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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period ________ from to ________.
Commission file number 1-13856
SEL-LEB MARKETING, INC.
(Exact name of small business issuer in its charter)
New York 11-3180295
(State of incorporation) (I.R.S. Employer Identification No.)
495 River Street, Paterson, New Jersey 07524
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (973) 225-9880
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendments to this Form 10-KSB. [X]
The issuer's revenues for its most recent fiscal year were $21,427,530.
The aggregate market value of voting stock held by non-affiliates of the
registrant on March 27, 2000 was approximately $3,471,014. On such date, the
closing price of the issuer's common stock was $2.84 per share. Solely for the
purposes of this calculation, shares beneficially owned by directors, executive
officers and stockholders of the issuer that beneficially own more than 10% of
the issuer's voting stock have been excluded, except such shares, if any, with
respect to which such directors and officers disclaim beneficial ownership. Such
exclusion should not be deemed a determination or admission by the issuer that
such individuals are, in fact, affiliates of the registrant.
The number of shares of the registrant's Common Stock, $.01 par value,
outstanding on March 27, 2000 was 2,261,018
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Company's Proxy Statement in connection with its Annual Meeting
scheduled to be held on May 30, 2000 are incorporated in Part III. The Company's
Proxy Statement will be filed within 120 days after December 31, 1999.
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SEL-LEB MARKETING, INC.
Annual Report on Form 10-KSB
For the Fiscal Year Ended December 31, 1999
Table of Contents
Page
PART I
Item 1. Description of Business 3
Item 2. Description of Property 7
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 8
Item 6. Management's Discussion and Analysis or Plan of Operation 9
Item 7. Financial Statements 10
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 11
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; 11
Compliance with Section 16(a) of the Exchange Act 11
Item 10. Executive Compensation 11
Item 11. Security Ownership of Certain Beneficial Owners and
Management 11
Item 12. Certain Relationships and Related Transactions 11
Item 13. Exhibits and Reports on Form 8-K 11
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PART I
Item 1.Description of Business
General
Sel-Leb Marketing, Inc. (the "Company") was incorporated under the laws of the
State of New York in September 1993. The Company is primarily engaged in the
distribution and marketing of consumer merchandise to retail sellers such as
mass merchandisers, discount chain stores and food, drug and electronic
retailers. The Company's business presently consists of the following
activities: (i) developing, marketing and selling the Company's own proprietary
brands of budget-line health, beauty aid and cosmetic products, which are
manufactured for the Company by contract manufacturers, (ii) opportunistic
purchasing and secondary sourcing (i.e., distributing merchandise on a wholesale
basis outside of normal distribution channels to retail merchants) of a broad
range of name-brand and off-brand products such as health and beauty aids,
cosmetics, fragrances, kitchen items and other household items, and (iii)
developing, marketing and selling, or otherwise facilitating the development,
marketing or sale of, products to be promoted by celebrity spokespersons and
sold to mass merchandise retailers. The Company also currently intends to begin
selling its own proprietary brands of cosmetic products and health and beauty
aids on the Company's website "www.cosmeticshopper.com" which the Company
anticipates will be launched in April, 2000. The Company's strategy is to
capitalize on increased consumer demand for value and convenience resulting from
the increased acceptance by consumers of mass merchandisers, electronic
retailers and other mass marketing retail outlets, as well as on the popularity
of consumer products endorsed by celebrity spokespersons.
In September 1997, the Company and RBCJJ Associates, LLC ("RBCJJ"), an
unaffiliated third party, formed Ales Signature, Ltd., a New York corporation
("Ales"), for the purpose of acquiring from SBC Corporation, Inc. ("SBC") a line
of women's cosmetic, corrective and treatment products (e.g., blemish creams and
eye creams) sold under the Signature(TM) name. The Company owns 80% of Ales
Signature, Ltd. The Company, in connection with the acquisition, acquired rights
to the following trademarks: (i) all rights of SBC in and to certain trademarks
(including the Signature Solutions(R) mark and the Signature Beauty Care(R), Lip
Set(R) and Salon Essence(R) registered trademarks) and (ii) finished products
and other inventory (including works in progress and component parts) related to
the product lines bearing the acquired trademarks
Unless otherwise specified herein, references to the "Company" shall refer
collectively to Sel-Leb Marketing, Inc. and its subsidiary Ales Signature, Ltd.
SALE OF PROPRIETARY BRAND NAME PRODUCTS. The Company is currently engaged in the
development, marketing and sale of its own proprietary brand name budget-line
health, beauty aid and cosmetic products. The Company's beauty aid and cosmetic
products include budget-line lipsticks, lip pencils, nail polishes and eye
pencils, which are manufactured in a variety of colors and are sold under the
Linette(R), Zia(R), Loud Music(R), Ghoul Tools(R), Quick Thang(R), Loud
Sticks(TM), Signature Solutions(R) and Signature Beauty Care(R) brand names to
retail chains and other mass merchandisers located throughout the United States,
Canada and Puerto Rico. All of the Company's proprietary beauty aid and cosmetic
products are manufactured and supplied by third parties in accordance with the
Company's specifications. The Company purchases all materials for these products
(including raw materials and packaging) through individually placed purchase
orders to various suppliers. During the fiscal year ended December 31, 1999, one
supplier accounted for approximately 49% of such purchases. The Company has
credit arrangements with suppliers that allow it to purchase merchandise on
credit with payment generally due 30 days after purchase. To date, the Company
has not experienced any shortages of or difficulties in obtaining the raw
materials used in its products or the materials used for the packaging of its
products. Furthermore, the Company believes that alternate sources of supply for
such materials are readily available and that the loss of any one of its
suppliers would not have a material adverse effect. The Company believes that it
has good relationships with the suppliers of raw materials and packaging for its
proprietary products.
Typically, materials purchased by the Company for its proprietary beauty aid and
cosmetic products are delivered by the suppliers to the Company's warehouse
facilities. The Company thereafter, delivers such materials, on an as-needed
basis, to its contract manufacturers, which are engaged by the Company to
provide filling services and perform quality control with respect to the
finished products. During the fiscal year ended December 31, 1999, one such
contract manufacturer, LPD Packaging, Inc., accounted for approximately 50% of
the Company's filling services. All products are manufactured pursuant to the
Company's specifications on a purchase order basis. Once completed, the products
are delivered to the Company, which packages the products and distributes the
finished products to its customers. Although the Company believes that its
contract manufacturers have the capacity to produce volumes of the Company's
products sufficient to meet the Company's foreseeable needs, there can be no
assurance of such. Furthermore, although the Company believes that it has a good
relationship with its contract manufacturers and that the Company will continue
to obtain its finished beauty aid and cosmetic products from such manufacturers
in the foreseeable future, the Company
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does not have written contracts with any of these manufacturers and there can
therefore be no assurance of such. In the event the Company were to experience
difficulties with or the loss of services of its present manufacturers, the
Company believes that it would be able to retain the services of other
manufacturers; however, there can be no assurance that such services could be
retained on a timely basis or on terms as favorable as those with its present
manufacturers.
As part of the Company's strategy of taking advantage of the growth in mass
merchandising and value retailing, the Company will seek to expand its existing
proprietary brand name product lines as well as continue to introduce new brand
name products, thereby providing the Company with a supply of products and
making the Company less reliant on third party and/or opportunistic sources of
merchandise. The Company may also seek to acquire rights to additional
proprietary product lines through licensing or other arrangements, although
there can be no assurance of such.
OPPORTUNISTIC PURCHASING AND SECONDARY SOURCING ACTIVITIES. The Company acts as
a secondary sourcer of a broad range of name-brand and off-brand merchandise,
including health and beauty aids, cosmetics, fragrances, kitchen items and other
household products. The Company acquires its merchandise in negotiated purchases
either directly from consumer goods manufacturers or from wholesalers,
retailers, financially distressed businesses, duty-free distributors and other
secondary sources located in the United States and, to a very limited extent, in
Europe, and sells the merchandise to retail chains and other mass merchandisers
located throughout the United States. During the year ended December 31, 1999,
the Company purchased merchandise from over 50 different suppliers and sold the
merchandise to over 30 different retailers, including, among others, BJ's
Wholesale Club and Rite Aid, which accounted for approximately 14% and 12%,
respectively, of the Company's net opportunistic sales in 1999. The Company
believes that its longstanding relationships with many of its suppliers and
customers are important to the secondary sourcing activities of the Company, and
that its relationship with its suppliers and customers are good.
In connection with its distribution activities, the Company has the ability to
repackage merchandise acquired by it or to provide other value-added services at
the request of a retailing customer. For example, if the Company were to acquire
merchandise which had been packaged by the manufacturer as a four-pack item
(i.e., four items to the package), the Company could, if requested by the
retailer, repackage the item as a ten-pack item prior to delivery of the
merchandise to the customer. Likewise, at a customer's request, the Company has
the ability to package several different items together to create a gift or
bonus package. The Company believes that its ability to provide such value-added
services allows it to service the ongoing needs of its customers and to enhance
its sales and customer relations.
Because the Company focuses on the opportunistic acquisition of merchandise such
as purchases of closed-out, overstocked and/or change-of-packaging brand name
items, the Company is generally able to purchase such merchandise at a discount
below wholesale cost. The Company then sells the merchandise to discount
retailers and other mass merchandisers who seek to purchase products at discount
prices in order to supplement their normal inventory purchases or for special
promotions. The merchandise is sold at prices that are above the Company's cost,
although at prices that are still generally below wholesale. Although the
Company typically purchases merchandise before it has located customers for such
merchandise, it has sold substantially all merchandise acquired by it in each of
the last three fiscal years.
The Company purchases the name-brand and off-brand merchandise which it sells to
retailers from over 50 suppliers, including consumer goods manufacturers,
wholesalers, retailers, financially distressed businesses, duty-free
distributors and other secondary sources. The Company is continually seeking to
locate new sources of merchandise. Generally, the Company will be contacted by a
manufacturer or other supplier when such supplier has excess merchandise that is
available for resale through the secondary market; alternatively, the Company
will also contact a supplier if it becomes aware that the supplier has
merchandise which it desires to sell. Although certain suppliers may have
provided a majority or all of a particular type of product or particular
category of merchandise, no supplier accounted for more than 14% of the
Company's total opportunistic merchandise purchases for the year ended December
31, 1999, with the exception of Stealth International, Inc., which accounted for
17% of said purchases. During the year ended December 31, 1999, substantially
all of the Company's secondary sourcing merchandise was purchased from domestic
suppliers, with the remainder being purchased from suppliers located in Europe.
The Company believes that the loss of any one of its suppliers would not have a
material adverse effect on the Company and that alternative sources of
merchandise are readily available in all existing product categories as well as
additional product categories.
All merchandise is purchased by the Company from its suppliers through
individually placed purchase orders. The Company does not have any contractual
relationships with any of its suppliers and depends, instead, on its ongoing
relationships and prior dealings with such suppliers to obtain merchandise at
favorable prices when it becomes available to secondary suppliers. The Company
believes that such ongoing relationships with its suppliers have resulted from
its prior dealings with such suppliers, in many cases over a period of years,
and its reliability and strength as a customer. Several of the Company's
principals have been involved in the opportunistic purchasing business for more
than 20 years and have developed many on-going contacts with suppliers.
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Currently, all purchasing and pricing decisions with respect to the Company's
opportunistic purchasing activities are made by Paul Sharp, the Company's
President and Chief Executive Officer, and Jorge Lazaro, the Company's Executive
Vice President, who locate sources of merchandise and determine whether any
given product will be suitable for wholesale distribution to mass merchandise
retailers or other customers. Generally, the Company believes that it has the
ability to sell all merchandise that is acquired by it. The Company has credit
arrangements with substantially all of its existing suppliers, thereby allowing
the Company to purchase merchandise on account. Generally, such credit
arrangements allow the Company to purchase merchandise with payment generally
due 30 days after the purchase. However, in certain cases the Company purchases
merchandise with payment made upon the receipt of goods in order to enable the
Company to obtain favorable prices.
The Company also acts as a wholesale distributor of prestige, designer
fragrances. Historically, manufacturers of such fragrances have sold their
products primarily to leading department stores. As a result, mass merchandisers
have traditionally only been able to obtain such items from secondary sources
such as the Company. Typically, the Company purchases these fragrances from
other secondary sources such as export and import companies, duty-free
distributors and department stores which are liquidating their excess inventory.
Unlike other merchandise which is acquired by the Company at prices that are
significantly below wholesale, the Company purchases the designer fragrances at
above-wholesale prices (although still well below their normal retail price).
The Company, in turn, sells such items to mass merchandisers. The Company
believes that sales of such fragrances will continue to constitute a portion of
its sales, although there can be no assurance of such.
The Company believes that a portion of the designer fragrances purchased by it
may include trademarked products manufactured in foreign countries and
trademarked products manufactured in the United States that may have been sold
to foreign distributors. From time to time, United States trademark owners and
their licensees and trade associations have initiated litigation or
administrative agency proceedings seeking to halt the importation into the
United States of such foreign manufactured or previously exported trademarked
products. Although the Company is not currently the subject of any such legal or
administrative actions, and is not aware of any such threatened legal or
administrative actions, there can be no assurance that the Company's business
activities will not become the subject of such actions in the future, or that
future judicial, legislative or administrative agency action will not limit or
eliminate some or all of the secondary sources of supply of prestige fragrances
used by the Company. However, the Company believes that any future limitation on
or elimination of its sources of supply for prestige fragrances for sale to its
customers would not have a material adverse effect on the Company, although
there can be no assurance of such.
DEVELOPMENT OF "CELEBRITY-ENDORSED" PRODUCTS. The Company believes that the
increasing popularity of consumer products endorsed by celebrities may provide
significant future opportunities for the Company. Accordingly, the Company is
seeking to develop products for promotion by celebrity spokespersons which
products would be sold by the Company to mass merchandising and electronic
retailers. In this connection, the Company will seek to enter into agreements
with celebrities for whom it believes it will be able to successfully develop
products which will have consumer appeal.
In September 1996, the Company entered into an arrangement with ACI, Inc.
("ACI"), a developer and marketer of cosmetic products, relating to the
distribution and marketing of products endorsed by celebrity spokespersons
through electronic media and other retail channels. Pursuant to this
arrangement, the Company provides the financing required in connection with
developing, marketing and distributing the products to be promoted by such
celebrities and sold in the retail market. All profits and losses (after giving
effect to any royalty payments required to be made to celebrity spokespersons)
resulting from the sale of such products are to be divided equally between the
Company and ACI. To date, the Company has provided the financing for a line of
cosmetics developed by ACI (including, without limitation, lipsticks, blushes
and other beauty products) which are being promoted by a leading make-up artist
and sold through the electronic media. The revenues generated by the Company's
arrangement with ACI, Inc. accounted for approximately 17% of the Company's net
sales in 1999. There can be no assurance that any other products will be
developed by ACI and financed by the Company pursuant to this agreement or that
any such products that are developed will meet with consumer acceptance or
provide significant revenues for the Company.
Although the Company is seeking to develop the "celebrity-endorsed" product area
of its business, including by marketing and distributing in the traditional
retail market merchandise which is originally offered for sale on television or
by developing products to be promoted by celebrities and sold directly in such
traditional markets, there can be no assurance that the Company will be
successful in its endeavors. To date, the Company has not generated a
significant amount of revenues from such celebrity products, and there can be no
assurance that it will be able to successfully develop any such products or that
any such products developed by the Company will meet with consumer acceptance.
In addition, except as described above, as of the date hereof the Company has no
agreements, understandings or commitments related to such plan of development.
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DEVELOPMENT OF THE COMPANY'S WEBSITE
In April 2000, the Company intends to commence operations of its website
"www.cosmeticshopper.com." The primary purpose of this website is to promote and
sell the Company's proprietary line of teen cosmetics, which primarily includes
the Loud Music's line of lipsticks, nail polishes, fragrances, glitters, lip
gloss, lip pencils and eye pencils.
Inventory
Merchandise acquired by the Company in connection with its opportunistic
purchasing activities for resale to its mass market customers is generally
shipped by the supplier to the Company's warehouse facility, which is located in
Paterson, New Jersey, or, in certain situations, is shipped by the supplier
directly to a customer from whom the Company has received a purchase order. The
Company utilizes its Paterson facility for the centralized receipt of goods from
suppliers, as well as the storage of inventory and the shipment of inventory to
its customers. In addition, value-added services such as repackaging of goods
are also performed at this facility.
Typically, all raw materials purchased by the Company for its proprietary beauty
aid and cosmetic products, are delivered to the Company's warehouse facility.
Thereafter, the Company delivers such materials, on an as-needed basis, to its
contract manufacturers, which provide filling services and perform quality
control with respect to the finished products. Once completed, the products are
delivered to the Company, which packages the products and distributes the
finished goods from its warehouse to its customers.
Competition
The areas of business in which the Company engages are highly competitive. The
Company believes that it competes with the following:
In the opportunistic purchasing area of its business, the Company competes with
other secondary sourcers, as well as with wholesale distributors and retailers,
with respect to its ability to obtain merchandise. In addition, with respect to
sales of such merchandise to its customers, the Company competes with other
secondary suppliers, as well as with manufacturers who sell directly to retail
merchandisers. The Company believes that its ability to purchase a broad array
of merchandise at competitive prices is critical to its success.
In connection with its sale of proprietary brand name products including the
Linette(R), Quick Thang(R), Loud Sticks, Zia, Loud Music(R), Ghoul Tools(R),
Signature Solutions(R) and Signature Beauty Care(R) products, the Company
competes at the retail level with other manufacturers of budget-line health,
beauty aid and cosmetic products for shelf space and promotional space.
In connection with its celebrity-endorsed products business, the Company
competes with manufacturers and marketing organizations that seek out
celebrities to endorse products and assist in marketing programs for their
merchandise, as well as with celebrity agents who can negotiate directly with
retailers in order to secure marketing contracts for the celebrities they
represent. The Company believes that it will compete on the basis of its ability
to design products which are consistent with celebrities' respective preferences
and characters and to provide such products to retailers at competitive prices.
In connection with its website business, the Company will compete with numerous
other websites that sell teen cosmetics.
Many of the Company's existing or potential competitors are well established
companies and have or will have substantially greater financial, marketing and
other resources than the Company. The Company believes that it competes on the
basis of value, product assortment and availability, service to customers and
reputation, as well as on the basis of its long-standing and well established
relationships with both its suppliers and customers. Although the Company
believes that it will be able to compete effectively on the basis of such
factors, there can be no assurance of such.
Trademark and Servicemark Protection
Products developed by the Company are sold under the Linette(R), Zia, Quick
Thang(R), Loud Sticks(TM), Signature Solutions(R) and Signature Beauty Care(R)
trademarks and the Loud Music(R) and Ghoul Tools(R) marks. The Company has
registered the Linette(R) and Zia trademarks with the United States Patent and
Trademark Office (the "Trademark Office") and, in connection with the
acquisition of the product lines from SBC, Ales acquired all of SBC's rights in
and to the Signature Solutions(R) mark and the Signature Beauty Care(R),
Groomer's Secret(R), Lip Set(R) and Salon Essence(R) trademarks. However, there
can be no assurance that these marks do not or will not violate the proprietary
rights of
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others, that such marks would be upheld if challenged or that the Company would
not be prevented from using its trademarks. The Company has also applied to the
Trademark Office for the registration of the trademarks Loud Music(R) and Ghoul
Tools(R) the trademarks under which the Company sells certain proprietary
cosmetics products. There can be no assurance that registration of such
trademarks will be granted by the Trademark Office. In addition, the Company has
also applied to the Trademark Office to register certain other trademarks which
it intends to use in the future in connection with its own proprietary brand
name products, and intends to register other brand names chosen by the Company
for its own line of products. However, there can be no assurance that the
Company will be able to register any such marks.
Personnel
The Company currently employs approximately 25 full-time salaried employees and
approximately 50 hourly employees (the exact number of which fluctuates from
time to time based on the Company's needs). The terms of employment of the
Company's hourly employees are governed by a collective bargaining agreement
which commenced on September 1, 1997 and continues for a term of five years.
Management believes that its employee relations are good.
Insurance
To date, no material product liability claims have been made against the
Company; however, as a distributor of merchandise, including health and beauty
aids, cosmetics, fragrances and household items, the Company could be exposed to
possible liability claims from others for personal injury or property damage due
to design or manufacturing defects or otherwise. The Company maintains a product
liability insurance policy that has a $1,000,000 per occurrence limit and a
$2,000,000 aggregate limit, and a $5,000,000 umbrella liability insurance policy
to cover claims in excess of the limits of its product liability insurance. In
addition, the Company believes that the suppliers from whom it purchases such
merchandise, including the manufacturers thereof, maintain adequate levels of
product liability insurance. The Company also maintains other insurance,
including insurance relating to property and personal injury, which the Company
believes is similar to that maintained by comparable businesses and in amounts
which the Company currently considers adequate. The Company believes that its
insurance coverage, including without limitation its product liability coverage,
is adequate in light of prior experience and future expectations. Nevertheless,
a partially or completely uninsured claim against the Company, if successful and
of sufficient magnitude, could have a material adverse effect on the Company.
Item 2.Description of Property
The Company's principal executive offices are located at 495 River Street,
Paterson, New Jersey, 07524. Such premises include approximately 50,500 square
feet of office and warehouse space. The lease which commenced April 1, 1997, is
for a period of five years. The current monthly rent (including tax) is $20,666
which will increase to $24,833 on April 1, 2000. The Company is also obligated
to reimburse the lessor in the third, fourth and fifth years of the lease for
the Company's proportionate share of any increases in real estate taxes and
assessments over the amount of such taxes and assessments during calendar year
1997.
The Company believes that the space afforded by its properties is adequate for
the current needs of its business.
Item 3.Legal Proceedings
Except for proceedings in the normal course of business, the Company is not a
party to or involved in any pending legal proceedings.
Item 4.Submission of Matters to a Vote of Security Holders.
The Company did not submit any matters to the vote of security holders during
the fourth quarter of the fiscal year ended December 31, 1999.
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PART II
Item 5.Market for Common Equity and Related Stockholder Matters
A. Market Information.
The shares of Common Stock of the Company commenced trading on the Nasdaq Small
Capitalization Market under the symbol "SELB" on July 13, 1995. The range of
high and low reported closing sales prices for the Common Stock as reported by
Nasdaq during the fiscal years ended December 31, 1998 and 1999 were as follows:
<TABLE>
<CAPTION>
High Low
---- ---
Fiscal Year 1998(1)
- -------------------
Quarter Ended:
<S> <C> <C>
March 31, 1998.................................... $3.75 $1.50
June 30, 1998..................................... $1.75 $0.72
September 30, 1998................................ $1.375 $0.375
December 31, 1998................................. $1.75 $0.438
Fiscal Year 1999
- ----------------
Quarter Ended:
March 31, 1999.................................... $3.313 $1.250
June 30, 1999..................................... $5.563 $2.250
September 30, 1999................................ $3.313 $2.281
December 31, 1999................................. $4.688 $2.125
</TABLE>
(1) All share prices prior to June 19, 1998 have been adjusted to give
effect to a one-for-eight reverse stock split which was effected
by the Company on June 19, 1998. In addition, all shares prior to
December 7, 1999 have been adjusted to give effect to a
two-for-one stock split which was effected by the Company on
December 7, 1999.
