<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------------
FORM 10-K
(Mark One)
/X/ Annual report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934 [Fee Required]
For the fiscal year ended June 30, 1995 or
/ / Transition report pursuant to Section 13 or 15(d) of
Securities Exchange Act of 1934 [Fee Required]
For the transition period from to
----------- -----------
Commission File Number 1-5893
MOVIE STAR, INC.
(Exact name of Registrant as specified in its Charter)
New York 13-5651322
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
136 Madison Avenue, New York, NY 10016
(Address of Principal (Zip Code)
Executive Offices)
Registrant's telephone number including area code (212) 679-7260
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, $.01 par value American Stock Exchange
$25,000,000 12-7/8% Debenture American Stock Exchange
due October 1, 2001
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K
Yes X No
----- -----
The aggregate market value of voting stock held by nonaffiliates of
EXHIBIT INDEX - PAGE 46
Page 1 of 50 Total Pages
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the Registrant totalled $8,204,731 on August 31, 1995, based upon the closing
price of $0.875 at the close of trading on August 31, 1995.
As of August 31, 1995, there were 13,959,650 common shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
SEE Item 14 with respect to exhibits to this Form 10-K which are incorporated
herein by reference to documents previously filed or to be filed by the
Registrant with the Commission.
<PAGE> 3
MOVIE STAR, INC.
1995 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I Page No.
------ --------
<S> <C> <C>
Item 1 Business......................................................
Item 2 Properties....................................................
Item 3 Legal Proceedings.............................................
Item 4 Submission of Matters to a
Vote of Security Holders......................................
PART II
-------
Item 5 Market for Registrant's Common Stock and
Related Stockholder Matters...................................
Item 6 Selected Financial Data.......................................
Item 7 Management's Discussion and Analysis
of Financial Condition and
Results of Operations.........................................
Item 8 Financial Statements and
Supplementary Data............................................
Item 9 Disagreements on Accounting and
Financial Disclosure..........................................
PART III
--------
Item 10 Executive Officers and Directors
of the Registrant.............................................
Item 11 Executive Compensation........................................
Item 12 Security Ownership of Certain Beneficial
Owners and Management.........................................
Item 13 Certain Relationships and
Related Transactions..........................................
PART IV
-------
Item 14 Exhibits, Financial Statement
Schedule and Reports on Form 8-K..............................
</TABLE>
<PAGE> 4
PART I
ITEM 1 BUSINESS
(a) The Registrant, a New York corporation organized in 1935,
designs, manufactures, markets and sells an extensive line of ladies'
sleepwear, robes, leisurewear, loungewear, panties and daywear; men's work and
leisure shirts; and also operates retail outlet stores under the name Movie
Star Factory Stores ("Factory Stores"). In the quarter ending September 30,
1995, the Registrant announced that it intended to divest itself of its men's
work and leisure shirt division.
On June 30, 1993, the Registrant sold its children's
ready-to-wear business including substantially all of the inventory and certain
trademarks, to a company formed by the former head of that division and others.
During fiscal year 1992, the Registrant transferred the
production of panties from its Claxton, Georgia plant to its Puerto Rico plant.
The Claxton plant was engaged primarily in contracting for the manufacture of
goods for third parties during fiscal year 1993. On July 30, 1993, the
Registrant announced the closing of its Claxton, Georgia manufacturing plant.
The Registrant's products consist of ladies' pajamas,
nightgowns, baby dolls, nightshirts, dusters, shifts, sundresses, rompers,
short sets, beachwear, peignoir ensembles, robes, leisurewear, panties, and
daywear consisting of bodysuits, soft bras, slips, half-slips, teddies and
camisoles. Men's work and leisure shirts will continue to be produced by the
Registrant through the end of calendar year 1995. These products are
manufactured in various fabrics, designs, colors and styles depending upon
seasonal requirements, changes in fashion and customer demand. In the past, the
Registrant has benefited from its long-standing relationships with its
customers based on providing them with competitively priced products and
efficient service. As a result of recent consolidations in the retail industry,
the high cost of domestic manufacturing and difficulties the Registrant has
encountered in sourcing raw materials, engaging reliable offshore contractors
and obtaining finished products from overseas, the Registrant has experienced a
loss of sales to certain of its customers. The Registrant maintains an
in-house design staff which affords it the flexibility to work with merchandise
buyers on fashion design and price points and its domestic manufacturing
facilities allow shorter "lead times" in producing certain of its products.
(b) Intentionally omitted.
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(c) (i) The Registrant's products are sold to discount,
specialty, national and regional chain, mass merchandise and department stores
and direct mail catalog marketers throughout the United States. The price to
consumers for the Registrant's products ranges from $2.00 for certain of its
panty products to approximately $70.00 for certain other products. The
Registrant's products are sold by in-house sales personnel and outside
manufacturer's representatives. Mark M. David, the Registrant's Chairman of
the Board, is also involved in marketing and in maintaining good relations
between the Registrant and its major customers. Approximately 45% of the
Registrant's sales are made to national chains and mass merchandisers; the
balance of the Registrant's sales are unevenly distributed among discount,
specialty, department and regional chain stores, direct mail catalog marketers
and to consumers through the Registrant's Factory Stores. The Registrant's
gross profit on its sales for the fiscal year ended June 30, 1995 was
approximately 22%. The gross profit for the fiscal year ended June 30, 1994
was approximately 20%; and, for the same period in 1993 and 1992, the
Registrant achieved an average gross profit on its sales of approximately 23%.
The Movie Star Factory Stores sell apparel products
manufactured by the Registrant and other manufacturers at discounted retail
prices. Approximately 30% of the sales from products sold by these stores are
supplied by the Registrant. These stores account for less than 10% of total
sales of the Registrant and operate at a gross profit above 30%.
In the past, the Registrant promoted its products through
advertisements in trade publications circulated to major retailers. In fiscal
1995, the Registrant limited the promotion of its products to cooperative
advertising in conjunction with its retail customers directed to the ultimate
retail consumer of its products. In addition to its in-house sales force, the
Registrant has retained Harold Shatz and Jeffrey Hymowitz and their
organization, as a manufacturer's representative since 1976. Working closely
with the Registrant, Messrs. Shatz and Hymowitz sell to selected accounts under
the over-all supervision of Mark M. David and one of the Registrant's
divisional Presidents. They are excluded from representing the Registrant in
certain territories and in regard to certain accounts. Their organization is
paid on a commission basis on all the products it sells. Messrs. Shatz and
Hymowitz are not employees of the Company. In fiscal year 1995 less than 13%
and in fiscal year 1994 less than 19% of the Registrant's net sales were
attributed to sales by this organization. In 1986 and 1988, Mr. Shatz, Mr.
Hymowitz and one former member of their organization were granted non-qualified
options to purchase an aggregate of 225,648 shares of the Registrant's Common
Stock at prices ranging from $1.67 to $2.36 per share. The Registrant believes
that the loss of its relationship with Messrs. Shatz and Hymowitz and their
organization would not materially adversely affect the Registrant
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because retailers' purchasing decisions are primarily based upon the
Registrant's products.
(ii) Not applicable.
(iii) The Registrant utilizes a large variety of fabrics made
from natural and man-made fibers including, among others, polyester, cotton,
broadcloth, stretch terry, flannel, brush, nylon, Quintura, velour, satins,
tricot, jersey, fleece, jacquards, lace, charmeuse, poplin, chambray, chamois
and various knit fabrics.
These materials are available from a variety of both domestic
and foreign sources. The sources are highly competitive in a world market. The
Registrant expects these conditions to continue in the foreseeable future.
Generally, the Registrant has long-standing relationships with its domestic
suppliers and purchases its raw materials in anticipation of orders or as a
result of need based on orders received. Purchase of raw materials in high
volume provides the Registrant with the opportunity to buy at relatively low
prices. In turn, the Registrant is able to take advantage of these lower
prices in the pricing of its finished goods. In fiscal 1995, approximately 4%
of the Registrant's raw materials and approximately 14% of its finished goods
were imported. Approximately 7% of its finished goods were assembled in the
Caribbean and Central America during fiscal 1995.
The Registrant formed its International Division in 1985 and
established an office in Taiwan. During fiscal 1995, the Registrant closed its
office in Taiwan and transferred the responsibility for monitoring the quality
and progress of manufacturing of finished products purchased in the Far East to
independent agents located in each of the countries in which goods are being
manufactured for the Registrant. In addition, the Registrant no longer retains
the services of an outside agent based in Hong Kong to assist in the purchase
of raw materials and accessories for use in finished products. Raw materials
are now sourced and purchased through independent agents located in those
countries where the Registrant seeks to purchase raw materials. This division
was created to give the Registrant the ability to increase its importing
capabilities when the marketplace requires and to achieve better control over
the pricing, quality and delivery of such imports through on-going direct
contact with its suppliers and contractors. Presently, the International
Division is engaged in the purchase of finished products and textiles used for
the manufacture of goods in the Registrant's domestic plants and by offshore
contractors. The International Division is administered from the Registrant's
headquarters in New York and its management personnel travels to the Far East
extensively throughout the year. The General Agreement on Tariffs and Trade
has no impact on the operations of the Registrant.
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<PAGE> 7
The Registrant had expected to expand its contracting for the
assembly of its finished goods in the Caribbean and Central America during
fiscal 1995. However, due to a reduction in the volume of orders it received
for goods that were suitable for assembly offshore; shorter lead times between
placement of orders and customers' required delivery dates; and, its inability
to establish or maintain relationships with reliable contractors, the
percentage of finished goods assembled in the Caribbean and Central America did
not increase in fiscal 1995.
The Registrant believes it maintains adequate inventories to
cover the needs of its customers.
(iv) In the past, the Registrant created an awareness of its
products in the trade through the marketing of its own trademarks, which it
promoted from time to time through advertisements in trade publications. In
fiscal 1995, the Registrant did not advertise in trade publications. The
Registrant was a licensee of various trademarks which it believed appealed to
consumers in the same way its in-house brand names appeal to retailers. In
fiscal 1995, the Registrant decided to permit its various licenses to expire
without renewal. This decision was based on the Registrant's inability to
obtain sufficient prices from its customers for products bearing the licensors'
trademarks to justify the minimum guaranteed royalties and royalties based on a
percentage of sales which were payable to the licensors. The Registrant has
several registered trademarks, of which "Movie Star", "Movie Star Loungewear",
"Cinema Etoile" and "Cine Star" are material to the marketing by Registrant of
its products. There is no litigation with respect to patents, licenses and
trademarks.
(v) The Registrant manufactures a wide variety of intimate
apparel in many different styles and sizes and for use in all seasons and
climates in the United States. Because of its product mix, it is subject to
certain seasonal variations in sales and in the utilization of its
manufacturing facilities. More than 50% of the Registrant's sales are made in
the first six months of its fiscal year.
(vi) All sales are outright sales. Terms are generally net 10
days E.O.M. or net 30 days from receipt of goods which, depending on date of
shipment, can be due from as short a period as twenty-one days or as long as
fifty days. It has become industry practice to extend payment terms up to an
additional thirty days for certain customers. Although sales are made without
the right of return, in certain instances the Registrant may accept returns or
agree to allowances. The Registrant maintains sufficient inventories of raw
materials and finished goods to meet its production requirements and the
delivery demands of its customers. As a result, the Registrant relies on its
short-term line of credit from its banks to supplement internally generated
funds to fulfill
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<PAGE> 8
its working capital needs.
(vii) Sears Roebuck and Company accounted for 22% of fiscal
year 1994 and 1995 sales. Approximately 12% of the Registrant's sales for
fiscal 1995 were comprised of men's work and leisure shirts sold to Sears
Roebuck and Company. No other customer accounted for more than 10% of sales in
fiscal years 1994 and 1995.
The Registrant's Schwabe Division received verbal orders from
Sears Roebuck and Company which are confirmed by written contracts prior to the
shipment of merchandise.
Purchasing decisions by the Registrant's customers with
respect to each group of the Registrant's products and, in some instances,
products within a group, generally are made by different buyers and purchasing
departments. The Registrant believes that the loss of orders from any one buyer
or purchasing department would not necessarily result in the loss of sales to
other buyers or purchasing departments of those customers.
(viii) The backlog of orders as of June 30, 1994 was
approximately $50,100,000 and as of June 30, 1995 was approximately
$43,700,000. Orders are booked upon receipt. The reduction in the backlog of
orders as of June 30,1995 resulted primarily from the elimination of the
Registrant's "trade business" in its popular-priced intimate apparel division,
the weak retail environment for the Registrant's products and its inability to
effectively source offshore. The Registrant believes that the current backlog
is firm and will be filled by the end of the current fiscal year.
(ix) There is no material portion of the business which may
be subject to renegotiation of profits or termination of contracts or
subcontracts at the election of the Government.
(x) The intimate apparel business is fragmented and highly
competitive. The industry is characterized by a large number of small
companies. Many of these companies subcontract all or a significant portion of
the manufacture of their garments. While the Registrant believes that owning
manufacturing facilities can be advantageous, owning plants has required the
investment of substantial capital and subjected the Registrant to the costs of
maintaining excess capacity. Competitive conditions in the industry have
required the Registrant to place greater reliance on obtaining raw materials
and finished products from sources outside the United States.
As a result, the Registrant has consolidated production in its
domestic plants by closing underutilized and inefficient facilities. Between
August 1990 and July 1995, the Registrant has closed nine manufacturing plants
in an effort to lower costs by reducing excess manufacturing capacity and in
response to the need
I-5
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to obtain more favorably priced finished products from sources outside the
United States. On July 29, 1995, the Registrant closed its Purvis, Mississippi
sewing facility.
The intimate apparel industry is characterized by competition
on the basis of price, quality, efficient service and prompt delivery. It has
become increasingly difficult for the Registrant to rely principally on
domestic manufacturing. Further shifts in competitive conditions may require
the Registrant to increase its reliance on imports in the future. Accordingly,
changes in import quotas, currency valuations and political conditions in the
countries from which the Registrant imports products could adversely affect the
Registrant's business. The Registrant's International Division could help
mitigate the effect of any such shifts, but such shifts could result in the
underutilization of the Registrant's domestic plants and decrease
profitability. The Registrant believes that recent consolidations in the
retail industry have contributed to increased competition among manufacturers
of products of the type sold by it. As part of its response to this
competitive pressure, the Registrant has sought to maximize its domestic
manufacturing efficiency through strategic consolidation of underutilized
facilities. For fiscal 1995, the Registrant sought to take advantage of
emerging opportunities in the Caribbean Basin and Central America to contract
for the cutting and assembly of its products which enables the Registrant to
benefit from lower offshore labor costs coupled with transportation times that
are faster than deliveries from the Far East. The Registrant has been unable
to exploit the benefits of these emerging opportunities due to a reduction in
the volume of orders it received for goods that were suitable for assembly
offshore; shorter than anticipated lead times between placement of orders and
customers' required delivery dates; and, its inability to establish or maintain
relationships with reliable contractors.
On December 4, 1991, the Registrant formed a subsidiary,
Sanmark de Mexico, S.A. in the Federal Republic of Mexico and subsequently
applied to the Mexican Government to participate in that country's in-bond
Maquila Program which permits companies to import raw materials into Mexico
without duty. The subsidiary's status as a "Maquiladora" was intended to
enable it to compete with other Mexican companies for an allocation from the
Mexican government of a portion of the quota available for the manufacture in
Mexico of finished products to be sold in the United States. The Mexican
government allocates quota, in part, based on utilization by companies who have
been granted quota allocations in the past, making it difficult for the
Registrant's subsidiary, as a start-up enterprise, to obtain allocations.
During fiscal year 1993, the Registrant's subsidiary applied to the Mexican
government for quota allocations in five categories of products and was granted
allocations in four of those categories. However, the request for allocation
of quota in the category for which no quota
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was granted far exceeded all the other categories combined and was deemed by
the Registrant to be the most important product category for the business of
its subsidiary. Despite appeals to the Mexican authorities, the Registrant's
subsidiary was unable to obtain meaningful allocations of quota for this
product category. Due primarily to the Registrant's inability to obtain
adequate allocation of quota from the Mexican government for the exportation of
finished product, and the other difficulties the Registrant encountered in
doing business in Mexico, the Registrant determined that it cannot operate
profitably as a "Maquiladora" in Mexico. Accordingly, the Registrant
terminated its operations as a "Maquiladora" as of December 31, 1993.
(xi) No material research activities relating to the
development of new products or services or the improvement of existing products
or services were undertaken during the last fiscal year, except for the normal
continuing development of new styles and marketing methods.
(xii) There are no costs relating to complying with
environmental regulations in the fiscal year just completed or over future
periods of which the Registrant is aware.
(xiii) Of the approximately 1,677 employees of the Registrant,
approximately 43 are executive, design and sales personnel, 102 are
administrative personnel, and the balance are in manufacturing.
The Registrant has never experienced an interruption of its
operations because of a work stoppage. Even though the Registrant is subject to
certain seasonal variations in sales, significant seasonal layoffs are rare.
However, as a result of the closing of the manufacturing facilities in
Ellisville, Mississippi, Poplarville, Mississippi and Claxton, Georgia,
approximately 122 employees were terminated in fiscal year 1993 and
approximately 323 employees were terminated in fiscal year 1994. Approximately
21 employees were terminated in fiscal 1995 and an additional 52 were
terminated in fiscal 1996 as a result of the completion of the closing of the
Purvis facility.
Most employees have an interest in the Registrant's Common
Stock through the Registrant's ESOP. The Registrant deems its relationship with
its employees to be good. The Registrant is not a party to any collective
bargaining agreement with any union.
Restriction on Dividends
Pursuant to a public offering of $25,000,000 of Debentures in
1986, the Registrant may not declare or pay any dividend or make any
distribution on any class of its capital stock except
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dividends or distributions payable in capital stock of the Registrant or to the
holders of any class of its capital stock, or purchase, redeem or otherwise
acquire or retire for value any capital stock of the Registrant if (i) at the
time of such action an event of default, or an event which with notice or lapse
of time or both would constitute an event of default, shall have occurred and
be continuing, or (ii) if, upon after giving effect to such dividend,
distribution, purchase, redemption, other acquisition or retirement, the
aggregate amount expended for all such purposes subsequent to June 30, 1986,
shall exceed the sum of (a) 75% of the aggregate consolidated net income of the
Registrant earned subsequent to June 30, 1986, (b) the aggregate net proceeds,
including the fair market value of property other than cash received by the
Registrant from the issue or sale after September 30, 1986 of capital stock of
the Registrant, including capital stock issued upon the conversion of, or in
exchange for, indebtedness for borrowed money and (c) $4,000,000; provided,
however, that the provisions of this limitation shall not prevent the
retirement of any shares of the Registrant's capital stock by exchange for, or
out of proceeds of the substantially concurrent sale of, other shares of its
capital stock, and neither such retirement nor the proceeds of any such sale or
exchange shall be included in any computation made under this limitation. At
June 30, 1995, the Company is prohibited from paying any cash dividends.
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ITEM 2 PROPERTIES
The following table sets forth all of the facilities owned or
leased by the Registrant as of June 30, 1995.
<TABLE>
<CAPTION>
Owned or Bldg. Area Expiration Productive Extent of
Location Use Leased (sq. ft.) Annual Rent of Lease Capacity(6) Utilization(6)
-------- --- --------- ----------- ----------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
136 Madison Ave., Executive Portions 58,000 $1,391,000 4/29/99 N/A N/A
New York, NY offices; Sub-leased; (1) 1/31/02
(includes one divisional Portions
floor at 148 sales office Leased
Madison Ave., NY, and showroom Directly
NY) from
Landlord
Petersburg, PA Warehousing Owned 140,000 _____ _____ N/A N/A
for finished (2)
goods;
distribution
center
Hazlehurst, GA Leased to a Owned 180,000 _____ _____ N/A N/A
Third Party; (3)
Vacant
Lebanon, VA Manufacturing; Owned 170,000 _____ _____ 210 89%
warehousing
for piece
goods and
finished
goods;
distribution
center
Honaker, VA Manufacturing Owned 40,000 _____ _____ 150 89%
Claxton, GA Vacant Owned 72,000 _____ _____ N/A N/A
(7)
Mississippi 8 Mfg.; Owned 571,500 _____ _____ 1,166 58%
5 Warehouses; Leased
1 Distribution (4)(8)
Center
Puerto Rico 1 Plant; Leased 58,000 58,000 1/31/98 200 81%
Manufacturing
</TABLE>
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<TABLE>
<CAPTION>
Owned or Bldg. Area Expiration Productive Extent of
Location Use Leased (sq. ft.) Annual Rent of Lease Capacity(6) Utilization(6)
-------- --- --------- ----------- ----------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Retail Stores 25 retail Leased 94,725 (5) (5) N/A N/A
stores located
throughout
Mississippi
and Georgia
Evansville, IN Vacant Owned 68,000 _____ _____ N/A N/A
</TABLE>
_____________
(1) Includes escalation for 1995.
(2) This property is encumbered by purchase money mortgages which are
described in the Notes to the Registrant's Consolidated Financial Statements
included and incorporated by reference herein.
(3) Approximately 140,000 square feet was leased to a third party in
fiscal year 1994. An additional 40,000 square feet was leased to another third
party during fiscal year 1996.
(4) Leased from municipalities pursuant to local Development Authority
bond issues. The Registrant leases certain temporary warehouse facilities in
Mississippi on a month-to-month basis.
(5) Store leases generally are for one to three-year periods with
options to renew. Rents generally range from $2-$8 per square foot.
(6) "Productive capacity" is based on the total number of employees
that can be employed at a facility providing direct labor for the manufacture
of the Registrant's products based on existing machinery and equipment and
plant design. Extent of utilization is the percentage obtained by dividing the
average number of employees actually employed at a facility during the fiscal
year providing direct labor for the manufacture of the Registrant's products by
Productive capacity.
(7) Facility closed during fiscal year 1994.
(8) One manufacturing facility was converted to warehouse use during
fiscal year 1994. One additional manufacturing facility was closed during
fiscal year 1996.
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The following table sets forth the amount of space allocated to different
functions in shared facilities set forth in the preceding table.
<TABLE>
<CAPTION>
AMOUNT
OF SPACE
LOCATION FUNCTION (Sq. ft.)
- -------- -------- ---------
<S> <C> <C>
136 and 148 Madison Avenue Executive Offices 15,000
New York, New York Divisional Sales Offices and Showrooms 43,000
Petersburg, Pennsylvania Warehousing and Distribution 137,000
Offices 3,000
Lebanon, Virginia Manufacturing 49,000
Warehousing and Distribution 111,000
Offices 10,000
Honaker, Virginia Manufacturing 31,000
Warehousing 5,000
Offices 4,000
Mississippi Manufacturing 248,000
Warehousing and Distribution 295,800
Offices 27,700
Puerto Rico Manufacturing 40,500
Warehousing 16,500
Offices 1,000
</TABLE>
ITEM 3 LEGAL PROCEEDINGS
There are no legal proceedings pending which are material.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
The Common Stock is traded on the American Stock Exchange. The
following table sets forth for the indicated periods the reported high and low
prices per share.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Year Ended June 30, 1994
First Quarter.......... 2 1/4 1 1/2
Second Quarter......... 3 1/4 1 5/8
Third Quarter.......... 2 1 1/4
Fourth Quarter......... 1 5/8 1 1/8
Year Ended June 30, 1995
First Quarter........... 1 1/2 1
Second Quarter.......... 1 3/8 1 1/16
Third Quarter........... 1 1/4 15/16
Fourth Quarter.......... 1 1/8 7/16
</TABLE>
As of August 31, 1995, there were approximately 1,046 holders of record
of the Common Stock. For restrictions on dividends, see Item 1 at page I-7.
