shall be effective until accepted in a similar manner.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first witnessed above.
VIACOM CONSUMER PRODUCTS, INC.
By /s/ Elizabeth R. Dambriunas
---------------------------------
Its Vice President, Legal
--------------------------------
SEL-LEB MARKETING, INC.
By /s/ Jan S. Mirsky
---------------------------------
Its Executive Vice President
--------------------------------
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<TABLE>
<CAPTION>
EXHIBIT "A"
LICENSEE'S ROYALTY STATEMENT
(To be completed in local currency)
<S> <C> <C>
TO: PARAMOUNT MERCHANDISING COPY TO: VIACOM CONSUMER PRODUCTS PARAMOUNT USE ONLY
P.O. Box 100590 555 Melrose Avenue - MOB 4th Floor Reviewed by
Pasadena, CA 91189-0590 Hollywood, CA 90038-3197 Period Ending
Attn: Controller, Finance - Licensing Check No.
Licensee's Name:_____________________ Contract Number:_________________ Period Being Reported:________________
Contract Date:_______________________ Film/TV Series Name:_____________ Country Being Reported:_______________
Paramount Licensee's Licensee's Names of Performers' Unit Gross Royalty Current Cumulative
Product Product Product Performers Likenesses Sales Sales Rate Royalty Royalty
Number Description Number Used Used Amount Amount
PARAMOUNT USE ONLY Royalties Earned
Unrecouped Advance Less: Advance Received
---------------------------
Less: Previous Royalty Payments
Balance Currently Due to VCP
Guarantee
Unearned Guarantee
</TABLE>
<PAGE>
EXHIBIT "B"
PRODUCT APPROVAL GUIDELINES
Your agreement with Viacom Consumer Products requires submission of all articles
for review and written approval prior to production. Please send all materials
to:
Product Development Supervisor
Viacom Consumer Products
Marathon Building, 4th Floor
5555 Melrose Avenue
Los Angeles, CA 90038
Approval will be required at each of the following stages of preparation. This
procedure insures that problems are caught early on, when they can still be
changed, without great expense of time or money;
1. PACKAGING, COLLATERAL MATERIALS, CATALOGS AND BROCHURES, PRINT ADVERTISING
(CONSUMER AND TRADE) AND PRINTED PRODUCT
a. Rough sketches or layout concept and rough copy.
b. Finished comps - final copy and art together (mechanical) including
legal notices.
c. Final art (color).
Note: In some instances, such as posters, approval of color proof may
be required to insure quality of the final product.
2. THREE-DIMENSIONAL PRODUCTS
a. Concept (renderings).
b. Prototypes (sculpture).
c. Production samples or strike-offs.
3. AUDIO OR VIDE ADVERTISING, SALES AIDS, ETC.
a. Radio script or television script and storyboard.
b. Audio or video tapes PRIOR TO USE OR AIRING (rough cut and final cut);
copyright notice must be on tape.
Note:
REVISIONS: In addition all materials must be re-submitted for approval
each time a revision is made incorporating changes requested. Revisions
copy or manuscripts must be redlined or highlighted.
Please advise us of your time constraints, if any, so we may respond on short
notice, ONLY IF ABSOLUTELY NECESSARY. Also, please allow time to make necessary
changes. The approval time provided by agreement is generally fourteen (14)
days. Every effort will be made to expedite approvals as quickly as possible.
Samples of finished products must be submitted pursuant to the agreement.
Please remember that all submissions not approved in writing are deemed
disapproved.
ADVERTISING AND PROMOTION APPROVAL GUIDELINES
1. All advertising and promotional mechanicals or materials must be approved
in writing. This encompasses print ads, commercial (radio or television),
point-of-purchase materials, brochures and package designs.
Please submit these materials to:
Product Development Supervisor
Viacom Consumer Products
Marathon Building, 4th Floor
5555 Melrose Ave.
Los Angeles, CA 90038
2. Do NOT proceed with any promotional activities prior to approval. The
submission of promotion concepts for approval will prevent possible
infringement of rights granted to other companies and spare you potential
legal liability for such infringement.
<PAGE>
EXHIBIT 10.28
REAL ESTATE LEASE
THIS LEASE is made as of the 5th day of February, 1997 between BASCOM
CORP., a Delaware corporation, having a business at 495 River Street, Paterson,
New Jersey ("Landlord"), and Sel-Leb Marketing, Inc., 1435-51 St., North Bergen
NJ 07047 ("Tenant").
1. PREMISES. Landlord leases to Tenant and Tenant leases from Landlord,
subject to the covenants, terms and conditions of this Lease, 50,570 square
feet of warehouse and office space in the building ( the "building") located at
495 River Street, Paterson, New Jersey, and more particularly described and
identified on Exhibit A attached to and made a part of this Lease
(the"Premises") along with a license to use in common with Landlord non-
exclusive parking for employee and customer parking and the use of the common
walkways, drives and roads located on the real property of Landlord on which the
Premises is located. The real property, the building and other improvements
located thereon are hereinafter referred to collectively as the "Property". See
addendum # 1.
