SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended March 31, 1998
Commission File No. 1-4436
THE STEPHAN CO.
(Exact Name of Registrant as Specified in its Charter)
Florida 59-0676812
(State or Other Jurisdiction of (I.R.S Employer
Incorporation or Organization) Identification No.)
1850 West McNab Road, Fort Lauderdale, Florida 33309
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (954) 971-0600
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 at least the past 90 days.
YES X NO
(APPLICABLE ONLY TO CORPORATE ISSUERS)
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Shares of Common Stock outstanding as of April 30, 1998
4,725,858
THE STEPHAN CO. AND SUBSIDIARIES
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
MARCH 31, 1998
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets
March 31, 1998 and December 31, 1997 3-4
Consolidated Statements of Operations
Three months ended March 31, 1998 and 1997 5
Consolidated Statements of Cash Flows
Three months ended March 31, 1998 and 1997 6-8
Notes to Consolidated Financial Statements 9-12
ITEM 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations. 13-14
PART II. OTHER INFORMATION
ITEM 6. Exhibits 15
SIGNATURES 16
CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report contains certain "forward-looking" statements. The
Company desires to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995 and is including this
statement for the express purpose of availing itself of the protections of
such safe harbor with respect to all such forward-looking statements.
Forward-looking statements contained herein include statements
with respect to (i) anticipated level of debt, and (ii) anticipated
profitability (or lack thereof) of acquired entities. The Company's ability
to predict any such occurrences or the effect of other events on the
Company's operations is inherently uncertain. Therefore, the Company
cautions each reader of this report to carefully consider the specific
factors and qualifications discussed herein with respect to such forward-
looking statements, as such factors could affect the ability of the Company
to achieve its objectives and may cause actual results to differ materially
from those expressed herein.
2
THE STEPHAN CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, December 31,
1998 1997
____________ ____________
CURRENT ASSETS
Cash and cash equivalents $ 8,615,780 $ 8,491,174
Cash on deposit with trustee 947,005 610,126
Accounts receivable, net 6,308,365 4,696,248
Inventories, net 15,432,470 11,667,672
Prepaid expenses and other
current assets 328,333 269,304
____________ ____________
TOTAL CURRENT ASSETS 31,631,953 25,734,524
PROPERTY, PLANT AND EQUIPMENT, net 2,995,489 2,760,011
INTANGIBLE ASSETS, net 28,239,395 26,443,911
OTHER ASSETS 2,561,060 2,525,948
____________ ____________
TOTAL ASSETS $ 65,427,897 $ 57,464,394
============ ============
See notes to Consolidated Financial Statements
(UNAUDITED)
3
THE STEPHAN CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, December 31,
1998 1997
___________ ____________
CURRENT LIABILITIES
Accounts payable and
accrued expenses $ 4,407,127 $ 3,704,383
Note payable to bank 400,000 400,000
Note payable to trustee - 1,199,700
Current portion of
long-term debt 2,187,027 1,773,788
Income taxes payable 1,114,294 1,390,104
____________ ____________
TOTAL CURRENT LIABILITIES 8,108,448 8,467,975
DEFERRED INCOME TAXES 342,341 268,166
LONG-TERM DEBT 12,198,874 9,078,114
____________ ____________
TOTAL LIABILITIES 20,649,663 17,814,255
____________ ____________
STOCKHOLDERS' EQUITY
Common stock, $.01 par value 47,259 44,188
Additional paid in capital 19,692,053 15,979,709
Retained earnings 26,390,485 24,977,805
____________ ____________
46,129,797 41,001,702
LESS 125,000 CONTINGENTLY
RETURNABLE SHARES (1,351,563) (1,351,563)
____________ ____________
TOTAL STOCKHOLDERS' EQUITY 44,778,234 39,650,139
____________ ____________
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 65,427,897 $ 57,464,394
============ ============
See notes to Consolidated Financial Statements
(UNAUDITED)
4
THE STEPHAN CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31,
===========================
1998 1997
___________ ___________
NET SALES $ 7,650,687 $ 6,394,144
COST OF GOODS SOLD 2,748,099 2,335,400
___________ ___________
GROSS PROFIT 4,902,588 4,058,744
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 2,731,704 2,275,634
___________ ____________
OPERATING INCOME 2,170,884 1,783,110
OTHER INCOME(EXPENSE)
Interest income 99,026 98,390
Interest expense (186,430) (135,564)
Other 31,250 31,250
___________ ___________
INCOME BEFORE TAXES 2,114,730 1,777,186
INCOME TAXES 702,050 550,880
___________ ___________
NET INCOME $ 1,412,680 $ 1,226,306
=========== ===========
BASIC AND DILUTED EARNINGS PER SHARE $ .33 $ .30
=========== ===========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 4,340,024 4,147,466
=========== ===========
See Notes to Consolidated Financial Statements
(UNAUDITED)
5
THE STEPHAN CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
==========================
1998 1997
__________ __________
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,413,680 $ 1,226,306
__________ __________
Adjustments to reconcile net income to
cash flows provided by operating
operating activities:
Depreciation 77,429 50,114
Amortization 288,008 246,073
Deferred income taxes 74,175 60,052
Provision for doubtful accounts 15,240 4,425
Changes in operating assets and
liabilities, net of effects of
acquisitions:
Accounts receivable (412,117) (217,305)
Inventory (1,048,833) (471,727)
Prepaid expenses
and other current assets 14,671 33,645
Accounts payable
and accrued expenses (177,956) (683,876)
Income taxes payable (201,635) 95,828
___________ ___________
Total adjustments (1,371,018) (882,771)
___________ ___________
Net cash flows provided by
operating activities 42,662 343,535
___________ ___________
See Notes to Consolidated Financial Statements
(UNAUDITED)
6
THE STEPHAN CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
==========================
1998 1997
___________ ___________
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired from acquisition 5,000 -
Purchase of property, plant
and equipment (216,707) (52,012)
Net changes in other assets (35,112) (264,764)
___________ ___________
Net cash flows used in
investing activities (246,819) (316,776)
___________ ___________
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (505,224) (589,284)
Repayment of notes payable (3,077,637) -
Proceeds from note payable to bank 4,000,000 -
Dividends paid (88,376) (82,949)
___________ ___________
Net cash flows provided by/(used in)
financing activities 328,763 (672,233)
___________ ___________
NET CHANGE IN CASH AND
CASH EQUIVALENTS 124,606 (645,474)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 8,491,174 8,276,976
___________ ___________
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 8,615,780 $ 7,631,502
=========== ===========
See Notes to Consolidated Financial Statements
(UNAUDITED)
7
THE STEPHAN CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Supplemental Disclosures of Cash Flow Information:
Interest Paid $ 194,220 $ 135,111
=========== ===========
Income Taxes Paid $ 810,000 $ 395,000
=========== ===========
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
In connection with the acquisition of certain assets and liabilities of
Morris-Flamingo, L.P., and related entities, on March 18, 1998, the Company
acquired cash, accounts receivable, inventory, prepaid expenses, fixed and
intangible assets and assumed certain liabilities in exchange for the
issuance of Common Stock with an approximate value of $3,700,000.
See Notes to Consolidated Financial Statements
(UNAUDITED)
8
THE STEPHAN CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTERS ENDED MARCH 31, 1998 AND 1997
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: In the opinion of management, all
adjustments necessary for a fair presentation of financial position and
results of operations are reflected in the interim financial statements.
PRINCIPLES OF CONSOLIDATION: The consolidated financial
statements include the accounts of The Stephan Co. and its wholly-owned
subsidiaries, Foxy Products, Inc., Old 97 Company, Williamsport Barber and
Beauty Supply Corp., Stephan & Co., Scientific Research Products, Inc. of
Delaware, Trevor Sorbie of America, Inc., Stephan Distributing, Inc. and
Morris Flamingo-Stephan, Inc. (collectively, the "Company"). All
significant intercompany balances and transactions have been eliminated in
consolidation.
NATURE OF OPERATIONS: The Company is engaged in the manufacture,
sale, and distribution of personal care grooming products throughout the
United States. The Company's business activity constitutes a single
reportable segment for purposes of Statement of Financial Accounting
Standards No. 14.
USE OF ESTIMATES: The preparation of consolidated financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the consolidated financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
MAJOR CUSTOMERS: The Company performs ongoing credit evaluations
of its customers' financial condition and, generally, requires no
collateral. The Company does not believe that the credit risk represents a
material risk of loss to the Company. However, the loss of any major
customer could have a material adverse effect on the Company.
LONG-LIVED ASSETS: The Company adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of" in the year ended December 31, 1996. SFAS No. 121 establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets to be held
and used, and for long-lived assets and certain identifiable intangibles to
be disposed of. The adoption of SFAS No. 121 did not have a significant
effect on the Company's financial position or results of operations.
STOCK-BASED COMPENSATION: On January 1, 1996, the Company adopted
SFAS No. 123, "Accounting for Stock-Based Compensation", which permits
entities to recognize as expense over the vesting period the fair value of
all stock-based awards on the date of grant. Alternatively, SFAS No. 123
allows entities to continue to measure compensation cost for stock-based
awards using the intrinsic value based method of accounting prescribed by
9
THE STEPHAN CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTERS ENDED MARCH 31, 1998 AND 1997
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
APB Opinion No. 25, "Accounting for Stock Issued to Employees", and to
provide pro forma net income and pro forma earnings per share disclosures
as if the fair value method defined in SFAS No. 123 had been applied. The
Company has elected to continue to apply the provisions of APB No. 25 and
provide the pro forma disclosure provisions of SFAS No. 123.
FAIR VALUE OF FINANCIAL INSTRUMENTS: Statement of Financial
Accounting Standards No. 107, "Disclosure about Fair Value of Financial
Instruments," requires disclosure of the fair value of financial
instruments, both assets and liabilities, recognized and not recognized in
the consolidated balance sheets of the Company, for which it is practicable
to estimate fair value. The estimated fair values of financial instruments
which are presented herein have been determined by the Company using
available market information and appropriate valuation methodologies.
However, considerable judgment is required in interpreting market data to
develop estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of amounts the Company could realize
in a current market exchange.
The following methods and assumptions were used to estimate fair
value:
- the carrying amounts of cash and cash equivalents, receivables and
accounts payable approximate fair value due to their short term nature;
- discounted cash flows using current interest rates for financial
instruments with similar characteristics and maturity were used to
determine the fair value of notes receivable, notes payable and debt.
There were no significant differences as of March 31, 1998 and December 31,
1997 in the carrying value and fair market value of financial instruments.
CASH AND CASH EQUIVALENTS: Cash and cash equivalents include
cash, certificates of deposit, United States Treasury Bills, and municipal
bonds having maturities of 90 days or less. Also included in cash and cash
equivalents is a $400,000 certificate of deposit pledged as collateral
against a $400,000 note payable to bank. The Company maintains cash
deposits at certain financial institutions in amounts in excess of
federally insured limits of $100,000. Cash and cash equivalents held in
interest-bearing accounts as of March 31, 1998 and 1997 were approximately
$9,010,000 and $7,207,000, respectively.
INVENTORIES: Inventories are stated at the lower of cost
(determined on a first-in, first-out basis) or market.
10
THE STEPHAN CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTERS ENDED MARCH 31, 1998 AND 1997
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Inventories were as follows:
March 31, December 31,
1998 1997
___________ ____________
Raw Materials $ 3,421,908 $ 2,880,011
Packaging and components 4,289,613 4,060,389
Work in progress 404,481 437,965
Finished goods 7,316,468 4,289,307
___________ ____________
Total Inventories $15,432,470 $ 11,667,672
=========== ============
Raw materials include surfactants, chemicals and fragrances used in
the production process. Packaging materials include cartons, inner sleeves
and boxes used in the actual product, as well as outer boxes and cartons
used for shipping purposes. Components are the actual bottles or
containers (plastic or glass), jars, caps, pumps and similar materials that
will be part of the finished product.
Included in other assets is packaging and components inventory not
anticipated to be utilized in less than one year.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment
are recorded at cost. Routine repairs and maintenance are expensed as
incurred. Depreciation is provided on a straight line basis over the
estimated useful lives of the assets as follows:
Buildings and improvements 15-30 years
Machinery and equipment 5-10 years
Furniture, fixtures and office equipment 3-5 years
INTANGIBLE ASSETS: Intangible assets are amortized using the
straight-line method based on the following estimated useful lives:
Goodwill 20-40 years
Covenant not to compete 7 years
Trademarks 20-40 years
Deferred acquisition costs 10 years
The amount of impairment, if any, in unamortized Goodwill is measured
based on projected future results of operations. To the extent future
results of operations of those subsidiaries to which the Goodwill relates
through the period such Goodwill is being amortized are sufficient to
absorb the amortization of Goodwill, the Company has deemed there to be no
impairment of Goodwill.
11
THE STEPHAN CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTERS ENDED MARCH 31, 1998 AND 1997
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
INCOME TAXES: Income taxes are calculated under the asset and
liability method of accounting. Deferred income taxes are recognized by
applying the enacted statutory rates applicable to future year differences
between the financial statement carrying amounts and the tax basis of
existing assets and liabilities. A valuation allowance is recorded when it
is more likely than not that some portion or all of the deferred tax asset
will not be realized.
BASIC AND DILUTED EARNINGS PER SHARE: Effective December 31, 1997,
the Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" (SFAS No. 128). The provisions of SFAS No. 128
establish standards for computing and presenting earnings per share (EPS)
and requires the Company to restate all prior years' EPS data presented.
The adoption of SFAS No. 128 did not have a material effect on the
Company's previously reported earnings per share. Basic and diluted EPS
are computed by dividing net income by the sum of the weighted average
number of shares of Common Stock outstanding. The weighted average number
of shares outstanding was 4,340,024 for the three months ended March 31,
1998 and 4,147,466 for the three months ended March 31, 1997.
NEW FINANCIAL ACCOUNTING STANDARDS: In June, 1997, SFAS No. 130,
"Reporting Comprehensive Income" and SFAS. No. 131, "Disclosures about
Segments of an Enterprise and Related Information" were issued. The
provisions of SFAS No. 130 were adopted by the Company in the first
quarter of 1998. This statement establishes standards for the reporting of
comprehensive income and its components. Implementation of this disclosure
standard did not affect the Company's financial position, results of
operations or the manner in which financial information is currently
presented. In accordance with SFAS No. 131, the Company may be required to
modify or expand the financial statement disclosures for operating
segments, products and services, and geographic areas. Implementation of
this disclosure standard, which must be adopted by December 31, 1998, will
not affect the Company's financial position or results of operations.
12
THE STEPHAN CO. AND SUBSIDIARIES
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
MARCH 31, 1998 AND 1997
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Sales for the first quarter of 1998 increased 20%, to $7,651,000, compared
to sales of $6,394,000 for the quarter ended March 31, 1997. The increase
in sales can be principally attributed to revenues generated from the brands
acquired from Image Laboratories, acquired in June, 1997, and to a lesser
extent as a result of the revenues provided from the Morris-Flamingo
acquisition.
Gross profit increased by more than $840,000, to $4,903,000, due to the
favorable product mix which included the additional, high margin sales of
Image products. Sales of professional lines, however, also incur higher
selling expenses and as a result, selling, general and administrative
expenses increased by $456,000 to $2,732,000 when compared to last year's
first quarter total of $2,276,000. Interest expense for the quarter
increased almost $51,000 as a result of interest paid on debt used to
acquire the Image lines and Morris-Flamingo. Overall, the gross profit
margin increased slightly, to 64% for the quarter ended March 31, 1998,
however the gross profit margin is expected to be adversely impacted in
future quarters as a result of the lower gross margins generated by Morris-
Flamingo sales. Morris-Flamingo has operated at a loss, or close to break-
even for the past few years. Management took this into consideration
when evaluating the acquisition and while it is expected that in the short
term, overall gross margins will decrease and selling, general and
administrative expenses will increase, the distribution opportunities the
acquisition affords the Company will have a positive impact on future
operations. Efforts and initiatives have already been implemented to increase
gross margin and the overall profitability of this new subsidiary and
management believes that the net income of Morris-Flamingo will be positively
impacted and a profitability level compatible with existing results of
operations can be achieved in 18 months.
Income taxes for the first quarter of 1998 have increased not only as a
result of increased operating income, but also because the provision for
income taxes for the quarter ended March 31, 1997 included a tax benefit for
merchandise donated to a charitable organization.
Net income of $1,413,000 increased 15%, or $186,000, from the first quarter
of 1997, when it was $1,226,000. Basic earnings per share, computed on a
higher weighted average number of shares outstanding due to the Morris-
Flamingo acquisition, increased 10% to $.33 for the first quarter ended
March 31, 1998 when compared to $.30 for the first quarter of 1997.
LIQUIDITY & CAPITAL RESOURCES
Cash and cash equivalents increased slightly to $8,616,000, exclusive of funds
on deposit with the trustee of the Liquidating Trust created in connection
with the acquisition of the Image brands. The Company borrowed an additional
$1,000,000 to fund the last payment to the Trust, in addition to borrowing
an additional $3,000,000 in connection with the Morris-Flamingo
acquisition, as explained more fully below. Cash on deposit with the
13
THE STEPHAN CO. AND SUBSIDIARIES
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
MARCH 31, 1998 AND 1997
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (con't).
trustee increased $336,000 to $947,000. It is currently estimated that
when the Trust terminates in June, 1998, approximately $500,000 will be
refunded to the Company and these funds will be used to reduce the
outstanding balance on the Company's line of credit with NationsBank, N.A.
Accounts receivable and inventory have increased significantly from 1997 as
a result of acquisitions made by the Company. In addition to the increase
in accounts receivable acquired in the Morris-Flamingo acquisition, increased
sales of retail brands acquired from Image to large, national drug chains
and other major retailers has increased the outstanding accounts receivable
both from an actual dollar amount due to sales, as well as the length of time
the receivables remain outstanding. Net inventories increased approximately
$3,760,000 from December 31, 1997 when compared to March 31, 1998. The
increase in inventories is principally due to the Image and Morris-Flamingo
acquisitions which have added a significant amount of Stock Keeping Units
(SKU's) that the Company must manufacture and carry. As a result, many more
chemicals, raw materials, components, packaging and finished goods are
required to be kept in stock in order to ensure product availability.
Expenditures for new equipment as well as other additions to fixed assets
continued in the first quarter of 1998 in an effort to increase production
capabilities to meet product and customer requirements.
Total current assets at March 31, 1998 was $31,632,000 compared to
$25,735,000 at December 31, 1997, and approximately $5,900,000 higher than
the comparable period March 31, 1997. Working capital increased over
$6,250,000 when compared to December 31, 1997. The Company is subject to
various financial covenants with respect to working capital, current maturity
coverage and funded debt ratios under the loan agreements with NationsBank,
N.A. At March 31, 1998, the Company significantly exceeded the minimum
requirements of the covenants.
On March 18, 1998, the Company signed an Asset Purchase Agreement (the
"Agreement") with Morris-Flamingo, L.P., Morris-Flamingo Beauty Products,
Inc., Shaheen & Co., Inc. and Shouky A. Shaheen, for the acquisition of
certain assets and liabilities (including the immediate payment of a note
payable to Fleet Capital Corp. approximating $1,880,000) of Morris-
Flamingo, L.P., in exchange for 307,058 shares of the Company's restricted
(as provided for by Rule 144 of the Securities Act of 1933) common stock.
The transaction was recorded as a purchase, and, based upon the net assets
received, goodwill of approximately $2,400,000 was recorded. The agreement
also provides for 30% of the shares issued to be held in escrow, pending
the final determination of the value of the net assets acquired within 90
days of closing. Morris-Flamingo, L.P. is a large barber and beauty supply
distributor. In connection with the acquisition of Morris-Flamingo, L.P.,
and the related agreement to retire the outstanding Fleet Capital Corp.
debt, the Company secured additional financing from NationsBank, N.A. in
the amount of $3,000,000, and pledged all of the issued common stock of
Morris Flamingo-Stephan, Inc. to the bank as collateral for the loan. The
principal on the loan is payable in equal monthly installments through
March, 2005 and bears interest at the rate of 6.92%.
14
THE STEPHAN CO. AND SUBSIDIARIES
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
MARCH 31, 1998 AND 1997
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 10.1: Asset Purchase Agreement dated March 16, 1998,
between Morris Flamingo-Stephan, Inc., The Stephan Co., Morris-
Flamingo, L.P., Morris-Flamingo Beauty Products, Inc., Shaheen &
Co., Inc. and Shouky A. Shaheen.
(b) Exhibit 10.2: Credit Agreement by and between NationsBank, N.A. and
The Stephan Co., dated March 17, 1998, in connection with a
$3,000,000 term loan.
(c) Exhibit 10.3: Modified and Restated Credit Agreement by and between
NationsBank, N.A. and The Stephan Co., dated July 15, 1997, in
connection with an increase of an existing line of credit to
$5,000,000.
(d) Exhibit 27: Financial Data Schedule
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto, duly authorized.
THE STEPHAN CO.
