<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20509
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1997.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ................ to ...................
Commission file number 0-26568
USA Detergents, Inc.
(Exact name of registrant as specified in its charter)
Delaware 11-2935430
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1735 Jersey Avenue, North Brunswick, New Jersey
08902 (Address of principal executive offices - Zip code)
(732) 828-1800
(Registrant's telephone number, including area code)
--------------------------
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was
required to file reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes _______ No ___X(1)____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class of Stock No. of Shares Outstanding Date
-------------- ------------------------- ----
Common 13,795,029 October 31, 1997
(1) The Company was delinquent in its filing of this Form 10-Q, which was
required to be filed on August 14, 1997.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
USA DETERGENTS, INC. AND SUBSIDIARIES
BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
ASSETS
December 31, June 30,
1996 1997
(As restated- (Unaudited)
See Note 9)
<S> <C> <C>
Current assets:
Cash $ 2,373 $ 231
Accounts receivable, net of customer allowances and doubtful
accounts of $1,349 and $3,838, respectively 27,323 26,409
Inventories 28,830 20,508
Refundable income taxes 4,255 7,995
Deferred taxes 534 -
Prepaid expenses and other current assets 3,053 3,165
----------------------------
Total current assets 66,368 58,308
Property and equipment - net 26,783 41,919
Restricted funds 275 275
Other assets 2,800 2,606
Note receivable 2,250 -
----------------------------
Total assets $98,476 $103,108
============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bridge loan $ 4,000 $ 10,000
Revolving credit line 29,305 28,923
EDA loan 1,806 1,653
Accounts payable 13,725 22,102
Accrued expenses 11,522 22,393
----------------------------
Total current liabilities 60,358 85,071
Non-current liabilities - 602
Deferred rent payable 1,284 1,252
Deferred taxes 735 -
----------------------------
Total liabilities 62,377 86,925
----------------------------
Stockholders' equity:
Preferred stock-no par value; authorized 1,000,000
shares, none issued - -
Common stock-$.01 par value; authorized 30,000,000 shares, issued
and outstanding 13,752,570 and 13,795,029 shares, respectively 138 138
Additional paid-in capital 27,595 27,853
Retained earnings/(deficit) 8,366 (11,808)
Total stockholders' equity 36,099 16,183
Total liabilities and stockholders' equity $98,476 $103,108
============================
</TABLE>
See Notes to Consolidated Financial Statements.
2
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USA DETERGENTS, INC. AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
(in thousands, except net income/(loss) per share information)
<TABLE>
<CAPTION>
Three months Six months
ended June 30, ended June 30,
-----------------------------------------------------------------
1996 1997 1996 1997
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
(As restated- (As restated-
See Note 9) See Note 9)
<S> <C> <C> <C> <C>
Net sales $43,328 $ 54,970 $76,773 $115,640
Cost of goods sold 28,978 46,767 52,064 96,112
----------- ---------- --------- ----------
Gross profit 14,350 8,203 24,709 19,528
Selling, general and administrative 9,864 20,956 17,378 40,109
Restructuring costs - 2,379 - 2,379
----------- ---------- --------- ----------
9,864 23,335 17,378 42,488
Income/(loss) from operations 4,486 (15,132) 7,331 (22,960)
Interest expense - net 153 677 320 1,123
----------- ---------- --------- ----------
Earnings/(loss) before income taxes 4,333 (15,809) 7,011 (24,083)
Provision/(benefit) for income taxes 1,675 (1,092) 2,886 (3,909)
----------- ---------- --------- ----------
Net income/(loss) $ 2,658 $(14,717) $ 4,125 $(20,174)
=========== ========== ========= ==========
Net income/(loss) per share $ 0.20 $ (1.07) $ 0.31 $ (1.46)
=========== ========== ========= ==========
Weighted average shares outstanding 13,479 13,794 13,436 13,779
=========== ========== ========= ==========
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
USA DETERGENTS, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six months
ended June 30,
------------------------------
1996 1997
(Unaudited) (Unaudited)
(As restated-
See Note 9)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) $4,125 (20,174)