MARKET FOR REGISTRANT'S DEBENTURE
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Year Ended June 30, 1994
First Quarter........... 103 1/2 99 3/4
Second Quarter.......... 104 102
Third Quarter........... 103 99 1/2
Fourth Quarter.......... 103 96
Year Ended June 30, 1995
First Quarter........... 97 3/4 84
Second Quarter.......... 90 80
Third Quarter........... 91 84
Fourth Quarter.......... 92 7/8 74 1/2
</TABLE>
<PAGE> 16
MOVIE STAR, INC. AND SUBSIDIARIES
ITEM 6. SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS DATA: FISCAL YEAR ENDED JUNE 30,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
NET SALES $ 101,946 $ 103,105 $ 120,251 $117,684 $ 120,644
--------- --------- --------- -------- ---------
COST OF SALES 79,011 82,358 92,106 90,600 92,006
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 20,541 20,874 22,596 22,572 21,485
SPECIAL CHARGE 3,000 3,800 -- -- --
PROVISION FOR BAD DEBTS RELATED TO
CERTAIN RETAIL CUSTOMER BANKRUPTCIES -- -- -- -- 742
INTEREST EXPENSE - Net 4,669 4,014 3,955 4,112 5,138
--------- --------- --------- -------- ---------
107,221 111,046 118,657 117,284 119,371
--------- --------- --------- -------- ---------
(LOSS) INCOME FROM OPERATIONS (5,275) (7,941) 1,594 400 1,273
(GAIN) LOSS ON SALE OR DISPOSAL OF
PROPERTY, PLANT AND EQUIPMENT -- (984) (908) -- (335)
--------- --------- --------- -------- ---------
(LOSS) INCOME BEFORE PROVISION FOR
INCOME TAXES AND CUMULATIVE EFFECT
OF ACCOUNTING CHANGE (5,275) (6,957) 2,502 400 l,608
PROVISION FOR INCOME TAXES (246) (2,772) 217 73 415
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE FOR INCOME TAXES -- 861 -- -- --
--------- --------- --------- -------- ---------
NET (LOSS) INCOME $ (5,029) $ (3,324) $ 2,285 $ 327 $ 1,193
========= ========= ========= ======== =========
(LOSS) INCOME PER SHARE (1) $ (.36) $ (.24) $ .16 $ .02 $ .08
========= ========= ========= ======== =========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING (1) 13,960 14,031 14,185 14,470 14,993
========= ========= ========= ======== =========
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA: AT JUNE 30,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
WORKING CAPITAL $22,648 $25,518 $30,984 $30,033 $31,500
======= ======= ======= ======= =======
TOTAL ASSETS $57,204 $69,806 $72,731 $68,172 $70,292
======= ======= ======= ======= =======
SHORT-TERM DEBT - Including current
maturities of long-term debt $15,832 $19,627 $16,783 $12,964 $15,582
======= ======= ======= ======= =======
LONG-TERM DEBT $22,496 $22,529 $22,733 $24,681 $26,347
======= ======= ======= ======= =======
STOCKHOLDERS' EQUITY $ 8,700 $13,729 $17,412 $15,413 $15,837
======= ======= ======= ======= =======
</TABLE>
(1) (Loss) income per share is based on net (loss) income for the year divided
by the weighted average number of shares of common stock outstanding,
including common share equivalents, and has been restated to reflect all
stock splits.
(2) For each of the five years ended June 30, 1995, no cash dividends were
declared.
II-2
<PAGE> 17
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
1995 vs. 1994
Net sales for the year ended June 30, 1995 decreased to $101,946,000 from
$103,105,000 in the comparable period in 1994, a decrease of 1%. The
decrease in sales resulted primarily from lower sales in the popular-priced
intimate apparel division of approximately $7,800,000, offset by increased
sales in the higher-priced intimate apparel division of approximately
$3,100,000 and the men's work and leisure shirt division of approximately
$4,500,000.
The gross profit percentage increased to 22.5% in fiscal 1995 from 20.1% in
the prior year. The increase was due to increased margins in both of the
Company's intimate apparel divisions and the men's work and leisure shirt
division. The Company has been successful in increasing its sales in the
higher-priced apparel division and has continued its efforts to eliminate
low margin business.
As anticipated, the gross profit percentage related to the Company's
popular-priced intimate apparel division increased in the year ended June
30,1995 as a result of the Company's decision, during the third quarter of
fiscal 1994, to phase-out the portion of that division's business which was
least profitable. However, due to the lower sales in 1995 as compared to
1994, gross profit dollars in that division decreased in 1995.
As a result of the phase-out, during the third quarter of fiscal 1994, the
Company recorded a special charge of $3,800,000.
In order to compete more effectively, the Company is continuing to reduce
excess plant capacity. Management has closed 9 plants during the past five
years including, the closing in July 1995 of its plant in Purvis,
Mississippi.
The Company has decided to focus its efforts and resources on its core
intimate apparel business. In the quarter ending September 30,1995 the
Company announced that it intended to divest itself of its men's work and
leisure shirt division ("Schwabe"). The Company's decision was also based on
Schwabe's inadequate return on capital. If the Schwabe operations cannot be
sold, the Company intends to close its three shirt manufacturing facilities
in Northern Mississippi by the end of the calendar year and liquidate
Schwabe's assets. No prospective purchasers have expressed a significant
interest in purchasing the Schwabe division with the intent of continuing
its operations. As a result of this decision, the Company recorded a special
charge of $3,000,000 consisting of a write-down, to its estimated realizable
value, of the Schwabe inventory and property, plant and equipment.
<PAGE> 18
In conjunction with the divestiture of the Schwabe division, the Company is
in the process of realigning its core intimate apparel business. As such,
the Company does not anticipate that the loss of the Schwabe sales will have
a significant adverse effect on its business.
In fiscal 1994 and throughout fiscal 1995, the Company had difficulties in
sourcing its goods offshore. The Company's efforts to source more
effectively were unsuccessful due to a number of factors including poor
planning, the absence of controls to monitor the import process and the
quality of the product, the purchase of raw materials from unreliable
vendors and ineffective management and staffing. These problems resulted in
the receipt and acceptance of poor quality goods, unanticipated and costly
air shipments and the inability, in certain instances, to make timely
delivery of our finished product to our customers. As a result, certain
customers either canceled orders, returned goods or took deductions. These
problems also resulted in lower than expected sales.
The Company's inability to plan, administer and effectively source raw
materials and finished products in a marketplace that is increasingly moving
to lower cost imports and offshore manufacturing, as well as the Company's
divestiture of its men's shirt division (see above) were the primary reasons
that the Company did not return to profitability in fiscal 1995. Other
contributing factors included a weak U.S. market for intimate apparel, the
increasing purchasing power of the Company's consolidating customers, and
the Company's inability to cut overhead sufficiently.
The problems encountered in fiscal 1995 will also affect the Company's
financial performance in fiscal 1996. Due to the negative impact of these
problems on sales and gross margins and the inability of the Company to
sufficiently cut expenses, the Company is anticipating a loss from
operations in fiscal 1996.
In its continuing efforts to return to profitability and improve the
Company's overall operations, in August 1995 the Company retained Barbara
Khouri as its new Chief Executive Officer. Ms. Khouri has extensive senior
management experience in the intimate apparel industry. Under Ms. Khouri's
recent leadership, management has devised a plan to consolidate and realign
all of the operational areas of the Company. This consolidation and
realignment is designed to reduce costs and create an organizational
structure that is more productive, effective and efficient. The plan places
an increased emphasis on controlling the Company's import operations and
offshore manufacturing. Management also plans to formalize procedures for
developing and implementing strategies to improve gross profit margins and
create effective planning techniques to better respond to the changing needs
of the Company's customers on a short and long-term basis.
Selling, general and administrative expenses decreased by $333,000 to
$20,541,000 for the year ended June 30, 1995 as compared to the
<PAGE> 19
comparable period last year. This decrease was primarily attributable to a
reduction in salary expense of $435,000 and sales related expenses,
including royalties and licensing costs of $336,000 and commissions of
$197,000, offset partially by an increase in bad debts of $350,000 and a net
increase in other general overhead. Additionally, in connection with the
reduction in inventory levels described below, associated costs have been
reduced.
Interest expense increased in 1995 by $424,000 to $4,669,000 due to higher
short-term rates and increased borrowing in the first quarter of 1995.
The Company had a loss from operations of $5,275,000 for the year ended June
30, 1995, compared to a loss of $7,941,000 for the year ended June 30, 1994
due primarily to higher gross margins and lower selling, general and
administrative expenses, offset partially by increased interest expense in
1995. In addition, the special charge is significantly lower in 1995 as
compared to 1994.
The income tax benefit for the year ended June 30, 1995 was $246,000 as
compared to $2,772,000 for the year ended June 30, 1994.
The financial results reflect a net loss of $5,029,000 for the year ended
June 30, 1995 as compared to a net loss of $3,324,000 for the year ended
June 30, 1994.
1994 vs. 1993
Net sales for the year ended June 30, 1994 decreased to $103,105,000 from
$120,251,000, a decrease of 14%, in the comparable period in 1993. The
decrease in sales includes approximately $11,000,000 of reduced sales to
existing customers (see discussion below relating to Sears) and
approximately $6,000,000 of sales related to the Company's children's
ready-to-wear line, for which no sales are reflected for the year ended June
30, 1994, and reductions in contract manufacturing for third parties. The
decrease in sales to existing customers reflects large programs which had
not been placed with us by our customers due primarily to difficulties the
Company has incurred in sourcing its goods offshore. The Company refocused
its efforts in this area and hired executive personnel with specific
sourcing and quality control expertise to improve the Company's ability to
source goods offshore and to develop new offshore manufacturing
capabilities. The Company sought to recapture the sales lost to existing
customers by improving its sourcing capabilities and from sales by certain
of the Company's divisions that were not adversely affected by the sourcing
difficulties. Toward that end, the Company expanded its manufacturing base
in the Caribbean and Central America and planned to expand its imports from
overseas.
<PAGE> 20
During 1993, Sears announced the elimination of its catalogue sales
division. As such, the Company's men's shirt division had sales of
approximately $6,000,000 for the year ended June 30, 1994 related to the
Sears' catalogue. The Company has replaced approximately $2,700,000 of these
sales primarily with programs from new customers in fiscal 1994. Based on
orders obtained and anticipated future orders, the Company expected that in
fiscal 1995, the men's shirt division would replace all of the sales lost as
a result of the elimination of the Sears' catalogue.
The gross profit percentage decreased to 20.1% in 1994 from 23.4% in the
prior year. The decrease was due to difficulties in sourcing our goods
offshore, increased sales of close-outs and slow moving inventory at lower
margins and to manufacturing inefficiencies, including excess plant
capacity. The inability to source effectively resulted in the Company
accepting orders at lower margins to maintain market share. In an effort to
decrease excess plant capacity, management has closed certain plant
facilities during the past three years including, in fiscal year 1994, one
of its plants in Claxton, Georgia, and one of its plants in Poplarville,
Mississippi. Due to the Company's decisions to close factories over the past
three years, the determination to terminate its operations in Mexico as a
"Maquiladora" as of December 31, 1993, intense price competition in the
marketplace, the Company's effort to source more effectively, and its
shipping needs, the Company has expanded its manufacturing base in the
Caribbean and Central America and plans to expand its imports from overseas.
During the third quarter of fiscal 1994, the Company decided, in an effort
to increase margins and reduce inventory levels and related inventory
carrying costs, to phase-out a portion of its popular-priced intimate
apparel division's business which produces and purchases inventory without
orders in-hand for smaller accounts ("trade business"), and to concentrate
its efforts in the private label side of its business, where goods are
manufactured against orders. Trade business has become a smaller and less
profitable portion of that division's business and requires higher inventory
levels. As a result of this decision, the Company recorded a special charge
of $3,800,000, consisting of a write-down of inventory related to its trade
business to its estimated realizable value. For the fiscal year ending June
30, 1994, trade business accounted for sales of approximately $10,000,000.
The Company sought to mitigate the loss of such sales through a more
concentrated effort on higher margin private label business, improving its
sourcing capabilities, and through the elimination of low margin business,
as well as other Company sales. As such, the Company did not anticipate that
the loss of these sales would have a significant, adverse effect, except for
the special charge discussed above, on its business.
Selling, general and administrative expenses decreased by $1,722,000 to
$20,874,000 for the year ended June 30, 1994 as compared to the comparable
period last year. This decrease was
<PAGE> 21
primarily attributable to a reduction in salary expense of approximately
$666,000, of which $308,000 related to the sale of the children's
ready-to-wear division, sales related expenses, including shipping costs of
approximately $434,000, travel and entertainment of approximately $198,000,
and commissions of approximately $184,000 and a net decrease in other
general overhead.
Interest expense increased in 1994 by $168,000 to $4,245,000 due primarily
to higher short-term borrowing needs during the year.
The Company had a loss from operations of $7,941,000 for the year ended June
30, 1994, compared to income of $1,594,000 for the year ended June 30, 1993
due primarily to lower sales volume, lower gross profit margins and a
special charge in the fiscal 1994 period, partially offset by lower selling,
general and administrative expenses.
During the year ended June 30, 1994, the Company realized a gain of $984,000
from the sale of certain plant facilities compared to a $908,000 gain
realized in the same period in fiscal 1993.
The Company's effective income tax rate was 39.8% for the year ended June
30, 1994 compared to 8.7% for the same period in 1993. The Company adopted
Statement of Financial Accounting Standard (SFAS) No. 109, "Accounting for
Income Taxes," effective July 1, 1993, which resulted in a cumulative
benefit from a change in accounting amounting to $861,000. The fiscal 1993
rate was lower than the federal statutory rate due to the utilization of
prior period tax losses.
Liquidity and Capital Resources
For the year ended June 30, 1995, the Company's working capital decreased by
$2,870,000 to $22,648,000, principally from operating losses.
During the year ended June 30, 1995, cash decreased by $819,000. The Company
used cash for the purchase of fixed assets of $311,000, the payment of notes
payable of $3,706,000 and the payment of long-term obligations of $122,000.
These activities were funded by cash generated by operating activities of
$3,320,000.
Inventory at June 30, 1995 decreased by $8,727,000 to $36,085,000 from
$44,812,000 at June 30, 1994 due to lower inventory levels in each of the
Company's divisions. Approximately 50% of the decrease is due to lower
inventory in the Company's popular-priced intimate apparel division. The
Company's divestiture of the Schwabe division and the liquidation of that
division's remaining inventory will significantly reduce the Company's
inventory levels in fiscal 1996.
The Company intends to reduce the required sinking fund payment of
$3,750,000 due in October 1996 on its outstanding subordinated
<PAGE> 22
debentures by the $2,550,000 of debentures previously purchased by the
Company. Based upon the Company's recent financial results and the
anticipated loss in fiscal 1996, the Company does not presently anticipate
that its earnings will be sufficient to pay the balance of the payment due
in 1996. In addition, management believes it is unlikely that future sinking
fund requirements in each year after 1996 can be made from earnings. The
Company has retained the services of an investment banking firm to assist it
in examining various alternative means of refinancing such debt through the
issuance of new debt instruments or equity securities, the sale of certain
assets or, a combination of these and other means. If the Company does not
refinance its debentures prior to October 1996, it will have to rely on
other sources of financing to make the balance of the payment due in October
1996. There can be no assurance that the Company will have sufficient
availability under its short term line of credit for the purpose of making
the required sinking fund payment in October 1996, or that if available, the
Company's banks will allow it to utilize the short term line of credit for
such purpose. The Company does not presently have any commitments from its
banks or any other source to provide the funds necessary to pay the balance
of the October 1996 sinking fund requirement. The Company does not
anticipate any further significant purchases of its stock or debentures and
anticipates that capital expenditures for fiscal 1996 will be less than
$500,000. However, depending on price and the availability of funds, the
Company may seek to take advantage of opportunities to purchase its
debenture to further reduce its October 1996 sinking fund requirements.
In August 1995, Moody's Investors Service lowered its rating on the
Company's subordinated debentures to Ca from B3.
The Company has negotiated an extension of its lines of credit with two
banks subject to monthly borrowing limitations based on the Company's
anticipated working capital requirements. The Company's borrowing needs are
as high as approximately $24,000,000 in October 1995 to as low as
approximately $2,000,000 in fiscal 1996. This reduction in borrowing needs
is primarily due to the Company's decision to divest itself of its men's
work and leisure shirt division and to liquidate its inventory (see below).
The credit lines bear interest of up to 1.25% above the banks' prime rate.
As collateral for such lines, the Company will continue to pledge all of
its accounts receivable and its finished goods inventory imported pursuant
to letters of credit issued under such lines. These lines of credit, which
were previously to expire on December 31, 1995, have been extended until
June 30, 1996. The extension is subject to the execution by the Company of
definitive documents containing the terms and conditions of the loans.
Even though the Company has suffered losses in fiscal 1994 and 1995 and
expects a loss in fiscal 1996, anticipated working capital needs will be
substantially lower in the second half of fiscal 1996 due to the Company's
decision to divest itself of its men's work and leisure shirt division. That
division has required significant amounts of capital to support it due to
the seasonality of its shipping. Approximately 80% of the Schwabe division's
finished products were historically shipped between July and December. In
addition, the gross margins on that division's products have been lower than
the Company's other divisions. The seasonality of Schwabe's shipping and the
low gross margins resulted in a disproportionate use of and an inadequate
return on capital. With the elimination of this division, the Company can
focus the
<PAGE> 23
attention of its personnel and financial resources on its core intimate
apparel business.
As a result, management believes its available borrowing under its lines of
credit through June 30, 1996, along with anticipated internally generated
funds, will be sufficient to cover its working capital requirements.
ITEM 9 DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
<PAGE> 24
PART III
ITEM 10 EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT
See Item 13.
ITEM 11 EXECUTIVE COMPENSATION
See Item 13.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AS OF AUGUST 31, 1995
See Item 13.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Items 10, 11 and 12 is incorporated by
reference to the information included in the Company's definitive proxy
statement in connection with the Annual Meeting of Stockholders to be held in
December 1995.
III-1
<PAGE> 25
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
PAGE
<S> <C>
(a) 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Included in Part II, Item 8 of this report:
Independent Auditors' Report F-1
Consolidated Balance Sheets at June 30, 1995 and 1994 F-2
Consolidated Statements of Operations for the fiscal
years ended June 30, 1995, 1994 and 1993 F-3
Consolidated Statements of Stockholders' Equity for
the fiscal years ended June 30, 1995, 1994 and 1993 F-4
Consolidated Statements of Cash Flows for the
fiscal years ended June 30, 1995, 1994 and 1993 F-5
Notes to Consolidated Financial Statements F-6 - F-13
2. SCHEDULE
For the fiscal years ended June 30, 1995, 1994 and 1993:
II - Valuation and Qualifying Accounts S-1
</TABLE>
Schedules other than those listed above are omitted for the reason that they are
not required or are not applicable, or the required information is shown in the
financial statements or notes thereto. Columns omitted from schedules filed have
been omitted because the information is not applicable.
IV-1
<PAGE> 26
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Movie Star, Inc.:
We have audited the accompanying consolidated balance sheets of Movie Star, Inc.
and subsidiaries as of June 30, 1995 and 1994, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended June 30, 1995. Our audits also included the
financial statement schedule listed in the index at Item 14(a)(2). These
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Movie Star, Inc. and subsidiaries
as of June 30, 1995 and 1994, and the results of their operations and their cash
flows for each of the three years in the period ended June 30, 1995 in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
As discussed in Note 7 to the consolidated financial statements, Movie Star,
Inc. changed its method of accounting for income taxes as of July 1, 1993 to
conform with Statement of Financial Accounting Standards No. 109.
Deloitte & Touche LLP
September 22, 1995
(except for Note 4 which is
dated October 13, 1995)
New York, New York
F-1
<PAGE> 27
MOVIE STAR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND 1994
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
<TABLE>
<CAPTION>
ASSETS 1995 1994
<S> <C> <C>
CURRENT ASSETS:
Cash $ 103 $ 922
Receivables (net of allowance for doubtful accounts and sales
allowances of $1,869 in 1995 and $1,625 in 1994) (Notes 1d and 4) 8,789 10,091
Inventory (Notes 1b, 2 and 4) 36,085 44,812
Deferred income tax benefits (Notes 1e and 7) 3,298 2,915
Prepaid expenses and other current assets 381 326
------- -------
Total current assets 48,656 59,066
PROPERTY, PLANT AND EQUIPMENT - Net (Notes 1c, 3 and 5) 6,053 7,697
OTHER ASSETS (Note 1g) 1,784 1,949
DEFERRED INCOME TAXES (Notes 1e and 7) 711 1,094
------- -------
TOTAL ASSETS $57,204 $69,806
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable (Notes 4 and 14) $15,803 $19,509
Current maturities of long-term debt (Note 5) 29 118
Accounts payable 6,939 9,372
Accrued expenses and other current liabilities 3,237 4,549
------- -------
Total current liabilities 26,008 33,548
------- -------
LONG-TERM DEBT - Less current maturities included above (Note 5) 46 79
------- -------
SUBORDINATED DEBENTURES (Note 6) 22,450 22,450
------- -------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 8)
STOCKHOLDERS' EQUITY (Notes 6 and 10):
Common stock, $.01 par value - authorized, 30,000,000 shares;
issued, 15,977,000 shares 160 160
Additional paid-in capital 3,731 3,731
Retained earnings 8,427 13,456
------- -------
12,318 17,347
Less treasury stock, at cost - 2,017,000 shares 3,618 3,618
------- -------
Total stockholders' equity 8,700 13,729
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $57,204 $69,806
======= =======
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE> 28
MOVIE STAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
NET SALES (Notes 1d and 9) $ 101,946 $ 103,105 $ 120,251
COST OF SALES 79,011 82,358 92,106
--------- --------- ---------
Gross profit 22,935 20,747 28,145
--------- --------- ---------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 20,541 20,874 22,596
SPECIAL CHARGE (Note 12) 3,000 3,800 --
INTEREST INCOME -- (231) (122)
INTEREST EXPENSE (Notes 4, 5 and 6) 4,669 4,245 4,077
--------- --------- ---------
28,210 28,688 26,551
--------- --------- ---------
(LOSS) INCOME FROM OPERATIONS (5,275) (7,941) 1,594
GAIN ON SALE OF PLANT FACILITIES (Note 13) -- 984 908
--------- --------- ---------
(LOSS) INCOME BEFORE PROVISION FOR
INCOME TAXES AND CUMULATIVE EFFECT
OF ACCOUNTING CHANGE (5,275) (6,957) 2,502
--------- --------- ---------
PROVISION FOR INCOME TAXES (Notes 1e and 7):
Current (246) 11 203
Deferred -- (2,783) 14
--------- --------- ---------
(246) (2,772) 217
--------- --------- ---------
(LOSS) INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE (5,029) (4,185) 2,285
CUMULATIVE EFFECT OF ACCOUNTING CHANGE FOR
INCOME TAXES (Note 7) -- 861 --
--------- --------- ---------
NET (LOSS) INCOME $ (5,029) $ (3,324) $ 2,285
========= ========= =========
(LOSS) INCOME PER SHARE BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE $ (.36) $ (.30) $ .16
========= ========= =========
CUMULATIVE EFFECT OF ACCOUNTING CHANGE
PER SHARE $ .06
==========
NET (LOSS) INCOME PER SHARE $ (.36) $ (.24) $ .16
========= ========= =========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING (Note 1f) 13,960 14,031 14,185
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 29
MOVIE STAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN RETAINED TREASURY STOCK
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JULY 1, 1992 15,977 $160 $3,731 $14,495 1,679 $(2,973) $15,413
Net income -- -- -- 2,285 -- -- 2,285
Purchase of treasury stock -- -- -- -- 171 (286) (286)
------ ---- ------ ------- ----- ------- -------
BALANCE, JUNE 30, 1993 15,977 160 3,731 16,780 1,850 (3,259) 17,412
Net (loss) -- -- -- (3,324) -- -- (3,324)
Purchase of treasury stock -- -- -- -- 167 (359) (359)
------ ---- ------ ------- ----- ------- -------
BALANCE, JUNE 30, 1994 15,977 160 3,731 13,456 2,017 (3,618) 13,729
Net (loss) -- -- -- (5,029) -- -- (5,029)
------ ---- ------ ------- ----- ------- -------
BALANCE, JUNE 30, 1995 15,977 $160 $3,731 $ 8,427 2,017 $(3,618) $ 8,700
====== ==== ====== ======= ===== ======= =======
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 30
MOVIE STAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1995, 1994, AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
(Loss) income before cumulative effect of accounting change $(5,029) $(4,185) $ 2,285
Adjustments to reconcile (loss) income before cumulative
effect of accounting change to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,319 1,386 1,396
Deferred income taxes -- (2,783) 14
Gain on sale of plant facilities -- (984) (908)
Loss on plant closing 750 -- --
Other -- -- (46)
Changes in operating assets and liabilities:
Receivables 1,302 2,883 (486)
Inventory 8,727 1,584 (2,948)
Prepaid expenses and other current assets (55) 503 316
Other assets 51 (43) 118
Accounts payable (2,433) (910) 397
Accrued expenses and other current liabilities (1,312) (424) (120)
------- ------- -------
Net cash provided by (used in) operating activities 3,320 (2,973) 18
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (311) (954) (884)
Proceeds from sale of property and equipment -- 110 1,279
Decrease (increase) in notes receivable -- 670 (731)
------- ------- -------
Net cash used in investing activities (311) (174) (336)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payment of) proceeds from short-term obligations (3,706) 3,179 3,972
Payment of long-term obligations (122) (539) (601)
Purchase of subordinated debentures -- -- (1,454)
Purchase of treasury stock -- (359) (286)
------- ------- -------
Net cash (used in) provided by financing activities (3,828) 2,281 1,631
------- ------- -------
NET (DECREASE) INCREASE IN CASH (819) (866) 1,313
CASH, BEGINNING OF YEAR 922 1,788 475
------- ------- -------
CASH, END OF YEAR $ 103 $ 922 $ 1,788
======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during year for:
Interest $ 4,515 $ 4,074 $ 3,983
======= ======= =======
Income taxes, net of refunds $ 68 $ 14 $ 130
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 31
MOVIE STAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Principles of Consolidation - The consolidated financial statements
include the accounts of Movie Star, Inc. and its subsidiaries (the
"Company"). All significant intercompany accounts and transactions have
been eliminated.