2. TERM AND RENTAL. The initial Lease term shall be sixty (60) months
commencing April 1, 1997 and terminating March 31, 2002 unless otherwise
indicated, the "Lease term" refers to the initial term of this Lease, as
extended or renewed. Tenant shall pay to Landlord throughout the initial Lease
term a fixed annual base rental of ( see Rent Schedule ), per year payable in
equal monthly installments per month. The first monthly rental payment is
payable upon execution of this Lease, and each subsequent monthly rental payment
is payable in advance on the first day of each calendar month during the Lease
term without demand and without any abatement, counterclaim, deduction or setoff
whatsoever except as provided herein. Any sums payable hereunder other than
annual base rental shall be deemed entitle landlord to same remedies as default
in base rent. Rental for any partial calendar month at the beginning or end of
the Lease term shall be prorated on a per diem basis. If the rent check is not
received by the 15 day of the month a late payment of $200.00 will be charged.
3. UTILITIES. Tenant will pay for the use of all public utility
services rendered or furnished to the building during the Lease term. Landlord
represents that the Premises is served by all public utility services necessary
to operate the utility system upon the Premises, including electricity, water,
sewer, natural gas and telephone.
4. REPAIRS AND MAINTENANCE. Throughout the Lease term, Tenant will at
its expenses (I) keep the Premises reasonably neat and clean, (ii) repair any
damage to the Premises to the extent causes by the willful or negligent acts of
Tenant, its employees, agents or contractors (except repairs or replacements
resulting from fire or other casualty insurable under a standard form all
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risk property perils insurance policy) , and (iii) make such ordinary repairs
and replacements as may be required to keep the Premises in substantially the
same condition as the commencement of the Lease term (except repairs or
replacements resulting from ordinary wear and tear, from fire or other casualty
insurable under a standard form all risk property perils insurance policy, or
from the willful or negligent, acts of Landlord, its employees, agents or
contractors). Except for those repairs and replacements required to be made by
Tenant pursuant to this Paragraph 4, Landlord will at its expense promptly make
all structural and roof repairs. Landlord warrants roof is sound and free of
leaks. All mechanical systems including plumbing and overhead doors are in good
working order.
5. TAXES AND ASSESSMENTS. Landlord will pay when due all real estate
taxes and assessments, both general and special, which may be levied or assessed
with respect to the Building and the land upon which it stands during the Lease
term and which are not being contested in good faith. Upon receipt or
Landlord's invoice attaching a copy or the paid tax bill and other appropriate
supporting documentation, Tenant will reimburse Landlord for Tenant's
Proportionate Share (as hereinafter defined) of any increases in such taxes and
assessments paid by Landlord over the amount of such taxes and assessments
during calendar year 1997. Landlord agrees to absorb any increase in real estate
taxes during first two (2) years of lease.
6. Omitted.
7. ALTERATIONS AND IMPROVEMENTS BY TENANT. Tenant may at its expense
make non-structural alterations and improvements to the Premises, provided that
Tenant first obtains Landlord's written consent (which may not be unreasonably
withheld or delayed). All alterations and improvements made by either party (i)
shall not render the Premises unsafe or damage or diminish the structural value
or strength of the Premises, and (ii) shall be made in a good workmanlike manner
and in accordance with all applicable laws, ordinances, codes and directives of
properly constituted governmental authorities. Tenant may at its option remove
within 10 days before the end of the Lease term any non-structural alteration or
improvement made by Tenant, so long as Tenant repairs any damage caused by the
removal. Any alteration or improvement not Go removed by Tenant will be deemed
abandoned and become the property or Landlord. Tenant shall not make structural
alterations or improvements without Landlord's prior written consent which may
be withheld in Landlord's sole discretion.
8. Omitted.
9. FIRE INSURANCE. Tenant will maintain such fire and other property
perils insurance as Landlord reasonably deems appropriate to protect its
interest in the Property. Landlord
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waives all claims for loss or damage to the Property (and all related additions,
alterations and improvements), to Landlord's property located at, on or about
the Premises and to Landlord's property adjoining the Premises, caused by
Tenant, its employees, agents, successors and assigns, and arising out of any
event or risk insurable under a standard form all risk property perils insurance
policy, regardless of whether Landlord has maintained such a policy or the
limits of that policy. If Tenant's insurance policy so requires, Landlord shall
obtain the proper endorsement to reflect the foregoing waiver of subrogation and
deliver evidence of the waiver to Tenant promptly after commencement of the
Lease term. Tenant waives subrogation so that with respect to any loss which is
covered by a standard form all risk property perils insurance policy. Tenant
waives all claims for loss or damage to the property occurring thereunder.
10. LIABILITY INSURANCE. Tenant will at its expense maintain in effect
during the Lease term commercial general liability Insurance with a combined
single limit of $2,000,000 per occurrence with respect to bodily injury and
property damage resulting from or occurring in connection with Tenant's use and
occupancy of the Premises and such other insurance coverages as Landlord deems
commercially reasonable provided it Is practicable for Tenant to maintain such
other Insurance coverages. A certificate of insurance will be delivered to
Landlord upon execution of this Lease, and will provide for at least twenty (20)
days' prior notification to both Landlord and Tenant of any proposed
cancellation or significant modification of such insurance. Tenant shall name
Landlord as an additional insured on the commercial general liability insurance
required pursuant to this Paragraph 10.
