<PAGE>
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from ...........to .....................
Commission file number 1-13856
Sel-Leb Marketing, Inc.
(Exact name of small business issuer as
specified in its charter)
New York 11-3180295
(State or other jurisdiction IRS Employer
of incorporation or organization) Identification No.)
495 River Street, Paterson, NJ 07524
(Address of principal executive offices)
973-225-9880
(Issuer's telephone number)
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 report(s)), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 8,712,727 shares of common
stock as of November 13, 1997.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
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SEL-LEB MARKETING, INC.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Page No.
Part I Financial Information
Item 1. Financial Statements (Unaudited)
Balance sheet at December 31, 1996 (Audited) 1
Consolidated Balance sheet at September 30, 1997 2
Consolidated Statements of Income for the three months 3
ended September 30, 1996 and 1997
Consolidated Statements of Income for the nine months 4
ended September 30, 1996 and 1997
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1996 and 1997 5
Consolidated Statement of Shareholders' Equity at
September 30, 1997 6
Notes to Consolidated Financial Statements 7 - 9
Item 2. Management's Discussion and Analysis or Plan
Of Operation 10 - 13
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
</TABLE>
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SEL-LEB MARKETING, INC.
(AUDITED) BALANCE SHEET
DECEMBER 31, 1996
See Note 1
ASSETS
<TABLE>
<S> <C>
Current Assets:
Cash and cash equivalents $ 129,538
Accounts receivable - net 3,247,812
Inventory 3,746,124
Due from officer 23,274
Prepaid expenses and other current assets 304,797
Deferred income tax asset, net of valuation allowance 95,000
___________
Total current assets 7,546,545
Property and equipment - net 356,251
Goodwill 252,063
Other assets 60,125
___________
Total assets $ 8,214,984
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 1,420,609
Loan payable - bank (Note 3) 300,000
Due to affiliate 64,398
Income taxes payable 186,522
___________
Total current liabilities 1,971,529
------------
Shareholders' Equity:
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
===========
</TABLE>
See Notes to Financial Statements
1
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SEL-LEB MARKETING, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
SEPTEMBER 30, 1997
See Note 1
ASSETS
<TABLE>
<S> <C>
Current Assets:
Cash and cash equivalents $ 180,693
Accounts receivable - net 4,583,755
Inventory 5,696,210
Due from officer 23,796
Prepaid expenses and other current assets 592,444
Deferred income tax asset, net of valuation allowance 95,000
____________
Total current assets $ 11,171,898
Property and equipment - net 496,956
Goodwill 231,250
Other assets 122,463
____________
Total assets $ 12,022,567
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 2,349,874
Loan payable - bank (Note 3) 2,000,000
Income taxes payable 157,291
Current portion of long term loans payable (Note 4) 15,000
____________
Total current liabilities 4,522,165
Long term loans payable (Note 4) 85,000
Total liabilities $ 4,607,165
____________
Minority interest (Note 1 & 5) 1,000
____________
Shareholders' Equity:
Common Stock - $.01 par value;
authorized 40,000,000 shares, issued
and outstanding 8,712,727 shares $ 87,127
Additional paid-in capital 6,363,859
Retained earnings 1,010,416
Less: receivable in connection with equity transactions (47,000)
____________
Total Shareholders' Equity $ 7,414,402
____________
Total Liabilities and Shareholders' Equity $ 12,022,567
============
</TABLE>
See Notes to Financial Statements
2
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SEL-LEB MARKETING, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
See Note 1
<TABLE>
<CAPTION>
THREE MONTHS ENDED
__________________
<S> <C> <C>
SEPT. 30, SEPT. 30,
________ ________
1997 1996
____ ____
Revenue:
Net Sales $ 5,021,955 $ 3,483,875
Commission income 12,501 136,562
___________ ___________
Total Net Revenue 5,034,456 3,620,437
___________ ___________
Operating Expenses:
Cost of sales 3,306,382 2,405,059
Selling, general and administrative expenses 1,215,355 705,782
___________ ___________
Total operating expenses 4,521,737 3,110,841
___________ ___________
Operating income 512,719 509,596
Interest income 67 1,334
Interest expense (25,979) (10,622)
___________ ___________
Income before provision for
income taxes 486,807 500,308
Provision for income taxes 226,080 217,205
___________ ___________
Net income $ 260,727 $ 283,103
=========== ===========
Earnings per share (Note 2) $ .03
==========
Primary earnings per share (Note 2) $ .02
===========
Fully diluted earnings per share (Note 2) $ .02
==========
</TABLE>
See Notes to Financial Statements
3
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SEL-LEB MARKETING, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
See Note 1
<TABLE>
<CAPTION>
NINE MONTHS ENDED
_____________________________________
SEPT. 30, SEPT. 30,
1997 1996
____________ ____________
<S> <C> <C>
Revenue:
Net sales $ 13,578,844 $ 9,848,888
Commission income 78,018 181,594
____________ ____________
Total Net Revenue 13,656,862 10,030,482
____________ ____________
Operating Expenses:
Cost of sales 9,418,302 7,185,668
Selling, general and administrative expenses 3,440,409 2,014,068
____________ ____________
Total operating expenses 12,858,711 9,199,736
____________ ____________
Operating income 798,151 830,746
Interest income 3,252 10,419
Interest expense (60,148) (24,608)
____________ ____________
Income before provision for
income taxes 741,255 816,557
Provision for income taxes 319,097 342,277
____________ ____________
Net income $ 422,158 $ 474,280
============ ============
Earnings per share (Note 2) $ .05
============
Primary earnings per share (Note 2) $ .04
============
Fully diluted earnings per share (Note 2) $ .04
============
</TABLE>
See Notes to Financial Statements
4
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SEL-LEB MARKETING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
See Note 1
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
_____________________________
1997 1996
____ ____
<S> <C> <C>
Cash flow from operating activities:
Net income $ 422,158 $ 474,280
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Depreciation and amortization 154,126 88,105
Changes in operating assets and liabilities:
(Increase) in accounts receivable (1,335,943) (977,223)
(Increase) in due from affiliates -- (42,940)
(Increase) in inventories (1,950,086) (1,088,335)
(Increase) in due from officers (522) --
(Increase) in prepaid expenses and
other current assets (287,647) (29,284)
Increase in accounts payable, accrued expenses and
income taxes payable 900,033 706,228
(Decrease) in due to affiliates (64,398) (48,270)
(Increase) in other assets (62,338) --
___________ ___________
Net cash used in operating
activities ($2,224,617) ($ 917,439)
___________ ___________
Cash flow from investing activities:
Expenditures for capital equipment (274,017) (109,621)
Investment in subsidiary by minority interest 1,000 --
___________ ___________
Net cash flow used in investing activities (273,017) (109,621)
___________ ___________
Cash flow from financing activities:
Net proceeds from notes to bank 1,700,000 --
Proceeds from long term note 100,000 --
Repayment of long term debt to related parties -- (422,099)
Net proceeds from exercise of warrants and stock options 735,789 809,483
Collections on receivable in connection with equity transactions 13,000 --
___________ ___________
Net cash provided by financing activities $ 2,548,789 $ 387,384
___________ ___________
Net increase (decrease) in cash $ 51,155 $ (639,676)
___________ ___________
Cash at beginning of period $ 129,538 $ 832,970
___________ ___________
Cash at end of period $ 180,693 $ 193,294
___________ ___________
</TABLE>
See Notes to Financial Statements
5
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SEL-LEB MARKETING, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
See Note 1
<TABLE>
<CAPTION>
Receivable in
Additional Connection
Common Shares Paid-In Retained With Equity Shareholders'
Shares Amount Capital Earnings Transactions Equity
____________ __________ _____________ ____________ ________________ _______________
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 8,268,477 $82,685 $5,632,512 $588,258 $(60,000) $6,243,455
Net proceeds from exercise of stock
warrants 293,250 $2,932 $435,546 -- -- $438,478
Net proceeds from exercise of stock
options 151,000 $1,510 $295,801 -- -- $297,311
Payment of receivables in
connection with equity transaction -- -- -- -- $13,000 $13,000
Net income -- -- $422,158 -- $422,158
--------- ------- ---------- ---------- --------- ----------
Balance at September 30, 1997 8,712,727 $87,127 $6,363,859 $1,010,416 ($47,000) $7,414,402
========= ======= ========== ========== ========= ==========
</TABLE>
See Notes to Financial Statements
6
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SEL-LEB MARKETING, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(The information pertaining to the three and nine month periods ended September
30, 1996 and 1997 are unaudited)
1. Summary of Significant Accounting Policies
Nature of Operations
Sel-Leb Marketing, Inc. (a New York corporation) (the
"Company") is primarily engaged in the manufacture, distribution and
marketing of cosmetics and consumer products through mass
merchandisers, discount chain stores and food, drug and electronic
retailers.
Basis of Presentation
The consolidated financial statements of the Company included
herein have been prepared pursuant to generally accepted accounting
principles and have not been examined by independent public
accountants. In the opinion of management, all adjustments which are of
a normal recurring nature necessary to present fairly the consolidated
results of operation have been made. Pursuant to Securities and
Exchange Commission ("SEC") rules and regulations certain information
and footnote disclosures normally included in consolidated financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted from these consolidated
statements unless significant changes have taken place since the end of
the most recent fiscal year. The disclosures contained herein should be
read in conjunction with the financial statements and notes included in
the Company's Form 10-KSB for the fiscal year ended December 31, 1996.
The consolidated results of operations for the nine month period ended
September 30, 1997 are not necessarily indicative of the results to be
expected for the full year.
Principles of Consolidation
The consolidated financial statements include the accounts of
the Company and its majority owned subsidiary Ales Signature,
Ltd.(Ales). All material intercompany accounts and transactions have
been eliminated in consolidation. Ales, which was formed in September
1997, did not commence operations until October 22, 1997.
2. Earnings Per Share
Primary earnings per share for the three and nine months ended
September 30, 1996 have been computed based on the weighted average
number of shares actually outstanding plus the
<PAGE>
SEL-LEB MARKETING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
shares that would be outstanding assuming the exercise of dilutive
stock options and warrants, all of which are considered to be common
stock equivalents, using the modified treasury stock method. Fully
diluted earnings per share for the three and nine months ended
September 30, 1996 have been computed based on the weighted average
number of shares outstanding plus the number of shares that would be
issued from the exercise of dilutive 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
stock on September 30, 1996, because the price on that date was higher
than the average market prices during the year. A similar computation
was not made for the three and nine months ended September 30, 1997
because the average market price for the periods was higher than the
price at September 30, 1997 and because the effect of including the
stock options and warrants would be to increase earnings per share
For the three and nine months ended September 30, 1996, the
number of shares used in the computation of primary earnings per share
and fully diluted earnings per share were 13,886,882 and 13,881,863,
respectively. For the three and nine months ended September 30, 1997,
the number of shares used in the computation of earnings per share were
8,703,060 and 8,492,102, respectively.
3. Line of Credit
In September 1997, the Company reinstated its line of credit
arrangement with Summit Bank, which arrangement had terminated on July
31, 1997. The line of credit provides for borrowings not to exceed the
lesser of $2,000,000 (which amount was temporarily increased to
$2,250,000) or prescribed levels of eligible accounts receivable and
inventory, as defined. Borrowings under this line of credit bear
interest at the bank's prevailing base rate (8.75% at September 30,
1997). As of September 30, 1997 and December 31, 1996, borrowings of
$2,000,000 and $300,000, respectively, were outstanding under the line
of credit. The loan was 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.
4. Long Term Debt
In September 1997, in connection with the relocation of its
office and warehouse facilities to Paterson, New Jersey, the Company
borrowed $100,000 from the Paterson Restoration Corporation. The loan,
which bears interest at 6% per annum, provides for monthly payments of
principal and interest in the amount of $1,461 through October 1, 2004
and is secured by a second priority lien on all new machinery and
equipment purchased by the Company. The proceeds of the loan are to be
used for the purchase of fixed assets.
8
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SEL-LEB MARKETING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Subsequent Events
In September 1997, the Company and a third party formed Ales for the
purpose of acquiring a line of cosmetics and other beauty products from SBC
Corporation, Inc. ("SBC"), a manufacturer of mid-priced cosmetic, skin care and
treatment products. In connection with such formation, the Company acquired a
90% equity interest in Ales and the third party acquired the remaining 10%
equity interest. On October 23, 1997, Ales consummated the acquisition, pursuant
to which it acquired from SBC for approximately $670,000 inventory and certain
other assets as well as trademarks and trade names. This acquisition will be
accounted for as a purchase.
On October 22, 1997, the Company and Ales entered into a Loan and
Security Agreement with Summit Bank pursuant to which the Company has extended
through May 31, 1998 its line of credit arrangement providing for borrowings not
to exceed the lesser of $2,000,000 or prescribed levels of eligible accounts
receivable and inventories and the Company and Ales obtained a three-year, $1
million term loan. A portion of the proceeds of the term loan were used to
finance the acquisition by Ales of the SBC assets described above. The balance
of the proceeds from the term loan are required to be used for working capital
purposes.
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis of the Company's consolidated
results of operations, liquidity and financial condition should be read in
conjunction with the Consolidated Financial Statements of the Company and
related notes thereto. This Quarterly Report on Form 10-QSB contains certain
forward-looking statements. Actual results could differ materially from those
projected in the forward-looking statements due to a number of 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, the ability of the
Company to develop its "celebrity" product business and other factors set forth
herein or in reports and other documents filed by the Company with the SEC.
Consolidated Results of Operations: Three and Nine Month Periods Ended
September 30, 1997 Compared to the Corresponding Periods Ended September 30,
1996
Net sales for the three months ended September 30, 1997 were $5,021,955
compared to $3,483,875 for the three months ended September 30, 1996,
representing an increase of 44%. For the nine month period ended September 30,
1997 net sales were $13,578,844 compared to $9,848,888 for the corresponding
period in 1996, representing an increase of 38%. This increase in net sales
resulted from increases in both the sales of the Company's own proprietary brand
name line of beauty aids and cosmetics and sales of merchandise acquired in
connection with the Company's opportunistic purchasing business.
Commission income decreased for the three month period ended September
30, 1996 from $136,562 to $12,501 for the comparable period in 1997. Commission
income decreased for the nine month period ended September 30, 1996 from
$181,594 to $78,018 for the comparable period in 1997. This decrease in
commission income reflects the Company's emphasis on selling its own proprietary
products rather than acting as an agent for the sale of other companies'
products to the Company's retail customers.
Cost of sales increased from $2,405,059 for the three month period in
1996 to $3,306,382 for the same period in 1997. For the nine month period ending
September 30, 1996 and 1997 cost of sales were $7,185,668 and $9,418,302,
respectively. The cost of goods sold as a percentage of sales decreased from 72%
for the nine month period ending September 30, 1996 to 69% for the same period
in 1997. The decrease represents higher profit margins generated by increased
sales of the Company's own proprietary brand name line of cosmetics.
Selling, general and administrative ("SG&A") expenses increased from
$705,782 for the three month period ended September 30 1996 compared to
$1,215,355 for the comparable period in 1997. SG&A for the nine month period
ending September 30 was $2,014,068 in 1996 and $3,440,409 in 1997. The principal
components of SG&A are payroll, rent and occupancy, commissions, royalty,
insurance, advertising, legal, accounting and travel and promotional
10
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expenses. The increase in SG&A expenses for the nine-month period ended
September 30, 1997 resulted primarily from increased costs incurred by the
Company in connection with the Company having hired outside sales
representatives and, in connection therewith, incurring commission expenses
(approximately $198,000 for the nine months ended September 30, 1997), the sale
of product lines on which it incurs royalty expenses (approximately $122,000 for
the nine months ended September 30,1997), additional staffing required to
perform selling, distribution and other functions related to existing and new
product lines (approximately $105,000 for the nine months ended September 30,
1997), selling, travel, development and advertising expenses for existing and
new product lines (approximately $569,000 for the nine months ended September
30, 1997), increased occupancy costs to support current and planned sales levels
(approximately $251,000 for the nine months ended September 30, 1997), and an
increase of approximately $185,000 which the Company has recorded for the nine
months ended September 30, 1997 as a provision for potentially uncollectible
accounts receivable.
Although the Company has historically shown positive operating results
for the first nine months of each fiscal year, it has historically incurred
operating losses in the fourth quarter of each fiscal year. In addition,
year_to_year results may vary as a result of the Company's opportunistic
business, in which purchases and sales are made when opportunities arise and
therefore do not have any degree of certainty, regularity or continuity.
Total operating expenses increased from $3,110,841 in 1996 to
$4,521,737 in 1997 for the three month period ended September 30 and from
$9,199,736 in 1996 to $12,858,711 in 1997 for the nine month period ended
September 30.
Operating income increased for the three month period ended September
30 from $509,596 in 1996 to $512,719 in 1997. However, as a result of the
increase in total operating expenses during the nine-month period ended
September 30, operating income decreased for the nine month period from $830,746
in 1996 to $798,151 in 1997.
The increase in accounts receivable as of September 30, 1997 has been
primarily due to increase in sales volume with a majority of the shipments made
during the latter part of the quarter.
The increase in inventory as of September 30, 1997 is primarily due to
two factors including (i) the introduction of a new line of celebrity products
for which shipments are currently anticipated to be made during the fourth
quarter of 1997, with a corresponding required build-up to meet anticipated
order demand and (ii) the build-up and increase of inventory designed to meet
overall rising sales volume levels.
Liquidity and Capital Resources
During the nine months of 1997, an aggregate of 444,250 shares of
common stock were issued by the Company upon the exercise of warrants and
options, resulting in net proceeds to
11
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the Company of $735,789. In addition, during the first nine months of 1997, the
Company borrowed an additional $1,700,000 under its revolving line of credit
described below. The proceeds resulting from the option and warrant exercises
and the additional borrowings were used by the Company primarily for the
purchase of additional inventory, consisting primarily of the Company's
proprietary brand name lines of beauty aids and cosmetics.
At September 30, 1997, the Company had working capital of $6,649,733
and cash and cash equivalents in the amount of $180,693.
On November 6, 1995, the Company entered into a Loan and Security
Agreement (the "Original Loan Agreement") with Summit Bank (formerly known as
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 of 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 Original Loan Agreement) of the Lender. The Loan
Agreement terminated on July 31, 1997 and subsequent thereto, the Company
borrowed funds from the Lender pursuant to an informal, non-binding arrangement
on the same terms as the Original Loan Agreement. The Company reinstated the
Original Loan Agreement on September 22, 1997. As of September 30, 1997, the
Company had outstanding $2,000,000 under this line of credit. Any funds borrowed
by the Company are secured primarily by the inventory and receivables of the
Company.
On October 22, 1997, the Company and Ales entered into a new Loan and
Security Agreement with the Lender (the "Current Loan Agreement"). The Current
Loan Agreement provides for the continuation through May 31, 1998 of the
Company's existing line of credit arrangement providing for borrowings of up to
the lesser of $2,000,000 or prescribed levels of eligible accounts receivable
and inventories on substantially the same terms as under the Original Loan
Agreement. In addition, pursuant to the Current Loan Agreement, the Company and
Ales obtained from the Lender a three-year, $1 million term loan to finance the
acquisition by Ales of certain assets from SBC, a manufacturer of cosmetics,
skin care and treatment products. The term loan bears interest at the
"Prevailing Base Rate" plus .25%, and the outstanding principal amount of the
loan is payable in installments, with $150,000 payable on each of August 31,
1998 and 1999 and the balance payable on August 31, 2000. In connection with the
acquisition, which was consummated on October 23, 1997, Ales acquired, for
approximately $670,000, inventory and certain other assets, as well as
trademarks and trade names including Signature Solutions(TM) and Signature
Beauty Care(TM).
On September 26,1997, in connection with the relocation of its office
and warehouse facilities to Paterson, New Jersey, the Company borrowed $100,000
from the Paterson Restoration Corporation. The loan, which bears interest at 6%
per annum, provides for monthly payments of principal and interest in the amount
of $1,461 through October 1, 2004 and is secured by a second priority lien on
all new machinery and equipment purchased by the Company. The proceeds of the
loan are to be used for the purchase of fixed assets.
12
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The Company anticipates that its working capital, together with anticipated
cash flow from the Company's operations will be sufficient to satisfy the
Company's cash requirements for at least twelve months. In the event the
Company's plans change (due to unanticipated expenses or difficulties or
otherwise), or if the working capital 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 Current
Loan Agreement, 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.
13
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Part II Other Information
Item 6 Exhibits and Reports on Form 8-K
A. Exhibits
10.1 Fourth Amendment to Loan and Security Agreement dated
September 22, 1997 between Summit Bank and The Company.
10.2 Loan and Security Agreement dated October 22, 1997 between
Summit Bank, the Company and Ales.
10.3 Environmental Indemnity Agreement dated October 22, 1997
between the Company, Ales and Summit Bank.
10.4 Security Agreement dated September 26, 1997 between the
Company and Paterson Restoration Corporation.
10.5 Stockholder's Agreement between RBCJJ Associates LLC and
the Company.
10.6 Asset Purchase Agreement dated as of September 15, 1997
between SBC Corporation, Inc. and Ales.
11. Statement re computation of earnings (not required because
the relevant computation can be clearly determined from
material contained in the financial statements).
27. Financial Data Schedule
B. Reports on Form 8-K
No reports on Form 8-K have been filed by the Registrant.
14
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Signatures
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized .
SEL-LEB MARKETING, INC.
/s/ Jan S. Mirsky
_________________
Jan S. Mirsky
Executive Vice President-Finance and
Chief Operating Officer
Dated: November 14, 1997 as both duly authorized officer of the registrant
and as principal financial officer of registrant.
15
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FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
This Fourth Amendment to Loan and Security Agreement (the "Amendment")
dated as of September 22, 1997 by and between SUMMIT BANK (f/k/a UNITED JERSEY
BANK), a state banking association organized and existing under the laws of the
State of New Jersey (the "Lender") with an office at 210 Main Street,
Hackensack, New Jersey 07602 and SEL-LEB MARKETING, INC., a New York corporation
("Borrower") having a principal place of business located at 1435 51st Street,
North Bergen, New Jersey 07047.
WHEREAS, on November 6, 1995, the Lender provided a certain credit facility
(the "Loan") to Borrower pursuant to the terms and conditions of a certain Loan
and Security Agreement dated as of November 6, 1995 (the "Original Loan
Agreement"), as amended by that certain First Amendment to Loan and Security
Agreement dated as of May 31, 1996 (the "First Amendment"), as amended by that
certain Second Amendment to Loan and Security Agreement dated as of May 30, 1997
(the "Second Amendment"), as amended by that certain Third Amendment to Loan and
Security Agreement dated as of July 31, 1997 (the "Third Amendment") (the
Original Loan Agreement as amended by the First Amendment, the Second Amendment
and the Third Amendment shall hereinafter be referred to as the "Loan
Agreement") as evidenced by a certain Line of Credit Note dated November 6, 1995
in the principal amount of Two Million ($2,000,000.00) Dollars (the "Original
Line of Credit Note"), as modified by that certain First Modification of Line of
Credit Note dated as of May 31, 1996 (the "First Line of Credit Note
Modification"), the Second Modification of Line of Credit Note dated as of May
30, 1997 (the "Second Line of Credit Note
<PAGE>
Modification"), and the Third Modification of Line of Credit Note dated as of
July 31, 1997 (the "Third Line of Credit Note Modification") (the Original Line
of Credit Note as modified by the First Line of Credit Note Modification, the
Second Line of Credit Note Modification and Third Line of Credit Note
Modification shall hereinafter be referred to as the "Line of Credit Note");
WHEREAS, the Borrower has requested that the Lender increase the Line of
Credit Loan Maximum for a period of ninety (90) days from the date hereof; and
WHEREAS, the Lender is willing to increase the Line of Credit Maximum
subject to the terms and conditions set forth within Amendment.
NOW, THEREFORE, in consideration of the recitals and the mutual covenants
contained herein, the parties hereto agree as follows:
1. All capitalized terms used herein and not otherwise defined herein shall
have the meanings ascribed to them pursuant to the Loan Agreement and the Line
of Credit Note. Notwithstanding anything to the contrary contained in either the
Loan Agreement or the Line of Credit Note, the terms of this Amendment shall
control.
2. Section 1.1(x) of the Loan Agreement is hereby stricken and replaced
with the following:
"(x) "Line of Credit Loan Maximum" shall mean: (i) Two Million
($2,000,000) Dollars from November 6, 1995 through September 21,
1997; (ii) Two Million Two Hundred Fifty Thousand ($2,250,000)
Dollars from September 22, 1997 through December 21, 1997; and
(iii) Two Million
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<PAGE>
($2,000,000) Dollars from December 22, 1997 through May 31,
1998."
3. The reference to the "Line of Credit Note" in Section 1.1(aa) of the
Loan Agreement shall be deemed to refer to the Line of Credit Note as restated
by the Restated Line of Credit Note attached hereto as Exhibit A and by this
reference made a part hereof as if fully set forth herein.
4. The reference to "Loan Documents" in Section l.1(bb) of the Loan
Agreement shall be deemed to include the Amendment and the Restated Line of
Credit Note.
5. The Borrower acknowledges and agrees that: (a) as of September 17, 1997
the unpaid principal balance of the Line of Credit Note is One Million Eight
Hundred Twenty Five ($1,825,000) Dollars; (b) the obligation of the Borrower to
repay the Line of Credit Note is absolute and unconditional and is not subject
to any defense, counterclaim, set-off, right of recoupment, abatement or other
claim or determination, and (c) the Line of Credit Note is and shall be governed
by the terms and provisions of the Loan Agreement, and as set forth in this
Amendment.
6. The Lender and the Borrower hereby agree and consent to the terms and
provisions of this Amendment and the transactions contemplated hereby.
7. The Borrower shall pay all of the Lender's reasonable costs and expenses
incurred in connection with the preparation, execution and delivery of this
Amendment, including, without limitation, reasonable legal fees and
disbursements of Lender's counsel.
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8. Except as expressly otherwise provided herein, the terms of the Loan
Agreement shall remain in full force and effect and are incorporated herein by
reference. In the event of a conflict between the terms of this Amendment and
the Loan Agreement, the terms of this Amendment shall control.
9. The Borrower acknowledges that the Lender has no obligation to make any
further amendments to the Loan Agreement or any other agreement executed in
connection therewith, including but not limited to this Amendment and the
Restated Line of Credit Note.
10. This Amendment shall be construed in accordance with, and shall be
governed by, the laws of the State of New Jersey. This Amendment shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
IN WITNESS WHEREOF, the undersigned have caused this Fourth Amendment to
Loan and Security Agreement to be executed by their proper and duly authorized
officers as of the date first set forth above.
SUMMIT BANK
By: /s/ Richard Mady
----------------------------------------
RICHARD MADY, Vice President
SEL-LEB MARKETING, INC.