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 758 2,298
Change in the provision for customer allowances and doubtful accounts 267 2,489
Increase/(decrease) in deferred rent 117 (32)
Changes in operating assets and liabilities:
Increase in accounts receivable (5,036) (1,575)
(INCREASE)/DECREASE IN INVENTORIES (6,647) 8,322
Increase in prepaid expenses and other current assets (1,890) (112)
(INCREASE)/DECREASE IN OTHER ASSETS (2,631) 194
Increase in accounts payable and accrued expenses 4,975 19,248
Increase in refundable income taxes - (3,740)
Increase in prepaid income taxes (575) -
Decrease in taxes payable (182) -
Decrease in deferred tax asset 411 534
Increase/(decrease) in deferred tax liability 151 (735)
------------------------------
Net cash provided by/(used in) operating activities (6,157) 6,717
------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (3,522) (17,434)
------------------------------
Net cash used in investing activities (3,522) (17,434)
------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long(term debt (177) (153)
Net proceeds/(repayments) from credit facility (1,535) 5,618
Increase in non(current liabilities - 602
Net proceeds from exercise of options 3 258
Net proceeds from sale of common shares 11,790 -
Decrease in note receivable - 2,250
------------------------------
Net cash provided by financing activities 10,081 8,575
------------------------------
Net increase/(decrease) in cash 402 (2,142)
Cash at beginning of period 61 2,373
------------------------------
Cash at June 30, $ 463 $ 231
==============================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $314 $947
==============================
Income taxes $3,047 $32
==============================
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
USA DETERGENTS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have
been prepared by the Company pursuant to the Rules of the Securities and
Exchange Commission ("SEC") and in the opinion of management, include all
adjustments, (consisting of normal recurring accruals) necessary for the fair
presentation of financial position, results of operations and cash flows.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such SEC rules. The
Company believes the disclosures made are adequate to make such financial
statements not misleading. The results for the interim periods presented are
not necessarily indicative of the results to be expected for the full year.
These financial statements should be read in conjunction with the Company's
December 31, 1996 restated Form 10-KA which, when completed, will include
restated financial information for the year ended December 31, 1996 and each
of the four quarters of 1996. The Company is in the process of restating its
financial statements for the year ended December 31, 1996, each of the four
quarters of 1996 and the quarter ended March 31, 1997, as a result of errors
discovered for those periods subsequent to the issuance of such financial
statements (see Note 9).
1
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NOTE 2 - PLANT ACQUISITION
During the three months ended June 30, 1997, the Company exercised
its purchase option, by the cancellation of a $2,250,000 promissory note, to
acquire a powder plant facility located in Chicago. Pursuant to the terms
of a supply contract, this facility previously provided the Company with
the facility's entire powder production output on an exclusive basis.
2
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NOTE 3 - DEBT
In December 1996, the Company entered into a credit facility (the
"PNC Facility") with PNC Bank, N.A. ("PNC") consisting of a $20 million
capital expenditure facility for the purchase of capital assets and/or
leasehold improvements and a $10 million traditional revolving facility.
Borrowings under the PNC Facility bear interest, at the Company's option, at
LIBOR plus .50% to 1.5% (7.19% as of June 30, 1997) or one percent below the
prime rate of PNC. All amounts outstanding under the PNC Facility, as of June
30, 1997 (approximately $28.9 million), were subject to the 7.19% LIBOR-based
interest rate. On March 24, 1997, the Company obtained a commitment from PNC
and a second lender to replace the PNC Facility with a $55 million credit
facility. In conjunction with this commitment, PNC extended to the Company a
$10 million bridge loan (the "Bridge Loan") to acquire a distribution center
in North Brunswick bearing interest at LIBOR plus 1.5% (7.25% as of June 30,
1997), to be repaid from the anticipated proceeds of the replacement facility.