11. INDEMNIFICATION.
(a) BY TENANT. Tenant will defend, indemnify and hold harmless
Landlord, its employees and agents, from and against all losses, claims,
damages, fines, and expenses (including without limitation reasonable legal
fees) resulting from (i) any accident or other occurrence on or about the
Premises caused by the negligence of Tenant, its employees, agents or
contractors,* and resulting in injury or death to any person or damage to any
property (other than damage to Landlord's property of the type insurable under a
standard form all risk property perils insurance policy), except when such
injury, damage or death is also due to the negligence of, or results from a
breach of this Lease by, Landlord, its employees, agents or contractors,* and/or
(ii) any environmental remediation required by applicable laws, regulations
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* Invitees.
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or directives of properly constituted governmental authorities as a sole result
of Tenant's use of the Premises.
12. ASSIGNMENT AND SUBLEASE. Tenant may assign this Lease or sublease all
or part of the Premises to (i) any subsidiary or Sel-Leb Marketing Inc., without
Landlord's consent, and (ii) any third party with Landlord's prior written
consent which shall not be unreasonably withheld or delayed. Sale of the
majority of Tenant's stock in one or more transactions shall be deemed an
assignment for the purposes of this Paragraph 12. Any such assignment or
subletting shall not release Tenant from liability hereunder and Tenant shall
promptly pay the Landlord (i) 100% of any consideration received in connection
with any assignment of this Lease and (ii) 100% of any base rental, additional
rent or other consideration payable under a sublease to Tenant which is in
excess of the base rental and additional rent payable hereunder during the term
of the sublease In respect of the subleased premises (at the rate per square
foot payable by Tenant hereunder) Landlord acknowledges and agrees that
notwithstanding any other provision of this Lease to the contrary, Tenant may at
any time assign its rights hereunder as collateral to any lender of Tenant or
Tenant's parent. In the event that Landlord exercises its option under this
provision, Landlord agrees to release Tenant from its obligations under this
lease.
13. DAMAGE AND DESTRUCTION. Regardless of any allegation of negligence,
if all or part of the Premises is so damaged or destroyed by the elements or
other cause as to render the Premises unsuitable for Tenant's purposes and If
the Premises cannot be or is not restored to Its former condition within one
hundred fifty (150) days after such damage or destruction occurs, then Tenant
may at its option declare this Lease terminated, in which case Tenant shall
promptly surrender the Premises to Landlord. If the Premises call be restored
to its former condition within one hundred fifty (150) days after such damage or
destruction occurs, or within such longer period as is mutually agreeable to
both parties, then Landlord shall up to the amount of insurance proceeds
received, restore tile Premises to its former condition as soon as possible. In
any event, rent and other charges payable under this Lease shall be
proportionately reduced during any period in which Tenant is unable to use any
part of the Premises as a result of any damage or destruction to the Premises.
Landlord has no obligation to restore if over 40% of the Premises are damaged or
if the damage occurs in the last year of the Lease term.
14. CONDUCT OF BUSINESS AND USE OF PREMISES. Tenant shall use the
Premises only for a warehouse with incidental office space for storage and will
conduct its business on the Premises in accordance with all laws and ordinances
applicable to that business and Tenant will obtain any permits, licenses and
certificates in connection therewith. Tenant shall not paint, maintain or
repair
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motor vehicles at the premises. Tenant may do assembly, packaging and light
manufacturing.
15. QUIET ENJOYMENT. Landlord warrants and covenants that it is the fee
simple owner of the Premises that it has a good right to execute this Lease, and
that 1L Tenant performs in accordance with the terms and conditions of this
Lease, Tenant shall have the peaceable possession and quiet enjoyment of the
Premises throughout the Lease term, without any interference or restriction by
Landlord or any other person. Landlord represents that there is currently
ingress and egress to the Premises from one or more public roads.