By: /s/ Jan S. Mirsky
----------------------------------------
JAN MIRSKY, Executive Vice President
of Finance
4
<PAGE>
RESTATED LINE OF CREDIT NOTE
Principal Amount: $2,250,00 Dated: September 22, 1997
FOR VALUE RECEIVED, SEL-LEB MARKETING, INC., a New York corporation, having
its principal place of business at 1435 51st Street, North Bergen, New Jersey
07047 ("Payor"), promises to pay to the order of SUMMIT BANK (f/k/a United
Jersey Bank), a state banking association organized under the laws of the State
of New Jersey (the "Bank" or "Holder"), its successors and assigns, at its
offices at 210 Main Street, Hackensack, New Jersey 07602, or at such other
address as Holder shall notify Payor in writing, the principal sum of TWO
MILLION TWO HUNDRED FIFTY THOUSAND ($2,250,000) DOLLARS, or so much thereof as
shall have been advanced to Payor pursuant to the Loan Agreement (as defined
below), together with interest on the unpaid principal balance, payable as
provided below.
1. Subject to Loan Documents. The definitions, terms and provisions of a
certain loan and security agreement entered into between the Bank and Payor on
November 6, 1995, as amended by that certain First Amendment to Loan and
Security Agreement dated as of May 31, 1996, as amended by that certain Second
Amendment to Loan and Security Agreement dated May 30, 1997, as amended by that
certain Third Amendment to Loan and Security Agreement dated as of July 31,
1997, as amended by that certain Fourth Amendment to Loan and Security Agreement
dated the date hereof (collectively the "Loan Agreement") and all other
documents and instruments referred to therein or executed and delivered pursuant
thereto are incorporated herein by reference (all of the foregoing are
hereinafter collectively referred to as the "Loan Documents").
2. Rate of Interest. The principal amount outstanding under this Note shall
bear interest at the Bank's Prevailing Base Rate on a floating basis. The Bank's
Prevailing Base Rate of interest is the fluctuating rate of interest established
by the Bank from time to time whether or not such rate shall be otherwise
published. The Prevailing Base Rate is established for the convenience of the
Bank. The Prevailing Base Rate is a means of pricing some loans to customers of
the Bank. The Base Rate is not tied to any external rate of interest and does
not necessarily reflect the lowest rate of interest actually charged at any
given time by the Bank to any particular class or category of customers of the
Bank. In the event that there shall be a change in the Prevailing Base Rate,
such change shall be effective on the date of such change without notice to
Payor. Interest shall be computed on the basis of the actual number of days
elapsed over a period of 360 days.
3. Repayment. Principal and interest shall be paid during the term of this
Note in the following manner:
(a) Payor shall make consecutive monthly payments of interest at the
Bank's Prevailing Base Rate on a floating basis on the principal balance
outstanding under this Note commencing on
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October 1, 1997, and continuing on the first (1st) day of each and every
month thereafter through and including May 1, 1998.
(b) Payor shall make a final payment of the entire unpaid principal
balance and accrued interest under this Note and all other costs, expenses
and charges of any nature whatsoever due or assessable hereunder, on May
31, 1998.
(c) In addition to the payments required to be made as set forth in
subparagraphs 4(a) and 4(b) above, pursuant to Section 5.20 of the Loan
Agreement, during each twelve month period, commencing on the date of
execution of the Loan Agreement, Payor shall reduce the principal amount
outstanding under this Note to zero ($0) dollars for a period of thirty
(30) continuous and consecutive days.
(d) Upon the failure of Payor to make any payments hereunder within
ten (10) days of the date when due, Payor shall, to the extent permitted by
law, pay a late payment charge on all amounts overdue equal to five (5%)
percent of the overdue amount (but in no event less than twenty five
($25.00) dollars nor more than two thousand five hundred ($2,500.00)
dollars). Any such late charge assessed is immediately due and payable.
4. Event of Default Either of the following shall constitute an Event of
Default under this Note:
(a) Failure to make any payments required hereunder within five (5)
days after the date when due; or
(b) The occurrence of any Event of Default (as defined in the Loan
Agreement) under any of the Loan Documents.
5. Acceleration Upon Default. Upon the occurrence of an Event of Default,
the entire unpaid principal balance of this Note, together with accrued
interest, shall, at the option of holder, immediately become due and payable
without notice or demand. Upon acceleration by Holder as hereinabove provided,
all amounts due hereunder, whether principal, interest or otherwise, which have
not been paid as of the date of such acceleration, shall bear interest from such
date to the date payment in full is received by Holder at the rate of interest
set forth in Paragraph 2 of this Note plus five (5%) percent per annum, instead
of the rate established in Paragraph 2 of this Note.
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<PAGE>
6. Cumulative Remedies: Waivers by Payor. No remedy referred to herein is
intended to be exclusive, but each shall be cumulative and in addition to any
other remedy above or otherwise available to the Holder under any of the Loan
Documents, at law or in equity. Payor hereby waives presentment, demand for
payment, protest and notice of dishonor of this Note and all other notices and
demands.
7. Non-Waiver. Failure to insist on the strict performance of any or all of
the terms, provisions, and covenants contained in this Note shall not be
construed as a waiver or relinquishment of the future performance of any term,
provision or covenant herein.
8. Collection Fees. If Suit is brought to collect this Note or any part
hereof, Payor expressly agrees to pay all of Holder's reasonable costs and
expenses of collection, including reasonable attorneys' fees.
9. Prepayment. This Note may be prepaid in full or in part at any time
without premium or penalty.
10. WAIVER OF JURY TRIAL. PAYOR HEREBY WAIVES ALL RIGHTS IT MAY HAVE TO A
JURY TRIAL IN ANY AND ALL ACTIONS OR CONTROVERSIES ARISING OUT OF OR IN
CONNECTION WITH THIS NOTE.
11. Usury. All provisions of this Note and the Loan Documents are expressly
subject to the condition that in no event, whether by reason of acceleration of
maturity of the indebtedness evidenced hereby or otherwise, shall the amount
paid or agreed to be paid to the undersigned hereunder and deemed interest under
applicable law exceed the maximum rate of interest on the unpaid principal
balance of this Note allowed by applicable law (the "Maximum Allowable Rate"),
which shall mean the law in effect on the date of this Note, except that if
there is a change in such law which results in a higher Maximum Allowable Rate
being applicable to this Note, then this Note shall be governed by such amended
law from and after its effective date. In the event that fulfillment of any
provision of this Note or the Loan Documents results in the interest rate
hereunder being in excess of the Maximum Allowable Rate, the obligation to be
fulfilled shall automatically be reduced to eliminate such excess. If,
notwithstanding the foregoing, the Bank or any other holder of this Note
receives an amount which under applicable law would cause the interest rate
hereunder to exceed the Maximum Allowable Rate, the portion thereof which would
be excessive shall automatically be applied to and deemed a prepayment of the
unpaid principal balance of this Note and not a payment of interest.
12. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of New Jersey.
13. Certification by Executing Party. The Payor, by executing this Note and
delivering same to the Holder, hereby certifies to the Holder, knowing and
intending that the Holder is relying hereon in making the loan evidenced by this
Note, that: (i) there is no Default or Event of Default and no event which with
the
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<PAGE>
giving of notice or lapse of time, or both would become a Default or Event of
Default; (ii) all representations, warranties and covenants of the Payor made in
the Loan Documents are true and accurate and complete; and (iii) the Payor shall
comply with all of the terms and conditions in the Loan Documents.
14. Right of Set-off. In the event of the occurrence of an Event of
Default, the Bank shall have the right immediately and without notice or other
action (any such notice being expressly waived by each of the Payor), to set-off
against the Payor's liability to the Bank: (i) any money owed by the Bank in any
capacity to the Payor whether due or not and/or; (ii) any property of the Payor
in the possession of the Bank, and the Bank shall be deemed to have exercised
such right of set-off and to have made a charge against any such money and/or
property immediately upon the occurrence of an Event of Default, even though the
actual book entries may be made at some time subsequent thereto.
15. Note. This Note amends and restates that certain Note dated November 6,
1995, as modified by the First Modification of Line of Credit Note dated as of
May 31, 1996, as modified by the Second Modification of Line of Credit Note
dated as of May 30, 1997, as modified by the Third Modification of Line of
Credit Note dated as of July 31, 1997.
IN WITNESS WHEREOF, Payor has duly executed this Note the day and year
first above written.
ATTEST: SEL-LEB MARKETING, INC.
BY: /s/ Jorge Lazaro BY: /s/ Jan S. Mirsky
----------------------------- ---------------------------
Jorge Lazaro, Secretary JAN MIRSKY, Executive Vice
President of Finance
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<PAGE>
LOAN AND SECURITY AGREEMENT
by and between
SUMMIT BANK
and
SEL-LEB MARKETING, INC.
and
ALES SIGNATURE, LTD.
October 22, 1997
<PAGE>
TABLE OF CONTENTS
LOAN AND SECURITY AGREEMENT...............................................1
I. DEFINITIONS.........................................................1
1.1 Defined Terms...........................................1
1.2 Accounting Terms.......................................11
1.3 Other Terms............................................11
1.4 Entire Agreement.......................................11
II. FACILITY...........................................................11
2.1 Line of Credit Loan....................................11
2.2 Procedure for Borrowings under the Line of
Credit Loan............................................12
2.3 Line of Credit Note....................................12
2.4 Term Loan..............................................12
2.5 Term Note..............................................12
2.6 Interest Rates.........................................13
2.7 Letter of Credit Fees..................................13
2.8 Optional Prepayment of Line of Credit Note and
Term Note..............................................13
2.9 Mandatory Prepayment of Line of Credit Note............13
2.10 Submission of Reports..................................13
2.11 Method of Payment......................................13
2.12 Reimbursement Obligation...............................14
2.13 Method of Payment......................................14
2.14 Method of Payment......................................15
2.15 Business Day...........................................15
2.16 Automatic Charge.......................................15
2.17 Increased Costs........................................15
2.18 Termination............................................16
2.19 Audit Fees.............................................16
2.20 Late Payment Fee.......................................16
III. SECURITY INTEREST..................................................17
3.1 Grant of Security Interest.............................17
3.2 Rights of the Bank.....................................18
IV. REPRESENTATIONS AND WARRANTIES.....................................19
4.1 Organization; Power; Qualification.....................19
4.2 Authorization of Agreement.............................19
4.3 No Legal Bar...........................................19
4.4 Consent................................................20
4.5 Compliance With Law....................................20
4.6 Title to Properties and Assets; Liens..................20
4.7 No Default.............................................20
4.8 No Litigation..........................................21
4.9 No Burdensome Restrictions.............................21
4.10 Tax Returns and Payments...............................21
4.11 Financial Statements...................................21
4.12 No Adverse Changes.....................................21
4.13 ERISA..................................................22
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4.14 Federal Reserve Regulations............................22
4.15 Collateral.............................................22
4.16 Accuracy and Completeness of Information...............23
V. COVENANTS..........................................................24
5.1 Preservation of Existence..............................24
5.2 Nature of Business.....................................24
5.3 Compliance with Laws...................................24
5.4 Maintenance of Properties..............................24
5.5 Accounting Methods.....................................24
5.6 Payment of Taxes and Claims............................25
5.7 Visits and Inspection; Audits..........................25
5.8 Information Covenants..................................25
5.9 Accuracy and Completeness of Information...............27
5.10 Insurance..............................................27
5.11 Indebtedness...........................................28
5.12 Liens..................................................28
5.13 Sale of Assets; Merger.................................29
5.14 Guaranties.............................................29
5.15 Collateral.............................................29
5.16 Sale and Leaseback.....................................30
5.17 Transactions with Affiliates...........................30
5.18 Operating Accounts.....................................30
5.19 Further Documentation..................................31
5.20 CleanUp Period.........................................31
5.21 Investment Management Account..........................31
5.22 Bank's Appointment as AttorneyinFact...................31
5.23 Performance by Bank of Borrowers' Obligations..........33
VI. CONDITIONS PRECEDENT...............................................33
6.1 Conditions Precedent to Initial Advance................33
6.2 Conditions Precedent to Additional Advances............35
VII. EVENTS OF DEFAULT..................................................36
7.1 Failure to Pay.........................................36
7.2 False Representation or Warranty.......................36
7.3 Failure to Perform.....................................37
7.4 Cross Default..........................................37
7.5 Default on other Indebtedness..........................37
7.6 Petition; Appointment of Receiver......................37
7.7 Judgments; Levys; Liens................................38
7.8 ERISA..................................................38
7.9 Liquidation or Dissolution.............................38
7.10 Change in Condition....................................38
VIII. REMEDIES...........................................................39
8.1 Acceleration Automatic.................................39
8.2 Acceleration; Bank Discretion..........................39
8.3 Proceeds held in Trust.................................39
8.4 Set-Off; Sale..........................................40
8.5 Bank Costs.............................................41
8.6 Waivers................................................41
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8.7 Possession; Receiver...................................41
8.8 Other Remedies.........................................42
IX. INDEMNIFICATION....................................................42
9.1 Indemnification........................................42
X. MISCELLANEOUS......................................................42
10.1 Notice.................................................42
10.2 No Waiver; Cumulative Remedies.........................43
10.3 Survival of Agreements.................................43
10.4 Amendment..............................................43
10.5 Successors and Assigns.................................43
10.6 Agreement and Other Loan Documents
Complementary..........................................43
10.7 Bank's Relationship....................................44
10.8 Participation..........................................44
10.9 WAIVER OF TRIAL BY JURY................................44
10.10 Severability...........................................44
10.11 Counterparts...........................................44
10.12 Governing Law; No Third Party Rights...................44
10.13 Cross Default/Cross Collateral.........................44
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<PAGE>
LOAN AND SECURITY AGREEMENT
---------------------------
THIS LOAN AND SECURITY AGREEMENT ("Agreement") is dated October 22,
1997, and is by and among SEL-LEB MARKETING, INC., a New York corporation
("Sel-Leb"), having its principal executive office located at 495 River Street,
Paterson, New Jersey 07524 and ALES SIGNATURE, LTD., a New York corporation
("ALES") having its principal executive office located at 495 River Street,
Paterson, New Jersey 07524, (ALES and Sel-Leb each a "Borrower" and collectively
the "Borrowers") and SUMMIT BANK, a state banking association organized under
the laws of the State of New Jersey, having an office located at 250 Moore
Street, 2nd Floor, Hackensack, New Jersey 07601 (the "Bank").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Sel-Leb owns ninety (90%) percent of the issued and
outstanding shares of stock of ALES; and
WHEREAS, the Borrowers have requested that the Bank make (i) a
revolving loan in the principal amount of up to Two Million ($2,000,000) Dollars
for working capital purposes (the "Revolving Loan") and (ii) a term loan in the
principal amount of One Million ($1,000,000) Dollars for the purpose of
purchasing certain Inventory, acquiring the rights to distribute the "Signature"
Line of Cosmetics and for general working capital purposes (the "Term Loan");
and
WHEREAS, the Bank is willing to make the Revolving Loan and the Term
Loan upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and mutual agreements
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto do hereby agree
as follows:
I. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the
following words and terms shall have the following meanings:
(a) "Account Debtor" shall mean a Person obligated under or
with respect to an Account Receivable.
(b) "Accounts Receivable" shall mean, in addition to the definition of
the term "accounts" contained in the Code, any and all obligations of any kind
at any time due and/or owing to a Borrower (including any such obligation that
might be characterized or classified under the Code as accounts, contract
rights, chattel paper or otherwise), and all rights of a Borrower
<PAGE>
to receive payment or any other consideration whether arising from goods sold or
leased by a Borrower or services rendered or otherwise, whether or not such
right has been earned by performance, whether secured or unsecured, including,
without limitation, invoices, contract rights, accounts receivable, notes,
drafts, acceptances, instruments, refunds, including tax refunds, and all other
debts, obligations and liabilities in whatever form owing to a Borrower from any
Person, firm, governmental authority, corporation or any other entity, all
security and guaranties therefor, all of a Borrower's rights in, to and under
all purchase orders heretofore, now or hereafter received by a Borrower for
goods or services, and all of a Borrower's rights to goods sold (whether
delivered, undelivered, in transit or returned), which may be represented
thereby, including all of a Borrower's rights as an unpaid vendor or lienor,
including stoppage in transit, replevin and reclamation, whether now existing or
hereafter arising, and all books, records, ledger cards and other tangible and
intangible property pertaining to same (including printed copies of all
computerized data, electronic machine-readable media of such data, and software
owned or licensed (to the extent it can be freely assigned) by a Borrower).
(c) "Affiliate" shall mean as to any specific Person, (i) any Person
that directly or indirectly through one or more intermediaries controls or is
controlled by or is under common control with the specific Person, (ii) any
Person that, directly or indirectly, is the beneficial owner of 10% or more of
any class of equity securities of the specified Person or is the beneficial
owner of a 10% or more interest in the capital profits of the specified Person,
(iii) any Person of which the specified Person is directly or indirectly the
beneficial owner of 10% or more of any class of equity securities or any Person
of which the specified Person is the beneficial owner of a 10% or more interest
in the capital and profits, or (iv) any member of the immediate family of the
specified Person.
(d) "Agreement" shall mean this Loan and Security Agreement together
with any and all exhibits, schedules, amendments, modifications or supplements
hereto.
(e) "Bank" shall mean Summit Bank, a state banking association
organized under the laws of the State of New Jersey.
(f) "Bank Costs" shall mean all taxes and insurance premiums of every
kind and nature of a Borrower paid by the Bank; all filing, recording,
publication, and search fees incurred in connection with and relating to a
Borrower paid by the Bank; all out-of-pocket costs incurred and sums expended by
the Bank, with or without suit, to correct any default, to make advances of
principal and interest or payments to prior secured parties, to enforce any
right or remedy of the Bank, or in connection with
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<PAGE>
any other provision of any Loan Document, including, without limitation, any
out-of-pocket costs incurred by the Bank with respect to any other lender in
connection with the Loan Documents and the transactions contemplated thereby;
all out-of-pocket costs incurred and sums expended in gaining possession of,
inspection of, maintaining, handling, preserving, repairing, renovating,
storing, shipping, finishing, selling, preparing for sale, and advertising to
sell the Collateral, whether or not a sale is consummated; out-of-pocket costs
of using, operating, controlling and managing the Collateral including but not
limited to rental and licensing costs; out-of-pocket costs of collecting and
receiving rent, income, revenue, earnings, issues and profits of the Collateral;
out-of-pocket costs of suit incurred by the Bank in enforcing or defending this
Agreement or any other Loan Document or any portion thereof; all out-of-pocket
costs and expenses including appraisal, accounting, consulting and attorneys'
fees and expenses incurred by the Bank in preparing, reviewing, enforcing,
amending, modifying, administering, defending or otherwise concerning this
Agreement or any other Loan Document or any portion hereof or thereof; and
whether or not suit is brought, all out-of-pocket costs of arbitration and
insolvency proceedings.
(g) "Borrowing Base" shall mean at any time, an amount
equal to the sum of:
(i) (A) Eighty (80%) percent of Eligible Accounts Receivable, plus
(B) Thirty-Five (35%) percent of Eligible Inventory, up to a
maximum of the lesser of: (1) One Million Five Hundred Thousand ($1,500,000)
Dollars or (2) an amount equal to eighty (80%) percent of Eligible Accounts
Receivable (provided, however, that (X) subsection 1.1(g)(i)(B)(2) shall not
apply during the three month period from and after the Signature Line Inventory
Purchase Date and during such period subsection 1.1(g)(i)(B)(1) shall be
controlling) and (Y) at no time shall ALES' Eligible Inventory exceed Three
Hundred Fifty Thousand ($350,000) Dollars; less
(ii) the outstanding principal balance of the Term Note.
(h) "Borrowing Base Certificate" shall mean a full and complete
certificate in the form attached hereto as Exhibit 1.1(h), prepared by each
Borrower certified as true and correct by such Borrower's President or Chief
Financial Officer.
(i) "Business Day" shall mean any day other than a Saturday, Sunday or
other day on which State or federally chartered banks in the State of New Jersey
are authorized to close.
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<PAGE>
(j) "Code" shall mean the Uniform Commercial Code as in effect in any
applicable jurisdiction.
(k) "Collateral" shall have the meaning ascribed to such term in
Section 3.1 hereof.
(l) "Collateral Proceeds Account" shall have the meaning ascribed to
such term in Section 3.2 hereof.
(m) "Default" shall mean any of the events specified in Article VII
hereof which, with the passage of time, or giving of notice, or both, would
constitute an Event of Default.
(n) "Eligible Account Receivable" shall mean an Account Receivable that
meets all of the following requirements on its date of invoice or other
origination date and continuing thereafter until collected:
(i) such Account Receivable represents a complete bona fide
transaction which requires no further act under any circumstances on the part of
a Borrower to make such Account Receivable payable by the Account Debtor;
(ii) such Account Receivable shall not be unpaid more than
ninety (90) days from its date of invoice or other origination date;
(iii) if applicable, the goods, the sale of which gave rise to
such Account Receivable, were shipped or delivered to the Account Debtor on an
absolute sale basis and not on a bill and hold sale basis, a consignment sale
basis, a progress basis, a guaranteed sale basis, a sale or return basis, or on
the basis of any other similar understanding, and no part of such goods has been
returned or rejected; provided, however, that in the event any credit is granted
by a Borrower, in the ordinary course of business, with respect to a portion of
an Account Receivable, the amount of such Account Receivable which is not
subject to such credit shall constitute an Eligible Account Receivable if the
Account Receivable is otherwise an Eligible Account Receivable;
(iv) such Account Receivable is not evidenced by chattel paper
or an instrument of any kind;
(v) the Account Debtor, with respect to such Account
Receivable, is not insolvent or the subject of any bankruptcy or insolvency
proceedings of any kind or of any other proceeding or action, which might have a
materially adverse effect on the business of such Account Debtor or is not, in
the reasonable discretion of Bank, deemed ineligible for credit for any other
reason;
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<PAGE>
(vi) if such Account Receivable arises from the performance of
services, such services have been fully rendered;
(vii) such Account Receivable (or portion thereof determined
under Article 1.1(n)(iii)) is a valid, legally enforceable obligation of the
Account Debtor with respect thereto and is not subject to any present, or
contingent, and no facts exist which are the basis for any future, offset or
counterclaim or other defense on the part of such Account Debtor, including,
without limitation, any account payable owing by the Borrower to such Account
Debtor (collectively referred to as an "Offset Right") provided, however, that a
portion of the amount of an Account Receivable from an Account Debtor which is
not subject to an Offset Right shall constitute an Eligible Account Receivable
if the Account Receivable is otherwise an Eligible Account Receivable;
(viii) such Account Receivable shall be subject to a valid and
perfected first priority security interest in favor of the Bank;
(ix) such Account Receivable is evidenced by an invoice or other
documentation in a form acceptable to the Bank;
(x) such Account Receivable is not subject to any provision
prohibiting its assignment or requiring notice of, or consent to, such
assignment;
(xi) if applicable, the goods giving rise to such Account
Receivable were not, at the time of the sale thereof, subject to any Lien,
except Permitted Liens;
(xii) if the Account Debtor with respect thereto is the United
States or any department, agency or instrumentality thereof, such Account
Receivable shall have been assigned to the Bank in full compliance with all
applicable laws and regulations, including the Assignment of Claims Act of 1940,
as amended;
(xiii) the Account Debtor with respect thereto is domiciled within
the United States of America;
(xiv) such Account Receivable does not arise out of any
transaction with any Affiliate or subsidiary of a Borrower or any Person under
common control of a Borrower;
(xv) such Account Receivable is not due from an Account Debtor
where more than fifty (50%) percent of the total Accounts Receivable from such
Account Debtor are not Eligible Accounts Receivable;
5
<PAGE>
(xvi) only such portion of an otherwise Eligible Account
Receivable that does not exceed twenty (20%) percent of the aggregate total of
all of the Borrower's Accounts Receivable shall be an Eligible Account
Receivable; and
(xvii) such Account Receivable is otherwise satisfactory to the
Bank in its sole discretion based upon the Bank's normal eligibility
requirements.
(o) "Eligible Inventory" shall mean Inventory which is:
(i) located on the Premises;
(ii) owned by a Borrower and not purchased or acquired on a
consignment, approval or sale or return basis;
(iii) subject to a valid and perfected first priority security
interest in favor of the Bank;
(iv) fully and adequately insured, with the Bank named as an
additional insured and first loss payee as provided herein;
(v) not unsalable, damaged or obsolete as the Bank shall
reasonably determine;
(vi) not classified as work in progress;
(vii) not cartons or packaging materials; and
(viii) otherwise satisfactory to the Bank in its sole discretion
based upon the Bank's normal eligibility requirements.
(p) "Event of Default" shall mean any of the events specified in
Article VII hereof, provided that any requirement for notice or lapse of time or
any other condition has been satisfied.
(q) "Facility" shall mean the Line of Credit Loan and the Term Loan.
(r) "GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time.
(s) "Indebtedness" shall mean: (i) all items (other than capital stock,
capital surplus, retained earnings and general contingencies) which in
accordance with GAAP would be included in determining total liabilities as shown
on the liability side of a balance sheet as at the date on which Indebtedness is
to be determined; and (ii) whether or not so reflected, all
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indebtedness, obligations and liabilities, whether unsecured or secured by any
Lien, and all capitalized lease obligations.
(t) "Inventory" shall mean "inventory", as such term is defined in the
Code and shall include, without limitation, all goods and other personal
property of a Borrower, whether now owned or hereafter acquired or in which a
Borrower now has or hereafter may acquire any right, title or interest, and
wherever located, whether in transit or otherwise, held for sale or lease, or
furnished or to be furnished under contracts for service, sale or lease,
including all goods returned or reclaimed from customers, and all raw materials,
work in process and materials owned by a Borrower and used or consumed or to be
used or consumed in its business, or in the processing, packaging or shipping of
the same, and all finished goods and all assets of a type classified as
Inventory as reflected, in accordance with GAAP, on the financial statements of
a Borrower.
(u) "Letters of Credit" shall mean a collective reference to all
documentary letters of credit and standby letters of credit issued by the Bank
on account of a Borrower under the Line of Credit Loan.
(v) "Lien" shall mean (i) any lien, judicial lien, assignment, charge,
conditional sale or other title retention agreement, lease constituting a
capital lease, hypothecation, mortgage, pledge, or other security interest,
encumbrance or title retention agreement of any kind, whether legal or
equitable, in respect of any property of a Person, or upon the income, rents or
profits therefrom; (ii) any arrangement, express or implied, under which any
property of a Person is transferred, sequestered or otherwise identified for the
purpose of subjecting the same to the payment of Indebtedness or performance of
any other obligation in priority to the payment of the general unsecured
creditors of such Person; (iii) any Indebtedness for wages or Indebtedness
arising for any other reason which is unpaid more than thirty (30) days after
the same shall have become due and payable and which, if unpaid, might, by
Section 507 of the Bankruptcy Code or any other law (whether or not the events
or conditions (other than the existence of such Indebtedness or the initiation
of legal proceedings available generally to unsecured creditors) set forth in
such law have occurred or been satisfied), be given any priority whatsoever over
general unsecured creditors of such Person; and (iv) the filing of, or any
agreement to give, any financing statement under the Code or its equivalent of
any jurisdiction.