/s/ Frank F. Ferola
___________________________________
Frank F. Ferola
President and Chairman of the Board
May 15, 1998
/s/ David A. Spiegel
___________________________
David A. Spiegel
Principal Financial and
Accounting Officer
May 15, 1998
16
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT ("Agreement") is made and entered into
this 18th day of March, 1998, by and among MORRIS FLAMINGO-STEPHAN, INC., a
Florida corporation, which is a wholly-owned subsidiary of The Stephan Co.
("Buyer"), THE STEPHAN CO., a Florida corporation, ("Stephen"),
MORRIS-FLAMINGO, L.P., a Georgia limited partnership ("Seller"),
MORRIS-FLAMINGO BEAUTY PRODUCTS, INC., a Georgia corporation, which is the
sole general partner of Seller ("MFB"), SHAHEEN & CO., INC., a Georgia
corporation, which is the sole limited partner of Seller, ("SCI," and
together with MFB, the "Partners"), and SHOUKY A. SHAHEEN, a Georgia
resident ("Shaheen").
W I T N E S S E T H :
WHEREAS, Buyer desires to purchase, and Seller desires to sell,
certain assets of Seller on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual promises, agreements,
and covenants hereinafter set forth, made and to be performed by the
parties hereto, the parties hereto intending to be legally bound, agree as
follows:
ARTICLE 1.
SALE AND PURCHASE
1.1 The Business
The subject of this Agreement is Seller's grooming, hair care
products distribution business and other products and assets more fully
described on Schedule I .1 hereto ("Business").
1.2 Sale and Purchase of Assets
Subject to the terms and conditions of this Agreement, as of the
Closing Date as defined in Article 4, Seller shall sell, assign, transfer
and convey to Buyer, and Buyer shall purchase all of the assets utilized or
necessary for the Business, including, without limitation, all those assets
set forth on Schedule 1.1 hereto or described in Section 2.1 of this
Agreement (the "Acquired Assets"). In consideration for the sale of the
Acquired Assets, Buyer will pay Seller the Purchase Price as defined in
Article 3 of this Agreement.
ARTICLE 2.
ASSETS AND LIABILITIES
2.1 The Acquired Assets
The Acquired Assets to be sold, assigned, conveyed and
transferred by Seller to Buyer at Closing (as defined in Section 4.1 below)
are all of the assets and properties associated, directly or indirectly,
with, or which are utilized in or are necessary to, the Business, except
for the Retained Assets, as defined in Section 2.2 of this Agreement, which
Acquired Assets include, but are not limited to, the following:
(a) Fixed Assets and Tangible Personal Property. All fixed assets of
Seller, other than any Retained Assets, including, without limitation, all
machinery, tools, vehicles, furniture, equipment and other tangible
personal property of every kind and description that are owned by Seller,
as of the Closing Date, all as listed on Schedule 2.1 (a), provided that,
any other fixed assets and tangible personal property related to the
Business that should have been included on such Schedule but was omitted
from such Schedule shall be considered fixed assets and tangible personal
property purchased by the Buyer hereunder.
(b) Inventories. All of Seller's inventories including, without
limitation, racks on hand and inventories with respect to which vendors
have drawn drafts under letters of credit as of the Closing Date even
though such goods have not been received by Seller as of the Closing Date,
all finished goods, work-in-process, spare parts, promotional items, raw
materials, all packaging and all related supplies to any of the foregoing
("Inventory"), all as listed on Schedule 2.1 (b), provided that, any other
inventory related to the Business that should have been included on such
Schedule but was omitted from such Schedule shall be considered Inventory
purchased by the Buyer hereunder.
(c) Accounts Receivable. All of Seller's accounts receivables listed
on Schedule 2. l(c) including any interest, claims and penalties thereon
existing as of the Closing Date, provided that, any other accounts
receivable related to the Business that should have been included on such
Schedule but was omitted from such Schedule shall be considered accounts
receivable purchased by the Buyer hereunder.
(d) Intangible Rights and Intellectual Property. All right, title and
interest of Seller to the name "Morris-Flamingo" and all variations thereof
as well as all fictitious business names, trade names, trademarks,
trademark registrations and applications, service marks, service mark
registrations and applications, copyrights, copyright registrations and
applications, patents, patent rights, trade secrets, technical know-how and
goodwill of Seller including also, all customer and supplier lists, and any
customer and supplier records and histories, formulae, processes, licenses,
computer software or systems that are proprietary to Seller together with
any other intangibles owned by Seller or used in its Business, all as
listed on Schedule 2.1 (d), provided that, any other intangible rights and
intellectual property related to the Business that should have been
included on such Schedule but was omitted from such Schedule shall be
considered intangible rights and intellectual property purchased by the
Buyer hereunder.
(e) Catalogs and Flyers. All of Seller's catalogs, flyers, brochures,
artwork, materials, boards, transparencies, photos and related
preparations.
(f) Books, Papers and Records. All books, papers, and records of
Seller relating in any way or manner to the Acquired Assets and/or the
Business, including, without limitation, all purchasing and sales records,
vendor lists, and all accounting and financial records.
(g) Leases and Other Contracts. Except for the leasehold interests
held by Seller and specifically excluded hereunder by Section 2.2, all of
Seller's rights and interest in, to or under all facility leases, equipment
leases, sales and purchase orders and other instruments, all other
contracts or agreements related in any way or manner to the Acquired Assets
or the Business, including without limitation, all equipment rental
contracts under which Seller is the lessee, all as listed on Schedule 2.1
(g), provided that, any other leases and other contracts related to the
Business that should have been included on such Schedule but was omitted
from such Schedule shall be considered leases and other contracts purchased
by the Buyer hereunder.
(h) Prepaid Expenses. All prepaid expenses existing as of the Closing
Date, including, without limitation, ad valorem taxes, insurance premiums,
lease and rental payments, all as listed on Schedule 2.1 (h), provided
that, any other prepaid expenses related to the Business that should have
been included on such Schedule but was omitted from such Schedule shall be
considered prepaid expenses purchased by the Buyer hereunder.
(i) Rights of Action. Except for the claims held by Seller and
specifically excluded hereunder as reflected on Schedule 2. l(i) hereto, to
the extent there are any, all of Seller's rights, claims, credits, causes
of action or rights of act-off against third parties, relating to the
Acquired Assets or the Business, including all unliquidated rights under
manufacturers' and vendors' warranties.
(j) Cash. All of Seller's cash, certificates of deposits and all
other cash equivalents, as of the Closing Date.
(k) Other Assets. All of Seller's other assets or inventories
associated or used in connection with the Business as of the Closing Date,
not otherwise specifically excluded by Section 2.2 of this Agreement,
whether or not such assets were required to be set forth on a Schedule
hereto but were omitted from such Schedule.
2.2 Assets Being Retained By Seller.
Seller shall retain (i) the real property owned by it and the
structures, buildings, fixtures, and improvements located in Danville,
Vermilion County, Illinois, together with all leasehold interests therein
by which Seller is the lessor, all of which are more fully described on
Schedule 2.2 and (ii) the claims reflected on Schedule 2.1(i)
(collectively, the "Retained Assets"). Only those assets specifically set
forth on Schedule 2.1(i) and on Schedule 2.2 shall be considered Retained
Assets and be retained by Seller.
2.3 Payment of Fleet Capital Corporation Indebtedness at Closing.
At Closing, Buyer shall pay, in full, all of the indebtedness
(i.e., unpaid principal and accrued interest, if any) owed by Seller to
Fleet Capital Corporation f/k/a Shawmut Capital Corporation, ("Fleet
Capital"), as successor-in-interest by assignment from Barclays Business
Credit, Inc. ("Barclays"), as of, and including, the Closing Date, as
evidenced by that certain Loan and Security Agreement, dated January 19,
1990, as amended, and by that certain Secured Promissory Note, dated
January 19, 1990, as amended and extended, between Morris-Flamingo, Inc., a
Georgia Corporation ("MFI"), as borrower and Fleet Capital, as successor in
interest to Barclays, as lender, which indebtedness is secured by a first
lien security interest, mortgage, and encumbrance between Seller and Fleet
Capital, all of which indebtedness was assumed by Seller under an Asset
Purchase Agreement between Seller and MFI, made effective as of January 1,
1992 (the "1992 Agreement") (the "Fleet Capital Indebtedness"). The Seller
hereby represents that the indebtedness owed to Fleet Capital (including
unpaid principal and accrued interest, if any) as of February 28, 1998 is
$2,039,519.63.
2.4 Assumed Liabilities.
(a) As of the Closing Date, in addition to the Fleet Capital
Indebtedness, Buyer will only assume trade accounts payable and such other
notes payable, debts, and other liabilities accrued and which arose in the
ordinary course of Seller's Business, as of, and including, the Closing
Date ("Assumed Liabilities") specifically limited to, those liabilities
which are set forth on Schedule 2.4(a). All liabilities not specifically
set forth on Schedule 2.4(a) will not be considered to be an Assumed
Liability hereunder, including without limitation any tax liability, and
will not be assumed by Buyer.
(b) Major International Supply Promissory Note ("Major Note").
At Closing, Seller shall provide Buyer with (i) the original Major Note
marked canceled and (ii) a written certification from Major International
Supply, L.P., a Georgia limited partnership ("Major International Supply")
that the Major Note has been paid in full prior to the Closing. Seller, its
Partners and Shaheen also agree to jointly and severally indemnify Buyer
and Stephan for any claims which may be made by either Cheung's Hair Beauty
Supply Co., Ltd. or LePachu, Ltd., with respect to and in connection with
the indebtedness owed to them by Major international Supply. At Closing,
Seller shall provide Buyer with copies of Major International Supply's
prior written notification to Cheung's Hair Beauty Supply Co., Ltd. and
LePachu, Ltd., of the final adjustments made by Major International Supply
to the indebtedness owed to them by Major International Supply together
with evidence of the final payments made by Major International Supply to
them in full satisfaction of this indebtedness.
ARTICLE 3.
THE PURCHASE PRICE
3.1 Purchase Price
(a) Subject to the adjustments provided for in Section 3.1(b) hereof,
the purchase price ("Purchase Price") for the Acquired Assets and the
Business shall be the total amount of the following:
(i) An amount of Stephan unregistered and restricted shares of common stock
(the "Stephen Common Stock") having an aggregate Fair Market Value (as
defined below) equal to $3,715,405.00; plus
(ii) The assumption and immediate payment of the Fleet Capital
Indebtedness; plus
(iii) The assumption of Assumed Liabilities as finally determined as of the
Closing Date.
(b) The Purchase Price hereunder shall be adjusted downward on a
dollar for dollar basis to the extent that, on or as of the Closing Date,
the book value of the Acquired Assets minus (A) the amount of the Fleet
Capital Indebtedness and (B) the amount of Assumed Liabilities, all of
which shall be determined in accordance with generally accepted accounting
principles ("GAAP"), as finally determined as of the Closing Date, is less
than $1,234,405.00 ("Purchase Price Adjustment"). The determination of the
Purchase Price Adjustment shall be made in accordance with the provisions
of Sections 3.1(c) and 3.1(d) hereof.
(c) For purposes of determining the Purchase Price Adjustment, if
any, required under Section 3. l (b) hereof, Seller shall prepare a balance
sheet as of the Closing Date reflecting the book value of the Acquired
Assets and the amount of the Fleet Capital Indebtedness together with the
amount of Assumed Liabilities ("Closing Balance Sheet"). Seller shall
prepare the Closing Balance Sheet in accordance with GAAP consistently
applied. The Inventories shall be reflected on the Closing Balance Sheet
based on Sellers perpetual inventory records as of the Closing Date. On
December 31, 1997 a joint physical count of the Inventories was taken by
Buyer and Seller (or by their representatives), and within thirty (30) days
after the Closing, Seller shall provide Buyer with a reconciliation of the
Inventories as counted on December 31, 1997 to the value of Inventories as
reflected on Seller's perpetual inventory records as of the Closing Date.
For purposes of the Closing, the value of Inventories shall be determined
in accordance with Section 3.4(c) of this Agreement. On or before ninety
(90) days after the Closing Date, Buyer shall provide Seller with any
necessary adjustments required to be made to the Closing Balance Sheet to
accurately reflect the book value of the Acquired Assets and the amount of
the Fleet Capital Indebtedness together with the amount of Assumed
Liabilities as of the Closing Date (the "Post Closing Balance Sheet"). The
Post Closing Balance Sheet shall be prepared by Buyer in accordance with
GAAP consistently applied. If it is determined by the Post Closing Balance
Sheet as of the Closing Date that the excess of the book value of the
Acquired Assets minus (A) the amount of the Fleet Capital Indebtedness and
(B) the amount of the Assumed Liabilities is less than $1,234,405.00, then
the Purchase Price shall be reduced, on a dollar for dollar basis, in
accordance with the terms and provisions of the Escrow Agreement to be
entered into by and among the parties to this Agreement, attached hereto as
Exhibit A.
(d) The Closing Balance Sheet shall be provided in writing by Seller
to Buyer at the Closing and the Post Closing Balance Sheet shall be
provided in writing to Seller by Buyer within ninety (90) days after the
Closing Date. Seller shall have the right to challenge within thirty (30)
days after receipt of the Post Closing Balance Sheet, Buyer's determination
of the Post Closing Balance Sheet. If either party challenges any of these
amounts, then such other party shall provide the challenging party, in
writing, with its determination of these amounts. Seller and Buyer shall
attempt, in good faith, to resolve any differences. If Seller and Buyer are
unable to resolve said differences within thirty (30) days of receipt of
the other's determination of these amounts, any unagreed differences
between Buyer and Seller's determination of these amounts shall be resolved
by an arbitrator designated by the American Arbitration Association in
Miami, Florida, with the cost of such arbitration to be equally borne by
Buyer and Seller. If, after a final determination of the amounts, there is
a Purchase Price Adjustment hereunder, there shall be released to Buyer
from the Stephan Common Stock held in escrow pursuant to the Escrow
Agreement an amount of Stephan Common Stock, as determined under the Escrow
Agreement, to satisfy this Purchase Price Adjustment. If there is an
insufficient amount of Stephan Common Stock held in escrow pursuant to the
Escrow Agreement to satisfy this Purchase Price Adjustment, then an
additional amount of Stephan Common Stock required to satisfy this Purchase
Price Adjustment shall be paid from Seller to Buyer, in accordance with the
provisions of Section 11.2(g) of this Agreement. Buyer agrees to issue
additional shares of Stephan Common Stock to the Seller if the final
determination of the Purchase Price Adjustment based on the Post Closing
Balance Sheet is less than the Purchase Price Adjustment made at Closing
based on the Closing Balance Sheet. In such event thirty percent (30%) of
such additional shares of Stephan Common Stock shall be deposited with the
Escrow Agent named in the Escrow Agreement. The issuance of such additional
shares shall be based on the value as determined in accordance
with Section 3.2(a)(i) of this Agreement and such shares shall be issued by
Buyer within fifteen (15) days of such final determination of the Post
Closing Balance Sheet.
3.2 Payment of Purchase Price At Closing
(a) At Closing, Buyer shall pay the Purchase Price to Seller as
follows:
(i) The issuance to Seller of certificates for 307,058 shares of
Stephan Common Stock which was calculated with such shares having an
aggregate Fair Market Value (as hereinafter defined) equal to
$3,715,405.00, (as adjusted in accordance with Paragraph 3.1 (a) of this
Agreement) with thirty percent (30%) of such Stephan Common Stock to be
deposited with the Escrow Agent named in the Escrow Agreement. For purposes
hereof, "Fair Market Value" shall mean $11.00 for each share of Stephan
Common Stock, subject to adjustment upward or downward of up to ten percent
(10%) based on the average closing sales price of Stephan's common stock as
reported by the American Stock Exchange for the twenty (20) trading days
prior to the Closing Date; plus
(ii) The payment by Buyer of the Fleet Capital Indebtedness; plus
(iii) The assumption by Buyer of the Assumed Liabilities.
(b) Each certificate for Stephan Common Stock issued to Seller as part
of the Purchase Price shall bear the following legend:
"The securities represented by this certificate (i) have not been
registered under the Securities Act of 1933, as amended, or under any state
securities or other "blue sky" laws, and may not be sold, transferred or
otherwise disposed of except in accordance with the terms thereof and
unless registered with the Securities and Exchange Commission of the United
States and the securities regulatory authorities of certain states, or
based on the opinion of counsel reasonably satisfactory to the issuer, an
exception from such registration is available and (ii) are subject to that
certain Asset Purchase Agreement dated March 18, 1998, by and among Morris
Flamingo-Stephan, Inc., The Stephan Co., Morris-Flamingo, L.P.,
Morris-Flamingo Beauty Products, Inc., Shaheen & Co., Inc., and Shouky A.
Shaheen."
(c) Buyer and Seller agree that, at Closing, if the Closing Balance
Sheet, as prepared by Seller, requires a Purchase Price Adjustment, then
such Purchase Price Adjustment shall be made at Closing, subject, however,
to an additional Purchase Price Adjustment, based on the Post Closing
Balance Sheet as finally determined in accordance with Section 3.1(d)
hereof. The satisfaction of such additional Purchase Price Adjustment shall
be made in accordance with Section 3.1(d) hereof, based on the value as
determined in accordance with Section 3.2(a)(i) of this Agreement for the
Stephan Common Stock.
3.3 No Fractional Shares
If a fractional share shall result from the determination of the
number of Stephan Common Stock required to be issued to Seller pursuant to
Section 3.2 (a), then no certificate or scrip of any kind shall be issued
by Buyer in respect of such fractional interest, but Seller shall be
entitled to receive a cash payment equal to such fractional interest on the
Closing Date.
3.4 Allocation of Purchase Price
The Purchase Price shall be allocated for tax purposes by the
parties and the parties shall report the transactions contemplated by this
Agreement in their tax returns as follows:
(a) Cash, certificates of deposit, and all cash equivalents
shall equal the amount thereof transferred by Seller to Buyer as of the
Closing Date;
(b) Accounts receivable shall have a value equal to the total of
all such amounts owed to Seller on the Closing Date, less an allowance for
doubtful accounts receivable, calculated according to GAAP.
(c) Inventories shall be determined as of the close of business
on March 18, 1998 based on Seller's perpetual inventory records. The
Inventories shall be reflected on an item by item basis, to be valued at
first-in, first-out (FIFO) cost. After the total cost of the Inventories
has been determined in accordance with the preceding sentence hereof, such
amount shall then be reduced by the below inventory reserve adjustment.
This inventory reserve adjustment shall be based on the following
quantities of the Inventories and the following percentage reduction for
such quantities:
Inventories Percentage Reduction
Over 4 Years Quantities On Hand 80.00%
Over 3 Years Quantities On Hand 75.00%
Over 2 Years Quantities On Hand 50.00%
Over 1 Year Quantities On Hand 25.00%
Over 6 Months Quantities On Hand 2.00%
All Other Inventories 2.00%
As used herein, "Quantities" refer to units of Inventory sold by
Seller during the calendar year 1997. At the Closing, Seller shall provide
Buyer with its perpetual inventory records as of March 18, 1998.
(d) (i) Furniture, fixtures, machinery, equipment and similar
assets; (ii) catalogs, flyers, and similar assets and (iii) prepaid
expenses shall have values based on the allocation of the Purchase Price to
these items as made by Stephan, and as provided to Seller by Stephan
following the Closing.
(e) The remainder of the Purchase Price shall be allocated to intangibles.
ARTICLE 4.
THE CLOSING
4.1 Place of Closing
The Closing of this transaction ("Closing") shall take place at
a location mutually acceptable by Buyer and Seller.
4.2 Closing Date
The Closing Date shall be March 18, 1998, (the "Closing Date"),
with the closing to commence at 10:00 a.m., or such other time and date as
Buyer and Seller shall mutually agree.
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES OF SELLER, ITS PARTNERS, AND
SHAHEEN
To induce Buyer and Stephan to enter into this Agreement,
Seller, its Partners, and Shaheen, jointly and severally, make the
following representations and warranties to Buyer and Stephan:
5.1 Organization, Standing and Power
Seller is a limited partnership duly organized, validly existing
and in good standing under the laws of the state of the jurisdiction in
which it is organized with full power and authority to own, lease and
operate its properties and to carry on its business as presently conducted
by it. Schedule 5.1 hereto sets forth all states and other jurisdictions in
which the Seller is duly qualified and in good standing to conduct
business. There are no other states or jurisdictions in which the character
and location of the properties owned or leased by Seller, or the conduct of
its business, make such qualification necessary. True and complete copies
of Seller's Certificate of Limited Partnership and all amendments thereto
have been furnished to Buyer.
5.2 Ownership
The ownership of Seller is shown on Schedule 5.2.
5.3 Interests in Other Entities
Seller does not (i) own, directly or indirectly, of record or
beneficially, any shares of voting stock or other equity securities of any
corporation, (ii) have any ownership interest, direct or indirect, of
record or beneficially, in any unincorporated entity, or (iii) have any
obligation, direct or indirect, present or contingent, to purchase or
subscribe for any interest in, advance or loan monies to, or in any way
make investments in, any person or entity, or to share any profits or
capital investments in other persons or entities, or both.