16. TENANT'S DEFAULT. Tenant will be in "Default" if (i) Tenant falls to
pay rent when due and the failure is not cured within 10 days; (ii) Tenant
falls to perform any other material covenant or condition contained in this
Lease within 30 days after Tenant receives written notice of the failure from
Landlord (unless the failure cannot reasonably be cured within such period, in
which case Tenant will be in Default if it fails to commence its cure within
such period and/or fails to diligently pursue its cure to completion); and/or
(iii) Tenant is adjudicated a bankrupt in a proceeding against it or a receiver
for Tenant or for all or a substantial part of its property is appointed, or a
court order is entered approving a petition seeking reorganization or an
arrangement under the Bankruptcy Code, and any such adjudication, appointment or
order is not vacated, set aside or otherwise terminated or stayed within 60 days
from the date of its entry. If Tenant is in Default and while that Default is
continuing, Landlord may at its option (1) terminate this Lease by notice to
Tenant, recover possession of the Premises, and recover from Tenant the
difference, if any, between the rent owed by Tenant for the remaining portion of
the Lease term and the fair rental value of the Premises for such period,
discounted to present value at the rate of 7% per annum; or (2) without
terminating this Lease, recover possession of the Premises and relet the
Premises or any part of the Premises, as the agent of Tenant, and Tenant shall
pay Landlord as it becomes due the difference, if any, between the rent owed by
Tenant for the remaining portion of the Lease term and the amount received or to
be received under such reletting for such period. Landlord may also recover all
reasonable and necessary costs and expenses it incurs in connection with
Tenant's Default and the enforcement of its remedies under this Lease, including
without limitation reasonable legal fees, alterations, remodeling or
redecorating for new tenants. Landlord shall use reasonable good faith efforts
to mitigate its damages as a result of Tenant's Default. Any amount required to
be paid by Tenant pursuant to this Lease in addition to base rent shall be
deemed additional rent and nay at Landlord's option be added to any subsequent
installment of the base rent due under this Lease.
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17. LANDLORD'S DEFAULT. Landlord will be in "Default" if Landlord fails
to observe or perform any material term or covenant in this Lease and does not
cure the failure within 30 days after receipt of notice of the failure from
Tenant (unless the failure cannot reasonably be cured within such period, in
which case Landlord will be in Default if it fails to commence its cure within
such period and/or fails to diligently pursue its cure to completion). If
Landlord is in Default and while that Default is continuing, Tenant may cure the
Default at Landlord's expense, in which case Landlord shall promptly reimburse
Tenant for all reasonable and necessary costs and expenses incurred by Tenant in
effecting its cure. Upon written request of Landlord, Tenant shall provide
Landlord with reasonable documentation of the costs and expenses incurred by
Tenant in effecting its cure. Tenant may also recover all reasonable and
necessary costs and expenses it incurs in connection with Landlord's Default and
the enforcement of its remedies under this Lease, including without limitation
reasonable legal fees. Tenant shall use reasonable good faith efforts to
mitigate its damages as a result of Landlord's Default If Landlord fails to
reimburse Tenant promptly for any amounts due~Tenant under or pursuant to this
Lease, Tenant may at its option in addition to any other right or remedy Tenant
may have, deduct such amounts from subsequent installments of rent and/or other
amounts which from time to time become due to Landlord.
18. CONDEMNATION. If the whole of the Premises is condemned for any
public use or purpose by any legally constituted authority (or is sold to such
authority in lieu of condemnation), this Lease shall cease from the date of such
taking or sale and rental shall be accounted for between Landlord and Tenant as
of the date of the surrender of possession. If any property contiguous to the
Premises or any portion of the Premises is so condemned or sold and the loss of
the property so taken or sold, in Tenant's reasonable opinion, makes the
Premises unsuitable for Tenant's use, Tenant may at its option within fifteen
(15) days after receipt of notice by Tenant of such taking terminate this Lease
effective as of the date of such taking or sale and the rental shall be
similarly accounted for. If a portion of the Premises is so taken or sold and
Tenant does not so elect to terminate this Lease, then from and after the date
of taking or sale, the rental shall be proportionately reduced to reflect the
portion of the Premises so taken or sold, and Landlord shall forthwith restore
the remaining portion of the Premises to a complete architectural unit, provided
that the award or sale proceeds received by Landlord ar sufficient for such
restoration. No condemnation or condemnation award shall prejudice the rights
of either Landlord or Tenant to recover compensation from the condemnation but,
unless the condemnation award specifically allows or clearly implies that a
portion of the award be allocated to Tenant for trade fixtures, alterations,
additions and improvements made at Tenant's expense, moving expense or other
consequential damages, Tenant shall have no right of
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recovery against Landlord for any portion of the condemnation award.
19. HOLDING OVER. If Tenant remains in possession of the Premises after
the expiration of the Lease term, at Landlord's sole discretion its continued
possession shall be as a month-to-month tenant. During such month-to-month
tenancy, rent shall be payable at 150% of the rate as that in effect during the
last month of the immediately preceding term, and the terms and provisions of
this Lease shall apply.
20. Omitted
21. SURRENDER OF PREMISES. At the expiration or earlier termination of
the Lease term, Tenant will peaceably and quietly leave and surrender possession
of the Premises to Landlord in the condition it was required to maintain the
Premises throughout the Lease term.** Tenant shall proceed prior to termination
or expiration of this Lease to remove from the Premises all personal property,
equipment, furnishings and trade fixtures placed by it on, to or in the
Premises, whether nailed, bolted, or otherwise affixed. Any damage caused by
such removal shall be promptly repaired by Tenant at its expense.
22. Omitted
23. A Security Deposit equal to Two (2) Months rent is required payable in
the following manner:
One (1) Month Rent payable at signing of this lease.
The second month is payable in six(6) installments starting with the
second month of the lease term through the seventh month of the lease
term. This amount is to be added to the regular rent due for each of
the above mentioned months.