(w) "Line of Credit Loan" shall mean the loan described in Section 2.1
of this Agreement.
(x) "Line of Credit Loan Maximum" shall mean Two Million ($2,000,000)
Dollars.
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(y) "Line of Credit Loan Termination Date" shall mean May 31, 1998.
(z) "Line of Credit Note" shall mean the Line of Credit Note
substantially in the form of Exhibit 1.1(z) attached hereto and by this
reference made a part hereof as fully as if set forth herein, and any promissory
note in renewal thereof or substitution or replacement therefore.
(aa) "Loan Documents" shall collectively mean this Agreement, the Line
of Credit Note, the Term Note, the UCC-1 financing statements, and all other
agreements, documents, instruments and certificates executed and delivered to
the Bank in connection herewith and therewith, including, without limitation, an
Environmental Indemnity Agreement in the form of Exhibit 1.l(aa) attached
hereto.
(bb) "Obligations" shall mean (i) any and all Indebtedness,
obligations, letters of credit, including, liabilities and agreements of every
kind and nature of the Borrowers, or either of them, to or with the Bank, or to
or with any Affiliates of the Bank, or of any guarantor of a Borrower's
Indebtedness, obligations, letters of credit, liabilities and agreements to or
with the Bank, or to or with any Affiliates of the Bank now existing or
hereafter arising, and now or hereafter contemplated, pursuant to this Agreement
and/or any other Loan Document, or otherwise, whether in the form of
refinancing, loans, guarantees, bankers' acceptances, foreign exchange
contracts, options and letters of credit, interest, charges, expenses, fees
(including, without limitation attorneys' fees) or otherwise, direct or
indirect, (including, without limitation, any participation or interest of the
Bank in any obligation of a Borrower to others) acquired outright, conditionally
or as collateral security from another, absolute or contingent, joint and/or
several, liquidated or unliquidated, due or not due, contractual or tortious,
secured or unsecured, arising by operation of law or otherwise, including, but
without limiting the generality of the foregoing, indebtedness, obligations or
liabilities to the Bank by a Borrower as a member of any partnership, syndicate,
association or other group, and whether incurred by a Borrower as principal,
surety, endorser, guarantor, accommodation party or otherwise, together with any
extensions, renewals or modifications thereof; (ii) all obligations of a
Borrower for any future advances made by the Bank to a Borrower whether or not
evidenced by a promissory note and all obligations under any renewals,
extensions or changes in form of, or substitutions for, any of said
indebtedness, obligations or liabilities; (iii) all sums and charges to be paid
to the Bank pursuant to this Agreement and the other Loan Documents, including,
but not limited to Bank Costs; (iv) all interest and late changes on any of the
foregoing; and (v) all obligations of a Borrower now or hereafter existing under
this Agreement and the other Loan Documents.
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(cc) "Obligor" or "Obligors" shall refer singularly to a Borrower and
together to the Borrowers.
(dd) "Permitted Indebtedness" shall mean:
(i) Indebtedness owing to the Bank;
(ii) Indebtedness incurred in favor of trade creditors in the
ordinary course of business; and
(iii) Indebtedness in respect of taxes, assessments, governmental
charges, worker's compensation, levies and claims for labor, materials, supplies
and rentals to the extent otherwise permitted under this Agreement to remain
unpaid and undischarged.
(ee) "Permitted Liens" shall mean:
(i) any Lien in favor of the Bank;
(ii) Liens for taxes, assessments or governmental charges or
levies not yet due or which are delinquent and which are being contested in good
faith and by appropriate proceedings, promptly initiated and diligently
conducted, for which reserves have been established in accordance with GAAP with
respect thereto and as to which foreclosure, distraint, sale or other similar
proceedings shall not have been commenced;
(iii) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of business which
are not overdue or which are being contested in good faith and by appropriate
proceedings, promptly initiated and diligently conducted, for which reserves
have been established in accordance with GAAP with respect thereto and as to
which foreclosure, distraint, sale or other similar proceedings shall not have
been commenced;
(iv) pledges or deposits in connection with workers'
compensation, workers' compensation insurance, unemployment insurance and other
social security legislation;
(v) deposits to secure the performance of bids, trade contracts
(other than for borrowed money), statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature incurred in the
ordinary course of business; or
(vi) Liens created by or existing from any litigation or legal
proceeding; provided that the execution or other enforcement of such Liens is
effectively stayed, the claims secured thereby are being actively contested in
good faith by appropriate proceedings, adequate book reserves have been
established in accordance with GAAP with respect thereto and no
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Default or Event of Default arises or is created as a result thereof.
(ff) "Person" shall mean any individual, corporation, partnership,
limited liability company association, joint stock company, trust,
unincorporated organization, joint venture, court or government or political
subdivision or agency thereof.
(gg) "Premises" shall mean and refer to (i) 495 River Street, Paterson,
New Jersey 07524 and (ii) 64 Genung Street, Middletown, New York 10940.
(hh) "Prevailing Base Rate of Bank" means the fluctuating Prevailing
Base Rate of interest established by Bank from time to time whether or not such
rate shall be otherwise published. The Prevailing Base Rate is established for
the convenience of Bank. It is not necessarily Bank's lowest rate. In the event
that there should be a change in the Prevailing Base Rate of Bank, such change
shall be effective on the date of such change without notice to Borrower. Any
such change will not effect or alter any other terms or conditions of this
Agreement or the other Loan Documents.
(ii) "Proceeds" and "Products" shall have the meaning ascribed to
such terms in the Code and shall include in any event (i) whatever is received
upon any collection, exchange, sale or other disposition or refinancing of any
of the Collateral and any property into which any of the Collateral is
converted, whether cash or non-cash proceeds; (ii) any and all proceeds of any
insurance, indemnity, warranty or guaranty payable to a Borrower from time to
time with respect to any of the Collateral; (iii) any and all payments (in any
form whatsoever) made or due and payable to a Borrower from time to time in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Collateral by any governmental body,
authority, bureau or agency (or any Person acting under color of governmental
authority); and (iv) any and all other amounts, from time to time, paid or
payable under or in connection with any of the Collateral.
(jj) "Asset Purchase Agreement" shall mean the Asset Purchase Agreement
between ALES and SBC Corporation, Inc. for the purchase of the Signature Line
Inventory and related tradenames and trademarks.
(kk) "Signature Line Inventory Purchase Date" shall mean the date of
ALES's initial purchase of the Signature Line Inventory.
(ll) "Signature Line Inventory" shall mean any and all non-obsolete
salable finished cosmetics and non-obsolete work-in-process bearing the related
signature and trademarks.
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(mm) "Term Loan" shall mean the term loan described in
Section 2.4 of this Agreement.
(nn) "Term Note" shall mean the promissory note substantially in the
form of Exhibit 1.1(nn) attached hereto and by this reference made a part hereof
as fully as if set forth herein, and any promissory note in renewal thereof or
substitution or replacement therefore.
1.2 Accounting Terms. Any accounting terms used in this Agreement
which are not specifically defined herein shall have the meaning customarily
given thereto in accordance with GAAP.
1.3 Other Terms. Terms such as "accounts", "contract rights", "letters
of credit", "advices", "confirmations", "instruments", "chattel paper",
"documents of title", and the like, shall, unless otherwise specifically defined
herein, have the meanings applicable to them for the purposes of Article 9
(Secured Transactions) of the Uniform Commercial Code in force and effect in the
State of New Jersey at the date of this Agreement.
1.4 Entire Agreement. The words "hereof", "herein", and "hereunder"
and words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement, and
section, subsection, schedule and exhibit references are to this Agreement,
unless otherwise specified.
II. FACILITY
2.1 Line of Credit Loan. From time to time, during the period from the
date all conditions precedent set forth in Article VI of this Agreement are
satisfied in full until the Line of Credit Loan Termination Date, in the manner
hereinafter set forth, the Borrowers may borrow, repay and reborrow from the
Bank and, upon request of both Borrowers and upon the terms and conditions
contained herein, the Bank shall lend and relend to the Borrowers a sum or sums
or, subject to the limitations set forth below, issue Letters of Credit (the
"Advances") which, when added to the outstanding principal amount of the
Advances theretofore made pursuant to the Line of Credit Loan, will not exceed
in the aggregate, at any time, the lesser of: (i) the Line of Credit Loan
Maximum; or (ii) the Borrowing Base. The proceeds of each Advance under the Line
of Credit Loan shall only be used for general working capital purposes of the
Borrowers. In addition, upon request of both Borrowers to the Bank, the
Borrowers may request Advances, within the limits set forth above, in the form
of Letters of Credit; provided, however, that: (x) Borrowers shall not be
permitted to request Letters of Credit if the aggregate undrawn amount of
Letters of Credit outstanding shall exceed Three Hundred Thousand ($300,000)
Dollars and (y)
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such letters of credit must be applied for and issued in accordance with the
Bank's standard terms and conditions. The Bank shall not be obligated to make
any Advances unless all of the conditions set forth in Article VI are satisfied
in full, as of the date of each Advance.
2.2 Procedure for Borrowings under the Line of Credit Loan. Each
Advance shall be made upon prior written notice from the Borrowers to the Bank
(which notice shall be received by the Bank prior to 11:00 a.m. with respect to
any Advance to be made on the same date). Such notice shall include (i) the
principal amount of the Advance, (ii) the requested borrowing date, (iii) the
type of the Advance, (iv) in the case of Letters of Credit, a completed and
fully executed application for Letter of Credit on a form prescribed by the Bank
from time to time to customers of the Bank and (v) fulfillment of the conditions
precedent set forth in Article VI. Provided all of the terms, conditions and
provisions of this Agreement and the other Loan Documents are satisfied by the
Borrowers, the Bank shall make the requested Advance to the Borrowers, in the
case of an Advance which is not a Letter of Credit, in immediately available
funds, by depositing said funds in the Borrowers' demand deposit account
maintained with the Bank.
2.3 Line of Credit Note; Payment in Full. The Indebtedness of the
Borrowers to the Bank with respect to the Advances made, from time to time,
hereunder shall be evidenced by the Line of Credit Note, made payable to the
Bank, dated the date of execution thereof, signed by the Borrowers, on a joint
and several basis, completed in accordance with Paragraph 2.6 below and
delivered to the Bank concurrently with, and as a condition precedent to, the
making of the first Advance. The Line of Credit Note shall be paid in full by
the Borrowers to the Bank on the Line of Credit Loan Termination Date.
2.4 Term Loan. On the date all conditions precedent set forth in
Article VI of this Agreement are satisfied in full, the Borrowers shall borrow
from the Bank, and the Bank shall lend to the Borrowers, a sum in the principal
amount of One Million ($1,000,000) Dollars (the "Term Loan"). The Term Loan
shall be repaid by the Borrowers in accordance with the terms of the Term Note.
The proceeds of the Term Loan shall be used exclusively to satisfy ALES'
obligations under the Asset Purchase Agreement; provided, however, to the extent
there are any excess proceeds of the Term Loan remaining after satisfaction of
the obligations set forth above, such excess shall be used by the Borrowers for
general working capital purposes. The Bank shall not be obligated to make the
Term Loan unless all of the conditions set forth in Article VI are satisfied as
of the date the Term Loan is to be made. The Borrowers shall not have the right
to reborrow any amounts repaid under the Term Note.
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2.5 Term Note. The Term Loan shall be evidenced by the Term Note,
dated the date of execution thereof, executed by the Borrowers, on a joint and
several basis, completed in accordance with Paragraph 2.6 below and delivered to
the Bank concurrently with, and as a condition precedent to, the making of the
Term Loan.
2.6 Interest Rates. The Line of Credit Note shall bear interest from
the date thereof on the outstanding daily principal amount thereof, which
interest shall be payable on the first day of the first month following the date
of the Line of Credit Note and on the first day of each and every month
thereafter and upon payment of the Line of Credit Note in full, at a fluctuating
rate per annum equal to the Prevailing Base Rate. The Term Note shall bear
interest from the date thereof on the outstanding principal balance thereof,
which interest shall be payable on the first day of the first month following
the date of the Term Note and on the first day of each and every month
thereafter and upon payment of the Term Note in full, at a fluctuating rate per
annum equal to the Prevailing Base Rate plus one-quarter of one (.25%) percent.
Interest shall be calculated on the basis of a 360-day year for the actual
number of days elapsed, unless prohibited by law. The rate of interest on the
Line of Credit Note and the Term Note shall be adjusted automatically as of the
opening of business on each day on which any change in the Prevailing Base Rate
is announced by the Bank at its principal office.
2.7 Letter of Credit Fees. The Borrowers shall pay to the Bank, on or
before the issuance date of each Letter of Credit the customary fees and charges
as are required by the Bank in accordance with its general practice relating to
the issuance, maintenance, transfer and payment of Letters of Credit.
2.8 Optional Prepayment of Line of Credit Note and Term Note. The
Borrowers shall have the right to prepay, in whole or in part and without
premium or penalty, the Line of Credit Note and/or the Term Note at any time and
from time to time.
2.9 Mandatory Prepayment of Line of Credit Note. If at any time and
for whatever reason the sum of the aggregate outstanding principal amount of
Advances hereunder exceeds the lesser of the Line of Credit Loan Maximum or the
Borrowing Base, then such excess, together with accrued interest thereon, shall
be immediately due and payable.
2.10 Submission of Reports. The Borrowers shall each submit to the Bank
on a monthly basis a Borrowing Base Certificate and an Accounts Receivable
listing and aging report.
2.11 Method of Payment. The Borrowers shall make each payment to be
made by it hereunder and under the Line of Credit Note and the Term Note
(including, without limitation, all
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principal, interest and optional and mandatory prepayments and fees), without
set-off or counterclaim, not later than 2:00 p.m. (New York City time) on the
day when due in lawful money of the United States of America and in immediately
available funds to the Bank at its principal office set forth on the first page
of this Agreement.
2.12 Reimbursement Obligation. The Borrowers absolutely, irrevocably
and unconditionally agrees to pay to the Bank an amount equal to, and in
reimbursement for, each amount which the Bank pays under any Letters of Credit
on or before the earlier of: (a) the date specified for payment, if any, of such
amount by the Bank in the Letters of Credit or (b) the actual date of payment by
the Bank of such amount. The Borrowers hereby authorize the Bank to make from
time to time, pursuant to Section 2.2 above, one or more Advances in an amount
equal to the Borrowers' reimbursement obligation as set forth herein and to
distribute such Advance to the Bank to be applied to payment of such
reimbursement obligation. The Borrowers expressly agree that all Advances so
made shall be deemed to have been requested by it and direct that all proceeds
thereof shall be applied to payment of such reimbursement obligation as
aforesaid.
2.13 Method of Payment. The Borrowers agree to indemnify and save
harmless the Bank from and against any and all claims, demands, liabilities,
damages, losses, costs, charges and expenses (including reasonable attorneys'
fees) which the Bank may incur or be subject to as a consequence, directly or
indirectly, of the issuance of any Letters of Credit or any action or proceeding
relating to a court order, injunction, or other process or decree restraining or
seeking to restrain the Bank from paying any amount under any Letters of Credit.
In furtherance and not in limitation of the foregoing, the obligations of the
Borrowers hereunder shall be unconditional and irrevocable, and shall be paid
strictly in accordance with the terms hereof under all circumstances, including,
without limitation, any of the following circumstances:
(a) any lack of validity or enforceability of any Letters of
Credit or any agreement or instrument relating thereto;
(b) the existence of any claim, setoff, defense or other right
which the Borrowers may have at any time against the beneficiary or any
transferee of any Letters of Credit;
(c) any draft, certificate, or other document presented under
any Letters of Credit proving to be forged, fraudulent, invalid or insufficient
in any respect or any statement therein being untrue or inaccurate in any
respect;
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(d) any lack of validity, effectiveness, or sufficiency or any
instrument transferring or assigning or purporting to transfer or assign any
Letters of Credit or the rights or benefits thereunder or proceeds thereof, in
whole or in part;
(e) any loss or delay in the transmission or otherwise of any
documents required in order to make a drawing under any Letters of Credit or of
the proceeds thereof;
(f) any failure of the beneficiary of a Letter of Credit to
strictly comply with the conditions required in order to draw upon any Letters
of Credit;
(g) any misapplication by the beneficiary of any Letters of
Credit of the proceeds of any drawing under such Letters of Credit; or
(h) any other circumstance or happening whatsoever, whether
or not similar to the foregoing;
Provided, however, that notwithstanding the foregoing, the Bank
shall not be relieved of any liability it may otherwise have as a result of its
gross negligence, willful misconduct or wrongful refusal to honor any Letters of
Credit.
2.14 Method of Payment. The Uniform Customs and Practice for
Documentary Credits, as most recently published by the International Chamber of
Commerce, shall in all respects be deemed a part of this Agreement as if set
forth at length herein and shall apply to the Letters of Credit.
2.15 Business Day. Whenever any payment hereunder or under the Line of
Credit Note or the Term Note shall be stated as due on any day other than a
Business Day, the maturity of such payment shall be extended to the next
succeeding Business Day and interest and all other fees shall accrue during such
extension.
2.16 Automatic Charge. Without in any way limiting any right of offset,
counterclaim or banker's lien which the Bank may otherwise have at law, the
Borrowers hereby irrevocably authorize and direct the Bank, if and to the extent
payment of any amount due hereunder is not otherwise made on any day when due,
to charge against any of the Borrowers' joint or single account or accounts at
the Bank, an amount or amounts equal in the aggregate to such aforesaid sums as
are due and payable from time to time to the Bank.
2.17 Increased Costs. If as the result of any enactment or issuance of,
or any change in, any law or regulation, or in the interpretation thereof by any
court or administrative or governmental authority having jurisdiction thereto,
there shall be any increase in the cost of the Bank of agreeing to make or
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making available the Facility, including without limitation, any increase in
cost arising from the imposition or modification of any reserve, special deposit
or other requirement or arising from any increase in capital required to be
maintained by the Bank, then the Borrowers shall from time to time, upon demand
by the Bank, pay to the Bank such additional amount as may be necessary to
reimburse the Bank for such increased cost. In any such case of increased cost,
the Bank shall provide the Borrowers with a detailed certificate setting forth
the amount of such increased cost and the calculation thereof, which certificate
shall be conclusive and binding for all purposes, absent manifest error.
2.18 Termination. The obligation of the Bank to make any Advance
hereunder may be terminated:
(a) by the Bank at any time after the occurrence of an Event of
Default;
(b) by the Bank on the Line of Credit Loan Termination Date
of the Line of Credit Loan;
(c) by the Bank if all conditions precedent set forth in
Article
VI are not satisfied in full on or before October 31, 1997; or
(d) by Borrowers at any time upon 30 days' prior written
notice to the Bank.
Borrowers acknowledge that the Bank has no obligation to renew the Line
of Credit Loan beyond the Line of Credit Loan Termination Date regardless of the
financial condition of the Borrowers at such time.
2.19 Audit Fees. The Borrowers agree to reimburse the Bank for all Bank
Costs associated with the Bank's audits of each Borrower's books and records as
more fully set forth, required and permitted pursuant to this Agreement,
including, without limitation, any audit conducted pursuant to Section 5.7 of
this Agreement. So long as there is no adverse change in a Borrower's financial
position, as determined by the Bank in its sole discretion, and no Default or
Event of Default exists, then (a) the Bank shall not conduct more than one such
audit a year and (b) the cost of each such audit of a Borrower shall not exceed
$3,000.
2.20 Late Payment Fee. If the Borrowers fail to make any payments of
any amounts due to the Bank under the Loan Documents within ten (10) days after
the date when due, then the Borrowers shall pay to the Bank, to the extent
permitted by law, a late payment fee on all amounts overdue equal to five (5%)
percent of the overdue payment (but in no event less than $25.00 nor more
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<PAGE>
than $2,500.00). Any such late charge assessed is immediately
due and payable.
2.21 Bank Fee. In consideration for the Bank's making the Term Loan to
the Borrowers, the Borrowers are concurrently herewith paying to the Bank a fee
in the amount of Five Thousand ($5,000) Dollars.
III. SECURITY INTEREST
3.1 Grant of Security Interest.
(a) As general and continuing collateral security for the prompt
and complete payment and performance when due (whether at the stated maturity,
by acceleration or otherwise) of all Obligations and in order to induce the Bank
to enter into this Agreement and, among other things, make the Advances and the
Term Loan as provided herein, each Borrower hereby, assigns, conveys, mortgages,
pledges, hypothecates, transfers and grants to the Bank a security interest in
and first lien (except for Permitted Liens) on all of the Borrower's right,
title and interest in and to all of the Borrower's following assets, whether now
owned or hereafter acquired (all of which being hereinafter collectively called
the "Collateral"):
(i) all Accounts Receivable;
(ii) all Inventory;
(iii) the Collateral Proceeds Account;
(iv) any and all moneys, securities, drafts, notes, and other
property of any kind of a Borrower, now or hereafter held or received by or in
transit to the Bank from or for a Borrower (including, without limitation, all
moneys held or deposited in any lock box maintained at any office of the Bank),
or which may now or hereafter be in the possession of the Bank, or as to which
the Bank may now or hereafter be in the control or possession of, by documents
of title or otherwise, whether for safekeeping, custody, pledge, transmission,
collection or otherwise, and any and all deposits, general or special, balances,
sums, proceeds and credits of the Borrower, and all rights and remedies which a
Borrower might exercise with respect to any of the foregoing but for this
Agreement; and
(v) all Proceeds and Products of the foregoing.
(b) All Collateral heretofore, herein or hereafter given or
granted to the Bank by the Borrowers shall secure payment of all of the
Obligations. The Bank shall be under no obligation to proceed against any or all
of the Collateral before proceeding directly against either or both of the
Borrowers. The
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Bank shall be under no obligation to proceed against both Borrowers before
proceeding against one Borrower.
3.2 Rights of the Bank.
(a) Each Borrower is authorized to collect amounts owing to such
Borrower with respect to the Collateral, provided that the Bank may, at any time
curtail or terminate said authority upon prior written notice. Any Proceeds,
when collected by a Borrower, whether consisting of checks, notes, drafts, bills
of exchange, money orders, commercial paper of any kind whatsoever, or other
documents, received as payment in respect of any Collateral, shall, at the
option of the Bank upon serving written notice to the Borrower, be promptly
deposited by the Borrower in precisely the form received, except for endorsement
when required, in a special bank account maintained by the Bank (the "Collateral
Proceeds Account"), subject to withdrawal as hereinafter provided, and until so
turned over, shall be deemed to be held in trust by the Borrower for and as the
Bank's property and shall not be commingled with any of the Borrower's other
funds. Such Proceeds, when deposited, shall continue to be Collateral for all of
the Obligations and shall not constitute payment thereof until applied as
hereinafter provided. In the event the Bank elects to require a Collateral
Proceeds Account, on every Business Day, the Bank shall apply all or any part of
the funds on deposit in the Collateral Proceeds Account on account of the
principal of and/or interest on the Line of Credit Note and/or the Term Note.
For purposes of the preceding sentence, funds shall be deemed on deposit in the
Collateral Proceeds Account on the third Business Day after the actual date of
deposit of said funds in the Collateral Proceeds Account. The Borrowers shall
pay to the Bank a fee on the Collateral Proceeds Account in an amount equal to
three (3) days of interest expense on all amounts on deposit in the Collateral
Proceeds Account at a fluctuating rate equal to the interest rate set forth in
the Line of Credit Note. Such fee shall be payable on the fifteenth (15th) day
of each month.
(b) The Bank may at any time following the occurrence of an Event
of Default, notify Account Debtors to the effect that the Accounts Receivable
have been assigned to the Bank and that payments shall be made directly to the
Collateral Proceeds Account or as the Bank shall otherwise direct. Upon the
request of the Bank at any time following the occurrence of an Event of Default,
the Borrowers will so notify such Account Debtors and will indicate on all bills
that payments shall be made directly to the Collateral Proceeds Account or as
the Bank shall otherwise direct. The Bank may, in its own name or in the name of
others, communicate with Account Debtors in order to verify with them, to the
Bank's satisfaction, the existence, amount and terms of any Accounts Receivable.
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(c) The Bank shall have the right to make test verifications of
the Accounts Receivable in any manner and through any medium that it considers
advisable, and the Borrowers agree to furnish all such assistance and
information as the Bank may require in connection therewith.
(d) Without limiting any of the foregoing, at the option of the
Bank upon serving written notice to the Borrowers, each Borrower agrees to
establish a lock-box at the Bank in accordance with the Bank's customary
procedures which shall include each Borrower entering into a lock-box agreement
in favor of the Bank.
(e) The Bank agrees to release the Collateral promptly upon
satisfaction of each of the following: (i) the receipt by the Bank of a written
request therefor from each Borrower; (ii) payment in full of all Obligations;
(iii) the termination of the Bank's obligation to make any Advances hereunder as
provided in Section 2.1 hereof; and (iv) the payment by the Borrowers of all
reasonable costs and expenses incurred by the Bank in connection with such
release of the Collateral.
IV. REPRESENTATIONS AND WARRANTIES.
In order to induce the Bank to enter into this Agreement and, among
other things, make the Facility available and make the Advances and Term Loan as
provided herein, the Borrowers hereby, jointly and severally, represent, warrant
and agree that:
4.1 Organization; Power; Qualification. Each Borrower: (i) is a
corporation duly organized, validly existing and in good standing under the laws
of the State of New York; (ii) has the full power and authority to own and
operate its properties and assets and to carry on the business now conducted by
it; and (iii) is qualified or authorized to do business and is in good standing
in the State of New Jersey and all other jurisdictions wherein the character of
the property owned or the nature of the business conducted by it makes such
qualification or authorization necessary.
4.2 Authorization of Agreement. Each Borrower has full power and
authority to execute, deliver and perform any action which may be necessary or
advisable to carry out the terms of the Loan Documents; and each Loan Document
to which the Borrower is a party has been duly authorized, executed and
delivered by each Borrower and is the legal, valid and binding obligation of
each Borrower enforceable in accordance with its terms.
4.3 No Legal Bar. The execution, delivery and performance of the Loan
Documents will not: (a) violate any provision of any existing law, statute,
rule, regulation or ordinance; (b)
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conflict with, result in a breach of or constitute a default under (i) the
certificate of incorporation or by-laws of either Borrower; (ii) any order,
judgment, award or decree of any court, governmental authority, bureau or
agency; or (iii) any mortgage, lease, material contract or other material
agreement or undertaking to which either Borrower is a party or by which either
Borrower or any of its properties or assets may be bound; or (c) result in the
creation or imposition of any Lien upon or with respect to any property or asset
now or hereafter acquired by either Borrower, other than the Liens created by
the Loan Documents.