The PNC Facility and Bridge Loan are secured by a substantial portion of the
Company's assets. The PNC Facility, among other things, requires the Company
to maintain specified debt to equity ratios, current ratios, minimum
consolidated tangible net worth and debt service ratio levels. At June 30,
1997, the Company was not in compliance with various covenants and other
material provisions contained in the PNC Facility and the Bridge Loan,
including all of the required financial covenants of the PNC Facility. In
addition, based in part on the Company's performance in the first quarter of
fiscal 1997, the commitment for the $55 million facility was withdrawn. As
discussed below, the Company has been pursuing other alternatives and is
3
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presently in negotiations with a financial institution to provide a secured
financing arrangement for the Company.
On June 30, 1997, the Company obtained a forbearance agreement from
PNC which provided that PNC would forbear exercising the rights and remedies
available to it under the PNC Facility and Bridge Loan until July 7, 1997.
Although the forbearance agreement has expired, PNC is continuing to cooperate
with the Company during its current discussions with PNC and other prospective
third party lenders to amend and/or replace the PNC Facility and Bridge Loan.
In connection with these discussions, PNC has expressed a willingness
to postpone a debt payment of $10 million to the first quarter of 1998 and the
balance of the principal indebtedness to the second quarter of 1998, under terms
and conditions which are currently being negotiated. The Company is exploring
alternative sources of financing and is currently in discussions with another
financial institution to provide a secured financing package. The Company
must obtain additional sources of financing in order to meet its anticipated
near term commitments, including, to the extent the postponement is agreed to
by PNC, the payment of the $10 million of debt being postponed until the first
quarter of 1998. There can be no assurance that PNC will continue to cooperate
with the Company and postpone the payment of amounts due PNC under the PNC
Facility and Bridge Loan, or that the Company will be successful in obtaining
alternative sources of financing.
4
<PAGE>
The Company also has a loan facility of $2.75 million from the New
Jersey Economic Development Authority (the "EDA Loan"). As of June 30, 1997,
the Company had used approximately $2.5 million of the EDA Loan for purchases
of machinery and equipment and improvements to the Company's North Brunswick
manufacturing facility. The remaining funds are restricted for the duration of
the EDA Loan. The EDA Loan is payable in monthly installments of approximately
$26,000 through November 1, 2002. Interest on the EDA Loan is payable at a
variable rate (4.15% at June 30, 1997). As a result of several factors,
including those relating to the Company's historical financial statements,
amounts owed under the EDA Loan, at the option of the issuing lender
thereunder, may be declared immediately due and payable. There can be no
assurance that all such amounts in the future will not be declared immediately
due and payable.
In as much as the Company is not in compliance with the terms of the
PNC Facility, the Bridge Loan and the EDA Loan, approximately $30.2 million of
debt as of June 30, 1996 has been reclassified to current liabilities.
5
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NOTE 4 - COMMITTMENTS AND CONTINGENCIES
On May 5, 1997, a securities class action lawsuit entitled Feldbaum
v. USA Detergents, Inc. et al., No. 97-CV-3227, was filed in the U.S. District
Court for the Eastern District of Pennsylvania against the Company and certain
of its current and former officers and directors; the Feldbaum case
subsequently was transferred to the U.S. District Court for the District of
New Jersey. On May 15, 1997, a second securities class action lawsuit entitled
Einhorn v. USA Detergents, Inc. et al., No. 97-2459, was filed against the
Company and certain of its current and former officers and directors in the
U.S. District Court for the District of New Jersey. Since the Einhorn lawsuit
was filed, twelve additional securities class action lawsuits have been filed
in the U.S. District Court for the District of New Jersey against the Company
and certain of its current and former officers and directors. The class
actions purport to be brought on behalf of all persons who purchased the
Company's common stock between June 5, 1996, at the earliest, and May 8, 1997,
at the latest (the "putative class period"). The class actions generally
allege that, during the putative class period, the defendants made false or
misleading public statements and engaged in improper accounting practices,
which caused the price of the Company's common stock to be artificially
inflated. The class actions assert that the defendants' conduct violated
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and SEC Rule
10b-5 promulgated thereunder, as well as state common law. The class actions
do not specify an amount of damages. In June and July 1997, the
6
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U.S. District Court for the District of New Jersey entered orders
consolidating all of the pending class actions with the Einhorn case. In
August 1997, the court entered an order establishing a master docket for the
consolidated class actions, In re USA Detergents, Inc. Securities Litigation,
Master File No. 97-CV-2459 ("MTB"), and appointed lead plaintiffs and lead
plaintiffs' co-lead counsel. Lead plaintiffs will file a consolidated amended
class action complaint within thirty days after the Company issues its
restated financial statements. The Company intends to defend this action
vigorously. An unfavorable outcome in the litigation could have a material
adverse effect on the Company's financial condition and results of operations.