24. NOTICES. Any notice or other communication required to be given
either party (i) shall be in writing and delivered by courier, transmitted by
telecopier or mailed by registered or certified mail, return receipt requested,
postage prepaid, (ii) shall be effective on the date of actual receipt, and
(iii) shall be sent to the parties at the following addresses or at such other
addresses as either party may from time to time notify the other:
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** Normal wear and tear accepted.
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AS TO LANDLORD: AS TO TENANT:
BASCOM CORP. SEL-LEB MARKETING, Inc.
495 River Street 495 River Street
Paterson, New Jersey 07524 Paterson, New Jersey 07524
Attn:
Telecopy No.: 201-684-6544
COPY TO: MARKOWITZ, ROSHCO, AND
ADELMAN
666 THIRD AVE. 18th FL
NEW YORK, NY 10017
ATTN: SETH MARKOWITZ
25. MODIFICATIONS. This Lease constitutes the complete agreement between
the parties with respect to the Premises, superseding any prior oral or written
representations, agreements or understandings related to this Lease or the
Premises.
26. RIGHTS AND REMEDIES. The failure or either party to enforce any or
its rights under this Lease on a particular occasion shall not be construed as a
waiver or the right of either party to exercise those rights on any subsequent
occasion. The specific remedies to which Landlord or Tenant may resort under
this Lease are cumulative and are in addition to all other available legal and
equitable rights and remedies. All rights, remedies and obligations under this
Lease will survive the expiration or termination of this Lease and Tenant's
surrender of the Premises to Landlord, except for Article 43.
27. SUCCESSION. All of the terms, covenants and conditions of this Lease
and any extension, amendment or modification, to this Lease shall inure to the
benefit of and be binding upon the respective heirs, administrators, successors
and permitted assigns of the parties to this Lease.
28. WAIVER OF TRIAL BY JURY. The parties hereto waive trail by jury in
any action or proceeding brought in connection with this Lease of the Premises.
29. LIMITATION OF LIABILITY. See Addendum # 4
30. GOVERNING LAWS. This Lease shall be construed in accordance with laws
of the State of New Jersey. Each party hereto agrees to submit to the
jurisdiction of the courts of the State of New Jersey with respect to any
controversy arising out of this Lease.
31. CORPORATE AUTHORITY. If Tenant is a corporation, Tenant represents
and warrants that this Lease and the undersigned's execution of this Lease have
been duly authorized and approved by the corporation's board or directors.
Tenant
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represents that it is qualified to do business in the State of New Jersey.
32. RULES OF CONSTRUCTION. Any table of contents, captions, headings and
titles in this Lease are solely for convenience or reference and shall not
affect its interpretation. This Lease shall be construed without regard to any
presumption or other rule requiring construction against the party causing this
Lease to be drafted. If any words or phrases in this Lease shall have been
stricken out or otherwise eliminated, whether or not any other words or phrases
have been added, this Lease shall be construed as if the words or phrases so
stricken out or otherwise eliminated were never included in this Lease and no
implication or reference shall be drawn from the fact that said words or phrases
were so stricken out or otherwise eliminated. Each covenant, agreement,
obligation or other provision of this Lease on Tenant's part to be performed,
shall be deemed and construed as a separate and independent covenant of Tenant,
not dependent on any other provision of this Lease. All terms and words used in
this Lease, regardless of the number or gender in which they are used, shall be
deemed to include any other number and any other gender as the context may
require. If any of the provisions of this Lease, or the application thereof to
any person or circumstances, shall to any extent be invalid or unenforceable,
the remainder or this Lease, or the application of such provision or provisions
to person or circumstances other than those as to whom or which it is held
invalid or unenforceable, shall not be affected thereby, and every provision of
this Lease shall be valid and enforceable to the fullest extent permitted by
law.
33. INDEPENDENT COUNSEL. Each party to this Lease had the benefit of its
own independent legal counsel and neither party relied on the advice or counsel
of the other party's legal counsel.
34. PERFORMANCE OF TENANT'S OBLIGATION. If Tenant shall be in default
hereunder, in any respect, beyond the expiration of any notice or cure periods,
if any, Landlord may at Landlord's option and without waiving its rights
hereunder, cure such default on behalf of Tenant, in such event Tenant shall,
promptly upon demand by Landlord, reimburse Landlord for all reasonable and
necessary expenses incurred by Landlord in curing such default provided that
Landlord has provided Tenant with reasonable documentation of the expenses
incurred by Landlord in curing any such default. In order to collect such
reimbursement, Landlord shall have all the remedies available under this Lease
and/or by law or equity for a default in the payment of rent.
35. ESTOPPEL CERTIFICATE. Landlord and Tenant agree at any time and from
time to time, upon not less than fifteen (15) days' prior request, they shall
execute, acknowledge and deliver to each other a statement in writing certifying
that this Lease is unmodified (or, in the alternative, that there have been
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modifications) and in full force and effect if such is in fact the case, and the
dates to which the fixed annual rent and other charges have been paid in
advance, and if there are any defaults hereunder known by Landlord or Tenant, it
being intended that any such statement delivered pursuant to this Section may be
relied upon by any prospective purchaser of the fee or mortgagee (fee or
leasehold) or any assignee of any mortgagee.