4.4 Consent. No consent, license, permit, approval or authorization
of, exemption by, notice to, report to, or registration, filing or declaration
with any Person is required in connection with the execution, delivery,
performance or validity of the Loan Documents or the transactions contemplated
thereby, other than filing or recordation of financing statements, mortgages and
like documents in connection with the Liens being granted in favor of the Bank.
4.5 Compliance With Law. Neither Borrower is in violation of any
applicable law, rule, regulation, statute, ordinance, or any order, judgment,
award or decree of any court, governmental authority, bureau or agency, the
violation of which might have a materially adverse effect on its business,
assets, liabilities, financial condition, results of operation or business
prospects.
4.6 Title to Properties and Assets; Liens. Sel-Leb has good,
marketable and legal title to, the properties and assets as reflected on the
balance sheet of Sel-Leb as of March 31, 1997, delivered to the Bank, except
such properties or assets as have been disposed of by Sel-Leb subsequent to the
date thereof in the ordinary course of business. All of said properties and
assets are in good working order. The Borrowers do not own, or have any interest
in, any real property other than a leaseholder interest in the offices set forth
in Exhibit 4.15 attached hereto. Except for financing statements naming the Bank
as secured party and those financing statements set forth on Exhibit 4.6
attached hereto, no financing statement under the Code, is in effect in any
jurisdiction, which names a Borrower as debtor and the Borrowers have not signed
any such financing statement or any security agreement authorizing any secured
party thereunder to file any such financing statement in any such jurisdiction.
4.7 No Default. Neither Borrower is in default in the payment or
performance of any of its obligations or in the performance of any mortgage,
indenture, lease, contract or other agreement or undertaking to which it is a
party or by which it or any of its properties or assets may be bound, which
default may materially affect its business, assets, liabilities, results of
operations or financial condition, and no Default or Event of
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Default has occurred and is continuing. Neither Borrower is in default under any
order, award or decree of any court, arbitrator, or governmental authority
binding upon or affecting it or by which any of their properties or assets may
be bound or affected, and no such order, award or decree, if any, materially and
adversely affects the ability of the Borrower to carry on business as presently
conducted or to perform its obligations under the Loan Documents.
4.8 No Litigation. No litigation, investigation or proceeding of or
before any court, arbitrator or governmental authority is currently pending,
nor, to the knowledge of the Borrowers, is threatened, against either of the
Borrowers or any of its properties and revenues, which, if adversely determined,
would materially and adversely affect its business, operations, financial
condition or results of operations.
4.9 No Burdensome Restrictions. Neither Borrower is a party to, or
bound by, any contract or agreement or instrument nor subject to any restriction
materially and adversely affecting its business, operations, properties or
financial or other condition.
4.10 Tax Returns and Payments. All federal, state and other tax returns
of each Borrower required by law to be filed have been duly filed or extensions
obtained, and all federal, state and other taxes, assessments and governmental
charges or levies upon a Borrower or any of its properties, income, profits or
assets which are due and payable have been paid or provided for, except for such
taxes and assessments which a Borrower is disputing in good faith and for which
a Borrower has established adequate reserves on its books for the payment of
such disputed taxes or assessments in accordance with GAAP.
4.11 Financial Statements. Sel-Leb has furnished to the Bank copies of
its balance sheets as of December 31, 1996 and the related statements of income
and retained earnings and cash flows for the years then ended, as certified by
Goldstein, Golub, Kessler & Co., along with Goldstein, Golub, Kessler & Co.,
interim financial statements prepared by such Borrower. Such financial
statements are true, correct and complete in all material respects and reflect
all material direct and contingent liabilities of every kind and fairly present
the financial position and results of operations of such Borrower on the dates
and for the periods then ended, in accordance with GAAP, consistently applied
throughout the periods involved.
4.12 No Adverse Changes. Since March 31, 1997, no material adverse
change has occurred in the business, assets, liabilities, financial condition,
results of operations or business prospects of Sel-Leb, and no event has
occurred or failed to occur which has had or is likely to have a material
adverse effect on the
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business, assets, liabilities, financial condition, results of operations or
business prospects of either Borrower.
4.13 ERISA.
(a) The Borrowers are in compliance in all material respects
with the applicable provisions of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and all regulations issued thereunder; and
(b) No "employee benefit plan", as defined in Section 3 of
ERISA, maintained and administered by the Borrower (and including any
multi-employer plan in which a Borrower participates but does not administer),
as from time to time in effect (the "Plans"), nor any trusts created thereunder,
nor any trustee or administrator thereof, has engaged in a "prohibited
transaction", as defined in Section 4975 of the Internal Revenue Code of 1986,
as amended, which could subject a Borrower, any Plan or any such trust, or any
trustee or administrator thereof, or any party dealing with any Plan or any such
trust to the tax or penalty on prohibited transactions imposed by said Section
4975. Neither any of the Plans nor any such trusts have been terminated, nor has
there been any "reportable event", as defined in Section 4043 of ERISA, or
"accumulated funding deficiency", as defined in Section 4971 of the Internal
Revenue Code of 1986, as amended. Neither Borrower has incurred any liability to
the Pension Benefit Guaranty Corporation.
4.14 Federal Reserve Regulations. Neither Borrower has engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying any margin stock (within the
meaning of Regulations U and X of the Board of Governors of the Federal Reserve
System). No part of any of the Facility hereunder shall be used to purchase or
carry any such margin stock or to extend credit to others for the purpose of
purchasing or carrying any such margin stock.
4.15 Collateral.
(a) Each Borrower is (or, in the case of after acquired
property, will be) the sole owner of each item of Collateral, as the case may
be, and has good and marketable title thereto, free and clear of any and all
Liens except for Permitted Liens.
(b) No security agreement, financing statement, mortgage, deed
of trust, equivalent security or instrument or continuation statement covering
all or any part of the Collateral is on file or of record in any public office,
except for Permitted Liens.
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(c) This Agreement constitutes a valid and continuing first
lien on, and first perfected security interest in, the Collateral in favor of
the Bank, prior to all other liens, encumbrances, security interests and rights
of others (except for Permitted Liens), and is enforceable as such or against
creditors of and purchasers from the Borrowers. All action necessary or
desirable to protect and perfect such security interest in each item of
Collateral has been duly taken.
(d) Exhibit 4.15 attached hereto and by this reference made a
part hereof, sets forth the location of each Borrower's places of business.
Exhibit 4.15 also sets forth the place where records concerning each Borrower's
Collateral is kept. Exhibit 4.15 also sets forth the various locations at which
any Collateral may be found (except for items in transit), including any
Inventory which may be held on consignment or under any field warehousing
arrangement. Exhibit 4.15 further sets forth whether any of such locations are
owned by a Borrower or leased from any other Person, and if leased, the name and
address of the lessor thereunder.
(e) Neither Borrower has not within the past six (6) months,
and does not presently, conduct any business under, or use, any trade name,
alternate name or fictitious name in any manner.
(f) Each Account Receivable is a bona fide, valid and legally
enforceable obligation of the Account Debtor in respect thereof and does not
represent a sale on consignment, sale or return, or other similar understanding,
and no facts exist which are the basis for any future offset or counterclaim or
other defense on the part of such Account Debtor, including, without limitation,
any account payable owing by a Borrower to such Account Debtor, nor will any of
the foregoing, whether or not arising in the ordinary course of business, have a
material and adverse effect on the business, financial condition or results of
operations of a Borrower or the aggregate value of the Eligible Accounts
Receivable. The amount represented by the Borrowers to the Bank as owing by each
Account Debtor in respect of the Accounts Receivable is the correct amount
actually and unconditionally owing by such Account Debtor thereunder.
4.16 Accuracy and Completeness of Information. All information, reports
and other papers and data furnished to the Bank were, at the time the same were
so furnished, complete and correct in all material respects. No document
furnished or statement made to the Bank in connection with the negotiation,
preparation or execution of the Loan Documents contains or will contain any
untrue statement of fact or omits or will omit to state a material fact
necessary in order to make the statements contained therein not misleading. No
fact is known to a Borrower which has had, or may in the future have, a material
adverse
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effect upon the Borrowers' business, assets, liabilities, condition, financial
or otherwise, or results of operations, that has not been set forth in the
financial statements furnished to the Bank or other reports or other papers or
data otherwise disclosed in writing to the Bank.
V. COVENANTS
The Borrowers, jointly and severally, covenant and agree that until all
the Obligations have been satisfied and paid in full, the Borrowers will comply
with the following covenants:
5.1 Preservation of Existence. The Borrowers will do or cause to be
done all things necessary to preserve and maintain in full force and effect
their corporate existence and all contracts, rights, licenses, permits,
franchises and trade names, which in its judgment are necessary or useful to the
proper conduct of its business and shall qualify and remain qualified as a
foreign corporation and authorized to do business in each jurisdiction in which
the character of its properties or the nature of its business requires such
qualification or authorization.
5.2 Nature of Business. The Borrowers will continue to be engaged only
in the business of distributing and marketing consumer merchandise.
5.3 Compliance with Laws. The Borrowers will comply with all laws,
ordinances, governmental rules and regulations to which it or its properties or
assets are, or might become subject, including but not limited to all
environmental law rules and regulations (unless the same shall be contested in
good faith and by appropriate proceedings and such contest shall operate to stay
any such noncompliance), the noncompliance with which might interfere with the
performance of its obligations under the Loan Documents or with the proper
conduct of its business.
5.4 Maintenance of Properties. The Borrowers will maintain or cause to
be maintained in working order and good condition, ordinary wear and tear
excepted, all of its assets and properties which are material to the conduct of
its business, and from time to time, make or cause to be made all necessary
repairs, replacements, additions, betterments and improvements thereto, so that
the business carried on in connection therewith may be properly and
advantageously conducted at all times.
5.5 Accounting Methods. The Borrowers will maintain a system of
accounting established and administered in accordance with GAAP, keep adequate
records and books of account in which complete entries will be made in
accordance with GAAP, make provision in its accounts in accordance with GAAP for
reserves for depreciation, obsolescence and amortization and all other
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proper reserves and accruals which in accordance with GAAP should
be established.
5.6 Payment of Taxes and Claims. The Borrowers will pay and discharge
promptly: (a) all taxes, assessments and governmental charges or levies imposed
upon it or upon its income or profits or upon any of its properties or assets
before the same shall become delinquent; (b) all lawful claims of materialmen,
mechanics, carriers, warehousemen, landlords, and other similar persons for
labor, materials, supplies and rentals which, if unpaid, might by law become a
Lien or charge upon its property; and (c) all of its Indebtedness and other
obligations of whatever nature when due (subject, where applicable, to grace
periods, normal credit terms and to other forbearance in the ordinary course of
business); provided, however, that none of the foregoing need be paid while
being contested in good faith and by appropriate proceedings, so long as
adequate book reserves have been established in accordance with GAAP with
respect thereto.
5.7 Visits and Inspection; Audits. The Borrowers will permit the Bank
and its agents and representatives, during business hours to: (a) visit and
inspect their properties; (b) inspect and make extracts from their books and
records; (c) discuss with its principal officers, employees and independent
public accountants any and all matters with respect to their business, assets,
liabilities, financial condition, results of operations and business prospects;
and (d) audit all their Accounts Receivable, general ledgers, Inventory, and
corporate records.
5.8 Information Covenants. The Borrowers will furnish the following
information to the Bank (which shall be in such form and in such detail as shall
be satisfactory to the Bank):
(a) As soon as practicable, and, in any case, within forty-five
(45) days after the last day of the third, sixth and ninth month of each fiscal
year of each Borrower, a balance sheet of each Borrower as at the end of such
month and the related statement of income and retained earnings of each Borrower
for the elapsed portion of the fiscal year ended with the last day of such
month, setting forth in comparative form the elapsed portion of the fiscal
figures for the corresponding periods of the previous fiscal year, which shall
be certified by the chief financial officer of such Borrower, on such form as is
customarily required by the Bank, which shall set forth in his or her opinion,
as presenting fairly in accordance with GAAP, the financial position for such
period and for the elapsed portion of the fiscal year ended with the last day of
such period, subject only to normal year-end auditing adjustments;
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(b) As soon as practicable, and, in any case, within ninety (90)
days after the end of each fiscal year of each Borrower a balance sheet for such
Borrower as of the end of such fiscal year and the related statements of income,
retained earnings and cash flows for such Borrower for such fiscal year, setting
forth in comparative form the figures as at the end of and for the previous
fiscal year, audited by Goldstein, Golub, Kessler & Co., or other independent
certified public accountants reasonably satisfactory to the Bank;
(c) At the time the financial statements and reports are
furnished pursuant to Subsections 5.8 (a) and (b) above, each Borrower shall
also furnish a statement attestation certificate in the form attached hereto as
Exhibit 5.8(c) and stating that no event has occurred which constitutes a
Default or an Event of Default under any of the Loan Documents or if such an
event has occurred, disclosing each such event or failure and its nature, when
it occurred, whether it is continuing and the steps being taken by such Borrower
with respect to such event or failure.
(d) Within five (5) days of the end of each month (A) an Accounts
Receivable listing and aging report (with progress billings, foreign accounts
receivable, maintenance billings, test and evaluation billings and governmental
receivables broken out), (B) an Inventory listing and (C) a Borrowing Base
Certificate.
(e) From time to time and promptly upon each request, such
existing reports and other information regarding the business, assets,
liabilities, financial condition, results of operations or business prospects of
each Borrower as the Bank may reasonably request including, but not limited to,
copies of each Borrower's filed tax returns, machinery and equipment appraisals,
real property appraisals, environmental assessments and reports, invoices, bills
of lading and shipping documents;
(f) Prompt notice of:
(i) the commencement of any proceeding or investigation by
or before any governmental body and any action or proceeding in any court or
before any arbitrator against or in any other way relating adversely to a
Borrower or any of its properties, assets or business, which, if adversely
determined, would singly or when aggregated with all other proceedings,
investigations or actions, materially and adversely affect the business,
results of operations or financial condition of a Borrower;
(ii) any notice received from any administrative official or
agency relating to any order, ruling, statute or other law or information which
would materially and adversely affect the operations of each Borrower;
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(iii) any amendment of the certificate of incorporation or
by-laws of each Borrower;
(iv) any material adverse change with respect to the
business, assets, liabilities, financial condition, business prospects or
results of operations of each Borrower; and
(v) any Default or Event of Default hereunder or any event
of default under any other material agreement to which of a Borrower is a party
or by which any of its properties may be bound;
(g) As soon as possible, and, in any event, within thirty (30)
days after any executive officer of a Borrower knows or has reason to know that
any reportable event (as defined in Section 4043 of ERISA) with respect to any
Plan has occurred, a statement of the chief financial officer setting forth
details as to such reportable event and the action that a Borrower proposes to
take with respect thereto, together with a copy of the notice of such reportable
event given to the Pension Benefit Guaranty Corporation;
(h) Promptly after receipt thereof, a copy of any notice a
Borrower may receive from the Pension Benefit Guaranty Corporation relating to
their intention to terminate any Plan or to appoint a trustee to administer any
Plan;
(i) As soon as available, but in any event within one hundred
twenty (120) days after the close of its fiscal year, a copy of Sel-Leb's
complete 10-K Report filed with the Securities and Exchange Commission;
(j) As soon as available, but in any event within sixty (60) days
after the end of each quarterly fiscal period of Sel-Leb, a copy of Sel-Leb's
complete 10-Q Report filed with the Securities and Exchange Commission; and
(k) As soon as available, but in any case within five (5) days of
filing, copies of any other reports or statements required to be filed with the
Securities and Exchange Commission.
5.9 Accuracy and Completeness of Information. Each Borrower covenants
that all information, reports, statements, and other papers and data furnished
to the Bank pursuant to any provision or term of any of the Loan Documents shall
be, at the time the same is so furnished, complete and correct in all material
respects.
5.10 Insurance. (a) Each Borrower will maintain with financially sound
and reputable insurance companies, insurance policies: (i) insuring the
Collateral against loss by fire,
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explosion, vandalism, malicious mischief, theft and such other casualties as are
usually insured against by companies engaged in the same or similar businesses;
(ii) insuring such Borrower and the Bank against liability for personal injury
and property damage relating to the Collateral; and (iii) providing for business
interruption coverage, such policies to be in such form and in such amounts and
coverage as may be reasonably satisfactory to the Bank, with losses payable to
the Bank as additional insured, mortgagee and as lender loss payee, as its
interest may appear under standard non-contributory "mortgagee", "lender" or
"secured party" clauses. A Borrower shall, if so requested by the Bank, deliver
to the Bank, as often as the Bank may reasonably request, a report of a
reputable insurance broker with respect to the insurance on the Collateral. All
insurance with respect to the Collateral shall: (i) provide that no
cancellation, reduction in amount or change in coverage thereof shall be
effective until at least thirty (30) days after receipt by the Bank of written
notice thereof; and (ii) be reasonably satisfactory in all material respects to
the Bank. In the event of a partial or total destruction of any of the
Collateral by fire or other insured casualty, the Bank shall not unreasonably
withhold any such insurance proceeds received by the Bank, provided, that such
Borrower is in compliance with all the terms and conditions of the Loan
Documents and provided further that any such insurance proceeds released by the
Bank to a Borrower shall be used solely for the purchase or replacement of
Collateral. In the event that a Borrower is not in compliance with all the terms
and conditions of the Loan Documents or if any of the insurance proceeds
released to a Borrower are used for any other purpose other then as set forth
above, then at the option of the Bank, the remaining insurance proceeds may be
utilized by the Bank to reduce the Obligations.
(b) The Borrowers shall give the Bank prompt notice of any and all
insurance claims made by a Borrower with respect to the Collateral which are in
excess of twenty-five thousand ($25,000) dollars and are in dispute or unpaid,
unless such dispute is resolved or such claim is paid within thirty (30) days of
the date of the claim.
5.11 Indebtedness. Neither Borrower will create, assume, incur,
guarantee or in any manner become liable, contingently or otherwise, in respect
of any Indebtedness except for Permitted Indebtedness; provided, however, that
the foregoing provision shall not apply if, concurrently with the incurrence of
such Indebtedness, the proceeds thereof are applied to the complete satisfaction
and payment in full of all Obligations.
5.12 Liens. Neither Borrower will create, assume or incur or cause to
be created, assumed or incurred, or permit to exist, any Liens on its properties
or assets except for Permitted Liens, and the Borrowers will defend the right,
title and interest of
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the Bank in and to each Borrower's rights to the Collateral and in and to the
Proceeds and Products thereof against the claims and demands of all Persons
whosoever.
5.13 Sale of Assets; Merger. Neither Borrower shall, without the prior
written consent of the Bank: (a) sell, transfer, assign, lease or otherwise
dispose of (whether in one transaction or a series of transactions) all or
substantially all of its assets (whether now owned or hereafter acquired); or
(b) consolidate with or merge into any other corporation or permit any
corporation to merge into it.
5.14 Guaranties. Neither Borrower shall guaranty, endorse, become
surety for, or otherwise in any way become or be responsible for, the
obligations of any other Person, whether by agreement to purchase the
indebtedness of any other Person, or agreement for the furnishing of funds,
directly or indirectly, for the purpose of payment of indebtedness of any other
Person, other than in connection with Permitted Indebtedness and endorsements of
negotiable instruments for deposit or collection in the ordinary course of its
business.
5.15 Collateral.
(a) The Borrowers will keep and maintain at their own cost and
expense satisfactory and complete records of the Collateral, including, without
limitation, a record of all payments received and all credits granted with
respect to the Collateral and all other dealings with the Collateral. The
Borrowers will mark their books and records pertaining to the Collateral to
evidence the security interest therein granted hereby as the Bank may reasonably
request. For the Bank's further security, the Borrowers agree that the Bank
shall have a security interest in and a Lien upon all of a Borrowers' books and
records (including all computer programs, software, discs, drives, printouts and
similar items) pertaining to the Collateral, and if any Event of Default shall
have occurred and be continuing, each Borrower shall promptly deliver and turn
over any such books and records to the Bank or its representatives at any time
upon demand.
(b) Except as otherwise expressly permitted herein, the Borrowers
will not sell, transfer, lease or otherwise dispose of any or all of the
Collateral, or attempt, offer or contract to do so, without the express prior
written consent of the Bank, except for sales or other dispositions of Inventory
in the ordinary course of business.
(c) The Borrowers will perform and comply in all material
respects with all obligations under all Contracts and all other material
agreements to which it is a party or by which it is bound relating to the
Collateral.
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(d) Except in the ordinary course of a Borrower's business
consistent with its past business practice, neither Borrower will grant any
extension of the time of payment of any of the Accounts Receivable, or
compromise, compound or settle the same for less than the full amount thereof,
or release, wholly or partly, any person liable for the payment thereof.
(e) The Borrowers will furnish to the Bank, from time to time,
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as the Bank may reasonably
request, all in reasonable detail.
(f) The Borrowers will immediately advise the Bank, in complete
detail: (i) of any Lien asserted or claim made against any of the Collateral;
(ii) of any material change in the composition of the Collateral; and (iii) of
the occurrence of any other event which would have a material adverse effect on
the aggregate value of the Collateral or on the security interest created
hereunder.
(g) Neither Borrower will change its name, identity or corporate
structure in any manner which might make any financing or continuation statement
filed hereunder misleading, nor will either Borrower change its principal place
of business, record-keeping location or remove any of their books and records or
the Inventory to any location other than the Premises (except as otherwise
permitted in Subsection 5.15(b) hereof) unless, in each case with respect to the
Inventory, the Borrowers shall have given the Bank at least thirty (30) days'
prior written notice thereof or shall have delivered to the Bank acknowledgment
copies of financing statements recording such change, duly executed and duly
filed in each jurisdiction in which financing statements on form UCC-1 are
required to be filed in order to perfect the security interest granted by a
Borrower in favor of the Bank as set forth in this Agreement in the Collateral,
and shall have taken all action necessary or reasonably requested by the Bank to
amend such financing statement or continuation statement so that it is not
misleading.
5.16 Sale and Leaseback. Neither Borrower shall directly or indirectly
enter into any arrangement with any Person providing for the leasing by the
Borrower of any asset (real or personal) which has been, or is to be, sold or
transferred by the Borrower to such Person or to any other Person to whom funds
have been, or are to be, advanced by such Person on the security of such asset
or rental obligations of the Borrower.
5.17 Transactions with Affiliates. Neither Borrower shall enter into
any transaction with any Affiliate of the Borrowers on terms which are less
favorable than if such transaction were a bona-fide arms-length transaction
between unaffiliated parties.
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5.18 Operating Accounts. Each Borrower shall establish and maintain its
primary operating accounts with the Bank.
5.19 Further Documentation. At any time, and from time to time, upon
the Bank's written request and at the Borrowers' sole expense, the Borrowers
will promptly and duly execute and deliver such further documents and
instruments and do such further acts and things as the Bank may reasonably
request in order to obtain the full benefits of this Agreement and the Loan
Documents and the rights and powers herein and therein granted, including the
filing of any financing or continuation statements and amendments thereto under
the Code in effect in any jurisdiction and any and all other documents including
but not limited to all certificates of title and any assignments necessary in
connection therewith with respect to the Liens and security interests granted to
the Bank pursuant to the Loan Documents. The Borrowers also hereby authorize the
Bank to file any such financing or continuation statement without the signature
of a Borrower to the extent permitted by applicable law. If any amount payable
under or in connection with any of the Collateral shall be or become evidenced
by any promissory note or other instrument, such note or other instrument shall
be immediately pledged to the Bank hereunder, duly endorsed in a manner
satisfactory to the Bank and delivered to the Bank.
5.20 Clean-Up Period. During each twelve (12) month period, commencing
on the date of execution of this Agreement, the Borrowers shall reduce the
principal amount outstanding under the Line of Credit Loan to zero ($0) dollars
for a period of thirty (30) continuous and consecutive days.
5.21 Investment Management Account. The Borrowers shall establish and
maintain an investment management account with the Bank for the purpose of
creating a source of funds to immediately pay to the Bank any amount outstanding
under the Line of Credit Loan in excess of the Line of Credit Loan Maximum.
5.22 Bank's Appointment as Attorney-in-Fact.
(a) The Borrowers hereby irrevocably constitute and appoint the
Bank, and any officer or agent thereof, with full power of substitution, as its
true and lawful attorney-in-fact with full irrevocable power and authority in
the place and stead of Borrowers and in the name of the Borrowers or in their
own name, from time to time in the Bank's discretion for the purpose of carrying
out the terms of this Agreement, to take any and all appropriate action and to
execute any and all documents and instruments which may be necessary or
desirable to accomplish the purposes of this Agreement and, without limiting the
generality of the foregoing, hereby gives the Bank the power and right, on
behalf of the Borrowers, without notice to or assent by the Borrowers, to do the
following:
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(i) upon the occurrence and continuance of an Event of
Default, to ask, demand, collect, receive and give acquittances and receipts for
any and all monies due and to become due under or in connection with any
Collateral and, in the name of a Borrower or its own name or otherwise, to take
possession of and endorse and collect any checks, drafts, notes, acceptances or
other instruments for the payment of moneys due under any Collateral and to file
any claim or to take any other action or proceeding in any court of law or
equity or otherwise deemed appropriate by the Bank for the purpose of collecting
any and all such monies due under any Collateral whenever payable; and
(ii) upon the occurrence and continuance of any Event of
Default: (A) to direct any party liable for any payment under any of the
Collateral to make payment of any and all monies due and to become due
thereunder directly to the Bank or as the Bank shall direct; (B) to receive,
open and dispose of all mail addressed to the Borrowers and to notify postal
authorities to change the address for delivery thereof to such address as may be
designated by the Bank; (C) to receive payment of and receipt for any and all
monies, claims and other amounts due and to become due at any time in respect of
or arising out of any Collateral; (D) to sign and endorse any invoices, freight
or express bills, bills of lading, storage or warehouse receipts, drafts against
debtors, assignments, verifications and notices in connection with accounts and
other documents relating to the Collateral; (E) to commence and prosecute any
suits, actions or proceedings at law or in equity in any court of competent
jurisdiction to collect the Collateral or any part thereof and to enforce any
other right in respect of any Collateral; (F) to defend any suit, action or
proceeding brought against the Borrowers with respect to any Collateral; (G) to
settle, compromise or adjust any suit, action or proceeding described above and,
in connection therewith, to give such discharges or releases as the Bank may
deem appropriate; and (H) generally, to sell, transfer, pledge, make any
agreement with respect to or otherwise deal with any of the Collateral as fully
and completely as though the Bank were the absolute owner thereof for all
purposes, and to do, at the Bank's option and the Borrowers' expense, at any
time or from time to time, all acts and things which the Bank deems necessary to
protect, preserve or realize upon the Collateral and the Bank's security
interest therein, in order to effect the intent of this Agreement.
(b) The Borrowers hereby ratify all that said attorney-in-fact
shall lawfully do or cause to be done by virtue hereof. This power of attorney
is a power coupled with an interest and shall be irrevocable.