On September 12, 1997, the Company became aware of a claim by the North
Brunswick Water Company ("NBWC") covering, among other things, unpaid water
and sewer charges aggregating approximately $5,000,000. On October 20, 1997,
the Company commenced an action in the Superior Court of New Jersey, Chancery
Division, Middlesex County, challenging NBWC's claim and requesting injunctive
relief to prevent NBWC from taking any steps to discontinue service pending
the resolution of the claim. Pursuant to a Consent Order dated October 21,
1997, the Company agreed to pay $535,000 to NBWC, subject to refund, pending
the resolution of the matter. Through October 21, 1997, $279,627 of this
amount has been paid. Based on a preliminary assessment, made by independent
counsel for the Company, of the underlying basis for NBWC's claim, management
believes that the Company's obligation, if any, to
7
<PAGE>
NBWC will not have a significant impact on the Company's results of operations
or financial position beyond amounts already provided.
On October 16, 1997, the Company signed a letter of intent setting
forth the terms of a proposed sale and leaseback by the Company of its
Harrisonville, Missouri plant and North Brunswick distribution facility. The
aggregate purchase price for the facilities is specified to be $23,200,000 and
the initial lease term is expected to be 20 years followed by two five year
renewal options. The initial annual aggregate fixed rentals will approximate
$2,600,000 and will be subject to escalation in the fifth year and every
fourth year thereafter based on increases in the Consumer Price Index capped
at 2.25% per year for the first eight years and 3% per year thereafter. The
completion of this transaction is subject to, among other things, the
finalization of a definitive binding agreement between the Company and the
purchaser. There can be no assurance that this transaction will ultimately be
completed. Should the transaction be completed, the lease will be accounted
for as a financing lease.
8
<PAGE>
NOTE 5 - RESTRUCTURING COSTS
In May 1997, the Company, as part of its cost-reduction strategy,
decided to close its Edison, New Jersey facility and move its candle
manufacturing operations to the Company's North Brunswick, New Jersey facility
at an estimated cost of $2.4 million. These restructuring costs include the
cost of moving the candle line and inventory, write-off of related leasehold
improvements and a portion of the future lease commitment and associated lease
expenses. The Company expects the property to be re-leased within the next
year thereby eliminating or substantially reducing the then remaining lease
obligation.
9
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NOTE 6 - STOCKHOLDERS' EQUITY
During the six months ended June 30, 1997, the Company obtained
proceeds approximating $258,000 from the exercise of 42,459 stock options.
NOTE 7 - INCOME TAXES
The income tax benefit for the three and six month periods ended
June 30, 1997 is less than the statutory rate due to a net operating loss
carryforward of approximately $10,200,000 for which no benefit has been
recognized.
10
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NOTE 8 - NET INCOME (LOSS) PER SHARE
Net income (loss) per share is based on the weighted average number
of shares outstanding during the periods presented. Common stock equivalents
have not been included in the computation of net income per share as the
impact is either not significant or, with respect to loss periods,
antidilutive.