5.4 Authority
The execution and delivery by MFB, on its own behalf and as the
general partner of Seller, and by SCI of this Agreement and all of the
agreements, Schedules, Exhibits, documents and instruments specifically
provided hereunder to be executed and/or delivered by any or all of them
(all of the foregoing, including this Agreement, being hereinafter
sometimes collectively called the "Executed Agreements"), and the
performance by Seller and its Partners (to the extent that they are parties
thereto) of their respective obligations under the Executed Agreements, and
the consummation of the transactions contemplated by the Executed
Agreements, have been duly and validly authorized by all necessary
corporate action on the part of MFB (on its own behalf and as the general
partner of Seller) and SCI. Shaheen hereby individually represents and
warrants that he is an individual over 21 years of age and is legally
competent to enter into, execute and perform any of the Executed Agreements
to which he is a party. The Executed Agreements are, or when executed and
delivered by the delivering parties shall be, the valid and binding
obligations of the delivering parties, enforceable in accordance with their
respective terms, except to the extent that enforceability may be limited
by the operation of bankruptcy, insolvency or similar laws. Neither the
execution and delivery by MFB (on its own behalf and as the general partner
of Seller), SCI or Shaheen (to the extent that they are parties thereto) of
the Executed Agreements, nor the consummation of the transactions
contemplated thereby, nor the performance by Seller, its Partners or
Shaheen (to the extent that they are parties thereto) of their respective
obligations under the Executed Agreements, shall (nor with the giving of
notice or the lapse of time or both would) (i) other than as to Shaheen,
conflict with or result in a breach of any provision of their respective
Agreement of Limited Partnership, Certificates of Incorporation or By-Laws,
(ii) give rise to a default, or any right of termination, cancellation or
acceleration, or otherwise result in a loss of contractual benefits to
Seller, under any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, license, agreement or other instrument or obligation
to which Seller is a party or by which it or any of its properties or
assets may be bound, (iii) violate any order, writ, injunction, decree,
law, statute, rule or regulation applicable to Seller or any of its
respective properties or assets, (iv) result in the creation or imposition
of any lien, claim, restriction, charge or encumbrance upon any of the
properties or assets of Seller, or (v) interfere with or otherwise
adversely affect the ability of Seller to carry on the Business as now
conducted. Seller has the right, power, legal capacity, and authority to
enter into, and perform its obligations under this Agreement, and has
obtained, or shall obtain before the Closing, the necessary approvals or
consents of any persons necessary to the consummation of the asset purchase
in connection with this Agreement, including, but not limited to, the
consents of Scherer and Fligelman
5.5 Properties
Except as set forth on Schedule 5.5 hereto, Seller has good and
marketable title to all of the properties and assets (real, personal and
mixed, tangible and intangible) it purports to own or use, including those
set forth on the Balance Sheet (as defined below) or thereafter acquired
(except properties or assets sold or otherwise disposed of in the ordinary
course of business subsequent to the date of the Balance Sheet), free and
clear of all mortgages, liens, pledges, charges or encumbrances of any
nature whatsoever. Except as set forth on Schedule 5. 5, such properties
and assets are in good operating condition, normal wear and tear excepted,
and are adequate for the purposes for which they are used. Schedule 5.5
also contains an accurate list setting forth all (i) real property owned,
leased (whether as lessor or lessee) or subject to contract or commitment
of purchase or sale or lease (whether as lessor or lessee) by Seller and
(ii) personal property leased by or to Seller or subject to a title
retention or conditional sales agreement or other security device. All
leases listed on Schedule 5.5 are valid, binding and enforceable in
accordance with their terms, and are in full force and effect, except to
the extent that enforceability may be limited by the operation of
bankruptcy, insolvency or similar laws; there are no existing defaults by
either party thereunder; no event of default has occurred which (whether
with or without notice, lapse of time or both) would constitute a default
by Seller thereunder; are in conformity with all laws including, without
limitation for any real property leases, zoning or other building laws and
all lessors under such leases have consented (where such consent is
necessary) to the consummation of the transactions contemplated by this
Agreement without requiring modification of the rights and obligations of
Seller under such leases.
5.6 Financial Statements
Seller has delivered to Buyer true and complete copies of its
audited balance sheets as of December 31, 1995 and 1996, and the related
audited statements of income, retained earnings and cash flows for the
fiscal years ended December 31, 1995 and 1996 and its unaudited balance
sheet as of December 31, 1997 (the "Balance Sheet") and related unaudited
statements of income, retained earnings and cash flows for the period ended
December 31, 1997. Such financial statements, including the notes thereto,
were prepared in accordance with GAAP applied on a consistent basis
throughout the periods involved (except as may be otherwise expressly
stated in said financial statements and notes thereto) and fairly present
the financial position of Seller at the dates thereof and the results of
its operations for the periods as indicated. The books and records of
Seller are in all material respects complete and correct, have been
maintained in accordance with good business practices, and accurately
reflect the basis for the financial condition and results of operations of
Seller as set forth in the financial statements referred to herein.
5.7 Absence of Undisclosed Liabilities and Solvency
(a) Seller does not have any liabilities or obligations, whether
known, unknown, accrued, absolute, contingent or otherwise which have not
been (i) in the case of liabilities and obligations of a type customarily
reflected on the balance sheet of Seller, reflected on the Balance Sheet in
accordance with GAAP, (ii) in the case of all other types of liabilities
and obligations described on Schedule 5.7 hereto, or (iii) incurred,
consistent with past practice, in the ordinary course of business since the
date of the Balance Sheet and which are not material either individually or
in the aggregate.
(b) Seller is solvent, having assets which at a fair valuation exceed
its known liabilities and Seller is able to meet its debts as they mature
and will not become insolvent as a result of the transactions contemplated
by this Agreement.
5.8 Absence of Certain Chances
Except as and to the extent set forth on Schedule 5.8 hereto,
since the date of the Balance Sheet, Seller has not:
(i) suffered any material adverse change in its working capital, condition
(financial or otherwise), assets, liabilities, business, operations or
prospects;
(ii) incurred any material liabilities or obligations except items incurred
in the ordinary course of business and consistent with past practice, none
of which exceeds $20,000.00 (counting obligations or liabilities arising
from one transaction or a series of similar or related transactions, and
all periodic installments or payments under any lease or other agreement
providing for periodic installments or payments, as a single obligation or
liability), or experienced any increase in, or change in any assumption
underlying or methods of calculating, any bad debt, contingency or other
reserves;
(iii) paid, discharged or satisfied any claim, liabilities or obligations
(absolute, accrued, contingent or otherwise) other than the payment,
discharge or satisfaction in the ordinary course of business and consistent
with past practice of liabilities and obligations reflected or reserved
against on the Balance Sheet or incurred in the ordinary course of business
and consistent with past practice since the date of the Balance Sheet;
(iv) permitted or allowed any of its property or assets (real, personal or
mixed, tangible or intangible) to be subjected to any mortgage, pledge,
lien, security interest, encumbrance, restriction or charge of any kind,
except those disclosed Pursuant to Section 5.8 hereof;
(v) written down the value of any inventory or written off as uncollectible
any notes or accounts receivable, except for write-downs and write-offs in
the ordinary course of business and in accordance with GAAP consistent with
past practice none of which are material;
(vi) canceled any debts or waived any claims or rights of substantial
value, or sold, transferred, or otherwise disposed of any of its properties
or assets (real, personal or mixed, tangible or intangible), except in the
ordinary course of business and consistent with past practice;
(vii) disposed of or permitted to lapse any rights to use any patent,
trademark, trade name or copyright, or disposed of or disclosed (except as
necessary in the conduct of its business) to any person any trade secret,
formula, process or know-how;
(viii) granted any general increase in the compensation of officers or
employees (including any such increase pursuant to any bonus, pension,
profit-sharing or other plan or commitment) or any increase in the
compensation payable or to become payable to any officer or employee, and,
unless otherwise indicated on Schedule 5 8, no such increase is customary
on a periodic basis or is required by agreement or understanding;
(ix) made any single capital expenditure or commitment (or a series of
related capital expenditures or commitments) in excess of $20,000 00 for
additions to property, plant, equipment or intangible assets or made
aggregate capital expenditures and commitments in excess of $20,000 00 (on
a consolidated basis) for additions to property, plant, equipment or
intangible assets;
(x) declared, paid or set aside for payment any distributions to its
partners;
(xi) made any change in any method of accounting or accounting practice;
(xii) paid, loaned or advanced any amount to, or sold, transferred or
leased any properties or assets (real, personal or mixed, tangible or
intangible) to, or entered into any agreement or arrangement with, any of
its or any of its Partner's officers, directors, stockholders or employees
or any "affiliate" or "associate" of any of its or any of its Partner's
officers, directors, stockholders or employees (as such terms are defined
in the rules and regulations of the Securities and Exchange Commission (the
"SEC") under the Securities Act of 1933 (the "Securities Act")), except for
compensation to officers and employees at rates not materially exceeding
the rates of compensation paid during the year ended December 31, 1997;
(xiii) delayed or failed to repay when due any material obligation of
Seller;
(xiv) failed to operate the business of Seller in the ordinary course so as
to preserve the Seller's business intact and to preserve the goodwill of
Seller's suppliers, customers, distributors and other third parties having
business relationships with Seller; and
(xv) agreed, whether in writing or otherwise, to take any action described
in this Section unless such action is specifically excepted from this
Section or described in Schedule 5.8.
5.9 Bankruptcy and Insolvency
No petition in bankruptcy (voluntary or otherwise), assignment
for the benefit of creditors, or petition seeking reorganization or
arrangement or other action under federal or state bankruptcy laws is
pending on behalf of or against Seller. The assets of Seller, at fair
market value, exceed its liabilities, immediately prior to the Closing
Date. The sale of the Acquired Assets hereunder is not for the purpose of
delaying or defrauding any creditors of Seller.
5.10 Tax Matters
(i) Seller has filed all Tax Returns (as defined below) that it was
required to file. All such Tax Returns were correct and complete in all
respects. All Taxes (as defined below) owed by Seller (whether or not shown
on any tax Return) have been paid. Seller is not currently the beneficiary
of any extension of time within which to file any Tax Return. No claim has
ever been made by an authority in a jurisdiction where Seller does not file
Tax Returns that it is or may be subject to taxation by that jurisdiction.
There are no liens on any of the assets of Seller that arose in connection
with any failure (or alleged failure) to pay any Tax.
(ii) Seller has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party.
(iii) Seller does not expect any authority to assess any additional
Taxes for any period for which Tax Returns have been filed. There is no
dispute or claim concerning any Tax liability of Seller claimed or raised
by any authority in writing. To the knowledge of Seller, no issue has
arisen in any examination of Seller by any governmental authority that if
raised with respect to any other period not so examined would, if upheld,
result in a material deficiency for any other period not so examined.
Seller has delivered to Buyer correct and complete copies of all federal
income Tax Returns, examination reports, and statements of deficiencies
assessed against or agreed to by any of Seller or its Partners (relating to
Seller) since January 1, 1994.
(iv) Seller has not waived any statute of limitations in respect of
Taxes or agreed to any extension of time with respect to a Tax assessment
or deficiency.
(v) The unpaid Taxes of Seller did not, as of December 31, 1997, exceed
the reserve for any tax liability set forth on the face of the Balance
Sheet (rather than in any notes thereto). The provision for Taxes reflected
on the books of account of Seller is adequate for all Taxes of Seller which
have accrued since the date of the Balance Sheet.
(vi) For purposes of this Section 5.10 the following definitions shall
apply:
"Tax" or "Taxes" means any federal, state, local or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, customs duties, capital stock,
franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, sales, use,
transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule
or attachment thereto, and including any amendment thereof.
5.11 Certain Contracts
Schedule 5.11 hereto contains a complete and correct list of all
contracts, commitments, obligations and undertakings, written or oral, to
which Seller is a party or otherwise bound the dollar value of which
exceeds $10,000.00 (collectively, the "Contracts"). Complete and correct
copies of all Contracts, set forth on any of the Schedules attached hereto,
including, without limitation, Schedule 5.11 have been, or, upon request,
will be, furnished to Buyer, and except as expressly stated on Schedule 5.
11, each of such Contracts is in full force and effect, no person or entity
which is party thereto or otherwise bound thereby is, to the knowledge of
Seller, in material default thereunder, and, to the knowledge of Seller,
its Partners and/or Shaheen, no event, occurrence, condition or act exists
which, with the giving of notice or the lapse or time or both, would give
rise to a material default or right of cancellation thereunder, and to the
knowledge of Seller, its Partners, and/or Shaheen, there have been no
threatened cancellations thereof and there are no outstanding material
disputes thereunder. Seller has not received notice that any party to any
of the Contracts intends to cancel or terminate any such Contracts or to
exercise or not exercise any options under any of such Contracts. Seller is
not a party to, nor are the Acquired Assets bound by, any agreement that is
materially adverse to the Business, property, or financial condition of
Seller.
5.12 Inventory
Schedule 2.1(b) sets forth a complete and accurate list of all
Inventory as of the close of business on March 18, 1998, and Schedule 5.12
sets forth a complete and accurate list of all Inventory as of December 31,
1997. All Inventory set forth on either Schedule 2.1(b) or Schedule 5.12
consists of items of a quality and quantity suitable and usable or saleable
in the ordinary course of business for the purposes for which they are
intended, are in good and merchantable condition except for obsolete
materials, materials of below standard quality and not readily marketable
items, all of which have been adequately reserved against on the books and
records of Seller in accordance with Section 3.4(c) hereof. Inventory is
stated at cost, subject to the reserve adjustment required by Section
3.4(c) hereof. There has not been any significant adverse change in the
quantity or quality of Inventories since the date of the Balance Sheet. The
present quantity of Inventory is reasonable in the present circumstances of
Seller's business and consistent with the average level of Seller's
Inventory in the past twelve months.
5.13 Fixed Assets
Schedule 2.1(a) contains a true and complete list of all of the
fixed assets owned by, in the possession of, or used by Seller in
connection with the Business. Except as stated on Schedule 2.1(a) no fixed
assets used by Seller in connection with the Business are held under any
lease, security agreement, conditional sales contract, or other title
retention or security arrangement.
5.14 Accounts Receivable
Schedule 2.1 (c) contains a true and complete list of the
accounts receivable of Seller. The accounts receivable reflected on
Schedule 2.1(c) and on the Balance Sheet, and all accounts receivable
arising since the Balance Sheet date, which may not be included on Schedule
2. l(c) or the Balance Sheet, represent bona fide claims of Seller against
debtors for sales or services sold or performed and are good and
collectible in the ordinary course of business at the aggregate amounts
recorded on Schedule 2. l(c) or on such Balance Sheet or as reflected in
the books of account of Seller, less the amount of the reserve for bad
accounts reflected in said Balance Sheet or on the books of account of
Seller (which reserve has been established on a basis consistent with past
practice and in accordance with GAAP), and are not subject to any defenses,
recoupments, counterclaims, disputes or rights of offset.
5.15 Insurance
Schedule 5.15 hereto contains a complete and correct list and
summary description of all policies or binders of insurance in which Seller
is an insured party, beneficiary or loss payable payee. Such policies are
in full force and effect and provide the type and amount of coverage
reasonably required for the business of Seller. No insurer has advised
Seller, its Partners or Shaheen that it intends to reduce coverage,
increase premiums or not renew any existing policy or binder. In the past
five years no provider of insurance to Seller has failed to renew any
policy or refused to grant any insurance coverage requested by Seller.
5.16 No Violation of Law
Seller is not engaged in any activity and is not omitting to
take any action as a result of which Seller would be in violation of any
law, rule, regulation, statute, order, injunction or decree, or any other
requirement of any court or governmental or administrative body or agency,
foreign or domestic (collectively, "Laws"), applicable to Seller or any of
its properties, products, operations, businesses, pension or other employee
benefit plans, labor practices, or employees, including, without
limitation, the rules and regulations of the United States Food and Drug
Administration and any similar governmental authority of any state or
foreign entity, any laws, rules and regulations relating to air, water,
solid or liquid waste disposal practices, health or safety practices
advertising practices or hiring, promotion or retirement practices, the
violation of which may result in a material and adverse effect on the
business or condition (financial or otherwise) of Seller. Neither Seller
nor its Partners or Shaheen have received any notice to the effect that, or
otherwise been advised that, Seller is not in compliance with any Laws, and
there are no existing circumstances which are reasonably likely to result
in any violations of any Laws.
5.17 Litigation
Other than as set forth on Schedule 5.l7 hereto, there are no suits or
actions, or administrative, arbitration or other proceedings or
governmental investigations (collectively, "Actions"), pending or to the
best knowledge of Seller, its Partners and/or Shaheen, threatened against
or affecting, or which may affect, Seller or any of its properties, assets
or businesses or the transactions contemplated hereby, nor does Seller, its
Partners and/or Shaheen have knowledge of any reasonable basis for any such
Actions. The Actions described on Schedule 5.17 do not materially and
adversely affect, and/or will not materially and adversely affect, Seller
or any of its properties, assets or businesses. There are no outstanding
judgments, orders, stipulations, injunctions, decrees or awards against
Seller which are not satisfied.
5.18 Intangible Rights and Intellectual Property
Schedule 2. l(d) hereto is a true and complete list of all
licenses, computer software or systems that are proprietary to Seller,
patents, copyrights, trademarks, trade names and business names, whether
foreign or domestic, owned or used by Seller in the conduct of its business
and all pending applications therefor (the "Intangible Rights and
Intellectual Property"). All Intangible Rights and Intellectual Property
listed on Schedule 2.1(d) have been, to the extent applicable and indicated
on such Schedule, duly registered with or filed in or issued by the United
States Patent and Trademark Office or such other government entity or
foreign government entity as indicated in such Schedule and such
registrations and filings remain in full force and effect. Except as set
forth on Schedule 2.1 (d) no other party other than Seller, including its
Partners or Shaheen (other than as a result of their ownership of Seller),
has any ownership or other interest in any of the Intangible Rights and
Intellectual Property. To the knowledge of Seller, its Partners and
Shaheen, none of the Intangible Rights and Intellectual Property is being
infringed upon by, or infringes, any licenses, patents, copyrights,
trademarks or other intellectual property rights of any other person or
entity nor have any of them received any notice or other communication of
any alleged or actual infringement by Seller of the rights or others.
5.19 Right to Use Name
Seller has the right to use its name and any fictitious business
names as presently used and this right is not subject to any pending or, to
the best of Seller's knowledge, threatened challenge. To the best of
Seller's knowledge, its name is not used by any other person or business in
any state in which it conducts business.
5.20 Suppliers and Customers
Seller has received no oral or written complaints with respect
to its supply, purchase, sale, distribution, sales representative or
similar agreements necessary for the normal operation of the business or
any notice from any customer that it intends to return any inventory of
Seller other than in customary amounts in the ordinary course of business.
Schedule 5.20 hereto contains a true and complete list of all of Seller's
significant suppliers and customers . Seller has received no notice stating
that (i) any supplier or customer expects to materially reduce its business
with Seller by reason of the transactions contemplated by this agreement or
for any other reason whatsoever or (ii) any supplier named on Schedule 5.20
has any intention to increase supply costs, adversely change any other
terms of supply arrangements or significantly increase the delivery time of
any supplies. Seller has no agreement or understanding with any customer
that upon return of any products to Seller that such customer will be
entitled to a credit for any amount other than the invoice price of the
products so returned, and there is no standard in the industry of Seller
for customers to obtain credits in excess of such amounts.
5.21 Approvals
Seller has obtained and there remain in effect, all governmental
and administrative consents, permits, appointments, approvals, licenses,
certificates and franchises necessary for the operation of its business as
presently conducted by it, and the continued operation thereof on
substantially the same basis following the Closing Date.
5.22 Governmental Authorizations; Third Party Consents
Except as set forth on Schedule 5.22 hereto, no approval,
consent, compliance, exemption, authorization or other action by, or notice
to or filing with, any governmental authority or any other person or
entity, and no lapse of a waiting period, is necessary or required to be
obtained by Seller, its Partners or Shaheen in connection with the
execution, delivery or performance by any of them, of this Agreement or the
transactions contemplated hereby.
5.23 Employee Arrangements: ERISA
Except as reflected on Schedule 5.23 hereto, Seller has (i) no
union, collective bargaining, employment, management, severance or
consulting agreements to which Seller is a party or otherwise bound which
are not terminable, pursuant to their respective terms, by Seller without
penalty or further obligation on 30 days notice or less, (ii) no
compensation plans, bonus plans, deferred compensation agreements, pension
and retirement plans, profit-sharing plans, stock purchase and stock option
plans and/or (iii) no employee benefits plans established or maintained by
Seller which are qualified for federal income tax exemption under Sections
401 and 501 of the Internal Revenue Code of 1986, as amended, (the "Code").
All charges for vacation time have been accrued on the Balance Sheet in
accordance with GAAP.