The prices set forth above reflect inter dealer prices, without retail mark-up,
mark-down or commission and may not necessarily represent actual transactions.
B. Holders.
On March 27, 2000, as reported by the Company's transfer agent,shares
of Common Stock were held by 46 persons, based on the number of record holders,
including several holders who are nominees for an undetermined number of
beneficial owners.
C. Dividends.
The Company did not pay any dividends during 1998 and 1999. The
payment by the Company of dividends, if any, is within the discretion of the
Board of Directors and will depend on the Company's earnings, if any, its
capital requirements and financial condition, as well as other relevant factors.
The Board of Directors does not intend to declare any dividends in the
foreseeable future, but instead intends to retain earnings, if any, for use in
the Company's business operations.
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ITEM 6. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis of the company's results of operations,
liquidity and financial condition should be read in conjunction with the
Condensed Consolidated Financial Statements of the Company and related notes
thereto. The Annual Report on Form 10-KSB 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: Year Ended December 31, 1999 Compared to the
Year Ended December 31, 1998:
The Company has two principal business segments (see Note 7 to the Company's
audited consolidated financial statements): Opportunity and Cosmetics.
Net sales for the year ended December 31, 1999 were $21,427,530 compared to
$17,275,423 for the year ended December 31, 1998, representing an increase of
24.0%. The increase in net sales for the year ended December 31, 1999 resulted
primarily from the Company's sales efforts in both the Opportunity and Cosmetic
lines. The Opportunity sales increased to $10,600,996 for the year ended
December 31, 1999, versus $7,615,130 for the same period in 1998, representing
an increase of 39.2%. Cosmetic sales for the year ended December 31, 1999
increased to $10,826,534 from $9,660,293 in 1998, representing an increase of
12.0%.
Primarily as a result of increases in overall net sales, the cost of sales
increased to $15,418,254 for the year 1999 from $13,337,039 for the same period
in 1998. The cost of goods sold for the year ended December 31, 1999, as a
percentage of sales was 72.0%, compared to 77.2% for the year in 1998. The gross
profit margin improvement for the year ended December 31, 1999 resulted from the
Company's continued focus on the sale of higher profit margin product lines. The
Cosmetic lines improved their margins with the cost of sales decreasing to
$6,469,886 for the year in 1999 versus $6,554,093 in 1998, reducing the cost of
sales percentage to 59.8% from 67.8% in this period. The higher margin resulted
from the Company's successful concentration on the sale of higher profit items
in this segment. The Opportunity lines cost of sales increased to $8,948,368 for
the year 1999 versus $6,782,946 in 1998. The dollar increase was directly
attributable to the increased sales volume in this segment. However, the cost of
sales percentage improved to 84.4% in 1999 from 89.0% in 1998.
Selling, general and administrative ("SG&A") expenses increased to $4,247,550
for the year ended December 31, 1999 from $3,545,248 for the comparable period
in 1998. The increase is primarily the result of the increased sales volume in
1999. SG&A expenses include principally payroll, rent, commissions, insurance,
legal, accounting and other fees paid to third parties and travel and
promotional expenses. The G&A expense components of these expenses are
comparable in 1999 versus 1998.
Total operating expenses increased from $16,882,287 in 1998 to $19,665,804 in
1999 for the year ended December 31, 1999.
As a result of increases in net sales of $4,152,107 partially offset by
increases in operating expenses of $2,783,517 for the year ended December 31,
1999 versus 1998, operating income increased by $1,368,590 for the period, from
$393,136 in 1998 to $1,761,726 in 1999.
Liquidity and Capital Resources
At December 31, 1999, the Company had working capital of $8,470,171 including
cash and cash equivalents in the amount of $158,032. The Company's principal
cash requirements are for the acquisition of inventory and the financing of
receivables. Receivables increased from $3,530,312 at December 31, 1998 to
$5,702,343 at December 31, 1999, representing an increase of $2,172,031,
primarily as a result of the increased sales volume for the period ending
December 31, 1999. Inventory increased from $6,496,298 at December 31, 1998 to
$8,331,838 at December 31, 1999, representing an increase of $1,835,540
primarily in anticipation of continued increased sales volume expected in the
year 2000. These increases in receivables and inventory were primarily financed
by increased borrowings under the Company's revolving credit arrangement and
term loan, in the amount of $1,061,199, increases in accounts payable and
accrued expenses, in the amount of $1,402,935 and $918,280 provided by results
of operations
9
<PAGE>
During December 1998, the Company entered into a new credit facility
("Facility") with Merrill Lynch Business Financial Services Inc. ("Merrill
Lynch") which replaced the Company's previous arrangement with Summit Bank. The
Facility consists of both a revolving line of credit and a $900,000 term loan,
which is payable in monthly installments through January 2006, at which time the
unpaid balance is due. The revolving line of credit provided for maximum
borrowings of $3,300,000 (see note 4 to the Company's audited consolidated
financial statements) against the Company's eligible accounts receivable and
inventories, through October 31, 2000. On April 20, 1999, the Company obtained a
temporary line of credit increase with Merrill Lynch increasing the Facility to
a maximum borrowing of $3,800,000. The increase was effective through October
31, 1999, at which time the maximum line was to revert back to $3,300,000.
Effective as of October 31, 1999, the Company and Merrill Lynch further amended
the facility to increase the revolving credit loan to $3,800,000, and provide
for an additional term loan of $500,000, which is to be repaid in 60 equal
monthly installments, with interest at 2.65% above the 30 day commercial paper
rate, through October 31, 2004, at which time the unpaid balance is due.
Outstanding borrowings under the Facility are secured by substantially all of
the Company's assets. Funds available under the Facility were used to replace
the previous loans with Summit Bank as well as provide funds for the working
capital needs of the Company. As of December 31, 1999, the outstanding balance
under the Revolving Line of Credit was $2,948,356 and under the term loans,
including the Paterson Restoration Corporation, described below, was $1,450,989.
As of March 27, 2000, the outstanding balance under the Revolving Line of Credit
was $3,228,212 and under the term loans, including the Paterson Restoration
Corporation, was $1,382,524. The Facility contains certain restrictive
covenants, which, among other things, require the maintenance of certain
financial ratios and limitations on future indebtedness.
During l999, the Company received proceeds of $67,984 upon the exercise of
options and warrants for the purchase of 82,852 shares of common stock at
exercise prices ranging from $.437 to $2.469 per share.
On September 26, 1997, in connection with the previous 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 payment of principal and interest in the amount
of $1,461 through October 1, 2004. On December 28, 1999, in connection with the
expansion of its business in Paterson, New Jersey, the Company borrowed an
additional $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 December 1, 2006. Each of these loans
is secured by a second priority lean on all new machinery and equipment
purchased by the Company. The proceeds of each of the loans were used for the
purchase of fixed assets.
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 Facility, which expires on October
31, 2000, and the term loans under the Facility, 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.
During the year ended December 31, 1999, we completed our Year 2000 assessment.
The costs of such assessment were not significant. In addition, we have
experienced no problems in the operations of our business as a result of
anticipated Year 2000 effects on computer systems.
Cautionary Statement
This Annual Report on Form 10-KSB contains certain forward-looking statements,
including statements concerning the adequacy of the Company's sources of cash to
finance its current and future operations. Actual results could differ
materially from those projected as a result of various factors, including but
not limited to general trends in the retail industry, consumer acceptance of any
products developed and sold by the Company, and the ability of the Company to
develop its "celebrity" product business.
Item 7. Financial Statements
The financial statements of the Company are set forth in a separate section of
this Annual Report on Form 10-KSB. See
10
<PAGE>
"Item 13. Exhibits and Reports on Form 8-K" and the Index to Financial
Statements on page F-1 of this Annual Report on Form 10-KSB.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
See the section captioned "Election of Directors" included in the Company's
Proxy Statement in connection with its Annual Meeting scheduled to be held on
May 30, 2000 which section is incorporated herein by reference.
Item 10. Executive Compensation
See the section captioned "Executive Compensation" included in the Company's
Proxy Statement in connection with its Annual Meeting scheduled to be held on
May 30, 2000, which section is incorporated herein by reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners
See the section captioned "Principal Shareholders of the Company"
included in the Company's Proxy Statement in connection with its
Annual Meeting scheduled to be held on May 30, 2000, which section is
incorporated herein by reference.
(b) Security Ownership of Directors and Officers
See the section captioned "Principal Shareholders of the Company"
included in the Company's Proxy Statement in connection with its
Annual Meeting scheduled to be held on May 30,2000, which section is
incorporated herein by reference.
(c) Changes in Control
The Company knows of no contractual arrangements which may, at a
subsequent date, result in a change of control of the Company.
Item 12. Certain Relationships and Related Transactions
See the section captioned "Certain Transactions" included in the Company's Proxy
Statement in connection with its Annual Meeting scheduled to be held May 30,
2000, which section is incorporated herein by reference.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
(1) The financial statements of the Company and the report thereon
listed on the Index to Financial Statements on page F-1 hereof are
being filed as part of this Annual Report on Form 10-KSB.
(2) The following exhibits are being filed as part of this Annual
Report on Form 10-KSB:
1.1 Underwriting Agreement dated July 13, 1995 between the
Company and Duke & Co., Inc. (incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form
10-QSB for the quarterly period ended September 30, 1995).
2.1 Agreement and Plan of Merger of Lea Cosmetics, Inc. into the
Company dated July 31, 1995, together with Certificate of
11
<PAGE>
Merger filed with the Secretary of State of the State of
Delaware on August 3, 1995 (incorporated by reference to
Exhibit 2.1 to the Company's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1995).
3.1 Certificate of Incorporation of the Company, as amended
(incorporated by reference to Exhibit 3.1 to the Company's
Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1995).
3.2 Amended and Restated By-Laws of the Company (incorporated by
reference to Exhibit 3.2 to the Company's Quarterly Report on
Form 10-QSB for the quarterly period ended June 30, 1995).
4.1 Form of Certificate for Common Stock (incorporated by
reference to Exhibit 4.1 to Amendment No. 2 to the Company's
Registration Statement on Form SB-2 (Registration No.
33-88134), as filed with the Securities and Exchange
Commission on June 28, 1995 ("Amendment No. 2")).
4.2 Warrant and Registration Agreement dated as of July 20, 1995
between the Company and Jan Mirsky (incorporated by reference
to Exhibit 4.5 to the Company's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1995).
4.3 Warrant Extension Agreement Between Sel-Leb Marketing, Inc.
and Jan S. Mirsky dated March 3, 2000.
4.4 1995 Stock Option Plan of the Registrant (incorporated by
reference to Exhibit 4.3 to the Company's Quarterly Report on
Form 10-QSB for the period ended June 30, 1995).
4.5 1995 Nonemployee Directors' Stock Option Plan of the
Registrant (incorporated by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-QSB for the period
ended June 30, 1995).
4.6 Form of Stock Option Agreements under the 1995 Stock Option
Plan (incorporated by reference to Exhibit 4.3 to the
Company's Registration Statement on Form S-8, as filed with
the Commission on January 10, 1997).
4.7 Form of Stock Option Agreement under the 1995 Nonemployee
Directors' Stock Option Plan (incorporated by reference to
Exhibit 4.4 to the Company's Registration Statement on Form
S-8, as filed with the Commission on January 10, 1997).
10.1 Employment Agreement dated as of June 30, 1995 between the
Company and Harold Markowitz (incorporated by reference to
Exhibit 10.7 to the Company's Quarterly Report on Form 10-QSB
for the quarterly period ended June 30, 1995).
10.2 Employment Agreement dated as of June 30, 1995 between the
Company and Paul Sharp (incorporated by reference to Exhibit
10.8 to the Company's Quarterly Report on Form 10-QSB for the
quarterly period ended June 30, 1995).
10.3 Employment Agreement dated as of June 30, 1995 between the
Company and Jan Mirsky (incorporated by reference to Exhibit
10.9 to the Company's Quarterly Report on Form 10-QSB for
12
<PAGE>
the quarterly period ended June 30, 1995).
10.4 Employment Agreement dated as of June 30, 1995 between the
Company and Jorge Lazaro (incorporated by reference to
Exhibit 10.10 to the Company's Quarterly Report on Form
10-QSB for the quarterly period ended June 30, 1995).
10.5 Employment Agreement dated as of September 27, 1995 between
the Company and Jack Koegel (incorporated by reference to
Exhibit 10.19 to the Company's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1995).
10.6 Trademark License Agreement dated January 28, 1997 between
Bell Abbott Haussmann Inc. and the Company (incorporated by
reference to Exhibit 10.25 to the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1996).
10.7 Merchandising License Agreement dated as of October 16, 1996
between Viacom Consumer Products, Inc. and the Company
(incorporated by reference to Exhibit 10.27 to the Company's
Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1996).
10.8 Lease dated as of February 5, 1997 between Bascom Corp. and
the Company (incorporated by reference to Exhibit 10.28 to
the Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1996).
10.9 Shareholders Agreement dated June 26, 1996 among Sel-Leb
Marketing, Inc., B.B. Associates, LLC, Seth Markowitz and
Beau Brummel Sel-Leb Marketing, Inc. (incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report
on Form 10-QSB for the quarterly period ended March 31,
1997).
10.10 Agreement dated as of January 2, 1997 between QVC, Inc. and
Beau Brummel Sel-Leb Marketing, Inc. (incorporated by
reference to Exhibit 10.2 to the Company's Quarterly Report
on Form 10-QSB for the quarterly period ended March 31,
1997).
10.11 Product Promotion Agreement dated as of April 1997 between
Philbin Enterprises and Beau Brummel Sel-Leb Marketing, Inc.
(incorporated by reference to Exhibit 10.3 to the Company's
Quarterly Report on Form 10-QSB for the quarterly period
ended March 31, 1997).
10.12 Loan and Security Agreement dated October 22, 1997 between
Summit Bank, the Company and Ales (incorporated by reference
to Exhibit 10.2 to the Company's Quarterly Report on Form
10-QSB for the quarterly period ended September 30, 1997).
10.13 Environmental Indemnity Agreement dated October 22, 1997
between the Company, Ales and Summit Bank (incorporated by
reference to Exhibit 10.3 to the Company's Quarterly Report
on Form 10-QSB for the quarterly period ended September 30,
1997).
10.14 Security Agreement dated September 26, 1997 between the
Company and Paterson Restoration Corporation (incorporated by
reference to Exhibit 10.4 to the Company's Quarterly Report
on Form 10-QSB for the quarterly period ended September 30,
1997).
13
<PAGE>
10.15 Stockholder's Agreement between RBCJJ Associates LLC and the
Company (incorporated by reference to Exhibit 10.5 to the
Company's Quarterly Report on Form 10-QSB for the quarterly
period ended September 30, 1997).
10.16 Asset Purchase Agreement dated as of September 15, 1997
between SBC Corporation, Inc. and Ales (incorporated by
reference to Exhibit 10.6 to the Company's Quarterly Report
on Form 10-QSB for the quarterly period ended September 30,
1997).
10.17 Collective Bargaining Agreement dated September 1, 1997
between Local 300-S Production Service & Sales District
Council I.U.C. AFL-CIO and the Company (incorporated by
reference to Exhibit 10.23 to the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1997).
10.18 Working Capital Management Account (WCMA) and Term Loan
Agreement dated as of November 16, 1999 between Sel-Leb
Marketing, Inc. and Merrill Lynch Business Financial Services
Inc.
10.19 Promissory Note and Security Agreement between Sel-Leb
Marketing, Inc. and Paterson Restoration Corporation dated
December 29, 1999
11.1 Statement re: computation of per share earnings (not
required because the relevant computation can be clearly
determined from material contained in the financial
statements).
21 Subsidiaries of the Company
23.1 Consent of J.H. Cohn LLP.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
None
14
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
SEL-LEB MARKETING, INC.
(Registrant)
By: /s/ Harold Markowitz
--------------------
Harold Markowitz
Chairman of the Board
Date: March 30, 2000
In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Harold Markowitz Chairman of the Board and Director March 30, 2000
--------------------
Harold Markowitz
/s/ Paul Sharp President, Chief Executive Officer and March 30, 2000
-------------- Director (principal executive officer)
Paul Sharp
/s/ Jan S. Mirsky Executive Vice President - Finance and March 30, 2000
----------------- Director (principal financial and
Jan S. Mirsky accounting officer)
/s/ Jack Koegel Vice Chairman of the Board, Chief March 30, 2000
--------------- Operating Officer and Director
Jack Koegel
/s/ Jorge Lazaro Executive Vice President, Secretary and March 30, 2000
---------------- Director
Jorge Lazaro
/s/ Stanley R. Goodman Director March 30, 2000
----------------------
Stanley R. Goodman
/s/ Edward C. Ross Director March 30, 2000
------------------
Edward C. Ross
/s/ L. Douglas Bailey Director March 30, 2000
---------------------
L. Douglas Bailey
</TABLE>
15
<PAGE>
SEL-LEB MARKETING, INC. AND SUBSIDIARY
INDEX TO FINANCIAL STATEMENTS
PAGE
----
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999 F-3
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1999 AND 1998 F-4
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998 F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998 F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7/20
* * *
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Sel-Leb Marketing, Inc.
We have audited the accompanying consolidated balance sheet of SEL-LEB
MARKETING, INC. AND SUBSIDIARY as of December 31, 1999, and the related
consolidated statements of income, stockholders' equity and cash flows for the
years ended December 31, 1999 and 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Sel-Leb Marketing,
Inc. and Subsidiary as of December 31, 1999, and their results of operations and
cash flows for the years ended December 31, 1999 and 1998, in conformity with
generally accepted accounting principles.
J.H. COHN LLP
Roseland, New Jersey
March 24, 2000
F-2
<PAGE>
SEL-LEB MARKETING, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
ASSETS
<TABLE>
<CAPTION>
Current assets:
<S> <C>
Cash and cash equivalents $ 158,032
Accounts receivable, less allowance for doubtful accounts
of $230,918 5,702,343
Inventories 8,331,838
Deferred tax assets 288,195
Prepaid expenses and other current assets 534,309
-------------
Total current assets 15,014,717
Property and equipment, at cost, net of accumulated depreciation
and amortization of $858,882 547,376
Goodwill, net of accumulated amortization of $129,676 216,092
Other assets 113,498
-------------
Total $15,891,683
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to bank $ 2,948,356
Current portion of long-term debt 262,888
Accounts payable 2,279,635
Accrued expenses and other liabilities 1,053,667
-------------
Total current liabilities 6,544,546
Long-term debt, net of current portion 1,188,101
-------------
Total liabilities 7,732,647
-------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 10,000,000 shares
authorized; none issued -
Common stock, $.01 par value; 40,000,000 shares
authorized; 2,261,018 shares issued and outstanding 22,611
Additional paid-in capital 6,496,359
Retained earnings 1,685,066
Less receivable in connection with equity transactions (45,000)
---------------
Total stockholders' equity 8,159,036
-------------
Total $15,891,683
===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
SEL-LEB MARKETING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Net sales $21,427,530 $17,275,423
----------- -----------
Operating expenses:
Cost of sales 15,418,254 13,337,039
Selling, general and administrative expenses 4,247,550 3,545,248
----------- -----------
Totals 19,665,804 16,882,287
----------- -----------
Operating income 1,761,726 393,136
----------- -----------
Other income (expense):
Interest expense, net of interest income of $1,862 and $4,346 (320,522) (264,104)
Unusual item - gain on sale of portion of minority interest
in subsidiary 75,729
Other 2,929 20,847
----------- -----------
Totals (317,593) (167,528)
----------- -----------
Income before provision for income taxes 1,444,133 225,608
Provision for income taxes 525,853 74,724
----------- -----------
Net income $ 918,280 $ 150,884
=========== ===========
Net earnings per share:
Basic $.41 $.07
==== ====
Diluted $.37 $.07
==== ====
Weighted average shares outstanding:
Basic 2,235,751 2,178,166
========= =========
Diluted 2,459,029 2,291,762
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
SEL-LEB MARKETING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998
Receivable in
Additional Connection Total
Common Stock Paid-in Retained with Equity Stockholders'
Shares Amount Capital Earnings Transactions Equity
------ ------ ---------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998 8,712,727 $87,127 $6,363,859 $ 615,902 $(45,000) $7,021,888
Effect of 1-for-8 reverse stock
split (7,623,644) (76,236) 76,236
Net income 150,884 150,884
----------- --------- --------- ----------- --------- ----------
Balance, December 31, 1998 1,089,083 10,891 6,440,095 766,786 (45,000) 7,172,772
Net proceeds from exercise
of warrants 8,800 88 10,912 11,000
Net proceeds from exercise of
stock options 74,052 741 56,243 56,984
Effect of 2-for-1 stock split 1,089,083 10,891 (10,891)
Net income 918,280 918,280
--------- ------- ---------- ---------- -------- ----------
Balance, December 31, 1999 2,261,018 $22,611 $6,496,359 $1,685,066 $(45,000) $8,159,036
========= ======= ========== ========== ======== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
SEL-LEB MARKETING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
-------------- ------------
<S> <C> <C>
Operating activities:
Net income $ 918,280 $ 150,884
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 302,954 281,452
Provision for doubtful accounts 154,804 240,000
Deferred income taxes (34,100) (80,440)
Net gain on sale of interest in subsidiary (75,729)
Changes in operating assets and liabilities:
Accounts receivable (2,326,835) (810,316)
Inventories (1,835,540) (681,625)
Prepaid expenses and other current assets 162,546 139,001
Other assets 48,342 (4,407)
Accounts payable, accrued expenses and other
liabilities 1,402,935 535,884
----------- ------------
Net cash used in operating activities (1,206,614) (305,296)
----------- ------------
Investing activities:
Purchases of property and equipment (208,240) (375,892)
Proceeds from sale of interest in subsidiary 81,137
Proceeds from adjustments to purchase price for acquired
business 37,500
------------ ------------
Net cash used in investing activities (208,240) (257,255)
------------ ------------
Financing activities:
Net proceeds from notes payable to bank, net of repayments 1,120,115 928,241
Net proceeds from long-term debt 100,000 928,752
Repayments of long-term debt (158,916) (1,014,464)
Loan financing costs (60,357) (25,606)
Net proceeds from exercise of warrants and stock options 67,984
----------- -----------
Net cash provided by financing activities 1,068,826 816,923
----------- -----------
Net increase (decrease) in cash and cash equivalents (346,028) 254,372
Cash and cash equivalents, beginning of year 504,060 249,688
----------- -----------
Cash and cash equivalents, end of year $ 158,032 $ 504,060
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid $ 316,439 $ 268,450
=========== ===========
Income taxes paid $ 346,856 $ 18,500
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
SEL-LEB MARKETING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Organization and summary of significant accounting policies:
Organization and principles of consolidation:
The accompanying consolidated financial statements include the
accounts of Sel-Leb Marketing, Inc. (a New York Corporation) and
Ales Signature, Ltd. ("Ales"), its 80%-owned subsidiary (see Note
2). Sel-Leb Marketing, Inc. and Ales are referred to collectively
herein as the "Company." The Company is primarily engaged in
manufacturing, distributing and marketing cosmetics and consumer
products through mass merchandisers, discount chain stores and
food, drug and electronic retailers. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Use of estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could differ
from those estimates.