11
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NOTE 9 - RESTATEMENT OF FINANCIAL INFORMATION
The Company is in the process of restating its financial statements
for the year ended December 31, 1996, each of the four quarters of 1996 and
the quarter ended March 31, 1997, as a result of errors discovered for those
periods subsequent to the issuance of such financial statements. The financial
statements for the year ended December 31, 1996 require restatement
principally with respect to unrecorded vendor invoices, shipping cut-offs,
vendor rebates, slotting costs and capitalized labor. The quarter and six
months ended June 30, 1996 will be restated principally for shipping cut-offs,
slotting costs and the write-off of certain costs previously written-off in
the fourth quarter of 1996.
The impact of the restatements on the Company's balance sheets and
statements of operations for the year ended December 31, 1996 and the three
and six months ended June 30, 1996 are summarized as follows:
12
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<TABLE>
<CAPTION>
Year Ended Year Ended Three Months Ended Three Months Ended
December 31, 1996 December 31, 1996 June 30, 1996 June 30, 1996
----------------- ----------------- ------------------ ------------------
(As originally Reported) (As Restated) (As originally Reported) (As Restated)
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Statement of Operations
- -----------------------
Net sales $174,031 $172,424 42,915 43,328
Gross profit 57,240 50,926 14,234 14,350
Selling, general and
administrative 41,593 43,878 9,664 9,864
Operating income 15,647 7,048 4,570 4,486
Net income 8,867 3,707 2,703 2,658
Net income per share $.64 $.27 $.20 $.20
Balance Sheet December 31, 1996
- ----------------------- ---------------------------------
(As originally (As Restated)
Reported)
Current assets 64,976 66,368
Total assets 98,904 98,476
Current liabilities 24,414 60,358
Total liabilities 57,645 62,377
Stockholders' equity 41,259 36,099
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1996 June 30, 1996
---------------- ----------------
(As originally Reported) (As Restated)
<S> <C> <C>
Statement of Operations
- -----------------------
Net sales $76,982 $76,773
Gross profit 25,723 24,327
Selling, general and
administrative 17,563 16,996
Operating income 8,160 7,331
Net income
Net income per share
Balance Sheet June 30, 1996
- --------------------- ----------------------------------------------
(As originally (As Restated)
Reported)
Current assets 41,466 40,878
Total assets 60,295 59,457
Current liabilities 19,373 21,185
Total liabilities 23,420 23,247
Stockholders' equity 36,875 36,210
</TABLE>
All comparisons to the three and six months ended June 30, 1996 are based
on amounts as restated.
13
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company is in the process of restating its financial statements for the
year ended December 31, 1996, each of the four quarters of 1996 and the
quarter ended March 31, 1997, as a result of errors discovered for those
periods subsequent to the issuance of such financial statements. The financial
statements for the year ended December 31, 1996 require restatement
principally with respect to unrecorded vendor invoices, shipping cut-offs,
vendor rebates, slotting costs and capitalized labor. The quarter and six
months ended June 30, 1996 will be restated principally for shipping
cut-offs, slotting costs and the write-off of certain costs previously
written-off in the fourth quarter of 1996.
The impact of the restatements on the Company's balance sheets and statements
of operations for the year ended December 31, 1996 and the three and six
months ended June 30, 1996 are summarized as follows:
14
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<TABLE>
<CAPTION>
Year Ended Year Ended Three Months Ended Three Months Ended
December 31, 1996 December 31, 1996 June 30, 1996 June 30, 1996
---------- ---------- ------------------ ------------------
(As originally Reported) (As Restated) (As originally Reported) (As Restated)
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Statement of Operations
- -----------------------
Net sales $174,031 $172,424 42,915 43,328
Gross profit 57,240 50,926 14,234 14,350
Selling, general and
administrative 41,593 43,878 9,664 9,864
Operating income 15,647 7,048 4,570 4,486
Net income 8,867 3,707 2,703 2,658
Net income per share $.64 $.27 $.20 $.20
Balance Sheet
- -------------
Current assets 64,976 66,368
Total assets 98,904 98,476
Current liabilities 24,414 60,358
Total liabilities 57,645 62,377
Stockholders' equity 41,259 36,099
</TABLE>
(RESTUBBED TABLE FROM ABOVE)
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
6/30/1996 6/30/1996
---------------- ----------------
(As originally Reported) (As Restated)
<C> <C>
Statement of Operations
- -----------------------
Net sales $76,982 $76,773
Gross profit 25,723 24,327
Selling, general and
administrative 17,563 16,996
Operating income 8,160 7,331
Net income
Net income per share
Balance Sheet
- -----------------------
Current assets 41,466 40,878
Total assets 60,295 59,457
Current liabilities 19,373 21,185
Total liabilities 23,420 23,247
Stockholders' equity 36,875 36,210
</TABLE>
All comparisons to the three and six months ended June 30, 1996 are based on
amounts as restated.