5.24 Environmental Matters
No Hazardous Material (as defined below) has been discharged,
dumped, spilled, leaked, migrated, disposed of, or released at, on or under
any properties which the Seller (i) currently owns, leases, occupies or
operates or (ii) previously owned, leased, occupied or operated during such
period of ownership, lease, occupation or operation. Seller has neither
knowledge nor reason to believe or suspect, that any such discharge,
dumping, spillage, leakage, disposal or release occurred before or after
the Seller took title to, or possession or operation of, any of such
properties, or that any such Hazardous Materials are migrating or have
migrated off of such properties in subsurface soils, groundwater or surface
waters. For purposes of this Section, "Hazardous Materials" means any
pollutant, contaminant, hazardous, radioactive or toxic substance,
material, constituent or waste, or any other waste, substance, chemical or
material regulated under any environmental law of any jurisdiction,
including (1) petroleum, crude oil and any fractions thereof, (2) natural
gas, synthetic gas and any mixtures thereof, (3) asbestos and/or
asbestos-containing material, (4) radon and (5) polychlorinated biphenyls
("PCBs"), or materials or fluids containing PCBs.
5.25 Bank Accounts and Powers of Attorney
Schedule 5.25 hereto contains a complete and correct list
showing (i) the name of each bank in which Seller has an account or safe
deposit box and the names of all persons authorized to sign or draw thereon
or have access thereto, and (ii) the names of all persons, if any, holding
powers of attorney from Seller.
5.26 Certain Business Matters
Except as set forth on Schedule 5.26 hereto, (i) Seller is not a
party to or bound by any distributorship, dealership, sales agency,
franchise or similar agreement which relates to the sale or distribution of
its products and services, (ii) Seller does not have any sole-source
supplier of significant goods or services (other than utilities) with
respect to which practical alternatives sources are not available on
comparable terms and conditions and (iii) there are not pending, and to
Seller's, its Partner's and/or Shaheen's knowledge, there are not
threatened, any labor negotiations involving or affecting Seller, and to
Seller's, its Partners' and Shaheen's knowledge, no organizing activities
involving union representation exist in respect of any of its employees.
Schedule 5.26 also sets forth any product warranties given to third parties
by Seller and except for the product warranties described in Schedule 5.26
Seller neither gives nor is bound by any express warranties relating to its
products or services. To Seller's, its Partners' or Shaheen's knowledge,
there has been no assertion of any breach of product warranties which could
have a material adverse effect on the business or condition (financial or
otherwise) of Seller and, to Seller's, its Partners' or Shaheen's
knowledge, there are no problems or potential problems with respect to any
product sold by Seller whether relating to its safety, efficacy, life or
otherwise. Seller is not a party to or bound by any agreement which limits
its freedom to compete in any line of business or with any person. Except
as set forth on Schedule 5.26, Seller is not a party to or bound by any
agreement or involved in any transaction in which any principal of Seller
or any officer, director or stockholder of its Partners, or any affiliate
or associate (as defined under the Securities Act) of any such person has,
or had when made, a direct or indirect material interest.
5.27 Computer System
Except as disclosed on Schedule 5.27, all computer hardware and
software and related materials used by Seller in the performance of
Seller's business (collectively, the "Computer System") are in good working
order and condition, and Seller has not experienced any significant defects
in design, workmanship or material. The Computer System has the performance
capabilities, characteristics and functions necessary for the conduct of
Seller's business. The use of the Computer System by Seller (including any
software modifications) (i) does not and has not violated or infringed upon
and will not violate or infringe upon the rights of any third parties and
(ii) does not and has not resulted and will not result in the termination
of any maintenance, service or support agreement relating to any part of
the Computer System or any reduction in the services provided to Seller,
warranties available to Seller or rights of Seller thereunder. Consummation
of the transactions contemplated hereby will not impair, preclude or
increase the cost of the Buyer's use of the Computer System.
5.28 Purchase Commitments and Outstanding Bids
As of February 28, 1998, the aggregate of all accepted and unfulfilled
orders for the sale of merchandise entered into by Seller is, in the
aggregate, at least $21,946.00 and the aggregate of all orders or
commitments for the purchase of supplies by Seller does not exceed
$699,154.00, all of which orders and commitments were made in the ordinary
course of business. As of the date of this Agreement, there are no claims
against Seller to return merchandise by reason of alleged overshipments,
defective merchandise or otherwise, or of merchandise in the hands of
customers under an understanding that such merchandise would be returnable,
other than claims made in the ordinary course of business or for which
reasonable reserves have been taken on the Balance Sheet. To the knowledge
of Seller, its Partners and/or Shaheen, no outstanding purchase or lease
commitment of Seller was knowingly made at any price in excess of the then
current market price.
5.29 Absence of Certain Business Practices
Neither Seller nor its Partners and/or Shaheen, nor any of their
respective officers, directors, employees and/or agents have engaged in any
activities in the operation of the Seller's business which are prohibited
under United States federal, transnational, state, local or foreign
statutes or laws, including, without limitation, (i) knowingly soliciting
or receiving any remuneration (including any kickback, bribe, illegal gift,
gratuity, rebate or other similar benefit), directly or indirectly, overtly
or covertly, in cash or in kind or offering to pay such remuneration (a) in
return for referring an individual to a person for the furnishing, or
arranging for the furnishing, of any item or service or (b) in return for
purchasing, leasing, or ordering or arranging for or recommending
purchasing, leasing, or ordering any good, facility, service, or item, or
(ii) knowingly selling any products or providing any services to any
customers who are engaged or involved in any illegal practices or
activities.
5.30 Investment Intent
Each entity or person receiving Stephan Common Stock hereunder
is an "accredited investor" as such term is defined in Rule 501 in
Regulation D under the Securities Act and has such knowledge and experience
in financial and business matters and is capable of evaluating the merits
and risks of an investment in the Stephan Common Stock. Each entity or
person receiving Stephan Common Stock hereunder acknowledges that Buyer and
Stephan have made available to each such person or entity the opportunity
to ask questions of and receive satisfactory answers from Buyer and Stephan
concerning Buyer and Stephan. All such questions have been answered to the
satisfaction of each entity or person receiving Stephan Common Stock
hereunder. In addition each entity or person receiving Stephan Common Stock
further acknowledges receipt of all filings made by Stephan with the SEC
since (and including) the filing of Stephan's latest annual report on Form
10-K with the SEC. Shares of Stephan's Common Stock issued or to be issued
hereunder are being acquired by each entity or person receiving Stephan
Common Stock hereunder for such person or entity's own account, for
investment and not with a view to, or for resale in connection with, any
distribution of such shares within the meaning of the Securities Act.
5.31 Sale or Disposition of Stephan Common Stock
Seller, its Partners and Shaheen represent and warrant that they
will not sell or otherwise dispose of any Stephan Common Stock except
pursuant to: (i) a registration of the Shares under the Securities Act;
(ii) compliance with the provisions of Rule 144 promulgated under the
Securities Act, as it now exists or may hereafter be amended; or (iii) such
other exemption from registration that may be applicable to such
transaction.
5.32 Brokers
Except as set forth on Schedule 5.32, no agent, broker, person
or firm acting on behalf of the Seller, its Partners or Shaheen, or under
authority of any of the foregoing is or shall be entitled to a fee or
brokerage commission or other like payment in connection with the
transactions contemplated hereby from the Seller, its Partners or Shaheen.
5.33 Disclosure
No representation or warranty made by Seller, its Partners
and/or Shaheen in any of the Executed Agreements contains or will contain
any untrue statement of a material fact or omits or will omit to state a
material fact necessary in order to make the statements therein not
misleading.
ARTICLE 6.
REPRESENTATIONS AND WARRANTIES OF BUYER AND STEPHAN
To induce Seller, its Partners, and Shaheen to enter into this
Agreement, Buyer and Stephan make the following representations and
warranties to Seller its Partners, and Shaheen:
6.1 Organization, Good Standing and Qualification
Buyer and Stephan are corporations duly organized, validly
existing, and in good standing under the laws of Florida.
6.2 Due Authorization
The execution and delivery of this Agreement by Buyer and
Stephan, and the performance by Buyer and Stephan of their obligations
hereunder, have been or by the Closing Date will have been duly authorized
by all requisite corporate action on the part of Buyer and Stephan, and no
other corporate or shareholder authorization or approval is required for
Buyer and Stephan to enter into this Agreement or to perform their
obligations hereunder. This Agreement constitutes a valid and binding
obligation of Buyer and Stephan enforceable in accordance with its terms,
subject to the effects of bankruptcy, insolvency, fraudulent conveyance,
moratorium, reorganization, or similar laws affecting creditors' rights and
to general equitable principles.
6.3 Approvals and Consents
No consent, authorization, or waiver by or filing with any
governmental agency or any person not a party to this Agreement is required
in connection with the execution or performance of this Agreement by Buyer
or Stephan or the consummation by Buyer and Stephan of the transactions
contemplated hereby which have not been obtained by Buyer and Stephan, or
as of the Closing will not have been obtained by Buyer and Stephan.
6.4 Disclosure
No representation or warranty made by Buyer or Stephan in any of
the Executed Agreements contains or will contain any untrue statement of a
material fact or omit or will omit to state a material fact necessary in
order to make the statement therein not misleading.
ARTICLE 7.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
All representations, warranties, and obligations made by the
parties to each other shall survive the Closing and delivery of the Stephan
Common Stock under this Agreement, except to the extent otherwise provided
in this Agreement or otherwise specifically waived in writing by the
parties. Without limiting the foregoing, all representations, warranties,
and obligations by Seller, its Partners and Shaheen and by Buyer and
Stephan shall survive the Closing for a period of two (2) years after the
Closing Date, except for breaches with respect to (i) Seller's and its
Partners' authority to enter into and the binding effect of this Agreement,
(ii) the good and marketable title to the Acquired Assets; (iii) all
employee benefit plans, which were established or maintained by Seller to
be qualified for federal income tax exemption under Sections 401 and 501 of
the Internal Revenue Code of 1986, as amended, being in compliance with
ERISA and other related federal income tax laws and Treasury regulations;
(iv) the timely filing of true and correct tax returns, and the timely
payment of all taxes; and (v) Seller's compliance with all applicable
federal, state and local laws and regulations. Each of (i) and (ii) hereof
shall survive indefinitely after the Closing Date, and each of (iii), (iv)
and (v) shall survive up to the applicable statute of limitations.
ARTICLE 8.
SELLER'S OBLIGATIONS BEFORE CLOSING
Seller covenants that, except as otherwise agreed to in writing
by Buyer and Stephan, from the date of this Agreement until the Closing:
8.1 Buyer's and Stephan's Access to Premises and Information
Buyer, Stephan and their counsel, accountants, and other
representatives and agents shall be entitled to have reasonable access
during normal business hours to all of Seller's properties, books,
accounts, records, contracts, and documents of or relating to the Acquired
Assets or the Business for the purpose of conducting Buyer's and Stephan's
due diligence review, provided, that any due diligence review conducted by
Buyer or Stephan or any representative of Buyer or Stephan shall not affect
any of the representations and warranties made by Seller, its Partners or
Shaheen hereunder. Seller shall furnish or cause to be furnished to Buyer,
Stephan and their representatives all data and information concerning the
business, finances, and properties of Seller that may reasonably be
requested, and Buyer and Stephan and/or their representatives shall have
the right to make copies thereof and excerpts therefrom.
8.2 Conduct of Business in Ordinary Course
Seller shall carry on its Business diligently and in
substantially the same manner as it previously has been carried on, and
Seller shall not make or institute any material change in the character of
the Business or any unusual or novel methods of purchase, sale, lease,
management, accounting or operation that will vary materially from the
methods used by Seller as of the date of this Agreement, and shall not
incur any additional Fleet Capital Indebtedness other than accrued
interest.
8.3 Preservation of Business and Relationships
Seller shall use its best efforts to preserve its business
organization intact, to keep available its present employees, and to
preserve its present relationships with suppliers, customers, and others
having business relationships with it. Seller shall maintain all of the
Acquired Assets in good repair, order, and condition, except for normal
wear and tear.
8.4 Maintenance of Insurance
Seller shall continue to carry its existing insurance, subject to
variations in amounts required by the ordinary operations of its business.
8.5 Employees and Compensation
Seller shall not do, or agree to do, any of the following acts:
(i) grant any increase in salaries payable or to become payable to any
employee, sales agent or representative, (ii) increase benefits payable to
any employee, sales agent, or representative under any bonus or pension
plan or other contract or commitment, or (iii) adopt any new pension,
welfare, benefit or severance plan. Seller shall permit Buyer and Stephan,
in coordination with Seller, to contact its employees at reasonable times
for the purpose of discussing with such employees prospective employment by
Buyer.
8.6 New Transactions
Seller shall not do or agree to do any of the following acts:
(i) enter into any contract, commitment, or transaction not in the usual
and ordinary course of its business or which is inconsistent with Seller's
past practice; (ii) enter into any contract, commitment, or transaction in
the usual and ordinary course of business involving an amount exceeding
$20,000.00 (iii) make any capital expenditures in excess of $15,000.00 for
any single item or $20,000.00 in the aggregate, or enter into any leases of
capital equipment or property under which the annual lease charge is in
excess of $15,000.00; (iv) sell, dispose, or lease of any capital assets;
or (v) incur any indebtedness, other than current trade payables, ordinary
in nature and amount, incurred in the ordinary course of its business and
consistent with past practices, or (vi) enter into any agreements or
transaction with any person or entity who or which is an associate or an
affiliate of Seller, its Partners or Shaheen.
8.7 Distributions or Dividends
Seller shall not make any cash distributions or dividend type payments
to any of its Partners.
8.8 Advise Buyer and Stephan of Adverse Change
Seller shall promptly advise Buyer and Stephan of (i) the
occurrence of any material adverse change in Seller's financial condition
or in the results of its operations; (ii) the occurrence of any other event
or condition that materially and adversely affects the Acquired Assets or
the Seller's Business; or (iii) the imposition of any lien, pledge, or
encumbrance on any of the Acquired Assets. Seller shall promptly notify
Buyer and Stephan of: (A) any notice or other communication from any person
alleging that the consent of such person is or may be required in
connection with the transactions contemplated by this Agreement; (B) any
notice or other communication from any governmental or regulatory agency or
authority in connection with the transactions contemplated by this
Agreement; (C) any actions, suits, claims, investigations or proceedings
commenced or, to its knowledge threatened against, relating to or involving
or otherwise affecting Seller, the Acquired Assets or the Business that, if
pending on the date of this Agreement, would have been required to have
been disclosed pursuant to Section 5.17 or that relate to the consummation
of the transactions contemplated by this Agreement; (D) the damage or
destruction of any Acquired Asset or part thereof; or (E) any Acquired
Asset or part thereof becoming the subject of any proceeding or, to the
best knowledge of Seller, threatened proceeding for the taking thereof or
any part thereof or of any right relating thereto by condemnation, eminent
domain or other similar governmental action.
8.9 Representations and Warranties True at Closing
Seller, its Partners and Shaheen shall assure that all of their
representations and warranties set forth in this Agreement and in any
written statements delivered to Buyer and Stephan by them under this
Agreement are true and correct as of the date of this Agreement and shall
be true and correct as of the Closing Date, as if made on those dates and
that all conditions precedent to Closing shall have been met.
ARTICLE 9.
CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER AND STEPHAN
The obligations of Buyer and Stephan to consummate the
transactions contemplated by this Agreement shall be subject to the
satisfaction, on or before the Closing, of each of the following
conditions, any of which may be waived by Buyer or Stephan:
9.1 Accuracy of Representations and Warranties
The representations and warranties of Seller, its Partners and
Shaheen set forth in this Agreement shall be or shall have been true and
correct in all respects (i) as of the date of this Agreement, and (ii) as
of the Closing Date.
9.2 Seller's, its Partners' and Shaheen's Performances
Seller, its Partners and Shaheen shall have performed,
satisfied, and complied with all covenants, agreements, and conditions
required by this Agreement to be performed or complied with by Seller, its
Partners and Shaheen on or before the Closing.
9.3 Absence of Litigation
No action, suit, or proceeding before any court or any
governmental body or authority, pertaining to the transactions contemplated
by this Agreement or to their consummation, shall have been instituted or
threatened on or before the Closing.
9.4 Consents
All necessary agreements and consents of any party to the
consummation of the transactions contemplated by this Agreement set forth
on Schedule 5.22 shall have been obtained by Seller and delivered to Buyer
and Stephan.
9.5 Approval of Documentation
The form and substance of all certificates, instruments,
opinions, and other documents delivered to Buyer and Stephan under this
Agreement, shall be satisfactory in all reasonable respects to Buyer and
Stephan and their counsel.
9.6 Partners' and Shaheen's Certificate
Buyer shall have received a certificate, executed by the
Partners and Shaheen, dated as of the Closing Date, in form and substance
satisfactory to Buyer and its counsel, certifying that the conditions
specified in Sections 9.1, 9.2, 9.3, 9.4 and 9.7 have been satisfied.
9.7 Partner Approval
The execution and delivery of this Agreement by Seller, and the
performance of its covenants and obligations under it, shall have been duly
authorized by all necessary partner action, and Buyer shall have received
copies of all resolutions pertaining to that authorization, certified by
the General Partner of Seller.
9.8 Due Diligence
Buyer and Stephan shall have completed their legal and financial
due diligence review of Seller.
9.9 Opinion of Seller's Counsel
Buyer shall have received an opinion of Merritt & Tenney, LLP,
counsel to Seller, dated as of the Closing, substantially in the form set
forth as Exhibit B hereto.
9.10 Termination of Notes Payable
If Buyer issues any new notes payable or other written evidence
of indebtedness in payment of any of Seller's creditors, any existing notes
payable or other written evidences of indebtedness owed by Seller shall be
canceled and such canceled notes payable or other written evidences of
indebtedness shall be delivered to Buyer.
9.11 UCC Termination Statement
Stephan and Buyer shall have received UCC-Termination Statements from Fleet
Capital.
9.12 Escrow Agreement
Buyer and Stephan shall have received a fully executed copy of
the Escrow Agreement substantially in the form set forth as Exhibit A
hereto.
9.13 No Loss or Damage
There shall have been no loss or damage to any of Seller's assets
in excess of $5,000.00, whether or not covered by insurance, and no
material adverse change in the business or financial condition of Seller.
9.14 Bill of Sale and Assignment
Buyer shall have received a Bill of Sale and Assignment for the
Acquired Assets duly executed by Seller and in substantially the form of
Exhibit C hereto, and other good and sufficient instruments of transfer and
conveyance in form and substance reasonably satisfactory to Buyer and its
counsel (e.g., documents necessary for the transfer of the vehicles).
9.15 Sublease in California
Buyer and Seller shall have entered into a sublease for the
premises described on Schedule 2.1(g) as Item 2, with the prior approval of
Oro Construction Company.
9.16 Good Standing Certificate
Buyer shall have received a Certificate (s) of good standing of
Seller dated within ten ( 10) days before the Closing, issued by the
Secretaries of State of the jurisdictions in which Seller is qualified to
transact business.
ARTICLE 10.
CONDITIONS PRECEDENT TO SELLER'S, ITS PARTNERS', AND SHAHEEN'S
PERFORMANCES
The obligations of Seller, to consummate the transactions
contemplated by this Agreement shall be subject to the satisfaction, on or
before the Closing, of each of the following conditions:
10.1 Accuracy of Representations and Warranties
The representations and warranties of Buyer and Stephan set forth
in this Agreement shall be true and correct in all respects (i) as of the
date of this Agreement; and (ii) as of the Closing Date.
10.2 Buyer's and Stephan's Performances
Buyer and Stephan shall have performed, satisfied, and complied
with all covenants, agreements, and conditions required by this Agreement
to be performed or complied with by Buyer and Stephan on or before the
Closing.
10.3 Corporate Approval
The execution and delivery of this Agreement by Buyer and
Stephan, and the performance of their covenants and obligations under it,
shall have been duly authorized by all necessary corporate action.
10.4 Absence of Litigation
No action, suit, or proceeding before any court or any
governmental body or authority, pertaining to the transaction contemplated
by this Agreement or to its consummation, shall have been instituted or
threatened on or before the Closing.
10.5 Officer's Certificate
Seller shall have received a certificate, executed by an
executive officer of Buyer and Stephan, where applicable, dated as of the
Closing, in form and substance satisfactory to Seller and its counsel,
certifying that the conditions specified in Sections 10.1, ]0.2, 10.3 and
10.4 have been satisfied.
10.6 Approval of Documentation
The form and substance of all certificates, instruments,
opinions, and other documents delivered to Seller, its Partners and Shaheen
under this Agreement, shall be satisfactory in all reasonable respects to
Seller, its Partners, Shaheen and their counsel.
10.7 Stephan Common Stock
Seller shall have received a certificate for Stephan Common Stock
representing seventy percent (70%) of the Purchase Price, as determined
pursuant to Section 3.1 hereof.
10.8 Escrow Agent
Escrow Agent shall have received a certificate for Stephan Common
Stock representing the remaining thirty percent (30%) of the Purchase
Price, together with an executed copy of the Escrow Agreement.
10.9 Escrow Agreement
Seller shall have received a fully executed copy of the Escrow
Agreement. substantially in the form set forth as Exhibit A hereto.