36. NO OTHER REPRESENTATIONS. No representations or promises shall be
binding on the parties hereto except those representations and promises
contained herein or in some future writing signed by the party making such
representation(s) or promise(s).
37. RECORDATION. Tenant shall not record this Lease or a short form
memorandum hereof without the prior written consent of Lessor. If Tenant does
record this Lease or a short form memorandum without the prior written consent
of Landlord as provided for in this Lease, it shall be considered a default
under the Lease entitling the Landlord to terminate the Tenant's occupancy.
38. RIGHT TO INSPECT AND REPAIR. Landlord may enter the Premises but
shall not be obligated to do so (except as required by any specific provision of
this Lease) at any reasonable time on reasonable notice to Tenant (except that
no notice need be given in case of emergency) for the purpose of inspection or
the making of such repairs, replacement or additions, in, to, on and about the
Premises or the Building, as Landlord deems necessary or desirable. Tenant
shall have no claims or cause of action against Landlord by reason thereof*,
Landlord shall take whatever steps are reasonably necessary so as to not
interfere with Tenant's use of the Premises, Property and/or Building. *except
for the negligence, neglect or willful act of the Landlord or agent contractors
or invitees.
39. RIGHT TO SHOW PREMISES. The Tenant agrees to permit the Landlord's
agents, employees or other representatives to show the Premises* to persons
wishing to rent or purchase the same, and Tenant agrees that on and after six
months next preceding the expiration of the term hereof, the Landlord or the
Landlord's agents, employees or other representatives shall have the right to
place notices on the front of said Premises or any part thereof, offering the
Premises for rent or for sale; and the Tenant hereby agrees to permit the same
to remain thereon without hindrance or molestation provided that the same does
not unreasonably interfere with Tenant's use of the Premises. *Upon reasonable
notice at reasonable times.
40. SIGNS. The Tenant shall not place nor allow to be placed any signs of
any kind whatsoever, upon, in or about the said Premises or any part thereof,
except of a design and structure and in or at such places as may be indicated
and consented to by the
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Landlord in writing, such consent not to be unreasonably withheld or delayed.
In case the Landlord or the Landlord's agents, employees or representatives
shall deem it necessary to remove any such signs in order to paint or make any
repairs, alterations or improvements in or upon said Premises or any part
thereof, they may be 50 removed, but shall be replaced at the Landlord's expense
when the said repairs, alterations or improvements shall have been completed.
Any signs permitted by the Landlord shall at all times conform with all
municipal ordinances or other laws and regulations applicable thereto.
41. COMPLIANCE WITH LAWS. Except as otherwise provided herein, the Tenant
shall promptly comply with all laws, ordinances, rules, regulations,
requirements and directives of the Federal, State and Municipal Governments or
Public Authorities and of all their departments, bureaus and subdivisions
(collectively "Laws") applicable to and affecting the said Premises, but only if
Tenant has altered the design or construction of the Building or if such
compliance arises solely out of Tenant's use and occupancy of the Premises other
than as permitted hereunder; Tenant shall promptly comply with all orders,
regulations, requirements and directives of the Board of Fire Underwriters or
similar authority and of any insurance companies which have issued or are about
to issue policies of insurance covering the said Premises and its contents, for
the prevention of fire or other casualty, damage or injury.
42. INDUSTRIAL SITE RECOVERY ACT. *** Tenant acknowledges the existence
of environmental laws, rules and regulations, including but not limited to the
provisions of ISRA, as hereinafter defined. Tenant shall comply with any and
all such laws, rules and regulations. Tenant represents to Landlord that
Tenant's Standard Industrial Classification ("SIC") Number as designated in the
Standard Industrial Classifications Manual prepared by the Office of Management
and Budget in the Executive Office of the President of the United States will
not subject the Premises to ISRA applicability. Any change by Tenant to an
operation with a SIC Number subject to ISRA shall require Landlord's written
consent. Any such proposed change shall be sent in writing to Landlord sixty
(60) days prior to the proposed change. Landlord, at its sole option, may deny
consent.
Tenant hereby agrees to execute such documents as Landlord reasonably deems
necessary and to make such applications as Landlord reasonably requires to
assure compliance with ISRA. As used in this Lease, ISRA compliance shall
include applications for determinations of nonapplicability by the appropriate
governmental
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*** Landlord agrees that the Tenant shall have no responsibility for any
pre-existing conditions nor any environmental conditions caused by any
Landlord, Tenant, or other previous occupants of the building.
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authority. The foregoing undertaking shall survive the termination or sooner
expiration of the Lease and surrender of the Demised Premises and shall also
survive sale, or lease or assignment of the Demised Premises by Landlord.
Tenant agrees to indemnify and hold Landlord harmless from any violation of ISRA
occasioned solely by Tenant's use of the Demised Premises. The Tenant shall
immediately provide the Landlord with copies of all correspondence, reports,
notices, orders, findings, declarations and other materials pertinent to the
Tenant's compliance and the requirements of the New Jersey Department of
Environmental Protection ("NJDEP") under ISRA as they are issued or received by
the Tenant.