15
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THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
Net sales for the three months ended June 30, 1997 increased 26.9% to
$55.0 million from $43.3 million for the three months ended June 30, 1996. The
increase is primarily the result of an increase in unit sales of laundry
products and candles.
Gross profit decreased 42.8% to $8.2 million in the three months
ended June 30, 1997 from $14.4 million for the comparable period in 1996.
Gross profit decreased as a percentage of net sales to 14.9% in the three
months ended June 30, 1997 from 33.1% for the comparable period in 1996. The
decrease as a percentage of net sales was primarily attributable to an
increase in materials and labor costs of 8.7% and 2.5% of net sales,
respectively, due to manufacturing inefficiencies caused by a high level of
production line changeovers to meet customer demands, inefficient production
runs during the start up and validation of new production lines, the
write-down of raw materials and finished goods inventory associated with
discontinued product in the second quarter and sales of close-out products at
reduced sales value. The decrease in gross profit as a percentage of net sales
was also affected by additional costs of 6.0% as a percentage of net sales
relating to increased levels of warehouse, distribution and freight-in costs
associated with the expansion of the business from a local single-plant
operation to a national multi-plant manufacturer. These unanticipated
increased costs, which
16
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began in the latter part of 1996, continued to have a significant impact on
the first and second quarters of 1997.
Selling, general and administrative expenses increased 112.4% to
$21.0 million in the three months ended June 30, 1997 from $9.9 million for
the comparable period in 1996. As a percentage of net sales, these expenses
increased to 38.1% in the three months ended June 30, 1997 from 22.8% for the
comparable period in 1996. The increase as a percentage of net sales was
primarily due to increases of 9.5% in marketing funds (co-op advertising,
promotional allowances and slotting amortization) and, 2.4% in freight to
customers, 1.4% in professional fees, 1.2% in administrative personnel
and .8% in commissions.
In May 1997, the Company, as part of its cost-reduction strategy,
decided to close its Edison, New Jersey facility and move its candle
manufacturing operations to the Company's North Brunswick, New Jersey facility
at an estimated cost of $2.4 million. These restructuring costs include the
cost of moving the candle line and inventory, write-off of related leasehold
improvements and a portion of the future lease commitment and associated lease
expenses. The Company expects the property to be re-leased within the next
year thereby eliminating or substantially reducing the then remaining lease
obligation.
Interest expense-net increased to $.7 million in the three months
ended June 30, 1997 from $.2 million for the comparable period in 1996,
primarily as a result of higher average outstanding borrowings.
17
<PAGE>
The income tax benefit for the three months ended June 30, 1997
approximates 6.9% compared to a provision which approximates 38.7% for the
three months ended June 30, 1996. This decrease principally relates to a net
operating loss carryforward of approximately $10,200,000 for which no benefit
has been recognized.
18
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SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Net sales for the six months ended June 30, 1997 increased 50.6% to
$115.6 million from $76.8 million for the six months ended June 30, 1996. The
increase is primarily the result of an increase in unit sales of laundry
products and candles.