10.10 Lease
Seller shall have received a Lease Agreement substantially in the
form annexed to this Agreement as Exhibit D.
ARTICLE 11.
OBLIGATIONS AFTER THE CLOSING DATE
11.1 Change of Name
Seller, the Partners and Shaheen agree that after the Closing
they shall not use or employ in any manner directly or indirectly the name
"Morris-Flamingo", or any variation thereof, and that Seller, the Partners
and Shaheen will immediately take and cause to be taken all necessary
action by himself, its Partners, and owners, as applicable, and any other
required persons to change their name by the Closing to a name approved by
Buyer.
11.2 Indemnification by Seller, its Partners, and Shaheen
Seller, its Partners, and Shaheen agree to indemnify and defend
Buyer, Stephan, and their respective affiliates, officers, directors,
employees and agents and hold each of them harmless after the Closing Date,
and agrees to pay and reimburse such aforementioned entities and/or
persons, (net of the proceeds of insurance, if any) against and in respect
of:
(a) All liabilities and obligations of, or claims, of Seller
other than the Fleet Capital Indebtedness and the Assumed Liabilities
including, without limitation, any claims which may be made by either
Cheung's Hair Beauty Supply Co., Ltd. or LePachu, Ltd. with respect to the
Major Note under the provisions of Section 2.4 hereof;
(b) Any and all damages, losses, deficiencies, costs, and
expenses, including without limitation, interest, penalties and reasonable
attorneys' fees, ("Losses"), arising out of or resulting from any
misrepresentation, inaccuracy in, breach or alleged breach of any
representation or warranty, or breach or alleged breach or nonfulfillment
of any obligation, agreement or covenant on the part of Seller, its
Partners or Shaheen under this Agreement or from any misrepresentation in,
omission from, or occasioned by any certificate or other document furnished
to Buyer or Stephan under this Agreement whether in respect of a third
party action or otherwise;
(c) Any and all actions, suits, proceedings, demands,
assessments, judgements, costs, and reasonable legal and other reasonable
expenses incident to any of the foregoing.
(d) Any losses, claims or reasonable expenses incurred by
Stephan in connection with any information or omissions provided by Seller,
its Partners, or Shaheen in any registration statement pursuant to Article
12 hereof.
(e) Any and all Losses arising in connection with the ownership
or use of the Acquired Assets (including, without limitation, any Losses
attributable to product liability or warranty claims, and pending
litigation, but excluding any losses incurred by Buyer as a result of the
sale or other disposition of any Acquired Assets by Buyer after the Closing
Date or resulting from the actions or inactions of Buyer), or resulting
from or arising out of any liability or obligation of the Seller (other
than, after the Closing Date, the Fleet Capital Indebtedness and the
Assumed Liabilities) or any of its affiliates, prior to the Closing Date,
whether in respect of a third-party action or otherwise. In regard to any
union contract or collective bargaining agreement, Seller shall be
responsible for all obligations prior to the Closing Date. As of the
Closing Date, Buyer shall be responsible for any union contract or
collective bargaining agreement obligations arising or occurring thereunder
on or after the Closing Date.
(f) Notwithstanding the foregoing, Seller, its Partners and
Shaheen shall not indemnify Buyer and Stephan for any such indemnification
obligations until such obligations, excluding any reasonable attorneys'
fees actually incurred by Buyer and Stephan and excluding any claims which
may be made by either Cheung's Hair Beauty Supply Co., Ltd. or Lepachu,
Ltd. with respect to and in connection with the indebtedness owed to them
by Major International Supply, equal or exceed $50,000.00 in the aggregate,
in which case such indemnification obligations of Seller, its Partners and
Shaheen shall include all such indemnification obligations including such
$50,000.00 amount actually incurred by Buyer and Stephan, and provided
further, that all such indemnification obligations of Seller's Partners and
Shaheen shall in all events be limited to the Stephan Common Stock or the
proceeds from the sale thereof received by Seller, its Partners or Shaheen
as the Purchase Price hereunder. The reasonable attorneys' fees actually
incurred by Buyer and Stephan and any claims which may be made by either
Cheung's Hair Beauty Supply Co., Ltd. or Lepachu, Ltd. with respect to and
in connection with the indebtedness owed to them by Major International
Supply shall be indemnified regardless of the $50,000.00 amount.
(g)To provide Buyer and Stephan with partial security for
Seller's, its Partners', and Shaheen's indemnification obligations
hereunder, as well as to adjust the Purchase Price downward on a dollar for
dollar basis as provided for in Section 3.1 (c) hereof, Seller, its
Partners, and Shaheen shall execute an Escrow Agreement substantially in
the form attached hereto as Exhibit A, with thirty percent (30%) of the
Stephan Common Stock issued at Closing to be held in escrow and disposed of
as provided for in the Escrow Agreement. If, and to the extent that, there
may be insufficient Escrow Property (as defined in the Escrow Agreement) to
satisfy any indemnification obligations hereunder, the Seller shall, at its
option, either satisfy such Loss by the payment of cash to Buyer or by the
satisfaction of such Loss with Stephan Common Stock. For purposes of any
such payments made by Seller with Stephan Common Stock, the Stephan Common
Stock shall be valued at $11.00, subject to adjustment upward or downward
of up to ten percent ( 10%) based on the average closing sales price of
Stephan's Common Stock as reported by the American Stock Exchange for the
twenty (20) trading days prior to the Closing Date.
(h) The procedure for seeking indemnification shall be as follows:
Buyer and Stephan agree that promptly upon receipt by either of
them of notice of any demand, assertion, claim, action or proceeding,
judicial or otherwise with respect to any matter as to which Seller, its
Partners and Shaheen have agreed to indemnify Buyer and Stephan, Buyer and
Stephan shall give prompt notice thereof in writing to the Seller, its
Partners and Shaheen, together with the statement of such information
respecting such demand, assertion, claim, action or proceeding as Buyer and
Stephan shall then have; provided, however, that Seller, its Partners and
Shaheen shall not be relieved of liability hereunder for failure by the
Buyer and Stephan to give prompt written notice, unless Seller, its
Partners and Shaheen are materially prejudiced by such failure, in which
case Seller, its Partners and Shaheen shall not be liable for any indemnity
under this Agreement to the extent so prejudiced. If Seller, its Partners
and Shaheen acknowledge full responsibility under this Agreement, Seller,
its Partners and Shaheen shall contest and defend by all appropriate legal
or other proceedings any demand, assertion, claim, action or proceeding
with respect to which they have been called upon to indemnify the Buyer and
Stephan under the provisions of this Agreement; provided, however, that:
(i) notice of intention to contest and defend shall be delivered to the
Buyer and Stephan within fifteen (15) calendar days from the receipt by
Seller, its Partners and Shaheen of notice of the assertion of such
demand, assertion, claim, action or proceeding;
(ii) Seller, its Partners and Shaheen shall pay all costs and expenses of
such contest, including all attorneys' and accountants' fees, and the
cost of any bond required by law to be posted in connection with such
contest;
(iii) such contest shall be conducted by reputable attorneys employed by
Seller, its Partners and Shaheen (with the reasonable approval of the
Buyer and Stephan) at Seller's, its Partners' and Shaheen's sole cost
and expense, but Buyer and Stephan shall have the right to participate
in such proceedings and to be represented by attorneys of its own
choosing, at its own cost and expense;
(iv) if, after such opportunity, Seller, its Partners and Shaheen do not
elect to assume the defense in any such proceeding, then Stephan and/or
Buyer may contest and defend against such asserted claim or liability
in such manner as it may deem appropriate, including settling such
claim, and Seller, its Partners and Shaheen shall (A) be bound by the
results obtained by Buyer and Stephan, including any out-of-court
settlement or compromise and (B) pay all of Stephan's and/or Buyer's
costs and expenses (including reasonable legal fees) in defending such
matter;
(v) Seller, its Partners and Shaheen will not settle any claim without the
prior written consent of Buyer and Stephan, unless the settlement
contains a complete and unconditional release of the Buyer and Stephan,
and the settlement does not involve the imposition of any nonmonetary
relief on Buyer and Stephan.
11.3 Retention of Shares or Proceeds
Seller, its Partners, and Shaheen covenant that during the two
(2) years following the Closing Date, they shall hold the Stephan Common
Stock or the proceeds from the sale of any Stephan Common Stock. During
this two (2) years, Seller may distribute some or all of such Stephan
Common Stock solely to its Partners or Shaheen to be held by its Partners
and Shaheen, in accordance with their ownership interests in Seller or with
respect to Shaheen, according to his ownership of MFB.
11.4 Access to Records
For a four (4) year period from and after the Closing Date,
Buyer shall retain all books and records received from Seller, including,
but not limited to, the books and records referred to in Section 2.1(f) of
this Agreement. Buyer shall allow Seller, its Partners, and Shaheen, their
counsel, accountants and other representatives and agents, reasonable
access to such books and records which Seller, its Partners and Shaheen,
their counsel, accountants and other representatives and agents may
reasonably require to comply with their obligations under this Agreement
and the law (e.g., audit of Seller's income tax or sales tax returns by
federal or state agencies). Seller agrees to provide Buyer with fifteen
(15) days prior written request for access to such books and records. Such
request shall contain the specific books and records which are needed by
Seller together with the reasons why Seller needs access to such books and
records. Buyer's consent to such request shall not be unreasonably
withheld. In the event that Seller is required by Buyer or is otherwise
required to have access to such books and records upon Buyer's business
premises, then such access must be during normal business hours without
unreasonable interference with Buyer's employees. Such access must also be
concluded within a reasonable time period and all costs which may be
incurred by Buyer in granting such access to Seller shall be the
responsibility of Seller.
11.5 Deposits of Checks
Seller shall cooperate with Buyer in making all necessary
arrangements so that checks, wire transfers and/or other payments on the
accounts receivable shown on Schedule 2.1 (c) may be deposited into Buyer's
bank accounts without endorsement by Seller.
ARTICLE 12.
REGISTRATION RIGHTS
12.1 Request for Registration
Notwithstanding Seller's, its Partners', and Shaheen's
(hereinafter in this Article 12 referred to as "Holders") present
intentions to acquire the Stephan Common Stock for the purpose of
investment, as set forth in this Agreement, Stephan shall prepare and file
a registration statement, under the Securities Act with respect to all of
the Stephan Common Stock then owned by Holders, as and when such filing is
requested by Holders; provided, however, that such request shall not be
made by Holders before one (I ) year from the Closing Date. Stephan shall
use its best efforts to make the registration statement effective as
promptly as practicable, including, without limitation, filing
post-effective amendments, appropriate qualifications under applicable blue
sky or other state securities laws, and appropriate compliance with the
Securities Act. Stephan shall not be obligated to effect, or to take any
action to effect any such registration pursuant to this Section 12.1 after
Stephan has initiated one such registration pursuant to this Section 12.1
(counting for these purposes only registrations which have been declared or
ordered effective). For purpose of this Section 12.1, Holders shall have
three (3) years, commencing one (1) year from the Closing Date, within
which to exercise their rights to request such registration but if
registration of all of the Shares has not occurred by the end of such three
(3) years, then Stephan agrees to register all of the unregistered Shares
immediately upon the expiration of such three (3) years. Notwithstanding
anything to the contrary set forth herein, Stephan shall not be required to
register the Stephan Common Stock if in the opinion of counsel to Stephan
the disposition of the Stephan Common Stock is exempt from the registration
and prospectus requirements of the Act.
12.2 Inclusion of Shares in Registration
If, within three (3) years after the Closing Date, Stephan files
a registration statement under the Securities Act, covering a sale by
Stephan of its common stock (other than a registration statement or a form
that does not permit the inclusion of shares by its securities holders),
Stephan shall mail to each Holder (at Holder's address in the Stephan's
share transfer records) written notice of its intent to file such
registration statement. If a Holder delivers a written request to Stephan,
within twenty (20) days after the mailing of the notice, setting forth the
number of shares of Stephan Common Stock Holder desires to include in such
registration, Stephan agrees to use its best efforts to include those
shares of Stephan Common Stock of each such Holder in the registration
statement and related underwriting arrangements; provided, however, that
Stephan shall not be so obligated if, in the opinion of counsel for
Stephan, the disposition of such shares requested to be included in such
registration is exempt from the registration and prospectus requirements of
the Act. Each Holder agrees that, if the offering by Stephan is
underwritten, Holder's shares of Stephan Common Stock are to be
underwritten by the same underwriter or underwriters on the same basis as
the other shares of Stephan Common Stock included. If, in spite of
reasonable efforts of Stephan, the inclusion of all of the shares of
Stephan Common Stock that each Holder intends to sell shall not be
acceptable to the managing underwriter or underwriters of the offering,
Stephan may limit or eliminate the number of shares of Stephan Common Stock
of each Holder to be sold. If the offering is not completed within ninety
(90) days after the effective date of the registration statement, Stephan
shall be entitled to register any unsold portion of the shares of Stephan
Common Stock. The manner and conduct of any registration, including the
contents of the registration statement and of any underwriting or other
related agreements, shall be entirely in the control and discretion of
Stephan. Each Holder agrees to cooperate with Stephan in the preparation
and filing of any registration statement prepared and filed under this
Section 12.2. Each Holder shall make the customary agreements,
representations, warranties, and indemnifications to the underwriters in
any offering with respect to any Stephan Common Stock included at such
Holder's request.
12.3 Expenses of Registration
All expenses of every kind relating to the preparation and filing
of all registration statements, amendments, supplements, prospectuses, and
other documents under this Article 12 shall be paid by Stephan, including
all costs and expenses, ordinarily incurred in connection with the public
offering of securities, including, without limitation, printing costs and
fees and expenses of counsel and accountants for Stephan. However, the
expenses payable by Stephan shall not include the fees and expenses of
counsel of the selling Holders or underwriting discounts, commissions or
expenses, which are customarily incurred by Holders in such transactions,
which shall be the responsibility of Holders.
12.4 Additional Request for Registration and Extension of Time
If Stephan and/or the underwriters limit the Stephan Common
Stock which Holders desire to register in exercising either their request
for registration under Section 12.1 hereof or their "piggyback" rights
under Sections 12.2 hereof, then Holders shall be entitled to an additional
request for registration under Section 12.1 hereof, and the three (3) years
as specified in Sections 12.1 and 12.2 hereof shall be extended by six (6)
months, if, and only if, any such limitation is imposed by Stephan and/or
the underwriters during the last six (6) months of the applicable periods
of Section 12.1 or 12.2.
12.5 Information by Holder; Indemnification
Each Holder shall furnish to Stephan such information regarding
such Holder as Stephan may reasonably request in writing and as shall be
reasonably required in connection with any registration, qualification, or
compliance referred to in this Article 12. Each Holder agrees to indemnify
Stephan for any omissions or misstatements in information provided to
Stephan, and Stephan agrees to indemnify each Holder for any omissions or
misstatements made in connection with any registration, qualification, or
compliance referred to in this Article 12 and relating to the registration
of Stephan Common Stock except insofar as such omissions or misstatements
are caused by or relate to the information provided to Stephan by each
Holder.
ARTICLE 13.
GENERAL
13.1 Cooperation
From and after the Closing, Seller and Buyer shall cooperate
fully with each other to the end that the Acquired Assets (and all other
assets relating to the Business) and title thereto shall be fully and
effectively transferred to and conveyed to Buyer. Such cooperation shall
include execution and delivery of such further instruments, consents,
notices, acknowledgments, applications and other documents, as may be
reasonably requested by either party hereto.
13.2 Bulk Sales
The transactions contemplated herein shall be consummated
without compliance with the bulk sales laws of any of the states in which
Seller is located. Seller, its Partners and Shaheen shall indemnify and
hold Buyer harmless from any and all losses arising as a result of any
non-compliance with any bulk sales law unless such losses arise from
Buyer's failure to pay obligations Buyer has assumed under this Agreement.
13.3 No Third Party Beneficiaries
Nothing contained in this Agreement shall be construed to confer
upon or give to any person or entity other than the parties hereto and
their successors and assigns, any rights or remedies under or by reason of
this Agreement.
13.4 Notices
All notices, requests, demands, and other communications under
this Agreement shall be in writing and shall be deemed to have been duly
given on the date of service if served personally on the party to whom
notice is to be given, or on the third day after mailing to the party to
whom notice is to be given, by first class mail registered or certified,
postage prepaid, and properly addressed and via facsimile as follows:
Seller or Partners: Shouky A. Shaheen
3715 Northside Parkway
300 Northcreek, Suite 710
Atlanta, Georgia 30327
fax: (404) 266- 1725
With copy to: Michael W. Rushing
Merritt & Tenney LLP
200 Galleria Parkway, N W.
Suite 500
Atlanta, Georgia 30339-3151
fax: (770) 952-0028
Buyer: Frank F. Ferola, Sr.
The Stephan Co.
1850 West McNab Road
Fort Lauderdale, Florida 33309
fax: (954) 971-9903
With copy to: Stephen A. Ollendorff, Esq.
Hertzog, Calamari & Gleason
lOO Park Avenue
23rd Floor
New York, New York 10017-5582
fax: (212) 213-1199
13.5 Binding Effect
This Agreement shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors, assigns, heirs,
executors and personal representatives.
13.6 Entire Agreement; Modification; Waiver
This Agreement and the schedules and exhibits attached to this
Agreement set forth the entire agreement of the parties hereto with respect
to the matters contained herein and no prior or contemporaneous agreement
or understanding, oral or written, pertaining to any such matter shall be
effective for any purpose. No supplement, modification or amendment to this
Agreement shall be binding unless executed in writing by all of the parties
hereto. No waiver of any of the provisions of this Agreement shall be
deemed, or shall constitute, any waiver of any other provision, whether or
not similar, nor shall any waiver constitute a continuing waiver. No waiver
shall be binding unless executed in writing by the party making the waiver.
13.7 Expenses
Each of the parties shall pay all costs and expenses incurred or
to be incurred by it in negotiating and preparing this Agreement and in
closing and carrying out the transactions contemplated by this Agreement.
13.8 Construction
This Agreement shall be governed by and construed in accordance
with the laws of the State of Florida, and the parties hereby agree that
exclusive jurisdiction as to any and all claims or causes of action shall
be in the State of Florida.
13.9 Brokerage
The parties acknowledge that Croft & Bender, LLC, 4200 Northside
Parkway, N.W.- Building 7-A, Atlanta, Georgia 30327 was a procuring cause
of this transaction, and Seller shall pay to Croft & Bender, LLC, an
investment banking fee in connection with this transaction by separate
agreement between Seller and Croft & Bender, LLC. Neither Buyer nor Stephan
engaged a broker in this transaction. Seller agrees to indemnify and hold
harmless Buyer and Stephan from and against any claims made by Croft &
Bender, LLC which may arise in connection with the separate brokerage
agreement between Seller and Croft & Bender, LLC, or claims of any other
broker or finder.
13.10 Assignment
This Agreement may not be assigned by any party, by operation of
law or otherwise, without the prior written consent of all other parties to
this Agreement.
13.11 Counterparts
This Agreement may be executed in any number of counterparts,
each of which shall be an original, but all of which shall constitute one
instrument.
13.12 Headings
The subject headings of the articles and sections of this
Agreement are for purposes of convenience only, and shall not affect the
construction or interpretation of any of its provisions.
IN WITNESS WHEREOF, this Asset Purchase Agreement has been
executed by the parties hereto as of the date first above written.
CREDIT AGREEMENT
BY AND BETWEEN
NATIONSBANK, N.A.,
a national banking association
(the "Bank")
AND
THE STEPHAN CO.,
a Florida corporation
(the "Borrower")
Dated March 17, 1998
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, made this 17th day of March, 1998 between THE
STEPHAN CO., a Florida corporation (the "Borrower") and NATIONSBANK, N.A.,
a national banking association (the "Bank").
WITNESSETH:
WHEREAS, Bank has agreed to extend a Term Loan in the amount of THREE
MILLION DOLLARS ($3,000,000.00) (the "Term Loan") to Borrower as evidenced
by a Promissory Note dated March 17, 1998 (the "Note") which shall be used
by Borrower for acquisitions; and
WHEREAS, Bank has agreed to provide such financing conditioned upon
the Borrower agreeing to the terms and conditions set forth in this Credit
Agreement and to the execution of certain other documents in connection
therewith.
NOW, THEREFORE, in consideration of the Sum of Ten Dollars ($10.00)
and other good and valuable consideration, the receipt whereof is hereby
acknowledged, the parties agree as follows:
1. DEFINITIONS. The following definitions will apply to this Credit
Agreement as well as all other documentation involved in this loan
transaction:
A. "Bank" - NATIONSBANK, N.A., a national banking association.
B. "Borrower" - THE STEPHAN CO., a Florida corporation.
C. "Commitment Fee" - A fee of in the amount of Seven Thousand and
No/100 Dollars ($7,000.00), shall be due at closing.
D. "Promissory Note" or "Note" - is the Promissory Note in the original
principal amount of Three Million and No/100 Dollars ($3,000,000.00) from
Borrower in favor of Bank.