Except as otherwise provided in this Lease, Tenant agrees, not to generate,
store, manufacture, refine, transport, treat, dispose of or otherwise permit to
be present on or about the Premises, any Hazardous Substances. As used herein,
Hazardous Substances shall be defined as any "hazardous chemical", "hazardous
substance" or similar term as defined in the Comprehensive Environmental
Responsibility Compensation and Liability Act, as amended (42 U.S.C. 9601, et
seq.), the New Jersey Environmental Cleanup Responsibility Act, as amended
(N.J.S.A. 13:lK-6, et seq.) (~ISRA"), the New Jersey Spill Compensation and
Control Act, as amended (N.J.S.A. 58:l0-23.llb, et seq.), any rules or
regulations promulgated thereunder, or in any other applicable federal, state or
local law, rule or regulation dealing with environmental protection. It is
understood and agreed that the provisions contained in this Section shall be
applicable notwithstanding the fact that any substance shall not be deemed to be
a Hazardous Substance at the time of its use by the Tenant but shall thereafter
be deemed to be a Hazardous Substance.
Tenant agrees to indemnify and hold harmless the Landlord and each
mortgagee of the Premises from and against any and all liabilities, damages,
claims, losses, judgments, causes of action, costs and expenses (including the
reasonable fees and expenses of counsel) which shall be incurred by the Landlord
or any such mortgagee or threatened against the Landlord or such mortgagee,
relating to or arising out of any breach by Tenant of the undertakings set forth
in this Section, said indemnity to survive the Lease expiration or sooner
termination.
43. EDA APPROVAL OF TENANT. Tenant acknowledges that Landlord has
advised Tenant that there presently exists on the Building a mortgage granted by
the New Jersey Economic Development Authority (the "EDA"), and pursuant to the
terms of said mortgage, all new tenants must be approved by the EDA ("EDA
Approval") prior to tile effective date of any lease. Tenant agrees upon
execution of this Lease to complete and deliver to Landlord the EDA Project
Occupant Application (the "Application"). Upon delivery of same to Landlord,
Landlord agrees to submit same, together with a copy of the Lease, to the EDA
for approval. This Lease and the obligations of Landlord and Tenant hereunder
shall be subject to
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Tenant being approved by the EDA within ninety (90) days of the date Tenant
delivers the Application to Landlord. In the event Tenant is not approved
within the ninety (90) day period, Landlord or Tenant shall have the right to
terminate this Lease upon five (5) days' prior written notice. If this Lease is
terminated pursuant to the immediately preceding sentence, Tenant shall have two
hundred seventy (270) days to vacate the Building. If this Lease is not
terminated within the ninety (90) day period provided for in this Section 43,
Landlord will be deemed to have waived its right to terminate pursuant to this
Section 43. See addendum # 2.
IN WITNESS WHEREOF, each party has caused this Lease to be executed as of
the date set forth above.
Witnesses:
By: /s/ Fred Greenberg
- ------------------------ ----------------------
________________________ Title
As to Landlord
("Tenant")
By: /s/ Jan S. Mirsky
- ------------------------- -----------------------
_________________________ Executive Vice President
As to Tenant
13
<PAGE>
ADDENDUM # 1
TO LEASE AGREEMENT BETWEEN BASCOM CORPORATION
AND SEL-LEB MARKETING, INC.
The second floor Office Space is leased totally to the Tenant except the Office
in the South West corner, the reception area for that office and access to the
stairwell in the South West corner. The door from this office to the general
area will be removed and replaced with a wall finished on both sides. A
permanent partition will be erected at the end of the hallway by the Ladies Room
approximately 6 feet from outside wall of the building. It will contain a solid
door and be part of the leased space. Tenant will allow access to toilet space
only between 9:00 AM and 5:00 PM weekdays to Landlord. This door will also
operate as a Fire Exit for Tenant. There are 34 exclusive parking spaces
directly in front of the building for Tenant. This parking lot is exclusively
for and maintained by Tenant except for the 4 parking spaces which are presently
marked Reserved which are used by the Landlord.
ADDENDUM #2
It is agreed that this lease is subject to approval of a Business Employee
Incentive Program grant by the New Jersey Economic Development Authority Board.
ADDENDUM #3
OPTION TO RENEW: Tenant shall have the option to renew this lease for one (1)
successive term of Twenty-Four (24) months, the renewal Lease term commencing
upon expiration of the initial Lease term and ending on April 1, 2005. All the
terms and conditions applicable to the initial Lease term shall also prevail
during the renewal Lease term(s) except that the fixed monthly base rental for
the renewal Lease term shall be at $6.00 per Sq. Ft. including taxes. The
renewal option shall be exercisable by notice to Landlord received at least one
hundred eighty (180) days prior to the end of the then-current term, so long as
Tenant is not then or at commencement of the renewal term in default hereunder.