b. Inventory - Inventory is valued at lower of cost (first-in, first-out)
or market.
c. Property, Plant and Equipment - Property, plant and equipment are
stated at cost. Depreciation is computed principally by the
straight-line method at rates adequate to allocate the cost of
applicable assets over their expected useful lives.
d. Revenue Recognition - Revenue is recognized upon shipment. Although
sales are made without the right of return, in certain instances, the
Company may accept returns or agree to allowances. The Company provides
for such returns and allowances as they become known or anticipated.
e. Income Taxes - Effective July 1, 1993, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes" (see Note 7).
f. (Loss) Income Per Share - (Loss) income per share is based on the net
(loss) income for each year divided by the weighted average number of
shares outstanding. Common share equivalents (stock options) were not
dilutive in each of the three years ended June 30, 1995.
g. Amortization of Debt Issuance Cost - Legal and accounting fees,
printing costs and other expenses associated with the issuance of
subordinated debentures are being amortized over the term of the
debentures. Annual amortization of debt issuance costs included in
interest expense is $96,000.
2. INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
1995 1994
(IN THOUSANDS)
<S> <C> <C>
Raw materials $ 6,870 $13,506
Work-in-process 5,354 5,673
Finished goods 23,861 25,633
------- -------
$36,085 $44,812
======= =======
</TABLE>
F-6
<PAGE> 32
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment (at cost) consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
1995 1994
(IN THOUSANDS)
<S> <C> <C>
Land, buildings and improvements $ 8,522 $ 8,479
Machinery and equipment 2,597 3,486
Office furniture and equipment 2,212 2,555
Leasehold improvements 1,286 1,283
-------- --------
14,617 15,803
Less accumulated depreciation and amortization (8,564) (8,106)
-------- --------
$ 6,053 $ 7,697
======== ========
</TABLE>
At June 30, 1995, the Company held property, plant and equipment with a net
book value of approximately $1,745,000 for sale or lease.
4. NOTES PAYABLE
At June 30, 1995, the Company had notes payable aggregating $15,803,000
under line of credit agreements from two banks. Pursuant to the
agreements, all borrowings are collateralized by accounts receivable and
finished goods inventory imported pursuant to letters of credit. Interest
on the outstanding notes is payable monthly at up to 1 percent above the
prime rate (such rate being 10 percent at June 30, 1995).
On October 13, 1995, the Company entered into new agreements with the same
banks ("New Agreements"). The New Agreements expire June 30, 1996 and
contain certain financial covenants (as defined). Persuant to the New
Agreements, all borrowings will continue to be collateralized by accounts
receivable and finished goods inventory imported pursuant to letters
of credit with interest on outstanding borrowings being payable monthly at
1.25 percent above the prime rate.
Borrowings under the New Agreements are subject to monthly borrowing
limitations as follows (in thousands):
October 1995 $26,266
November 1995 21,766
December 1995 11,832
January 1996 4,957
February 1996 2,146
March 1996 2,907
April 1996 4,183
May 1996 2,718
June 1996 2,547
F-7
<PAGE> 33
5. LONG-TERM DEBT
Long-term debt consists of purchase money mortgages with varying interest
rates of between 4 percent and 9.85 percent, collateralized by land,
buildings and improvements.
The maturities of long-term debt at June 30, 1995, including current
maturities, are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
<S> <C>
1996 $29
1997 23
1998 23
---
$75
</TABLE> ===
6. SUBORDINATED DEBENTURES
On October 10, 1986, the Company sold $25,000,000 of 12-7/8% Subordinated
Debentures due October 1, 2001 (the "Debentures"). Interest payments on the
outstanding Debentures are due semi-annually on October 1 and April 1.
Annual sinking fund payments of $3,750,000 are required commencing October
1, 1996. However, required payments in any year may be reduced by
Debentures previously purchased by the Company. The total purchases of
Debentures at June 30, 1995 were $2,550,000. The Debentures are redeemable,
in whole or in part, at the option of the Company, at any time, and are
subordinated to all senior debt (as defined). The Debentures contain
covenants with respect to limitations on dividends and stock purchases. At
June 30, 1995, the Company is prohibited from paying dividends and making
stock purchases.
7. INCOME TAXES
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 109, "Accounting for Income Taxes," effective July 1, 1993. This
Statement supersedes SFAS No. 96, "Accounting for Income Taxes," which was
adopted by the Company in 1989. The cumulative effect of adopting SFAS No.
109 on the Company's financial statements was to increase income by
$861,000 ($.06 per share) for the year ended June 30, 1994.
Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes,
and (b) operating losses. The tax effects of significant items, comprising
the Company's net deferred tax asset, are as follows:
<TABLE>
<CAPTION>
JUNE 30,
1995 1994
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Differences between book and tax basis of property,
plant and equipment $ 661 $ 779
Difference between book and tax basis of gain on sale
of property, plant and equipment 288 308
------ ------
949 1,087
------ ------
</TABLE>
F-8
<PAGE> 34
<TABLE>
<S> <C> <C>
Deferred tax assets:
Difference between book and tax basis of inventory 440 275
Reserves not currently deductible 3,258 2,050
Operating loss carryforwards 3,094 2,718
Other 2 53
------ ------
6,794 5,096
------ ------
Valuation allowance 1,836 --
------ ------
Net deferred tax asset $4,009 $4,009
====== ======
</TABLE>
The net change in the valuation allowance for the deferred tax asset was an
increase of $1,836,000 in the year ended June 30, 1995 principally related
to the operating loss arising in that year.
The provision for income taxes is comprised as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1995 1994 1993
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal $ (270) $ -- $ 61
State and local 24 11 142
Deferred -- (2,783) 14
------- ------- ----
$ (246) $(2,772) $217
======= ======= ====
</TABLE>
Reconciliation of the U.S. statutory rate with the Company's effective tax
rate is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1995 1994 1993
<S> <C> <C> <C>
Federal statutory rate (34.0)% (34.0)% 34.0%
Increase (decrease) in tax resulting from:
Valuation allowance 34.8 -- --
Utilization of net operating losses
related to an acquisition -- -- (9.7)
Capital loss carryforwards utilized -- -- (9.8)
State income taxes (net of Federal tax benefits) (6.0) (6.0) 3.7
Tax benefits previously unrecognized -- -- (9.8)
Other .5 .2 .3
----- ----- -----
Effective rate (4.7)% (39.8)% 8.7%
===== ===== =====
</TABLE>
As of June 30, 1995, the Company has net operating loss carryforwards of
approximately $7,734,000 for income tax purposes that expire between the
years 2002 and 2009.
8. COMMITMENTS AND CONTINGENT LIABILITIES
a. The Company was contingently liable for outstanding letters of credit
in the amount of approximately $5,500,000 at June 30, 1995.
F-9
<PAGE> 35
b. The Company has operating leases expiring through 2002, which include,
in addition to fixed rentals, escalation clauses that require the
Company to pay a percentage of increases in occupancy expenses.
Future minimum payments under these leases at June 30, 1995 are as
follows (in thousands):
<TABLE>
<S> <C>
1996 1,104
1997 1,019
1998 929
1999 819
2000 273
Thereafter 432
--------
Total $ 4,576
========
</TABLE>
Rental expense for 1995, 1994 and 1993 was approximately $1,863,000,
$1,721,000, and $1,839,000, respectively.
9. CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of trade accounts
receivable. The Company's customers are not concentrated in any specific
geographic region but are concentrated in the retail industry. One customer
accounted for 22, 22, and 23 percent of the Company's net sales in fiscal
1995, 1994 and 1993, respectively. The Company performs ongoing credit
evaluations of its customers' financial condition. The Company establishes
an allowance for doubtful accounts based upon factors surrounding the
credit risk of specific customers, historical trends and other information.
10. STOCK PLANS, OPTIONS AND WARRANT
a. Employee Stock Ownership Plan - The Company has an Employee Stock
Ownership and Capital Accumulation Plan and Trust covering
substantially all of its employees, pursuant to which it can elect to
make contributions to the Trust in such amounts as may be determined by
the Board of Directors. No contribution was made for the three year
period ended June 30, 1995.
During fiscal 1994, in connection with plant closings, the Company
acquired 157,071 shares of its common stock from the plan for $336,000
to enable cash payments to be made to the participants.
b. Stock Options - The Company has an Incentive Stock Option Plan ("1983
ISOP"), pursuant to which the Company has reserved 86,000 shares at
June 30, 1995. This plan expired by its terms on June 30, 1993, but
86,000 previous grants remained outstanding at June 30, 1995, of which
83,000 are presently exercisable. The 1983 ISOP provided for the
issuance of options to employees to purchase common stock of the
Company at a price not less than fair market value on the date of
grant. During fiscal 1995, 780,000 options outstanding under this plan
were canceled, of which 726,000 options were replaced with options
under the new Incentive Stock Option Plan discussed below.
On July 15, 1994, the Company's compensation committee approved a new
Incentive Stock Option Plan ("1994 ISOP") to replace the 1983 ISOP
discussed above. Options granted, pursuant
F-10
<PAGE> 36
to the plan, will not be subject to a uniform vesting schedule. The
1994 ISOP received stockholders' approval on December 8, 1994. The plan
permits the issuance of options to employees to purchase common stock
of the Company at a price not less than fair market value on the date
of the option grant. The plan reserves 2,000,000 shares of common
stock for grant and provides that the term of each award be determined
by the Compensation Committee with all awards made within the ten-year
period following the effective date. During 1995, there were
approximately 1,382,000 options granted.
The Company also has a Key Employee Stock Option Plan covering the
issuance of up to 1,667,000 shares of the Company's common stock.
Options to purchase 333,000 shares at an exercise price of $2.19 per
share are outstanding at June 30, 1995. During fiscal 1995, 444,000
options under this plan were canceled and replaced with options in the
1994 ISOP. All options granted are presently exercisable.
The Company has also granted nonqualified options to certain
nonemployee sales representatives, one of whom later became an
employee, to purchase an aggregate of 225,000 shares at exercise prices
of $1.67 to $2.36.
Information with respect to stock options is as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
1995 1994 1993
<S> <C> <C> <C>
Outstanding - beginning of year 1,868,000 2,035,000 2,075,000
Granted 1,382,000 -- --
Exercised -- -- --
Canceled (1,224,000) (167,000) (40,000)
---------- ---------- ----------
Outstanding - end of year 2,026,000 1,868,000 2,035,000
========== ========== ==========
Exercisable - end of year 991,000 1,629,000 1,551,000
========== ========== ==========
Available for grant - end of year 1,952,000 1,553,000 1,553,000
========== ========== ==========
</TABLE>
Options outstanding at year-end have exercise prices of $1.125 to
$2.36. Exercisable options at June 30, 1995 have exercise prices of
$1.125 to $2.36.
The unexercisable options at June 30, 1995, become exercisable as
follows:
<TABLE>
<CAPTION>
YEAR NUMBER
<S> <C>
1996 120,000
1997 250,000
1998 251,000
1999 235,000
2000 179,000
---------
1,035,000
---------
</TABLE>
Total number of shares reserved for issuance of stock options is 3,753,000
at June 30, 1995.
F-11
<PAGE> 37
c. Warrant - In August 1993, in connection with an agreement with a financial
consulting firm, the Company granted a warrant to purchase 30,000 shares of
its common stock at $1.69 per share to the consultants. The warrant is
exercisable at anytime through August 2000. No expense related to such
warrant was recorded since it was not material.
11. SALE OF CHILDREN'S READY-TO-WEAR DIVISION
On June 30, 1993, the Company sold its children's ready-to-wear division
for notes receivable of $670,000, which was collected in fiscal 1994. The
Company recognized a loss of approximately $150,000 on the sale. During
1993, sales of children's ready-to-wear accounted for approximately 3.7
percent of total sales.
12. SPECIAL CHARGE
During fiscal 1995, the Company recorded a special charge of $3,000,000 for
costs associated with the divestiture of its men's work and leisure shirt
division. This charge consisted of the write-down, to its estimated
realizable value, of this division's inventory and property, plant and
equipment.
In fiscal 1994, the Company recorded a special charge of $3,800,000 for
costs associated with the restructuring of its popular-priced intimate
apparel division. This charge consisted of the write-down of certain
inventory of this division to its estimated realizable value.
13. DISPOSAL OF PLANT FACILITIES
During fiscal 1993, the Company sold a plant facility for a gain of
$621,000, of which $548,000 was deferred at June 30, 1993. During fiscal
1994, the Company realized the remaining gain of $548,000 on such sale.
Additionally, during fiscal 1994, the Company sold another plant facility,
which was connected to the facility discussed above, for which a gain of
$436,000 was recognized.
During fiscal 1993, the Company sold certain plant facilities for which
cash proceeds of $1,200,000 were received and recognized a gain on such
sales of approximately $835,000.
14. RELATED PARTY TRANSACTIONS
As of June 30, 1993, certain directors of the Company owned a majority
interest in a privately held computer service company, which provided
services and equipment to the Company amounting to $37,000 in fiscal 1993.
F-12
<PAGE> 38
15. UNAUDITED SELECTED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
QUARTER
FIRST SECOND THIRD FOURTH
(IN THOUSANDS, EXCEPT PER SHARE)
YEAR ENDED JUNE 30, 1995
<S> <C> <C> <C> <C>
Net sales $32,440 $35,997 $ 17,327 $ 16,182
Gross profit 7,052 8,365 3,998 3,520
Net income (loss) 607 944 (1,316) (5,264)(a)
Income (loss) per share .04 .07 (.09) (.38)
</TABLE>
<TABLE>
<CAPTION>
QUARTER
FIRST SECOND THIRD FOURTH
(IN THOUSANDS, EXCEPT PER SHARE)
YEAR ENDED JUNE 30, 1994
<S> <C> <C> <C> <C>
Net sales $29,922 $35,020 $ 20,750 $ 17,413
Gross profit 6,718 7,040 4,508 2,481
Net income (loss) 1,190 782 (3,361)(b) (1,935)
Income (loss) per share .08 .06 (.24) (.14)
</TABLE>
<TABLE>
<CAPTION>
QUARTER
FIRST SECOND THIRD FOURTH
(IN THOUSANDS, EXCEPT PER SHARE)
YEAR ENDED JUNE 30, 1993
<S> <C> <C> <C> <C>
Net sales $31,551 $37,606 $ 29,541 $ 21,553
Gross profit 7,304 8,208 6,666 5,967
Net income (loss) 746 1,202 402 (65)
Income per share .05 .08 .03 --
</TABLE>
(a) Amount includes a special charge of $3,000,000 associated with
the divestiture of the Company's men's work and leisure shirt
division.
(b) Amount includes a special charge of $3,800,000 for costs
associated with the restructuring of the Company's popular-priced
intimate apparel division.
* * * * * *
F-13
<PAGE> 39
SCHEDULE II
MOVIE STAR, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
<S> <C> <C> <C> <C>
FISCAL YEAR ENDED JUNE 30, 1995:
Allowance for doubtful accounts $ 965 $ 676 $ (433)(a) $1,208
Allowance for sales allowances 660 2,792 (2,792) 660
------ ------- ------- ------
$1,625 $ 3,468 $ 3,225 $1,868
====== ======= ======= ======
FISCAL YEAR ENDED JUNE 30, 1994:
Allowance for doubtful accounts $ 943 $ 45 $ (23)(a) $ 965
Allowance for sales allowances 716 4,409 (4,465) 660
------ ------- ------- ------
$1,659 $ 4,454 $(4,488) $1,625
====== ======= ======= ======
FISCAL YEAR ENDED JUNE 30, 1993:
Allowance for doubtful accounts $1,668 $ (120) $ (605)(a) $ 943
Allowance for sales allowances 716 4,818 (4,818) 716
------ ------- ------- ------
$2,384 $ 4,698 $(5,423) $1,659
====== ======= ======= ======
</TABLE>
(a) Uncollectible accounts written off.
S-1
<PAGE> 40
(a) 3. EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Method of Filing
------- ------- ----------------
<S> <C> <C>
3.1 Certificate of Incorporation Incorporated by reference to Form 10-K for
fiscal year ended June 30, 1988 and filed
on October 13, 1988.
3.1.1 Amended Certificate of Incorporated by reference to Form 10-K for
Incorporation fiscal year ended June 30, 1992 and filed
on September 25, 1992.
3.1.2 Amended Certificate of Incorporated by reference to Form 8
Incorporation Amendment to Form 10-K for fiscal year
ended June 30, 1992 and filed on January
19, 1993.
3.2 By-Laws Incorporated by reference to Form 10-K for
fiscal year ended June 30, 1988 and filed
on October 13, 1988.
4.1 Instruments defining the rights of security Incorporated by reference to Exhibits to
holders including indentures Registration Statement on Form S-2 (No.
33-7837) filed October 10, 1986.
4.2 Plan of Merger dated November 18, 1980, Incorporated by reference to Exhibits to
between Stardust Inc. and Sanmark Industries Registration Statement on Form S-14
Inc. whereby Sanmark Industries Inc. was (Registration No. 2-70365) filed by
merged into Stardust Inc. Registrant's predecessor corporation,
Stardust Inc. on February 12, 1981.
10
</TABLE>
IV-2
<PAGE> 41
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Method of Filing
------- ------- ----------------
<S> <C> <C>
10.1 Agreement of Sale dated December 12, 1983, as Incorporated by reference to Exhibits to
amended January 31, 1984, among Industrial Registration Statement Form S-2 (No. 33-
Development Authority of Russell County 7837) filed October 10, 1986.
(Virginia), the Registrant and the Bankers
Trust Company, with attendant Deed and Bill of
Sale, Deed of Trust, Assignment, and
Promissory Note in the sum of $3,000,000.
10.2 Employee Stock Ownership and Capital Incorporated by reference to Exhibits to
Accumulation Plan dated April 17, 1984 as Registration Statement Form S-2 (No. 33-
amended on July 1, 1984 between Republic 7837) filed October 10, 1986.
National Bank of New York, as trustee,
and the Registrant.
10.3 Incentive Stock Option Plan Agreement dated Incorporated by reference to Exhibits to
June 28, 1983, as amended on January 13, 1986. Registration Statement Form S-2 (No.
33-7837) filed October 10, 1986.
10.3.1 1994 Incentive Stock Option Plan. Incorporated by reference to Form 10-K for
fiscal year ended June 30, 1994 and filed
on October 12, 1994.
10.4 Form of Non-Qualified Stock Option granted to Incorporated by reference to Exhibits to
several persons who are manufacturer's Registration Statement Form S-2 (No. 33-
representatives for the Registrant. 7837) filed October 10, 1986.
10.5 Demand Grid Promissory Note dated as of April Incorporated by reference to Form 10-K for
26, 1994 in the sum of $20,400,000 between fiscal year ended June 30, 1994 and filed
Republic National Bank of New York and on October 12, 1994.
Registrant.
</TABLE>
IV-3
<PAGE> 42
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Method of Filing
------- ------- ----------------
<S> <C> <C>
10.5.1 Continuing General Security Agreement dated Incorporated by reference to Form 10-K for
May 19, 1993 from the Registrant to Republic fiscal year ended June 30, 1993 and filed
National Bank of New York. on September 28, 1993.
10.5.2 Letter Agreement dated April 26, 1994 Incorporated by reference to Form 10-K for
between Republic National Bank of New fiscal year ended June 30, 1994 and filed
York and the Registrant confirming terms on October 12, 1994.
of credit facility.
10.5.3 Letter Agreement dated October 7, 1994 Incorporated by reference to Form
between Republic National Bank of 10-K for fiscal year ended June 30, 1994
New York and the Registrant confirming and filed on October 12, 1994.
extension of terms of credit facility.
10.5.4 Credit and Security Agreement dated September Filed herewith.
14, 1995 among Republic National Bank of New
York, NatWest Bank N.A. and the Registrant.
10.5.5 Lock Box Service Agreement dated September 14, Filed herewith.
1995 among NatWest Bank N.A., Republic
National Bank of New York and the Registrant.
10.5.6 Secured Promissory Note dated September 14, Filed herewith.
1995 in the principal sum of $16,224,000 in
favor of Republic National Bank of New York.
10.5.7 Participation Agreement dated September 1995 Filed herewith.
between Republic National Bank of New York and
NatWest Bank N.A.
10.6 Interest Bearing Grid Note dated as of May 31, Incorporated by reference to Form 10-K for
1994 in the sum of $13,000,000 between fiscal year ended June 30, 1994 and filed
National Westminster Bank USA and the on October 12, 1994.