Revenue recognition:
Sales are recognized upon the shipment of the related product.
Cash equivalents:
The Company considers all highly liquid debt instruments with a
maturity of three months or less when purchased to be cash
equivalents.
Inventories:
Inventories, consisting primarily of finished goods, are stated at
the lower of cost or market. Cost is determined by the first-in,
first-out method.
Property and equipment:
Property and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is computed using the
straight-line method over the estimated useful lives of the
related assets. Amortization of leasehold improvements is provided
for over the term of the lease.
Goodwill:
Goodwill is comprised of costs in excess of net assets of acquired
businesses that are being amortized on a straight-line basis over
periods not exceeding ten years. The Company periodically
evaluates the recoverability of its goodwill and measures the
amount of impairment, if any, by assessing, among other things,
the market and economic conditions related to, and the current and
estimated future levels of income and cash flows to be generated
by, the acquired businesses.
F-7
<PAGE>
SEL-LEB MARKETING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Organization and summary of significant accounting policies
(continued):
Product development costs:
The Company expenses product development costs as incurred.
Product development costs charged to operations amounted to
approximately $79,000 and $66,000 in 1999 and 1998, respectively.
Advertising:
The Company expenses the cost of advertising and promotions as
incurred. Advertising costs charged to operations amounted to
approximately $151,000 in both 1999 and 1998.
Common stock splits:
The numbers of common shares and the per share amounts in these
notes and the accompanying consolidated financial statements have
been retroactively adjusted, where appropriate, for a 1-for-8
reverse split effected on June 19, 1998 and a 2-for-1 split
effected on December 7, 1999.
Stock options:
In accordance with the provisions of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB
25"), the Company will only recognize compensation costs as a
result of the issuance of stock options to employees based on the
excess, if any, of the fair value of the underlying stock at the
date of grant or award (or at an appropriate subsequent
measurement date) over the amount the employee must pay to acquire
the stock. Therefore, the Company will not be required to
recognize compensation expense as a result of any grants to
employees at an exercise price that is equal to or greater than
fair value. The Company will also make pro forma disclosures, in
accordance with the provisions of Financial Accounting Standards
Board ("FASB") Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123"), of
net income or loss as if a fair value based method of accounting
for stock options had been applied instead if such amounts differ
materially from the historical amounts.
Income taxes:
The Company accounts for income taxes pursuant to the asset and
liability method which requires deferred income tax assets and
liabilities to be computed annually for temporary differences
between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in
the future based on enacted tax laws and rates applicable to the
periods in which the differences are expected to affect taxable
income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized.
The income tax provision or credit is the tax payable or
refundable for the period plus or minus the change during the
period in deferred tax assets and liabilities.
F-8
<PAGE>
SEL-LEB MARKETING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Organization and summary of significant accounting policies
(concluded):
Earnings per share:
The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 128, "Earnings per Share," which require
the presentation of "basic" and, if appropriate, "diluted"
earnings per common share if that amount differs from basic
earnings per share. Basic earnings per share is calculated by
dividing net income by the weighted average number of common
shares outstanding during each period. The calculation of diluted
earnings per share is similar to that of basic earnings per share,
except that the denominator is increased to include the number of
additional common shares that would have been outstanding if all
potentially dilutive common shares, such as those issuable upon
the exercise of stock options and warrants, were issued during the
period.
In computing diluted earnings per share for 1999 and 1998, the
assumed exercise of all of the Company's outstanding stock options
and warrants, adjusted for the application of the treasury stock
method, would have increased the weighted average number of common
shares outstanding as shown in the table below:
<TABLE>
<CAPTION>
1999 1998
-------- ---------
<S> <C> <C>
Basic weighted average shares outstanding 2,235,751 2,178,166
Shares arising from assumed exercise of:
Stock options 174,157 110,280
Warrants 49,121 3,316
--------- ----------
Diluted weighted average shares outstanding 2,459,029 2,291,762
========= =========
</TABLE>
Recent accounting pronouncements:
The FASB and the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants ("ACSEC") had
issued certain accounting pronouncements as of December 31, 1999
that will become effective in subsequent periods; however,
management of the Company does not believe that any of those
pronouncements would have significantly affected the Company's
financial accounting measurements or disclosures had they been in
effect in 1999 and 1998.
F-9
<PAGE>
SEL-LEB MARKETING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Acquisition:
During September 1997, the Company and an unrelated third party (the
"minority stockholder") formed Ales for the purpose of acquiring the
line of cosmetics and other beauty products from SBC Corporation,
Inc. ("SBC") that manufactures mid-priced cosmetic and skin care and
treatment products. The Company received a 90% equity interest in
Ales and the minority stockholder received the remaining 10% equity
interest. Ales acquired the beauty products line on October 23, 1997
for an initial cash payment of $670,000.
The acquisition was accounted for as a purchase. Costs of acquisition
of approximately $570,000 and $100,000 in 1997 were allocated to
inventories and goodwill, respectively. In December 1998, the Company
received $37,500 based on adjustments to the initial purchase price
agreed to by SBC and, as a result, goodwill was reduced by that
amount.
On March 31, 1998, the Company, which at that date owned a 90%
interest in Ales, entered into an agreement whereby it reduced its
interest to 80% by selling an additional 10% interest to the minority
stockholder for total consideration of $81,137 which was paid in
installments prior to December 31, 1998. As a result of the sale, the
Company recognized a gain of $75,729, before giving effect to any
related income tax effects. The gain has been reflected separately as
an unusual item in the accompanying 1998 consolidated statement of
income.
The minority interest in the net equity of Ales as of December 31,
1999 and the minority interest in the results of its operations in
1999 and 1998 were immaterial.
From time-to-time, the Company transacts other business with parties
related to the minority stockholders of Ales. During 1999, the
Company purchased inventories at a total cost of approximately
$1,505,000 from companies affiliated with the minority stockholders.
At December 31, 1999, accounts payable included a total of $455,515
that was owed to the related companies for purchases of inventories.
During 1998, such transactions were not material.
F-10
<PAGE>
SEL-LEB MARKETING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 - Property and equipment:
Property and equipment at December 31, 1999 consisted of the
following:
<TABLE>
<CAPTION>
Estimated
Useful
Lives Amount
-------------- -----------
<S> <C> <C>
Machinery and equipment 2 to 7 years $ 847,277
Display fixtures 3 years 353,950
Computer equipment 3 to 5 years 140,553
Leasehold improvements 10 years 64,478
-----------
1,406,258
Less accumulated depreciation and
amortization 858,882
-----------
Total $ 547,376
===========
</TABLE>
Depreciation expense aggregated $268,514 and $242,494 in 1999 and
1998, respectively.
Note 4 - Note payable to bank:
During December 1998, the Company entered in a loan agreement
pursuant to which Merrill Lynch Business Financial Services, Inc.
("Merrill Lynch") is providing the Company with a credit facility
(the "Facility"). Based on the latest amendments to the loan
agreement as of December 31, 1999, the Facility consisted of a
revolving line of credit, with maximum borrowings of $3,800,000
against the Company's eligible accounts receivable and inventories
through October 31, 2000, and two term loans (see Note 5). Borrowings
under the revolving line of credit, which totaled $2,948,356 at
December 31, 1999, bear interest, which is payable monthly, at 2.65%
above the 30-day commercial paper rate (an effective rate of 8.28% as
of December 31, 1999). Outstanding borrowings under the Facility are
secured by substantially all of the Company's assets.
The loan agreement with Merrill Lynch contains certain restrictive
covenants which, among other things, require the maintenance of
certain financial ratios and limit additional indebtedness.
F-11
<PAGE>
SEL-LEB MARKETING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5 - Long-term debt:
At December 31, 1999, long-term debt consisted of the following:
<TABLE>
<S> <C>
Term loans payable to Merrill Lynch (A):
Due in monthly installments of $8,333 and a final
payment in November 2004 $ 491,667
Due in monthly installments of $10,714 and a final
payment in January 2006 771,429
Loans payable to Paterson Restoration Corporation (B):
Due in monthly installments of $1,461 and a final
payment in October 2004 73,404
Due in monthly installments of $1,461 and a final
payment in January 2007 100,000
Other 14,489
----------
1,450,989
Less current portion 262,888
----------
Long-term debt $1,188,101
==========
</TABLE>
(A) Interest is payable monthly at 2.65% above the 30-day
commercial paper rate. The loans are secured by substantially
all of the assets of the Company (see Note 4).
(B) Interest is payable at an annual rate of 6%. The loans are
secured by a second lien on the Company's machinery and
equipment.
Principal amounts due under the Company's long-term obligations in
each of the five years subsequent to December 31, 1999 are as
follows:
Year Ending
December 31, Amount
------------ ------
2000 $262,888
2001 259,867
2002 257,080
2003 258,839
2004 249,468
Note 6 - Preferred stock and stock options:
Preferred stock:
On May 27, 1998, the Company's stockholders approved an amendment
to the Company's Certificate of Incorporation which authorizes the
issuance by the Company of up to 10,000,000 shares of preferred
stock with a par value of $.01 per share. The preferred stock may
be issued in one or more series with the terms and preferences to
be determined by the Company's Board of Directors. No shares of
preferred stock had been issued by the Company as of December 31,
1999.
F-12
<PAGE>
SEL-LEB MARKETING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 - Preferred stock and stock options (continued):
Stock options:
The Company has a Stock Option Plan (the "Option Plan") which
provides for the issuance of incentive stock options and
nonincentive stock options to employees of the Company for the
purchase of shares of common stock at a price not less than the
fair market value of the shares on the date of grant, provided
that the exercise price of any incentive stock option granted to
an employee owning more than 10% of the outstanding common shares
of the Company is not less than 110% of the fair market value of
the shares on the date of grant. The term of each option and the
manner of exercise are determined by the Board of Directors.
Employees are fully vested in the options three years after the
date of grant and the options are exercisable up to 10 years after
the date of the grant.
In addition, the Company has a Nonemployee Directors' Stock Option
Plan (the "Directors' Plan") which provides for the issuance of
options to nonemployee directors of the Company for the purchase
of shares of common stock at a price that is not less than the
fair market value of the shares on the date of grant. The term of
each option and the manner of exercise is determined by the Board
of Directors, but the options cannot be exercisable more than 10
years after the date of grant. Upon election to the Board of
Directors, and after each reelection, each nonemployee director is
granted an option to purchase 1,250 common shares exercisable from
the date of grant.
A summary of the status of the Company's shares subject to options
as of December 31, 1999 and 1998 and changes during the years then
ended is presented below:
<TABLE>
<CAPTION>
1999 1998
-------------------- ------------------------
Weighted Weighted
Shares Average Shares Average
or Exercise or Exercise
Price Price Price Price
--------- -------- -------- ---------
<S> <C> <C> <C> <C>
Outstanding, at beginning of
year 414,812 $2.47 300,312 $8.57
Granted (A) 343,902 2.29 392,376 1.95
Canceled (A) (120,752) 3.15 (277,876) 8.32
Exercised (74,052) .77
--------- --------
Outstanding, at end of year 563,910 $2.44 414,812 $2.47
========= ===== ======== =====
Options exercisable, at
end of year 326,394 277,344
========= ========
Weighted average fair value
of options granted during
the year $2.17 $1.89
===== =====
</TABLE>
F-13
<PAGE>
SEL-LEB MARKETING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 - Preferred stock and stock options (continued):
Stock options (continued):
(A) Options granted and canceled include shares subject to
options for which the exercise price was reduced in 1999
and 1998 as set forth below:
1999:
12,500 $ 3.25 $2.00
8,000 3.25 2.38
80,000 3.25 2.50
126 5.25 2.50
750 6.50 2.50
250 21.00 2.50
126 21.50 2.50
----------
Total 101,752
==========
Original Adjusted
Exercise Exercise
Shares Price Price
------ -------- ----------
1998:
626 $23.50 $ .44
75,500 11.00 3.25
6,250 11.00 2.00
119,250 6.67 3.25
250 6.50 2.00
2,500 5.27 4.00
126 5.27 2.00
25,248 2.00 .44
--------
Total 229,750
=========
F-14
<PAGE>
SEL-LEB MARKETING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 - Preferred stock and stock options (continued):
Stock options (continued):
The following table summarizes information about fixed stock
options outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------------------- ---------------------------
Weighted
Average
Years of Weighted Weighted
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
-------------------- ----------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
$.4375 105,689 8.65 $ .4375 39,662 $ .4375
.578-2.125 108,631 8.03 1.52 46,599 1.75
2.375-2.719 213,902 7.78 2.44 119,539 2.47
3.25-6.67 125,188 6.26 3.65 110,094 3.55
8.00-27.00 10,500 6.90 17.62 10,500 17.62
-------- -------
$.4375-$27.00 563,910 7.64 $2.44 326,394 $2.97
============= ======= ==== ===== ======= =====
</TABLE>
Shares subject to warrants:
At December 31, 1999, the Company had warrants outstanding for the
purchase of 86,622 shares of common stock that are exercisable
through April 15, 2001 at $1.25 per share. Warrants to purchase
1,355,570 shares at an exercise price of $8.00 per share expired
during 1999. The Company received proceeds of $11,000 during 1999
upon the exercise of warrants to purchase 8,800 shares of common
stock at an exercise price of $1.25 per share. There were no other
changes in outstanding warrants during 1999 and 1998.
Shares reserved for issuance:
At December 31, 1999, shares of common stock were reserved for the
following:
Exercise of outstanding stock options 563,910
-------
Exercise of stock options available for grant:
Option Plan 211,788
Directors' Plan 52,500
-------
Total 264,288
-------
Exercise of warrants 86,622
-------
Total 914,820
=======
F-15
<PAGE>
SEL-LEB MARKETING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 - Preferred stock and stock options (concluded):
Stock options (concluded):
Since the Company has elected to continue to use the provisions of
APB 25 in accounting for stock options and warrants granted to
employees and the exercise price of all of the options granted to
employees has been equal to or greater than the fair market value
at the date of grant, no earned or unearned compensation cost was
recognized in the accompanying 1999 and 1998 consolidated
financial statements for stock options and warrants granted to
employees. The pro forma amounts computed as if the Company had
elected to recognize compensation cost for stock options and
warrants granted to employees based on the fair value of the
options and warrants at the date of grant as prescribed by SFAS
123 and the related historical amounts reported in the
accompanying consolidated statements of income are set forth
below:
<TABLE>
<CAPTION>
1999 1998
--------- ----------
<S> <C> <C>
Net income - as reported $ 918,280 $ 150,884
========= =========
Net income (loss) - pro forma $ 493,507 $(306,556)
========= =========
Basic earnings per share - as reported $ .41 $ .07
===== =====
Basic earnings (loss) per share - pro forma $ .22 $(.14)
===== =====
Diluted earnings per share - as reported $ .37 $. 07
===== =====
Diluted earnings per share - pro forma $ .20
=====
</TABLE>
The fair value of each option granted was estimated as of the date
of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for 1999 and 1998:
1999 1998
----------- --------
Expected volatility 162% 160%
Risk-free interest rate 6.0% 5.2%
Expected years of option life 5.0 5.0
Expected dividends 0% 0%
Substantially all of the pro forma charges for compensation of
$424,773 and $457,440 (net of tax effects) in 1999 and 1998,
respectively, derived from the fair value option pricing model
were attributable to the effects of the options that were repriced
during the year.
Note 7 - Income taxes:
Deferred tax assets at December 31, 1999 were attributable to
temporary differences related to the following:
<TABLE>
<S> <C>
Inventories $155,585
Allowance for bad debts 85,190
Other 47,420
--------
Net deferred tax assets $288,195
========
</TABLE>
F-16
<PAGE>
SEL-LEB MARKETING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 - Income taxes (concluded):
The net provision for income taxes in 1999 and 1998 consisted of the
following provisions (credits):
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Federal:
Current $483,238 $130,206
Deferred (32,720) (69,370)
--------- --------
Totals 450,518 60,836
--------- --------
State:
Current 76,715 24,958
Deferred (1,380) (11,070)
--------- ---------
Totals 75,335 13,888
--------- ---------
Totals $525,853 $ 74,724
======== =========
</TABLE>
The provision for income taxes in 1999 and 1998 differs from the
amount computed using the Federal statutory rate of 34% as a result
of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Tax at Federal statutory rate 34% 34%
Increase (decrease) from effects of:
State income taxes, net of Federal income tax
benefit 3 4
Nondeductible expenses and other permanent
differences 1 8
Prior year overaccruals (10)
Other (primarily surtax exemption) (2) (3)
--- ----
Totals 36% 33%
== ===
</TABLE>
Note 8 - Commitments and contingencies:
Leases:
The Company has a noncancelable operating lease for office and
warehouse facilities which commenced on April 7, 1997 and expires
on March 31, 2002. In addition to base rentals, the lease requires
payments for real estate taxes and other operating costs.
F-17
<PAGE>
SEL-LEB MARKETING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 - Commitments and contingencies (continued):
Leases (concluded):
The future minimum rental payments under the leases as of December
31, 1999 were as follows:
Year Ending
December 31, Amount
------------ -----------
2000 $203,537
2001 203,537
2002 50,884
----------
Total $457,958
========
Rent expense amounted to approximately $238,000 and $253,000 in
1999 and 1998, respectively.
Employment agreements:
The Company has entered into employment agreements with five
officers which expire at various times through July 2000.
The future minimum payments under the employment agreements as of
December 31, 1999 aggregated $187,500, all of which are payable in
the year ending December 31, 2000.
Promotional and licensing agreements:
The Company has various promotional and licensing agreements
whereby it pays royalty fees to celebrities and/or licensors based
upon a percentage of net sales attributable to the celebrities'
appearances or sales of the licensor's products. Royalty fees
charged to operations amounted to approximately $346,000 and
$434,000 in 1999 and 1998, respectively.
Litigation:
The Company is involved in various claims and lawsuits incidental
to its business. Management believes that the probable resolution
of such contingencies will not materially affect the consolidated
financial position or results of operations of the Company.
Concentrations of credit risk:
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash
equivalents and accounts receivable. At December 31, 1999, cash
balances exceeded Federal insurance limits by $22,000. Exposure to
credit risk is reduced by placing such deposits in major financial
institutions and monitoring their credit ratings.
F-18
<PAGE>
SEL-LEB MARKETING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 - Commitments and contingencies (concluded):
Concentrations of credit risk (concluded):
The Company generally extends credit to its customers, a
significant portion of which are in the retail industry.
Approximately 32% and 46% of the Company's net sales were derived
from its two major customers during 1999 and 1998, respectively.
The two customers also accounted for approximately $2,431,000 of
the Company's accounts receivable balance at December 31, 1999.
The Company closely monitors the extension of credit to its
customers while maintaining appropriate allowances for potential
credit losses. Accordingly, management does not believe that the
Company was exposed to significant credit risk at December 31,
1999.
Note 9 - Fair value of financial instruments:
The Company's material financial instruments at December 31, 1999 for
which disclosure of estimated fair value is required by certain
accounting standards consisted of cash and cash equivalents, accounts
receivable, accounts payable, notes payable and long-term debt. In
the opinion of management, (i) cash and cash equivalents, accounts
receivable and accounts payable were carried at values that
approximated their fair values because of their liquidity and/or
their short-term maturities and (ii) notes payable and long-term debt
were carried at values that approximated their fair values because
they had interest rates equivalent to those currently prevailing for
financial instruments with similar characteristics.
Note 10- Segment information:
During 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS 131"). Pursuant to
the provisions of SFAS 131, the Company is reporting segment sales
and gross margins in the same format reviewed by the Company's
management (the "management approach"). The Company has two
reportable segments: "Opportunity" and "Cosmetics". The Opportunity
segment is comprised of the operations connected with the
acquisition, sale and distribution of name-brand and off-brand
products which are purchased from close-out, overstocked and/or
change-of-packaging brand name items. The Cosmetics segment is
comprised of the acquisition, sale and distribution of all other
products, including "celebrity endorsed" cosmetics and health and
beauty aid products and designer and all other fragrances.
F-19
<PAGE>
SEL-LEB MARKETING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 - Segment information (concluded):
Net sales, cost of sales and other related segment information
follows:
<TABLE>
<CAPTION>
1999 1998
------------ -------------
<S> <C> <C>
Net sales:
Opportunity $10,600,996 $ 7,615,130
Cosmetics 10,826,534 9,660,293
------------ -------------
Total net sales 21,427,530 17,275,423
------------ -------------
Cost of sales:
Opportunity 8,948,368 6,782,946
Cosmetics 6,469,886 6,554,093
------------ -------------
Total cost of sales 15,418,254 13,337,039
Selling, general and administrative expenses 4,247,550 3,545,248
------------ -------------
Total operating expenses 19,665,804 16,882,287
------------ -------------
Operating income 1,761,726 393,136
------------ -------------
Other income (expense):
Interest expense, net (320,522) (264,104)
Unusual item - gain on sale of portion
of minority interest 75,729
Other 2,929 20,847
------------ -------------
Totals (317,593) (167,528)
------------ -------------
Income before provision for income taxes $ 1,444,133 $ 225,608
============ =============
Segment assets:
Inventories:
Opportunity $ 1,129,320 $ 781,178
Cosmetics 7,202,518 5,715,120
------------ -------------
Totals 8,331,838 6,496,298
Other assets 7,559,845 5,944,987
------------ -------------
Total assets $ 15,891,683 $ 12,441,285
============ =============
</TABLE>
* * *
F-20
<PAGE>
To: Jan S. Mirsky
From: Hal Markowitz
Date: March 3, 2000
Re warrants previously issued to you for the purchase of 96,622 shares of common
stock that are exercisable through March 31, 2000 at an exercise price of $1.25
per share:
I am approving and by this letter asking the compensation committee of Stanley
Goodman and Ed Ross to approve the extension of the exercisable term to April
15, 2001.
/s/ Hal Markowitz
- -----------------------
Hal Markowitz
Approved:
/s/ Stanley Goodman 3/2/00
------------------------------------
Stanley Goodman Date
/s/ Ed Ross 3/2/00
-------------------------------------
Ed Ross Date
<PAGE>
Private Client Group
Merrill Lynch Business
Financial Services Inc.
222 North LaSalle Street
[GRAPHIC OMITTED] MERRILL LYNCH 17th Floor
Chicago, Illinois 60601
(312) 269-4438
FAX: (312)499-3256
November 12, 1999
Sel-Leb Marketing, Inc.
495 River Street
Paterson, NJ 07524
Re: WCMA Line of Credit Increase
Ladies & Gentlemen:
This Letter Agreement will serve to confirm certain agreements of Merrill Lynch
Business Financial Services Inc. ("MLBFS") and Sel-Leb Marketing, Inc.
("Customer") with respect to: (i) that certain WCMA AND TERM LOAN AND SECURITY
AGREEMENT No. 9811551601 between MLBFS and Customer (including any previous
amendments and extensions thereof), and (ii) all other agreements between MLBFS
and Customer or any party who has guaranteed or provided collateral for
Customer's obligations to MLBFS (a "Guarantor") in connection therewith
(collectively, the "Loan Documents"). Capitalized terms used herein and not
defined herein shall have the meaning set forth in the Loan Documents.