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(c) The powers conferred on the Bank hereunder are solely to
protect the interests of the Bank in the Collateral and shall not impose any
duty upon it to exercise any such powers. The Bank shall be accountable only for
amounts that it actually receives as a result of the exercise of such powers,
and neither it nor any of its officers, employees or agents shall be responsible
to the Borrowers for any act or failure to act.
(d) The Borrowers also authorize the Bank at any time, and from
time to time, following an Event of Default: (i) to communicate with Account
Debtors and any party to any Contract with regard to the assignment of Accounts
Receivable hereunder and other matters relating thereto; and (ii) to execute any
endorsements, assignments or other instruments of conveyance or transfer with
respect to the Collateral.
5.23 Performance by Bank of Borrowers' Obligations. If the Borrowers
fail to perform or comply with any of their agreements contained herein
following written demand therefor by the Bank, and the Bank, as provided for by
the terms of this Agreement, shall perform or comply, or otherwise cause
performance or compliance, with such agreement, the expenses of the Bank
incurred in connection with such performance or compliance (together with
interest thereon at the interest rate set forth in Paragraph 2 of the Line of
Credit Note plus five (5%) percent per annum) shall be payable by the Borrowers
to the Bank on demand and shall constitute Obligations secured hereby.
VI. CONDITIONS PRECEDENT
6.1 Conditions Precedent to Initial Advance. The obligation of the
Bank to make the initial Advance and the Term Loan is subject to the condition
precedent that the Bank shall have received each and every one of the following
in form and substance satisfactory to the Bank:
(a) Each of the Loan Documents shall be in full force and effect;
(b) The representations and warranties of the Borrowers set forth
herein shall be true and correct as of the date of the first Advance and the
date the Term Loan is made as if made on and as of such date, and the request
for an Advance by the Borrowers and the making of the Term Loan shall be deemed
a representation and warranty by the Borrowers to such effect;
(c) No Default or Event of Default has occurred and is continuing
as of the date of the first Advance or the date the Term Loan is made;
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(d) There is and has been no material adverse change in the
either Borrower's financial condition, results of operations, business prospects
or otherwise which would, in the judgment of the Bank, impair such Borrower's
ability to repay all or any portion of the Notes;
(e) No further action, including any filing or recording of any
agreement, document or instrument, is necessary to establish and perfect the
Bank's lien and priority in the Collateral;
(f) The Borrowers shall submit to the Bank, all reports and
documents required to be submitted to the Bank by the Borrowers pursuant to
Section 5.8 of this Agreement;
(g) An originally executed copy of this Agreement, the Line of
Credit Note, the Term Note and each of the other Loan Documents;
(h) A copy of the certificate of incorporation and by-laws of
each Borrower, certified as a true copy by the Secretary of each Borrower and
the Secretary of State of each Borrower's state of incorporation;
(i) A good standing certificate with respect to each Borrower
issued as of a recent date by the Secretary of State of each state in which such
Borrower is required to be authorized to do business;
(j) A certificate of the Secretary of each Borrower certifying
the names and true signatures of the officers of such Borrower authorized to
sign each of the Loan Documents to which such Borrower is a party and a true and
complete copy of each Borrower's by-laws;
(k) A copy of the resolutions approved by the Board of Directors
of each Borrower authorizing the execution, delivery and performance by such
Borrower of each of the Loan Documents to which such Borrower is a party,
certified as a true copy by the Secretary of the Borrower and such other
resolutions and authorizations as the Bank may reasonably request;
(l) A written opinion of counsel to the Borrowers with respect to
such matters as the Bank shall request;
(m) An originally executed copy of a Borrowing Base Certificate
from each Borrower dated as of a date not more than three (3) days prior to the
date of the initial Advance;
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(n) Evidence reasonably satisfactory to the Bank that the
Collateral is properly insured in accordance with the provisions of this
Agreement and that the Collateral is not subject to any Lien other than
Permitted Liens;
(o) Evidence reasonably satisfactory to the Bank that all
filings, recordings and other actions that are necessary or desirable in order
to establish and perfect the Bank's security interest in the Collateral as a
valid perfected first priority security interest shall have been duly effected,
including, without limitation, the filing of UCC-1 financing statements, and the
filing or recordation of such other documents as the Bank shall deem necessary
or desirable, all in form and substance satisfactory to the Bank, and all fees,
taxes and other charges relating to such filings and recordings shall have been
paid by the Borrowers;
(p) The Bank shall have performed to its satisfaction, an audit
of all Accounts Receivable, general ledgers, Inventory and corporate records of
the Borrowers;
(q) A fully executed copy of the Asset Purchase Agreement, in
form and substance satisfactory to the Bank;
(r) Evidence satisfactory to the Bank that the United States
Bankruptcy Court for the Southern District of Florida has issued a final and
nonappealable order approving the Asset Purchase Agreement and the transactions
contemplated thereby;
(s) Payment in full of all obligations outstanding under the Loan
and Security Agreement between Sel-Leb and the Bank, dated November 6, 1995, as
amended (the "Original Loan Agreement"), and the Line of Credit Note executed
and delivered in connection therewith, as amended;
(t) Evidence satisfactory to the Bank that its obligation to make
Advances (as defined in the Original Loan Agreement) under the Original Loan
Agreement has been terminated; and
(u) Such other documents and information as the Bank shall
reasonably request, including without limitation UCC, judgment, tax lien and
franchise tax searches, leases for all locations at which the Borrowers operate
and landlord waivers for all locations at which Collateral is located, in form
and substance reasonably satisfactory to the Bank, and all legal matters and
documents with respect to the transactions contemplated by this Agreement shall
be satisfactory to counsel for the Bank.
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In the event each and every condition precedent set forth in this
Paragraph 6.1 is not satisfied in full on or before October 31, 1997, then the
Bank may, in it sole and absolute discretion, terminate this Agreement and if
this Agreement is so terminated the Bank shall have no further obligation to
make the Revolving Loan or the Term Loan.
6.2 Conditions Precedent to Additional Advances. The Bank shall have
no obligation to make (a) any additional Advance subsequent to the initial
Advance or (b) the Term Loan, unless each of the following conditions precedent
has been either satisfied or waived prior to or concurrently with the making of
such Advance:
(a) Each of the Loan Documents shall be in full force and effect;
(b) The representations and warranties of the Borrowers set forth
herein shall be true and correct as of the date of each Advance as if made on
and as of such date, and each request for an Advance by the Borrowers shall be
deemed a representation and warranty by the Borrowers to such effect;
(c) No Default or Event of Default has occurred and is continuing
as of the date of each Advance;
(d) There is and has been no material adverse change in the
either Borrower's financial condition, results of operations, business prospects
or otherwise which would, in the judgment of the Bank, impair such Borrower's
ability to repay all or any portion of the Notes;
(e) No further action, including any filing or recording of any
agreement, document or instrument, is necessary to establish and perfect the
Bank's lien and priority in the Collateral; and
(f) The Borrowers shall submit to the Bank, all reports and
documents required to be submitted to the Bank by the Borrowers pursuant to
Section 5.8 of this Agreement.
VII. EVENTS OF DEFAULT
Each of the following shall constitute an Event of Default, whatever
the reason for such event and whether it shall be voluntary or involuntary or be
effected by operation of law or pursuant to any judgment or order of any court
or any order, rule or regulation of any governmental body:
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7.1 Failure to Pay. The Borrowers fail to make any payment of
principal, interest or any other fee or amount payable under the Line of Credit
Note, the Term Note or hereunder within five (5) days after the date when due;
7.2 False Representation or Warranty. Any warranty or representation
made by or on behalf of the Borrowers contained herein or in any of the Loan
Documents or in any document furnished in compliance or connection with the Loan
Documents is false or incorrect in any material respect when made and such
warranty or representation remains false or incorrect fifteen (15) days after
notice from the Bank of such false or incorrect warranty or representation;
7.3 Failure to Perform. The Borrowers shall default in the performance
or observance of any covenant or agreement contained in this Agreement or the
Loan Documents and such default is not cured within fifteen (15) days after
notice from the Bank of such default;
7.4 Cross Default. Any Event of Default shall occur under any of the
other Loan Documents;
7.5 Default on other Indebtedness. A Borrower shall:
(a) default in any payment of the principal of or interest on any
Indebtedness (other than the Line of Credit Note and the Term Note), beyond the
grace period, if any, owing to the Bank;
(b) default in any payment of the principal of or interest on any
other Indebtedness, beyond the period of grace, if any, provided in the
instrument or agreement under which such Indebtedness was created; or
(c) default in the observance or performance of any other
agreement or condition relating to any such Indebtedness or contained in any
instrument or agreement evidencing, securing or relating thereto, or any other
event shall occur, the effect of which default or other event is to cause, or to
permit the holder or holders of such Indebtedness (or a trustee or agent on
behalf of such holder or holders) to cause, with the giving of notice if
required, such Indebtedness to become due prior to its stated maturity and as
the result of such default or event such indebtedness has been accelerated and
become due and payable prior to its stated maturity;
7.6 Petition; Appointment of Receiver. (a) Either Borrower shall
commence any case, proceeding or other action (i) under any existing or future
law of any jurisdiction, domestic or foreign, relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking to have an order for
relief entered
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with respect to it, or seeking to adjudicate it as bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment, winding up, liquidation,
dissolution, composition or other relief with respect to it or its debts; or
(ii) seeking appointment of a receiver, trustee, custodian or other similar
official for it or for all or any substantial part of its assets, or such
Borrower shall make a general assignment for the benefit of its creditors;
(b) there shall be commenced against either Borrower, any case,
proceeding or other action of a nature referred to in Subsection 7.6(a) above
which: (i) results in the entry of an order for relief or any such adjudication
or appointment; or (ii) remains undismissed, undischarged or unbonded for a
period of thirty (30) days;
(c) there shall be commenced against either Borrower, any case,
proceeding or other action seeking issuance of a warrant of attachment,
execution, distraint or similar process against all or any substantial part of
its assets, which results in the entry of an order for any such relief which
shall not have been vacated, discharged, or stayed or bonded pending appeal
within sixty (60) days from the entry thereof; or
(d) either of the Borrowers shall take any action in furtherance
of, or indicating its consent to, approval of, or acquiescence in, any of the
acts set forth in this Section 7.6;
7.7 Judgments; Levys; Liens. A final judgment shall be entered against
a Borrower by any court for the payment of money which, together with all other
outstanding judgments against either of the Borrowers, exceeds twenty five
thousand ($25,000) dollars in the aggregate, which judgment is not fully covered
by insurance, or a warrant of attachment or execution or similar process shall
be issued or levied against property such Borrower which warrant of attachment,
execution or similar process exceeds in value twenty five thousand ($25,000)
dollars in the aggregate and, if within sixty (60) days after the entry, issue
or levy thereof, such judgment, warrant or process shall not have been
discharged or stayed pending appeal, or, if within sixty (60) days after the
expiration of any such stay, such judgment, warrant or process shall not have
been discharged;
7.8 ERISA.
(a) A reportable event (as defined in Section 4043 of Title IV of
ERISA) shall have occurred with respect to any Plans or any Plans of a Borrower
shall have been voluntarily terminated as provided in Section 4041(a) of ERISA;
(b) A trustee shall be appointed by a United States District
Court to administer any Plan; or
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(c) the Pension Benefit Guaranty Corporation shall institute
proceedings to terminate any Plan;
7.9 Liquidation or Dissolution. If a Borrower shall commence any
action or step with respect to, or shall approve any plan of, any winding up,
liquidation or dissolution of a Borrower; or
7.10 Change in Condition. If there occurs any material adverse change
in the condition or affairs, financial, business prospects or otherwise, of a
Borrower, which in the opinion of the Bank increases its risk.
VIII. REMEDIES
8.1 Acceleration Automatic. Upon the occurrence of an Event of Default
set forth in Section 7.6, the Bank shall have no obligation to make any further
Advance, and all amounts outstanding (with accrued interest thereon), including
without limitation, all other amounts owing under the Line of Credit Note, the
Term Note and the other Loan Documents shall immediately become due and payable
without presentment, demand, protest or notice of any kind, all of which are
hereby expressly waived by the Borrowers, to the fullest extent permitted by
applicable law.
8.2 Acceleration; Bank Discretion. Upon the occurrence of any Event of
Default, other than an Event of Default as set forth in Section 7.6, the Bank
shall have no obligation to make any further Advance and the Bank may declare
all amounts outstanding (with accrued interest thereon), including without
limitation, all other amounts owing to it under the Line of Credit Note, the
Term Note and the other Loan Documents to be due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived by the Borrowers, to the fullest extent permitted by
applicable law.
8.3 Proceeds held in Trust. Upon the occurrence of any Event of
Default:
(a) All payments received by a Borrower under or in connection
with any of the Collateral shall be held by a Borrower in trust for the Bank,
shall be segregated from funds of such Borrower and shall forthwith upon receipt
by a Borrower be turned over to the Bank, in the same form as received by such
Borrower (duly endorsed by such Borrower to the Bank, if required);
(b) Any and all such payments so received by the Bank (whether
from a Borrower or otherwise) may, in the sole discretion of the Bank, be held
by the Bank as collateral security for, and/or then or at any time thereafter
applied in whole or in part by the Bank against, all or any part of the
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Obligations in such order as the Bank shall determine in its sole discretion.
Any balance of such payments held by the Bank and remaining after payment in
full of all such Obligations shall be paid over to the Borrowers or, if the Bank
has knowledge that another Person is lawfully entitled to receive the same, to
such other Person.
(c) The Borrowers shall, upon demand, pay interest, to the extent
permitted by applicable law, on all unpaid Obligations upon the occurrence of an
Event of Default until paid (before or after judgment) at a fluctuating rate
equal to (i) in the case of Obligations under the Line of Credit Note, the
interest rate set forth in Paragraph 2 of the Line of Credit Note plus five (5%)
percent per annum, and (ii) in the case of Obligations under the Term Note, the
rate of interest set forth in Paragraph 2 of the Term Note plus five (5%)
percent per annum.
8.4 Set-Off; Sale. If any Event of Default shall occur, the Bank may
exercise, in addition to all other rights and remedies granted to it in this
Agreement and in any other instrument or agreement securing, evidencing or
relating to the Obligations, all rights and remedies of a secured party under
the Code, to the fullest extent permitted by law. Without limiting the
generality of the foregoing, the Bank may, to the fullest extent permitted by
law, without any requirement of notice, setoff any and all amounts owing by a
Borrower to it against any deposit account maintained in the Bank (or any
Affiliate or subsidiary of the Bank) by a Borrower or any other property of a
Borrower which may now or hereafter be in the Bank's (or any Affiliate or
subsidiary of the Bank) possession or control, and such right of setoff shall be
deemed to have been exercised immediately upon such stated or accelerated
maturity as aforesaid even though such setoff is not noted on the Bank's records
until a later time. Without limiting the generality of the foregoing, the
Borrowers expressly agree that in any such event the Bank, without demand of
performance or other demand, advertisement or notice of any kind (except any
notice provisions otherwise contained in this Agreement and the notice specified
below of time and place of public or private sale) to or upon the Borrowers or
any other Person (all and each of which demands, advertisements and/or notices
are hereby expressly waived), may, to the fullest extent permitted by law,
forthwith collect, receive, appropriate and realize upon the Collateral, or any
part thereof, and/or may forthwith sell, lease, assign, give option or options
to purchase, or sell or otherwise dispose of and deliver the Collateral (or
contract to do so), or any part thereof, in one or more parcels at public or
private sale or sales, at any exchange, broker's board or at any of the Bank's
offices or elsewhere at such prices as it may deem best, for cash or on credit
or for future delivery without assumption of any credit risk. The Bank shall
have the right upon any such public sale or sales, and, to the extent permitted
by law, upon any such private
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sale or sales, to purchase the whole or any part of the Collateral so sold, free
of any right or equity of redemption in a Borrower which shall be released. The
Borrowers further agree, at the Bank's request, to assemble the Collateral and
make it available to the Bank at places which the Bank shall reasonably select,
whether at a Borrower's premises or elsewhere. The Bank shall apply the net
proceeds of any such collection, recovery, receipt, appropriation, realization
or sale, after deducting all reasonable costs and expenses of every kind
incurred therein or incidental to the care, safekeeping or otherwise of any or
all of the Collateral or in any way relating to the rights of the Bank
hereunder, including reasonably attorneys' fees and legal expenses, to the Bank
for payment in whole or in part of the Obligations, in such order as hereinafter
provided, the Borrowers remaining liable for any deficiency remaining unpaid
after such application. To the extent permitted by applicable law, the Borrowers
waive all claims, damages, and demands against the Bank arising out of the
repossession, retention or sale of the Collateral. The Borrowers agree that, to
the fullest extent permitted by law, the Bank need not give more than ten (10)
days' notice (which notification shall be deemed given when mailed, postage
prepaid, addressed to A Borrower at its address set forth in Subsection 10.1
hereof) of the time and place of any public sale or of the time upon which a
private sale may take place and that such notice is reasonable notification of
such matters. The Borrowers shall remain liable for any deficiency if the
proceeds of any sale or disposition of the Collateral are insufficient to pay
all amounts to which the Bank is entitled, the Borrowers also being liable for
the reasonable fees of any attorneys employed by the Bank to collect such
deficiency.
8.5 Bank Costs. The Borrowers also agree, jointly and severally, to
pay all Bank Costs incurred with respect to the collection of any of the
obligations and the enforcement of any of the Bank's rights hereunder.
8.6 Waivers. The Borrowers hereby waive: (a) presentment, demand,
protest or any notice of any kind in connection with this Agreement or any
Collateral, except as otherwise provided herein; (b) all rights to seek from any
court any bond or security prior to the exercise by the Bank of any remedy
described herein; (c) the benefit of all valuation, appraisement and exemption
laws; and (d) all rights to demand or to have any marshalling of assets upon any
power of sale granted herein or pursuant to judicial proceedings or upon any
foreclosure or any enforcement of this Agreement.
8.7 Possession; Receiver. Without limiting the generality of any of
the rights and remedies conferred upon the Bank in this Agreement, the Bank may,
after the occurrence of an Event of Default: (a) take immediate possession of
the Collateral, either personally or by means of a receiver appointed by a court
of
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competent jurisdiction; (b) at the Bank's option, use, operate, manage and
control the Collateral in any lawful manner; (c) collect and receive all rents,
income, revenue, earnings, issues and profits therefrom; (d) maintain, repair,
renovate, alter or remove the Collateral as the Bank may determine in its sole
discretion; and (e) to the fullest extent permitted by applicable law, appoint
any person to be a receiver, manager, receiver-manager or receiver and manager
(a "Receiver") of the Collateral and to remove any Receiver so appointed and
appoint another in its stead, such Receiver to have all of the rights, remedies,
powers and privileges of the Bank hereunder.
8.8 Other Remedies. The remedies granted to Bank herein upon an Event
of Default are not restrictive or exclusive of any and all other rights and
remedies of Bank provided for by this Agreement, any of the Loan Documents and
applicable law.
IX. INDEMNIFICATION
9.1 Indemnification. The Borrowers agree to, jointly and severally,
pay, reimburse, indemnify and hold harmless, the Bank, its directors, officers,
employees, agents and representatives from and against any and all actions,
costs, damages, disbursements, expenses (including attorneys' fees), judgments,
liabilities, losses, obligations, penalties and suits of any kind or nature
whatsoever with respect to:
(a) the development, negotiation, preparation, execution,
enforcement, amendment or modification of any of the Loan Documents;
(b) the exercise of any right or remedy granted in any of the
Loan Documents, the collection or enforcement of any of the Obligations and the
proof or allowability of any claim arising under any of the Loan Documents,
whether in any bankruptcy or receivership proceeding or otherwise;
(c) any claim of third parties, and the prosecution or defense
thereof, arising out of or in any way connected with any of the Loan Documents;
and
(d) any and all recording and filing fees and taxes, and any and
all liabilities with respect thereto, or resulting from any delay in paying
stamp and other taxes, if any, which may be payable or determined to be payable
in connection with the Loan Documents.
X. MISCELLANEOUS
10.1 Notice. All notices and other communications given to or made upon
any party hereto in connection with this Agreement shall, except as otherwise
expressly herein provided, be in
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writing and mailed, postage prepaid by registered or certified mail, return
receipt requested, addressed to the respective parties, as follows:
Bank: Summit Bank
250 Moore Street
2nd Floor
Hackensack, New Jersey 07601
Attn: Richard Mady, Vice President
Borrowers: Sel-Leb Marketing, Inc.
495 River Street
Paterson, New Jersey 07524
Attn: Harold Markowitz, Chairman
ALES Signatures Ltd.
495 River Street
Paterson, New Jersey 07524
Attn: Jan Mirsky, Chief Financial Officer
or to such changed address as may be fixed by notice. All such notices and other
communications shall, except as otherwise expressly herein provided, be
effective when received by the party to whom properly addressed, in the case of
a Borrower, the written receipt by any employee of a Borrower constituting
sufficient evidence of such receipt.
10.2 No Waiver; Cumulative Remedies. No failure to exercise and no
delay in exercising, on the part of the Bank, any right, power or privilege
hereunder, shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, power or privilege hereunder preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies herein provided are cumulative and not exclusive of any
rights or remedies provided by law.
10.3 Survival of Agreements. All agreements, representations and
warranties made herein, and in any certificates delivered pursuant hereto shall
survive the execution and delivery of this Agreement and the Notes and the
making of any Advances.
10.4 Amendment. No modification, amendment or waiver of any provision
of this Agreement or the Notes, nor consent to any departure by a Borrower,
shall in any event be effective unless the same shall be in writing and signed
by the party granting such modification, amendment or waiver, and then such
waiver or consent shall be effective only in the specific instance and for the
purpose for which given.
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10.5 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the Borrowers, the Bank, all future holders of the Notes
and their respective successors and assigns, except that the Borrowers may not
assign or transfer any of its rights under this Agreement without the prior
written consent of the Bank.
10.6 Agreement and Other Loan Documents Complementary. The provisions
of this Agreement shall be in addition to those of any guaranty, security
agreement, note or other evidence of liability held by the Bank, all of which
shall be construed as complementary to each other. In the event of ambiguity or
inconsistency between this Agreement, and any other Loan Document, then the
terms of this Agreement will govern.
10.7 Bank's Relationship. The Bank and the Borrowers expressly agree
that the relationship of the Bank to the Borrowers is that of a lender only. The
intent of this provision is to clarify and stipulate that the Bank is not a
partner or a co-venturer of the Borrowers and that the Bank's sole interest in
the Collateral is for the purpose of security for repayment of the Obligations
of the Borrowers.
10.8 Participation. Without limitation of the Bank's rights at law, the
Borrowers hereby agree that the Bank shall have the right to sell participations
in any Obligation in the sole discretion of the Bank and that the Borrowers
shall provide all required assistance to the Bank in selling and closing any
participation, including permitting any prospective participant to inspect any
of a Borrower's books, records, Collateral and Premises.
10.9 WAIVER OF TRIAL BY JURY. THE BANK AND BORROWER'S HEREBY WAIVE ALL
RIGHT TO A TRIAL BY JURY IN ANY LITIGATION RELATING TO, IN CONNECTION WITH, OR
ARISING OUT OF THIS AGREEMENT, OR ANY OTHER LOAN DOCUMENT.
10.10 Severability. In case any one or more of the provisions contained
in this Agreement or the other Loan Documents should be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby.
10.11 Counterparts. This Agreement may be executed by the parties
hereto on any number of separate counterparts and all such counterparts taken
together shall constitute one and the same instrument.
10.12 Governing Law; No Third Party Rights. This Agreement and the
other Loan Documents and the rights and obligations of the parties hereunder and
thereunder shall be governed by and
44
<PAGE>
construed and interpreted in accordance with the law of the State of New Jersey.
This Agreement is solely for the benefit of the parties hereto and their
respective successors and assigns, and no other person shall have any right,
benefit, priority or interest in, under or because of the existence of, this
Agreement.
10.13 Cross Default/Cross Collateral. All other agreements between
Borrowers, or either of them, and Bank and/or any of its Affiliates or
subsidiaries are hereby amended so that an Event of Default under this Agreement
is a default under all other agreements and a default under any one of those
agreements is an Event of Default under this Agreement. All such agreements are
further amended so that the Collateral under this Agreement secures the
obligations now or hereafter outstanding under all other agreements with Bank
and/or its Affiliates or subsidiaries, and the collateral which serves as
security under any other agreement with Bank and/or its Affiliates or
subsidiaries secures the Obligations under this Agreement.
45
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
ATTEST: SEL-LEB MARKETING, INC.
By: /s/ Jack Koegel By: /s/ Jan Mirsky
JACK KOEGEL, JAN MIRSKY, Executive Vice
Assistant Secretary President of Finance
ATTEST: ALES SIGNATURE LTD.
By: /s/ Jack Koegel By: /s/ Jan Mirsky
JACK KOEGEL, Secretary JAN MIRSKY, Chief Financial
Officer
SUMMIT BANK
By: /s/ Richard Mady
RICHARD MADY, Vice President
46
<PAGE>
ENVIRONMENTAL INDEMNITY AGREEMENT
THIS ENVIRONMENTAL INDEMNITY AGREEMENT (this "Indemnity") is made this
22nd day of October, 1997 by and among SEL-LEB MARKETING, INC., a New York
corporation, having its principal place of business located at 495 River Street,
Paterson, New Jersey 07524 ("SEL-LEB"), and ALES SIGNATURE LTD., a New York
corporation having its principal place of businesslocated at 495 River Street,
Paterson, New Jersey 07524 ("ALES") (SEL-LEB and ALES each an "Indemnitor" and
collectively the "Indemnitors"), jointly and severally to SUMMIT BANK, a state
banking association organized under the laws of the State of New Jersey (the
"Bank") with an office at 250 Moore Street, 2nd Floor, Hackensack, New Jersey
07601.
RECITALS
WHEREAS, the Bank has made a certain credit facility (the "Facility")
available to the Indemnitors in the principal amount of $3,000,000.00 pursuant
to a Line of Credit Note ("Line of Credit Note") and a Term Note ("Term Note")
(the Line of Credit Note and the Term Note are hereinafter referred to as the
"Notes") executed and delivered by the Indemnitors to the Bank pursuant to a
certain Loan and Security Agreement dated the date hereof between the
Indemnitors and the Bank (the "Loan Agreement") (the Notes, the Loan Agreement
and all documents executed and delivered by the Indemnitors in connection with
the Loan Agreement are hereinafter collectively referred to as the "Loan
Documents"); and
WHEREAS, the Bank only made the Facility available to the Indemnitors,
if the Indemnitors agreed on a joint and several basis on to indemnify and hold
harmless the Bank from and against any and all claims, demands, liability, loss
and damage resulting from or in connection with certain activities, accidents or
conditions as hereinafter described now or hereinafter existing on and with
respect to that certain parcel of land and premises leased by either or both of
the Indemnitors located at 495 River Street, Paterson, New Jersey 07524(the
"Premises").