Registrant.
</TABLE>
IV-4
<PAGE> 43
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Method of Filing
------- ------- ----------------
<S> <C> <C>
10.6.1 Continuing General Security Agreement dated Incorporated by reference to Form 10-K for
July 26, 1993 from the Registrant to National fiscal year ended June 30, 1993 and filed
Westminster Bank USA. on September 28, 1993.
10.6.2 Continuing Agreement dated July 16, 1993 Incorporated by reference to Form
for Irrevocable Commercial Letters 10-K for fiscal year ended June 30,
of Credit, Reimbursement Agreement and Security 1993 and filed on September 28, 1993.
Agreement between National Westminster Bank
USA and the Registrant.
10.6.3 Letter Agreement dated May 31, 1994 Incorporated by reference to Form
between National Westminister Bank USA 10-K for fiscal year ended June 30, 1994
and the Registrant confirming terms of and filed on October 12, 1994.
credit facility.
10.6.4 Letter dated October 7, 1994 from National Incorporated by reference to Form 10-K for
Westminister Bank USA to the Registrant fiscal year ended June 30, 1994 and filed
confirming extension of terms of credit on October 12, 1994.
facility.
10.6.5 Secured Promissory Note dated September Filed herewith.
14, 1995 in the principal sum of
$10,816,000 in favor of NatWest Bank N.A.
</TABLE>
IV-5
<PAGE> 44
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Method of Filing
------- ------- ----------------
<S> <C> <C>
10.7 1988 Non-Qualified Stock Incorporated by reference to Form 10-K for
Option Plan. fiscal year ended June 30, 1989 and filed
on September 27, 1989.
10.8 License Agreement dated Incorporated by reference to Form 8
July 26, 1990 between PGH Company, Licensor Amendment to Form 10-K for fiscal year
and Sanmark-Stardust Inc. Licensee. ended June 30, 1992 and filed on January
19, 1993.
10.9 License Agreement dated November 14, 1991 Incorporated by reference to Form 8
between BonJour Group, Ltd., Licensor and Amendment to Form 10-K for fiscal year
Sanmark-Stardust Inc., Licensee. ended June 30, 1992 and Filed on January
19, 1993.
10.10 Prototype of Contract of Purchase Incorporated by reference to
periodically entered into between the From 10-K for fiscal year ended
Registrant and Sears Roebuck and June 30, 1993 and filed
Company. on September 28, 1993.
22 Subsidiaries of the Registrant. Filed herewith.
28.1 Tender Offer Statement and Rule 13E-3 Incorporated by reference to Schedule 14D-
Transaction Statement with respect to Movie 1 and Rule 13E-3 Transaction Statement
Star, Inc. Acquisition. (No. 1-4585) filed December 18, 1987.
</TABLE>
(a) 4. Report on Form 8-K
NONE
IV-6
<PAGE> 45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the Registrant has duly caused this document to be
signed on its behalf by the undersigned, thereunto duly authorized.
October 13, 1995
MOVIE STAR, INC.
By: /s/ MARK M. DAVID
------------------------
MARK M. DAVID, Chairman
of the Board
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and as of the date indicated.
<TABLE>
<S> <C> <C>
/s/ Mark M. David Chairman of the Board October 13, 1995
- ---------------------
MARK M. DAVID
/s/ Clayton E. Medley President; Chief October 13, 1995
- --------------------- Operating Officer
CLAYTON E. MEDLEY & Director
/s/ Saul Pomerantz Senior Vice President; October 13, 1995
- --------------------- Secretary & Director;
SAUL POMERANTZ Principal Financial &
Accounting Officer
/s/ Helen Samuels Vice President; October 13, 1995
- --------------------- Treasurer; Director
HELEN SAMUELS
</TABLE>
IV-7
<PAGE> 46
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Method of Filing
------- ------- ----------------
<S> <C> <C>
3.1 Certificate of Incorporation Incorporated by reference to Form 10-K for
fiscal year ended June 30, 1988 and filed
on October 13, 1988.
3.1.1 Amended Certificate of Incorporated by reference to Form 10-K for
Incorporation fiscal year ended June 30, 1992 and filed
on September 25, 1992.
3.1.2 Amended Certificate of Incorporated by reference to Form 8
Incorporation Amendment to Form 10-K for fiscal year
ended June 30, 1992 and filed on January
19, 1993.
3.2 By-Laws Incorporated by reference to Form 10-K for
fiscal year ended June 30, 1988 and filed
on October 13, 1988.
4.1 Instruments defining the rights of security Incorporated by reference to Exhibits to
holders including indentures Registration Statement on Form S-2 (No.
33-7837) filed October 10, 1986.
4.2 Plan of Merger dated November 18, 1980, Incorporated by reference to Exhibits to
between Stardust Inc. and Sanmark Industries Registration Statement on Form S-14
Inc. whereby Sanmark Industries Inc. was (Registration No. 2-70365) filed by
merged into Stardust Inc. Registrant's predecessor corporation,
Stardust Inc. on February 12, 1981.
10
</TABLE>
<PAGE> 47
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Method of Filing
------- ------- ----------------
<S> <C> <C>
10.1 Agreement of Sale dated December 12, 1983, as Incorporated by reference to Exhibits to
amended January 31, 1984, among Industrial Registration Statement Form S-2 (No. 33-
Development Authority of Russell County 7837) filed October 10, 1986.
(Virginia), the Registrant and the Bankers
Trust Company, with attendant Deed and Bill of
Sale, Deed of Trust, Assignment, and
Promissory Note in the sum of $3,000,000.
10.2 Employee Stock Ownership and Capital Incorporated by reference to Exhibits to
Accumulation Plan dated April 17, 1984 as Registration Statement Form S-2 (No. 33-
amended on July 1, 1984 between Republic 7837) filed October 10, 1986.
National Bank of New York, as trustee,
and the Registrant.
10.3 Incentive Stock Option Plan Agreement dated Incorporated by reference to Exhibits to
June 28, 1983, as amended on January 13, 1986. Registration Statement Form S-2 (No.
33-7837) filed October 10, 1986.
10.3.1 1994 Incentive Stock Option Plan. Incorporated by reference to Form 10-K for
fiscal year ended June 30, 1994 and filed
on October 12, 1994.
10.4 Form of Non-Qualified Stock Option granted to Incorporated by reference to Exhibits to
several persons who are manufacturer's Registration Statement Form S-2 (No. 33-
representatives for the Registrant. 7837) filed October 10, 1986.
10.5 Demand Grid Promissory Note dated as of April Incorporated by reference to Form 10-K for
26, 1994 in the sum of $20,400,000 between fiscal year ended June 30, 1994 and filed
Republic National Bank of New York and on October 12, 1994.
Registrant.
</TABLE>
<PAGE> 48
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Method of Filing
------- ------- ----------------
<S> <C> <C>
10.5.1 Continuing General Security Agreement dated Incorporated by reference to Form 10-K for
May 19, 1993 from the Registrant to Republic fiscal year ended June 30, 1993 and filed
National Bank of New York. on September 28, 1993.
10.5.2 Letter Agreement dated April 26, 1994 Incorporated by reference to Form 10-K for
between Republic National Bank of New fiscal year ended June 30, 1994 and filed
York and the Registrant confirming terms on October 12, 1994.
of credit facility.
10.5.3 Letter Agreement dated October 7, 1994 Incorporated by reference to Form
between Republic National Bank of 10-K for fiscal year ended June 30, 1994
New York and the Registrant confirming and filed on October 12, 1994.
extension of terms of credit facility.
10.5.4 Credit and Security Agreement dated September Filed herewith.
14, 1995 among Republic National Bank of New
York, NatWest Bank N.A. and the Registrant.
10.5.5 Lock Box Service Agreement dated September 14, Filed herewith.
1995 among NatWest Bank N.A., Republic
National Bank of New York and the Registrant.
10.5.6 Secured Promissory Note dated September 14, Filed herewith.
1995 in the principal sum of $16,224,000 in
favor of Republic National Bank of New York.
10.5.7 Participation Agreement dated September 1995 Filed herewith.
between Republic National Bank of New York and
NatWest Bank N.A.
10.6 Interest Bearing Grid Note dated as of May 31, Incorporated by reference to Form 10-K for
1994 in the sum of $13,000,000 between fiscal year ended June 30, 1994 and filed
National Westminster Bank USA and the on October 12, 1994.
Registrant.
</TABLE>
<PAGE> 49
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Method of Filing
------- ------- ----------------
<S> <C> <C>
10.6.1 Continuing General Security Agreement dated Incorporated by reference to Form 10-K for
July 26, 1993 from the Registrant to National fiscal year ended June 30, 1993 and filed
Westminster Bank USA. on September 28, 1993.
10.6.2 Continuing Agreement dated July 16, 1993 Incorporated by reference to Form
for Irrevocable Commercial Letters 10-K for fiscal year ended June 30,
of Credit, Reimbursement Agreement and Security 1993 and filed on September 28, 1993.
Agreement between National Westminster Bank
USA and the Registrant.
10.6.3 Letter Agreement dated May 31, 1994 Incorporated by reference to Form
between National Westminister Bank USA 10-K for fiscal year ended June 30, 1994
and the Registrant confirming terms of and filed on October 12, 1994.
credit facility.
10.6.4 Letter dated October 7, 1994 from National Incorporated by reference to Form 10-K for
Westminister Bank USA to the Registrant fiscal year ended June 30, 1994 and filed
confirming extension of terms of credit on October 12, 1994.
facility.
10.6.5 Secured Promissory Note dated September Filed herewith.
14, 1995 in the principal sum of
$10,816,000 in favor of NatWest Bank N.A.
</TABLE>
<PAGE> 50
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Method of Filing
------- ------- ----------------
<S> <C> <C>
10.7 1988 Non-Qualified Stock Incorporated by reference to Form 10-K for
Option Plan. fiscal year ended June 30, 1989 and filed
on September 27, 1989.
10.8 License Agreement dated Incorporated by reference to Form 8
July 26, 1990 between PGH Company, Licensor Amendment to Form 10-K for fiscal year
and Sanmark-Stardust Inc. Licensee. ended June 30, 1992 and filed on January
19, 1993.
10.9 License Agreement dated November 14, 1991 Incorporated by reference to Form 8
between BonJour Group, Ltd., Licensor and Amendment to Form 10-K for fiscal year
Sanmark-Stardust Inc., Licensee. ended June 30, 1992 and Filed on January
19, 1993.
10.10 Prototype of Contract of Purchase Incorporated by reference to
periodically entered into between the From 10-K for fiscal year ended
Registrant and Sears Roebuck and June 30, 1993 and filed
Company. on September 28, 1993.
22 Subsidiaries of the Registrant. Filed herewith.
28.1 Tender Offer Statement and Rule 13E-3 Incorporated by reference to Schedule 14D-
Transaction Statement with respect to Movie 1 and Rule 13E-3 Transaction Statement
Star, Inc. Acquisition. (No. 1-4585) filed December 18, 1987.
</TABLE>
<PAGE> 1
CREDIT AND SECURITY AGREEMENT
AMONG
REPUBLIC NATIONAL BANK OF NEW YORK,
INDIVIDUALLY AND AS AGENT
452 FIFTH AVENUE
NEW YORK, NEW YORK 10018
NATWEST BANK N.A.
1133 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
AND
MOVIE STAR, INC.
Republic National Bank of New York, September 14, 1995
Individually and as Agent
452 Fifth Avenue
New York, New York 10018
NatWest Bank N.A.
1133 Avenue of the Americas
New York, New York 10036
Ladies and Gentlemen:
This Agreement states the terms and conditions upon which,
effective as of the date of acceptance hereof by each of you, we may obtain
loans and other financial accommodations through the Agent from Republic
National Bank of New York ("RNB") and NatWest Bank N.A. ("NatWest"), on a
several basis, for our general corporate and business purposes upon the
security referred to herein.
<PAGE> 2
Section
1. DEFINITIONS.
1.1 All terms used herein which are defined in Article 1
or Article 9 of the Uniform Commercial Code of the State of New York ("UCC")
shall have the meanings given therein, unless otherwise defined in this
Agreement, and all references to the plural herein shall also mean the
singular. All accounting terms used herein shall have the meaning assigned to
them by generally accepted accounting principles, unless otherwise defined.
1.2 "Accessions" shall have the meaning ascribed to it in
the UCC, as amended.
1.3 "Accounts" shall mean all of our present and future
accounts, general intangibles, chattel paper, documents and instruments, as
such terms are defined in the UCC, and all of our contract rights, including,
without limitation, all obligations for the payment of money arising out of our
sale, lease or other disposition of goods or other property or rendition of
services.
1.4 "Account Debtor" shall mean each debtor or obligor in
any way obligated on or in connection with any Account.
1.5 "Accounts Advance Percentage" shall have the meaning
set forth in Section 2.2 hereof.
1.6 "Actual Letter of Credit Exposure" shall mean the
aggregate amount, at any one time, of the amounts outstanding under all Letters
of Credit, except Existing RNB Standby Letters of Credit and shall include,
without limitation, the amounts outstanding under the Existing RNB Letters of
Credit and the Existing NatWest Letters of Credit.
1.7 "Actual Total Line Outstanding" shall mean the aggregate
amount, at any one time, of (x) the unpaid principal amounts of the Loans
outstanding, (y) the Actual Letter of Credit Exposure and (z) Existing RNB
Standby Letter of Credit.
1.8 "Affiliate" of a party shall mean any entity
controlling, controlled by or under common control with, the party.
1.9 "Agent" shall have the meaning set forth in Section
10 hereof.
1.10 "Application" shall have the meaning set forth in
Section 2.4 hereof.
1.11 "Bank" shall mean either RNB or NatWest.
1.12 "Business Day" shall mean a day on which the Agent,
RNB and NatWest are each open for the regular transaction of business in New
York, New York.
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<PAGE> 3
1.13 "NatWest Note" shall have the meaning set forth in
Section 2.3 hereof.
1.14 "Closing Date" shall mean the date this Agreement is
accepted by both Banks.
1.15 "Collateral" shall have the meaning set forth in
Section 4.1 hereof.
1.16 "Control" shall mean the power to direct the affairs
of a person or entity, including, without limitation, through the ownership of
a majority of the voting power of a party.
1.17 "Due Date" shall mean December 31, 1995.
1.18 "Eligible Accounts" shall mean Accounts created by us
in the ordinary course of business arising out of our sale and delivery of
goods or rendition of services, which are and at all times shall continue to be
deemed eligible hereunder by the Agent, in all respects in the Agent's sole and
absolute discretion. Standards of and criteria for eligibility may be
established, supplemented and revised from time to time solely by the Agent in
its exclusive judgment, exercised reasonably and in good faith. In determining
eligibility, the Agent may, but need not, rely on agings or reports and
schedules of Accounts furnished by us, but reliance by the Agent, RNB or
NatWest thereon from time to time shall not be deemed to limit the Agent's
right to revise standards of eligibility at any time as to both our present and
future Accounts. Without limiting the generality of the foregoing, in any
event, an Account shall not be deemed eligible unless: (a) the Account Debtor
on such Account, based on financial condition, relative amount of credit
extended, payment history and otherwise, is and continues to be acceptable to
the Agent in its sole and absolute discretion, (b) such Account complies in all
respects with the representations, covenants and warranties hereinafter set
forth, (c) delivery of the goods or rendition of the services has been
completed and accepted by the Account Debtor, (d) such Account is not subject
to any agreement under which any deduction, discount, credit or allowance of
any kind may be granted or allowed, and (e) no more than ninety (90) days have
elapsed since the invoice date of such Account or (60) days past the due date
provided such due date is not more than 90 days from shipment.
1.19 "Events of Default" shall have the meaning set forth
in Section 8.1 hereof.
1.20 "Existing NatWest Letters of Credit" shall mean the
commercial letters of credit issued by NatWest for our account prior to the
Closing Date and currently outstanding, as listed on Schedule B hereto together
with any Steamship Guaranty or Air Release issued by NatWest.
1.21 "Existing RNB Standby Letters of Credit shall mean the
standby letters of credit listed on Schedule C.
-3-
<PAGE> 4
1.22 "Existing RNB Letters of Credit" shall mean the
commercial letters of credit issued by RNB for our account prior to the Closing
Date and currently outstanding, as listed on Schedule C hereto together with
any Steamship Guaranty or Air Release issued by RNB.
1.23 "Inventory" shall mean all imported inventory and all
documents (including, without limitation, all documents of title, transport or
otherwise) and all Records, other property and general intangibles at any time
relating to such inventory, whether now or hereafter existing or acquired and
wherever located, all products and proceeds (including, but not limited to, all
"proceeds," "products," "offspring," "rents," or "profits," as such terms are
used in the United States Bankruptcy Code, as amended), and all insurance
proceeds of such property wherever located and in whatever form. As used
herein, the term "imported inventory" means all inventory of the Debtor of
finished goods imported from outside of the United States for which any bank
has issued a letter of credit.
1.24 "Letter of Credit" shall mean a letter of credit issued
by the Agent for our account under this Agreement together with any Steamship
Guaranty or Air Release.
1.25 "Loan Account" shall have the meaning set forth in
Section 2.3 hereof.
1.26 "Maximum Credit Amount" shall have the meaning set
forth in Section 2.2 hereof.
1.27 "Maximum Rate" shall have the meaning set forth in
Section 3.4 hereof.
1.28 "Net Amount of Eligible Accounts" shall mean the
gross amount of Eligible Accounts, less sales, excise or similar taxes, and
less returns, discounts, claims, credits and allowances of any nature at any
time issued, owing, granted, outstanding, available or claimed.
1.29 "Obligations" shall mean any and all Loans,
indebtedness, liabilities and obligations of any kind owing by us or any
Affiliate of ours to RNB, NatWest or the Agent, however evidenced, whether as
principal, guarantor or otherwise, whether arising under this Agreement
(including, without limitation, all Loans or extensions of credit made to us by
either of you hereunder, whether or not in excess, at any time, of the Maximum
Credit Amount, any supplement hereto, or otherwise, including, without
limitation, any liability of ours to any of you relating to issuance by RNB,
NatWest or the Agent of letters of credit for our account or the payment by any
of you under any such letters of credit of any unreimbursed draws, whether now
existing or hereafter arising, whether direct or indirect, absolute or
contingent, joint or several, due or not due, primary or secondary, liquidated
or unliquidated, secured or unsecured, original, renewed or extended, and
whether arising directly or acquired from others by purchase, negotiation,
discount, assignment or otherwise (including, without limitation, any
participations or interests of RNB or NatWest in our obligations to others and
all amounts owing by us to any of you by reason of purchases made by us from
other concerns financed or factored by any of you) and including, without
limitation, interest, fees, commissions,
-4-
<PAGE> 5
expenses and costs chargeable by any of you to us or reimbursable by us to any
of you in connection with all of the foregoing.
1.30 "Old NatWest Notes" shall mean Interest Bearing Grid
Note dated July 31, 1995 in the amount of $10,000,000.
1.31 "Old Republic Notes" shall mean Demand Grid Note
dated January 31, 1992 in the amount of $20,000,000.
1.32 "Projected Letter of Credit Exposure" shall mean, at
any one time, the aggregate amount projected to be outstanding under all
Letters of Credit (including the amounts projected to be outstanding under the
Existing RNB Letters of Credit, and the Existing NatWest Letters of Credit) at
such time, as set forth in the Projections.
1.33 "Projected Total Line Outstanding" shall mean, at any
one time, the sum of (x) the aggregate unpaid principal amounts of the Loans
projected to be outstanding at such time, (y) the Projected Letter of Credit
Exposure at such time and (z) Existing RNB Standby Letters of Credit.
1.34 "Projections" shall mean our financial projections
dated August 9, 1995 provided by us to RNB and NatWest, a copy of which is
attached hereto as Exhibit A, or revised financial projections, if any,
accepted in writing by both RNB and NatWest, in their sole and absolute
discretion, as constituting the "Projections" for all purposes of this
Agreement.
1.35 "Records" shall have the meaning set forth in Section
4.1(h) hereof.
1.36 "Shortfall Amount" shall mean, for any month, the amount
specified in the Projections for such month by which the aggregate unpaid
principal amounts of the Loans and Existing RNB Standby Letters of Credit
projected to be outstanding for such month exceeds 80% of the projected Net
Amount of Eligible Accounts for such month.
Section 2. EXTENSIONS OF CREDIT.
2.1 Loans and Letters of Credit. Subject to the terms
and conditions hereof, provided there is no Event of Default, at our request
the Agent shall, from time to time until one (1) day prior to Due Date, acting
severally on behalf of RNB and NatWest, make loans to us (each, a "Loan"), and
(ii) issue Letters of Credit on behalf of RNB and NatWest (each, a "Letter of
Credit"), and such Loans may be repaid and re-borrowed hereunder provided,
however, that the Actual Total Line Outstanding shall not exceed the Maximum
Credit Amount and provided that there is no Event of Default. The extension of
any credit to us hereunder in excess of the Maximum Credit Amount or after an
Event of Default shall not be deemed to modify such amount or create any
obligation to make any further extension of credit in excess of such amount or
after an Event of Default.
2.2 Maximum Credit Amount
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<PAGE> 6
(a) The Maximum Credit Amount shall be, at any one time,
(before taking into account the deviances from the Projections expressly
permitted under subsections (b) and (c) of this Section 2.2) the lesser of (i)
$27,040,000.00 or (ii) the sum of (x) eighty percent (80%) (or such greater or
lesser percentage thereof as the Agent, in its sole and absolute discretion,
determine from time to time (such percentage in effect from time to time, the
"Accounts Advance Percentage")) of the Net Amount of Eligible Accounts which
have been validly assigned to the Agent and in which the Agent holds a security
interest pursuant to the terms hereof ranking prior to and free and clear of
the interests, claims and rights of others, (y) the Shortfall Amount, and (z)
the Projected Letter of Credit Exposure.
(b) The Agent may, in its sole and absolute discretion,
deem the Shortfall Amount to be increased by an amount of up to $2,000,000 at
any time during any month (excluding the last day of such month).
(c) The Agent may, in its sole and absolute discretion,
allow the Maximum Credit Amount to be increased by an amount of up to
$2,000,000 at any time during any month (excluding the last day of such month).
-6-
<PAGE> 7
2.3 Loans.
(a) Loan Accounts. All Loans made to us and other amounts
due from us hereunder shall be charged to a loan account in our name on the
Agent's books (the "Loan Account"), and the amount of such Loan Account shall
be allocated on the Agent's books, by notation by the Agent, indicating what
portion of such Loan or other amount due is due to the Agent on behalf of RNB
(the "RNB Loan Account") or NatWest (the "NatWest Loan Account"), as the case
may be. The Agent shall render to us each month a statement of the Loan
Account for the previous month, which shall indicate the amount in the RNB Loan
Account and in the NatWest Loan Account, which statement shall be considered
correct and deemed accepted by and conclusively binding upon us as an account
stated, except to the extent that the Agent receives a written notice of any
specific exceptions by us thereto within five (5) days (or such longer minimum
period as may be required by applicable law) after the date of such statement.