Subject to the terms hereof, effective as of the "Effective Date" (as defined
below), the Loan Documents are hereby amended as follows:
(a) The term "Maximum WCMA Line of Credit" shall mean an amount equal to the
lesser of: (A) $3,800,000.00 or (B) the sum of: (i) 80% of Customer's domestic
Accounts and Chattel Paper, as shown on its regular books and records (excluding
Accounts over 90 days old, Chattel Paper with installments or other sums more
than 90 days past due, and Accounts and Chattel Paper directly or indirectly due
from any person or entity not domiciled in the continental United States, Alaska
or Hawaii, or from any shareholder, officer or employee of Customer or any
affiliated entity), (ii) 50% of Customer's Inventory, as shown on its regular
books and records, up to a maximum of $2,750,000.00, and (iii) less the
aggregate value of the outstanding balance of Customer's Term Loan Nos.
9811551601 and 9911550701 and issued Letters of Credit.
(b) The annual "Line Fee" is hereby increased to $28,500.00. In connection with
the increase in the Maximum WCMA Line of Credit pursuant hereto, a portion of
such new Line Fee in the amount of $5,000.00 (the "Increase Fee") is now due and
owing. Customer hereby authorizes and directs MLBFS to charge the Increase Fee
to WCMA Account No. 885-07E38 on or at any time after the Effective Date. Once
charged, the Increase Fee is non-refundable.
Except as expressly amended hereby, the Loan Documents shall continue in full
force and effect upon all of their terms and conditions.
By its execution of this Letter Agreement, the below-named Guarantor hereby
consents to the foregoing modifications to the Loan Documents, and hereby agree
that the "Obligations" under its
<PAGE>
[LOGO]
Sel-Lab Marketing, Inc.
November 12, 1999
Page No. 2
Unconditional Guaranty shall extend to and include the Obligations of Customer
under the Loan Documents, as amended hereby.
Customer and said Guarantor acknowledge, warrant and agree, as a primary
inducement to MLBFS to enter into this Agreement, that: (a) no Default or Event
of Default has occurred and is continuing under the Loan Documents; (b) each of
the warranties of Customer in the Loan Documents are true and correct as of the
date hereof and shall be deemed remade as of the date hereof; (c) neither
Customer nor said Guarantor have any claim against MLBFS or any of its
affiliates arising out of or in connection with the Loan Documents or any other
matter whatsoever; and (d) neither Customer nor said Guarantor have any defense
to payment of any amounts owing, or any right of counterclaim for any reason
under, the Loan Documents.
Provided that no Event of Default, or event which with the giving of notice,
passage of time, or both, would constitute an Event of Default, shall then have
occurred and be continuing under the terms of the Loan Documents, the amendments
and agreements in this Letter Agreement will become effective on the date (the
"Effective Date") upon which: (a) Customer and the Guarantor shall have executed
and returned the duplicate copy of this Letter Agreement and the other documents
enclosed herewith; and (b) an officer of MLBFS shall have reviewed and approved
this Letter Agreement and such other documents as being consistent in all
respects with the original internal authorization hereof.
Notwithstanding the foregoing, if Customer and the Guarantor do not execute and
return the duplicate copy of this Letter Agreement and said other documents
within 14 days from the date hereof, or if for any other reason (other than the
sole fault of MLBFS) the Effective Date shall not occur within said 14-day
period, then all of said amendments and agreements will, at the sole option of
MLBFS, be void.
Very truly yours,
Merrill Lynch Business Financial Services Inc.
By: --------------------------------------------
Dustin Van Peursem
Senior Portfolio Manager
Accepted:
Sel-Leb Marketing, Inc.
By: ---------------------------------------------
Printed Name: -----------------------------------
Title: ------------------------------------------
<PAGE>
[LOGO]
Sel-Leb Marketing, Inc.
November 12, 1999
Page No. 3
Approved:
Ales Signature Ltd.
By: ---------------------------------------------
Printed Name: -----------------------------------
Title: ------------------------------------------
<PAGE>
Private Client Group
Merrill Lynch Business
Financial Services Inc.
222 North LaSalle Street
[GRAPHIC OMITTED] MERRILL LYNCH 17th Floor
Chicago, Illinois 60601
(312) 269-4438
FAX: (312)499-3256
November 12, 1999
Mr. Jan Mirsky
President
Sel-Leb Marketing, Inc.
495 River Street
Paterson, NJ 07524
Re: WCMA Line of Credit Increase
Dear Mr. Mirsky,
I am pleased to advise you that the request of Sel-Leb Marketing, Inc. for an
increase of its WCMA Line of Credit has been approved upon the terms set forth
in the enclosed Letter Agreement.
Note that, among other conditions in said Letter Agreement, in order for this
increase to become effective, one copy of the enclosed Letter Agreement and the
other documents enclosed herewith must be fully executed and returned to me
within 14 days from the date hereof.
If you have any questions, please call me at (312) 269-4438.
Very truly yours,
Merrill Lynch Business Financial Services Inc.
By: -------------------------------------------
Dustin Van Peursem
Senior Portfolio Manager
cc: Wayne Dedrick
<PAGE>
[LOGO] TERM LOAN AND SECURITY AGREEMENT
================================================================================
Term Loan and Security Agreement NO. 9911550701 ("Loan Agreement") dated as of
November 12, 1999, between SEL-LEB MARKETING, INC., a corporation organized and
existing under the laws of the State of New York having its principal office at
495 River Street, Paterson, NJ 07524 ("Customer"), and MERRILL LYNCH BUSINESS
FINANCIAL SERVICES INC., a corporation organized and existing under the laws of
the State of Delaware having its principal office at 222 North LaSalle Street,
Chicago, IL 60601 ("MLBFS").
In consideration of the mutual covenants of the parties hereto, Customer and
MLBFS hereby agree as follows:
Article I. DEFINITIONS
1.1 Specific Terms. In addition to terms defined elsewhere in this Loan
Agreement, when used herein the following terms shall have the following
meanings:
(a) "Account Debtor" shall mean any party who is or may become obligated with
respect to an Account or Chattel Paper.
(b) "Additional Agreements" shall mean all agreements, instruments, documents
and opinions other than this Loan Agreement, whether with or from Customer or
any other party, which are contemplated hereby or otherwise reasonably required
by MLBFS in connection herewith, or which evidence the creation, guaranty or
collateralization of any of the Obligations or the granting or perfection of
liens or security interests upon the Collateral or any other collateral for the
Obligations, and shall include, without limitation, the Note.
(c) "Bankruptcy Event" shall mean any of the following: (i) a proceeding under
any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt or
receivership law or statute shall be filed or consented to by Customer or any
Guarantor; or (ii) any such proceeding shall be filed against Customer or any
Guarantor and shall not be dismissed or withdrawn within sixty (60) days after
filing; or (iii) Customer or any Guarantor shall make a general assignment for
the benefit of creditors; or (iv) Customer or any Guarantor shall generally fail
to pay or admit in writing its inability to pay its debts as they become due; or
(v) Customer or any Guarantor shall be adjudicated a bankrupt or insolvent.
(d) "Business Day" shall mean any day other than a Saturday, Sunday, federal
holiday or other day on which the New York Stock Exchange is regularly closed.
(e) "Closing Date" shall mean the date upon which all conditions precedent to
MLBFS' obligation to make the Loan shall have been met to the satisfaction of
MLBFS.
(f) "Collateral" shall mean all Accounts, Chattel Paper, Contract Rights,
Inventory, Equipment, Fixtures, General Intangibles, Deposit Accounts,
Documents, Instruments, Investment Property and Financial Assets of Customer,
howsoever arising, whether now owned or existing or hereafter acquired or
arising, and wherever located; together with all parts thereof (including spare
parts), all accessories and accessions thereto, all books and records (including
computer records) directly related thereto, all proceeds thereof (including,
without limitation, proceeds in the form of Accounts and insurance proceeds),
and the additional collateral described in Section 3.6 (c) hereof.
(g) "Commitment Expiration Date" shall mean December 12, 1999.
(h) "Commitment Fee" shall mean a fee of $5,000.00 due to MLBFS in connection
with this Loan Agreement.
(i) "Default" shall mean either an "Event of Default" as defined in Section 3.5
hereof, or an event which with the giving of notice, passage of time, or both,
would constitute such an Event of Default.
(j) "General Funding Conditions" shall mean each of the following conditions to
each loan or advance by MLBFS hereunder: (i) no Default shall have occurred and
be continuing or would result from the making of any such loan or advance
hereunder by MLBFS; (ii) there shall not have occurred and be continuing any
material adverse change in the business or financial condition of Customer or
any Guarantor; (iii) all representations and warranties of Customer or any
Guarantor herein or in any Additional Agreements shall then be true and correct
in all material respects; (iv) MLBFS shall have received this Loan Agreement and
all Additional Agreements, duly executed and filed or recorded where applicable,
all of which shall be in form and substance reasonably satisfactory to MLBFS;
(v) the Commitment Fee shall have been paid in full; (vi) MLBFS shall have
received, as and to the extent applicable, copies of invoices, bills of sale,
loan payoff letters and/or other evidence reasonably satisfactory to it that the
proceeds of the Loan will satisfy the Loan Purpose; (vii) MLBFS shall have
received evidence reasonably satisfactory to it as to the ownership of the
Collateral and the perfection and priority of MLBFS' liens and security
interests thereon, as well as the ownership of and the perfection and priority
of MLBFS' liens and security interests on any other collateral for the
Obligations furnished pursuant to any of the Additional Agreements; (viii) MLBFS
shall have received evidence reasonably satisfactory to it of the insurance
required hereby or by any of the Additional Agreements; and (ix) any additional
conditions specified in the "Term Loan Approval" letter executed by MLBFS with
respect to the transactions contemplated hereby shall have been met to the
reasonable satisfaction of MLBFS.
(k) "Guarantor" shall mean a person or entity who has either guaranteed or
provided collateral for any or all of the Obligations; and "Business Guarantor"
shall mean any such Guarantor that is a corporation, partnership,
proprietorship, limited liability company or other entity regularly engaged in a
business activity.
<PAGE>
(l) "Loan" shall mean a five-year term installment loan in an amount equal to
the lesser of: (A) 100% of the amount required by Customer to satisfy or fulfill
the Loan Purpose, (B) the aggregate amount which Customer shall request be
advanced by MLBFS on account of the Loan Purpose, or (C) $500,000.00.
(m) "Loan Purpose" shall mean the purpose for which the proceeds of the Loan
will be used; to wit: to refinance a portion of Customer's WCMA Line of Credit
No. 885-07E38.
(n) "Location of Tangible Collateral" shall mean the address of Customer set
forth at the beginning of this Loan Agreement, together with any other address
or addresses set forth on an exhibit hereto as being a Location of Tangible
Collateral.
(o) "Obligations" shall mean all liabilities, indebtedness and obligations of
Customer to MLBFS, howsoever created, arising or evidenced, whether now existing
or hereafter arising, whether direct or indirect, absolute or contingent, due or
to become due, primary or secondary or joint or several, and, without limiting
the foregoing, shall include interest accruing after the filing of any petition
in bankruptcy, and all present and future liabilities, indebtedness and
obligations of Customer under the Note and this Loan Agreement.
(p) "Permitted Liens" shall mean with respect to the Collateral: (i) liens for
current taxes not delinquent, other non-consensual liens arising in the ordinary
course of business for sums not due, and, if MLBFS' rights to and interest in
the Collateral are not materially and adversely affected thereby, any such liens
for taxes or other non-consensual liens arising in the ordinary course of
business being contested in good faith by appropriate proceedings; (ii) liens in
favor of MLBFS; (iii) liens which will be discharged with the proceeds of the
initial WCMA Loan; and (iv) any other liens expressly permitted in writing by
MLBFS.
1.2 Other Terms. Except as otherwise defined herein, all terms used in this Loan
Agreement which are defined in the Uniform Commercial Code of Illinois ("UCC")
shall have the meanings set forth in the UCC.
Article II. THE LOAN
2.1 Commitment. Subject to the terms and conditions hereof, MLBFS hereby agrees
to make the Loan to Customer for the Loan Purpose, and Customer agrees to borrow
all amounts borrowed to satisfy the Loan Purpose from MLBFS. The entire proceeds
of the Loan shall be disbursed on the Closing Date either directly to the
applicable third party or parties on account of the Loan Purpose or to reimburse
Customer for amounts directly expended by it; all as directed by Customer in a
Closing Certificate to be executed by Customer and delivered to MLBFS prior to
the Closing Date.
2.2 Note. The Loan will be evidenced by and repayable in accordance with that
certain Collateral Installment Note made by Customer payable to the order of
MLBFS and issued pursuant to this Loan Agreement (the "Note"). The Note is
hereby incorporated as a part hereof as if fully set forth herein.
2.3 Conditions of MLBFS' Obligation. The Closing Date and MLBFS' obligation to
make the Loan on the Closing Date are subject to the prior fulfillment of each
of the following conditions: (a) MLBFS shall have received a written request
from Customer that the Loan be funded in accordance with the terms hereof,
together with a written direction from Customer as to the method of payment and
payee(s) of the proceeds of the Loan, which request and direction shall have
been received by MLBFS not less than two Business Days prior to any requested
funding date; (b) MLBFS shall have received a copy of invoices, bills of sale,
payoff letters or other applicable evidence reasonably satisfactory to it that
the proceeds of the Loan will satisfy or fulfill the Loan Purpose; (c) the
Commitment Expiration Date shall not then have occurred; and (d) each of the
General Funding Conditions shall then have been met or satisfied to the
reasonable satisfaction of MLBFS.
2.4 Use of Loan Proceeds. The proceeds of the Loan shall be used by Customer
solely for a Loan Purpose, or, with the prior written consent of MLBFS, for
other lawful business purposes of Customer not prohibited hereby. Customer
agrees that under no circumstances will the proceeds of the Loan be used: (a)
for personal, family or household purposes of any person whatsoever, or (b) to
purchase, carry or trade in securities, or repay debt incurred to purchase,
carry or trade in securities, or (c) unless otherwise consented to in writing by
MLBFS, to repay any debt to Merrill Lynch and Co., Inc. or any of its
subsidiaries.
2.5 Commitment Fee. In consideration of the agreement by MLBFS to extend the
Loan to Customer in accordance with and subject to the terms hereof, Customer
has paid or shall, on or before the Closing Date pay, the Commitment Fee to
MLBFS. Customer acknowledges and agrees that the Commitment Fee has been fully
earned by MLBFS, and that it will not under any circumstances be refundable.
Article III. GENERAL PROVISIONS
3.1 REPRESENTATIONS AND WARRANTIES
Customer represents and warrants to MLBFS that:
(a) Organization and Existence. Customer is a corporation, duly organized and
validly existing in good standing under the laws of the State of New York and is
qualified to do business and in good standing in each other state where the
nature of its business or the property owned by it make such qualification
necessary; and, where applicable, each Business Guarantor is duly organized,
validly existing and in good standing under the laws of the state of its
formation and is qualified to do business and in good standing in each other
state where the nature of its business or the property owned by it make such
qualification necessary.
(b) Execution, Delivery and Performance. The execution, delivery and performance
by Customer of this Loan Agreement and by Customer and each Guarantor of such of
the Additional Agreements to which it is a party: (i) have been duly authorized
by all requisite action, (ii) do not and will not violate or conflict with any
law or other governmental requirement, or any of the agreements, instruments or
documents which formed or govern Customer or any such
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<PAGE>
Guarantor, and (iii) do not and will not breach or violate any of the provisions
of, and will not result in a default by Customer or any such Guarantor under,
any other agreement, instrument or document to which it is a party or by which
it or its properties are bound.
(c) Notices and Approvals. Except as may have been given or obtained, no notice
to or consent or approval of any governmental body or authority or other third
party whatsoever (including, without limitation, any other creditor) is required
in connection with the execution, delivery or performance by Customer or any
Guarantor of such of this Loan Agreement, the Note and the other Additional
Agreements to which it is a party.
(d) Enforceability. This Loan Agreement, the Note and such of the other
Additional Agreements to which Customer or any Guarantor is a party are the
respective legal, valid and binding obligations of Customer and such Guarantor,
enforceable against it or them, as the case may be, in accordance with their
respective terms, except as enforceability may be limited by bankruptcy and
other similar laws affecting the rights of creditors generally or by general
principles of equity.
(e) Collateral. Except for any Permitted Liens: (i) Customer has good and
marketable title to the Collateral, (ii) none of the Collateral is subject to
any lien, encumbrance or security interest, and (iii) upon the filing of all
Uniform Commercial Code financing statements executed by Customer with respect
to the Collateral in the appropriate jurisdiction(s) and/or the completion of
any other action required by applicable law to perfect its liens and security
interests, MLBFS will have valid and perfected first liens and security
interests upon all of the Collateral.
(f) Financial Statements. Except as expressly set forth in Customer's or any
Business Guarantor's financial statements, all financial statements of Customer
and each Business Guarantor furnished to MLBFS have been prepared in conformity
with generally accepted accounting principles, consistently applied, are true
and correct in all material respects, and fairly present the financial condition
of it as at such dates and the results of its operations for the periods then
ended (subject, in the case of interim unaudited financial statements, to normal
year-end adjustments); and since the most recent date covered by such financial
statements, there has been no material adverse change in any such financial
condition or operation. All financial statements furnished to MLBFS of any
Guarantor other than a Business Guarantor are true and correct in all material
respects and fairly represent such Guarantor's financial condition as of the
date of such financial statements, and since the most recent date of such
financial statements, there has been no material adverse change in such
financial condition.
(g) Litigation. No litigation, arbitration, administrative or governmental
proceedings are pending or, to the knowledge of Customer, threatened against
Customer or any Guarantor, which would, if adversely determined, materially and
adversely affect the liens and security interests of MLBFS hereunder or under
any of the Additional Agreements, the financial condition of Customer or any
such Guarantor or the continued operations of Customer or any Business
Guarantor.
(h) Tax Returns. All federal, state and local tax returns, reports and
statements required to be filed by Customer and each Guarantor have been filed
with the appropriate governmental agencies and all taxes due and payable by
Customer and each Guarantor have been timely paid (except to the extent that any
such failure to file or pay will not materially and adversely affect either the
liens and security interests of MLBFS hereunder or under any of the Additional
Agreements, the financial condition of Customer or any Guarantor, or the
continued operations of Customer or any Business Guarantor).
(i) Collateral Location. All of the tangible Collateral is located at a Location
of Tangible Collateral.
(j) No Outside Broker. Except for employees of MLBFS, MLPF&S or one of their
affiliates, Customer has not in connection with the transactions contemplated
hereby directly or indirectly engaged or dealt with, and was not introduced or
referred to MLBFS by, any broker or other loan arranger.
Each of the foregoing representations and warranties: (i) has been and will be
relied upon as an inducement to MLBFS to make the Loan, and (ii) is continuing
and shall be deemed remade by Customer on the Closing Date.
3.2 FINANCIAL AND OTHER INFORMATION
(a) Customer shall furnish or cause to be furnished to MLBFS during the term of
this Loan Agreement all of the following:
(i) Annual Financial Statements. Within 120 days after the close of each fiscal
year of Customer, a copy of the annual audited financial statements of Customer
and the annual audited financial statements of each Business Guarantor,
including, in each case, in reasonable detail, a balance sheet and statement of
retained earnings as at the close of such fiscal year and statements of profit
and loss and cash flow for such fiscal year;
(ii) Interim Financial Statements. Within 45 days after the close of each fiscal
quarter of Customer, a copy of the interim financial statements of Customer and
each Business Guarantor for such fiscal quarter (including in reasonable detail
both a balance sheet as of the close of such fiscal period, and statement of
profit and loss for the applicable fiscal period);
(iii) A/R Agings. Within 15 days after the close of each fiscal month of
Customer, a copy of the Accounts Receivable Aging of Customer and each Business
Guarantor as of the end of such fiscal month;
(iv) Inventory Reports. Within 15 days after the close of each fiscal month of
Customer, a copy of the Inventory Report (as and to the extent applicable,
breaking out Inventory by location, and separately reporting any work in
process) of Customer and each Business Guarantor as of the end of such fiscal
month; and
(v) Other Information. Such other information as MLBFS may from time to time
reasonably request relating to Customer, any Guarantor or the Collateral.
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<PAGE>
(b) General Agreements With Respect to Financial Information. Customer agrees
that except as otherwise specified herein or otherwise agreed to in writing by
MLBFS: (i) all annual financial statements required to be furnished by Customer
to MLBFS hereunder will be prepared by either the current independent
accountants for Customer or other independent accountants reasonably acceptable
to MLBFS, and (ii) all other financial information required to be furnished by
Customer to MLBFS hereunder will be certified as correct by the party who has
prepared such information, and, in the case of internally prepared information
with respect to Customer or any Business Guarantor, certified as correct by
their respective chief financial officer.
3.3 OTHER COVENANTS
Customer further agrees during the term of this Loan Agreement that:
(a) Financial Records; Inspection. Customer and each Business Guarantor will:
(i) maintain at its principal place of business complete and accurate books and
records, and maintain all of its financial records in a manner consistent with
the financial statements heretofore furnished to MLBFS, or prepared on such
other basis as may be approved in writing by MLBFS; and (ii) permit MLBFS or its
duly authorized representatives, upon reasonable notice and at reasonable times,
to inspect its properties (both real and personal), operations, books and
records.
(b) Taxes. Customer and each Guarantor will pay when due all taxes, assessments
and other governmental charges, howsoever designated, and all other liabilities
and obligations, except to the extent that any such failure to pay will not
materially and adversely affect either the liens and security interests of MLBFS
hereunder or under any of the Additional Agreements, the financial condition of
Customer or any Guarantor or the continued operations of Customer or any
Business Guarantor.
(c) Compliance With Laws and Agreements. Neither Customer nor any Guarantor will
violate any law, regulation or other governmental requirement, any judgment or
order of any court or governmental agency or authority, or any agreement,
instrument or document to which it is a party or by which it is bound, if any
such violation will materially and adversely affect either the liens and
security interests of MLBFS hereunder or under any of the Additional Agreements,
the financial condition of Customer or any Guarantor, or the continued
operations of Customer or any Business Guarantor.
(d) No Use of Merrill Lynch Name. Except upon the prior written consent of
MLBFS, neither Customer nor any Guarantor will directly or indirectly publish,
disclose or otherwise use in any advertising or promotional material, or press
release or interview, the name, logo or any trademark of MLBFS, MLPF&S, Merrill
Lynch and Co., Incorporated or any of their affiliates.
(e) Notification By Customer. Customer shall provide MLBFS with prompt written
notification of: (i) any Default; (ii) any materially adverse change in the
business, financial condition or operations of Customer or any Business
Guarantor; (iii) any information which indicates that any financial statements
of Customer or any Guarantor fail in any material respect to present fairly the
financial condition and results of operations purported to be presented in such
statements; and (iv) any change in Customer's outside accountants. Each
notification by Customer pursuant hereto shall specify the event or information
causing such notification, and, to the extent applicable, shall specify the
steps being taken to rectify or remedy such event or information.