E. "Current Maturity Coverage" - is defined as the sum of Net Income,
non cash charges less dividends divided by the sum of current maturities of
long term debt. Borrower shall maintain a Current Maturity Coverage of
not less than 1.75:1.00.
F. "Current Minimum Ratio" - Borrower shall maintain at all times a
ratio of current assets to current liabilities of not less than 2.0:1.0,
tested quarterly.
G. "Funded Debt/EBITDA" - is 2.50:1.00 to be tested quarterly on a
trailing monthly basis.
H. "Interest Rate" - Fixed rate of 6.92% per annum.
I. "Loan Documents" - This term includes all documents which comprise
the loan documentation including, but not limited to the Promissory
Note, Credit Agreement, Pledge Agreement, Stock Powers, and any and
all supplemental related Loan Documents between Bank and Borrower.
J. "Maturity Date" - March 17, 2005.
2. INTEREST RATE. Fixed rate of 6.92% per annum.
3. DEFAULT RATE OF INTEREST. After maturity, whether by acceleration
or otherwise, or after the entry of judgment, at Holder's option, the
entire unpaid principal balance of the Line of Credit shall bear interest
until paid at an augmented annual rate (the "Default Rate") from and after
the stated or accelerated maturity of the Note, or from and after failure
to pay on the due date any sum payable under the Note or under any other
Loan Document (and the expiration of any applicable grace period provided
in the Note or any such other Loan Document for that payment), or from and
after the occurrence of any other default (whether concerned with the
payment of money or otherwise) under any Loan Document (and the expiration
of any applicable grace period provided in such Loan Document for the cure
of that default); provided, however that after judgment all such sums shall
bear interest at the greater of the Default Rate or the rate prescribed by
applicable law for judgments. The Default Rate shall be eighteen percent
(18%) per annum.
4. PRINCIPAL PAYMENTS. Borrower shall make monthly payments of
principal in the amount of Thirty-Five Thousand Seven Hundred Fourteen and
29/lOO Dollars $35,714.29), plus interest for seven (7) years, at which
time the entire outstanding principal balance unpaid, plus all accrued
interest shall be due and payable.
5. MATURITY DATE. Provided there is no event of a monetary or non-
monetary default under the Note or Loan Documents, the entire principal
balance and any unpaid charges, together with any accrued, but unpaid,
interest thereon shall be due and payable in ful1 on March 17, 2005.
6. COMMITMENT FEE. At the closing of this transaction, Bank shall be
entitled to a Commitment Fee in the amount of Seven Thousand and No/100
Dollars ($7,000.00).
7. USE OF PROCEEDS. The proceeds shall be used by Borrower for
acquisitions.
8. COLLATERAL. Borrower agrees to pledge the stock of Morris Flamingo
- - Stephan, Inc., a Florida corporation.
9. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to Bank as follows:
A. Good Standing. Borrower is a corporation, duly organized,
validly existing and in good standing under the laws of Florida and has the
power and authority to own its property and to carry on its business in
each jurisdiction in which Borrower does business.
B. Authority and Compliance. Borrower has full power and
authority to execute and deliver the Loan Documents and to incur and
perform the obligations provided for therein, all of which have been duly
authorized by all proper and necessary action of the appropriate governing
body of Borrower. No consent or approval of any public authority or other
third party is required as a condition of the validity of any Loan
Document, and Borrower is in compliance with all laws and regulatory
requirements to which it is subject.
C. Binding Agreement. This Agreement and the other Loan
Documents executed by Borrower constitute valid and legally binding
obligations of Borrower, enforceable in accordance with their terms.
D. Litigation. There is no actions suits, or proceedings
involving Borrower pending or, to the knowledge of Borrower, threatened
before any court or governmental authority, agency or arbitration
authority, except as disclosed to Bank in writing and acknowledged by Bank
prior to the date of this Agreement, which involve or would adversely
affect the transactions contemplated herein or which could have an adverse
affect on the Borrower's business or financial condition.
E. No Conflicting Agreements. There is no charter, bylaw, stock
provision, partnership agreement or other document pertaining to the
organization, power or authority of Borrower and no provision of any
existing agreement, mortgage, indenture or contract binding on Borrower or
affecting its property, which would conflict with or in any way prevent the
execution, delivery or carrying out of the terms of this Agreement and the
other Loan Documents.
F. Taxes. All taxes and assessments due and payable by Borrower
have been paid or are being contested in good faith by appropriate
proceedings and the Borrower has filed all tax returns which it is required
to file.
G. Financial Statements. The financial statements of Borrower
heretofore delivered to Bank have been prepared in accordance with GAAP
applied on a consistent basis throughout the period involved and fairly
present Borrower's financial condition as of the date or dates thereof, and
there has been no material adverse change in Borrower's financial condition
or operations since September 30, 1997. All factual information furnished
by Borrower to Bank in connection with this Agreement and the other Loan
Documents is and will be accurate and complete on the date as of which such
information is delivered to Bank and is not and will not be incomplete by
the omission of any material feet necessary to make such information not
misleading.
H. Place of Business. Borrower's chief executive office is
located at 1850 West McNab Road, Fort Lauderdale, Florida 33309.
I. Environmental. The conduct of Borrower's business operations
and the condition of Borrower's property does not and will not violate any
federal laws, rules or ordinances for environmental protection, regulations
of the Environmental Protection Agency, any applicable local or state law,
rule, regulation or rule of common law or any judicial interpretation
thereof relating primarily to the environment or Hazardous Materials.
J. Continuation of Representations and Warranties. All
representations and warranties made under this Agreement shall be deemed to
be made at least as of the date hereof and at the time of any future
advance, if any, hereunder.
10. CONDITIONS PRECEDENT TO FUNDING. The following are conditions
precedent to Bank's obligation to close and fund the Note and the Borrower
agrees to furnish the following to the Bank, as a condition precedent to
closing:
A. Opinion Letter - Written opinion letter addressed to Bank and
Borrower's counsel, from Borrower's attorney, in a form and substance
satisfactory to Bank and its counsel.
B. Corporate Documents - Certified copies of the Articles of
Incorporation and Bylaws of Borrower, and all amendments thereto, together
with a Certificate of Good Standing of Borrower and proof of qualification
to do business in each jurisdiction business is conducted.
C. Corporate Resolutions - Resolution of Borrower authorizing
the 1997 Loan and Line of Credit and the execution of all documents
required in connection with the l997 Loan and Line of Credit.
D. An executed Note, Loan Documents and other documents and
instruments necessary or advisable in connection with this Loan.
E. Certification that there exists no pending or threatened
litigation, the result of which could have an adverse effect on the
business or financial condition of the Borrower.
FINANCIAL COVENANTS. Until full payment and performance of all
obligations of Borrower under the Loan Documents, Borrower will, unless
Bank consents otherwise in writing (and without limiting any requirement of
any other Loan Document):
A. Financial Condition. Maintain Borrower's financial condition
as follows, determined in accordance with GAAP applied on a consistent
basis throughout the period involved except to the extent modified by the
following definitions:
i. Funded Debt/EBITDA Coverage Ratio. Borrower will
maintain a minimum Funded Debt/EBlTDA Coverage Ratio of not more than
2.50:1.00 throughout the Note term. The Funded Debt/EBITDA Coverage Ratio
shall be tested quarterly beginning with the June 30, 1997 quarterly
financial statements on a trailing twelve month basis.
ii. Current Maturity Coverage Ratio. Borrower will maintain
a minimum Current Maturity Coverage Ratio of not less than 1.75:1.00
throughout the Note term.
iii. Current Minimum Ratio. Borrower will maintain at all
times a ratio of current assets to current liabilities of not less than
2.0:1.0 tested quarterly.
B. Financial Statements and Other Information. Maintain a system
of in accordance with GAAP applied on a consistent basis throughout the
period involved, and in the event of default, permit Bank's officers or
authorized representatives to visit and inspect Borrower's books of account
and other records at such reasonable times and as often as Bank may desire,
and further pay the reasonable fees and disbursements of any accountants or
other agents of Bank selected by Bank for the foregoing purposes. Unless
written notice of another location is given to Bank, Borrower's books and
records will be located at Borrower's chief executive office set forth
above. All financial statements called for below shall be prepared in form
and content acceptable to Bank and by independent certified public
accountants acceptable to Bank, the same acceptance not to be unreasonably
withheld by Bank.
In addition, Borrower will:
i. Furnish to Bank annual audited unqualified consolidated
financial statements of Borrower for each fiscal year of Borrower, within
one hundred twenty ( 120) days after the close of each such fiscal year.
ii. Furnish to Bank company prepared consolidated financial
statements of Borrower for each fiscal quarter of Borrower, within fifty
(50) days after the close of each such period, together with quarterly
compliance certificates.
iii. Furnish to Bank a compliance certificate for (and
executed by an authorized representative of) Borrower concurrently with and
dated as of the date of delivery of each of the financial statements as
required in paragraphs i and ii above, containing (a) a certification that
the financial statements of even date are true and correct and that the
Borrower; is not in default under the terms of this Agreement, and
(b)computations and conclusions, in such detail as Bank may request, with
respect to compliance with this Agreement, and the other Loan Documents,
including computations of all quantitative covenants.
12. AFFIRMATIVE COVENANTS. Until full payment and performance of all
obligations of Borrower under the Note Documents, borrower will, unless
Bank consults otherwise in writing (and without limiting any requirement of
any other Loan Document):
A. Insurance. Maintain insurance with responsible insurance
companies on such of its properties in such amounts and against such risks
as is customarily maintained by similar businesses operating in the same
vicinity, specifically to include fire and extended coverage insurance
covering all assets, business liability insurance, all to be with such
companies and in such amounts a are satisfactory to Bank and providing for
at least 30 days prior notice to Bank of any cancellation thereof.
Satisfactory evidence of such insurance will be supplied to Bank prior to
funding under the Note and 30 days prior to each policy renewal.
B. Existence and Compliance. Maintain its existence, good
standing and qualification to do business, where required and comply with
all laws, regulations and governmental requirements including, without
limitation, environmental laws applicable to it or to any of its
properties, business operations and transactions and comply with OHSA, EPA,
Pension Guaranty Board and ERISA.
C. Adverse Conditions or Events. Promptly advise Bank in writing
of (i) any act, omission or undertaking which would singly or in the
aggregate have a materially adverse effect upon the business, assets,
liabilities, financial condition, results of operations or business
prospects of the Borrower, any of its subsidiaries, or upon the ability of
the Borrower to perform any material obligations arising under the Loan
Documents, (ii) any actual or potential contingent liabilities in excess of
Five Hundred Thousand and No/100 Dollars ($500,000.00), (iii) any
litigation against Borrower claiming damages in excess of Two Hundred Fifty
Thousand Dollars ($250,000.00) (iv) any event that has occurred that would
constitute all event of default under any Loan Documents and (v) any
uninsured or partially uninsured loss through fire, theft, liability or
property damage in excess of an aggregate of $250,000.00.
D. Taxes and Other Obligations. Pay all of its taxes,
assessments and other obligations, including, but not limited to taxes,
cost or other expenses arising out of this transaction, as the same become
due and payable, except to the extent that same are being contested in good
faith by appropriate proceedings in a diligent manner.
E. Maintenance. Maintain and preserve all license, trademarks,
privileges, permits, franchises, certificates and the like necessary for
the operation of its business.
F. Payment and Performance. Borrower shall promptly pay and
punctually perform, or shall cause to be promptly paid and punctually
performed, all of the obligations as and when due and payable and after
expiration of any grace period and upon dale notice.
G. Inspection. In the event of default, Borrower shall permit
Bank and its agents to inspect its records; assets and properties at any
time during normal business hours and at all other reasonable times.
H. Expenses. Borrower shall pay all costs and expenses in
connection with the Note and the preparation, execution, and delivery of
the Loan Documents including, but not limited to, reasonable fees and
disbursements of counsel appointed by Bank, and all expenses, documentary
stamp tax and intangible tax, and other taxes, appraisals, insurance and
all other fees, costs and expenses, if any, set forth in the Loan
Documents, or otherwise connected wills this transaction.
I. Preservation of Agreements Borrower shall preserve and keep
in full force and effect all agreements, approvals, permits and licenses
necessary for the development, use and operation of the its assets for
their intended purpose or purposes.
J. Books and Records. Borrower shall keep and maintain, at all
times, full, true and accurate books of accounts and records, adequate to
correctly reflect the results of the development, use and operation of its
assets and properties. The Bank shall have the right to examine such books
and records and to make such copies or extracts therefrom as the Bank shall
require.
K. Indemnification. Notwithstanding anything to the contrary
contained in Section 8(I), Borrower shall indemnify, defend and hold Bank
and its successors and assigns harmless from and against any and all
claims, demands, suits, losses, damages, assessments, fines, penalties,
costs or other expenses (including reasonable attorneys' fees and court
costs) arising from or in any way related to any of the transactions
contemplated hereby. The Borrower's obligations under this paragraph shall
survive the repayment of the Note.
L. Comply with GAAP. Borrower shall comply with generally
accepted accounting principals which are to be applied consistently
throughout the term of the Note.
M. Performance of Loan Documents. Borrower shall duly and
punctually perform all covenants, terms and agreements expressed as binding
upon it under Note and all of the Loan Documents.
13. NEGATIVE COVENANTS. Until full payment and performance of all
obligations of Borrower under the Note and/or Loan Documents, Borrower will
not, without the prior written consent of Bank, which consent shall not be
unreasonably withheld (and without limiting any requirement of any other
Loan Documents):
A. Transfer of Assets or Control. Sell, lease, assign or
otherwise dispose of or transfer any existing assets, except in the normal
course of its business, or enter into any merger or consolidation, or
transfer control or ownership of the Borrower or form or acquire any
subsidiary that would result in the Borrower not being the surviving
entity.
B. Management Change. Change or remove Frank F. Ferola from his
current management positions as President and Chief Executive Officer of
Borrower.
C. Advances to Third Parties. No advances in aggregate of more
than One Million Dollars ($1,000,000.00) at any one time during the life of
the Note except for acquisitions.
D. Other Liens. Create or permit to be created or to remain, any
mortgage, pledge, construction lien or other lien, conditional sale or
other title retention agreement, encumbrance, claim, or charge on the
assets or income therefrom. Any transaction prohibited under this paragraph
shall be null and void.
E. Character of Business. Change the general character of
business as conducted at the date hereof, or engage in any type of business
not reasonably related to its business as presently conducted without prior
consent of Bank. Bank shall not unreasonably withhold its consent.
F. Borrower's Certificate of Incorporation. Materially amend or
modify its articles or certificate of incorporation or bylaws.
14. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to Bank
immediately upon demand the full amount of all costs and expenses,
including reasonable attorneys' fees (to include outside counsel fees and
all allocated fees of Bank's in-house counsel if permitted by applicable
law), incurred by Bank in connection with (a) negotiation and preparation
of this Agreement and each of the Loan Documents, and (b) all other costs
and attorneys' fees incurred by Bank for which Borrower is obligated to
reimburse Bank in accordance with the terms of the Loan Documents.
Additionally, Borrower shall pay any documentary stamps, intangible taxes
and filing, search and recording fees and the costs of any appraisal and
environmental report required by Bank. Borrower shall also be responsible
for liable for, and shall hold Bank harmless for, all expenses and costs in
connection with the administration and enforcement of any of Borrower's
obligations to Bank. If at any time the State of Florida shall determine
that the Documentary Stamps affixed thereto, if any, are insufficient, and
that additional Documentary Stamps should be affixed, then Borrower shall
pay for the same, together with any interest or penalties imposed in
connection with such determination, and Borrower hereby agrees to indemnify
and hold Bank harmless therefrom. If any such sums shall be advanced by
Bank, they shall bear interest, shall be paid and shall be secured as
provided in the Loan Documents.
15. DEFAULTS AND REMEDIES. If any one or more of the following events
of default (an "Event of Default") shall occur for any reason whatsoever
(and whether such occurrences shall be voluntary or involuntary, or come
about or be effected by operation of law or pursuant to or in compliance
with any judgment, decree or order of any court, or any order, rule or
regulation of any administrative or governmental body), that is to say:
(a) any representation or warranty made herein or in any report,
certificate, financial statement or other instrument furnished in
connection with this Credit Agreement or the borrowings hereunder, shall
prove to be false or misleading in any respect;
(b) default shall occur in the payment of principal or interest
on any indebtedness created hereunder, when and as the same shall become
due and payable, whether at the due date or by acceleration or otherwise,
which remains after the due date of such payment; or failure of the
borrower to make payment of principal or interest on any other indebtedness
beyond any period or grace provided with respect thereto, or in the
performance of any other agreement, term or condition contained in any
agreement under which such obligation is created;
(c) any default or violation shall occur on the part of the
Borrower in the due observance or performance of any covenant, agreement or
other provision of this Credit Agreement, or any other agreement,
instrument or contract with Bank, other than for the payment of money,
which shall remain uncured past any cure period provided for herein or
therein, and if no such cure period is specified, if such default shall
remain uncured for ninety (90) days after notice of such default or
violation has been given by Bank to Borrower, or after borrower has
knowledge of such default or violation, whichever is earlier.
(d) Borrower shall (i) apply for or consent to the appointment
of a receiver, trustee in bankruptcy for benefit of creditor's, or
liquidator of Borrower or any of Borrower's assets and/or properties; (ii)
admit in writing Borrower's inability to pay its debts as they mature or
generally fail to pay its debts as they mature; (iii) make a general
assignment for the benefit of credit; (iv) be adjudicated as bankrupt or
insolvent; (v) file a voluntary petition in bankruptcy, or a petition or an
answer seeking reorganization or an arrangement with creditors, or seeking
to take advantage of any bankruptcy, reorganization, insolvency,
readjustment of debt, dissolution of liquidation law or statute of an
answer admitting an act of bankruptcy alleged in a petition filed against
it in any proceeding under any such law;' or (vi) take any action for the
purpose of affecting any of the foregoing;
(e) an order, judgment or decree shall be entered against the
Borrower without its application, approval or consent, or by any court of
competent jurisdiction, approving a petition seeking its reorganization or
appointing a receiver, trustee or liquidator of the Borrower or of all or a
substantial part of any of its assets, and such order, judgment or decree
shall continue unstayed and in effect for a period of thirty (30) days from
the date of entry thereof;
(f) final judgments for the payment of money in excess of Two
Hundred Fifty Thousand Dollars ($250,000.00), shall be rendered against the
Borrower and the same shall remain undischarged for a period of thirty (30)
consecutive days during which execution shall not be effectively stayed;
(g) any monies, deposits or other property of the Borrower now
or hereafter on deposit with, or in the possession or under control of the
Bank, shall be attached or become Borrower; subject to distraint
proceedings or any order or process of court, provided Borrower has not
obtained a court order staying such proceeding;
(h) any material adverse change in the financial or business
condition of
(i) Borrower's corporate existence is changed;
(j) Borrower fails to indemnify and pay Bank, upon demand, for
additional Documentary Stamps imposed by any governmental entity within
fifteen (15) days of such demand by Bank, including the payment of any
penalties, interest, and other charges;
(k) Borrower defaults on any other obligation to Bank;
THEN, and in every such Event of Default, the Bank may, at its
option, upon written notice of not less than ten (l0) days by certified
mail to Borrower, (i) declare all indebtedness of principal and interest
hereunder forthwith to be due and payable, whereupon the Note shall become
due and payable, both as to principal and interest, without presentment,
demand, protest or notice of any kind, all of which are hereby expressly
waived, anything contained herein or in such Note to the contrary
notwithstanding, and (ii) exercise all legal rights and remedies against
Borrower or any assets for the indebtedness of Borrower to Bank. Bank shall
also have the following specific rights and remedies;
(a) To require Borrower to assemble and make available to Bank
at a place to be designated by Bank which is also reasonably convenient to
Borrower all documentation regarding Borrower's right, title and interest
in the assets and properties.
(b) To exercise any and all rights of set-off which Bank may
have against any account funds (excluding investment funds), or assets and
properties belonging to Borrower which shall be in Bank's possession or
under its control.
(c) to cure such default, with the result that all costs and
expenses incurred or paid by Bank in effecting such cure shall be
additional charges on the Note which bear interest at the interest rate of
the Note and are payable upon demand.
The proceeds of any disposition of the assets and/or properties for
the Note shall be used to satisfy the following items in the order they are
listed:
(a) The expenses of taking, removing, storing, repairing,
holding, and selling the Collateral, including any legal cost and
attorneys' fees. If the Note is referred to an attorney for collection,
Borrower and all others liable for the Note jointly and severally agree to
pay reasonable attorneys' fees (including appellate, administrative and
bankruptcy fees and costs) and legal expenses.
(b)The expense of liquidating or satisfying any liens, security
interest, or encumbrances on the Collateral which may be prior to the
security interest of Bank.
(c) Any unpaid fees, accrued interest, and then the unpaid
principal amount of the Note.
(d) Any other indebtedness of Borrower to Bank.
If the proceeds realized from the disposition of the asset and/or
properties shall fail to satisfy any of the foregoing items, Borrower and
all others liable for the Note shall forthwith pay by deficiency to Bank
upon demand.