AGREEMENTS
NOW, THEREFORE, in consideration of the premises, the representations,
covenants and agreements hereinafter contained, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
in order to induce the Bank to make the Facility to the Indemnitors, the
Indemnitors hereby, jointly and severally, covenant and agree with the Bank as
follows:
<PAGE>
ARTICLE I
GENERAL DEFINITIONS AND CONSTRUCTION
SECTION 1.1. General Definitions. All capitalized terms used in this
Indemnity shall have the respective meanings specified in the Loan Documents,
unless the context clearly indicates otherwise.
SECTION 1.2. Rules of Construction. The words "hereof",
"herein", "hereunder", "hereto", and other words of similar
import refer to this Indemnity in its entirety.
The terms "agree" and "agreements" contained herein are intended to
include and mean "covenant" and "covenants".
References to Articles, Sections, and other subdivisions of this
Indemnity are to the designated Articles, Sections, and other subdivisions of
this Indemnity as originally executed.
The headings of this Indemnity are for convenience only and shall not
define or limit the provisions hereof.
All references made (a) in the neuter, masculine or feminine gender
shall be deemed to have been made in all such genders, and (b) in the singular
or plural number shall be deemed to have been made, respectively, in the plural
or singular number as well.
ARTICLE II
INDEMNIFICATION
SECTION 2.1. Indemnity. (a) The Indemnitors, jointly and severally,
undertake to and do hereby protect, indemnify, save and hold harmless Bank from
and against any and all costs, expenses, reasonable attorneys' fees, charges,
liability, loss or damage assessed or otherwise determined in, or arising from
or in connection with, judgments, orders, claims, suits, demands, binding
directives with the force of law, proceedings and investigations arising from or
related to the one or more Indemnitor's deposit, storage, disposal, burial,
dumping, injecting, spillage, leakage, seepage, discharge, emission, placement
or release in, on or from the Premises, of any Hazardous Substance, including,
but not limited to:
(i) liability for personal injury or property damage
arising under any statutory or common-law tort
theory, including the maintenance of a public or
private nuisance, or the carrying on of an abnormally
dangerous activity;
-2-
<PAGE>
(ii) liability arising out of any violation of
any Environmental Law, statute, ordinance, rule,
regulation, order or binding directive with the
force of law;
(iii) liability for injury to, destruction of, or
loss of natural resources including the reasonable
cost of assessing injury to, destruction of or
loss of natural resources, pursuant to any and all
Environmental Laws now or hereinafter promulgated,
including but not limited to, the Comprehensive
Environmental Response, Compensation and Liability
Act of 1980, 42 U.S.C. Section 9601 et seq.
("CERCLA"), as amended by the Superfund Amendments
and Reauthorization Act of 1986 ("SARA"), the
Hazardous Materials Transportation Act, 49 U.S.C.
Section 1251 et seq., the Clean Air Act, 42 U.S.C.
Section 7401 et seq., the Clean Water Act, 33
U.S.C. Section 1251 et seq., the Resource
Conservation and Recovery Act, 42 U.S.C. Section
6901, et seq. ("RCRA"), the Toxic Substances
Control Act, 15 U.S.C. Section 2601, et seq.
("TSCA"), the Safe Drinking Water Act, 42 U.S.C.
Section 300f, the New Jersey Spill Compensation
and Control Act (the "Spill Act"), N.J.S.A. 58:10-
23.11 et seq., the New Jersey Water Pollution
Control Act, N.J.S.A. 58:10A-1 et seq., the New
Jersey Hazardous Discharges Law, N.J.S.A. 13:1K-
15, the New Jersey Industrial Site Recovery Act
("ISRA"), N.J.S.A. 13:1K-6 et seq., the New Jersey
Safe Drinking Water Act, N.J.S.A. 58:12A-1 et
seq., the New Jersey Solid Waste Management Act
("SWMA"), N.J.S.A. 13:1E-1 et seq., the New Jersey
Sanitary Landfill Facility Closure and Contingency
Fund Act ("Landfill Closure Act"), N.J.S.A. 13:lE-
100, the New Jersey Toxic Catastrophe Prevention
Act ("TCPA"), N.J.S.A. 13:1K-19 et seq., the New
Jersey Waste Control Act, N.J.S.A. 13:1I-1 et
seq., the New Jersey Underground Storage of
Hazardous Substances Act, N.J.S.A. 58:10A-21 et
seq., the New Jersey Comprehensive Regulated
Medical Waste Management Act ("Medical Waste
Act"), N.J.S.A. 13:1E-48.1 et seq., the New Jersey
Lead Acid Battery Disposal Act, N.J.S.A. 13:1E-199
et seq., the New Jersey Coastal Area Facility
Review Act ("CAFRA"), N.J.S.A. 13:19-1 et seq.,
the New Jersey Freshwater Wetlands Protection Act
("Wetlands Act"), N.J.S.A. 13:9B-1 et seq., the
New Jersey Air Pollution Control Act, N.J.S.A.
26:2C-1 and the New Jersey Pollution Prevention
Act, N.J.S.A. 13:1D-35 et seq., Solid Waste
Management Act, 35 P.S. orders and/or decrees now
-3-
<PAGE>
or hereafter promulgated pursuant to these
statutes; and
(iv) any and all reasonable costs and expenses,
arising from or in connection with any required and
necessary investigations, site characterizations,
testing, sampling, analytical work, abatements,
removals, remedial actions or cleanups, and any and
all fines, damages, liens, response costs or
penalties, arising under common law or under the
provisions of CERCLA, SARA, the Hazardous Materials
Transportation Act, the Clean Air Act, the Clean
Water Act, RCRA, TSCA, the Safe Drinking Water Act,
the New Jersey Spill Act, the New Jersey Water
Pollution Control Act, the New Jersey Hazardous
Discharges Law, the New Jersey ISRA, the New Jersey
Safe Drinking Water Act, the New Jersey SWMA, the New
Jersey Landfill Closure Act, the New Jersey TCPA, the
New Jersey Waste Control Act, the New Jersey
Underground Storage of Hazardous Substances Act, the
New Jersey Medical Waste Act, the New Jersey Lead
Acid Battery Disposal Act, the New Jersey CAFRA, the
New Jersey Wetlands Act, the New Jersey Air Pollution
Control Act and the New Jersey Pollution Prevention
Act, or any other federal, state or local statute,
law, regulation, ordinance, rule or pursuant to any
order, judgment or other binding directive with the
force of law of any court, administrative body,
governmental authority or any person having
jurisdiction or authority with respect hereto.
(b) The Indemnitors agree that neither of them shall not use
the Premises for the purpose of generating, treating, producing, storing,
handling, transferring, processing, transporting, disposing or otherwise
releasing hazardous substances either on, in, from or about the Premises which
(i) threatens to create, creates or causes a contamination or release either on
the Premises or elsewhere required by any governmental authority to be removed,
remediated, or otherwise cleaned up under any applicable Environmental Law, (ii)
creates any form of liability, civil or criminal, direct or indirect, due to
such actual or threatened contamination or release, or (iii) is in material
contravention of any Environmental Law.
(c) Environmental Definitions. The terms "Environmental Law"
and "Environmental Laws" as used in this Indemnity include all current and
future federal, state and local environmental laws, statutes, rules, regulations
and ordinances, as the same shall be amended and modified from time to time.
-4-
<PAGE>
The term "Hazardous Substances" as used in this Indemnity includes any
and all "hazardous substances" as defined in CERCLA and the New Jersey Spill Act
and the New Jersey ISRA, any and all "hazardous waste" as defined in RCRA and
under New Jersey regulations at N.J.A.C. 7:26-8.1, any and all "extraordinarily
hazardous substances" as defined in the New Jersey TCPA, any and all "toxic
substances" as defined in TSCA, petroleum products, asbestos or
asbestos-containing materials, polychlorinated biphenyls ("PCBs"), radon gas,
flammable explosives, urea formaldehyde foam insulation, radioactive materials,
chemicals known to cause cancer or reproductive toxicity, pollutants, effluents,
contaminants, emissions and all other hazardous substances, materials and waste
regulated or controlled by any of the Environmental Laws.
ARTICLE III
MISCELLANEOUS
SECTION 3.1. Amendments. Neither this Indemnity nor any term,
condition, representation, warranty, covenant or agreement hereof may be
changed, waived, discharged or terminated orally, but, rather, only by an
instrument in writing by the party against whom such change, waiver, discharge
or termination is sought.
SECTION 3.2. Governing Law. This Indemnity shall be
governed and construed in accordance with the laws of the State
of New Jersey.
SECTION 3.3. Jurisdiction. (a) Each Indemnitor hereby irrevocably
submits to the jurisdiction of any New Jersey State or United States Federal
Court sitting in New Jersey over any action or proceeding arising out of or
relating to this Indemnity, and the Indemnitor hereby irrevocably agrees that
all claims in respect of any such action or proceeding may be heard and
determined in such New Jersey State or Federal Court. The Indemnitors
irrevocably consent to the service of any and all process in any such action or
proceeding by the mailing of copies of such process to it at its address
specified in this Indemnity addressed to the attention of each Indemnitor's
President. The Indemnitors agree that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. The Indemnitors
further waive any objection to venue in such state and any objection to any
action or proceeding in such state on the basis of forum non convenience. The
Indemnitors further agree that any action or proceeding brought against the Bank
shall be brought only in New Jersey State or United States Federal Court sitting
in New Jersey.
-5-
<PAGE>
(b) Nothing in this Section 3.3 shall affect the right of the
Bank to serve legal process in any other manner permitted by law or affect the
right of the Bank to bring any action or proceeding against the Indemnitors or
the property of the Indemnitors in the courts of any other jurisdiction.
SECTION 3.4. Further Indemnification. The Indemnitors' liability
hereunder shall, without limiting the indemnity provided in Section 2.1 hereof,
extend to and further include all reasonable costs, expenses, and reasonable
attorneys' fees incurred or sustained by Bank in making any reasonable
investigation on account of any judgment, order, claim, suit, demand, proceeding
or investigation as referred to in Section 2.1 hereof, in prosecuting or
defending any action brought in connection therewith, in obtaining or seeking to
obtain a release therefrom and in enforcing any of the agreements contained
herein. Should the Bank incur any such liability, loss or damage by reason of
this Indemnity, or in the defense of any such claims or demands, the amount
thereof, including reasonable costs, expenses and reasonable attorneys' fees,
shall be reimbursed to the Bank immediately upon demand, with interest at the
rate set forth in Paragraph 2 of the Line of Credit Note plus five (5%) percent
per annum.
After receipt by Bank of notice of any action, suit, or proceeding
potentially giving rise to a claim by Bank under this Indemnity, Bank shall, if
a claim in respect thereof is to be made, use reasonable efforts to notify the
Indemnitors in writing of the commencement thereof; provided that the failure of
Bank to so notify Indemnitors shall not relieve the Indemnitors from any
liability under this Indemnity. The Indemnitors shall have the right to assume
the defense or conduct of such litigation or proceeding. If the Indemnitors fail
to assume the defense or conduct of the litigation or proceeding referred to in
Bank's notice within ten (10) days of receipt of such notice, or such shorter
period of time as may be required under any applicable Environmental Law, Bank
may, in its sole discretion and at Indemnitors' expense, assume the defense or
conduct of such litigation or proceeding, and the Indemnitors shall, upon
demand, reimburse Bank for all costs incurred by Bank in connection with the
litigation or proceeding. In any such litigation or proceeding the defense of
which the Indemnitors shall have assumed, the Bank shall have the right in its
reasonable discretion to participate therein and retain its own counsel at the
expense of the Indemnitors.
SECTION 3.5. Continuation of Indemnity. Upon the payment in full of all
Obligations, this Indemnity shall become and be void and of no effect, but the
affidavit of any officer of the Bank showing any part of said Obligations to
remain unpaid or the continuing effect of the Loan Documents shall be and
constitute conclusive evidence of the validity, effectiveness and continuing
-6-
<PAGE>
force of this Indemnity, and any Person may and is hereby authorized to rely
thereon. Notwithstanding the above, this Indemnity shall continue in full force
and effect with respect to all actions, or omissions, of an Indemnitor occurring
or not occurring prior to the date the Obligations are paid in full.
SECTION 3.6. Successors and Assigns. The rights, powers, privileges and
discretions (hereinafter collectively called the "rights") specifically granted
to the Bank are not in limitation of, but in addition to, those to which the
Bank is entitled under any law relating to such indemnities. The rights to which
the Bank may be entitled shall inure to the benefit of its successors and
assigns. All the rights of the Bank are cumulative and not alternative and may
be enforced successively or concurrently. Failure of the Bank to exercise any of
its rights shall not impair any of its rights nor be deemed a waiver thereof and
no waiver of any of its rights shall be deemed to apply to any other such rights
nor shall it be effective unless in writing and signed by the Bank.
The terms and conditions agreed to by the Indemnitors and the covenants
of the Indemnitors shall be binding upon the successors and assigns of each
Indemnitor, but this provision does not waive any prohibition of assignment or
any requirement of consent to an assignment; any consent to an assignment shall
not be consent to any further assignment, each of which must be specifically
obtained in writing.
SECTION 3.7. Waiver of Acceptance by the Indemnitors. The Indemnitors
hereby waive acceptance of this Indemnity by the Bank.
SECTION 3.8. Illegality. If fulfillment of any provision hereof or any
transaction related hereto, at the time transcends the limit of validity
prescribed by law, then ipso facto, the obligation to be fulfilled shall be
reduced to the limit of such validity; and if any clause or provision herein
contained operates or would prospectively operate to invalidate this Indemnity
in whole or part, then such clause or provision only shall be void, as though
not herein contained, and the remainder of this Indemnity shall remain in full
force and effect.
-7-
<PAGE>
IN WITNESS WHEREOF, each Indemnitor has executed this Indemnity by
causing its name to be hereunder subscribed under seal as of the day and year
first above written.
ATTEST: SEL-LEB MARKETING, INC.
BY: /s/ Jack Koegel BY: /s/ Jan Mirsky
---------------------- ------------------------
JACK KOEGEL, Assistant JAN MIRSKY, Executive Vice
Secretary President of Finance
ATTEST: ALES SIGNATURE, LTD.
BY: /s/ Jack Koegel BY: /s/ Jan Mirsky
---------------------- ---------------------------
JACK KOEGEL, Secretary JAN MIRSKY, Chief Financial
Officer
-8-
<PAGE>
THIS SECURITY AGREEMENT made this 26th day of September, Nineteen Hundred
and Ninety-Seven (1997)
BETWEEN SEL-LEB MARKETING, INC., a corporation of the State of New Jersey,
having its principal place of business at 495 River Street, Paterson,
New Jersey ("Debtor")
AND PATERSON RESTORATION CORPORATION, with offices at 125 Ellison Street,
Paterson, New Jersey 07505 ("Secured Party")
W I T N E S S E T H, T H A T:
WHEREAS, the Secured Party has made a loan in the amount of $100,000.00 to
Debtor (The "Indebtedness"); and
WHEREAS, to secure repayment of the Indebtedness the Debtor or desires to
grant to the Secured Party a second security interest in all new equipment
purchased.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth, the parties intending to be bound hereby do agree as follows:
1. Debtor covenants and agrees to pay to the Secured Party the indebtedness
which may be owing from time to time by Debtor to Secured Party in accordance
with the terms and conditions of a loan agreement executed in connection with
the Indebtedness ("Promissory Note").
2. To secure the payment of the Indebtedness and all extensions and
renewals thereof and substitutions therefore and to secure the payment and
performance by Debtor of all of its
<PAGE>
obligations under the Promissory Note, Debtor hereby gives and grants to Secured
Party an interest in those items appearing on Schedule A annexed hereto and made
part hereof, situate on the premises now occupied by Debtor at its aforesaid
place of business ("Collateral").
3. Debtor hereby covenants with and warrants to Secured Party that:
A. It is the sole owner of the Collateral and that it has the right to
grant this security interest in the Collateral.
B. All of the machinery and equipment will be kept in good condition and
repair and will be kept on the aforesaid business premises of Debtor and will
not be removed therefrom, except as herein provided, without the written consent
of Secured Party, its successors or assigns.
C. Debtor shall pay all taxes, assessments and other governmental charges
of every character, levied and assessed against all or any part of the
Collateral and will well and truly comply with all laws, regulations and orders
of any national, state or municipal governmental or administrative agency
exercising any power or regulation or supervision over Debtor or any of its
property, the noncompliance with which will impair the lien of this security
agreement upon any of the Collateral.
D. Debtor will keep all of the Collateral adequately insured.
E. Debtor shall not enter into any other security agreement relating to the
Collateral except to secure the payment of the Indebtedness and performance of
the obligations referred to in this
<PAGE>
security agreement.
F. Debtor will execute financing statements or other documents deemed
necessary by Secured Party to perfect or preserve its security interest in the
Collateral and will pay the cost of filing such statements or documents pursuant
to law.
4. Should Debtor default for more than 30 days in any of the covenants or
warranties herein contained, or fail to pay within 30 days from its due date any
installment of the Indebtedness secured hereby, or dispose of substantially all
of its assets other than in the ordinary course of business; or fail to carry on
its business for any reason whatsoever; or permit or suffer any attachment,
distress, replevin or levy or any process against the Collateral; or make an
assignment for the benefit of its creditors; or file a petition for its relief
under any provision of the Federal Bankruptcy Code or other applicable statute,
or be adjudicated bankrupt on the basis of an involuntary petition filed against
it; or if a receiver shall be appointed for the business of Debtor or for any of
its assets; or if Debtor shall become party to any proceeding pursuant to any
state or federal statute, or to any informal proceeding, for an adjustment,
settlement, arrangement, extension or composition of its debts,
THEN AND IN ANY SUCH EVENT, Secured Party shall have and may exercise all
the rights and remedies conferred upon.secured parties by the Uniform Commercial
Code and other applicable laws. Secured Party, in such event, may require Debtor
to assemble the Collateral and make it available to Secured Party at a place to
be designated by Secured Party which is reasonably convenient to Secured Party
<PAGE>
and Debtor. Any notification of sale or other disposition of the Collateral to
which this security agreement applies, or of other act on by Secured Party,
required to be given by Secured Party, will be sufficient if given personally or
mailed by certified mail to Debtor at its address aforementioned not less than
fifteen (15) days prior to the day on which such sale or other disposition will
be made, and such notification shall be deemed reasonable notice.
5. The rights and remedies herein expressed to be vested in or conferred
upon Secured Party shall be cumulative and shall be in addition to and not in
substitution for or in derogation of the rights and remedies conferred upon
secured parties by the Uniform Commercial Code and otherwise.
6. Debtor does not waive a) protest of all commercial paper at any time
held by Secured Party on which Debtor is in any way liable; b) notice of
nonpayment at maturity of any account; and c) notice of Secured Party's election
to accelerate the Indebtedness.
7. Upon payment in full of the Indebtedness secured hereby, together with
any extensions and renewals thereof, this agreement and the security interest
granted hereby shall terminate.
8. It is further agreed that the terms, covenants and conditions of this
security agreement shall be deemed to be severable. If one or more of the
provisions, terms, covenants or clauses, paragraphs or subparagraphs of this
security agreement are adjudged to be unlawful, unconstitutional, unenforceable
or void or of no effect for any reason whatsoever, that adjudication shall n no
way affect the other provisions, terms, covenants or clauses, paragraphs or
subparagraphs of this security agreement which have
<PAGE>
not been so adjudged. In the event of an adjudication as described aforesaid,
this security agreement shall be construed as though the affected provision,
term, covenant or clause, paragraph or subparagraph had not been included
herein.
9. This agreement shall be governed by the laws of the State of New Jersey.
References to the Uniform Commercial Code in this agreement are made to Title
12A of the New Jersey Statutes, as if and when amended.
10. This agreement shall be binding upon, and shall inure to the benefit
of, the parties and their respective successors and assigns.
IN WITNESS WHEREOF, Debtor has caused this security agreement to be signed
by the proper officer of the within designated corporation as of the day and
year first above written.
Witnesses of Attested by: SEL-LEB MARKETING, INC.
/s/ Ernest M. Caposela /s/ Jan S. Mirsky
- ---------------------------- -----------------------------
ERNEST M. CAPOSELA, ESQ. Executive Vice President
JAN S. MIRSKY
<PAGE>
Prepared by:
/s/ Ernest M. Caposela
-----------------------------
ERNEST M. CAPOSELA, ESQ.
PROMISSORY NOTE
This Promissory Note is made on September 26, 1997
BETWEEN the Borrower, SEL-LEB MARKETING, INC, whose principal business
address is 495 River Street, Paterson, New Jersey, referred to as "Borrower,"
AND the Lender, PATERSON RESTORATION CORPORATION, -whose address is 125
Ellison Street, Paterson, New Jersey referred to as "Lender."
The word "Lender" means the original Lender and anyone else who takes this
Note by transfer.
BORROWER'S PROMISE TO PAY PRINCIPAL AND INTEREST. In return for a loan that
Borrower received, Borrower promises to pay $100,000 00 (called the
"principal"), plus interest to the Lender. The interest rate for seven (7) years
of the Note shall be 6.00 % per annum.
PAYMENTS. Borrower will pay interest monthly commencing on November 1,
1997, and to continue on the first day of each month thereafter until October 1,
2004. The amount of the monthly payments shall be $1,461.10
All payments will be made to the Lender at the address
<PAGE>
shown above or at a different place if required by the Lender.
EARLY PAYMENTS. Borrower has the right to make payments at any time before
they are due. These early payments will mean that the Note will be paid in less
time. However, unless Borrower pays this Note in full, the monthly payments will
remain the same. There will be no prepayment penalty.
LATE CHARGES OR OVERDUE PAYMENTS. If Lender has not received any monthly
payment within five (5) days after the due date, Borrower will pay the Lender a
late charge of 5% of the monthly payment. This payment will be made along with
the late monthly payment.
SECURITY Borrower has offered as security for this Note the following:
(a) A second lien on all new machinery and equipment.*
DEFAULT. If Borrower fails to make any payments required by this Note
within thirty (30) days after the due date, the Lender may declare that Borrower
is in default on this Promissory Note. Before Lender can make such a declaration
of default, Lender must provide Borrower with written notice of the event of
Default. If Borrower does not remedy the default within five (5) business days
of the date that it receives the written notice of default, then and in that
event Borrower must immediately pay the full amount of all unpaid principal,
interest, and other amounts due on this Note, and the Lender's cost of
collection and reasonable attorney's fees, together with actual costs of suit.
The Lender does not give up its
- --------
* A first lien on the new machinery and equipment is held by Summit Bank.
7
<PAGE>
right to declare Default due to any previous delay or failure to
declare a Default.
ADDITIONAL TERMS AND CONDITIONS. In addition to the foregoing terms and
conditions, Borrower agrees to abide by the general terms and conditions as
outlined in Rider A which is attached to and made a part of this Promissory
Note. Any reference in Rider A to "Mortgage Note" or "Mortgagor" shall mean this
Promissory Note and the Borrower named herein.
EACH PERSON LIABLE. The Lender may enforce any of the provisions of this
Note against any one or more of the Borrowers who sign this Note.
NO ORAL CHANGES. This Note can only be changed by an agreement in writing
signed by both the Borrowers and the Lender.
SALE/REFINANCE/RELOCATION. The entire balance of the outstanding principal
of the loan and all accrued unpaid interest thereon, shall become immediately
due and payable upon the bankruptcy, reorganization, dissolution or liquidation
of SEL-LEB, MARKETING, INC., or upon the sale, partial sale, exchange, transfer,
sale under foreclosure, relocation, or other disposition of the security for
this Note.
TENANT MUST REMAIN. This Note shall be in default if SEL- LEB, MARKETING,
INC. fails to move into or vacates the premises located at 495 River Street,
Paterson, New Jersey.
SIGNATURES. I agree to the terms of this Note. SEL-LEB, MARKETING, INC. is
a corporation authorized to do business in the State of New Jersey, and I hereby
represent that I am authorized by the corporation to execute this agreement on
its behalf.
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Witnessed or Attested by: SEL-LEB MARKETING, INC.
/s/ Ernest M. Caposela /s/ Jan S. Mirsky
- ----------------------------- ----------------------------
ERNEST M. CAPOSELA, ESQ. Executive Vice President
JAN S. MIRSKY
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RIDER (A) TO PROMISSORY NOTE
GENERAL TERMS AND CONDITIONS
The Mortgagor shall comply and require each of its employees, agents,
and/or contractors, and/or subcontractors, employed in the completion of the
project to comply with all applicable Federal, State, Territorial, and local
laws, and in particular the following Federal laws and regulations.
(1) The Davis Bacon Act:
Wage rates paid for labor must not be less than the prevailing area wages
as determined by the Secretary of Labor and embodied in this agreement, pursuant
to the provisions of the Davis-Bacon Act, as amended (40 U.S.C. 276a (5), 42 USC
3222, as amended). In addition, the "Mortgagor" is required to pay wages not
less often than once a week.
(2) Sections 103 and 107 of the Contract Work Hours and Safety Standards Act
(40 U.S.C. 327-330) as supplemented by Department of Labor regulations (29
CFR, Part 5).
Under section 103 of the Act, each contractor shall be required to compute
the wages of every mechanic and laborer on the basis of a standard work day of 8
hours and a standard work week of 40 hours. Work in excess of the standard
workday or workweek is permissible provided that the worker is compensated at a
rate of not less than 1 1/2 times the basic rate of pay for all hours worked in
excess of 8 hours in any calendar day or 40 hours in the work week. Section 107
of the Act is applicable to construction work and provides that no laborer or
mechanic shall be required to work in surroundings or under working conditions
which are unsanitary, hazardous, or dangerous to his health and safety as
determined under construction, safety and health standards promulgated by the
Secretary of Labor. These requirements do not apply to the purchase of supplies
or materials or articles ordinarily available on the open market, or contracts
for transportation or transmission of intelligence.
(3) Anti-Kickback Rules.
Salaries of architects, draftsmen, technical engineers, and technicians
performing work for the project financed by this mortgage shall be paid
unconditionally and not less often than once a month without deduction or rebate
on any account except only such payroll deductions as are mandatory by law or
permitted by the applicable regulations issued by the Secretary of Labor
pursuant to the "Anti-Kickback Act" of June 13, 1934 (48 Stat. 948; 62 Stat.
740; 62 Stat. 108; title 18 U.S.C., section 874; and title 40 U.S.C., section
276c).
The Contractor shall comply with all applicable "Anti-
<PAGE>
Kickback" regulations and shall insert appropriate provisions in all
sub-contracts covering work under this Contract and is responsible for the
submission of affidavits required by subcontractors thereunder except as the
Secretary of Labor may specifically provide for variations of or exemptions from
the requirements thereof.