(f) Notice of Change. Customer shall give MLBFS not less than 30 days prior
written notice of any change in the name (including any fictitious name) or
principal place of business or residence of Customer or any Guarantor.
(g) Continuity. Except upon the prior written consent of MLBFS, which consent
will not be unreasonably withheld: (i) neither Customer nor any Business
Guarantor shall be a party to any merger or consolidation with, or purchase or
otherwise acquire all or substantially all of the assets of, or any material
stock, partnership, joint venture or other equity interest in, any person or
entity, or sell, transfer or lease all or any substantial part of its assets, if
any such action would result in either: (A) a material change in the principal
business, ownership or control of Customer or such Business Guarantor, or (B) a
material adverse change in the financial condition or operations of Customer or
such Business Guarantor; (ii) Customer and each Business Guarantor shall
preserve their respective existence and good standing in the jurisdiction(s) of
establishment and operation; (iii) neither Customer nor any Business Guarantor
shall engage in any material business substantially different from their
respective business in effect as of the date of application by Customer for
credit from MLBFS, or cease operating any such material business; (iv) neither
Customer nor any Business Guarantor shall cause or permit any other person or
entity to assume or succeed to any material business or operations of Customer
or such Business Guarantor; and (v) neither Customer nor any Business Guarantor
shall cause or permit any material change in its controlling ownership.
(h) Minimum Tangible Net Worth. Customer's "tangible net worth" shall at all
times exceed $6,500,000.00. For the purposes hereof, the term "tangible net
worth" shall mean Customer's net worth as shown on Customer's regular financial
statements prepared in a manner consistent with the terms hereof, but excluding
an amount equal to (i) any assets which are ordinarily classified as
"intangible" in accordance with generally accepted accounting principles, and
(ii) any amounts now or hereafter directly or indirectly owing to Customer by
officers, shareholders or affiliates of Customer.
(i) Borrowed Debt. Except upon the prior written consent of MLBFS, Customer
shall not directly or indirectly hereafter incur or permit to exist any debt of
Customer for borrowed money or the lease under a capital lease or deferred
purchase price of real or personal property other than: (i) debt to MLBFS, (ii)
debt existing as of the date of and reflected on the last financial statements
of Customer submitted to MLBFS prior to the date hereof and not refinanced by
MLBFS, and (iii) debt secured by Permitted Liens .
3.4 COLLATERAL
(a) Pledge of Collateral. To secure payment and performance of the Obligations,
Customer hereby pledges, assigns, transfers and sets over to MLBFS, and grants
to MLBFS first liens and security interests in and upon all of the Collateral,
subject only to Permitted Liens.
(b) Liens. Except upon the prior written consent of MLBFS, Customer shall not
create or permit to exist any lien, encumbrance or security interest upon or
with respect to any Collateral now owned or hereafter acquired other than
Permitted Liens.
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<PAGE>
(c) Performance of Obligations. Customer shall perform all of its obligations
owing on account of or with respect to the Collateral; it being understood that
nothing herein, and no action or inaction by MLBFS, under this Loan Agreement or
otherwise, shall be deemed an assumption by MLBFS of any of Customer's said
obligations.
(d) Sales and Collections. So long as no Event of Default shall have occurred
and be continuing, Customer may in the ordinary course of its business: (i) sell
any Inventory normally held by Customer for sale, (ii) use or consume any
materials and supplies normally held by Customer for use or consumption, and
(iii) collect all of its Accounts. Customer shall take such action with respect
to protection of its Inventory and the other Collateral and the collection of
its Accounts as MLBFS may from time to time reasonably request.
(e) Account Schedules. Upon the request of MLBFS, made now or at any reasonable
time or times hereafter, Customer shall deliver to MLBFS, in addition to the
other information required hereunder, a schedule identifying, for each Account
and all Chattel Paper subject to MLBFS' security interests hereunder, each
Account Debtor by name and address and amount, invoice or contract number and
date of each invoice or contract. Customer shall furnish to MLBFS such
additional information with respect to the Collateral, and amounts received by
Customer as proceeds of any of the Collateral, as MLBFS may from time to time
reasonably request.
(f) Alterations and Maintenance. Except upon the prior written consent of MLBFS,
Customer shall not make or permit any material alterations to any tangible
Collateral which might materially reduce or impair its market value or utility.
Customer shall at all times keep the tangible Collateral in good condition and
repair, reasonable wear and tear excepted, and shall pay or cause to be paid all
obligations arising from the repair and maintenance of such Collateral, as well
as all obligations with respect to any Location of Tangible Collateral, except
for any such obligations being contested by Customer in good faith by
appropriate proceedings.
(g) Location. Except for movements required in the ordinary course of Customer's
business, Customer shall give MLBFS 30 days' prior written notice of the placing
at or movement of any tangible Collateral to any location other than a Location
of Tangible Collateral. In no event shall Customer cause or permit any material
tangible Collateral to be removed from the United States without the express
prior written consent of MLBFS.
(h) Insurance. Customer shall insure all of the tangible Collateral under a
policy or policies of physical damage insurance providing that losses will be
payable to MLBFS as its interests may appear pursuant to a Lender's Loss Payable
Endorsement and containing such other provisions as may be reasonably required
by MLBFS. Customer shall further provide and maintain a policy or policies of
comprehensive public liability insurance naming MLBFS as an additional party
insured. Customer and each Business Guarantor shall maintain such other
insurance as may be required by law or is customarily maintained by companies in
a similar business or otherwise reasonably required by MLBFS. All such insurance
policies shall provide that MLBFS will receive not less than 10 days prior
written notice of any cancellation, and shall otherwise be in form and amount
and with an insurer or insurers reasonably acceptable to MLBFS. Customer shall
furnish MLBFS with a copy or certificate of each such policy or policies and,
prior to any expiration or cancellation, each renewal or replacement thereof.
(i) Event of Loss. Customer shall at its expense promptly repair all repairable
damage to any tangible Collateral. In the event that any tangible Collateral is
damaged beyond repair, lost, totally destroyed or confiscated (an "Event of
Loss") and such Collateral had a value prior to such Event of Loss of $25,000.00
or more, then, on or before the first to occur of (i) 90 days after the
occurrence of such Event of Loss, or (ii) 10 Business Days after the date on
which either Customer or MLBFS shall receive any proceeds of insurance on
account of such Event of Loss, or any underwriter of insurance on such
Collateral shall advise either Customer or MLBFS that it disclaims liability in
respect of such Event of Loss, Customer shall, at Customer's option, either
replace the Collateral subject to such Event of Loss with comparable Collateral
free of all liens other than Permitted Liens (in which event Customer shall be
entitled to utilize the proceeds of insurance on account of such Event of Loss
for such purpose, and may retain any excess proceeds of such insurance), or
prepay the Loan by an amount equal to the actual cash value of such Collateral
as determined by either the insurance company's payment (plus any applicable
deductible) or, in absence of insurance company payment, as reasonably
determined by MLBFS. Notwithstanding the foregoing, if at the time of occurrence
of such Event of Loss or any time thereafter prior to replacement or prepayment,
as aforesaid, an Event of Default shall have occurred and be continuing
hereunder, then MLBFS may at its sole option, exercisable at any time while such
Event of Default shall be continuing, require Customer to either replace such
Collateral or make a prepayment on account of the Loan, as aforesaid. Any
partial prepayment of the Loans shall be applied to installments due in inverse
order of maturity.
(j) Notice of Certain Events. Customer shall give MLBFS immediate notice of any
attachment, lien, judicial process, encumbrance or claim affecting or involving
$25,000.00 or more of the Collateral.
(k) Indemnification. Customer shall indemnify, defend and save MLBFS harmless
from and against any and all claims, liabilities, losses, costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses) of any
nature whatsoever which may be asserted against or incurred by MLBFS arising out
of or in any manner occasioned by (i) the ownership, collection, possession, use
or operation of any Collateral, or (ii) any failure by Customer to perform any
of its obligations hereunder; excluding, however, from said indemnity any such
claims, liabilities, etc. arising directly out of the willful wrongful act or
active gross negligence of MLBFS. This indemnity shall survive the expiration or
termination of this Loan Agreement as to all matters arising or accruing prior
to such expiration or termination.
3.5 EVENTS OF DEFAULT
The occurrence of any of the following events shall constitute an "Event of
Default" under this Loan Agreement:
(a) Failure to Pay. Customer shall fail to pay when due any amount owing by
Customer to MLBFS under the Note or this Loan Agreement, or shall fail to pay
when due any other Obligations, and any such failure shall continue for more
than five (5) Business Days after written notice thereof shall have been given
by MLBFS to Customer.
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(b) Failure to Perform. Customer or any Guarantor shall default in the
performance or observance of any covenant or agreement on its part to be
performed or observed under this Loan Agreement, the Note or any of the other
Additional Agreements (not constituting an Event of Default under any other
clause of this Section), and such default shall continue unremedied for ten (10)
Business Days after written notice thereof shall have been given by MLBFS to
Customer.
(c) Breach of Warranty. Any representation or warranty made by Customer or any
Guarantor contained in this Loan Agreement, the Note or any of the other
Additional Agreements shall at any time prove to have been incorrect in any
material respect when made.
(d) Default Under Other Agreement. A default or Event of Default by Customer or
any Guarantor shall occur under the terms of any other agreement, instrument or
document with or intended for the benefit of MLBFS, Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S") or any of their affiliates, and any
required notice shall have been given and required passage of time shall have
elapsed.
(e) Bankruptcy Event. Any Bankruptcy Event shall occur.
(f) Material Impairment. Any event shall occur which shall reasonably cause
MLBFS to in good faith believe that the prospect of full payment or performance
by Customer or any Guarantor of any of their respective liabilities or
obligations under this Loan Agreement, the Note or any of the other Additional
Agreements to which Customer or such Guarantor is a party has been materially
impaired. The existence of such a material impairment shall be determined in a
manner consistent with the intent of Section 1-208 of the UCC.
(g) Acceleration of Debt to Other Creditors. Any event shall occur which results
in the acceleration of the maturity of any indebtedness of $100,000.00 or more
of Customer or any Guarantor to another creditor under any indenture, agreement,
undertaking, or otherwise.
(h) Seizure or Abuse of Collateral. The Collateral, or any material part
thereof, shall be or become subject to any material abuse or misuse, or any
levy, attachment, seizure or confiscation which is not released within ten (10)
Business Days.
3.6 REMEDIES
(a) Remedies Upon Default. Upon the occurrence and during the continuance of any
Event of Default, MLBFS may at its sole option do any one or more or all of the
following, at such time and in such order as MLBFS may in its sole discretion
choose:
(i) Termination. MLBFS may without notice terminate its obligation to make the
Loan (if the Loan has not then been funded) or otherwise extend any credit to or
for the benefit of Customer (it being understood, however, that upon the
occurrence of any Bankruptcy Event all such obligations shall automatically
terminate without any action on the part of MLBFS); and upon any such
termination MLBFS shall be relieved of all such obligations.
(ii) Acceleration. MLBFS may declare the principal of and interest and any
premium on the Note, and all other Obligations to be forthwith due and payable,
whereupon all such amounts shall be immediately due and payable, without
presentment, demand for payment, protest and notice of protest, notice of
dishonor, notice of acceleration, notice of intent to accelerate or other notice
or formality of any kind, all of which are hereby expressly waived; provided,
however, that upon the occurrence of any Bankruptcy Event all such principal,
interest, premium and other Obligations shall automatically become due and
payable without any action on the part of MLBFS.
(iii) Exercise Other Rights. MLBFS may exercise any or all of the remedies of a
secured party under applicable law, including, but not limited to, the UCC, and
any or all of its other rights and remedies under this Loan Agreement and the
Additional Agreements.
(iv) Possession. MLBFS may require Customer to make the Collateral and the
records pertaining to the Collateral available to MLBFS at a place designated by
MLBFS which is reasonably convenient to Customer, or may take possession of the
Collateral and the records pertaining to the Collateral without the use of any
judicial process and without any prior notice to Customer.
(v) Sale. MLBFS may sell any or all of the Collateral at public or private sale
upon such terms and conditions as MLBFS may reasonably deem proper. MLBFS may
purchase any Collateral at any such public sale. The net proceeds of any such
public or private sale and all other amounts actually collected or received by
MLBFS pursuant hereto, after deducting all costs and expenses incurred at any
time in the collection of the Obligations and in the protection, collection and
sale of the Collateral, will be applied to the payment of the Obligations, with
any remaining proceeds paid to Customer or whoever else may be entitled thereto,
and with Customer and each Guarantor remaining jointly and severally liable for
any amount remaining unpaid after such application.
(vi) Delivery of Cash, Checks, Etc. MLBFS may require Customer to forthwith upon
receipt, transmit and deliver to MLBFS in the form received, all cash, checks,
drafts and other instruments for the payment of money (properly endorsed, where
required, so that such items may be collected by MLBFS) which may be received by
Customer at any time in full or partial payment of any Collateral, and require
that Customer not commingle any such items which may be so received by Customer
with any other of its funds or property but instead hold them separate and apart
and in trust for MLBFS until delivery is made to MLBFS.
(vii) Notification of Account Debtors. MLBFS may notify any Account Debtor that
its Account or Chattel Paper has been assigned to MLBFS and direct such Account
Debtor to make payment directly to MLBFS of all amounts due or becoming due with
respect to such Account or Chattel Paper; and MLBFS may enforce payment and
collect, by legal proceedings or otherwise, such Account or Chattel Paper.
-6-
<PAGE>
(viii) Control of Collateral. MLBFS may otherwise take control in any lawful
manner of any cash or non-cash items of payment or proceeds of Collateral and of
any rejected, returned, stopped in transit or repossessed goods included in the
Collateral and endorse Customer's name on any item of payment on or proceeds of
the Collateral.
(b) Collection Fee. If following any acceleration of the Note and other
Obligations pursuant to Section 3.6 (a) (ii) hereof Customer shall fail to pay
the entire balance of the Note and all such other Obligations in full within ten
(10) Business Days after Customer is notified of such acceleration, then
Customer shall pay to MLBFS, in addition to all other sums payable hereunder, a
collection fee in an amount equal to the lesser of: (i) five percent (5%) of the
sum of the then outstanding balance of the Note and then outstanding
Obligations, or (ii) the maximum collection fee permitted by law. Such
collection fee, which is intended to compensate MLBFS for its administrative
costs incident to the collection of the Note and other Obligations following an
Event of Default and acceleration, shall be payable on demand.
(c) Set-Off. MLBFS shall have the further right upon the occurrence and during
the continuance of an Event of Default to set-off, appropriate and apply toward
payment of any of the Obligations, in such order of application as MLBFS may
from time to time and at any time elect, any cash, credit, deposits, accounts,
financial assets, investment property, securities and any other property of
Customer which is in transit to or in the possession, custody or control of
MLBFS, MLPF&S or any agent, bailee, or affiliate of MLBFS or MLPF&S. Customer
hereby collaterally assigns and grants to MLBFS a continuing security interest
in all such property as additional Collateral.
(d) Power of Attorney. Effective upon the occurrence and during the continuance
of an Event of Default, Customer hereby irrevocably appoints MLBFS as its
attorney-in-fact, with full power of substitution, in its place and stead and in
its name or in the name of MLBFS, to from time to time in MLBFS' sole discretion
take any action and to execute any instrument which MLBFS may deem necessary or
advisable to accomplish the purposes of this Loan Agreement, including, but not
limited to, to receive, endorse and collect all checks, drafts and other
instruments for the payment of money made payable to Customer included in the
Collateral.
(e) Remedies are Severable and Cumulative. All rights and remedies of MLBFS
herein are severable and cumulative and in addition to all other rights and
remedies available in the Note, the other Additional Agreements, at law or in
equity, and any one or more of such rights and remedies may be exercised
simultaneously or successively.
(f) Notices. To the fullest extent permitted by applicable law, Customer hereby
irrevocably waives and releases MLBFS of and from any and all liabilities and
penalties for failure of MLBFS to comply with any statutory or other requirement
imposed upon MLBFS relating to notices of sale, holding of sale or reporting of
any sale, and Customer waives all rights of redemption or reinstatement from any
such sale. Any notices required under applicable law shall be reasonably and
properly given to Customer if given by any of the methods provided herein at
least 5 Business Days prior to taking action. MLBFS shall have the right to
postpone or adjourn any sale or other disposition of Collateral at any time
without giving notice of any such postponed or adjourned date. In the event
MLBFS seeks to take possession of any or all of the Collateral by court process,
Customer further irrevocably waives to the fullest extent permitted by law any
bonds and any surety or security relating thereto required by any statute, court
rule or otherwise as an incident to such possession, and any demand for
possession prior to the commencement of any suit or action.
3.7 MISCELLANEOUS
(a) Non-Waiver. No failure or delay on the part of MLBFS in exercising any
right, power or remedy pursuant to this Loan Agreement, the Note or any of the
other Additional Agreements shall operate as a waiver thereof, and no single or
partial exercise of any such right, power or remedy shall preclude any other or
further exercise thereof, or the exercise of any other right, power or remedy.
Neither any waiver of any provision of this Loan Agreement, the Note or any of
the other Additional Agreements, nor any consent to any departure by Customer
therefrom, shall be effective unless the same shall be in writing and signed by
MLBFS. Any waiver of any provision of this Loan Agreement, the Note or any of
the other Additional Agreements and any consent to any departure by Customer
from the terms of this Loan Agreement, the Note or any of the other Additional
Agreements shall be effective only in the specific instance and for the specific
purpose for which given. Except as otherwise expressly provided herein, no
notice to or demand on Customer shall in any case entitle Customer to any other
or further notice or demand in similar or other circumstances.
(b) Disclosure. Customer hereby irrevocably authorizes MLBFS and each of its
affiliates, including without limitation MLPF&S, to at any time (whether or not
an Event of Default shall have occurred) obtain from and disclose to each other
any and all financial and other information about Customer.
(c) Communications. All notices and other communications required or permitted
hereunder shall be in writing, and shall be either delivered personally, mailed
by postage prepaid certified mail or sent by express overnight courier or by
facsimile. Such notices and communications shall be deemed to be given on the
date of personal delivery, facsimile transmission or actual delivery of
certified mail, or one Business Day after delivery to an express overnight
courier. Unless otherwise specified in a notice sent or delivered in accordance
with the terms hereof, notices and other communications in writing shall be
given to the parties hereto at their respective addresses set forth at the
beginning of this Loan Agreement, or, in the case of facsimile transmission, to
the parties at their respective regular facsimile telephone number.
(d) Costs, Expenses and Taxes. Customer shall upon demand pay or reimburse MLBFS
for: (i) all Uniform Commercial Code and other filing and search fees and
expenses incurred by MLBFS in connection with the verification, perfection or
preservation of MLBFS' rights hereunder or in the Collateral or any other
collateral for the Obligations; (ii) any and all stamp, transfer and other taxes
and fees payable or determined to be payable in connection with the execution,
delivery and/or recording of this Loan Agreement or any of the Additional
Agreements; and (iii) all reasonable fees and out-of-pocket expenses (including,
but not limited to, reasonable fees and expenses of outside counsel) incurred by
MLBFS in connection with the collection of any sum payable hereunder or under
any of the Additional Agreements not paid when due, the enforcement of this Loan
Agreement or any of the Additional Agreements and the protection of MLBFS'
rights hereunder or thereunder, excluding, however, salaries and normal overhead
attributable to MLBFS' employees. The obligations of Customer under this
paragraph shall survive the expiration or termination of this Loan Agreement and
the discharge of the other Obligations.
-7-
<PAGE>
(e) Right to Perform Obligations. If Customer shall fail to do any act or thing
which it has covenanted to do under this Loan Agreement or any representation or
warranty on the part of Customer contained in this Loan Agreement shall be
breached, MLBFS may, in its sole discretion, after 5 Business Days written
notice is sent to Customer (or such lesser notice, including no notice, as is
reasonable under the circumstances), do the same or cause it to be done or
remedy any such breach, and may expend its funds for such purpose. Any and all
reasonable amounts so expended by MLBFS shall be repayable to MLBFS by Customer
upon demand, with interest at the "Interest Rate" (as that item is defined in
the Note) during the period from and including the date funds are so expended by
MLBFS to the date of repayment, and all such amounts shall be additional
Obligations. The payment or performance by MLBFS of any of Customer's
obligations hereunder shall not relieve Customer of said obligations or of the
consequences of having failed to pay or perform the same, and shall not waive or
be deemed a cure of any Default.
(f) Further Assurances. Customer agrees to do such further acts and things and
to execute and deliver to MLBFS such additional agreements, instruments and
documents as MLBFS may reasonably require or deem advisable to effectuate the
purposes of this Loan Agreement, the Note or any of the other Additional
Agreements, or to establish, perfect and maintain MLBFS' security interests and
liens upon the Collateral, including, but not limited to: (i) executing
financing statements or amendments thereto when and as reasonably requested by
MLBFS; and (ii) if in the reasonable judgment of MLBFS it is required by local
law, causing the owners and/or mortgagees of the real property on which any
Collateral may be located to execute and deliver to MLBFS waivers or
subordinations reasonably satisfactory to MLBFS with respect to any rights in
such Collateral.
(g) Binding Effect. This Loan Agreement, the Note and the other Additional
Agreements shall be binding upon, and shall inure to the benefit of MLBFS,
Customer and their respective successors and assigns. Customer shall not assign
any of its rights or delegate any of its obligations under this Loan Agreement,
the Note or any of the other Additional Agreements without the prior written
consent of MLBFS. Unless otherwise expressly agreed to in a writing signed by
MLBFS, no such consent shall in any event relieve Customer of any of its
obligations under this Loan Agreement, the Note or any of the other Additional
Agreements.
(h) Headings. Captions and section and paragraph headings in this Loan Agreement
are inserted only as a matter of convenience, and shall not affect the
interpretation hereof.
(i) Governing Law. This Loan Agreement, the Note and, unless otherwise expressly
provided therein, each of the other Additional Agreements, shall be governed in
all respects by the laws of the State of Illinois.
(j) Severability of Provisions. Whenever possible, each provision of this Loan
Agreement, the Note and the other Additional Agreements shall be interpreted in
such manner as to be effective and valid under applicable law. Any provision of
this Loan Agreement, the Note or any of the other Additional Agreements which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective only to the extent of such prohibition or unenforceability
without invalidating the remaining provisions of this Loan Agreement, the Note
and the other Additional Agreements or affecting the validity or enforceability
of such provision in any other jurisdiction.
(k) Term. This Loan Agreement shall become effective when accepted by MLBFS at
its office in Chicago, Illinois, and subject to the terms hereof, shall continue
in effect so long thereafter as there shall be any moneys owing hereunder or
under the Note, or there shall be any other Obligations outstanding.
(l) Counterparts. This Loan Agreement may be executed in one or more
counterparts which, when taken together, constitute one and the same agreement.