ADDENDUM #4
Landlord and the individual partners or stockholders of the entity constituting
Landlord or any successor thereto shall be under no personal liability with
respect to any of the provisions of the Lease, and if Landlord is in breach or
default with respect to its obligations or otherwise under this Lease, Tenant
shall look solely
<PAGE>
to the equity of Landlord in the Demised Premises for the satisfaction of
Tenant's remedies. It is expressly understood and agreed that Landlord's
obligations of this lease shall in no event exceed the loss of its equity in the
Property.
Tenant and the individual partners or stockholders of the entity constituting
Tenant or any successor thereto shall be under no personal liability with
respect to any of the provisions of the Lease, and if Tenant is in breach or
default with respect to its obligations or otherwise under the Lease, Landlord
shall look solely to the equity of Tenant in the Demised Premises for the
satisfaction of Landlord's remedies. It is expressly understood and agreed that
Tenant's obligations of this Lease shall in no event exceed the loss of its
equity in the Property.
<PAGE>
EXHIBIT A
[Floor Plan Graphic Omitted]
<PAGE>
BASCOM
CORPORATION
LETTER OF AGREEMENT
TENANT AGREES TO PURCHASE DRIVE IN PALLET RACK SYSTEM FOR $100,000.00 TO BE PAID
FOR IN THE FOLLOWING MANNER:
$33,333.00 ON APRIL 1, 1997
$33,333.00 ON OCTOBER 1, 1997
$33,333.00 ON APRIL 1, 1998
TENANT FURTHER AGREES TO PURCHASE MISCELLANEOUS OFFICE EQUIPMENT (SCHEDULE TO BE
CREATED), FOR THE SUM OF $10,000.00.
TITLE FOR THE EQUIPMENT WILL PASS UPON PRESENTATION OF UEZ CERTIFICATE FROM
TENANT.
<PAGE>
BASCOM
CORPORATION
CONTRACTUAL AGREEMENT BETWEEN SEL-LEB MARKETING, INC. AND BASCOM CORPORATION.
THIS AGREEMENT SUPERSEDES LEASE DATED FEBRUARY 5, 1997.
The intent and agreement by both the Landlord and Tenant to enter into this
Contractual Agreement which supersedes Paragraph 43 of the attached written
Lease and Addendum # 2 both parties recognize that there is language in the
Lease stating the Lease is the complete agreement. This letter supersedes that
language.
The Tenant will be bound by this lease even if he does not receive approval or
obtain a New Jersey Business Employer Incentive Program grant. Landlord agrees
to be bound by this lease even if he does not receive approval from the Economic
Development Authority to lease the space to the Tenant.
<PAGE>
BASCOM
CORPORATION
<TABLE>
<CAPTION>
RENTAL SCHEDULE - 50,570 SQ. FT.
Cost per
MONTHLY RENT Sq. Ft. TAXES YEARLY NET YEARLY GROSS
<S> <C> <C> <C> <C> <C> <C>
YEAR 1 $ 8,310.00 $ 1.97 $4,910.00 $ 99,744.00 $ 150,000.00
YEAR 2 $ 8,310.00 $ 1.97 $4,910.00 $ 99,744.00 $ 150,000.00
YEAR 3 $ 16,476.00 $ 3.91 $4,190.00 $197,430.00 $ 248,000.00
YEAR 4 $ 20,643.00 $ 4.90 $4,190.00 $247,716.00 $ 298,000.00
YEAR 5 $ 20,643.00 $ 4.90 $4,190.00 $247,716.00 $ 298,000.00
</TABLE>
<PAGE>
Exhibit 23
INDEPENDENT AUDITOR'S CONSENT
To the Board of Directors
Sel-Leb Marketing, Inc.
We hereby consent to incorporation by reference in the Registration Statement
(No. 333-19625) on Form S-8 of our report dated March 23, 1997 related to the
financial statements of Sel-Leb Marketing, Inc. as of December 31, 1996 and for
the two years in the period ended December 31, 1996 which report appears in the
December 31, 1996 annual report on Form 10-KSB of Sel-Leb Marketing, Inc.
GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
New York, New York
April 15, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 129,538
<SECURITIES> 0
<RECEIVABLES> 3,522,812
<ALLOWANCES> 275,000
<INVENTORY> 3,746,124
<CURRENT-ASSETS> 7,546,545
<PP&E> 507,979
<DEPRECIATION> 151,728
<TOTAL-ASSETS> 8,214,984
<CURRENT-LIABILITIES> 1,971,529
<BONDS> 0
0
0
<COMMON> 82,685
<OTHER-SE> 6,160,770
<TOTAL-LIABILITY-AND-EQUITY> 8,214,984
<SALES> 13,318,088
<TOTAL-REVENUES> 13,522,746
<CGS> 10,601,237
<TOTAL-COSTS> 13,233,076
<OTHER-EXPENSES> 2,660,069
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,230
<INCOME-PRETAX> 275,735
<INCOME-TAX> 118,000
<INCOME-CONTINUING> 157,735
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 157,735
<EPS-PRIMARY> .02
<EPS-DILUTED> 0
</TABLE>