Subject to the foregoing, the Agent may, at its option, maintain one or more
separate accounts for us with respect to any and all Loans, fees, commissions,
expenses and costs chargeable to us hereunder. Maintaining the Loan Account,
the RNB Loan Account, the NatWest Loan Account and other separate accounts
shall not affect the nature or extent of any security interests in Collateral
granted by us to the Agent, RNB or NatWest in that any and all Loans or other
Obligations are secured by any and all security interests in Collateral
heretofore, now or hereafter granted to the Agent, RNB or NatWest. The debit
balance of the Loan Account at any time shall reflect the aggregate amount of
our indebtedness to RNB and NatWest hereunder and the related debit balance of
the RNB Loan Account or NatWest Loan Account at any time shall reflect that
portion of such indebtedness owed to RNB or NatWest, as the case may be.
(b) Promissory Notes. (i) On the Closing Date, we shall
execute and deliver (i) to RNB a Secured Promissory Note in the principal
amount of $16,224,000 maturing on the Due Date in form and substance
satisfactory to RNB (the "RNB Note"), and (ii) to NatWest a Secured Promissory
Note in the principal amount of $10,816,000, maturing on the Due Date in form
and substance satisfactory to NatWest (the "NatWest Note"). The RNB Note and
the NatWest Note shall evidence the Loans made to us hereunder on behalf of RNB
and NatWest, respectively. We hereby unconditionally and irrevocably authorize
each Bank (and any holder of such Bank's Note) to make notations on its books
and records of (i) the date and amount of the portion of each Loan allocable to
such Bank, (ii) the dates and amounts of all principal payments thereon, and
(iii) the remaining unpaid principal amounts thereof, in each case consistent
with the amount set forth on the Agent's books and records as the respective
amounts of the RNB Loan Account and the NatWest Loan Account. The information
entered on such Bank's books and records shall be binding upon us in absence of
manifest error; provided, however, to the extent there is any discrepancy
between the amount set forth on such Bank's books and records and the amount of
the NatWest Loan Account or the RNB Loan Account, the amount of such Loan
Account shall govern. Notwithstanding the foregoing, any failure by a Bank (or
the holder of such Bank's Note), to make notations on its respective books and
records shall in no way mitigate or discharge our obligation to repay any Loans
actually made. (ii) All unpaid principal amounts outstanding pursuant to the
Old RNB Notes
-7-
<PAGE> 8
and the Old NatWest Notes shall be deemed Loans under this Agreement, as of the
Closing Date, and shall be allocated to the Loan Account, and the RNB Loan
Account or the NatWest Loan Account, as the case may be, and shall be evidenced
by and repayable in accordance with the RNB Note or the NatWest Note, as the
case may be, and this Agreement, with appropriate notations made with respect
to such Notes on the books and records of each Bank. Such amounts shall be
deemed included within the terms "Loans" and "Obligations" for all purposes of
this Agreement, including, without limitation, calculating the Actual Total
Line Outstanding. All unpaid interest amounts owing pursuant to the RNB Old
Notes and the NatWest Old Notes, as of the Closing Date, shall be paid by us in
cash on the Closing Date to RNB or NatWest, as the case may be, or, if not so
paid, the full amount thereof shall be deemed to be a Loan hereunder made as of
the Closing Date, and shall be charged to the Loan Account accordingly, and the
Agent shall use the proceeds of such Loan to pay to RNB and NatWest, on the
Closing Date, the amount of such interest due to each of them.
2.4 Letters of Credit.
(a) Each Letter of Credit shall be issued pursuant to RNB's
standard form of application and reimbursement agreement for a commercial
letter of credit (the "Application"), and shall expire on a date no later than
180 days from the date of issuance or April 30, 1996, (except Existing RNB
Standby Letters of Credit,) whichever is earlier. We shall pay RNB's standard
fixed fees, as established from time to time, for opening and amending any
Letter of Credit, payable at the time of such opening or amendment. We shall
also pay, for each sight draft presented to the Agent in accordance with the
terms of any Letter of Credit, a negotiation fee equal to 1/4% of the face
amount of such sight draft. Such negotiation fee shall be payable when such
draft is presented to and honored by the Agent, all as more fully set forth in
the Application.
(b) The Existing RNB Letters of Credit and Existing RNB
Standby Letters of Credit, shall be deemed, from and after the Closing Date, to
be Letters of Credit issued by the Agent under this Agreement and the related
application and reimbursement agreements shall be deemed, from and after the
Closing Date, to run to the Agent for the benefit of RNB and NatWest. The
fixed and negotiation fees payable in respect of the Existing RNB Letters of
Credit shall be as set forth in subsection (a) of this Section 2.4. The
Existing NatWest Letters of Credit shall continue as letters of credit issued
by NatWest, and the fees in respect thereof shall be as set forth in the
related application and reimbursement agreements between us and NatWest.
(c) The outstanding amounts of the Existing RNB Letters of
Credit and the Existing NatWest Letters of Credit shall be included for all
purposes in calculating the Actual Letter of Credit Exposure, and such amounts
shall be deemed included in the term Obligations, for all purposes of this
Agreement and the Existing RNB Standby Letter of Credit shall be deemed for
purposes of this Agreement to be included in the term Obligations.
-8-
<PAGE> 9
2.5 At the Agent's option, all principal, interest, fees,
commissions, expenses and costs (including, without limitation, field
examination fees) chargeable by the Agent, RNB or NatWest to us or reimbursable
by us to such party in connection with this Agreement, or any supplement hereto
(all of which shall be cumulative and not exclusive) shall be due and payable
on demand, and, at the Agent's option, all such fees, commissions, expenses and
costs may be charged by the Agent directly to the Loan Account and allocated to
the RNB Loan Account and NatWest Loan Account, by the Agent.
2.6 All Loans shall be payable at the Agent's office
specified above or at such other place as the Agent may hereafter designate
from time to time.
Section 3. INTEREST AND FEES.
3.1 Interest shall be payable by us to the Agent, for the
account of RNB and NatWest, as the case may be, on the last day of each month
upon the closing daily balances in the Loan Account for each day during such
month, at a rate equal to one percent (1%) per annum in excess of the rate from
time to time established by the Agent at its principal domestic office as its
reference rate for domestic commercial loans, whether or not such established
reference rate is the best rate available from the Agent for commercial loans.
The rate charged hereunder shall increase or decrease by an amount equal to
each increase or decrease, respectively, in said reference rate, effective on
the first day of the month after any change in said reference rate based on the
reference rate in effect on the last day of the month in which any such change
occurs. The rate of interest in effect hereunder on the date hereof in
accordance with the foregoing, expressed in terms of simple interest, is nine
and three quarters percent (9 3/4%) per annum. Notwithstanding the foregoing,
in no event shall the interest rate payable under this Section 3.1 be less than
six percent (6%) per annum.
3.2 On and after the date of any Event of Default (and so
long as such Event of Default is continuing) interest on all outstanding unpaid
Loans shall accrue at a rate equal to two percent (2%) per annum above the rate
that would otherwise apply from the date of such Event of Default or
termination, and all interest accruing hereunder shall thereafter be payable on
demand.
3.3 Interest shall be calculated on the basis of a
360-day year and the actual number of days elapsed, and shall be included in
each monthly statement of the Loan Account. The Agent shall have the right, at
its option, to charge all interest to the Loan Account, and allocate it to the
RNB Loan Account and the NatWest Loan Account on the first day of each month,
and such interest shall be deemed to be paid by the first amounts subsequently
credited thereto.
3.4 Notwithstanding any provision herein or in any
related document, neither the Agent, RNB nor NatWest shall ever be entitled to
receive, collect, or apply, as interest on the Loan Account, any amount in
excess of the maximum rate of interest ("Maximum Rate") permitted to by charged
from time to time by applicable law (if such law imposes any
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<PAGE> 10
maximum rate), and in the event the Agent, RNB or NatWest ever receives,
collects, or applies as interest any amount in excess of the Maximum Rate, such
amount shall be deemed and treated as a partial prepayment of the principal of
the Loan Account; and, if the principal of the Loan Account and all other of
your charges other than interest are paid in full, any remaining excess shall
forthwith be paid to us. In determining whether or not the interest paid or
payable under any specified contingency exceeds the Maximum Rate, we shall, to
the extent permitted under applicable law, spread the total amount of interest
throughout the longer of: (a) the entire contemplated term hereof or (b) the
term during which this Agreement has been in effect; provided, however, that if
the Loan Account is paid in full prior to the end of the full contemplated term
hereof, and if the interest received for the actual period of existence hereof
exceeds the maximum lawful rate under applicable law, the Agent shall refund to
us the amount of such excess or credit the amount of such excess against the
principal of the Loan Account and, in such event, neither the Agent nor RNB or
NatWest shall be subject to any penalties provided by any laws for contracting
for, charging, or receiving interest in excess of the maximum lawful rate.
3.5 We shall pay the Agent monthly a loan management fee
of 1/4 of 1% per annum on the last day of each month upon the average daily
balances in the Loan Accounts for such month. Said payment to the Agent is
solely for the account of the Agent.
Section 4. SECURITY INTEREST.
4.1 As security for the prompt performance, observance
and payment in full of all Obligations, we hereby grant to the Agent on behalf
of itself, RNB and NatWest, a continuing security interest in, a lien upon and
a right of setoff against, and we hereby assign, transfer, pledge and set over
to the Agent on behalf of itself, RNB and NatWest, all of our right, title and
interest in and to the following (which together with any of our other property
in which you may now or at any time hereafter have a security interest or lien,
whether pursuant to any security or other agreement previously executed by us
in favor of RNB or NatWest, or any supplement hereto, or otherwise, are herein
collectively referred to as the "Collateral"): All present and future (a)
Accounts; (b) Inventory; (c) moneys, securities and other property and the
proceeds thereof, now or hereafter held or received by, or in transit to, the
Agent, RNB or NatWest from or for us, whether for safekeeping, pledge, custody,
transmission, collection or otherwise, and all of our deposits (general or
special), balances, sums and credits with you or any other party at any time
existing; (d) all of our rights, remedies, security and liens, in, to and in
respect of the Accounts, Inventory, and other Collateral described herein,
including, without limitation, rights of stoppage in transit, replevin,
repossession and reclamation and other rights and remedies of an unpaid vendor,
lienor or secured party, all proceeds of any letter of credit naming us as
beneficiary, guaranties or other contracts of suretyship with respect to the
Accounts, deposits or other security for the obligation of any Account Debtor,
and credit and other insurance; (e) all goods relating to, or which by sale
have resulted in, Accounts, including, without limitation, all goods described
in invoices, documents, contracts or instruments, including, without
limitation, promissory notes, with respect to, or otherwise representing or
evidencing, any Accounts or other Collateral, including without limitation, all
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returned, reclaimed or repossessed goods; (f) all additional amounts due to us
from any Account Debtor; (g) all books, records, ledger cards, computer
programs, tapes and related data processing software, and other property of any
kind or nature, whether general intangibles or otherwise, recording, evidencing
or relating to the Accounts, Inventory, any other above-mentioned Collateral or
any Account Debtor, together with the file cabinets or containers in which the
foregoing are stored ("Records"); (h) all other general intangibles of every
kind and description, whether or not arising out of the sale, leasing or other
disposition of goods or the rendition of services, including, without
limitation, causes of action, reversions from pension plans, trade names, trade
styles, trademarks and the goodwill of the business symbolized thereby,
patents, copyrights, licenses and Federal, State and local tax refunds and
claims of all kinds; and (i) all proceeds of the foregoing, in any form,
including, without limitation, cash, non- cash items, checks, notes, drafts and
other instruments for the payment of money, insurance proceeds, and any claims
against third parties for loss or damage to or destruction of any or all of the
foregoing. Such general assignment, pledge and security interest (i) shall
continue during the term of this Agreement and thereafter until payment in full
of the Obligations, whether or not this Agreement shall have sooner terminated,
and (ii) shall be in addition to and cumulative with any and all assignments,
pledges and security interests heretofore made or granted by us in favor of RNB
or NatWest pursuant to any security or other agreement previously executed by
us in favor of RNB or NatWest.
4.2 We shall keep and maintain, at our cost and expense,
satisfactory and complete books and records of all Accounts, all payments
received or credits granted thereon, and all other dealings therewith. At such
times as the Agent may request, in its sole and absolute discretion, we shall
mark our ledger cards, books of account and other records relating to Accounts
with appropriate notations satisfactory to the Agent in its sole and absolute
discretion, disclosing that such Accounts have been assigned to it. We shall
not assign, or attempt to assign, or otherwise grant any rights in or otherwise
encumber any of our Accounts to or in favor of any party other than the Agent.
At such time as the Agent may request, in its sole and absolute discretion, we
shall deliver to the Agent all original documents evidencing the sale, lease or
other disposition of goods or the rendition of services which created any
Accounts, including, but not limited to, all original contracts, orders,
invoices, bills of lading, warehouse receipts, delivery tickets and shipping
receipts, together with schedules describing the Accounts and/or written
confirmatory assignments to the Agent of each Account, in form and substance
satisfactory to the Agent, RNB and NatWest and duly executed by us, together
with such other information as the Agent may request. In no event shall the
making or the failure to make, or the content of, any schedule or assignment or
our failure to comply with the provisions hereof be deemed or construed as a
waiver, limitation or modification of the Agent's security interest in, lien
upon and assignment of the Collateral or our representations, warranties or
covenants under this Agreement or any supplement hereto.
Section 5. COLLECTION AND ADMINISTRATION.
5.1 Until our authority to do so is curtailed or
terminated at any time by notice from the Agent (which the Agent may give at
any time in its sole and absolute discretion), we
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shall, at our expense and on the Agent's behalf, collect, as the Agent's
property, on behalf of the Agent, RNB and NatWest, and in trust for the Agent,
RNB and NatWest, all remittances and all amounts unpaid on Accounts, and we
shall not commingle such collections with our own funds. We shall on the day
received remit all such collections to the Agent in the form received duly
endorsed by us for deposit with the Agent, unless you shall direct us
otherwise. All amounts collected on Accounts when received by the Agent
(including all prepayments in respect thereof or otherwise by Account Debtors)
shall be credited to the Loan Account, and further credited by allocation made
by the Agent, in its sole discretion, to the RNB Loan Account and the NatWest
Loan Account, as the case may be, after adding two (2) Business Days for
collection, clearance and transfer of remittances, conditional upon final
payment to the Agent.
5.2 All Records shall be kept in appropriate containers
in safe places, bearing suitable legends identifying them as being under the
Agent's dominion and control. The Agent, RNB and NatWest, or their
representatives, shall at all times have free access to and right of inspection
of the Collateral and have full access to and the right to examine and make
copies of our Records, to confirm and verify all Accounts, to perform general
audits and to do whatever else any of you deem necessary to protect any of your
interests. The Agent may at any time remove from our premises or require us or
any accountants and auditors employed by us to deliver to the Agent, RNB or
NatWest any Records and the Agent may, without cost or expense to the Agent,
RNB or NatWest, use such of our personnel, supplies, computer equipment and
space at our places of business as may be reasonably necessary for the handling
of collections.
5.3 We shall promptly upon obtaining knowledge thereof
report to the Agent all reclaimed, repossessed or returned goods, Account
Debtor claims and any other matter affecting the value, enforceability or
collectibility of Accounts. At the Agent's request, any goods reclaimed or
repossessed by or returned to us will be set aside, marked with the Agent's
name and held by us for the Agent's account and subject to your security
interest. All claims and disputes relating to Accounts are to be promptly
adjusted within a reasonable time, at our own cost and expense. The Agent may,
at your option, settle, adjust or compromise claims and disputes relating to
Accounts which are not adjusted by us within a reasonable time.
5.4 We shall, in the manner requested by the Agent from
time to time, direct that all proceeds of Accounts, letters of credit, bankers'
acceptances and other proceeds of Collateral shall be paid to a lock box or
post office box designated by the Agent and under the Agent's control and/or
deposited into a blocked account under the Agent's control and/or deposited
into an account maintained in the Agent's name and under the Agent's control
and in connection therewith shall execute such lock box, blocked account or
other agreement as the Agent in its sole and absolute discretion shall specify.
Section 6. REPRESENTATIONS, WARRANTIES AND COVENANTS.
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We hereby represent, warrant and covenant to each of the
Agent, RNB and NatWest the following (which shall survive the execution and
delivery of this Agreement), the truth and accuracy of which, or compliance
with, being a continuing condition of the making of Loans and the issuance of
Letters of Credit by the Agent on behalf of each of RNB and NatWest, severally,
hereunder or under any supplement hereto:
6.1 We are, and shall be, with respect to all Collateral
now existing or hereafter acquired, the owner of such Collateral free from any
lien, security interest, claim or encumbrance of any kind, except in the
Agent's favor and as otherwise consented to in writing by the Agent, and we
shall defend the same against the claims of all persons.
6.2 The only location of any Collateral hereunder are
those addresses listed on Schedule A annexed hereto and made a part hereof.
Schedule A sets forth the owner and/or operator of the premises at such
addresses for all locations which we do not own and operate, and all mortgages,
if any, with respect to such premises. We shall not remove any such Collateral
from such locations or sell, lease, transfer, assign or otherwise dispose of
any Inventory, and we have not, and shall not consign any Inventory with any
party, or store any Inventory with any bailee, warehouseman or similar party,
without (a) ten (10) business days' prior written notice to the Agent, RNB and
NatWest and the Agent's written consent, and (b) first making all arrangements
and delivering or causing to be delivered to the Agent, RNB and NatWest such
agreements and other documentation requested by you for the protection and
preservation of the Agent's security interests and liens, in form and substance
satisfactory to the Agent, in its sole and absolute discretion, except for
sales of Inventory in the ordinary course of our business.
6.3 We shall at all times maintain, with financially
sound and reputable insurers, casualty and hazard insurance with respect to the
Inventory for not less than its full market value and against all risks to
which it may be exposed. All such insurance policies shall be in such form,
substance and coverage as may be satisfactory to the Agent in its sole and
absolute discretion and shall provide for thirty (30) days' minimum prior
cancellation notice in writing to the Agent. The Agent may act as
attorney-in-fact for us in obtaining, adjusting, settling, amending and
canceling such insurance without liability to us. We shall promptly (a) obtain
endorsements to all existing and future insurance policies with respect to the
Inventory specifying that the proceeds of such insurance shall be payable to
the Agent, on behalf of RNB and NatWest, and us as their and our interests may
appear and further specifying that the Agent shall be paid regardless of any
act, omission or breach of warranty by us, (b) deliver to the Agent an original
executed copy of, or executed certificate of the insurance carrier with respect
to, such endorsement and, at the Agent's request, the original or a certified
duplicate copy of the underlying insurance policy, and (c) deliver to the Agent
such other evidence which is satisfactory to the Agent in its sole and absolute
discretion of compliance with the provisions hereof.
6.4 We shall promptly notify the Agent, RNB and NatWest
in writing of the details of any loss, damage, investigation, action, suit,
proceeding or claim relating to the
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Inventory or which would result in any material adverse change in our business,
properties, assets, goodwill or condition, financial or otherwise.
6.5 At the Agent's option, it may apply insurance monies
received at any time to the cost of repairs to or replacement of the Inventory
and/or to payment of any of the Obligations, whether or not due, in any order
and in such manner as the Agent, in its sole and absolute discretion, may
determine.
6.6 Upon the request of the Agent, RNB or NatWest, at any
time and from time to time, we shall, at our sole cost and expense, execute and
deliver to the Agent, RNB and NatWest written reports or appraisals as to the
Inventory listing all items and categories thereof, describing the condition of
the same and setting forth the value thereof (the lower of cost or market
value), in such form as is satisfactory to the Agent in its sole and absolute
discretion. We shall at all times during normal business hours allow the
Agent, RNB or NatWest, or their agents, to examine and inspect the Inventory,
as well as our Records relating thereto, and to make extracts and copies of
such Records.
6.7 We shall (a) use, store and maintain the Inventory
with all reasonable care and caution, and (b) use the Inventory for lawful
purposes only and in conformity with applicable laws, ordinances and
regulations.
6.8 All Inventory shall be produced in accordance with
the requirements of the Federal Fair Labor Standards Act of 1938, as amended,
and all rules, regulations and orders related thereto.
6.9 The Inventory is and shall be used in our business
and not for personal, family, household or farming use.
6.10 We assume all responsibility and liability arising
from or relating to the use, sale or other disposition of the Inventory.
6.11 We shall pay when due all taxes, license fees and
assessments relating to the Inventory.
6.12 We shall not directly or indirectly sell, lease,
transfer, abandon or otherwise dispose of all or any substantial portion of our
property or assets or consolidate or merge with or into any other entity or
permit any other entity to consolidate or merge with or into us. We have not
previously changed our corporate name, been the surviving entity in a merger or
acquired any business except as disclosed to the Agent, RNB and NatWest in
writing. We will at all times preserve, renew and keep in full force and
effect our existence as a corporation and the rights and franchises with
respect thereto and continue to engage in business of the same type as we are
engaged in as of the date hereof. We utilize no trade names in the conduct of
our business except as set forth on Schedule D annexed hereto and made a part
hereof. We shall give the Agent, RNB and NatWest thirty (30) days prior
written notice of any
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proposed change in our corporate name, or the intended use of any other trade
name, which notice shall set forth the new name, and, prior to making any such
change, we agree to execute any additional financing statements or other
documents or notices which the Agent may require in its sole and absolute
discretion.
6.13 Our Records and chief executive office are maintained
at the address referred to below and have been so on a continuous basis for at
least six (6) months. We shall not change such location without the Agent's
prior written consent and, prior to making any such change, we agree to execute
any additional financing statements or other documents or notices which the
Agent may require in its sole and absolute discretion.
6.14 (a) We shall maintain our shipping forms,
invoices and other related documents in a form satisfactory to the Agent and
shall maintain our books, records and accounts in accordance with generally
accepted accounting principles consistently applied. We agree to furnish the
Agent, RNB and NatWest, on a daily basis, with a schedule of accounts and
assignments, a schedule of credits and adjustments and debit assignments, and a
lockbox collection report, and, on a weekly basis, with a report of agings of
accounts and an inventory report (including breakdowns of inventory by location
and according to whether such inventory constitutes raw materials, work in
process, or finished goods). All such schedules and reports shall be on RNB's
standard forms or on forms otherwise satisfactory to the Agent, RNB and
NatWest.
(b) We shall furnish the Agent, RNB and NatWest with audited
financial statements for each fiscal year, within 90 days of the end of such
year, certified by independent public accountants selected by us and acceptable
to the Agent, RNB and NatWest, in such scope and detail as the Agent, RNB and
NatWest may require in such party's sole and absolute discretion. All such
statements and information shall fairly present our financial condition as of
the dates and the results of our operations for the periods for which the same
are furnished.
(c) We shall furnish the Agent, RNB and NatWest with copies of
each 10-K Report and 10-Q Report filed by us with the Securities and Exchange
Commission (the "SEC"), at the same time as such Reports are filed with the
SEC.
(d) We also agree to furnish the Agent, RNB and NatWest, at any time
or from time to time with such other information and reports regarding our
business affairs and financial condition, in such scope and detail, and such
other financial statements, certified, reviewed or prepared by such accountants
or our personnel, as the Agent or such bank may require in its sole and
absolute discretion, including, without limitation, balance sheets, statements
of profit and loss, financial statements, cash flow and other projections,
earnings forecasts, schedules, agings and reports.
(e) We hereby irrevocably authorize and direct all accountants,
auditors or other third parties to deliver to the Agent, RNB and NatWest, at
our expense, copies of our financial statements, management letters, papers
related thereto, and other accounting records of any
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nature relating to us in their possession and to disclose to the Agent, RNB and
NatWest any information they may have regarding our business affairs and
financial condition.