(m) Jurisdiction; Waiver. Customer acknowledges that this Loan Agreement is
being accepted by MLBFS in partial consideration of MLBFS' right and option, in
its sole discretion, to enforce this Loan Agreement, the Note and the other
Additional Agreements in either the State of Illinois or in any other
jurisdiction where Customer or any collateral for the Obligations may be
located. Customer consents to jurisdiction in the State of Illinois and venue in
any State or Federal Court in the County of Cook for such purposes, and Customer
waives any and all rights to contest said jurisdiction and venue. Customer
further waives any rights to commence any action against MLBFS in any
jurisdiction except in the County of Cook and State of Illinois. MLBFS and
Customer hereby each expressly waive any and all rights to a trial by jury in
any action, proceeding or counterclaim brought BY either of the parties against
the other party with respect to any matter relating to, arising out of or in any
way connected with the Loan, the Note, this Loan Agreement, any other Additional
Agreements and/or any of the transactions which are the subject matter of this
Loan Agreement.
(n) Integration. This Loan Agreement, together with the Note and the other
Additional Agreements, constitutes the entire understanding and represents the
full and final agreement between the parties with respect to the subject matter
hereof, and may not be contradicted by evidence of prior written agreements or
prior, contemporaneous or subsequent oral agreements of the parties. There are
no unwritten oral agreements of the parties. Without limiting the foregoing,
Customer acknowledges that: (i) no promise or commitment has been made to it by
MLBFS, MLPF&S or any of their respective employees, agents or representatives to
make the Loan on any terms other than as expressly set forth herein and in the
Note, or to make any other loan or otherwise extend any other credit to Customer
or any other party; and (ii) except as otherwise expressly provided herein, this
Loan Agreement supersedes and replaces any and all proposals, letters of intent
and approval and commitment letters from MLBFS to Customer, none of which shall
be considered an Additional Agreement. No amendment or modification of this
Agreement or any of the Additional Agreements to which Customer is a party shall
be effective unless in a writing signed by both MLBFS and Customer.
-8-
<PAGE>
IN WITNESS WHEREOF, this Loan Agreement has been executed as of the day and year
first above written.
SEL-LEB MARKETING, INC.
By: ____________________________________________________________________________
Signature (1) Signature (2)
- --------------------------------------------------------------------------------
Printed Name Printed Name
- --------------------------------------------------------------------------------
Title Title
Accepted at Chicago, Illinois:
MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.
By:___________________________________________________________
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<PAGE>
[LOGO]
EXHIBIT A
ATTACHED TO AND HEREBY MADE A PART OF TERM LOAN AND SECURITY AGREEMENT NO.
9911550701 BETWEEN MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC. AND SEL-LEB
MARKETING, INC.
================================================================================
Additional Locations of Tangible Collateral:
<PAGE>
[LOGO] No. 9911550701
================================================================================
$500,000.00 November 12, 1999
COLLATERAL INSTALLMENT NOTE
FOR VALUE RECEIVED, SEL-LEB MARKETING, INC., a corporation organized and
existing under the laws of the State of New York ("Customer") hereby promises to
pay to the order of MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC., a
corporation organized and existing under the laws of the State of Delaware
("MLBFS"), in lawful money of the United States, the principal sum of Five
Hundred Thousand And 00/100 Dollars ($500,000.00), or if more or less, the
aggregate amount advanced by MLBFS to Customer pursuant to the Loan Agreement
(the "Loan Amount"); together with interest on the unpaid balance of the Loan
Amount, from the Closing Date until payment, at the Interest Rate (or, if
applicable, at the Default Interest Rate), as follows:
1. DEFINITIONS.
(a) In addition to terms defined elsewhere in this Note, as used herein, the
following terms shall have the following meanings:
(i) "Closing Date" shall mean the date of advancement of funds hereunder.
(ii) "Default Interest Rate" shall mean a rate equal to the sum of the
"Interest Rate", as determined below, plus two percent (2%) per annum.
(iii) "Excess Interest" shall mean any amount of interest in excess of the
maximum amount of interest permitted to be charged by law.
(iv) "Interest Rate" shall mean a variable per annum rate equal to the sum of
(i) 2.65% per annum, and (ii) the interest rate from time to time published in
the "Money Rates" section of The Wall Street Journal for 30-day high-grade
unsecured notes sold through dealers by major corporations (the "30-day Dealer
Commercial Paper Rate"). The Interest Rate will change as of the date of
publication in The Wall Street Journal of a 30-day Dealer Commercial Paper Rate
that is different from that published on the preceding Business Day. In the
event that The Wall Street Journal shall, for any reason, fail or cease to
publish the 30-day Dealer Commercial Paper Rate, MLBFS will choose a reasonably
comparable index or source to use as the basis for the Interest Rate. Upon the
occurrence and during the continuance of a Default, the Interest Rate may be
increased to the "Default Interest Rate", as herein provided.
(v) "Loan Agreement" shall mean that certain TERM LOAN AND SECURITY
AGREEMENT No. 9911550701 between Customer and MLBFS, as the same may have been
or may hereafter be amended or supplemented.
(vi) "Note" shall mean this COLLATERAL INSTALLMENT NOTE.
(b) Capitalized terms used herein and not defined herein shall have the
meaning set forth in the Loan Agreement. Without limiting the foregoing, the
terms "Additional Agreements", "Bankruptcy Event" and "Event of Default" shall
have
the respective meanings set forth in the Loan Agreement.
2. PAYMENT AND OTHER TERMS. Customer shall pay the indebtedness under this Note
in 60 consecutive monthly installments commencing on the first day of the second
calendar month following the Closing Date and continuing on the first day of
each calendar month thereafter until this Note shall be paid in full. Each such
installment in an amount equal to the sum of (i) accrued interest, and (ii)
1/60th of the Loan Amount (with the first such installment including interest
accrued from the date of funding).
Each payment received hereunder shall be applied first to any fees and expenses
of MLBFS payable by Customer under the terms of the Loan Agreement (including,
without limitation, collection fees), next to accrued interest at the Interest
Rate and/or Default Interest Rate, as applicable, with the balance applied on
account of the unpaid principal hereof. Upon the occurrence and during the
continuance of any Default, but without limiting the rights and remedies
otherwise available to MLBFS or waiving such Default, the interest payable by
Customer hereunder shall at the option of MLBFS accrue and be payable at the
Default Interest Rate. The Default Interest Rate, once implemented, shall
continue to apply to this Note and be payable by Customer until the date such
Default is either cured or waived in writing by MLBFS. All interest shall be
computed on the basis of actual days elapsed over a 360-day year. All sums
payable hereunder shall be payable at the office of MLBFS at 222 North LaSalle
Street, Chicago, Illinois 60601, or at such other place or places as the holder
hereof may from time to time appoint in writing.
Customer may prepay this Note at any time in whole or in part without premium or
penalty. Any partial prepayment shall be applied to installments of the Loan
Amount in inverse order of maturity.
This Note is the Collateral Installment Note referred to in, and is entitled to
all of the benefits of the Loan Agreement and any Additional Agreements. If
Customer shall fail to pay when due any installment or other sum due hereunder,
and any such failure shall continue for more than five (5) Business Days after
written notice thereof shall have been given by the holder hereof to Customer,
or if any other Event of Default shall have occurred and be continuing, then at
the option of the holder hereof (or, upon the occurrence of any Bankruptcy
Event, automatically, without any action on the part of the holder hereof), and
in addition to all other rights and remedies available to such holder under the
Loan Agreement, any Additional Agreements, and otherwise, the entire Loan Amount
at such time remaining unpaid, together with accrued interest thereon and all
other sums then owing by Customer under the Loan Agreement, may be declared to
be and thereby become immediately due and payable.
<PAGE>
It is expressly understood, however, that nothing contained in the Loan
Agreement, any other agreement, instrument or document executed by Customer, or
otherwise, shall affect or impair the right, which is unconditional and
absolute, of the holder hereof to enforce payment of all sums due under this
Note at or after maturity, whether by acceleration or otherwise, or shall affect
the obligation of Customer, which is also unconditional and absolute, to pay the
sums payable under this Note in accordance with its terms. Except as otherwise
expressly set forth herein or in the Loan Agreement, Customer hereby waives
presentment, demand for payment, protest and notice of protest, notice of
dishonor, notice of acceleration, notice of intent to accelerate and all other
notices and formalities in connection with this Note.
Wherever possible each provision of this Note shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Note shall be prohibited by or invalid under such law, such provision
shall be ineffective to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or the remaining provisions of this
Note. Notwithstanding any provision to the contrary in this Note, the Loan
Agreement or any of the Additional Agreements, no provision of this Note, the
Loan Agreement or any of the Additional Agreements shall require the payment or
permit the collection of any Excess Interest. If any Excess Interest is provided
for, or is adjudicated as being provided for, in this Note, the Loan Agreement
or any of the Additional Agreements, then: (a) Customer shall not be obligated
to pay any Excess Interest; and (b) any Excess Interest that MLBFS may have
received under this Note, the Loan Agreement or any of the Additional Agreements
shall, at the option of MLBFS, be: (i) applied as a credit against the then
unpaid principal balance of this Note, or accrued interest hereon not to exceed
the maximum amount permitted by law, or both, (ii) refunded to the payor
thereof, or (iii) any combination of the foregoing.
This Note shall be construed in accordance with the laws of the State of
Illinois and may be enforced by the holder hereof in any jurisdiction in which
the Loan Agreement may be enforced.
IN WITNESS WHEREOF, this Note has been executed by Customer as of the day and
year first above written.
SEL-LEB MARKETING, INC.
By: ----------------------------------------------------------------------------
Signature (1) Signature (2)
----------------------------------------------------------------------------
Printed Name Printed Name
----------------------------------------------------------------------------
Title Title
-2-
<PAGE>
[LOGO] SECRETARY'S CERTIFICATE
================================================================================
The undersigned hereby certifies to Merrill Lynch Business Financial Services
Inc. that the undersigned is the duly appointed and acting Secretary (or
Assistant Secretary) of SEL-LEB MARKETING, INC., a corporation duly organized,
validly existing and in good standing under the laws of the State of New York;
and that the following is a true, accurate and compared transcript of
resolutions duly, validly and lawfully adopted on the _______ day of
____________________, 1999 by the Board of Directors of said Corporation acting
in accordance with the laws of the state of incorporation and the charter and
by-laws of said Corporation:
"RESOLVED, that this Corporation is authorized and empowered, now and from time
to time hereafter, to borrow and/or obtain credit from, and/or enter into other
financial arrangements with, MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.
("MLBFS"), and in connection therewith to grant to MLBFS liens and security
interests on any or all property belonging to this Corporation; all such
transactions to be on such terms and conditions as may be mutually agreed from
time to time between this Corporation and MLBFS; and
"FURTHER RESOLVED, that the President, any Vice President, Treasurer, Secretary
or other officer of this Corporation, or any one or more of them, be and each of
them hereby is authorized and empowered to: (a) execute and deliver to MLBFS on
behalf of this Corporation any and all loan agreements, promissory notes,
security agreements, pledge agreements, financing statements, mortgages, deeds
of trust, leases and/or all other agreements, instruments and documents required
by MLBFS in connection therewith, and any present or future extensions,
amendments, supplements, modifications and restatements thereof; all in such
form as any such officer shall approve, as conclusively evidenced by his or her
signature thereon, and (b) do and perform all such acts and things deemed by any
such officer to be necessary or advisable to carry out and perform the
undertakings and agreements of this Corporation in connection therewith; and any
and all prior acts of each of said officers in these premises are hereby
ratified and confirmed in all respects; and
"FURTHER RESOLVED, that MLBFS is authorized to rely upon the foregoing
resolutions until it receives written notice of any change or revocation from an
authorized officer of this Corporation, which change or revocation shall not in
any event affect the obligations of this Corporation with respect to any
transaction conditionally agreed or committed to by MLBFS or having its
inception prior to the receipt of such notice by MLBFS."
The undersigned further certifies that: (a) the foregoing resolutions have not
been rescinded, modified or repealed in any manner, are not in conflict with any
agreement of said Corporation and are in full force and effect as of the date of
this Certificate, and (b) the following individuals are now the duly elected and
acting officers of said Corporation and the signatures set forth below are the
true signatures of said officers:
President: ________________________________________________
Vice President: ___________________________________________
Treasurer: ________________________________________________
Secretary:_________________________________________________
_________________: ________________________________________
Additional Title
IN WITNESS WHEREOF, the undersigned has executed this Certificate and has
affixed the seal of said Corporation hereto, pursuant to due authorization, all
as of this ________ day of _________________, 1999.
(Corporate Seal) ____________________________________
Secretary
Printed Name:____________________________________
<PAGE>
[LOGO] UNCONDITIONAL GUARANTY
================================================================================
FOR VALUE RECEIVED, and in order to induce MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC. ("MLBFS") to advance moneys or extend or continue to extend credit
or lease property to or for the benefit of, or modify its credit relationship
with, or enter into any other financial accommodations with SEL-LEB MARKETING,
INC., a corporation organized and existing under the laws of the State of New
York (with any successor in interest, including, without limitation, any
successor by merger or by operation of law, herein collectively referred to as
"Customer") under: (a) that certain TERM LOAN AND SECURITY AGREEMENT No.
9911550701 between MLBFS and Customer (the "Loan Agreement"), (b) any
"Additional Agreements", as that term is defined in the Loan Agreement,
including, without limitation, the NOTE incorporated by reference in the Loan
Agreement, and (c) all present and future amendments, restatements, supplements
and other evidences of any extensions, increases, renewals, modifications and
other changes of or to the Loan Agreement or any Additional Agreements)
(collectively, the "Guaranteed Documents"), and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
undersigned, ALES SIGNATURE LTD., a corporation organized and existing under the
laws of the State of New York ("Guarantor"), hereby unconditionally guarantees
to MLBFS: (i) the prompt and full payment when due, by acceleration or
otherwise, of all sums now or any time hereafter due from Customer to MLBFS
under the Guaranteed Documents, (ii) the prompt, full and faithful performance
and discharge by Customer of each and every other covenant and warranty of
Customer set forth in the Guaranteed Documents, and (iii) the prompt and full
payment and performance of all other indebtedness, liabilities and obligations
of Customer to MLBFS, howsoever created or evidenced, and whether now existing
or hereafter arising (collectively, the "Obligations"). Guarantor further agrees
to pay all reasonable costs and expenses (including, but not limited to, court
costs and reasonable attorneys' fees) paid or incurred by MLBFS in endeavoring
to collect or enforce performance of any of the Obligations, or in enforcing
this Guaranty. Guarantor acknowledges that MLBFS is relying on the execution and
delivery of this Guaranty in advancing moneys to or extending or continuing to
extend credit to or for the benefit of Customer.
This Guaranty is absolute, unconditional and continuing and shall remain in
effect until all of the Obligations shall have been fully and indefeasibly paid,
performed and discharged. Upon the occurrence and during the continuance of any
default or Event of Default under any of the Guaranteed Documents, any or all of
the indebtedness hereby guaranteed then existing shall, at the option of MLBFS,
become immediately due and payable from Guarantor (it being understood, however,
that upon the occurrence of any "Bankruptcy Event", as defined in the Loan
Agreement, all such indebtedness shall automatically become due and payable
without action on the part of MLBFS). Notwithstanding the occurrence of any such
event, this Guaranty shall continue and remain in full force and effect. To the
extent MLBFS receives payment with respect to the Obligations, and all or any
part of such payment is subsequently invalidated, declared to be fraudulent or
preferential, set aside, required to be repaid by MLBFS or is repaid by MLBFS
pursuant to a settlement agreement, to a trustee, receiver or any other person
or entity, whether under any Bankruptcy law or otherwise (a "Returned Payment"),
this Guaranty shall continue to be effective or shall be reinstated, as the case
may be, to the extent of such payment or repayment by MLBFS, and the
indebtedness or part thereof intended to be satisfied by such Returned Payment
shall be revived and continued in full force and effect as if said Returned
Payment had not been made.
The liability of Guarantor hereunder shall in no event be affected or impaired
by any of the following, any of which may be done or omitted by MLBFS from time
to time, without notice to or the consent of Guarantor: (a) any renewals,
amendments, restatements, modifications or supplements of or to any of the
Guaranteed Documents, or any extensions, forbearances, compromises or releases
of any of the Obligations or any of MLBFS' rights under any of the Guaranteed
Documents; (b) any acceptance by MLBFS of any collateral or security for, or
other guarantees of, any of the Obligations; (c) any failure, neglect or
omission on the part of MLBFS to realize upon or protect any of the Obligations,
or any collateral or security therefor, or to exercise any lien upon or right of
appropriation of any moneys, credits or property of Customer or any other
guarantor, possessed by or under the control of MLBFS or any of its affiliates,
toward the liquidation or reduction of the Obligations; (d) any invalidity,
irregularity or unenforceability of all or any part of the Obligations, of any
collateral security for the Obligations, or the Guaranteed Documents; (e) any
application of payments or credits by MLBFS; (f) the granting of credit from
time to time by MLBFS to Customer in excess of the amount set forth in the
Guaranteed Documents; or (g) any other act of commission or omission of any kind
or at any time upon the part of MLBFS or any of its affiliates or any of their
respective employees or agents with respect to any matter whatsoever. MLBFS
shall not be required at any time, as a condition of Guarantor's obligations
hereunder, to resort to payment from Customer or other persons or entities
whatsoever, or any of their properties or estates, or resort to any collateral
or pursue or exhaust any other rights or remedies whatsoever.
No release or discharge in whole or in part of any other guarantor of the
Obligations shall release or discharge Guarantor unless and until all of the
Obligations shall have been indefeasibly fully paid and discharged. Guarantor
expressly waives presentment, protest, demand, notice of dishonor or default,
notice of acceptance of this Guaranty, notice of advancement of funds under the
Guaranteed Documents and all other notices and formalities to which Customer or
Guarantor might be entitled, by statute or otherwise, and, so long as there are
any Obligations or MLBFS is committed to extend credit to Customer, waives any
right to revoke or terminate this Guaranty without the express written consent
of MLBFS.
So long as there are any Obligations, Guarantor shall not have any claim, remedy
or right of subrogation, reimbursement, exoneration, contribution,
indemnification, or participation in any claim, right, or remedy of MLBFS
against Customer or any security which MLBFS now has or hereafter acquires,
whether or not such claim, right or remedy arises in equity, under contract, by
statute, under common law, or otherwise.
MLBFS is hereby irrevocably authorized by Guarantor at any time during the
continuance of an Event of Default under the Loan Agreement or any other of the
Guaranteed Documents or in respect of any of the Obligations, in its sole
discretion and without demand or notice of any kind, to appropriate, hold, set
off and apply toward the payment of any amount due hereunder, in such order of
application as MLBFS may elect, all cash, credits, deposits, accounts, financial
assets, investment property, securities and any other property of Guarantor
which is in transit to or in the possession, custody or control of MLBFS or
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), or any of their
respective agents, bailees or affiliates. Guarantor hereby collaterally assigns
and grants to MLBFS a continuing security interest in all such property as
additional security for the Obligations. Upon the occurrence and during the
continuance of an Event of Default, MLBFS shall have all rights in such property
available to collateral assignees and secured parties under all applicable laws,
including, without limitation, the Uniform Commercial Code.
<PAGE>
Guarantor agrees to furnish to MLBFS such financial information concerning
Guarantor as may be required by any of the Guaranteed Documents or as MLBFS may
otherwise from time to time reasonably request. Guarantor further hereby
irrevocably authorizes MLBFS and each of its affiliates, including without
limitation MLPF&S, to at any time (whether or not an Event of Default shall have
occurred) obtain from and disclose to each other any and all financial and other
information about Guarantor.
No delay on the part of MLBFS in the exercise of any right or remedy under any
of the Guaranteed Documents, this Guaranty or any other agreement shall operate
as a waiver thereof, and, without limiting the foregoing, no delay in the
enforcement of any security interest, and no single or partial exercise by MLBFS
of any right or remedy shall preclude any other or further exercise thereof or
the exercise of any other right or remedy. This Guaranty may be executed in any
number of counterparts, each of which counterparts, once they are executed and
delivered, shall be deemed to be an original and all of which counterparts,
taken together, shall constitute but one and the same Guaranty. This Guaranty
shall be binding upon Guarantor and its successors and assigns, and shall inure
to the benefit of MLBFS and its successors and assigns. If there are more than
one guarantor of the Obligations, all of the obligations and agreements of
Guarantor are joint and several with such other guarantors.
This Guaranty shall be governed by the laws of the State of Illinois. WITHOUT
LIMITING THE RIGHT OF MLBFS TO ENFORCE THIS GUARANTY IN ANY JURISDICTION AND
VENUE PERMITTED BY APPLICABLE LAW, GUARANTOR AGREES THAT THIS GUARANTY MAY AT
THE OPTION OF MLBFS BE ENFORCED BY MLBFS IN ANY JURISDICTION AND VENUE IN WHICH
ANY OF THE GUARANTEED DOCUMENTS MAY BE ENFORCED. GUARANTOR AND MLBFS HEREBY EACH
EXPRESSLY WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES AGAINST THE OTHER PARTY IN ANY
WAY RELATED TO OR ARISING OUT OF THIS GUARANTY OR THE OBLIGATIONs. Wherever
possible each provision of this Guaranty shall be interpreted in such manner as
to be effective and valid under applicable law, but if any provision of this
Guaranty shall be prohibited by or invalid under such law, such provision shall
be ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Guaranty. No modification or waiver of any of the provisions of this Guaranty
shall be effective unless in writing and signed by both Guarantor and an officer
of MLBFS. Each signatory on behalf of Guarantor warrants that he or she has
authority to sign on behalf of Guarantor, and by so signing, to bind Guarantor
hereunder.
Dated as of November 12, 1999.
ALES SIGNATURE LTD.
By: ____________________________________________________________________________
Signature (1) Signature (2)
____________________________________________________________________________
Printed Name Printed Name
____________________________________________________________________________
Title Title
Address of Guarantor:
495 River Street
Paterson, NJ 07524
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<PAGE>
[LOGO] ] SECRETARY'S CERTIFICATE
================================================================================
(Guaranty by Corporation)
The undersigned hereby certifies to Merrill Lynch Business Financial Services
Inc. that the undersigned is the duly appointed and acting Secretary (or
Assistant Secretary) of ALES SIGNATURE LTD., a corporation duly organized,
validly existing and in good standing under the laws of the State of New York;
and that the following is a true, accurate and compared transcript of
resolutions duly, validly and lawfully adopted on the _______ day of
____________________, 1999 by the Board of Directors of said Corporation acting
in accordance with the laws of the state of incorporation and the charter and
by-laws of said Corporation:
"RESOLVED, that it is advisable and in the best interests and to the benefit of
this Corporation to guaranty the obligations of SEL-LEB MARKETING, INC.
("Customer") to MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC. ("MLBFS"); and
"FURTHER RESOLVED, that the President, any Vice President, Treasurer, Secretary
or other officer of this Corporation, or any one or more of them, be and each of
them hereby is authorized and empowered for and on behalf of this Corporation
to: (a) execute and deliver to MLBFS: (i) an Unconditional Guaranty of the
obligations of Customer, (ii) any other agreements, instruments and documents
required by MLBFS in connection therewith, including, without limitation, any
agreements, instruments and documents evidencing liens or security interests on
any of the property of this Corporation as collateral for said Unconditional
Guaranty and/or the obligations of Customer to MLBFS, and (iii) any present or
future amendments to any of the foregoing; all in such form as such officer
shall approve, as evidenced by his signature thereon; and (b) to do and perform
all such acts and things deemed by any such officer to be necessary or advisable
to carry out and perform the undertakings and agreements of this Corporation set
forth therein; and all prior acts of each of said officers in these premises are
hereby ratified and confirmed; and
"FURTHER RESOLVED, that MLBFS is authorized to rely upon the foregoing
resolutions until it receives written notice of any change or revocation from an
authorized officer of this Corporation, which change or revocation shall not in
any event affect the obligations of this Corporation with respect to any
transaction conditionally agreed or committed to by MLBFS or having its
inception prior to the receipt of such notice by MLBFS."