(4) Title VI of the Civil Rights Act of 1964, as amended (42 USC 2000d-4) and
Executive Orders 11114, 11246 and 11375, and specifically to the following:
The "Mortgagor/Obligor" shall be bound by and shall incorporate or cause to
be incorporated into any contract, or modification thereof, which is paid for in
whole or in part with funds obtained under this agreement, the following equal
opportunity clause:
"During the performance of any work to be performed under this contract,
the "mortgagor/obligor" or contractor agrees as follows:
The mortgagor/obligor or contractor:
(a) will not discriminate against any employee or applicant for employment
because of race, color, religion, sex or national origin, and will
take affirmative action to ensure that applicants are employed, and
that employees are treated during employment, without regard to their
race, color, religion, sex or national origin. Such action shall
include, but not be limited to the following: employment, upgrading,
demotion, or transfer; recruitment or recruitment advertising; layoff
or termination; rates of pay or other forms of compensation; and
selection for training, including apprenticeship. The contractor
agrees to post in conspicuous places, available to employees and
applicants for employment, notices to be provided by the contracting
officer setting forth the provisions of this nondiscrimination clause.
(b) In all solicitations or advertisements for employees placed by or on
behalf of the mortgagor/obligor or contractor, state that all
qualified applicants will receive consideration for employment without
regard to race, color, religion, sex or national origin.
(c) Will send to each labor union or representative or workers with which
he had a collective bargaining agreement or other contract or
understanding, a notice advising the labor union or workers'
representative or the contractor's commitments under this mortgage,
and shall post copies of the notices in conspicuous places available
to employees and applicants for employment.
(d) Will furnish all information and reports required by the rules,
regulations and orders, and amendments of the U.S. Secretary of Labor,
and will permit access to his books,
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records, and accounts by the Government and the Secretary of Labor for
purposes of investigation to ascertain compliance with such rules,
regulations and orders.
(e) In the event of noncompliance with the nondiscrimination clauses of
this mortgage or with ar.v of such rules, regulations, or orders, this
mortgage may be accelerated in whole or in part and the
mortgagor/obligor or contractor may be declared ineligible for further
Government contracts, and such other sanctions may be imposed and
remedies involved or by rule, regulation, or order, of the Secretary
of Labor, or as otherwise provided by law.
(5) All applicable standards, orders, and regulations issued pursuant to the
Clean Air Act, as amended (42 U.S.C. 1857) and Executive Order 11738; and
the Federal Water Pollution Control Act, as amended (33 U.S.C. 1251).
The "mortgagor/obligor" agrees to comply with Federal clean air and water
standards during the accomplishment of this project and specifically agrees to
the following:
(a) that any facility to be utilized in the accomplishment of this project
is not listed on the Environmental Protection Agency's List of
Violating Facilities pursuant to 40 CFR, Part 15.20;
(b) that in the event a facility utilized ln the accomplishment of this
project becomes listed on the EPA List, the mortgagee may, inter alia,
accelerate, cancel, terminate for default, or suspend for such
failure, in whole or in oars, the mortgage.
(c) that it will comply with all the requirements of Section 114 of the
Clean Air Act and Section 308 of the Federal Water Pollution Control
Act relating to inspection, monitoring, entry, reports, and
information, as well as all other requirements specified in Section
114 and Section 308, respectively, and all regulations and guidelines
issued thereunder;
(d) that it will promptly notify the mortgagee of the receipt of any
notice from the Director, Office of Federal Activities, Environmental
Protection Agency, indicating that any facility utilized or to be
utilized in the accomplishment of this project is under consideration
for listing on the EPA List of Violating Facilities;
(e) that it will insert in any of its subcontracts entered into for the
purpose of accomplishing this project, unless otherwise exempted
pursuant to the EPA regulations implementing the Air or Water Act (40
CFR, Part 15.5), provisions which shall include the criteria and
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requirements set forth in this paragraph, including this subparagraph
(e);
(f) that in the event that either the mortgagee or its contractors or the
latters' subcontractors for the construction, supply and service
contracts entered into by the mortgagor for the purpose of
accomplishing this project were exempted from complying with the above
subparagraphs under the provisions of 40 CFR, Part 15.5 (a), the
exemption shall be nullified should the facility give rise to a
criminal conviction (See 40 CFR, Part 15.20) during the accomplishment
of this project. Furthermore, with the nullification of the exemption,
the above subparagraphs shall be effective. The mortgagor, its
contractors' or the latters' subcontractors' facility is listed for
having given rise to a criminal conviction noted in 40 CFR, Part
15.20.
(6) The requirements of and all pertinent rules and regulations issued under and
pursuant to the National Environmental Policy Act of 1969 (P.L. 90-190); the
National Historic Preservation Act of 1966 (80 Stat. 915, 16 USC 470); Executive
Order No. 11593 of May 31, 1971); and the Wild and Scenic Rivers Act (P.L.
90-542), as amended.
(7) Flood insurance requirements under the Flood Disaster Protection Act of 1973
(P.L. 93-234, 87 Stat. 975), as amended, and any regulations issued thereunder
by the U.S. Department of Housing and Urban Development and/or the U.S. Economic
Development Administration.
(8) If compliance with any of the provisions of this Agreement would require the
mortgagor to violate any applicable Federal, State or Territorial law, the
mortgagor shall, as soon as possible, notify the mortgagee in writing so that
appropriate action may be taken by the mortgagee to allow, if possible, the
mortgagor to proceed as soon as possible with implementation of the project.
(9) Non-Relocation, assignment. In the event that the mortgagor, attempts to
assign this mortgage, or to move mortgagor's operations from the premises
covered by this mortgage, without the express, prior, written approval of the
mortgagee, the entire principal sum, together with all interest shall at the
option of this mortgagee become due and payable immediately thereafter.
WITNESSED OR ATTESTED BY: SEL-LEB MARKETING, INC.
/s/ Ernest M. Caposela /s/ Jan S. Mirsky
- ----------------------------- ------------------------------
ERNEST M. CAPOSELA, ESQ. Executive Vice President
Jan S. Mirsky
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STOCKHOLDERS AGREEMENT
BY AND BETWEEN RBCJJ ASSOCIATES, LLC
AND SEL-LEB MARKETING, INC.
AGREEMENT made this 31st day of October 1997, by and between RBCJJ
ASSOCIATES, LLC ("LLC"), a New York limited liability company, with offices at
25 Seabro Avenue, North Amityville, New York 11701, and SEL-LEB MARKETING, INC.
("SEL-LEB"), with offices at 495 River Street, Paterson, New Jersey 07524
(hereinafter called the "Shareholders"), and ALES SIGNATURE LTD. ("ALES"), with
offices at 495 River Street, Paterson, New Jersey 07524 (hereinafter called the
"Corporation").
WHEREAS, the Shareholders are the owners of all the outstanding
shares of the Corporation, and in particular LLC owning ten (10) shares
representing ten (10%) percent of the outstanding shares and SEL-LEB owning
ninety (90) shares representing ninety (90%) percent of the outstanding shares;
and
WHEREAS, the Corporation has been formed for the purposes of
acquiring by contract specific assets of Signature Beauty Care
Corp. ("SBC") and to market products bearing the Signature
trademarks. The Asset Purchase Agreement is subject to approval by
the United States Bankruptcy Court; and
WHEREAS, the success of the Corporation will require the
active interest, management and financial support of the
Shareholders; and
WHEREAS, the Shareholders desire to provide a plan for the future
as to their respective rights of ownership and to guard against introduction
into the ownership of the Corporation of other
<PAGE>
persons or entities by restricting the privilege of owning shares
in the Corporation; and
WHEREAS, the Shareholders desire to establish such provisions with
respect to management and compensation that are consistent with the objectives
of the Shareholders.
NOW, THEREFORE, in consideration of mutual promises and other
valuable considerations, the Shareholders and the Corporation agree with each
other as follows:
1. Definitions. For all purposes of this Agreement:
(a) The term "transfer", "dispose", or any similar term
means any sale, exchange, gift, bequest, pledge, security interest, or other
alienation or disposition whatsoever of any shares of the Corporation or any
interest therein, except transfers to immediate family members, in trust or
otherwise or for estate and/or tax planning, including any distribution by an
executor, administrator, or trustee.
(b) The term "involuntary transfer" means any transfer or
disposition of shares under judicial order, legal process, execution,
attachment, or enforcement of a pledge, trust or other security interest.
(c) The term "involuntary transferee" means anyone who acquires an
interest in or title to the shares by virtue of an involuntary transfer.
(d) The term "shares" means common shares of the Corporation and
includes the shares presently outstanding and all common shares which may
hereafter be issued by the Corporation.
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(e) The term "Shareholders then holding shares" means those
Stockholders who are at the time owners of record upon the books of the
Corporation of any of the shares.
2. Contributions to Capital of the Corporation. The Shareholders
will simultaneously herewith initially commit to fund the Corporation with such
amounts as may be necessary to purchase the Signature Beauty Care assets in
accordance with the terms of the Asset Purchase Agreement on a 90%/10% basis,
with SEL-LEB contributing 90% and LLC 10% and such further and other amounts as
may be necessary for working capital in the same ratio. The working capital
contribution shall not exceed Three Hundred Thousand ($300,000.00) Dollars in
the aggregate.
3. Management and Operation in Profits of the
Corporation.
(a) The Board of Directors of the Corporation shall consist of
four of the named individuals below or their designees for the term of this
Agreement. At the next meeting of Shareholders, at which elections are held and
at all future elections for the duration of the term of this Agreement, the
Shareholders shall vote to elect or vote to continue in office, whichever is
applicable, the following persons to serve as the Directors of the Corporation:
Chris Bianco
Joel Spielfogel
Jack Koegel
Jan Mirsky
(b) At the next meeting of Shareholders, at which elections
are held and at all future elections for the duration of the term
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of this Agreement, the Shareholders shall vote to elect or vote to continue in
office, whichever is applicable, the following persons to serve as the officers
of the Corporation:
President: Joel Spielfogel
Executive VP: Chris Bianco
Secretary/Treasurer: Jan Mirsky
Chairman of the Board/
Chief Executive Officer: Jack Koegel
(c) At the next meeting of Shareholders, the Shareholders shall
vote to so amend the By-Laws of the Corporation to provide that officers of the
Corporation shall be elected directly by the shareholders and that regardless of
"titles", each officer shall have equal authority with regard to conducting the
business of the Corporation.
(d) All decisions of the Board of Directors shall be determined by
a majority vote of the entire Board of Directors. "Deadlocks" shall constitute a
no-vote by the Board of Directors and Shareholders and cannot be broken by any
vote of the Shareholders. A unanimous vote of the Board of Directors will be
required for the filing of a petition for dissolution of the Corporation.
(e) All decisions of the Shareholders shall be determined by a
majority vote of the same individuals that constitute the Board of Directors in
accordance with the procedure set forth in subparagraph (d) above, without
regard to percentage ownership in stock.
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(f) All cash, checks and instruments for the payments of
money are to be deposited in the Corporation's bank account or
accounts.
(g) All applications for loans or other advances of money must be
signed jointly by both the President and Chief Executive Officer or Secretary of
the Corporation, unless otherwise directed by the Board of Directors.
4. Restriction on Shares and Transfer.
No Shareholder shall dispose of or encumber or transfer any
shares of the Corporation during the three-year period following the date of
execution of this Agreement. Following the expiration of the three-year period,
no transfer may be made of any of the shares of the Corporation without the
prior written consent of the other Shareholder. The other Shareholder shall have
the first right of refusal. Any purported transfer or disposition of shares in
violation of the terms of this Agreement shall be void, and the Corporation
shall not recognize or give an effect to such transaction.
5. Insolvency, etc.
In the event that hereafter:
(a) There shall be filed by either Shareholder in any Court,
pursuant to any statute, either of the United States or of any State or any
United States Possession, a Petition in Bankruptcy or insolvency, or upon any
Petition being filed against any Shareholder, or the Shareholder shall be
adjudicated a bankrupt or an insolvent; or
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(b) There shall be appointed a Receiver or Trustee of all or
substantially all of the property of either Shareholder and such Receivership
shall not be terminated within thirty (30) days after the appointment; or
(c) Either Shareholder shall make a General Assignment for
the benefit of creditors; or
(d) Either Shareholder shall take advantage of any
Insolvency Act for the relief of debtors; or
(e) Any attachment potentially involving a sale of either
Shareholder's stock in the Corporation shall be levied against the assets of
either Shareholder, which attachment shall not be removed within thirty (30)
days; or
(f) An execution shall be issued against the stock of either
Shareholder and shall remain unpaid, unsatisfied and unstayed, pending appeal,
for a period of thirty (30) days.
Then, in such event ("a" through "f"), the Corporation firstly, and
then the other Shareholder, shall have the option to purchase the shares owned
by such Debtor/Shareholder; the purchase shall be effectuated in the same manner
and in the same proportions of stock as hereinafter set forth in Paragraph "12"
of this Agreement; except that the option to so purchase shall be exercised by
serving a Notice to such effect upon the Debtor/Shareholder within thirty (30)
days after the notice of completion of any of the aforementioned events and that
wherein in the heretofore the words "Selling Shareholder" are used, it shall be
deemed to mean "notice of completion of any of the aforementioned events". In
the
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event that the Corporation and the other Shareholders fail to exercise their
option to purchase and the Debtor/Shareholder's stock shall be transferred to
any subsequent owner, assignee or transferee, then such stock shall be subject
to all of the restrictions and provisions of this Agreement.
6. Legends. Each certificate for the shares of stock of
the Corporation now or hereinafter issued shall be inscribed with
the following legends:
"The shares represented by this certificate are subject to the
terms and conditions of an Agreement among the Shareholders of the
Corporation, dated the day of , 19 , a copy of which is on file at
the offices of the Corporation."
7. Valuation of No Par Value Common Shares.
The parties acknowledge and agree that the value of the no
par common shares upon full contribution of capital as provided for in Paragraph
"2" is $10,000.00 per share and that LLC is the holder of ten (10) shares and
that SEL-LEB is the owner of ninety (90) shares.
8. Duties of Shareholders.
It is agreed that LLC (Chris Bianco and Joel Spielfogel) will be
responsible for all sales of the Corporation and shall devote so much of their
time as necessary to fully discharge this responsibility. LLC shall not perform
any other work or services which would be in competition with or inconsistent
with the best interests of the Corporation.
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9. Salaries.
It is understood and agreed that neither the Shareholders nor the
Board of Directors shall receive a salary for services rendered to the
Corporation unless expressly agreed in writing at any time during the term of
this Agreement.
10. Sales Commissions (Overrides) and Business
Related Expenses.
(a) It is understood and agreed that LLC shall be entitled to and
receive from the Corporation a two (2%) percent override calculated upon the net
sales of the Corporation, payable the 15th day of the month following the month
in which payment has been made to the Corporation. "Net Sales" is defined as
actual monies paid and retained by Ales for the sale of Signature products less
returns, credits, charge-backs and commissions to brokers.
(i) With respect to sales made by brokers engaged by
the Corporation, the override may be excluded by agreement of the
parties.
(b) LLC's sales representatives shall be entitled to receive
reimbursement for all reasonable and necessary business expenses (travel
included) expended in connection with the furtherance of the Corporation's
business within fifteen (15) days following the close of the prior month for
which the expenses had been incurred and vouchers submitted. In the event that
the sales representatives may be conducting other business than that of the
Corporation, the expenses shall be allocated proportionately.
11. Services of SEL-LEB. It is understood and agreed that
SEL-LEB will be responsible for the marketing of the Corporation's
products and any related activities, such as warehousing,
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packaging, shipping, financial, etc. In consideration of such services, SEL-LEB
will charge back to the Corporation its actual costs for labor and actual
expenses. There will be no charge-backs to the Corporation by SEL-LEB for
indirect overhead marketing or financial services provided to the Corporation.
Financial statements as to the operation of the Corporation shall be prepared
and distributed to the Shareholders and Directors quarterly.
12. LLC's Rights to Purchase Additional Stock of ALES.
In accordance with the terms and conditions hereinafter set
forth, LLC shall have the unqualified right to acquire from SEL-LEB an
additional thirty-nine (39) shares of no par value common stock, which equates
to a forty-nine (49%) percent ownership of the Corporation:
(a) In the event that at any time following the execution of this
Agreement, the Corporation elects to sell or merge the Corporation with another
entity, LLC may, at its option, notify SEL-LEB in writing of its intent to
purchase thirty-nine (39) shares of SEL-LEB's no par value common stock at a
price of $15,000.00 per share, payable upon such terms as may be mutually
agreed; or
(b) In the event that at any time following the execution of this
Agreement, the Corporation receives a letter of intent from an underwriter for
an initial public offering, LLC may, at its option, notify SEL-LEB in writing
prior to registration with the Securities and Exchange Commission of its intent
to purchase thirty-nine (39) shares of SEL-LEB's no par value common stock at
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a price of $20,000.00 per share, payable upon such terms as may be
mutually agreed; or
(c) In the event that neither of the events described in
subparagraphs (a) and (b) above occur, at the end of a two-year period following
the date ALES first ships Signature product, LLC may, at its option, within six
months thereafter, purchase thirty-nine (39) shares at the original price of
$10,000.00 per share, payable under such terms as may be mutually agreed. As a
condition to the purchase and simultaneously therewith, SEL-LEB will cause its
banking institution to release the assets of ALES which are presently the
subject of cross-collateralization pursuant to SEL-LEB's credit agreement with
the banking institution.
(i) Upon LLC exercising its option, the net worth of
the Corporation shall be determined as of the close of the
preceding quarter; and
(ii) The net worth shall be distributed to the
respective Shareholders, ninety (90%) percent to SEL-LEB and ten (10%) percent
to LLC. In the event that there is insufficient cash to distribute the net
worth, then the available cash shall be distributed in accordance with the
percentages stated above and the balance in the same percentages shall be
entered upon the books of the Corporation as loans by the Shareholders to the
Corporation payable with interest upon such terms as may be mutually agreed.
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13. Notice of Offer and Acceptance of Shareholders' Stock.
(a) Subject to the provisions of Paragraph "4" herein, if
either Shareholder shall desire to sell, encumber or dispose of all of his
shares of stock in the Corporation, then said Shareholder shall promptly give
notice (hereinafter referred to as a "Notice to Sell"), to the Corporation and
the other Shareholder, offering to sell to the Corporation and/or the other
Shareholder, as the case may be, all of his stock and such Shareholder shall
hereinafter be referred to as the "Selling Shareholder".
(b) A Notice to Sell once given or where deemed to have been given
as provided for in this Agreement shall constitute an offer to sell and shall
subject the shares of the selling Shareholder as the case may be, as herein
contained.
(c) Within thirty (30) days of the giving of such Notice to Sell
or within thirty (30) days after such Notice to Sell shall be deemed to have
been given, the remaining Shareholder and Directors shall cause a joint meeting
of Shareholders and Directors to be called and held. At such meeting, the stock
of the Selling Shareholder shall be offered for sale and shall be subject to an
option to purchase on the part of the Corporation upon such terms as may be
mutually agreed; and in the event the Corporation desires to exercise said
option, it shall exercise said option at such joint meeting of Shareholders and
Directors by resolution; and shall within ten (10) days thereafter cause a
written notice to be given in the manner hereinafter provided for (hereinafter
referred to as the "Notice of Acceptance"). The Selling Shareholder must be
deemed in attendance at such meeting, but must abstain from all votes taken
thereat.
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(d) If the Corporation shall be prohibited by law from acquiring
the entire stock, or any part thereof so offered, or for any reason shall fail
or refuse to exercise its option to purchase said stock, or any part thereof,
then the shares offered to purchase said stock, or any part thereof, then the
shares offered and not purchased by the Corporation shall be subject to an
option on the part of each of the remaining Shareholder (hereinafter "Remaining
Shareholder") to purchase a proportionate number of shares not purchased by the
Corporation; which option shall be exercised, if at all, by said Shareholder,
acting as a group causing a "Notice of Acceptance" to be served within ten (10)
days after the aforesaid joint meeting in the manner herein provided for. The
exercise of such option by any Shareholder shall be conditioned upon its
agreeing to hold any stocks so acquired subject to the terms and conditions of
this Agreement. The term "proportionate number of shares" shall mean that
proportion of the stock of the Corporation offered for sale to the remaining
Shareholder equal to the proportion of the stock that each purchasing remaining
Shareholder bears to the stock of the Corporation owned by the remaining
Shareholder. The Corporation shall have the right to allot shares so as to avoid
fractional share interests.
14. Right to Sell to Third Parties.
If the Corporation and the remaining Shareholder shall fail
to exercise their options to purchase the shares of stock offered
for sale, the Selling Shareholder may, in accordance with an
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exemption from securities registration, sell or dispose of any of the shares
offered and refused, to any other person, firm, or Corporation; provided only
that the stock so transferred shall thereafter be subject to all of the
restrictions and provisions of this Agreement.
15. Purchase Price.
The purchase price of the stock shall be based upon the percentage
valuation of the stockholder equity set forth in the most recent audited
financial statement of the Corporation.
16. Right to Conduct Similar Business.
It is understood and agreed that both LLC and SEL-LEB are,
at the present time, engaged, directly and indirectly through affiliated
entities, in the cosmetics business. SEL-LEB's principal business activity is
the cosmetics business and it shall continue to have the right to pursue such
business. This Agreement shall not prevent the LLC or any of its affiliated
entities, such as Stealth or Creative Packaging, from continuing to buy and sell
cosmetic products, providing that it shall not in any manner, directly or
indirectly, purchase or sell cosmetic products that would be competitive with
the Signature product lines which are to be marketed by ALES as particularly set
forth in the second "WHEREAS" clause appearing on the first page of this
Agreement.
17. Trademarks.
The Corporation shall not sell or otherwise convey the trademark
rights owned or hereinafter acquired by the Corporation except with the
unanimous consent of all of the Stockholders.
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18. Actions in Violation of This Agreement.
(a) In the event the shares of stock of any Shareholder are
pledged, hypothecated, transferred or disposed of in any manner, without
complying with the provision of this Agreement, or if such shares are taken in
execution or sold in any voluntary or involuntary legal proceeding, sale,
bankruptcy, insolvency or in any other manner, the Corporation and the other
Shareholder shall, upon actual notice thereof, in addition to their rights and
remedies under this Agreement, be entitled to purchase such shares from the
Transferee thereof, under the same terms and conditions and at the same price as
set forth in the provisions of this Agreement dealing with the sale of the stock
held by such Transferee, as if the Transferee had offered to sell such shares,
but in no event shall the purchase price exceed the amount paid for said shares
by the Transferee. The Corporation may, at its option, refuse to transfer on its
books and its records any shares transferred in violation of this Agreement.
(b) A Shareholder who shall petition any Court for the dissolution
of the Corporation shall be deemed to have offered his shares for sale under the
same terms and conditions set forth in Paragraph 12(c) of this Agreement.
19. Termination of Agreement.
This Agreement shall terminate on the occurrence of any of the
following:
(a) The dissolution or bankruptcy of the Corporation.
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(b) The acquisition of all stock in the Corporation by any
individual, firm, corporation or other entity.
(c) At such time when there is only one Shareholder of the
Corporation.
20. Arbitration.
Any dispute or controversy of any kind or nature, relating to this
Agreement or the breach of performance thereof, that shall arise among the
parties hereto or their legal representative, shall be settled and determined by
binding arbitration in the County of Nassau, State of New York, in accordance
with the rules then obtaining of the American Arbitration Association, before an
arbitrator or arbitrators selected by said Association pursuant to its rules.
All costs of arbitration shall be borne as directed by the arbitrators. Judgment
upon the award rendered by the arbitrator or arbitrators may be entered in any
court having jurisdiction. The arbitrator or arbitrators shall be entitled to
compel specific performance and/or injunctive relief by the parties of their
duties and obligations under this Agreement in order to more effectively
accomplish the intentions and desires set forth in the preamble to this
Agreement.
21. Amendment.
This Agreement may not be validly modified, amended, rescinded,
changed or discharged unless the same is in writing, and signed by the parties
affected thereby, or by their duly authorized agents.
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22. Entire Agreement.
This Agreement constitutes the entire agreement and understanding
among the parties hereto with respect to the subject matter herein contained,
and there are no agreements, understandings or representations made or existing
among the parties hereto, whether written or oral, except as is herein expressly
set forth.
23. Effect of a Waiver.
No waiver of a provision of this Agreement shall be deemed a waiver
of any other provision or shall a waiver of the performance of a provision in
one or more instances be deemed a waiver of future performance thereof.
24. Separability.
If any provision of this Agreement shall be determined by the
arbitrators, or by any Court having jurisdiction, to be invalid, illegal or
unenforceable, the remainder of this Agreement shall not be affected thereby but
shall continue in full force and though such invalid, illegal or unenforceable
provision or provisions were not originally a part hereof.
25. Binding Effect of this Agreement.
This Agreement shall be binding not only on the parties
hereto, but also on their heirs, executors, administrators, successors, and
assigns, and the parties hereto agree for themselves their heirs, executors,
administrators, successors and assigns, to execute any instruments which may be
necessary and proper to carry out the purposes and intent of this Agreement.
16
<PAGE>
26. Endorsement.
All stock certificates of the Corporation shall contain an
endorsement that they are subject to the terms and provisions of this Agreement.
27. General and Number.
As used in this Agreement, wherever necessary or
appropriate, singular shall be deemed to include the plural and vice-versa and
the masculine gender shall be deemed to include the feminine and vice-versa, as
the context may require.
28. Controlling Law.
This Agreement, having been made and executed in the State of New
York, shall be construed and enforced in accordance with the laws of the State
of New York.
29. Previous Agreements.
This Agreement supersedes any previous agreements between the
parties, or some of the parties, hereto.
30. Notices.
Except as otherwise provided herein, any and all notices, requests,
demands and other communications hereunder shall be in writing and shall have
been deemed to have been given when sent by registered or certified mail, return
receipt requested, addressed to the appropriate parties at their respective
addresses as contained in the records of the Corporation, or to such addresses
as may be given in writing by any such party to the Corporation and the
attorneys indicated below:
17
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TO:
TO:
TO:
TO:
or to any party hereto at such other address as shall be specified in a notice
similarly given to all parties hereto.
31. Benefit.
This Agreement shall be binding upon the parties and their
legatees, distributees, legal representatives, successors, and assigns.
32. Counterparts.
This Agreement may be executed in numerous parts, each of which
shall be considered as an original. One Agreement is delivered to each of the
Shareholders and one to the Corporation.
IN WITNESS WHEREOF, the Shareholders have signed this Agreement on
the day and year first above written.
RBCJJ ASSOCIATES, LLC SEL-LEB MARKETING, INC.
By:/s/ Chris Bianco By:/s/ Jan S. Mirsky
------------------------ ----------------------------
Chris Bianco, Member Jan S. Mirsky
Executive Vice President
18
<PAGE>
ALES SIGNATURE LTD.