(f) All such information furnished by us under this Section 6.14
shall be, at the time the same is so furnished, accurate and correct in all
material respects and complete insofar as completeness may be necessary to give
the Agent, RNB and NatWest a true and accurate knowledge of the subject matter
thereof. Any documents, schedules, invoices or other papers delivered to the
Agent, RNB and NatWest may be destroyed or otherwise disposed of by such party
one (1) year after the date the same are delivered to such party, unless we
make written request therefor and pay all expenses attendant to their return,
in which event such party shall return same when its actual or anticipated need
therefor has ceased.
6.15 Each Eligible Account represents a valid and legally
enforceable indebtedness based upon an actual and bona fide sale and delivery
of goods or rendition of services in the ordinary course of our business which
has been finally accepted by the Account Debtor and for which the Account
Debtor is unconditionally liable to make payment of the amount stated in each
invoice, document or instrument evidencing the Eligible Account in accordance
with the terms thereof, without offset, defense, counterclaim, discount or
allowance, and will be paid in full at maturity, and no agreement under which
any deduction, discount, credit or allowance of any kind may be granted or
allowed shall have been or shall thereafter be made by us with any Account
Debtor. We shall accept no promissory note representing the indebtedness in
respect of any Account without the Agent's prior written approval, and any such
note shall immediately be endorsed by us to the Agent with recourse and
delivered to it.
6.16 All statements made and all unpaid balances appearing
in the invoices, documents and instruments evidencing each Eligible Account are
true and correct and are in all respects what they purport to be and all
signatures and endorsements that appear thereon are genuine and all signatories
and endorsers have full capacity to contract therefor. We are not and shall
not be entitled to pledge the credit of the Agent, RNB or NatWest on any
purchase or for any purpose whatsoever. None of the transactions underlying or
giving rise to any Eligible Account shall violate any state or federal laws or
regulations, and all documents relating to the Eligible Accounts shall be
legally sufficient under such laws or regulations and shall be legally
enforceable in accordance with their terms and all recording, filing and other
requirements of giving public notice under any applicable law have been duly
complied with.
6.17 We shall duly pay and discharge all taxes,
assessments, contributions and governmental charges upon or against us or our
properties or assets or otherwise due from us, including FICA and withholding
taxes, prior to the date on which penalties attach thereto. The Agent, RNB or
NatWest shall be entitled to pay any such taxes, assessments, contributions and
charges for our account and the Agent may charge any such payment to the Loan
Account. We shall be liable for any tax or penalty imposed upon any
transaction under this Agreement or any supplement hereto or giving rise to the
Accounts or any other Collateral or which the Agent, RNB or NatWest may be
required to withhold or pay for any
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reason and we agree to indemnify and hold the Agent, RNB and NatWest harmless
with respect thereto, and to repay to the Agent, RNB or NatWest, as the case
may be, on demand the amount thereof, and until paid by us such amount shall be
added to and deemed part of the Loans under this Agreement.
6.18 Except as otherwise disclosed to the Agent in
writing, there is no present investigation by any governmental agency pending
or threatened against us and there is no action, suit, proceeding or claim
pending or threatened against us or our business, assets or goodwill, or
affecting any transactions contemplated by this Agreement, or any supplement
hereto, or any agreements, instruments or documents delivered in connection
herewith or therewith before any court, arbitrator, or governmental or
administrative body or agency which if adversely determined with respect to us
would result in any material adverse change in our business, assets, goodwill,
or condition, financial or otherwise, or adversely affect any of the Collateral
or the rights of the Agent, RNB or NatWest therein.
6.19 We are a corporation duly organized and validly
existing and in good standing under the laws of the state of incorporation
listed on the signature page below, and are duly qualified and existing and in
good standing in every other state or other jurisdiction in which the nature of
our business or the location of our assets requires us to be so qualified.
6.20 The execution, delivery and performance of the
Agreement, any supplement hereto, or any agreements, instruments and documents
executed and delivered in connection herewith, are within our corporate powers,
have been duly authorized by all necessary corporate action, and are not in
contravention of law or the terms of our Certificate of Incorporation, By-Laws
or other governing documents, or of any indenture, agreement or undertaking to
which we are a party or by which we or any of our properties are bound, and
each of them is our binding act and deed, enforceable against us in accordance
with its respective terms. We are, and shall remain, solvent at all times
while this Agreement is in effect or any Obligation remains unpaid.
6.21 We shall, at our expense, duly execute and deliver,
or shall cause to be duly executed and delivered, such further agreements,
instruments and documents, including, without limitation, additional security
agreements, mortgages, deeds of trust, deeds to secure debt, collateral
assignments, UCC financing statements or amendments or continuations thereof,
landlord's or mortgagee's waivers of liens and consents to the exercise by the
Agent, RNB and NatWest of all such party's rights and remedies hereunder, under
any supplement hereto or applicable law with respect to the Collateral, and
shall do or cause to be done such further acts and shall observe such other
formalities as may be necessary or proper in the sole and absolute discretion
of the Agent, RNB or NatWest to evidence, perfect, maintain and enforce the
Agent's security interest and the priority thereof in the Collateral and to
otherwise effectuate the provisions or purposes of this Agreement or any
supplement hereto. Where permitted by law, we hereby authorize the Agent to
execute and file one or more UCC financing statements evidencing its rights in
the Collateral signed only by the Agent.
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6.22 All Loans requested by us under this Agreement shall
be used for our general corporate and business purposes and shall in no event
be requested or used by us for the specific purpose of: (a) making payments to
Affiliates of any nature whatsoever, except in the ordinary course of business;
(b) purchasing or carrying of any "margin security"; or (c) otherwise in
violation of Regulation U or Regulation X promulgated by the Board of Governors
of the Federal Reserve System or any other Federal, State or local law or
regulation.
6.23 We shall at all times remain in compliance with each
and every item set forth in the Projections (including, without limitation, all
amounts set forth therein for working capital, tangible net worth, quarterly
profit or loss, and monthly cash flows), subject only to the deviances from the
Projections expressly permitted pursuant to Section 2.2 hereof.
6.24 We shall not expend for salaries, bonuses, or other
compensation for our executive officers more than the amounts payable as of the
date hereof.
6.25 We shall permit the Agent, RNB and NatWest to conduct
field examinations at our offices and at each location where any of the
Collateral is located, at any time and from time to time as the Agent, RNB and
NatWest, in their sole and absolute discretion, deem necessary, and we shall
pay on demand all expenses of the Agent, RNB and NatWest related thereto. You
have advised us that it is anticipated that no additional field examinations
will be conducted during the term of this Agreement.
Section 7. SPECIFIC POWERS.
7.1 We hereby constitute the Agent and its agents and
designees as our attorneys-in-fact, at our own cost and expense, to exercise at
any time all or any of the following powers at such time or from time to time,
as the Agent may determine, in its sole and absolute discretion, which, being
coupled with an interest, shall be irrevocable until all Obligations have been
paid in full: (a) to receive, take, endorse, assign, deliver, accept and
deposit, in the Agent's or our name, any and all checks, notes, drafts,
remittances and other instruments and documents relating to the Collateral; (b)
to receive, open and dispose of all mail addressed to us and to notify postal
authorities to change the address for delivery thereof to such address as the
Agent may designate; (c) to transmit to Account Debtors notice in the Agent's
or our name of the Agent's interest therein and to request from such Account
Debtors at any time, in the Agent's or our name or that of your designee,
information concerning the Accounts and the amounts owing thereon; (d) to
notify in the Agent's or our name Account Debtors to make payment directly to
the Agent; (e) to take or bring, in the Agent's or our name, all steps,
actions, suits or proceedings deemed by you necessary or desirable to effect
collection of the Collateral; and (f) to the extent permitted by applicable
law, to execute in our name and on our behalf any UCC financing statements or
amendments thereto naming us as debtor and the Agent as secured party and
describing the Collateral evidencing your rights in the Collateral. Without
limiting the generality of the foregoing, the Agent is hereby authorized to
accept and to deposit all collections (including prepayments) in any form
relating to Accounts received from or for the account of Account Debtors
(whether such collections
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are remitted directly to you or are forwarded to you by us), including
remittances which may reflect deductions taken by Account Debtors, regardless
of amount, the Loan Account to be credited only with amounts actually collected
on Accounts in accordance with Section 5.1. We hereby release: (a) any bank,
trust company or other firm receiving or accepting such collections in any
form, and (b) the Agent, RNB and NatWest and their respective officers,
employees and designees, from any liability arising from any act or acts
hereunder in furtherance hereof, whether of omission or commission, and whether
based upon any error of judgment or mistake of law or fact.
7.2 Nothing herein contained shall be construed to
constitute us as the agent for the Agent, RNB or NatWest for any purpose
whatsoever. Neither the Agent, RNB nor NatWest shall be responsible or liable
for any shortage, discrepancy, damage, loss or destruction of any Collateral
wherever the same may be located and regardless of the cause thereof. Neither
the Agent, RNB nor NatWest shall, under any circumstances or in any event
whatsoever, have any liability for any error or omission or delay of any kind
occurring in the settlement, collection or payment of any of the Accounts or
any instrument received in payment thereof or for any damage resulting
therefrom. The Agent may, without notice to or consent from us, sue upon or
otherwise collect, extend the time of payment of, or compromise or settle for
cash, credit or otherwise upon any terms, any of the Accounts or any
securities, instruments or insurance applicable thereto and release the Account
Debtor thereon. The Agent is authorized and empowered to accept the return of
the goods represented by any of the Accounts, without notice to or consent by
us, all without discharging or in any way affecting our liability hereunder.
Neither the Agent, RNB nor NatWest, by anything herein or in any assignment or
otherwise, assumes any of our obligations under any contract or agreement
assigned to any such party, and you shall not be responsible in any way for the
performance by us of any of the terms and conditions thereof.
Section 8. DEMAND, EVENTS OF DEFAULT AND REMEDIES.
8.1 All Obligations shall be, at the Agent's option,
exercisable in the Agent's sole and absolute discretion, immediately due and
payable, and any provision of this Agreement or any supplement hereto, as to
future Loans and Letters of Credit shall, at the Agent's option, exercisable in
such party's sole and absolute discretion, terminate forthwith upon: (a) the
occurrence of any one or more of the following ("Events of Default"): (i) if we
shall fail to pay when due any amounts owing under any Obligation, or shall
fail to perform or shall otherwise breach any of the terms, covenants,
conditions or provisions of this Agreement, any supplement hereto or any other
agreement given by us in favor of the Agent, RNB or NatWest; (ii) if any
representation, warranty, or statement of fact made to any of you at any time
by us or on our behalf is false or misleading in any material respect; (iii) if
we, or any guarantor, endorser or other person liable on the Obligations, shall
become insolvent, fail to meet our or their debts as they mature, call a
meeting of creditors or have a creditors' committee appointed, make an
assignment for the benefit of creditors, commence or have commenced against us
or them any action or proceeding for relief under any bankruptcy, insolvency,
moratorium or similar law, or if a final and non-appealable judgment in excess
of
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$100,000.00 not covered by insurance is rendered against us or them, or if we
or they suspend or discontinue doing business for any reason, or if a receiver,
custodian or trustee of any kind is appointed for us or them or any of our or
their respective properties; (iv) if there is any change in our control or
ownership; (v) if there shall be a material adverse change in our business,
assets or condition (financial or otherwise) from the date hereof; or (vi) if
at any time any of you shall, in such party's sole discretion, consider the
Obligations insecure or any part of the Collateral unsafe, insecure or
insufficient.
8.2 Upon the occurrence of any Event of Default and at
any time thereafter, the Agent shall have the right (in addition to any other
rights the Agent may have under this Agreement, any supplement hereto or
otherwise) without further notice to us, to appropriate, set off and apply to
the payment of any or all of the Obligations, any or all Collateral, in such
manner as such party shall in its sole and absolute discretion determine, to
enforce payment of any Collateral, to settle, compromise or release in whole or
in part, any amounts owing on the Collateral, to prosecute any action, suit or
proceeding with respect to the Collateral, to extend the time of payment of any
and all Collateral, to make allowances and adjustments with respect thereto, to
issue credits in the Agent's or our name, to enter upon any premises on or in
which any of the Inventory may be located and, without resistance or
interference by us, take possession of the Inventory; to complete processing,
manufacturing and repair of all or any portion of the Inventory; to sell,
foreclose or otherwise dispose of any part or all of the Inventory on or in any
of our premises or premises of any other party, in connection with which we
hereby waive any and all notices of any such sale or other intended disposition
if said Inventory is perishable or threatens to decline speedily in value or is
of a type customarily sold on a recognized market; to require us, at our
expense, to assemble and make available to the Agent any part or all of the
Inventory at any place and time designated by the Agent; to remove any or all
of the Inventory from any premises on or in which the same may be located, for
the purpose of effecting the sale, foreclosure or other disposition thereof or
for any other purpose; to sell, assign and deliver the Collateral (or any part
thereof), at public or private sale, at broker's board, for cash, upon credit
or otherwise, at the Agent's sole option and discretion, and may bid or become
purchaser at any such sale, if public, free from any right of redemption, which
is hereby expressly waived.
8.3 In the event the Agent seeks to take possession of
all or any portion of the Collateral by judicial process, we irrevocably waive:
(a) the posting of any bond, surety or security with respect thereto which
might otherwise be required, (b) any demand for possession prior to the
commencement of any suit or action to recover the Collateral, and (c) any
requirement that you retain possession and not dispose of any Collateral until
after trial or final judgment.
8.4 We agree that neither the Agent, nor RNB or NatWest
shall have any obligation to give us notice of any proposed sale, or the place
or time thereof, of any Collateral for which there is a recognized market and a
readily ascertainable market price, and that with respect to other Collateral,
the giving of five (5) days notice by any of you, sent by ordinary mail,
postage prepaid, to our address set forth below, designating the place and time
of any
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<PAGE> 21
public sale or of such time after which any private sale or other intended
disposition of the Collateral is to be made, shall be deemed to be reasonable
notice thereof, and we waive any other notice with respect thereto.
8.5 The net cash proceeds resulting from the exercise of
any of the foregoing rights or remedies shall be applied by the Agent to the
payment of the Obligations in ratio to the RNB Loan Account and the NatWest
Loan Account and we shall remain liable for any deficiency. Without limiting
the generality of the foregoing, if the Agent enters into any credit
transaction, directly or indirectly, in connection with the disposition of any
Collateral, the Agent shall have the option, at any time, in its sole and
absolute discretion, to reduce the Obligations by the principal amount of such
credit transaction or to defer the reduction thereof until actual receipt by
such party of cash or other immediately available funds in connection
therewith.
8.6 We shall be liable to each of the Agent, RNB and
NatWest for any expenditures made by such party for the maintenance and
preservation of the Collateral hereunder, including for taxes, levies,
insurance and repairs, removal of liens and satisfaction of charges and claims,
including, but not limited to any of the foregoing relating to warehouse
charges, dyeing, finishing and processing charges, or landlord claims, and for
the repossession, holding, preparation and sale or other disposition of such
Collateral (including reasonable attorneys' and accountants' fees and legal
expenses), as well as all damages for any breach of warranty,
misrepresentation, or breach of covenant by us, and all such liabilities shall
be added to and included as part of the Obligations and shall be payable upon
demand.
8.7 Neither the Agent, nor RNB or NatWest, shall be
liable for the safekeeping of any of the Inventory or for any loss, damage or
diminution in the value thereof or for any act or default of any warehouseman,
carrier or other person dealing in or with said Inventory, whether as your
agent or otherwise, or for the collection of any proceeds thereof, and the same
shall at all times be at our sole risk.
8.8 Each of the Agent, RNB and NatWest is hereby
authorized at any time and from time to time, without notice to us (any such
notice being expressly waived by us) to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other indebtedness at any time owing by such party to or for our credit or our
account against any and all of the Obligations, irrespective of whether or not
such party shall have made any demand thereon.
8.9 The enumeration of the foregoing rights and remedies
is not intended to be exclusive or exhaustive, and such rights and remedies are
in addition to and not by way of limitation of any other rights or remedies
each of you may have under the UCC or other applicable law. The Agent shall
have the right, in its sole and absolute discretion, to determine which rights
and remedies, and in which order any of the same, are to be exercised, and to
determine which Collateral is to be proceeded against and in which order, and
the exercise of any right or remedy shall not preclude the exercise of any
others, all of which shall be cumulative, and may be exercised concurrently or
seriatim.
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<PAGE> 22
8.10 No act, failure or delay by you shall constitute a
waiver of any of the rights and remedies of the Agent, RNB or NatWest. No
single or partial waiver by the Agent, RNB or NatWest of any provision of this
Agreement or any supplement hereto, or breach or default thereunder, or of any
right or remedy which it may have shall operate as a waiver of any other
provision, breach, default, right or remedy, or of the same provision, breach,
default, right or remedy on a future occasion.
8.11 We waive presentment, notice of dishonor, protest and
notice of protest of all instruments included in or evidencing any of the
Obligations or the Collateral and any and all notices or demands whatsoever
(except as expressly provided herein). Any of you may, at all times, proceed
directly against us to enforce payment of the Obligations and shall not be
required to take any action of any kind to preserve, collect or protect your or
our rights in the Collateral.
Section 9. EFFECTIVE DATE; TERMINATION; COSTS.
9.1 This Agreement shall become effective upon acceptance
by each of you and shall continue in full force and effect for a term ending on
December 31, 1995, unless sooner terminated pursuant to the terms hereof. No
termination of this Agreement, however, whether pursuant to this Section 9.1 or
upon demand or the occurrence of an Event of Default in accordance with Section
8.1 shall relieve or discharge us of our duties, obligations and covenants
hereunder until all Obligations have been indefeasibly paid in full, and the
continuing security interest of the Agent, RNB and NatWest in the Collateral
shall remain in effect until such Obligations have been fully and finally
discharged and notwithstanding the fact that at any time or from time to time
the Loan Account may be temporarily in a credit position.
9.2 This Agreement, any supplement hereto, and any
agreements, instruments or documents delivered or to be delivered in connection
herewith represent our entire agreement and understanding concerning the Loans
contemplated to be made and the Letters of Credit contemplated to be issued
hereunder, and supersede all other prior and contemporaneous agreements,
understandings, negotiations and discussions, representations, warranties,
commitments, offers, contracts, whether oral or written with respect to such
Loans and Letters of Credit; provided, however, that any security or other
agreements granting to RNB or NatWest security interests in any of the
Collateral shall continue in full force and effect, and provided, further, that
this Section 9.2 shall in no respect terminate, cancel, reduce, or otherwise
limit our liability to the Agent, RNB or NatWest in respect of any Obligations,
if any, other than such Loans and Letters and Credit, existing on and as of the
date hereof, or otherwise arising after the date hereof.
9.3 Neither this Agreement, nor any provision hereof
shall be waived, terminated (except as expressly provided herein) or changed,
modified or amended orally or by course of conduct except by a written
instrument expressly referring hereto signed by us and each of you. Any of you
may assign your rights in and to this Agreement, the Collateral,
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<PAGE> 23
or any interest herein or therein, including, without limitation, through the
sale of one or more participations to other lenders, and the benefits hereof
and thereof shall inure to the benefit of any such assignee.
9.4 Upon your request we shall pay to the Agent, RNB or
NatWest, as the case may be, or reimburse any of you for, all sums, costs and
expenses which such party may pay or incur in connection with or related to the
administration and enforcement of this Agreement, any supplement hereto, and
all other agreements, instruments and documents in connection herewith and
therewith, and the transactions contemplated hereunder and thereunder, together
with any amendments, supplements, consents or modifications which may be
hereafter made or entered into in respect hereof or thereof, and all efforts
made to defend, protect or enforce the security interest granted herein or
therein or in enforcing payment of the Obligations, including, without
limitation, in actions or proceedings which may involve any person asserting a
claim or priority with respect to the Collateral, and including without
limitation, appraisal fees, stenographers charges, filing fees and taxes, title
insurance premiums, recording taxes, expenses for title, lien and other
searches and examination thereof, expenses heretofore incurred by such party
and from time to time hereafter incurred during the course of periodic field
examinations of the Collateral after December 31, 1995 and our operations, wire
transfer fees, check dishonor fees, the fees and disbursements of counsel to
each or any of you in connection with any of the foregoing or otherwise related
to this Agreement and the transactions contemplated hereby, including without
limitation, for rendering opinion letters, the fees and commissions of
collection agencies, all fees and expenses for the service and filing of
papers, premiums or bonds and undertakings, fees of marshals, sheriffs,
custodians, auctioneers and others, travel expenses and all court costs and
collection charges, all of which shall be part of the Obligations and shall
accrue interest after demand therefor at a rate equal to the highest rate then
payable on any of the Obligations.
Section 10. THE AGENT.
10.1 Appointment of Agent. RNB and NatWest each hereby
designates RNB, as Agent (the "Agent") to act as specified herein, including
with respect to the Collateral. RNB and NatWest each hereby irrevocably
authorizes the Agent to take such action on its behalf under the provisions of
this Agreement and any other loan and security documents and any other
instruments and agreements referred to herein or related thereto and to
exercise such powers and to perform such duties hereunder and thereunder as are
specifically delegated to or required of the Agent by the terms hereof and
thereof and such other powers as are reasonably incidental thereto. The Agent
may perform any of its duties hereunder by or through its agents or employees.
10.2 Nature of Duties of Agent. The Agent shall have no
duties or responsibilities except those expressly set forth in this Agreement.
Neither the Agent nor any of its officers, directors, employees or agents shall
be liable for any action taken or omitted by it as such hereunder or in
connection herewith, unless caused by its or their gross negligence or willful
misconduct.
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<PAGE> 24
10.3 Certain Rights of the Agent. If the Agent shall
request instructions from RNB or NatWest or both with respect to any act or
action (including the failure to act) in connection with this Agreement or any
of the other related loan and security documents, the Agent shall be entitled
to refrain from such act or taking such or any action unless and until the
Agent shall have received instructions from RNB or NatWest or both, as the
Agent in its sole discretion shall determine, and the Agent shall not incur
liability to any person by reason of so refraining.
10.4 Reliance by Agent. The Agent shall be entitled to
rely, and shall be fully protected in relying, upon any note, writing,
resolution, notice, statement, certificate, telex, teletype or telecopier
message, order or other documentary, teletransmission or telephone message
believed by it to be genuine and correct and to have been signed, set or made
by the proper Person. The Agent may consult with legal counsel (including our
counsel or counsel to any guarantor), independent public accountants (including
those retained by us or any guarantor) and other experts selected by it and
shall not be liable for any action taken or omitted to be taken by it in good
faith in accordance with the advice of such counsel, accountants or experts.
10.5 Agent in its Individual Capacity. RNB, in its
individual capacity and not as Agent, shall have the same rights and powers
hereunder as the other lender hereunder and may exercise the same as though it
were not performing the duties specified herein, as Agent.
10.6 Successor Agent.
(a) The Agent may resign at any time by giving
written notice thereof to RNB, NatWest and us. Upon any such resignation RNB
and NatWest shall have the right to jointly appoint a successor Agent. If no
successor Agent shall have been so appointed, and shall have accepted such
appointment, within thirty (30) days after the retiring Agent's giving of
notice of resignation, then the retiring Agent may, on behalf of RNB and
NatWest, appoint a successor Agent, which shall be a bank which maintains an
office in the United States of America, or a commercial bank organized under
the laws of the United States of America or of any State thereof, or any
affiliate of such bank, having a combined capital and surplus of at least
$2,000,000.00.