The undersigned further certifies that: (a) the foregoing resolutions have not
been rescinded, modified or repealed in any manner, are not in conflict with any
agreement of said Corporation and are in full force and effect as of the date of
this Certificate, and (b) the following individuals are now the duly elected and
acting officers of said Corporation and the signatures set forth below are the
true signatures of said officers:
President: _____________________________________________
Vice President: ________________________________________
Treasurer: _____________________________________________
Secretary:______________________________________________
________________: ______________________________________
Additional Title
IN WITNESS WHEREOF, the undersigned has executed this Certificate and has
affixed the seal of said corporation hereto, pursuant to due authorization, all
as of this ________ day of _________________, 1999.
(Corporate Seal) _____________________________
Secretary
Printed Name: _____________________________
<PAGE>
[LOGO] ] SECURITY AGREEMENT
================================================================================
Security Agreement ("Agreement") dated as of November 12, 1999, between ALES
SIGNATURE LTD., a corporation organized and existing under the laws of the State
of New York having its principal office at 495 River Street, Paterson, NJ 07524
("Grantor"), and MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC., a corporation
organized and existing under the laws of the State of Delaware having its
principal office at 222 North LaSalle Street, Chicago, IL 60601 ("MLBFS").
In order to induce MLBFS to extend or continue to extend credit to SEL-LEB
MARKETING, INC. ("Customer") under the Loan Agreement (as defined below) or
otherwise, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Grantor hereby agrees with MLBFS as
follows:
1. DEFINITIONS
(a) Specific Terms. In addition to terms defined elsewhere in this Agreement,
when used herein the following terms shall have the following meanings:
(i) "Account Debtor" shall mean any party who is or may become obligated with
respect to an Account or Chattel Paper.
(ii) "Bankruptcy Event" shall mean any of the following: (A) a proceeding under
any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt or
receivership law or statute shall be filed or consented to by Grantor or
Customer; or (B) any such proceeding shall be filed against Grantor or Customer
and shall not be dismissed or withdrawn within sixty (60) days after filing; or
(C) Grantor or Customer shall make a general assignment for the benefit of
creditors; or (D) Grantor or Customer shall generally fail to pay or admit in
writing its inability to pay its debts as they become due; or (E) Grantor or
Customer shall be adjudicated a bankrupt or insolvent.
(iii) "Business Day" shall mean any day other than a Saturday, Sunday, federal
holiday or other day on which the New York Stock Exchange is regularly closed.
(iv) "Collateral" shall mean all Accounts, Chattel Paper, Contract Rights,
Inventory, Equipment, Fixtures, General Intangibles, Deposit Accounts,
Documents, Instruments, Financial Assets and Investment Property of Grantor,
howsoever arising, whether now owned or existing or hereafter acquired or
arising, and wherever located; together with all parts thereof (including spare
parts), all accessories and accessions thereto, all books and records (including
computer records) directly related thereto, all proceeds thereof (including,
without limitation, proceeds in the form of Accounts and insurance proceeds),
and the additional collateral described in Section 7 (b) hereof.
(v) "Default" shall mean an "Event of Default", as defined in Section 6
hereof,or any event which with the giving of notice, passage of time, or both,
would constitute such an Event of Default.
(vi) "Loan Agreement" shall mean that certain TERM LOAN AND SECURITY AGREEMENT
No. 9911550701 between MLBFS and Customer, together with all agreements,
instruments and documents executed pursuant thereto, as any or all of the same
may from time to time be or have been amended, restated, extended or
supplemented.
(vii) "Location of Tangible Collateral" shall mean the address of Grantor set
forth at the beginning of this Agreement, together with any other address or
addresses set forth on any exhibit hereto as being a Location of Tangible
Collateral.
(viii)"Obligations" shall mean all liabilities, indebtedness and other
obligations of Customer or Grantor to MLBFS, howsoever created, arising or
evidenced, whether now existing or hereafter arising, whether direct or
indirect, absolute or contingent, due or to become due, primary or secondary or
joint or several, and, without limiting the foregoing, shall include interest
accruing after the filing of any petition in bankruptcy, and all present and
future liabilities, indebtedness and obligations of Customer under the Loan
Agreement and the agreements, instruments and documents executed pursuant
thereto, and of Grantor under this Agreement.
(ix) "Permitted Liens" shall mean with respect to the Collateral: (A) liens for
current taxes not delinquent, other non-consensual liens arising in the ordinary
course of business for sums not due, and, if MLBFS' rights to and interest in
the Collateral are not materially and adversely affected thereby, any such liens
for taxes or other non-consensual liens arising in the ordinary course of
business being contested in good faith by appropriate proceedings; (B) liens in
favor of MLBFS; and (C) any other liens expressly permitted in writing by MLBFS.
(b) Other Terms. Except as otherwise defined herein, all terms used in this
Agreement which are defined in the Uniform Commercial Code of Illinois ("UCC")
shall have the meanings set forth in the UCC.
2. COLLATERAL
(a) Pledge of Collateral. To secure payment and performance of the Obligations,
Grantor hereby pledges, assigns, transfers and sets over to MLBFS, and grants to
MLBFS a first lien and security interest in and upon all of the Collateral,
subject only to Permitted Liens.
(b) Liens. Except upon the prior written consent of MLBFS, Grantor shall not
create or permit to exist any lien, encumbrance or security interest upon or
with respect to any Collateral now owned or hereafter acquired other than
Permitted Liens.
<PAGE>
(c) Performance of Obligations. Grantor shall perform all of its obligations
owing on account of or with respect to the Collateral; it being understood that
nothing herein, and no action or inaction by MLBFS, under this Agreement or
otherwise, shall be deemed an assumption by MLBFS of any of Grantor's said
obligations.
(d) Notice of Certain Events. Grantor shall give MLBFS immediate notice of any
attachment, lien, judicial process, encumbrance or claim affecting or involving
$25,000.00 or more of the Collateral.
(e) Indemnification Grantor shall indemnify, defend and save MLBFS harmless from
and against any and all claims, losses, costs, expenses (including, without
limitation, reasonable attorneys' fees and expenses), demands, liabilities,
penalties, fines and forfeitures of any nature whatsoever which may be asserted
against or incurred by MLBFS arising out of or in any manner occasioned by (i)
the ownership, use, operation, condition or maintenance of any Collateral, or
(ii) any failure by Grantor to perform any of its obligations hereunder;
excluding, however, from said indemnity any such claims, losses, etc. arising
out of the willful wrongful act or active gross negligence of MLBFS. This
indemnity shall survive the expiration or termination of this Agreement as to
all matters arising or accruing prior to such expiration or termination.
(f) Insurance. Grantor shall insure all of the tangible Collateral with an
insurer or insurers reasonably acceptable to MLBFS, under a policy or policies
of physical damage insurance reasonably acceptable to MLBFS providing that (i)
losses will be payable to MLBFS as its interests may appear pursuant to a
Lender's Loss Payable endorsement , and (ii) MLBFS will receive not less than 10
days prior written notice of any cancellation; and containing such other
provisions as may be reasonably required by MLBFS. Grantor shall maintain such
other insurance as may be required by law or otherwise reasonably required by
MLBFS. Grantor shall furnish MLBFS with a copy or certificate of each such
policy or policies and, prior to any expiration or cancellation, each renewal or
replacement thereof.
(g) Event of Loss. Grantor shall at its expense promptly repair all repairable
damage to any tangible Collateral. In the event that any tangible Collateral is
damaged beyond repair, lost, totally destroyed or confiscated (an "Event of
Loss") and such Collateral had a value prior to such Event of Loss of $25,000.00
or more, then, on or before the first to occur of (i) 90 days after the
occurrence of such Event of Loss, or (ii) 10 Business Days after the date on
which either Grantor or MLBFS shall receive any proceeds of insurance on account
of such Event of Loss, or any underwriter of insurance on such tangible
Collateral shall advise either Grantor or MLBFS that it disclaims liability in
respect of such Event of Loss, Grantor shall, at Grantor's option, either
replace the Collateral subject to such Event of Loss with comparable Collateral
free of all liens other than Permitted Liens (in which event Grantor shall be
entitled to utilize the proceeds of insurance on account of such Event of Loss
for such purpose, and may retain any excess proceeds of such insurance), or pay
to MLBFS on account of the Obligations an amount equal to the actual cash value
of such Collateral as determined by either the applicable insurance company's
payment (plus any applicable deductible) or, in absence of insurance company
payment, as reasonably determined by MLBFS. Notwithstanding the foregoing, if at
the time of occurrence of such Event of Loss or any time thereafter prior to
replacement or payment, as aforesaid, an Event of Default shall have occurred
and be continuing hereunder, then MLBFS may at its sole option, exercisable at
any time while such Event of Default shall be continuing, require Grantor to
either replace such Collateral or make a payment on account of the Obligations,
as aforesaid.
(h) Sales and Collections. So long as no Event of Default shall have occurred
and be continuing, Grantor may in the ordinary course of its business: (i) sell
any Inventory normally held by Grantor for sale, (ii) use or consume any
materials and supplies normally held by Grantor for use or consumption, and
(iii) collect all of its Accounts. Grantor shall take such action with respect
to protection of its Inventory and the other Collateral and the collection of
its Accounts as MLBFS may from time to time reasonably request.
(i) Account Schedules. Upon the request of MLBFS, made now or at any time or
times hereafter, Grantor shall deliver to MLBFS, in addition to the other
information required hereunder, a schedule identifying, for each Account and all
Chattel Paper subject to MLBFS' security interests hereunder, each Account
Debtor by name and address and amount, invoice number and date of each invoice.
Grantor shall furnish to MLBFS such additional information with respect to the
Collateral, and amounts received by Grantor as proceeds of any of the
Collateral, as MLBFS may from time to time reasonably request.
(j) Location. Except for movements in the ordinary course of its business,
Grantor shall give MLBFS 30 days' prior written notice of the placing at or
movement of any tangible Collateral to any location other than a Location of
Tangible Collateral. In no event shall Grantor cause or permit any tangible
Collateral to be removed from the United States without the express prior
written consent of MLBFS.
(k) Alterations and Maintenance. Except upon the prior written consent of MLBFS,
Grantor shall not make or permit any material alterations to any tangible
Collateral which might materially reduce or impair its market value or utility.
Grantor shall at all times keep the tangible Collateral in good condition and
repair and shall pay or cause to be paid all obligations arising from the repair
and maintenance of such Collateral, as well as all obligations with respect to
each Location of Tangible Collateral, except for any such obligations being
contested by Grantor in good faith by appropriate proceedings.
3. REPRESENTATIONS AND WARRANTIES
Grantor represents and warrants to MLBFS that:
(a) Organization. Grantor is a corporation duly organized and validly existing
in good standing under the laws of the State of New York, and is qualified to do
business and in good standing in each other state where the nature of its
business or the property owned by it make such qualification necessary.
(b) Execution, Delivery and Performance. The execution, delivery and performance
by Grantor of this Agreement have been duly authorized by all requisite action,
do not and will not violate or conflict with any law or other governmental
requirement, or any of the agreements, instruments or documents which formed or
governed Grantor, and do not and will not breach or violate any of the
provisions of, and will not result in a default by Grantor under, any other
agreement, instrument or document to which it is a party or by which it or its
properties are bound.
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<PAGE>
(c) Notice or Consent. Except as may have been given or obtained, no notice to
or consent or approval of any governmental body or authority or other third
party whatsoever (including, without limitation, any other creditor) is required
in connection with the execution, delivery or performance by Grantor of this
Agreement.
(d) Valid and Binding. This Agreement is the legal, valid and binding obligation
of Grantor, enforceable against it in accordance with its terms, except as
enforceability may be limited by bankruptcy and other similar laws affecting the
rights of creditors generally or by general principles of equity.
(e) Financial Statements. Except as expressly set forth in Grantor 's financial
statements, all financial statements of Grantor furnished to MLBFS have been
prepared in conformity with generally accepted accounting principles,
consistently applied, are true and correct, and fairly present the financial
condition of it as at such dates and the results of its operations for the
periods then ended; and since the most recent date covered by such financial
statements, there has been no material adverse change in any such financial
condition or operation.
(f) Litigation, etc. No litigation, arbitration, administrative or governmental
proceedings are pending or threatened against Grantor, which would, if adversely
determined, materially and adversely affect the financial condition or continued
operations of Grantor, or the liens and security interests of MLBFS hereunder.
(g) Taxes. All federal, state and local tax returns, reports and statements
required to be filed by Grantor have been filed with the appropriate
governmental agencies and all taxes due and payable by Grantor have been timely
paid (except to the extent that any such failure to file or pay will not
materially and adversely affect either the liens and security interests of MLBFS
hereunder or the financial condition or continued operations of Grantor).
(h) Collateral. Grantor has good and marketable title to the Collateral, and,
except for any Permitted Liens: (i) none of the Collateral is subject to any
lien, encumbrance or security interest, and (ii) upon the filing of all Uniform
Commercial Code financing statements executed by Grantor with respect to the
Collateral or a copy of this Agreement in the appropriate jurisdiction(s) and/or
the completion of any other action required by applicable law to perfect is lien
and security interests, MLBFS will have valid and perfected first liens and
security interests upon all of the Collateral.
Each of the foregoing representations and warranties has been and will be relied
upon as an inducement to MLBFS to advance funds or extend or continue to extend
credit to Customer, and is continuing and shall be deemed remade by Grantor
concurrently with each such advance or extension of credit by MLBFS to Customer.
4. FINANCIAL AND OTHER INFORMATION
Grantor covenants and agrees that Grantor will furnish or cause to be furnished
to MLBFS during the term of this Agreement such financial and other information
as may be required by the Loan Agreement or any other document evidencing the
Obligations or as MLBFS may from time to time reasonably request relating to
Grantor or the Collateral.
5. OTHER COVENANTS
Grantor further agrees during the term of this Agreement that:
(a) Financial Records; Inspection. Grantor will: (i) maintain complete and
accurate books and records at its principal place of business, and maintain all
of its financial records in a manner consistent with the financial statements
heretofore furnished to MLBFS, or prepared on such other basis as may be
approved in writing by MLBFS; and (ii) permit MLBFS or its duly authorized
representatives, upon reasonable notice and at reasonable times, to inspect its
properties (both real and personal), operations, books and records.
(b) Taxes. Grantor will pay when due all taxes, assessments and other
governmental charges, howsoever designated, and all other liabilities and
obligations, except to the extent that any such failure to pay will not
materially and adversely affect either the liens and security interests of MLBFS
hereunder, or the financial condition or continued operations of Grantor.
(c) Compliance With Laws and Agreements. Grantor will not violate any law,
regulation or other governmental requirement, any judgment or order of any court
or governmental agency or authority, or any agreement, instrument or document to
which it is a party or by which it is bound, if any such violation will
materially and adversely affect either the liens and security interests of MLBFS
hereunder, or the financial condition or continued operations of Grantor.
(d) Notification By Grantor. Grantor shall provide MLBFS with prompt written
notification of: (i) any Default; (ii) any materially adverse change in the
business, financial condition or operations of Customer or Grantor; and (iii)
any information which indicates that any financial statements of Customer or
Grantor fail in any material respect to present fairly the financial condition
and results of operations purported to be presented in such statements. Each
notification by Grantor pursuant hereto shall specify the event or information
causing such notification, and, to the extent applicable, shall specify the
steps being taken to rectify or remedy such event or information.
(e) Notice of Change Grantor shall give MLBFS not less than 30 days prior
written notice of any change in the name (including any fictitious name) or
principal place of business of Grantor.
(f) Continuity. Except upon the prior written consent of MLBFS, which consent
will not be unreasonably withheld: (i) Grantor shall not be a party to any
merger or consolidation with, or purchase or otherwise acquire all or
substantially all of the assets of, or any material stock, partnership, joint
venture or other equity interest in, any person or entity, or sell, transfer or
lease all or any substantial part of its assets, if any such action would result
in either: (A) a material change in the principal business, ownership or control
of Grantor, or (B) a material adverse change in the financial condition or
operations of Grantor; (ii) Grantor shall preserve its existence and good
standing in the jurisdiction(s) of establishment and operation; (iii) Grantor
shall not engage in any material
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<PAGE>
business substantially different from its business in effect as of the date of
application by Customer for credit from MLBFS, or cease operating any such
material business; (iv) Grantor shall not cause or permit any other person or
entity to assume or succeed to any material business or operations of Grantor;
and (iv) Grantor shall not cause or permit any material change in its
controlling ownership.
6. EVENTS OF DEFAULT
The occurrence of any of the following events shall constitute an "Event of
Default" under this Agreement:
(a) Event of Default Under any Loan Agreement. An Event of Default shall occur
under the terms of the Loan Agreement.
(b) Failure to Perform. Grantor shall default in the performance or observance
of any covenant or agreement on its part to be performed or observed under this
Agreement (not constituting an Event of Default under any other clause of this
Section), and such default shall continue unremedied for 10 Business Days after
written notice thereof shall have been given by MLBFS to Grantor.
(c) Breach of Warranty. Any representation or warranty made by Grantor contained
in this Agreement shall at any time prove to have been incorrect in any material
respect when made.
(d) Default Under Other Agreement. A default or Event of Default by Grantor
shall occur under the terms of any other agreement, instrument or document with
or intended for the benefit of MLBFS, Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("MLPF&S") or any of their affiliates, and any required notice
shall have been given and required passage of time shall have elapsed.
(e) Seizure or Abuse of Collateral. The Collateral, or any material part
thereof, shall be or become subject to any levy, attachment, seizure or
confiscation which is not released within 10 Business Days.
(f) Bankruptcy Event. Any Bankruptcy Event shall occur.
(g) Material Impairment. Any event shall occur which shall reasonably cause
MLBFS to in good faith believe that the prospect of payment or performance by
Grantor has been materially impaired. The existence of such a material
impairment shall be determined in a manner consistent with the intent of Section
1-208 of the UCC.
(h) Acceleration of Debt to Other Creditors. Any event shall occur which results
in the acceleration of the maturity of any indebtedness of $100,000.00 or more
of Grantor to another creditor under any indenture, agreement, undertaking, or
otherwise.
7. REMEDIES
(a) Remedies Upon Default Upon the occurrence and during the continuance of
any Event of Default, MLBFS may at its sole option do any one or more or all of
the following, at such time and in such order as MLBFS may in its sole
discretion choose:
(i) Acceleration. MLBFS may declare all Obligations to be forthwith due and
payable, whereupon all such amounts shall be immediately due and payable,
without presentment, demand for payment, protest and notice of protest, notice
of dishonor, notice of acceleration, notice of intent to accelerate or other
notice or formality of any kind, all of which are hereby expressly waived;
provided, however, that upon the occurrence of any Bankruptcy Event all
Obligations shall automatically become due and payable without any action on the
part of MLBFS.
(ii) Exercise Rights of Secured Party. MLBFS may exercise any or all of the
remedies of a secured party under applicable law, including, but not limited to,
the UCC, and any or all of its other rights and remedies under this Agreement.
(iii) Possession. MLBFS may require Grantor to make the Collateral and the
records pertaining to the Collateral available to MLBFS at a place designated by
MLBFS which is reasonably convenient to Grantor, or may take possession of the
Collateral and the records pertaining to the Collateral without the use of any
judicial process and without any prior notice to Grantor.
(iv) Sale. MLBFS may sell any or all of the Collateral at public or private
sale upon such terms and conditions as MLBFS may reasonably deem proper, and
MLBFS may purchase any Collateral at any such public sale; and the net proceeds
of any such public or private sale and all other amounts actually collected or
received by MLBFS pursuant hereto, after deducting all costs and expenses
incurred at any time in the collection of the Obligations and in the protection,
collection and sale of the Collateral, will be applied to the payment of the
Obligations, with any remaining proceeds paid to Grantor or whoever else may be
entitled thereto, and with Customer and each guarantor of Customer's obligations
remaining jointly and severally liable for any amount remaining unpaid after
such application.
(v) Delivery of Cash, Checks, Etc. MLBFS may require Grantor to forthwith upon
receipt, transmit and deliver to MLBFS in the form received, all cash, checks,
drafts and other instruments for the payment of money (properly endorsed, where
required, so that such items may be collected by MLBFS) which may be received by
Grantor at any time in full or partial payment of any Collateral, and require
that Grantor not commingle any such items which may be so received by Grantor
with any other of its funds or property but instead hold them separate and apart
and in trust for MLBFS until delivery is made to MLBFS.
(vi) Notification of Account Debtors. MLBFS may notify any Account Debtor that
its Account or Chattel Paper has been assigned to MLBFS and direct such Account
Debtor to make payment directly to MLBFS of all amounts due or becoming due with
respect to such Account or Chattel Paper; and MLBFS may enforce payment and
collect, by legal proceedings or otherwise, such Account or Chattel Paper.
-4-
<PAGE>
(vii) Control of Collateral. MLBFS may otherwise take control in any lawful
manner of any cash or non-cash items of payment or proceeds of Collateral and of
any rejected, returned, stopped in transit or repossessed goods included in the
Collateral and endorse Grantor name on any item of payment on or proceeds of the
Collateral, and, in connection therewith, MLBFS may notify the postal
authorities to change the address for delivery of mail addressed to Grantor to
such address as MLBFS may designate.
(b) Set-Off. MLBFS shall have the further right upon the occurrence and during
the continuance of an Event of Default to set-off, appropriate and apply toward
payment of any of the Obligations, in such order of application as MLBFS may
from time to time and at any time elect, any cash, credits, deposits, accounts,
financial assets, investment property, securities and any other property of
Grantor which is in transit to or in the possession, custody or control of
MLBFS, MLPF&S or any agent, bailee, or affiliate of MLBFS or MLPF&S. Grantor
hereby collaterally assigns and grants to MLBFS a security interest in all such
property as additional Collateral.
(c) Power of Attorney. Effective upon the occurrence and during the
continuance of an Event of Default, Grantor hereby irrevocably appoints MLBFS as
its attorney-in-fact, with full power of substitution, in its place and stead
and in its name or in the name of MLBFS, to from time to time in MLBFS' sole
discretion take any action and to execute any instrument which MLBFS may deem
necessary or advisable to accomplish the purposes of this Agreement, including,
but not limited to, to receive, endorse and collect all checks, drafts and other
instruments for the payment of money made payable to Grantor included in the
Collateral.
(d) Remedies are Severable and Cumulative. All rights and remedies of MLBFS
herein are severable and cumulative and in addition to all other rights and
remedies available at law or in equity, and any one or more of such rights and
remedies may be exercised simultaneously or successively. Any notice required
under this Agreement or under applicable law shall be deemed reasonably and
properly given to Grantor if given at the address and by any of the methods of
giving notice set forth in this Agreement at least 5 Business Days before taking
any action specified in such notice.