15. CROSS DEFAULT. A default or breach under any of the terms or
conditions of any credit facility with Bank, or any agreement to which
Borrower is obligated, shall at Bank's option, constitute a default under
the Note and this Credit Agreement.
16. NOTICE. All notices required or allowed to be given hereunder
shall be delivered by hand or sent by certified mail return receipt
requested, overnight courier or facsimile transmission, to the party to
which such notice is to be given as follows:
If to Borrower: THE STEPHAN CO.
1850 West McNab Road
Fort Lauderdale, FL 33309
Attn: David A. Spiegel, CFO
If to Bank: NATIONSBANK, N.A.
Commercial Banking
NationsBank Tower, 10th Floor
One Financial Plaza
Fort Lauderdale, FL 33394
and a copy to: PAUL M. MAY, ESQUIRE
MAY, MEACHAM & DAVELL, P.A.
NationsBank Tower, Suite 2602
One Financial Plaza
Fort Lauderdale, FL 33394
Provided that additional or other addresses for the giving of
notice may be thereafter designated by the giving of written notice thereof
to the other party Such notices shall be deemed given or made three (3)
business days following deposit in the U.S. Mail, certified return receipt
requested, or immediately upon receipt if delivered by hand, overnight
courier or facsimile transmission addressed as herein provided.
17. MISCELLANEOUS. Borrower and Bank further covenant and agree as
follows, without limiting any requirement of any other Loan Document:
A. Cumulative Rights and No Waiver. Each and every right granted
to Bank under any Loan Document, or allowed it by law or, equity shall be
cumulative of each other and may be exercised in addition to any and all
other rights of Bank, and no delay in exercising any right shall operate as
a waiver thereof, nor shall any single or partial exercise by Bank of any
right preclude any other or future exercise thereof or the exercise of any
other right. Borrower expressly waives any presentment, demand, protest or
other notice of any kind, excluding a notice of intent to accelerate and
notice of acceleration under which circumstances, Bank shall give notice to
Borrower. No notice to or demand on Borrower in any case shall, of itself,
entitle Borrower to any other or future notice or demand in similar or
other circumstances.
B. Applicable Law. This Credit Agreement and the rights and
obligations of the parties hereunder shall be governed by and interpreted
in accordance with the laws of Florida and applicable United States federal
law.
C. Amendment. No modification, consent, amendment or waiver of
any provision of this Credit Agreement, nor consent to any departure by
Borrower therefrom, shall be effective unless the same shall be in writing
and signed by an officer of Bank, and then shall be effective only in the
specified instance and for the purpose for which given. This Credit
Agreement is binding upon Borrower, its successors and assigns, and inures
to the benefit of Bank, its successors and assigns; however, no assignment
or other transfer of Borrower's rights or obligations hereunder shall be
made or be effective without Bank's prior written consent, nor shall it
relieve Borrower of any obligations hereunder. There is no third party
beneficiary of this Credit Agreement.
D. Documents. All documents, certificates and other items
required under this Credit Agreement to be executed and/or delivered to
Bank shall be in form and content satisfactory to Bank and its counsel.
E. Partial Invalidity. The unenforceability or invalidity of an
provision of this Credit Agreement shall not affect the enforceability or
validity of any other provision herein and the invalidity or
unenforceability of any provision of any Loan Document to any person or
circumstance shall not affect the enforceability or validity of such
provision as it may apply to other persons or circumstances.
F. Indemnification. Notwithstanding anything to the contrary
contained in paragraph E above, Borrower shall indemnify, defend and hold
Bank and its successors and assigns harmless from and against any and all
claims, demands, suits, losses, damages, assessments, fines, penalties,
costs or other expenses (including reasonable attorneys' fees and court
costs) arising from or in any way related to any of the transactions
contemplated hereby resulting from Borrower's actions and not due to the
negligence, malfeasance or misfeasance of the Bank. The Borrower's
obligations under this paragraph shall survive the repayment of tile Note.
G. Survivability. All covenants, agreements, representations and
warranties made herein or in the other Loan Documents shall survive the
making of the Loan and shall continue in full force and effect so long as
the Note is outstanding or the obligation of the Bank to make any advances
under the Note shall not have expired.
H. Personal. This Credit Agreement is personal in nature and may
not be assigned.
I. Gender/Plural. Wherever used herein the singular number shall
include the plural and the plural the singular, and the use of any gender
shall include all genders. This Agreement shall inure to the benefit of and
be binding upon the parties hereto and their heirs, successors, personal
representatives and assigns.
J. Document Conflict. If the terms and provisions of this Credit
Agreement conflict with any terms and provisions of any other related loan
documents executed in connection herewith, the terms and provisions herein
shall control.
18. WAIVER OF JURY TRIAL. BORROWER AND BANK HEREBY KNOWINGLY,
IRREVOCABLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT EITHER MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY ACTION, PROCEEDING, DEFENSE OR
COUNTERCLAIM BASED ON THIS CREDIT AGREEMENT, OR ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS CREDIT AGREEMENT, OR PROMISSORY NOTE, OR ANY OTHER
LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY HERETO OR TO ANY LOAN
DOCUNIENT. THIS PROVISION IS A MATERIAL INDUCEMENT FOR BORROWER AND BANK
ENTERING INTO THE SUBJECT LINE OF CREDIT TRANSACTION.
IN WITNESS WHEREOF, the parties hereto set their hands and seals the
day and year first above written.
Witnesses: BORROWER:
THE STEPHAN CO., a Florida corporation
_____________________ By: _________________________
Witness David A. Spiegel, Chief
Financial Officer
_____________________
Printer Name of Witness
______________________ [Corporate Seal1
Witness
______________________
Printed Name of Witness
BANK:
NATIONSBANK, N.A., a national banking
association
________________________ By: ___________________________
Witness Allen H. Brown, Senior Vice
President
________________________
Printed Name of Witness
_________________________
Witness
_________________________ (Seal)
Printed Name of Witness
MODIFIED AND RESTATED CREDIT AGREEMENT
BY AND BETWEEN
NATIONSBANK, N.A., successor by merger to
NATIONSBANK, N.A. (SOUTH), a national banking association
(the "Bank")
AND
THE STEPHAN CO., a Florida corporation
(the "Borrower")
Dated July 15, 1997
MODIFIED AND RESTATED CREDIT AGREEMENT
THIS MODIFIED AND RESTATED CREDIT AGREEMENT (this "Restated Credit
Agreement"), made this 15 day of July, 1997, between THE STEPHAN CO., a
Florida corporation (the "Borrower") and NATIONSBANK, N.A., successor by
merger to NATIONSBANK, N.A. (SOUTH), a national banking association (the
"Bank").
WITNESSETH:
WHEREAS, Bank extended a revolving line of credit in the amount of TWO
MILLION AND NO/100 DOLLARS ($2,000,000.00) (the "1996 Loan") to Borrower,
as evidenced by a Revolving Promissory Note in the amount of the 1996 Loan
dated June 26, 1996 (the "1996 Note"), which was be used by Borrower for
acquisitions; and
WHEREAS, Borrower executed among other loan documents, the following
documents with regard to the 1996 Loan:
A. Security Agreement dated June 26, 1996 from Borrower to Bank securing
Borrower's Collateral more particularly described therein (the
"Collateral") (the " Security Agreement");
B. Credit Agreement dated June 26, 1996 between Borrower and Bank (the
"Credit Agreement");
C. Security Interest in Trademarks dated June 26, 1996 from Borrower to
Bank (the "Trademarks Security");
D. UCC-1 Financing Statement from Borrower to Bank filed of record July
5, 1996, in Official Records Book 25098, Page 72, of the Public Records of
Broward County, Florida, securing the Collateral (the "County UCC-l"); and
E. UCC-1 Financing Statement filed with the Secretary of State, Florida
on July 8, 1996, under File Number 960000140290, securing the Collateral
(the "State UCC-1").
WHEREAS, Borrower and Bank agreed to release the Collateral as security
for the 1996 Loan pursuant to that certain letter agreement dated
September 5, 1996; and
WHEREAS, the County UCC-I was amended by the following financing statement:
A. UCC-3 Financing Statement from Borrower to Bank filed of record
September 9, 1996, in Official Records Book 25370 Page 371, of
the Public Records of Broward County, Florida, releasing the all
"Colgate-Palmolive Company" brands (the "County UCC-3");
B. UCC-3 Financing Statement from Borrower to Bank filed of record
September 9, 1996, in Official Records Book 25370 Page 371, of the Public
Records of Broward County, Florida, releasing all the Collateral (the
"Second County UCC-3");
and
WHEREAS, the State UCC-I was amended by the following financing statement:
A. UCC-3 Financing Statement filed with the Secretary of State, Florida
on September 9, 1996, under File Number 960000188643, all releasing the
"Colgate Palmolive Company" brands (the "State UCC-3");
B. UCC-3 Financing Statement filed with the Secretary of State, Florida
on September 18, 1996, under File Number 960000198196, releasing all the
Collateral (the "Second State UCC-3");
and
WHEREAS, the Security Agreement, Credit Agreement, Trademarks Security,
County UCC-1, State UCC-1, County UCC-3, Second County UCC-3, State UCC-3,
Second State UCC-3 and any and all supplemental loan documents executed
therein are hereinafter collectively referred as to the "Security
Documents"; and
WHEREAS, Bank has agreed to: (i) extend a revolving line of credit in
the amount of THREE MILLION AND NO/100 DOLLARS ($3,000,000.00) (the "1997
Loan") to Borrower, as evidenced by a Revolving Line of Credit Promissory
Note of even date herewith (the " 1997 Note"), which shall be used by
Borrower for acquisitions; and (ii) consolidate, modify and restate the
1996 Note and 1997 Note as evidenced by a Consolidated, Modified and
Restated Revolving Line of Credit Promissory Note in the original principal
amount of Five Million and No/100 Dollars ($5,000,000.00); and (iii) modify
and/or restate the Loan Documents; and
WHEREAS, Bank has agreed to provide such financing conditioned upon the
Borrower agreeing to the terms and conditions set forth in this Restated
Credit Agreement and to the execution of certain other documents in
connection therewith.
NOW, THEREFORE, in consideration of the sum of Ten Dollars ($10.00) and
other good and valuable consideration, the receipt whereof is hereby
acknowledged, the parties agree as follows:
1. DEFINITIONS The following definitions will apply to this Restated
Credit Agreement as well as all other documentation involved in
this loan transaction:
A. "Bank" - NATIONSBANK, N.A., successor by merger to NATIONSBANK, N.A.
(SOUTH), a national banking association.
B. "Borrower" - THE STEPHEN CO., a Florida corporation
C. "Consolidated Note" - is the Consolidated, Modified and Restated
Revolving Line of Credit Promissory Note in the original principal amount
of Five Million and No/100 Dollars ($5,000,000.00) from Borrower in
favor of Bank.
D. "Current Maturity Coverage" - is defined as the sum of Net income,
non-cash charges less dividends divided by the sum of current maturities of
long term debt. Borrower shall maintain a Current Maturity Coverage of
not less than I.75:1.00.
E. "Funded Debt/EBITDA" - is 2.50:1.00 to be tested quarterly on a
trailing monthly basis.
F. "LIBOR RATE" - The thirty (30) day LIBOR RATE, as published in the
Wall Street Journal as the average rate at which deposits in United States
of America dollars were offered in the London Interbank Market.
G. "Line of Credit" - The revolving line of credit loan from Bank to
Borrower in the principal amount of Five Million and No/100 Dollars
($5,000,000.00) as evidenced by that Consolidated Note.
H. "Loan Documents" - This term includes all documents which comprise
the loan documentation including, but not limited to the 1996 Note, the
1997 Note, the Consolidated Note, Credit Agreement, this Restated Credit
the Agreement, Acknowledgement, Agreement and Reaffirmation of Loan
Documents, the Commitment Letter dated May 26, 1997 between Bank
and Borrower and any and all other supplemental related loan documents.
I. "1996 Loan" - A revolving line of credit in the amount of Two Million
and No/100 Dollars ($2,000,000.00).
J. " 1997 Loan" - A revolving line of credit in the amount of Three
Million and No/100 Dollars ($3,000,000.00).
K. "1996 Note" The Promissory Note dated June 26, 1996 in the original
principal amount of the 1996 Loan from Borrower to Bank.
L. "1997 Note" - The Revolving Line of Credit Promissory Note of even
date herewith in the original principal amount of the 1997 Loan from
Borrower to Bank.
M. "Security Documents" - This term includes all documents which
comprise the loan documentation including, but not limited to Security
Agreement, Credit Agreement, Trademarks Security, County UCC-I, State
UCC-I, County UCC-3, Second County UCC-3, State UCC-3, Second State UCC
3 between Bank and Borrower and any and all other supplemental related
loan documents.
2. INTEREST RATE. From the date hereof, the unpaid principal balance
of the Consolidated Note shall bear interest at the LIBOR RATE, plus 1.30%
3.DEFAULT RATE OF INTEREST. After maturity, whether by acceleration or
otherwise, or after the entry of judgment, at Holder's option, the entire
unpaid principal balance of the Line of Credit shall bear interest until
paid at an augmented annual rate (the "Default Rate") from and after the
stated or accelerated maturity of the Consolidated Note, or from and after
failure to pay on the due date any sum payable under the Consolidated Note
or under any other Loan Document (and the expiration of any applicable
grace period provided in the Consolidated Note or any such other Loan
Document for that payment), or from and after the occurrence of any other
default (whether concerned with the payment of money or otherwise) under
any Loan Document (and the expiration of any applicable grace period
provided in such Loan Document for the cure of that default); provided,
however that after judgment all such sums shall bear interest at the
greater of the Default Rate or the rate prescribed by applicable law for
judgments. The Default Rate shall be eighteen percent (18%) per annum.
4. MATURITY DATE. Provided there is no event of a monetary or
non-monetary default under the Consolidated Note or Loan Documents, the
entire principal balance and any unpaid charges, together with any accrued,
but unpaid, interest thereon shall be due and payable in full on JULY 15,
1999.
5. USE OF PROCEEDS. The proceeds shall be used by Borrower for
acquisitions. Borrower may use Line of Credit by borrowing thereunder,
repaying the line of credit in whole or part, and reborrowing provided no
default exists under the Line of Credit, Consolidated Note and the Loan
Documents and subject to Minimum Current Maturity Coverage, defined in
Section I above, and remaining terms and conditions set forth herein up
through JULY 13, 1999.
6. COLLATERAL. The Line of Credit is unsecured. The Borrower has
agreed, represented and warranted with Bank that Borrower shall not
encumber the brands acquired through the New Image Laboratories, Inc.
transaction and has executed an Agreement Not to Encumber of even date
herewith.
7. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to Bank as follows:
A. Good Standing. Borrower is a corporation, duly organized,
validly existing and in good standing under the laws of Florida and has the
power and authority to own its property and to carry on its business in
each jurisdiction in which Borrower floes business.
B. Authority and Compliance. Borrower has full power and authority
to execute and deliver the Loan Documents and to incur and perform the
obligations provided for therein, all of which have been duly authorized by
all proper and necessary action of the appropriate governing body of
Borrower. No consent or approval of any public authority or other third
party is required as a condition to the validity of any Loan Document, and
Borrower is in compliance with all laws and regulatory requirements to
which it is subject.
C. Binding Agreement. This Agreement and the other Loan Documents
executed by Borrower constitute valid and legally binding obligations of
Borrower, enforceable in accordance with their terms.
D. Litigation. There is no actions, suits or, proceedings involving
Borrower pending or, to the knowledge of Borrower, threatened before any
court or governmental authority, agency or arbitration authority, except as
disclosed to Bank in writing and acknowledged by Bank prior to the date of
this Agreement, which involve or would adversely affect the transactions
contemplated herein or which could have an adverse affect on the Borrower's
business or financial condition.
E. No Conflicting Agreements. There is no charter, bylaw, stock
provision, partnership agreement or other document pertaining to the
organization, power or authority of Borrower and no provision of any
existing agreement, mortgage, indenture or contract binding on Borrower or
affecting its property, which would conflict with or in any way prevent the
execution, delivery or carrying out of the terms of this Agreement and the
other Loan Documents.
F. Ownership of Assets. Borrower has good title to its assets and
all the New Image Laboratories, Inc. brands, and its assets and the New
Image Laboratories, Inc. brands are free and clear of liens, except those
disclosed to Bank in writing prior to the date of this Agreement. Borrower
has executed and delivered to Bank a Agreement Not to Encumber as to the
New Image Laboratories, Inc. brands.
G. Taxes. All taxes and assessments due and payable by Borrower
have been paid or are being contested in good faith by appropriate
proceedings and the Borrower has filed all tax returns which it is required
to file.
H. Financial Statements. The financial statements of Borrower
heretofore delivered to Bank have been prepared in accordance with GAAP
applied on a consistent basis throughout the period involved and fairly
present Borrower's financial condition as of the date or dates thereof, and
there has been no material adverse change in Borrower's financial condition
or operations since March 30, 1997. All factual information furnished by
Borrower to Bank in connection with this Agreement and the other Loan
Documents is and will be accurate and complete on the date as of which such
information is delivered to Bank and is not and will not be incomplete by
the omission of any material fact necessary to make such information not
misleading.
I. Place of Business. Borrower's chief executive office is
located at 1850 West McNab Road Fort Lauderdale, Florida 33309.
J. Environmental The conduct of Borrower's business operations
and the condition of Borrower's property does not and will not violate any
federal laws, rules or ordinances for environmental protection, regulations
of the Environmental Protection Agency, any applicable local or state law,
rule, regulation or rule of common law or any judicial interpretation
thereof relating primarily to the environment or Hazardous Materials.
K. Continuation of Representations and Warranties. All
representations and warranties made under this Agreement shall be deemed to
be made at and as of the date hereof and at and as of the date of any
advance(s) under the 1996 Loan and/or 1997 Loan.
8. CONDITIONS PRECEDENT TO FIRST ADVANCE. The following are
conditions precedent to Bank's obligation to close and fund the Line of
Credit and the Borrower agrees to furnish the following to the Bank, as a
condition precedent to closing:
A. Purchase Agreement - Copy of the Purchase Agreement between
Borrower and New Image Laboratories, Inc. for Bank's complete review and
acceptance.
B. Liquidating Trust Agreement - Copy of the Liquidating Trust
Agreement.
C. Projections - Copy of the Projections to include New Image
Transaction.
D. Opinion Letter - Written opinion addressed to Bank, from
Borrower's attorney addressing the proposed 1997 Note, Consolidated Note,
Loan Documents and that the New Image Laboratories, Inc. brands are free
and clear of encumbrances, liens, pledges, mortgages, and other title
retention agreements ant] claims and in form and substance satisfactory to
Bank and its counsel.
E. Corporate Documents - Certified copies of the Articles of
Incorporation and Bylaws of Borrower, and all amendments thereto, together
with a Certificate of Good Standing of Borrower and proof of qualification
to do business in each jurisdiction business is conducted.
F. Corporate Resolutions - Resolution of Borrower authorizing
the 1997 Loan and Line of Credit and the execution of all documents
required hi connection with the 1997 Loan and Line of Credit.
G. The executed 1997 Note, Consolidated Note and Loan Documents
and other documents and instruments necessary or advisable in connection
with the 1997 Loan and Line of Credit.
H. Certification that there exists no pending or threatened
litigation, the result of which could have an adverse effect on the
business or financial condition of the Borrower.
I. All other documents required in connection with the 1997
Loan and Line of Credit.
9. CONDITIONS TO EACH ADVANCE.
A. There shall exist no event of default; the representations
and warranties contained in the Loan Documents shall be true and accurate;
there shall have occurred no material adverse change in the financial
condition of the Borrower or any other person liable for repayment of the
Line of Credit; and the Bank shall not have determined that the prospect of
payment or performance of the Line of Credit has been materially impaired.
B. Advances on the Line of Credit will be made by written
communication from a person reasonably believed by Bank to be an authorized
representative of Borrower. Unless otherwise agreed by the Bank, all
advances will be made to a demand deposit account maintained at the Bank in
the name of the Borrower.
10. FINANCIAL COVENANTS. Until full payment and performance of all
obligations of Borrower under the Loan Documents, Borrower will, unless
Bank consents otherwise in writing (and without limiting any requirement of
any other Loan Document):
A. Financial Condition. Maintain Borrower's financial condition
as follows, determined in accordance with GAAP applied on a consistent
basis throughout the period involved except to the extent modified by the
following definitions:
i. Funded Debt/EBlTDA Coverage Ratio. Borrower will maintain
a minimum Funded Debt/EBlTDA Coverage Ratio of not more than 2.50:1.00
throughout the Line of Credit term. The Funded Debt/EBITDA Coverage Ratio
shall be tested quarterly beginning with the June 30, 1997 quarterly
financial statements on a trailing twelve month basis.
ii. Current Maturity Coverage Ratio. Borrower will maintain a
minimum Current Maturity Coverage Ratio of not less than 1.75:1.00
throughout the Line of Credit term.