By:/s/ Jack Koegel
---------------------------
Jack Koegel
Chief Executive Officer/
Chairman of the Board
Attest:
/s/ Jan S. Mirsky
- ------------------------
Secretary
STATE OF NEW YORK )
) ss.:
COUNTY OF NASSAU )
On the 31st day of October, 1997, before me personally came CHRIS
BIANCO, to me known, who, being by me duly sworn, did depose and say that he is
a member of RBCJJ ASSOCIATES, LLC, a New York limited liability company
described in and which executed the foregoing instrument; that he knows the seal
of said LLC; that the seal affixed to said instrument is such LLC seal; that it
was so affixed by order of the board of directors of said LLC, and that he
signed his name thereto by like order.
/s/ Martin I. Saperstein
--------------------------------
Notary Public
19
<PAGE>
STATE OF )
) ss.:
COUNTY OF )
On the ______ day of October, 1997, before me personally came HAL
MARKOWITZ, to me known, who, being by me duly sworn, did depose and say that he
is the Chairman of the Board of SEL-LEB MARKETING, INC., the Corporation
described in and which executed the foregoing instrument; that he knows the seal
of said corporation; that the seal affixed to said instrument is such corporate
seal; that it was so affixed by order of the board of directors of said
corporation, and that he signed his name thereto by like order.
-------------------------------
Notary Public
STATE OF )
) ss.:
COUNTY OF )
On the ______ day of October, 1997, before me personally came JACK
KOEGEL, to me known, who, being by me duly sworn, did depose and say that he is
the Chief Executive Officer and Chairman of the Board of ALES SIGNATURE LTD.,
the Corporation described in and which executed the foregoing instrument; that
he knows the seal of said corporation; that the seal affixed to said instrument
is such corporate seal; that it was so affixed by order of the board of
directors of said corporation, and that he signed his name thereto by like
order.
-------------------------------
Notary Public
20
<PAGE>
ASSET PURCHASE AGREEMENT
dated as of September 15, 1997
by and between
SBC CORPORATION, INC.,
as Seller
and
ALES SIGNATURE LTD.,
as Buyer
<PAGE>
TABLE OF CONTENTS
ARTICLE I.
DEFINITIONS
ARTICLE II.
EXECUTION OF THE AGREEMENT
AND EARNEST MONEY DEPOSIT
ARTICLE III.
PURCHASE AND SALE OF ASSETS;
ASSUMPTION OF LIABILITIES
1. Purchase and Sale of Assets .............................................. 5
2. Bills of Sale..............................................................5
3. Consideration .............................................................6
4. Closing and Closing Date ..................................................6
5. Delivery by Seller ........................................................7
6. Delivery by Buyer .........................................................7
7. Post-Closing Escrow .......................................................7
8. Canning Escrow.............................................................9
ARTICLE IV.
REPRESENTATIONS AND
WARRANTIES OF SELLER
1. Incorporation; Authority..................................................10
2. Authorization ............................................................10
3. Valid and Binding Agreement ..............................................10
4. No Violation..............................................................11
5. Good Title; Etc ..........................................................11
6. Condition of Assets.......................................................11
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF BUYER
1. Incorporation; Authority..................................................12
2. Authorization ............................................................12
3. No Violation .............................................................12
4. Consents .................................................................13
i
<PAGE>
ARTICLE VI.
MISCELLANEOUS PROVISIONS
1. Expenses ................................................................13
2. Inventory ...............................................................13
3. Break-up Fee ............................................................14
4. Time Is of the Essence ..................................................14
5. Survival of Warranties ..................................................14
6. Waivers .................................................................14
7. Notices .................................................................15
8. Headings ................................................................15
9. Counterparts ............................................................16
10. Governing Law ...........................................................16
11. Entire Agreement ........................................................16
12. Retention of Jurisdiction ...............................................16
ii
<PAGE>
ASSET PURCHASE AGREEMENT
BY AND BETWEEN SBC CORPORATION, INC.
AND ALES SIGNATURE LTD.
RECITALS
WHEREAS, SBC Corporation, Inc. ("Seller") is in the business of selling and
distributing fine fragrances and cosmetics products throughout the United
States;
WHEREAS, Seller filed for protection under Chapter 11 of the United States
Bankruptcy Code on July 18, 1996 together with its corporate parent, Model
Imperial, Inc. and related subsidiaries (the "Debtors"), in the United States
Bankruptcy Court for the Southern District of Florida (the "Bankruptcy Court"),
and, since that date, has remained in possession of its assets and control of
its business operations as a debtor-in-possession pursuant to 11 U.S.C. 1107(k)
and 1108;
WHEREAS, Seller's Jointly Proposed Consolidated Plan of Reorganization, as
Amended was confirmed by Order dated September 2, 1997 (the "Plan") providing
for the formation of Reorganized Model Imperial, Inc. on the Effective Date of
the Plan, provided, however, that the Bankruptcy Court has retained jurisdiction
under the Plan over the disposition of the assets of SBC;
WHEREAS, Ales Signature Ltd., a New York corporation ("Buyer"), is desirous
of purchasing certain assets of Seller pursuant to 11 U.S.C. 363(b), (f) and
(m);
<PAGE>
WHEREAS, this Asset Purchase Agreement (or the "Agreement") sets forth the
terms and conditions upon which Buyer will acquire certain assets of Seller and
Seller will sell such assets to Buyer for the consideration provided for herein;
NOW, THEREFORE, in consideration of the mutual agreements contained herein, the
parties represent, warrant, covenant and hereby agree as follows:
ARTICLE I.
DEFINITIONS
1. APPROVAL ORDER, as used herein, shall mean a duly executed and docketed
order of the Bankruptcy Court, approving this Agreement and authorizing and
directing Seller to comply with the terms of this Agreement, including executing
and delivering all necessary documents, pursuant to 11 U.S.C. 363(b), (f) and
(m).
2. BUYER, as used herein, shall mean Ales Signature Ltd., a New York
corporation.
3. CANNING ESCROW, as used herein, shall mean the $50,000 to be held at
Closing from the Purchase Price by Seller's Counsel in an interest bearing
escrow account and be released to Buyer or Seller in accordance with the
provisions of Article m, Section 8 herein.
2
<PAGE>
4. CLOSING, as used herein, shall have the meaning assigned to it set forth
in Article m, Section 4.
5. COMPONENTRY, as used herein, shall mean any and all useable components
and, including, without limitation, non-obsolete work in process related to the
Seller's operations and sale of "Signature" product to be listed on Exhibit "A'
to the Componentry Bill of Sale (as defined below) being delivered to Buyer as
of the Closing.
6. EARNEST MONEY DEPOSIT, as used herein, shall mean the $150,000 deposited
with Seller's Counsel to be held in an interest bearing escrow account upon
execution of this Agreement. For purposes of this Agreement, all interest earned
on the Earnest Money Deposit shall be deemed a part of the Earnest Money Deposit
and shall be released by Seller's Counsel in accordance with the further terms
and conditions of this Agreement with respect to treatment and release of the
Earnest Money Deposit.
7. INVENTORY, as used herein, shall mean any and all non-obsolete, salable
finished cosmetics and non-obsolete work in process bearing the "Signature" and
related trademarks to be listed on Exhibit "A to the Inventory Bill of Sale (as
defined below) being delivered to Buyer as of the Closing.
8. PURCHASE PRICE, as used herein, shall mean the total price to be paid by
Buyer to Seller for the Sale Assets, on a dollar for dollar basis at Seller's
cost of the Inventory and Componentry, plus $100,000.00 for the Signature
Trademarks and all existing artwork, displays, etc. bearing said trademark.
3
<PAGE>
9. SALE ASSETS, as used herein shall include: (a) the Inventory; (b)
Componentry; and (c) Signature Trademarks.
10. SELLER, as used herein, shall mean SBC Corporation, Inc., provided,
however, for purposes of payment and receipt of the Purchase Price herein SBC
may designate, Reorganized Model Imperial, Inc., or Quality King Distributors,
Inc., as the entity to be named as payee.
11. SELLER'S COUNSEL, as used herein, shall mean the law term of Greenberg,
Traurig, Hoffman, Lipoff, Rosen & Quentel, 515 E. Las Olas Boulevard, Suite
1500, Ft. Lauderdale, Florida 33301.
12. SIGNATURE TRADEMARKS, as used herein, shall mean any and all rights of
the Seller to the federally registered trademark "Signature" and related
trademarks, including without limitation, Giraffe, along with any state and
common-law trademark rights, and goodwill appurtenant thereto to be listed on
Exhibit "A" to the Trademarks Bill of Sale and Assignment (as defined below)
being delivered to Buyer as of the Closing.
4
<PAGE>
ARTICLE II.
EXECUTION OF THE AGREEMENT
AND EARNEST MONEY DEPOSIT
1. Upon execution of the Agreement, Buyer shall immediately deposit the sum
of $150,000 with Seller's Counsel, and said sum shall constitute the Earnest
Money Deposit. The Earnest Money Deposit shall remain in the possession of
Seller's Counsel, and shall be credited towards the Purchase Price; the Earnest
Money Deposit shall be turned over to Seller under the terms and conditions set
forth in Article III, Section 7.
2. Seller's Counsel shall return the Earnest Money Deposit to Buyer within
three (3) days only upon the occurrence of any of the following:
(a) Seller fails to file a motion with the Bankruptcy Court within
seven (7) days of Seller's receipt of the Earnest Money Deposit, which
motion seeks approval of this Asset Purchase Agreement and the transactions
contemplated by this Asset Purchase Agreement pursuant to Section 363(b),
(f) and (m) of the Bankruptcy Code, Federal Rules of Bankruptcy Procedure
2002, 4001, 6004 and 6006 and all applicable Local Rules of Court;
(b) The Court does not approve the sale of the Sale Assets to the
Buyer, or approves the sale of the Sale Assets to another purchaser;
5
<PAGE>
(c) The Closing has not occurred on the first business day immediately
following the day the Approval Order becomes final and non-appealable
following the Bankruptcy Court's execution thereof (the "Appeal Period"),
or such other date as is mutually acceptable to Buyer and Seller. This
provision shall not preclude the Buyer and Seller from scheduling the
Closing to occur during the Appeal Period provided no stay pending appeal
of the Approval Order has been obtained;
(d) Upon an unresolved dispute over the valuation of the Inventory and
the Componentry as described in Article VI, Section 2 herein; or
(e) In the event Buyer determines prior to the Closing that Seller
does not have valid registrations for and owns all rights in and to the
Signature Trademarks pursuant to the procedure described in Article IV,
Section 7 herein.
ARTICLE III.
PURCHASE AND SALE OF ASSETS;
ASSUMPTION OF LIABILITIES
1. Purchase and Sale of Assets. Upon and subject to the terms and
conditions stated in this Agreement, at the Closing Seller is selling,
conveying, transferring, assigning and delivering to Buyer and Buyer is
purchasing and acquiring from Seller the Sale Assets.
6
<PAGE>
The Seller is not selling, conveying, transferring, assigning or delivering
to Buyer and the Sale Assets do not include any other assets or properties of
Seller, including without limitation, notes and accounts receivable, accounting
books and records, funds of whatever nature, cash on hand and in banks, stocks,
bonds and other securities, claims of Seller under insurance policies and any
proceeds therefrom, refunds (including tax refunds), minute books or corporate
and stock records.
2. Bills of Sale. The Sale Assets shall be sold, conveyed, assigned,
transferred and delivered to Buyer, free and clear of all claims, liabilities,
obligations and encumbrances, pursuant to Section 363(f) of the Bankruptcy Code
and by duly executed bills of sale in the forms annexed hereto as Exhibit "1"
(the "Inventory Bill of Sale"), Exhibit "2" (the "Componentry Bill of Sale") and
Exhibit "3" (the "Trademark Bill of Sale and Assignment"), being delivered to
Buyer as of the Closing.
3. Consideration. Subject to the terms and conditions of this Agreement, in
reliance on Seller's agreements, representations, warranties and covenants
contained herein' and in consideration of the aforesaid sale, conveyance,
assignment, transfer and delivery of the Sale Assets, Buyer will deliver or
cause to be delivered to Seller at the Closing, in full payment for the
aforesaid sale, conveyance, assignment, transfer and delivery of the Sale
Assets, the balance of the Purchase Price in cash or readily collectible funds.
Notwithstanding this requirement, the Purchase Price will be subject to the
physical inventory provided in Article VI, Section 2. Buyer is only obligated to
pay $100,000 for the Signature Trademarks, plus the actual dollar for dollar
amount of Seller's cost of the Inventory and the Componentry.
7
<PAGE>
4. Closing and Closing Date. The Closing provided for in this Agreement
will be held at the offices of Seller's Counsel, 515 East I=s Olas Boulevard,
Suite 1500, Ft. Lauderdale, Florida, and the Closing shall be held on the first
business day immediately following the day the Approval Order, approving this
Agreement and authorizing and directing Seller to comply with the terms of this
Agreement (including executing and_ delivering all necessary documents), becomes
final and non-appealable following the Bankruptcy Court's execution thereof (or
such other date as is mutually acceptable to Buyer and Seller), provided,
however, this provision shall not preclude the Buyer and Seller from scheduling
the Closing to occur during the Appeal Period provided no stay pending appeal of
the Approval Order has been obtained.
5. Delivery by Seller. At the Closing, Seller will deliver to Buyer (unless
previously delivered), the following:
(a) The Bills of Sale referred to in Section 2 hereof, duly executed
by Seller; and
(b) All other documents, instruments and writings required to be
delivered by Seller at the Closing pursuant to this Agreement or otherwise
required in connection herewith, including without limitation documentation
supporting assignments of the Signature Trademarks as contemplated herein.
6. Delivery by Buyer. At the Closing, Buyer is delivering to Seller (unless
previously delivered), the following:
8
<PAGE>
(a) The balance of the Purchase Price; and
(b) All other documents, instruments and writings required to be
delivered by Buyer at the Closing pursuant to this Agreement or otherwise
required in connection herewith.
7. Post-Closing Escrow. At the Closing, the Earnest Money Deposit shall be
deemed converted to the Post-Closing Escrow. The funds held in the Post-Closing
Escrow shall be turned over to Seller, as follows:
(a) One-half (1/2) on the ninetieth (90th) day after the Closing;
(b) The remaining one-half (1/2) on the one-hundred eightieth (180th)
day after the Closing;
(c) All funds held in the Post-Closing Escrow will be turned over to
Seller in accordance with the foregoing provisions, except that, should any
current customer of the Seller chargeback, attempt to recover expenses
from, or bring a cause of action against Buyer in connection with Seller's
"Signature" accounts or other accounts, which were existing or could have
been brought as of the Closing Date, said chargeback, claims for expenses
and causes of actions may be satisfied from and up to the extent of the
Post-Closing Escrow;
9
<PAGE>
(d) In the event of any customer's return of Seller's inventory (in
such customer's possession as of the Closing Date) to the Buyer in
connection with or related to any asserted chargebacks, claims for expenses
or causes of action as referenced in the foregoing provisions, Buyer shall
remain obligated to deliver such returned inventory to the Seller, whether
in salable or non-salable condition, prior to satisfying any such asserted
chargebacks, claims for expenses or causes of action from the funds in the
Post-Closing Escrow;
(e) Upon the commencement of any chargeback claim for expenses, or
cause of action as described above, all funds then remaining in the
Post-Closing Escrow shall remain therein and be held pending the resolution
or disposition of said chargeback, claim for expenses or cause of action;
provided, however, if all asserted chargebacks, claims for expenses, or
causes of action as described above raised in the first ninety (90) days
after the Closing are resolved or disposed of during the 180 days after the
Closing in an amount less than $75,000, the balance of the funds remaining
to cover the first ninety (90) days after the Closing shall be released and
turned over to the Seller/;
(f) Buyer specifically further acknowledges and agrees that in the
event of a default of this Agreement by Seller after the Closing Date, the
damages to be awarded to Buyer shall be limited to the funds remaining in
the Post-Closing Escrow and Buyer shall
- --------
1. By way of example and not by limitation, if a chargeback or return in
accordance with Article III, Section 7(c) in the amount of $25,000 were asserted
against Buyer on the 30th day after Closing and honored by the Buyer on the 60th
day after Closing, provided no further chargeback, claim, or action is brought
in the remaining 30 days after Closing, $50,000 would be released and turned
over to Seller from the Post-Closing Escrow.
10
<PAGE>
have no further recourse against the Seller, any of its related Debtor
companies, Reorganized Model, the Debtors' Bankruptcy Estates or Quality
King Distributors, Inc. in connection with any asserted chargeback claim
for expenses, causes of action or other claim on account of or by a
customer of Seller or on Buyer's own behalf in excess of the funds
remaining in the Post-Closing Escrow; and
(g) Seller specifically further acknowledges and agrees that in the
event of a default of this Agreement by Buyer prior to or at the Closing
Date, including without limitation, the failure to pay Seller the balance
of the Purchase Price, the damages to be awarded Seller shall be limited to
the amount of the Earnest Money Deposit.
8. Canning Escrow. At Closing the Canning Escrow shall be established and
shall thereafter be released to Buyer as a reduction in and to the total final
Purchase Price at such time as Buyer delivers to Seller's Counsel a complete and
unlimited release (in a form to be agreed upon prior to Closing) from Mr. Terry
Canning ("Canning"), a former commercial sales representative for Seller in
connection with the Signature line of products, of any and all claims and causes
of action (the "Canning Release") he may have against SBC, Model Imperial, Inc.,
Reorganized Model ImperiaL Inc., or Quality King Distributors, Inc. The Canning
Escrow shall be released to Seller in the event (i) Buyer fails to deliver the
Canning Release to Seller's Counsel before the end of one (1) year after the
Closing, or (ii) any claims or causes of action are brought by or for the
benefit of Canning against SBC, Model Imperial, Inc., Reorganized Model, Inc.,
or Quality King Distributors, Inc.
11
<PAGE>
ARTICLE IV.
REPRESENTATIONS AND
WARRANTIES OF SELLER
Seller represents and warrants to the Buyer as follows:
1. Incorporation; Authority. Seller is a corporation duly organized and
and validly existing and in good standing under the laws of the State of Florida
Seller has full corporate power and authority to enter into this Agreement and
to carry out the transactions contemplated hereby, subject to approval of this
sale by the Bankruptcy Court.
2. Authorization. The execution and delivery of this Agreement and the
Bills of Sale and the consummation by Seller of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of Seller.
3. Valid and Binding Agreement. This Agreement and the Bills of Sale
constitute valid and binding obligations of the Seller enforceable in accordance
with their respective terms, except that the Agreement and the Bills of Sale
shall have no force and effect unless approved by the Bankruptcy Court.
4. No Violation. Neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated hereby will violate (i)
any provision of the organizational documents of Seller supplied to Buyer prior
to Closing, (ii) result in the creation or imposition of any security interest,
lien, charge or other encumbrance (a "Lien")
12
<PAGE>
upon Sale Assets under any agreement or commitment to which the Seller is a
party or by which the Seller is bound, or to which Sale Assets are subject, or
(iii) violate any statute or law or any judgment, decree, order, regulation or
rule of any court or governmental authority. 5. Good Title; Etc. Seller will
make a good-faith effort to obtain Bankruptcy Court approval to convey the Sale
Assets free and clear of all liens and encumbrances pursuant to 11 U.S.C. ss.
363(f).
6. Condition of Assets. Seller is not making any representation or
warranty as to the condition of Sale Assets and Buyer is acquiring the Sale
Assets in an "AS IS" and "WHERE IS" condition. Buyer is only obligated to
purchase non-obsolete, salable, finished inventory, and only usable componentry,
along with any non-obsolete work in process. Seller is not making any
representation or warranty as to the financial condition of or historical
financial performance by the Seller and, accordingly, Buyer shall not be
entitled to rely on or assert that any such representationes or warranties were
made by Seller in connection with any financial investigation or review
conducted by the Buyer.
7. The Signature Trademarks are validly registered with the U.S.
Patent & Trademark Office and Seller has no actual knowledge of the Signature
Trademarks infringing on the rights of any third-parties or conflicting claims
to the Signature Trademarks. Upon execution of this Agreement and receipt of the
Earnest Money Deposit by Seller's Counsel, Buyer shall be provided an inspection
period to examine and determine to Buyer's reasonable satisfaction that Seller
has valid registrations and rights to the Signature Trademarks. The inspection
period shall expire upon the Closing and thereafter Buyer shall
13
<PAGE>
be precluded from asserting a breach of any representation or warranty herein or
making claim to the Earnest Money Deposit based on any matter relative to the
registration of the Signature Trademarks.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Seller as follows:
1. Incorporation; Authority. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of New York;
Buyer has the full corporate power and authority to enter into this Agreement
and to carry out the transactions contemplated hereby.
2. Authorization. The execution and delivery of this Agreement and the
Purchase Price and the consummation by Buyer of the transactions contemplated
hereby, have been duly authorized by all necessary corporate action on the part
of Buyer. This Agreement constitutes a valid and binding obligation, which is
enforceable by the Seller in accordance with its respective terms, subject to
approval by the Bankruptcy Court.
3. No Violation. Neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated hereby will: (i) violate
any provision of the Certification of Incorporation or By-Laws of Buyer, (ii)
violate, or be in conflict with,
14
<PAGE>
or constitute a default (of itself or with the giving of notice or the passage
of time or both) under, or cause the acceleration of the maturity of any debt or
obligation pursuant to any agreement or commitment to which the Buyer is a party
or by which the Buyer is bound or (iii) violate any statute or law or any
judgment, decree, order, regulation or rule of any court or governmental
authority.
4. Consents. No consent of any person is necessary to the consummation
of the transactions contemplated hereby.
ARTICLE VI.
MISCELLANEOUS PROVISIONS
1. Expenses. Each of the parties agrees that it will pay all its own costs
and expenses, including attorneys fees incurred by such party in connection with
the transactions contemplated by this Agreement.
2. Inventory. Buyer shall arrange for a physical inventory at Buyer's
expense of the Inventory and the Componentry wherever located. All parties shall
use their best efforts such that the physical inventory shall be completed at or
before the Closing. The physical inventory shall be determinative of the amount
of Seller's cost of the Inventory and Componentry. In the event the Buyer's
valuation of the Inventory and Componentry is disputed by Seller and the parties
are not able to mutually resolve the dispute in a commercially reasonable manner
after three (3) business days (during which the parties shall
15
<PAGE>
be required to meet to attempt to resolve the dispute), the Earnest Money
Deposit shall be released and returned to the Buyer and this Agreement canceled.
The Buyer shall, however, be required to accept the valuation of the cost of any
non-obsolete, salable work in process for Inventory or Componentry as stated or
provided by Seller's supplier(s) for same.
3. Break-up Fee. Seller covenants and agrees that it will use its best
efforts to obtain approval from the Bankruptcy Court that any initial competing
bid shall be in an amount greater than or equal to the Purchase Price plus ten
percent (10%) of the Purchase Price, and on terms and conditions which are the
same as or better than those set forth in this Agreement, and that Seller shall
pay to Buyer, from the proceeds of such competing bid, an expense reimbursement
in the amount of up to $75,000 for its reasonable expenses incurred in pursuing
the purchase of the Sale Assets, including reasonable attorneys' fees,
out-of-pocket costs, and any other third-party professional fees and expenses.
4. Time Is of the Essence. The Seller and Buyer agree that time is of the
essence in this transaction.
5. Survival of Warranties. All representations and warranties contained in
Articles IV and V, herein or in any attached schedule shall survive the Closing
hereunder, regardless of any investigation made at any time, except as provided
in Article IV, Section 7 herein.
16
<PAGE>
6. Waivers. The waiver by any party of any breach of any provision of this
Agreement will not operate or be construed as a waiver of any subsequent breach
or any other right on any future occasion. Nothing in this Agreement, express or
implied, is intended to confer on any person other than the parties hereto any
rights, remedies, obligations or liabilities.
7. Notices. All notices, requests, demands and other communications that
are required or permitted to be given under this Agreement shall be in writing
and shall be deemed to have been duly given if delivered in hand or mailed by
certified mail, postage prepaid, return receipt requested, as follows or to such
other address for any party as such party shall specify by notice complying with
these provisions given to the other party:
Buyer: Ales Signature Ltd.
495 River Street
Paterson, New Jersey 07524
with a copy to
counsel: Seth P. Markowitz, Esq.
Markowitz, Roshco & Adelman
666 Third Avenue
18th Floor
New York, New York 10017
Seller: SBC Corporation
1243 Clint Moore Road
Boca Raton, Florida 33487
with a copy to
counsel: Brian K. Gart, Esq.
Greenberg, Traurig
515 E. Las Olas Blvd, Suite 1500
Fort Lauderdale, Florida 33301
17
<PAGE>
8. Headings. The section and other headings contained in this Agreement are
for reference purposes only and shall not be deemed to be a part of this
Agreement or to affect the meaning or interpretation of any of its provisions.
9. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
10. Governing Law. This Agreement and the transactions contemplated hereby
shall be governed by, construed, enforced in compliance with the laws of the
State of Florida, without regard for its principals regarding conflict of laws.
11. Entire Agreement. This Agreement (including any schedules and Exhibits
delivered hereunder) constitutes the entire agreement between the parties on the
subject matter hereof, superseding all prior agreements and understandings, oral
and written, and may not be amended except by a written agreement signed by all
parties.
12. Retention of Jurisdiction. The parties hereto agree that the Bankruptcy
Court shall retain exclusive jurisdiction to resolve any dispute arising under,
arising in or related to this Agreement so long as the Bankruptcy Court shall
retain jurisdiction over the Seller and thereafter the courts located in the
State of Florida shall have jurisdiction to enforce, interpret or construe any
provision of this Agreement.
18
<PAGE>
IN WITNESS WHEREOF, Seller and Buyer have caused this Agreement to be
executed by their own hand as of the date first above written.
SELLER:
SBC CORPORATION, INC.
By: /s/ Harold M. Ickovics
---------------------------------
Name: Harold M. Ickovics
Title: Chairman
BUYER:
ALES SIGNATURE LTD.
By: /s/ Chris Bianco
---------------------------------
Name: Chris Bianco
Title: Vice President
By: /s/ Jan. S. Mirsky
---------------------------------
Name: Jan S. Mirsky
Title: Chief Financial Officer
19
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 180,693
<SECURITIES> 0
<RECEIVABLES> 4,751,048
<ALLOWANCES> 167,293
<INVENTORY> 5,696,210
<CURRENT-ASSETS> 11,171,898
<PP&E> 781,997
<DEPRECIATION> 285,041
<TOTAL-ASSETS> 12,022,567
<CURRENT-LIABILITIES> 4,522,165
<BONDS> 0
<COMMON> 87,127
0
0
<OTHER-SE> 7,327,275
<TOTAL-LIABILITY-AND-EQUITY> 12,022,567
<SALES> 13,578,844
<TOTAL-REVENUES> 13,660,114
<CGS> 9,418,302
<TOTAL-COSTS> 9,418,302
<OTHER-EXPENSES> 3,500,559
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 60,148
<INCOME-PRETAX> 741,255
<INCOME-TAX> 319,097
<INCOME-CONTINUING> 422,158
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 422,158
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