(e) Notices. To the fullest extent permitted by applicable law, Grantor hereby
irrevocably waives and releases MLBFS of and from any and all liabilities and
penalties for failure of MLBFS to comply with any statutory or other requirement
imposed upon MLBFS relating to notices of sale, holding of sale or reporting of
any sale, and Grantor waives all rights of redemption or reinstatement from any
such sale. MLBFS shall have the right to postpone or adjourn any sale or other
disposition of Collateral at any time without giving notice of any such
postponed or adjourned date. In the event MLBFS seeks to take possession of any
or all of the Collateral by court process, Grantor further irrevocably waives to
the fullest extent permitted by law any bonds and any surety or security
relating thereto required by any statute, court rule or otherwise as an incident
to such possession, and any demand for possession prior to the commencement of
any suit or action.
8. MISCELLANEOUS
(a) Non-Waiver. No failure or delay on the part of MLBFS in exercising any
right, power or remedy pursuant to this Agreement shall operate as a waiver
thereof, and no single or partial exercise of any such right, power or remedy
shall preclude any other or further exercise thereof, or the exercise of any
other right, power or remedy. Neither any waiver of any provision of this
Agreement, nor any consent to any departure by Grantor therefrom, shall be
effective unless the same shall be in writing and signed by MLBFS. Any waiver of
any provision of this Agreement and any consent to any departure by Grantor from
the terms of this Agreement shall be effective only in the specific instance and
for the specific purpose for which given. Except as otherwise expressly provided
herein, no notice to or demand on Grantor shall in any case entitle Grantor to
any other or further notice or demand in similar or other circumstances.
(b) Communications. All notices and other communications required or permitted
hereunder shall be in writing, and shall be either delivered personally, mailed
by postage prepaid certified mail or sent by express overnight courier or by
facsimile. Such notices and communications shall be deemed to be given on the
date of personal delivery, facsimile transmission or actual delivery of
certified mail, or one Business Day after delivery to an express overnight
courier. Unless otherwise specified in a notice sent or delivered in accordance
with the terms hereof, notices and other communications in writing shall be
given to the parties hereto at their respective addresses set forth at the
beginning of this Agreement, and, in the case of facsimile transmission, to the
parties at their respective regular facsimile telephone number.
(c) Costs, Expenses and Taxes. Grantor shall pay or reimburse MLBFS upon demand
for: (i) all Uniform Commercial Code filing and search fees and expenses
incurred by MLBFS in connection with the verification, perfection or
preservation of MLBFS' rights hereunder or in the Collateral; (ii) any and all
stamp, transfer and other taxes and fees payable or determined to be payable in
connection with the execution, delivery and/or recording of this Agreement; and
(iii) all reasonable fees and out-of-pocket expenses (including, but not limited
to, reasonable fees and expenses of outside counsel) incurred by MLBFS in
connection with the enforcement of this Agreement or the protection of MLBFS'
rights hereunder, excluding, however, salaries and expenses of MLBFS' employees.
The obligations of Grantor under this paragraph shall survive the expiration or
termination of this Agreement and the discharge of the other Obligations.
(d) Right to Perform Obligations. If Grantor shall fail to do any act or thing
which it has covenanted to do under this Agreement or any representation or
warranty on the part of Grantor contained in this Agreement shall be breached,
MLBFS may, in its sole discretion, after 5 Business Days written notice is sent
to Grantor (or such lesser notice, including no notice, as is reasonable under
the circumstances), do the same or cause it to be done or remedy any such
breach, and may expend its funds for such purpose. Any and all reasonable
amounts so expended by MLBFS shall be repayable to MLBFS by Grantor upon demand,
with interest at the highest "Interest Rate" under the Loan Agreement under the
Loan Agreement, or the highest interest rate permitted by law, whichever is
less, during the period from and including the date funds are so expended by
MLBFS to the date of repayment, and any such amounts due and owing MLBFS shall
be additional Obligations. The payment or performance by MLBFS of any of
Grantor's obligations hereunder shall not relieve Grantor of said obligations or
of the consequences of having failed to pay or perform the same, and shall not
waive or be deemed a cure of any Default.
-5-
<PAGE>
(e) Further Assurances. Grantor agrees to do such further acts and things and to
execute and deliver to MLBFS such additional agreements, instruments and
documents as MLBFS may reasonably require or deem advisable to effectuate the
purposes of this Agreement, or to establish, perfect and maintain MLBFS'
security interests and liens upon the Collateral, including, but not limited to:
(i) executing financing statements or amendments thereto when and as reasonably
requested by MLBFS; and (ii) if in the reasonable judgment of MLBFS it is
required by local law, causing the owners and/or mortgagees of the real property
on which any Collateral may be located to execute and deliver to MLBFS waivers
or subordinations reasonably satisfactory to MLBFS with respect to any rights in
such Collateral.
(f) Binding Effect. This Agreement shall be binding upon Grantor and its
successors and assigns, and shall inure to the benefit of MLBFS and its
successors and assigns.
(g) Headings. Captions and section and paragraph headings in this Agreement are
inserted only as a matter of convenience, and shall not affect the
interpretation hereof.
(h) Governing Law. This Agreement shall be governed in all respects by the laws
of the State of Illinois.
(i) Severability of Provisions. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
the remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.
(j) Term. This Agreement shall become effective upon acceptance by MLBFS, and,
subject to the terms hereof, shall continue in effect so long thereafter as
either MLBFS shall be committed to advance funds or extend credit to Customer or
there shall be any Obligations outstanding.
(k) Counterparts. This Agreement may be executed in one or more counterparts
which, when taken together, constitute one and the same agreement.
(l) Jurisdiction; Waiver. GRANTOR ACKNOWLEDGES THAT THIS AGREEMENT IS BEING
ACCEPTED BY MLBFS IN PARTIAL CONSIDERATION OF MLBFS' RIGHT AND OPTION, IN ITS
SOLE DISCRETION, TO ENFORCE THIS AGREEMENT IN EITHER THE STATE OF ILLINOIS OR IN
ANY OTHER JURISDICTION WHERE GRANTOR OR ANY COLLATERAL FOR THE OBLIGATIONS MAY
BE LOCATED GRANTOR CONSENTS TO JURISDICTION IN THE STATE OF ILLINOIS AND VENUE
IN ANY STATE OR FEDERAL COURT IN THE COUNTY OF COOK FOR SUCH PURPOSES, AND
GRANTOR WAIVES ANY AND ALL RIGHTS TO CONTEST SAID JURISDICTION AND VENUE.
GRANTOR FURTHER WAIVES ANY RIGHTS TO COMMENCE ANY ACTION AGAINST MLBFS IN ANY
JURISDICTION EXCEPT IN THE COUNTY OF COOK AND STATE OF ILLINOIS. MLBFS AND
GRANTOR HEREBY EACH EXPRESSLY WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES AGAINST THE
OTHER PARTY WITH RESPECT TO ANY MATTER RELATING TO, ARISING OUT OF OR IN ANY WAY
CONNECTED WITH THE LOAN AGREEMENT, THIS AGREEMENT AND/OR ANY OF THE TRANSACTIONS
WHICH ARE THE SUBJECT MATTER OF THE LOAN AGREEMENT OR THIS AGREEMENT.
(m) Integration. THIS WRITTEN AGREEMENT CONSTITUTES THE ENTIRE UNDERSTANDING AND
REPRESENTS THE FULL AND FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE
SUBJECT MATTER HEREOF, AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR WRITTEN
AGREEMENTS OR PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS OF THE PARTIES. NO AMENDMENT OR
MODIFICATION OF THIS AGREEMENT SHALL BE EFFECTIVE UNLESS IN A WRITING SIGNED BY
BOTH MLBFS AND GRANTOR.
IN WITNESS WHEREOF, this Agreement has been executed as of the day and year
first above written.
ALES SIGNATURE LTD.
By: ____________________________________________________________________________
Signature (1) Signature (2)
____________________________________________________________________________
Printed Name Printed Name
____________________________________________________________________________
Title Title
Accepted at Chicago, Illinois:
MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC.
By: __________________________________________________________
-6-
<PAGE>
EXHIBIT A
ATTACHED TO AND HEREBY MADE A PART OF SECURITY AGREEMENT NO. 9911550701 BETWEEN
MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC. AND ALES SIGNATURE LTD.
================================================================================
Locations of Tangible Collateral:
<PAGE>
[LOGO] LANDLORD'S SUBORDINATION AGREEMENT
================================================================================
The undersigned Landlord is the record owner and lessor to ALES SIGNATURE LTD.
("Tenant") of the real property commonly known as 495 River Street, Paterson, NJ
07524 (the "Premises").
Landlord has been advised that MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.
("MLBFS") has or is about to lend moneys to, extend or continue to extend credit
to or for the benefit of, or enter into another financial accommodation with,
Tenant, or for the benefit of a third party based upon the credit and/or
collateral of Tenant, and in connection therewith that Tenant has granted or is
about to grant to MLBFS a security interest in, among other collateral, the
following property of Tenant; to wit:
all accounts receivable, equipment, inventory, removable trade fixtures
and other tangible and intangible personal property now or hereafter
owned by Tenant ("MLBFS' Collateral").
Among other conditions thereof, MLBFS has required that Landlord execute and
deliver this Agreement.
Accordingly, and for valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, Landlord hereby agrees as follows:
1. Landlord hereby subordinates for the benefit of MLBFS, and with respect to
all present and future obligations of or secured by Tenant to MLBFS, any right
or interest in MLBFS' Collateral which, but for this Agreement, would or might
be prior to the security interests of MLBFS, as aforesaid; and Landlord agrees
so long as Tenant shall be obligated to MLBFS, it will not, without the prior
consent of MLBFS, exercise any right under local law to levy or distrain upon
any of MLBFS' Collateral.
2. Landlord further agrees that in the event that MLBFS shall at any time seek
to take possession of or remove all or any part of MLBFS' Collateral from the
Premises, Landlord will not hinder the same or interfere or object thereto, and
Landlord hereby consents to MLBFS' entry upon the Premises for such purposes;
provided, however, that: (i) any such removal shall be made during reasonable
business hours; (ii) MLBFS shall not, without the prior written consent of
Landlord, conduct any public or auction sale on the Premises; and (iii) MLBFS
shall promptly at its expense repair any damage to the Premises directly caused
by any such removal by MLBFS or its agents of MLBFS' Collateral from the
Premises.
This Agreement shall be binding upon and shall inure to the benefit of Landlord
and it successors, assigns, heirs and/or personal representatives, as
applicable, and MLBFS and its successors and assigns.
Dated as of November 12, 1999.
Landlord: ______________________________________________________________________
By: ____________________________________________________________________________
(Signature 1) (Signature 2)
____________________________________________________________________________
(Printed Name) (Printed Name)
____________________________________________________________________________
(Title) (Title)
<PAGE>
[LOGO] LANDLORD'S SUBORDINATION AGREEMENT
================================================================================
The undersigned Landlord is the record owner and lessor to SEL-LEB MARKETING,
INC. ("Tenant") of the real property commonly known as 495 River Street
Paterson, NJ 07524 (the "Premises").
Landlord has been advised that MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.
("MLBFS") has or is about to lend moneys to, extend or continue to extend credit
to or for the benefit of, or enter into another financial accommodation with,
Tenant, or for the benefit of a third party based upon the credit and/or
collateral of Tenant, and in connection therewith that Tenant has granted or is
about to grant to MLBFS a security interest in, among other collateral, the
following property of Tenant ("MLBFS' Collateral"); to wit:
All equipment, inventory, removable trade fixtures and other tangible
and intangible personal property now and hereafter owned by Tenant.
Among other conditions thereof, MLBFS has required that Landlord execute and
deliver this Agreement. Accordingly, and for valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, Landlord hereby agrees as
follows:
1. Landlord hereby subordinates for the benefit of MLBFS, and with respect to
all present and future obligations of or secured by Tenant to MLBFS, any right
or interest in MLBFS' Collateral which, but for this Agreement, would or might
be prior to the rights and/or security interests of MLBFS, as aforesaid; and
Landlord agrees so long as Tenant shall be obligated to MLBFS, it will not,
without the prior consent of MLBFS, exercise any right under local law to levy
or distrain upon any of MLBFS' Collateral.
2. Landlord further agrees that in the event that MLBFS shall at any time seek
to take possession of or remove all or any part of MLBFS' Collateral from the
Premises, Landlord will not hinder the same or interfere or object thereto, and
Landlord hereby consents to MLBFS' entry upon the Premises for such purposes;
provided, however, that: (i) any such removal shall be made during reasonable
business hours; (ii) MLBFS shall not, without the prior written consent of
Landlord, conduct any public or auction sale on the Premises; and (iii) MLBFS
shall promptly at its expense repair any damage to the Premises directly caused
by any such removal by MLBFS or its agents of MLBFS' Collateral from the
Premises.
This Agreement shall be binding upon and shall inure to the benefit of Landlord
and it successors, assigns, heirs and/or personal representatives, as
applicable, and MLBFS and its successors and assigns.
Dated as of November 12, 1999.
Landlord:__________________________________________________________________
By: _______________________________________________________________________
(Signature 1 (Signature 2)
_______________________________________________________________________
(Printed Name) (Printed Name)
_______________________________________________________________________
(Title) (Title)
<PAGE>
[LOGO] CLOSING CERTIFICATE
================================================================================
The undersigned, SEL-LEB MARKETING, INC., a corporation organized and existing
under the laws of the State of New York ("Customer"), as a primary inducement to
MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC. ("MLBFS") to make a loan to
Customer (the "Loan") pursuant to that certain TERM LOAN AND SECURITY AGREEMENT
NO. 9911550701 between Customer and MLBFS dated as of November 12, 1999 (the
"Loan Agreement") DOES HEREBY REPRESENT, WARRANT AND AGREE AS FOLLOWS:
1. All of Customer's representations and warranties in the Loan Agreement are
true and correct and remade as of the date hereof, and, without limiting the
foregoing: (i) subject only to "Permitted Liens" (as defined in the Loan
Agreement), MLBFS has a first lien and security interest upon all of the
"Collateral" under the Loan Agreement (including any Collateral financed or
refinanced with the proceeds of the Loan), and (ii) the Loan is being applied on
account of and will satisfy the "Loan Purpose" under the Loan Agreement.
2. There has not occurred any event which constitutes an "Default" under the
Loan Agreement.
3. There has not occurred any material adverse change in the business or
financial condition of Customer or any Guarantor of Customer's obligations to
MLBFS since the date of the last financial statements submitted to MLBFS.
4. MLBFS is hereby authorized and directed to disburse the proceeds of the Loan
in the amount of $500,000.00, by:
check wire transfer deposit as follows:
To paydown Customer's WCMA Line of Credit No. 885-07E38.
Dated this ____ day of ____________, 1999
SEL-LEB MARKETING, INC.
By: ____________________________________________________________________________
Signature (1) Signature (2)
____________________________________________________________________________
Printed Name Printed Name
____________________________________________________________________________
Title Title
<PAGE>
Private Client Group
Merrill Lynch Business
Financial Services Inc.
222 North LaSalle Street
17th Floor
[LOGO] Chicago, Illinois 60601
312-269-4438
FAX: (312) 499-3256
November 12, 1999
Mr. Jan Mirsky
Sel-Leb Marketing, Inc.
495 River Street
Paterson, NJ 07524
Re: Term Loan Approval
Dear Mr. Mirsky,
As I believe you know, we have approved the request of Sel-Leb Marketing, Inc.
("Customer") for a Term Loan upon the terms and conditions set forth in the
enclosed documents ("Loan Documents").
For your information, the following are some of the principal terms of the
approval:
Loan Purpose: The purpose of the Term Loan is to refinance a portion of
Customer's WCMA Line of Credit No. 885-07E38.
Maximum Loan Amount: An amount equal to the lesser of: (A) 100% of the amount
required by Customer to satisfy or fulfill the Loan Purpose, (B) the aggregate
amount which Customer shall request be advanced by MLBFS on account of the Loan
Purpose, or (C) $500,000.00.
Term: 5-years from the first day of the calendar month immediately following the
date of funding.
Interest Rate: Variable at a per annum rate equal to the sum of 2.65% plus the
30-day Dealer Commercial Paper Rate published from time to time in The Wall
Street Journal, based upon actual days elapsed over a 360-day year.
Commitment Fee: $5,000.00.
Please refer to the Loan Documents for a complete statement of the terms of the
Term Loan.
In addition to conditions set forth in the Loan Documents, our approval is
subject to:
(a) Our receipt of all of the Loan Documents together with any additional
documents contemplated thereby or otherwise reasonably required by us, all of
which shall be duly executed and, if applicable, recorded, and all of which
shall be in form and substance satisfactory to us.
(b) Acceptance by us in writing of the executed Loan Documents at our office in
Chicago after review and a final determination by us of the consistency of the
Loan Documents with our original internal credit approval. (Without limiting the
foregoing, it should be understood that prior to such acceptance we are not
bound by any clerical or other errors in or omissions from the Loan Documents.)
(c) Our continuing satisfaction with the financial condition of Customer and
each guarantor of Customer's obligations to us.
(d) There not occurring any event which under the terms of the Loan Documents
would constitute a Default.
(e) Evidence satisfactory to us of the perfection and priority of any liens
required by us in the Loan Documents.
<PAGE>
(f) Our receipt of a Certificate of Insurance satisfactory to us evidencing a
policy or policies of physical damage insurance on the tangible collateral
described in the Loan Documents, and providing that losses shall be payable to
us as our interests may appear pursuant to a Lender's Loss Payable Endorsement,
and that we shall receive not less than 10 days prior notice of any cancellation
or material amendment.
Our approval will remain open subject to said conditions until December 12,
1999, after which time it shall be void.
Note that as set forth above the Loan Documents require a Commitment Fee of
$5,000.00. If this fee has not yet been paid, please furnish your check to cover
this fee at the time you return the executed Loan Documents. Note further that
under the terms of the Loan Documents Customer is responsible for UCC filing and
search fees and expenses and any taxes in connection with the Loan Documents
and/or such filing .
To assist you in completing the Loan Documents, we have affixed a "Sign Here"
sticker to each page requiring a signature, and have penciled an "x" in front of
each signature line.
In order to minimize signature requirements, we normally seek only one copy of
each of the Loan Documents. After the Loan has been funded, we will return a
fully executed duplicate copy for your records.
If you have any questions about our approval or the structure or terms of the
facility, please call me at 312-269-4438.
Very truly yours,
MERRILL LYNCH BUSINESS
FINANCIAL SERVICES INC.
By: _________________________________________________
Dustin Van Peursem
Senior Portfolio Manager
cc: Wayne Dedrick
<PAGE>
EXHIBIT 10.19
Prepared by:
/s/ DANIEL C. KLEEMAN, ESQ.
---------------------------
PROMISSORY NOTE
This Promissory Note is made on December 28th, 1999
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 world "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 (called the
"principal"), plus interest to the Lender. The interest rate for seven (7) years
of the Note shall be 6(six) % per annum.
PAYMENTS. Borrower will pay principal and interest commencing on
February 1, 2000, and to continue on the first day of each month thereafter
until January 1st, 2007. The amount of the monthly payments shall be $1,461.82.
All payments will be made to the Lender at the address 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 five (5) percent (5%) of the monthly payment. This
payment will be made along with the plate monthly payment.
<PAGE>
SECURITY. Borrower has offered as security for this Note the
following:
See attached Schedule A
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 the
Borrower is in default on this Promissory Note. Before the 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 received 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 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 Borrower 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 from its location at 495 River
Street, Paterson, New Jersey or other disposition of the leasehold improvements
and/or machinery located therein or other security for this note.
- 2 -
<PAGE>
SIGNATURES.
Witnessed or Attested by: SEL-LEB MARKETING, INC.
/s/ Daniel C. Kleeman BY: /s/ Jan S. Mirsky
- ------------------------------------ ---------------------
Executive V.P.
BY: /s/ George Fischer
----------------------
ASS'T SECRETARY
(Conformed Copy)
- 3 -
<PAGE>
THIS SECURITY AGREEMENT made this 28th day of December, Nineteen
Hundred and Ninety-None (1999)
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 to
Debtor (The Indebtedness); and
WHEREAS, to secure payment of the Indebtedness the Debtor desires to
grant tot he Secured Party a 2nd security interest in all machinery and
equipment.
NOW, THEREFORE, inconsideration 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
renewal thereof and substitutions therefore and to secure the payment and
performance by Debtor of all of its 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
<PAGE>
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 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 installments of the Indebtedness secured hereby, or dispose of substantially
all of its assets other than in thee 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 his assets; or if Debtor shall become party to any proceeding
pursuant to any state or federal statute, or to any informal proceeding for an
adjugment, settlement, arrangement, extension or composition of its debts,
THEN AND IN ANY SUCH EVENT, Secured Party shall have and may exercise
all of 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 unreasonably
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<PAGE>
convenient to Secured Party and Debtor. Any notification of sale or other
disposition of the Collateral to which this security agreement applied, or of
other action 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 bested 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 arty on which Debtor is in any way liable; b) notice of
nonpayment at maturity or 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 any reason whatsoever, that adjudication shall in no way
effect the other provisions, terms, covenants or clauses, paragraphs or
subparagraphs of this security agreement which have 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
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<PAGE>
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.
SEL-LEB MARKETING, INC.
BY: /s/ Jan S. Mirsky, Executive V.P.
---------------------------------
Witnesses or Attested by: BY: /s/ George Fischer, Ass't Secretary
-----------------------------------
/s/ Daniel C. Kleeman
- -----------------------------
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<PAGE>
AKS Signature
(an 80% owned subsidiary)
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
To the Board of Directors and Stockholders
Sel-Leb Marketing, Inc.
We hereby consent to the incorporation by reference in the Post-Effective
Amendment No. 2 to the Registration Statement (No. 333-19625) on Form S-8 which
was previously filed by Sel-Leb Marketing, Inc. (the "Company") of our report on
the consolidated financial statements of the Company and its subsidiary, dated
March 24, 2000, which report appears elsewhere in this Annual Report on Form
10-KSB of the Company for the fiscal year ended December 31, 1999.
J.H. COHN LLP
Roseland, New Jersey
March 24, 2000
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> DEC-31-1999
<CASH> 158,032
<SECURITIES> 0
<RECEIVABLES> 5,933,261
<ALLOWANCES> 230,918
<INVENTORY> 8,331,838
<CURRENT-ASSETS> 15,014,717
<PP&E> 1,406,258
<DEPRECIATION> 858,882
<TOTAL-ASSETS> 15,891,683
<CURRENT-LIABILITIES> 6,544,546
<BONDS> 0
0
0
<COMMON> 22,611
<OTHER-SE> 8,136,425
<TOTAL-LIABILITY-AND-EQUITY> 15,891,683
<SALES> 21,427,530
<TOTAL-REVENUES> 21,427,530
<CGS> 15,418,254
<TOTAL-COSTS> 19,665,804
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 320,522
<INCOME-PRETAX> 1,444,133
<INCOME-TAX> 525,853
<INCOME-CONTINUING> 918,280
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 918,280
<EPS-BASIC> .41
<EPS-DILUTED> .37
</TABLE>