(b) Upon the acceptance of any appointment as
Agent hereunder by a successor agent, such successor Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Agent, and the retiring Agents shall be discharged from its
duties and obligations under this Agreement and the other related loan and
security documents. After any retiring Agent's resignation or removal
hereunder as Agent, the provisions of this Agreement relating to the Agent
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Agent under this Agreement and the other related loan and security
documents.
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<PAGE> 25
Section 11. NOTICES.
11.1 Except as expressly otherwise provided herein, all
notices, requests and demands to or upon the respective parties hereto shall be
given or made only by hand, Federal Express, Express Mail or other recognized
overnight delivery service or by certified or registered mail, and shall be
deemed to have been duly given or made: if by hand, immediately upon delivery;
if by Federal Express, Express Mail or overnight delivery service, one (1) day
after dispatch; and if mailed by certified or registered mail, return receipt
requested, five (5) days after mailing. All notices, requests and demands are
to be given or made to the respective parties at the address (or to such other
addresses as either party may designate by notice in accordance with the
provisions of this paragraph) set forth herein.
Section 12. JURISDICTION; CHOICE OF LAW; WAIVER OF JURY TRIAL.
12.1 In any action or proceeding of any kind arising out
of or relating to this Agreement, any supplement hereto, the Obligations, the
Collateral or any such other transaction, we waive personal service of any
summons, complaint or other process and agree that service thereof may be made
by certified or registered mail directed to us at our address set forth below.
Within thirty (30) days after such mailing, we shall appear in answer to such
summons, complaint or other process, failing which we shall be deemed in
default and judgment may be entered by you against us for the amount of the
claim and other relief requested therein.
12.2 This Agreement and all transactions hereunder shall
be deemed to be consummated in the State of New York and shall be governed by
and interpreted in accordance with the laws of that State without giving effect
to principles governing conflicts of laws. If any part or provision of this
Agreement is invalid or in contravention of any applicable law or regulation,
such part or provision shall be severable without affecting the validity of any
other part or provision of this Agreement.
12.3 WE AND EACH OF YOU HEREBY WAIVE ALL RIGHTS TO A TRIAL
BY JURY IN ANY ACTION OR PROCEEDING OF ANY KIND ARISING OUT OF OR RELATING TO
THIS AGREEMENT, ANY SUPPLEMENT HERETO, THE OBLIGATIONS, THE COLLATERAL OR ANY
SUCH OTHER TRANSACTION. We hereby waive the right to interpose any defense and
all rights of setoff and all rights to interpose counterclaims in the event of
any litigation with respect to any matter connected with this Agreement, any
supplement hereto, the Obligations, the Collateral or any other transaction
between the parties, and we hereby irrevocably consent and submit to the
jurisdiction of the Supreme Court of the State of New York and the United
States District Court for the Southern District of New York in connection with
any action or
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<PAGE> 26
proceeding of any kind arising out of or relating to this Agreement, any
supplement hereto, the Obligations, the Collateral or any such other
transaction.
Very truly yours,
MOVIE STAR, INC.
a NY corporation
--
By: /s/ Mark M. David
------------------
Title: Chairman
----------
Address: 136 Madison Avenue
New York, New York 10016
Accepted and Agreed to at
New York, New York
on Sept. 14, 1995:
----- --
REPUBLIC NATIONAL BANK OF NEW YORK,
individually and as Agent
By: /s/ Joel Burbank
-----------------
Title: Sr. VP
-----------
NATWEST BANK N.A.
By: /s/ Cynthia Sachs
------------------
Title: VP
---
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<PAGE> 1
LOCK BOX SERVICE AGREEMENT
LOCK BOX SERVICE AGREEMENT, dated as of September 14, 1995, among
MOVIE STAR, INC. (the "Company"), a corporation organized under the laws of the
State of New York, NATWEST BANK N.A., a New York banking corporation
("NatWest"), REPUBLIC NATIONAL BANK OF NEW YORK, a national banking association,
individually ("RNB") and as agent for itself and NatWest (the "Agent").
WHEREAS, in connection with the Credit and Security Agreement of
even date herewith (the "Credit Agreement") among the Company, RNB, NatWest and
the Agent, the parties desire to enter into a lock box service arrangement for
the Company, so that, from and after the date hereof, all payments in respect of
the accounts receivable of the Company shall be remitted to a post office box to
be opened and maintained by the Agent pursuant to this Agreement;
NOW, THEREFORE, the parties hereby agree as follows:
1. All capitalized terms used but not defined herein shall have the meanings
ascribed to them in the Credit Agreement.
2. The Company hereby appoints the Agent as its agent and authorizes the Agent
to rent, service, and have sole access to a post offices box, with Zip Code
[______], located at the Church Street Station Post Office, New York, New
York, (the "Post Office Box,") and to collect all mail deposited therein at
regular intervals.
3. The Agent shall, as soon as practicable after opening the Post Office Box,
notify the Company of the number thereof, and promptly thereafter, the
Company shall notify all of its customers and obligors on any accounts
payable to the Company which, in the ordinary course of the Company's
business, would be paid by checks or other instruments made payable to or
to the order of Movie Star, Inc., to remit payment in respect of such
accounts directly to the Post Office Box.
4. Except as specifically provided herein, the Agent shall, and is hereby
authorized by the Company to, endorse all checks, drafts, money orders and
all other negotiable instruments of payment (hereinafter referred to as
"items") contained in the mail collected from the Post Office Box in the
following manner:
"CREDIT TO ACCOUNT OF WITHIN NAMED PAYEE
AT REPUBLIC NATIONAL BANK OF NEW YORK
NEW YORK, NEW YORK"
provided that all items are made payable to or to the order of "Movie Star,
Inc.", or any close resemblance thereto, or any trade name or trade style
used by the Company. Items made payable to any name other than those
referred to above shall be forwarded by the Agent unprocessed to the
Company, and the Company shall, promptly upon receipt thereof, endorse such
items and return them to the Agent for processing in accordance with this
Agreement.
5. The Agent shall process each item received, and shall, on the third
Business Day after receipt of such item, credit the amount thereof first to
(i) amounts outstanding under the Loan Account, as such term is defined in
the Credit Agreement, and any other amounts payable by the Company to the
Agent, RNB or NatWest under the Credit Agreement, and then to (ii) any
account maintained by the Company with RNB. For purposes of this paragraph
5, (i) items shall be deemed received by the Agent on the Business Day on
which they are collected from the Post Office Box, and (ii) the third
Business Day after receipt of an item shall be determined without counting
the Business Day of receipt of such item.
<PAGE> 2
6. Any items bearing discrepancies between the written and numerical amounts
shall be credited for the written amount.
7. The Agent shall use due care to attempt to inspect and discover items which
bear a phrase to the effect that such items represent "Payment in Full" (or
words of similar import) and to forward them to the Company for
disposition; provided, however, that the Agent shall have no liability to
the Company if it processes any item that bears such language.
8. Post-dated items shall be either processed by the Agent, or forwarded to
the Company, in the Agent's sole discretion.
9. The Agent shall have the right to debit the Loan Account, as such term is
defined in the Credit Agreement, in the amount of all returned items. All
returned items shall be handled by the Agent in the following manner: (i)
all dishonored items returned the first time shall be re-presented a second
time, and (ii) all dishonored items returned the second time shall be
charged back and returned to the Company.
10. The Agent shall not process items received which do not bear a signature.
11. All items which are made payable in foreign funds, or made payable in U.S.
funds drawn on a foreign bank, shall be processed for collection and the
Company shall pay to the Agent the collection charges for such items
comparable to the charges that RNB customarily imposes for the collection
of like items.
12. The Agent shall provide to the Company, NatWest and RNB, each Business Day,
a lockbox collection report listing the items collected from the Post
Office Box on the immediately preceding Business Day. Such lockbox
collection report may, at the Agent's option, be provided by telecopier or
by any of the methods specified in paragraph 20 hereof. The Agent shall
endeavor to maintain, for a period of one (1) year, a microfilm record of
all items collected from the Post Office Box; provided, however, the Agent
shall have no liability to the Company for any failure to maintain such a
record.
13. The Company shall instruct all of its customers not to send any returned
merchandise to the Post Office Box. The Agent shall not be liable for any
returned merchandise received at the Post Office Box, but shall attempt to
forward said merchandise to the Company at the risk and expense of the
Company. Any expenses incurred by the Agent in connection with such
forwarding shall be paid by the Company to the Agent, on demand, and if not
so paid may be charged, as a Loan, to the Loan Account.
14. Annual rent on the Post Office Box, as assessed by the U.S. Postal Service,
shall be paid by the Company to the Agent, on demand, and if not so paid
may be charged, as a Loan, to the Loan Account.
15. The Company agrees to pay the Agent fees for the services herein described,
computed in accordance with RNB's schedule of fees for lock box services,
as in effect from time to time.
16. The Company hereby irrevocably appoints the Agent its agent under this
Agreement and authorizes the Agent to take such action and to exercise such
powers as are specifically delegated to it herein, together with such
powers as the Agent, in the reasonable exercise of its discretion, deems
incidental thereto. The Agent shall exercise the same degree of care and
shall give the same attention to the performance of its obligations under
this Agreement as if the services were being provided for the Agent itself;
provided, however, that neither the Agent nor any of its directors,
officers, employees or other agents shall be liable for any action taken or
omitted to be taken by it or them hereunder or in connection herewith,
except for its or their
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<PAGE> 3
gross negligence or willful misconduct. The Company agrees to indemnify the
Agent, RNB and NatWest, and their directors, officers, employees and other
agents and save them harmless from any loss, damage, liability or expense
(including reasonable legal fees and expenses) incurred as a result of any
claim asserted against them in connection with any transactions related
hereto, unless such loss, damage, liability or expense is solely the result
of their gross negligence or willful misconduct.
17. Any other terms herein to the contrary notwithstanding, this Agreement
shall be deemed to be amended automatically, without notice to either
party, to comply with any statute, regulation, or ruling of any government
agency, including any regulations or rulings of the U.S. Postal Service, to
whose jurisdiction the Agent is subject.
18. This Agreement may not be modified or terminated orally.
19. This Agreement may be terminated by the Agent at any time upon at least
fifteen (15) days written notice. Upon receipt of such notice, the Company
shall notify its customers to discontinue use of the Post Office Box. After
the effective date of termination, the Agent shall have no responsibility
for any items received in the Post Office Box except to forward such items
by regular mail and at the Company's expense, for a period of thirty (30)
days after such termination, to the Company's address contained in the
Agent's records. Such termination shall have no effect on the rights or
responsibilities of the parties hereto with respect to items processed
prior to the effective date of termination.
20. Except as otherwise expressly provided herein, all notices, requests and
demands to or upon the parties hereto shall be given or made only by hand,
Federal Express, Express Mail or other recognized overnight delivery
service or by certified or registered mail, or by telecopier, and shall be
deemed to have been duly given or made: if by hand, immediately upon
delivery; if by Federal Express, Express Mail or overnight delivery
service, one (1) Business Day after dispatch; if mailed by certified or
registered mail, return receipt requested, five (5) days after mailing; and
if by telecopier, upon receipt by the sending party of confirmation of
transmission. All notices, requests and demands sent by telecopier shall be
followed by the original thereof, sent as otherwise provided above, and all
notices, requests and demands are to be given or made to a party at its
address set forth below (or to such other address as such party may
designate by notice in accordance with the provisions of this paragraph).
Agent: Republic National Bank of New York
452 Fifth Avenue
New York, New York 10018
Attn: Joel W. Burbank
Company: Movie Star, Inc.
136 Madison Avenue
New York, New York 10016
Attn: Saul Pomerantz
NatWest: NatWest Bank N.A.
1133 Avenue of the Americas
39th Floor
New York, New York 10036
Attn: Cynthia Sachs
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<PAGE> 4
RNB: Republic National Bank of New York
452 Fifth Avenue
New York, New York 10018
Attn:
21. The Company agrees to take such further action and to execute and deliver
such further documents and agreements, including any forms, documents or
applications for delivery to the U.S. Postal Service, as the Agent, in its
sole discretion, deems appropriate.
22. Waiver by any party of any provision of this Agreement shall not
constitute a waiver of or prejudice such party's right otherwise to demand
strict compliance with that provision or any other provision hereof.
23. This Agreement shall be governed by and construed in accordance with the
laws of the State of New York applicable to agreements made and to be
performed wholly within that state. If any provision of this Agreement is
held to be illegal or unenforceable for any reason whatsoever, such
illegality or unenforceability shall not affect the validity of any other
provision hereof.
24. The Company agrees that any action, suit or proceeding in respect of or
arising out of this Agreement may be initiated and prosecuted in the state
or federal courts, as the case may be, located in New York County, New
York. The Company consents to and submits to the exercise of jurisdiction
over its person by any such court having jurisdiction over the subject
matter, waives personal service of any and all process upon it and
consents that all such service of process be made by registered mail
directed to the Company at its address set forth herein or to any other
address as may appear in the Agent's records as the address of the
Company.
IN ANY ACTION, SUIT OR PROCEEDING IN RESPECT OF OR ARISING OUT OF THIS NOTE,
EACH OF THE COMPANY, RNB, NATWEST AND THE AGENT WAIVES TRIAL BY JURY, AND THE
COMPANY ALSO WAIVES (I) THE RIGHT TO INTERPOSE ANY SET-OFF OR COUNTERCLAIM OF
ANY NATURE OR DESCRIPTION, (II) ANY OBJECTION BASED ON FORUM NON CONVENIENS OR
VENUE, AND (III) ANY CLAIM FOR CONSEQUENTIAL, PUNITIVE OR SPECIAL DAMAGES.
MOVIE STAR, INC.
By: Mark M. David
-------------------------------
Title: Chairman
REPUBLIC NATIONAL BANK OF NEW YORK
individually and as Agent for
itself and NatWest Bank N.A.
By: Joel Burbank
-------------------------------
Title: Senior Vice President
NATWEST BANK N.A.
By: Cynthia E. Sachs
-------------------------------
Title: Vice President
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<PAGE> 1
SECURED PROMISSORY NOTE
New York, New York
$16,224,000 September 14, 1995
ON December 31, 1995, for value received, the undersigned, MOVIE STAR, INC.
(the "Company"), a New York Corporation, promises to pay to the order of
REPUBLIC NATIONAL BANK OF NEW YORK, a national banking association (the "Bank"),
the principal sum of SIXTEEN MILLION TWO HUNDRED TWENTY FOUR DOLLARS
($16,224,000), or so much thereof as may constitute the aggregate unpaid
principal amount of all Loans made by the Agent, on behalf of the Bank, to the
Company under or pursuant to the Credit Agreement. All such Loans and all
payments made on account of the principal thereof and the interest thereon shall
be recorded by the Agent and by the Bank or other holder hereof in their
respective books and records. The information entered on such books and records
shall be binding upon the Company in absence of manifest error. Not-
withstanding the foregoing, any failure by the Agent or the Bank or other holder
hereof to make notations on its books and records shall in no way mitigate or
discharge the Company's obligation to repay any Loans actually made.
The Company further promises to pay interest (computed on the basis of a
360-day year and the actual number of days elapsed) on the unpaid principal
amount hereof from time to time outstanding from the date hereof until the date
on which this Note is paid in full, at a variable rate per annum equal to one
percent (1%) above the Bank's reference rate (hereinafter defined), payable
monthly in arrears on the last day of each month and on the date of payment in
full of this Note, commencing on August 31, 1995, any change in said variable
rate to become effective on the first day of the month after any such change in
said reference rate, as provided in the Credit Agreement. From and after the
earlier of (i) December 31, 1995, (ii) the occurrence of any Event of Default
(and for so long as such Event of Default is continuing), or (iii) the
termination of the Credit Agreement, the rate of interest on the unpaid
principal amount hereof at all times shall be two percent (2%) above the rate
which would otherwise apply. Interest accruing after any of the events
specified in the foregoing sentence shall be payable on demand.
The term "reference rate", as used herein, means the interest rate
established by the Bank from time to time at its principal office in New York
City as its reference rate for domestic commercial loans, whether or not such
established reference rate is the best rate available from the Bank for
commercial loans.
Both the principal hereof and the interest hereon are payable in lawful
money of the United States of America and in immediately available funds at the
office of the Agent at 452 Fifth Avenue, New York, New York 10018, or at such
other place as the Agent may specify in writing. Any payment hereunder which is
required to be paid on a day which is not a Business Day shall be payable on the
next succeeding Business Day and such additional time shall be included in the
computation of interest.
To the extent permitted by applicable law, the Company waives
presentment, notice of dishonor, protest and notice of protest, and any and all
other notices or demands in connection with the delivery, acceptance,
performance or default of this Note.
This Note is one of the Notes referred to in the Credit and Security
Agreement dated September 14, 1995, (as amended or otherwise modified, the
"Credit Agreement") by and among the Company, the Bank, NatWest Bank N.A. and
the Agent, and is entitled to all of the benefits set forth therein. All
capitalized terms used herein and not defined shall have the meanings ascribed
to them in the Credit Agreement. This
<PAGE> 2
Note is secured by the Collateral under the Credit Agreement and by any
other property in which a lien or security interest has previously been
granted to the Bank by the Company under any security or other agreement
previously executed by the Company in favor of the Bank.
In case any principal of or interest on this Note is not paid when due, the
Company shall be liable for all costs of enforcement and collection of this Note
incurred by the Agent and the Bank or other holder of this Note, including but
not limited to reasonable attorneys' fees, disbursements and court costs.
The liability of the Company hereunder shall be unconditional and shall not
be in any manner affected by any indulgence granted or consented to by the
Agent, the Bank or other holder hereof including, without limitation, any
extension of time, renewal, waiver or other modification. Any failure of the
Agent, the Bank or other holder hereof to exercise any right hereunder shall not
be construed as a waiver of the right to exercise the same or any other right at
any time and from time to time thereafter. The Agent, the Bank or other holder
hereof may accept late payments or partial payments, even though marked "payment
in full" or containing words of similar import or other conditions, without
waiving any of its rights. No amendment, modification or waiver of any
provision of this Note nor consent to any departure by the Company therefrom
shall be effective, irrespective of any course of dealing, unless the same shall
be in writing and signed by the Agent and the Bank or other holder hereof, and
then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given. This Note cannot be changed or
terminated orally or by estoppel or waiver or by any alleged oral modification
regardless of any claimed partial performance referable thereto.
This Note shall be governed by and construed in accordance with the laws of
the State of New York applicable to instruments made and to be performed wholly
within that State. If any provision of this Note is held to be illegal or
unenforceable for any reason whatsoever, such illegality or
unenforceability shall not affect the validity of any other provisions hereof.
THE COMPANY AGREES THAT ANY ACTION, SUIT OR PROCEEDING IN RESPECT OF OR
ARISING OUT OF THIS NOTE MAY BE INITIATED AND PROSECUTED IN THE STATE OR FEDERAL
COURTS, AS THE CASE MAY BE, LOCATED IN NEW YORK COUNTY, NEW YORK. THE COMPANY
CONSENTS TO AND SUBMITS TO THE EXERCISE OF JURISDICTION OVER ITS PERSON BY ANY
SUCH COURT HAVING JURISDICTION OVER THE SUBJECT MATTER, WAIVES PERSONAL SERVICE
OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE
MADE BY REGISTERED MAIL DIRECTED TO THE COMPANY AT ITS ADDRESS SET FORTH BELOW
OR TO ANY OTHER ADDRESS AS MAY APPEAR IN THE BANK'S RECORDS AS THE ADDRESS OF
THE COMPANY.
IN ANY ACTION, SUIT OR PROCEEDING IN RESPECT OF OR ARISING OUT OF THIS
NOTE, EACH OF THE COMPANY, THE AGENT AND THE BANK WAIVES TRIAL BY JURY, AND THE
COMPANY ALSO WAIVES (I) THE RIGHT TO INTERPOSE ANY SET-OFF OR COUNTERCLAIM OF
ANY NATURE OR DESCRIPTION, (II) ANY OBJECTION BASED ON FORUM NON CONVENIENS OR
VENUE, AND (III) ANY CLAIM FOR CONSEQUENTIAL, PUNITIVE OR SPECIAL DAMAGES.
MOVIE STAR, INC.
a New York Corporation
By:/s/ Mark M. David
-------------------
Title: Chairman
-------------
-2-
<PAGE> 1
PARTICIPATION AGREEMENT
BETWEEN
NATWEST BANK N.A. AND REPUBLIC NATIONAL BANK OF NEW YORK
PARTICIPATION AGREEMENT, dated as of September __, 1995,
between NATWEST BANK N.A. ("the Bank" or "NatWest ") and REPUBLIC NATIONAL BANK
OF NEW YORK ("the Participant" or "RNB").
WHEREAS, concurrently with the execution hereof, RNB, NatWest,
Movie Star, Inc. ("Movie Star") and RNB, as Agent, are entering into the Credit
and Security Agreement (the "Credit Agreement") which agreement restructures the
obligations of Movie Star to RNB and NatWest previously incurred under separate
credit facilities extended to Movie Star by RNB and NatWest;
WHEREAS, the Credit Agreement contemplates that RNB shall
purchase a sixty percent (60%) participation in certain documentary letters of
credit issued by NatWest for the account of Movie Star under the credit
facility previously extended to Movie Star by NatWest , and indemnify NatWest
for sixty percent (60%) of any amounts NatWest may be liable for under any
outstanding steamship guaranties and airway releases made by NatWest in
connection with such documentary letters of credit to the extent not reimbursed
by the Applicant therefor;
NOW, THEREFORE, the parties hereby agree as follows:
Section 1. Definitions. When used in this Agreement, the
terms defined below shall have the meanings specified, such meanings being
equally applicable to the singular and plural forms of such terms.
Section 1.1 "Agent" shall mean RNB, in its capacity as Agent
under the Credit Agreement and related agreements and documents.
Section 1.2 "Airway Release" shall mean any airway release
issued or made by NatWest in connection with a Letter of Credit.
<PAGE> 2
Section 1.3 "Applicant" means, with respect to any Letter
of Credit, any party which has applied for such Letter of Credit, whether as
applicant or account party, and owes an Obligation with respect thereto.
Section 1.4 "Beneficiary" means, with respect to any Letter
of Credit, the person who is entitled by the terms of such Letter of Credit to
draw or demand payment thereunder.
Section 1.5 "Business Day" shall mean a day on which the
Agent, RNB and NatWest are each open for the regular transaction of business
in New York, New York.
Section 1.6 "Collateral" shall mean any property securing
the Obligations, and shall include the Collateral, as such term is defined in
the Credit Agreement.
Section 1.7 "Credit Agreement" shall have the meaning set
forth in the first "Whereas" clause hereof.
Section 1.8 "Credit Documents" shall mean each of the
following, as amended from time to time: each Letter of Credit, the application
therefor or similar agreement pursuant to which such Letter of Credit was
issued and/or which evidences the Obligations with respect to such Letter of
Credit, and any guarantee, security or similar agreement evidencing or
providing for any guarantee, collateral or other similar support for such
Obligations, each Steamship Guaranty and each Airway Release.
Section 1.9 "Effective Federal Funds Rate" shall mean, for
any day, a rate per annum equal to the weighted average of the rate on
overnight Federal funds transactions, with members of the Federal Reserve
System, arranged by Federal funds brokers, as published for such day by the
Federal Reserve Bank of New York.
Section 1.10 "Intercreditor Agreement" shall mean the
Intercreditor Agreement, dated the date hereof, by and among the Bank, the
Participant and the Agent, as such agreement may be amended from time to time.
Section 1.11 "Letter of Credit" shall mean those letters of
credit issued by the Bank listed on Exhibit A hereto.