B. Financial Statements and Other Information. Maintain a system
of in accordance with GAAP applied on a consistent basis throughout the
period involved, and in the event of default, permit Bank's officers or
authorized representatives to visit and inspect Borrower's books of account
and other records at such reasonable times and as often as Bank may desire,
and further pay the reasonable fees and disbursements of any accountants or
other agents of Bank selected by Bank for the foregoing purposes. Unless
written notice of another location is given to Bank, Borrower's books and
records will be located at Borrower's chief executive office set forth
above. All financial statements called for below shall be prepared in form
and content acceptable to Bank and by independent certified public
accountants acceptable to Bank, the same acceptance not to be unreasonably
withheld by Bank.
In addition, Borrower will:
i. Furnish to Bank annual audited unqualified
consolidated financial statements of Borrower for each fiscal year of
Borrower, within one hundred twenty (120) days after the close of each such
fiscal year.
ii. Furnish to Bank company prepared consolidated
financial statements of Borrower for each quarter of each fiscal quarter of
Borrower, within fifty (50) days after the close of each such period,
together with quarterly compliance certificates.
iii. Furnish to Bank a compliance certificate for
(and executed by an authorized representative of) Borrower concurrently
with and dated as of the date of delivery of each of the financial
statements as required in paragraphs i and ii above, containing (a) a
certification that the financial statements of even date are true and
correct and that the Borrower is not in default under the terms of this
Agreement, and (b) computations and conclusions, in such detail as Bank may
request, with respect to compliance with this Agreement, and the other Loan
Documents, including computations of all quantitative covenants.
11. AFFIRMATIVE COVENANTS. Until full payment and performance of all
obligations of Borrower under the Line of Credit Documents, Borrower will,
unless Bank consents otherwise in writing (and without limiting any
requirement of any other Loan Document):
A. Insurance. Maintain insurance with responsible
insurance companies on such of its properties, in such amounts and against
such risks as is customarily maintained by similar businesses operating in
the same vicinity, specifically to include fire and extended coverage
insurance covering all assets, business liability insurance, all to be with
such companies and in such amounts as are satisfactory to Bank and
providing for at least 30 days prior notice to Bank of any cancellation
thereof. Satisfactory evidence of such insurance will be supplied to Bank
prior to funding under the 1997 Loan and Line of Credit and 30 days prior
to each policy renewal.
B. Existence and Compliance. Maintain its existence,
good standing and qualification to do business, where required and comply
with all laws, regulations and governmental requirements including, without
limitation, environmental laws applicable to it or to any of its
properties, business operations and transactions and comply with OHSA, EPA,
Pension Guaranty Board and ERISA.
C. Adverse Conditions or Events. Promptly advise Bank
in writing of (i) any act, omission or undertaking which would singly or in
the aggregate have a materially adverse effect upon the business, assets,
liabilities, financial conciliation, results of operations or business
prospects of the Borrower, any of its subsidiaries, or upon the ability of
the Borrower to perform any material obligations arising under the Loan
Documents, (ii) any actual or potential contingent liabilities in excess of
Five Hundred Thousand and No/ 100 Dollars ($500,000.00), (iii) any
litigation against Borrower claiming damages in excess of Two Hundred Fifty
Thousand Dollars ($250,000.00), (iv) any event that has occurred that would
constitute an event of default under any Loan Documents and (v) any
uninsured or partially uninsured loss through fire, theft, liability or
property damage in excess of an aggregate of $250,000.00.
D. Taxes and Other Obligations. Pay all of its taxes,
assessments and other obligations, including, but not limited to taxes,
costs or other expenses arising out of this transaction, as the same become
due and payable, except to the extent the same are being contested in good
faith by appropriate proceedings in a diligent manner.
E. Maintenance. Maintain and preserve all licenses, trademarks, privileges,
permits, franchises, certificates and the like necessary for the operation
of its business.
F. Payment and Performance. Borrower shall promptly
pay and punctually perform, or shall cause to be promptly paid and
punctually performed, all of the obligations as and when due and payable.
G. Inspection. In the event of default, Borrower shall permit Bank and its
agents to inspect its records, assets and properties at any time during
normal business hours and at all other reasonable times.
H. Expenses. Borrower shall pay all costs and expenses
in connection with the Line of Credit and the preparation, execution, and
delivery of the Loan Documents including, but not limited to, fees and
disbursements of counsel appointed by Bank, and all recording costs and
expenses, documentary stamp tax and intangible tax on the entire amount of
funds disbursed under the Line of Credit, and other taxes, appraisals,
insurance and all other fees, costs and expenses, if any, set forth in the
Commitment, the Loan Documents, or otherwise connected with the Line of
Credit transaction.
I. Preservation of Agreements. Borrower shall preserve
and keep in full force and effect all agreements, approvals, permits and
licenses necessary for the development, use and operation of its assets for
their intended purpose or purposes.
J. Books and Records. Borrower shall keep and
maintain, at all times, full, true and accurate books of accounts and
records, adequate to correctly reflect the results of the development, use
and operation of its assets and properties. The Bank shall have the right
to examine such books and records and to make such copies or extracts
therefrom as the Bank shall require.
K. Indemnification. Notwithstanding anything to the
contrary contained in Section 8 (I), Borrower shall indemnify, defend and
hold Bank and its successors and assigns harmless from and against any and
all claims, demands, suits, losses, damages, assessments, fines, penalties,
costs or other expenses (including reasonable attorneys' fees and court
costs) arising from or in any way related to any of the transactions
contemplated hereby. The Borrower's obligations under this paragraph shall
survive the repayment of the Line of Credit.
L. Comply with GAAP. Borrower shall comply with generally accepted
accounting principals which are to be applied consistently throughout
the term of the Line of Credit.
M. Performance of Loan Documents. Borrower shall duly
and punctually perform all covenants, terms and agreements expressed as
binding upon it under 1996 Note, 1997 Note, Consolidated Note and all of
the Loan Documents.
12. NEGATIVE COVENANTS. Until full payment and performance
of all obligations of Borrower under the Consolidated Note and/or Loan
Documents, Borrower will not, without the prior written consent of Bank,
which consent shall not be unreasonably withheld (and without limiting any
requirement of any other Loan Documents):
A. Transfer of Assets or Control. Sell, lease, assign
or otherwise dispose of or transfer any existing assets, except in the
normal course of its business, or enter into any merger or consolidation,
or transfer control or ownership of the Borrower or form or acquire any
subsidiary that would result in the Borrower not being the surviving
entity.
B. Management Change. Change or remove Frank F. Ferola
from his current management positions as President and Chief Executive
Officer of Borrower.
C. Advances to Third Parties. No advances in aggregate
of more than One Million Dollars ($ 1,000,00.00) at any one time during the
life of Line of Credit, except for acquisitions.
D. Other Liens. Create or permit to be created or to
remain, any mortgage, pledge, construction lien or other lien, conditional
sale or other title retention agreement, encumbrance, claim, or charge on
the assets or income therefrom. Any transaction prohibited under this
paragraph shall be null and void.
E. Character of Business. Change the general character
of business as conducted at the date hereof, or engage in any type of
business not reasonably related to its business as presently conducted
without prior consent of Bank. Bank shall not unreasonably withhold its
consent.
F. Borrower's Certificate of Incorporation. Materially
amend or modify its articles or certificate of incorporation or bylaws.
13. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay
to Bank immediately upon demand the full amount of all costs and expenses,
including reasonable attorneys' fees (to include outside counsel fees and
all allocated costs of Bank's in-house counsel if permitted by applicable
law), incurred by Bank in connection with (a) negotiation and preparation
of this Agreement and each of the Loan Documents, and (b) all other costs
and attorneys' fees incurred by Bank for which Borrower is obligated to
reimburse Bank in accordance with the terms of the Loan Documents.
Additionally, Borrower shall pay any documentary stamps, intangible taxes
and filing, search and recording fees and the costs of any appraisal and
environmental report required by Bank. Borrower shall also be responsible
and liable for, and shall hold Bank harmless from, all expenses and costs
in connection with the administration and enforcement of any of Borrower's
obligations to Bank. If at any time the State of Florida shall determine
that the Documentary Stamps affixed thereto, if any, are insufficient, and
that additional Documentary Stamps should be affixed, then Borrower shall
pay for the same, together with any interest or penalties imposed in
connection with such determination, and Borrower hereby agrees to indemnify
and hold Bank harmless therefrom. If any such sums shall be advanced by
Bank, they shall bear interest, shall be paid and shall be secured as
provided in the Loan Documents.
14. DEFAULTS AND REMEDIES. If any one or more of the
following events of default (an "Event of Default") shall occur for any
reason whatsoever (and whether such occurrences shall be voluntarily or
involuntary, or come about or be effected by operation of law or pursuant
to or in compliance with any judgment, decree or order of any court, or any
order, rule or regulation of any administrative or governmental body), that
is to say:
(a) any representation or warranty made herein or in
any report, certificate, financial statement or other instrument furnished
in connection with this Restated Credit Agreement or the borrowings
hereunder, shall prove to be false or misleading in any respect;
(b) default shall occur in the payment of principal or
interest on any indebtedness created hereunder, when and as the same shall
become due and payable, whether at the due date or by acceleration or
otherwise, which remains after the due date of such payment; or failure of
the Borrower to make payment of principal or interest on any other
indebtedness beyond any period or grace provided with respect thereto, or
in the performance of any other agreement, term or condition contained in
any agreement under which any such obligation is created;
(c) any default or violation shall occur on the part
of the Borrower in the due observance or performance of any covenant,
agreement or other provision of this Restated Credit Agreement, the Loan
Commitment, or any other agreement, instrument or contract with Bank, other
than for the payment of money, which shall remain uncured past any cure
period provided for herein or therein, and if no such cure period is
specified, if such default shall remain uncured for ninety (90) days after
notice of such default or violation has been given by Bank to Borrower, or
after Borrower has knowledge of such default or violation, whichever is
earlier;
(d) Borrower shall (i) apply for or consent to the
appointment of a receiver, trustee in bankruptcy for benefit of creditor's,
or liquidator of Borrower or of any of Borrower's assets and/or properties;
(ii) admit in writing Borrower's inability to pay its debts as they mature
or generally fail to pay its debts as they mature; (iii) make a general
assignment for the benefit of creditors; (iv) be adjudicated as bankrupt or
insolvent; (v) file a voluntary petition in bankruptcy, or a petition or an
answer seeking reorganization or an arrangement with creditors, or seeking
to take advantage of any bankruptcy, reorganization, insolvency,
readjustment of debt, dissolution of liquidation law or statue of an answer
admitting an act of bankruptcy alleged in a petition filed against it in
any proceeding under any such law; or (vi) take any action for the purpose
of affecting any of the foregoing;
(e) an order, judgment or decree shall be entered
against the Borrower without its application, approval or consent, or by
any court of competent jurisdiction, approving a petition seeking its
reorganization or appointing a receiver, trustee or liquidator of the
Borrower or of all or a substantial part of any of its assets, and such
order, judgment or decree shall continue unstayed and in effect for a
period of thirty (30) days from the date of entry thereof;
(f) final judgments for the payment of money in excess
of Two Hundred Fifty Thousand Dollars ($250,000.00), shall be rendered
against the Borrower and the same shall remain undischarged for a period of
thirty (30) consecutive days during which execution shall not be
effectively stayed;
(g) any monies, deposits or other property of the
Borrower now or hereafter on deposit with, or in the possession or under
control of the Bank, shall be attached or become subject to distraint
proceedings or any order or process of Court;
(h) any material adverse change in the financial or business condition
of Borrower;
(i) any of the Bank's security interests in connection
with the Line of Credit are invalidated;
(j) Borrower's corporate existence is changed;
(k) Borrower fails to indemnify and repay Bank, upon
demand, for additional Documentary Stamps imposed by any governmental
entity within fifteen (15) days of such demand by Bank, including the
payment of any penalties, interest, and other charges;
(l) Borrower defaults on any other obligation to Bank;
THEN, and in every such Event of Default, the Bank may, at
its option, upon written notice to Borrower, (i) declare all indebtedness
of principal and interest hereunder forthwith to be due and payable,
whereupon the Consolidated Note shall become due and payable, both as to
principal and interest, without presentment, demand, protest or notice of
any kind, all of which are hereby expressly waived, anything contained
herein or in such Line of Credit to the contrary notwithstanding, and (ii)
exercise all legal rights and remedies against Borrower or any assets for
the indebtedness of Borrower to Bank. Bank shall also have the following
specific rights and remedies:
(a) To require Borrower to assemble and make available
to Bank at a place to be designated by Bank which is also reasonably
convenient to Borrower all documentation regarding Borrower's right, title
and interest in the assets and properties.
(b) To exercise any and all rights of set-off which
Bank may have against any account funds (excluding investment funds), or
assets and properties belonging to Borrower which shall be in Bank's
possession or under its control.
(c) To cure such defaults, with the result that all
costs and expenses incurred or paid by Bank in effecting such cure shall be
additional charges on the Line of Credit which bear interest at the
interest rate of the Line of Credit and are payable upon demand.
The proceeds of any disposition of the assets and/or
properties for the Line of Credit shall be used to satisfy the following
items in the order they are listed:
(a) The expenses of taking, removing, storing,
repairing, holding, and selling the Collateral, including any legal costs
and attorneys' fees. If the Consolidated Note is referred to an attorney
for collection, Borrower and all others liable for the Line of Credit
jointly and severally agree to pay reasonable attorneys' fees (including
appellate, administrative and bankruptcy fees and costs) and legal
expenses.
(b) The expense of liquidating or satisfying any
liens, security interests, or encumbrances on the Collateral which may be
prior to the security interest of Bank.
(c) Any unpaid fees, accrued interest, and then the
unpaid principal amount of the Line of Credit.
(d) Any other indebtedness of Borrower to Bank.
If the proceeds realized from the disposition of the assets
and/or properties shall fail to satisfy any of the foregoing items,
Borrower and all other liable for the Line of Credit shall forthwith pay
any deficiency to Bank upon demand.
15. CROSS DEFAULT. A default or breach under any of the
terms of conditions of the 1997 Note, Consolidated Note and Loan Documents
or any credit facility with Bank, or any agreement to which Borrower is
obligated, shall at Bank's option, constitute a default under the Line of
Credit.
16. NOTICE. All notices required or allowed to be given
hereunder shall be delivered by hand or sent by certified mail return
receipt requested, overnight courier or facsimile transmission, to the
party to which such notice is to be given as follows:
If to Borrower: THE STEPHAN CO.
1850 West McNab Road
Fort Lauderdale, FL 33309
Attn: David A. Spiegel, CFO
If to Bank: NATIONSBANK, N.A., successor
by merger to NATIONSBANK,
N.A. (SOUTH) Commercial Banking
NationsBank Tower, 10th Floor
One Financial Plaza
Fort Lauderdale, FL 33394
and a copy to: PAUL M. MAY, Esquire
MAY, MEACHAM & DAVELL,
P.A.
NationsBank Tower, Suite 2602
One Financial Plaza
Fort Lauderdale, FL 33394
Provided, that additional or other addresses for the giving
of notice may be thereafter designated by the giving of written notice
thereof to the other party. Such notices shall be deemed given or made
three (3) business days following deposit in the U.S. Mail, certified
return receipt requested, or immediately upon receipt if delivered by hand,
overnight courier or facsimile transmission addressed as herein provided.
17. MISCELLANEOUS. Borrower and Bank further covenant and
agree as follows, without limiting any requirement of any other Loan
Document:
A. Cumulative Rights and No Waiver. Each and every
right granted to Bank under any Loan Document, or allowed it by law or
equity shall be cumulative of each other and may be exercised in addition
to any and all other rights of Bank, and no delay in exercising any right
shall operate as a waiver thereof, nor shall any single or partial exercise
by Bank of any right preclude any other or future exercise thereof or the
exercise of any other right. Borrower expressly waives any presentment,
demand, protest or other notice of any kind, excluding a notice of intent
to accelerate and notice of acceleration under which circumstances, Bank
shall give notice to Borrower. No notice to or demand on Borrower in any
case shall, of itself, entitle Borrower to any other or future notice or
demand in similar or other circumstances.
B. Applicable Law. This Restated Credit Agreement and
the rights and obligations of the parties hereunder shall be governed by
and interpreted in accordance with the laws of Florida and applicable
United States federal law.
C. Amendment. No modification, consent, amendment or
waiver of any provision of this Restated Credit Agreement, nor consent to
any departure by Borrower therefrom, shall be effective unless the same
shall be in writing and signed by an officer of Bank, and then shall be
effective only in the specified instance and for the purpose for which
given. This Restated Credit Agreement is binding upon Borrower, its
successors and assigns, and inures to the benefit of Bank, its successors
and assigns; however, no assignment or other transfer of Borrower's rights
or obligations hereunder shall be made or be effective without Bank's prior
written consent, nor shall it relieve Borrower of any obligations
hereunder. There is no third party beneficiary of this Restated Credit
Agreement.
D. Documents. All documents, certificates and other
items required under this Restated Credit Agreement to be executed and/or
delivered to Bank shall be in form and content satisfactory to Bank and its
counsel.
E. Partial Invalidity. The unenforceability or
invalidity of any provision of this Restated Credit Agreement shall not
affect the enforceability or validity of any other provision herein and the
invalidity or unenforceability of any provision of any Loan Document to any
person or circumstance shall not affect the enforceability or validity of
such provision as it may apply to other persons or circumstances.
F. Indemnification. Notwithstanding anything to the
contrary contained in paragraph E above, Borrower shall indemnify, defend
and hold Bank and its successors and assigns harmless from and against any
and all claims, demands, suits, losses, damages, assessments, fines,
penalties, costs or other expenses (including reasonable attorneys' fees
and court costs) arising from or in any way related to any of the
transactions contemplated hereby. The Borrower's obligations under this
paragraph shall survive the repayment of the Line of Credit.
G. Survivability. All covenants, agreements,
representations and warranties made herein or in the other Loan Documents
shall survive the making of the Loan and shall continue in full force and
effect so long as the Line of Credit is outstanding or the obligation of
the Bank to make any advances under the Line shall not have expired.
H. Personal. This Restated Credit Agreement is personal in nature and may
not be assigned.
I. Gender/Plural. Wherever used herein the singular number shall include
the plural and the plural the singular, and the use of any gender shall
include all genders. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their heirs, successors, personal
representatives and assigns.
J. Document Conflict. If the terms and provisions of
this Restated Credit Agreement conflict with any terms and provisions of
any other related loan documents executed in connection herewith, the terms
and provisions herein shall control.
18. WAIVER OF JURY TRIAL: BORROWER AND BANK HEREBY
KNOWINGLY, IRREVOCABLY, VOLUNTARILY AND INTENTIONALLY WAIVE
ANY RIGHT EITHER MAY HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY ACTION, PROCEEDING, DEFENSE OR COUNTERCLAIM BASED ON
THIS RESTATED CREDIT AGREEMENT, OR ARISING OUT OF, UNDER OR
IN CONNECTION WITH THIS RESTATED CREDIT AGREEMENT, OR
REVOLVING LINE OF CREDIT PROMISSORY NOTE, CONSOLIDATED AND
RESTATED PROMISSORY NOTE, OR ANY OTHER LOAN DOCUMENT, OR
ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY HERETO
OR TO ANY LOAN DOCUMENT. THIS PROVISION IS A MATERIAL
INDUCEMENT FOR BORROWER AND BANK ENTERING INTO THE SUBJECT
LINE OF CREDIT TRANSACTION.
IN WITNESS WHEREOF, the parties hereto set their hands and seals
the day and year first above written.
Witnesses: BORROWER:
THE STEPHAN CO., a Florida
corporation
___________________ By: _________________________
DAVID A. SPIEGEL
Financial Officer
____________________ [Corporate Seal]
BANK: NATIONSBANK, N.A., successor
by merger to NATIONSBANK, N.A.
(SOUTH), a national banking
association
_____________________ By: _________________________
Susan Pierangelino,
Vice President
_______________________
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM
FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 9,562,785
<SECURITIES> 0
<RECEIVABLES> 6,421,963
<ALLOWANCES> 113,599
<INVENTORY> 15,432,470
<CURRENT-ASSETS> 31,631,953
<PP&E> 4,437,703
<DEPRECIATION> 1,442,214
<TOTAL-ASSETS> 65,427,897
<CURRENT-LIABILITIES> 8,108,448
<BONDS> 12,198,874
0
0
<COMMON> 47,259
<OTHER-SE> 44,730,975
<TOTAL-LIABILITY-AND-EQUITY> 65,427,897
<SALES> 7,650,687
<TOTAL-REVENUES> 7,780,963
<CGS> 2,748,099
<TOTAL-COSTS> 2,748,099
<OTHER-EXPENSES> 2,918,134
<LOSS-PROVISION> 11,211
<INTEREST-EXPENSE> 186,430
<INCOME-PRETAX> 2,114,730
<INCOME-TAX> 702,050
<INCOME-CONTINUING> 1,412,680
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,412,680
<EPS-PRIMARY> 0.33
<EPS-DILUTED> 0.33
</TABLE>