Section 1.12 "Obligations" means, with respect to any Letter
of Credit, (i) the related Reimbursement Obligation; and (ii) if provided in
the related Credit Documents, the obligation of an Applicant to pay to the Bank
fees and any other amounts owing thereunder.
Section 1.13 "Participation" shall have the meaning set
forth in Section 2.1 hereof.
-2-
<PAGE> 3
Section 1.14 "Reimbursement Obligation" shall mean, with
respect to any Letter of Credit, the obligation of an Applicant to reimburse
the Bank in the amount of each payment to the Beneficiary by the Bank
thereunder, and with respect to such Letter of Credit, the obligation of an
Applicant to reimburse the Bank in the amount of any payments made in
connection with any Steamship Guaranty or Airway Release, together with
interest thereon to the extent provided in the related Credit Documents.
Section 1.15 "Steamship Guaranty" shall mean any steamship
guaranty issued or made by NatWest in connection with a Letter of Credit.
Section 1.16 Capitalized terms used herein but not defined
shall have the meanings ascribed to them in the Intercreditor Agreement.
Section 2. Purchase and Sale of Participation.
Section 2.1 Subject to the terms and conditions of this
Agreement, the Bank hereby sells and assigns to the Participant, without
recourse, and the Participant hereby purchases from the Bank an undivided sixty
percent (60%) participation interest in the Letters of Credit and the related
Reimbursement Obligations (the "Participation") .
Section 2.2 If at any time the Bank shall make a payment to
the Beneficiary in respect of a drawing or demand under a Letter of Credit made
in substantial compliance with the terms and conditions thereof, or shall make
a payment in respect of any Airway Release or Steamship Guaranty, the Bank
shall give written notice (which may be by telecopier) of such payment to the
Participant. The Participant shall pay to the Bank, not later than the
Business Day following the Business Day on which the Participant receives such
written notice, in immediately available funds by wire transfer to the account
of the Bank set forth on Exhibit B hereto, sixty percent (60%) of the amount of
such drawing. The payment of such amount shall constitute payment of the
purchase price for the Participation of the Participant in the related Letter
of Credit and Reimbursement Obligation, or, in the event there remain
outstanding undrawn amounts under such Letter of Credit, such payment shall
constitute partial payment of such purchase price. In the event that the
Participant does not make such payment in such manner on such Business Day, the
Bank shall be entitled to recover from the Participant interest on the amount
of such payment at the Effective Federal Funds Rate for the period commencing
on (and including) such Business Day and ending on (and excluding) the Business
Day on which such payment, together with interest as provided herein, shall be
made by the Participant to the Bank in such immediately available funds;
provided, however, that notwithstanding any provision hereof to the contrary,
during any period in which the Participant is legally prohibited or enjoined
from making to the Bank hereunder any payment on which interest is accruing,
such interest shall accrue at the Effective Federal Funds Rate. In the event
that the Applicant shall have paid, prior to a
-3-
<PAGE> 4
drawing under a Letter of Credit, any portion of such drawing, the Bank shall
reduce the amount payable to the Bank by the Participant hereunder by the
Participant's pro rata share of the amount so paid by the Applicant.
Section 3. The Participation purchased by the Participant
hereunder shall be without recourse to the Bank and for the Participant's own
account and risk, and the Bank makes no representation or warranty as to, and
shall have no responsibility for: the due authorization, execution or delivery
by the Applicant of any Credit Documents or any drafts or other documents
presented in connection with drawings under any Letter of Credit or payments
made in connection with any Airway Release or Steamship Guaranty; the legality,
validity, sufficiency, enforceability or collectibility of any Credit Documents
or such drafts or other documents; the title to, the value of, or the validity,
perfection or priority of any security interest in, any collateral or other
support for any Obligations; any representation or warranty made by, or any
information provided by the Applicant; the performance or observance by the
Applicant of any of the provisions of any Credit Documents; the financial
condition of the Applicant; or (except as other expressly provided herein) any
other matter relating to the Applicant, any Letter of Credit or the related
Credit Documents, and any Obligations or any collateral or other support for
such Obligations.
Section 4. Payments and Remittances.
Section 4.1 (a) So long as the Participant has made all
payments required to be made by it under the terms of this Agreement, and
subject to the remaining terms of Section 4 hereof, the Bank shall, within one
Business Day following receipt thereof, remit to the Participant in immediately
available funds to the account of the Participant identified on Exhibit B
hereto the Participant's share (determined in accordance with clauses (ii) and
(iii) of Section 4.1(e) hereof) of any payment made to the Bank in respect of
the Letters of Credit and the Obligations. The Participant shall not be
entitled to receive any interest in respect of any Reimbursement Obligation
which accrued prior to the date that the Participant paid, in accordance with
Section 2.2 hereof, the purchase price for its Participation in such
Reimbursement Obligation and the related Letter of Credit.
(b) The Bank shall maintain for and in the name of the
Participant one or more accounts established by the Bank in respect of the
Participation which shall reflect the interest of the Participant from time to
time in the Letters of Credit and the Obligations. The Bank shall render to
the Participant not less frequently than once per month a statement as to
receipts of payments and accruals of interest during the preceding month in
respect of the Letters of Credit and the Obligations.
(c) This Agreement and the Bank's books and records marked to
indicate the Participation will serve to document the Participant's
Participation in the Letters of Credit and the Obligations. The failure of the
Bank to mark any such
-4-
<PAGE> 5
records shall not affect or impair any of any Participant's rights or
obligations hereunder.
(d) In the event that the Bank incurs costs and expenses
relating to the enforcement of its rights under the Credit Documents and the
collection of amounts owing thereunder, then all amounts paid to or realized by
the Bank in respect of the Obligations, or from the Collateral securing the
same, or otherwise in respect of the Credit Documents, shall be applied,
subject to any contrary provision of the Intercreditor Agreement, (i) first, to
the costs and expenses of the Bank including, without limitation, reasonable
attorney's fees and expenses, incurred in obtaining such payment or realization
and otherwise incurred by the Bank in connection with the Obligations or in
protecting, preserving, selling or otherwise disposing of such Collateral
(other than ordinary and customary loan administration costs), (ii) second, to
accrued and unpaid interest in respect of the Obligations, to be shared between
the Bank and the Participant in accordance with their respective interests in
accrued and unpaid interest thereon, and (iii) third, to the outstanding
principal of the Obligations, pro rata between the Bank and the Participant.
(e) If the Bank determines at any time that any amount
received or collected by the Bank in respect of any Letter of Credit or
Reimbursement Obligation must be returned to the Applicant or paid to any other
person or entity pursuant to any insolvency law or otherwise, then,
notwithstanding any other provision of this Agreement, the Bank shall not be
required to distribute any portion thereof to the Participant, and the
Participant shall promptly on demand by the Bank repay any portion thereof that
the Bank shall have distributed to the Participant, together with interest
thereon at the Effective Federal Funds Rate for the period beginning on the
earlier to occur of the date that the Bank makes any such payment to the
Applicant or other person or entity or the date that the Bank becomes obligated
to pay interest (on the amount to be paid) to the Applicant or other person or
entity, and ending on the date that the Participant makes payment in full to
the Bank under this Section 4.1(e).
Section 4.2 The Participant shall be entitled to receive
from the Bank a sixty percent (60%) share of the amount of all fees payable in
respect of any Letter of Credit and any drawings thereunder which are (x)
calculated based on a percentage of the face amount of such Letter of Credit or
the amount of any drawing thereunder, and (y) become due and are actually paid
to the Bank after the date hereof. The Participant shall not be entitled to
receive from the Bank any fixed fees payable in respect of any Letter of
Credit, which fees may be kept by the Bank for its own account.
Section 4.3 Each payment by the Bank under Sections 4.1 or
4.2 hereof shall be made by the Bank within one Business Day following receipt
by the Bank of the funds, amounts or proceeds from which any such payment is to
be made, and the Bank shall pay to the Participant interest on any such payment
for the period
-5-
<PAGE> 6
beginning on (and including) the second Business Day following the Business Day
on which such funds, amounts or proceeds were received by the Bank and ending on
(but excluding) the date on which the Bank makes payment in accordance with
Sections 4.1 or 4.2 hereof, as the case may be, to the Participant, at the
Effective Federal Funds Rate; provided, however, that notwithstanding any
provision hereof to the contrary, during any period in which the Bank is legally
prohibited or enjoined from making any such payment, such interest shall accrue
at the Effective Federal Funds Rate.
Section 5. Bank's Discretion; Amendments to Letters of Credit.
Section 5.1 The Bank:
(i) shall not be deemed to be a trustee or agent for the
Participant in connection with the Letters of Credit, the Obligations, the
Credit Documents, the Collateral or the Participation;
(ii) may, except as otherwise provided in Section 5.2, use
its sole discretion with respect to exercising or refraining from exercising
any rights, or taking or refraining from taking any action, which the Bank may
be entitled to exercise or take under or in respect of the Letters of Credit,
the Obligations, the Credit Documents or the Collateral, including, without
limitation, rights and actions relating to any waiver or amendment of any term
thereof and rights, powers and remedies upon a default or event of default;
(iii) may reasonably rely upon the advice of legal counsel,
accountants and other experts and upon any written communication or any
telephone conversation which the Bank believes to be genuine and correct or to
have been signed, sent or made by the proper person or entity; and
(iv) shall have no obligation to make any claim against,
or assert any lien upon, any property (not constituting Collateral) held by the
Bank or assert any offset thereagainst.
Section 5.2 Without the prior written consent of the
Participant, the Bank will not agree to any waiver or amendment of the terms of
any Letter of Credit, or any Credit Document that would:
(i) increase the amount of any Letter of Credit;
(ii) extend the expiration date of any Letter of Credit or
change the demand nature of any Obligation;
-6-
<PAGE> 7
(iii) reduce the rate of interest payable on any Obligation
or release or compromise the obligation of the Applicant with respect to the
payment of any principal of or interest on any Obligation; or
(iv) release any Collateral (except as may be expressly
provided in the Credit Documents relating to such Collateral);
provided, however, that the restrictions contained in this Section 5.2 shall
not apply in respect of any such waiver or amendment required or imposed
pursuant to or in connection with any bankruptcy, insolvency, moratorium or
other similar law or event affecting the Applicant, or if required by any other
applicable law, rule, regulation, order or decree of any governmental
authority.
Section 6. Credit Analysis.
Section 6.1 The Participant hereby acknowledges that the
Bank has made available to the Participant copies of the Letters of Credit and
the Credit Documents relating thereto. The Participant represents and warrants
to the Bank that it has made, independently and without reliance on the Bank,
its own credit analysis of the Applicant, and its own investigation of the
risks involved in the transactions contemplated by this Agreement, and that it
is not relying on any statement or representation with respect thereto made by
the Bank.
Section 7. Indemnification.
Section 7.1 Except to the extent recovered by the Bank from
the Applicant promptly following demand therefore, the Participant will pay to
the Bank an amount equal to sixty percent (60%) of any and all costs, expenses,
claims, losses and liabilities (including reasonable attorneys' fees) incurred
by the Bank at any time after the date hereof, in connection with the Letters
of Credit, the Reimbursement Obligations, the Credit Documents or the
Collateral, except for those incurred by reason of the Bank's gross negligence
or willful misconduct.
Section 8. Assignments.
Section 8.1 The Participant shall not, without the prior
written consent of the Bank, sell, assign, subparticipate or otherwise transfer
its rights under this Agreement.
Section 8.2 The Bank shall not, without the prior written
consent of the Participant, sell, assign, or otherwise transfer its rights
under the Letters of Credit, the Obligations, the Credit Documents or the
Collateral.
-7-
<PAGE> 8
Section 8.3 Subject to the foregoing, all of the terms and
conditions of this Agreement shall inure to the benefit of, and be binding
upon, the successors and permitted assigns of the Bank and the Participant.
Section 9. Miscellaneous.
Section 9.1 Except as otherwise provided in the
Intercreditor Agreement, the Participant shall not have or assert or seek to
exercise, any right of legal redress against the Applicant or any Collateral in
respect of the Letters of Credit, the Obligations, or the Credit Documents.
The Participant agrees that, except as otherwise provided in the Intercreditor
Agreement, the Bank may take such legal action to enforce or protect the Bank,
the Participant and/or the interests of the Bank and the Participant in respect
of the Letters of Credit, the Obligations and the Credit Documents as the Bank
may determine necessary or appropriate in its sole discretion.
Section 9.2 This Agreement constitutes the entire agreement
of the Bank and the Participant with respect to the subject matter hereof and
may not be modified, amended or changed in any respect except by the written
agreement of the Bank and the Participant.
Section 9.3 The Bank and the Participant shall disclose to
the other promptly upon obtaining actual knowledge thereof any information
concerning the occurrence of any material adverse change in the financial
condition of the Applicant or of any material damage to or destruction of any
Collateral; provided, however, that neither the Bank nor the Participant shall
have any liability for its failure to make such disclosure unless such failure
was occasioned by its gross negligence or willful misconduct.
Section 9.4 Except as expressly otherwise provided herein,
all notices, requests and demands to or upon the respective parties hereto
shall be given or made only by hand, Federal Express, Express Mail or other
recognized overnight delivery service or by certified or registered mail, or by
telecopier to the fax numbers listed below, and shall be deemed to have been
duly given or made: if by hand, immediately upon delivery; if by Federal
Express, Express Mail or overnight delivery service, one (1) Business Day after
dispatch; if mailed by certified or registered mail, return receipt requested,
five (5) days after mailing; and if by telecopier, upon receipt by the sending
party of confirmation of transmission. All notices, requests and demands sent
by telecopier shall be followed by the original thereof, sent as otherwise
provided above, and all notices, requests and demands are to be given or made
to the respective parties at the address (or to such other addresses as either
party may designate by notice in accordance with the provisions of this
paragraph) set forth herein.
-8-
<PAGE> 9
Section 9.5 This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
Section 9.6 This Agreement shall inure solely to the benefit
of the Bank and the Participant, and their successors and permitted assigns,
and no third party (including, without limitation, the Applicant) shall have
any rights hereunder as a third-party beneficiary or otherwise.
Section 9.7 The Bank and the Participant each irrevocably
consents to the non-exclusive jurisdiction of the courts of the State of New
York and of the Federal Courts located in the City of New York in any action or
proceeding arising under or in connection with this Agreement, the Letters of
Credit, the Obligations, the Credit Documents, and the Collateral.
-9-
<PAGE> 10
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by its duly authorized officer as of the day and year
first set forth above.
BANK: NATWEST BANK N.A.
By:
---------------------------------
Name:
Title:
Address: 1133 Avenue of the Americas
New York, New York 10036
Fax No: (212) 703-1574
Attention:
PARTICIPANT: REPUBLIC NATIONAL BANK OF NEW YORK
By:
---------------------------------
Name: Joel Burbank
Title: Senior Vice President
Address: 452 Fifth Avenue
New York, New York 10018
Fax No: (212) 525-5676
Attention: Mr. Joel Burbank
-10-
<PAGE> 11
<TABLE>
<CAPTION>
EXHIBIT A
---------
L/C Number Issuance Date Expiration Date $ Amount Remaining Undrawn
- ---------- ------------- --------------- --------------------------
<S> <C> <C> <C>
</TABLE>
-11-
<PAGE> 12
EXHIBIT B
Wire Transfer Instructions
NatWest Bank N.A.
All wires to be sent to:
NatWest Bank N.A.
1133 Avenue of the Americas
New York, New York 10036
ABA # ____________________
Attention: ____________________________________
Republic National Bank of New York
All wires to be sent to:
Republic National Bank of New York
452 Fifth Avenue
New York, New York 10018
ABA # 021004823
Attention: Mr. Joel Burbank
-12-
<PAGE> 1
SECURED PROMISSORY NOTE
New York, New York
$10,816,000 September 14, 1995
ON December 31, 1995, for value received, the undersigned, MOVIE STAR, INC.
(the "Company"), a New York Corporation, promises to pay to the order of NATWEST
BANK N.A., a national banking association (the "Bank"), the principal sum of TEN
MILLION EIGHT HUNDRED SIXTEEN DOLLARS ($10,816,000), or so much thereof as may
constitute the aggregate unpaid principal amount of all Loans made by the Agent,
on behalf of the Bank, to the Company under or pursuant to the Credit Agreement.
All such Loans and all payments made on account of the principal thereof and the
interest thereon shall be recorded by the Agent and by the Bank or other holder
hereof in their respective books and records. The information entered on such
books and records shall be binding upon the Company in absence of manifest
error. Notwithstanding the foregoing, any failure by the Agent or the Bank or
other holder hereof to make notations on its books and records shall in no way
mitigate or discharge the Company's obligation to repay any Loans actually made.
The Company further promises to pay interest (computed on the basis of a
360-day year and the actual number of days elapsed) on the unpaid principal
amount hereof from time to time outstanding from the date hereof until the date
on which this Note is paid in full, at a variable rate per annum equal to one
percent (1%) above the Bank's reference rate (hereinafter defined), payable
monthly in arrears on the last day of each month and on the date of payment in
full of this Note, commencing on August 31, 1995, any change in said variable
rate to become effective on the first day of the month after any such change in
said reference rate, as provided in the Credit Agreement. From and after the
earlier of (i) December 31, 1995, (ii) the occurrence of any Event of Default
(and for so long as such Event of Default is continuing), or (iii) the
termination of the Credit Agreement, the rate of interest on the unpaid
principal amount hereof at all times shall be two percent (2%) above the rate
which would otherwise apply. Interest accruing after any of the events specified
in the foregoing sentence shall be payable on demand.
The term "reference rate", as used herein, means the interest rate
established by the Bank from time to time at its principal office in New York
City as its reference rate for domestic commercial loans, whether or not such
established reference rate is the best rate available from the Bank for
commercial loans.
Both the principal hereof and the interest hereon are payable in lawful
money of the United States of America and in immediately available funds at the
office of the Agent at 452 Fifth Avenue, New York, New York 10018, or at such
other place as the Agent may specify in writing. Any payment hereunder which is
required to be paid on a day which is not a Business Day shall be payable on the
next succeeding Business Day and such additional time shall be included in the
computation of interest.
To the extent permitted by applicable law, the Company waives
presentment, notice of dishonor, protest and notice of protest, and any and
all other notices or demands in connection with the delivery, acceptance,
performance or default of this Note.
This Note is one of the Notes referred to in the Credit and Security
Agreement dated September 14 1995, (as amended or otherwise modified, the
"Credit Agreement") by and among the Company, the Bank, NatWest Bank N.A. and
the Agent, and is entitled to all of the benefits set forth therein. All
capitalized terms used herein and not defined shall have the meanings ascribed
to them in the Credit Agreement. This
<PAGE> 2
Note is secured by the Collateral under the Credit Agreement and by any other
property in which a lien or security interest has previously been granted to
the Bank by the Company under any security or other agreement previously
executed by the Company in favor of the Bank.
In case any principal of or interest on this Note is not paid when due, the
Company shall be liable for all costs of enforcement and collection of this Note
incurred by the Agent and the Bank or other holder of this Note, including but
not limited to reasonable attorneys' fees, disbursements and court costs.
The liability of the Company hereunder shall be unconditional and shall not
be in any manner affected by any indulgence granted or consented to by the
Agent, the Bank or other holder hereof including, without limitation, any
extension of time, renewal, waiver or other modification. Any failure of the
Agent, the Bank or other holder hereof to exercise any right hereunder shall not
be construed as a waiver of the right to exercise the same or any other right at
any time and from time to time thereafter. The Agent, the Bank or other holder
hereof may accept late payments or partial payments, even though marked "payment
in full" or containing words of similar import or other conditions, without
waiving any of its rights. No amendment, modification or waiver of any provision
of this Note nor consent to any departure by the Company therefrom shall be
effective, irrespective of any course of dealing, unless the same shall be in
writing and signed by the Agent and the Bank or other holder hereof, and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given. This Note cannot be changed or terminated
orally or by estoppel or waiver or by any alleged oral modification regardless
of any claimed partial performance referable thereto.
This Note shall be governed by and construed in accordance with the laws of
the State of New York applicable to instruments made and to be performed wholly
within that State. If any provision of this Note is held to be illegal or
unenforceable for any reason whatsoever, such illegality or
unenforceability shall not affect the validity of any other provisions hereof.
THE COMPANY AGREES THAT ANY ACTION, SUIT OR PROCEEDING IN RESPECT OF OR
ARISING OUT OF THIS NOTE MAY BE INITIATED AND PROSECUTED IN THE STATE OR FEDERAL
COURTS, AS THE CASE MAY BE, LOCATED IN NEW YORK COUNTY, NEW YORK. THE COMPANY
CONSENTS TO AND SUBMITS TO THE EXERCISE OF JURISDICTION OVER ITS PERSON BY ANY
SUCH COURT HAVING JURISDICTION OVER THE SUBJECT MATTER, WAIVES PERSONAL SERVICE
OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE
MADE BY REGISTERED MAIL DIRECTED TO THE COMPANY AT ITS ADDRESS SET FORTH BELOW
OR TO ANY OTHER ADDRESS AS MAY APPEAR IN THE BANK'S RECORDS AS THE ADDRESS OF
THE COMPANY.
IN ANY ACTION, SUIT OR PROCEEDING IN RESPECT OF OR ARISING OUT OF THIS
NOTE, EACH OF THE COMPANY, THE AGENT AND THE BANK WAIVES TRIAL BY JURY, AND THE
COMPANY ALSO WAIVES (I) THE RIGHT TO INTERPOSE ANY SET-OFF OR COUNTERCLAIM OF
ANY NATURE OR DESCRIPTION, (II) ANY OBJECTION BASED ON FORUM NON CONVENIENS OR
VENUE, AND (III) ANY CLAIM FOR CONSEQUENTIAL, PUNITIVE OR SPECIAL DAMAGES.
MOVIE STAR, INC.
a New York Corporation
By:/s/ Mark M. David
-------------------
Title: Chairman
-------------
-2-
<PAGE> 1
Exhibit 22
MOVIE STAR, INC. AND SUBSIDIARIES
Registrant owns 100% of the voting securities of its subsidiaries, which are
included in the consolidated financial statements.
<TABLE>
<CAPTION>
Name of Subsidiary Ownership State of Incorporation
------------------ --------- ----------------------
<S> <C> <C>
Sanmark International Taiwan, Inc. 100% Delaware
P.J. San Sebastian, Inc. 100% Delaware
Cuteslumber Inc. 100% New York
Sanmark de Mexico S.A. de C.V. 100% Mexico
</TABLE>
IV-8
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-1-1994
<PERIOD-END> JUN-30-1995
<CASH> 103
<SECURITIES> 0
<RECEIVABLES> 10,658
<ALLOWANCES> 1,869
<INVENTORY> 36,085
<CURRENT-ASSETS> 48,656
<PP&E> 14,617
<DEPRECIATION> 8,564
<TOTAL-ASSETS> 57,204
<CURRENT-LIABILITIES> 26,008
<BONDS> 22,496
<COMMON> 160
0
0
<OTHER-SE> 8,540
<TOTAL-LIABILITY-AND-EQUITY> 57,204
<SALES> 101,946
<TOTAL-REVENUES> 101,946
<CGS> 79,011
<TOTAL-COSTS> 79,011
<OTHER-EXPENSES> 23,541
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,669
<INCOME-PRETAX> (5,275)
<INCOME-TAX> (246)
<INCOME-CONTINUING> (5,275)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,029)
<EPS-PRIMARY> (.36)
<EPS-DILUTED> (.36)
</TABLE>