Gross profit decreased 21% to $19.5 million in the six months ended
June 30, 1997 from $24.7 million for the comparable period in 1996. Gross
profit decreased as a percentage of net sales to 16.9% in the six months ended
June 30, 1997 from 32.2% for the comparable period in 1996. The decrease as a
percentage of net sales was primarily attributable to an increase in material
and labor costs of 7.7% and 1.7% of net sales, respectively, due to
manufacturing inefficiencies caused by a high level of production line
changeovers to meet customer demands, inefficient production runs during the
start up and validation of new production lines, the write-down of raw
materials and finished goods inventory associated with discontinued product
in the second quarter and sales of close-out products at reduced sales
value. The decrease in gross profit as a percentage of net sales was also
affected by additional costs of 5.6% as a percentage of net sales relating to
increased levels of warehouse, distribution and freight-in costs, associated
with the expansion of the business from a local single-plant operation to a
multi-plant national manufacturer. These unanticipated increased costs, which
began in the
19
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latter part of 1996, continued to have a significant impact on the first six
months of 1997.
Management has implemented various cost reduction programs during the
six months ended June 30, 1997, the benefits from which are expected to be
realized in the third quarter of 1997 and future periods. Such programs
include the shut-down of the Company's Edison candle facility, consolidation
of candle manufacturing operations in North Brunswick, reduction in temporary
labor, automation of manufacturing facilities related to spray products,
production rationalization, increased use of high speed fillers and cartoners
and improved production planning and control.
Selling, general and administrative expenses increased 130.8% to
$40.1 million in the six months ended June 30, 1997 from $17.4 million for the
comparable period in 1996. As a percentage of net sales, these expenses
increased to 34.7% in the six months ended June 30, 1997 from 22.6% for the
comparable period in 1996. The increase as a percentage of net sales was
primarily due to increases of 8.7% in marketing funds (co-op advertising,
promotional allowances and slotting amortization), 1.8% in freight to
customers, .6% in professional fees and .5% in sales commissions.
In May 1997, the Company, as part of its cost-reduction strategy,
decided to close its Edison, New Jersey facility and move its candle
manufacturing operations to the Company's North Brunswick, New Jersey facility
at an estimated cost of
20
<PAGE>
$2.4 million. These restructuring costs include the cost of moving the candle
line and inventory, write-off of related leasehold improvements and a portion
of the future lease commitment and associated lease expenses. The Company
expects the property to be re-leased within the next year thereby eliminating
or substantially reducing the then remaining lease obligation.
Interest expense-net increased to $1.1 million in the six months
ended June 30, 1997 from $.3 million for the comparable period in 1996,
primarily as a result of higher average outstanding borrowings.
The income tax benefit for the six months ended June 30, 1997
approximates 16.2% compared to a provision which approximates 41.2% for the
six months ended June 30, 1996. This decrease principally relates to a net
operating loss carry forward of approximately $10,200,000 for which no benefit
has been recognized.
21
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements principally arise from the
funding of working capital needs which include inventory, accounts receivable,
capital expenditures and debt service.
In December 1996, the Company entered into a credit facility (the
"PNC Facility") with PNC Bank, N.A. ("PNC") consisting of a $20 million
capital expenditure facility for the purchase of capital assets and/or
leasehold improvements and a $10 million traditional revolving facility.
Borrowings under the PNC Facility bear interest, at the Company's option, at
LIBOR plus .50% to 1.5% (7.19% as of June 30, 1997) or one percent below the
prime rate of PNC. All amounts outstanding under the PNC Facility, as of June
30, 1997 (approximately $28.9 million), were subject to the 7.19% LIBOR-based
interest rate. On March 24, 1997, the Company obtained a commitment from PNC
and a second lender to replace the PNC Facility with a $55 million credit
facility. In conjunction with this commitment, PNC extended to the Company a
$10 million bridge loan (the "Bridge Loan") to acquire a distribution center
in North Brunswick bearing interest at LIBOR plus 1.5% (7.25% as of June 30,
1997), to be repaid from the anticipated proceeds of the replacement facility.
The PNC Facility and Bridge Loan are secured by a substantial portion of the
Company's assets. The PNC Facility, among other things, requires the Company
to maintain specified debt to equity ratios, current ratios, minimum
consolidated tangible net worth and debt service ratio levels. At June 30,
1997, the Company was not in compliance with various covenants and other
material provisions
22
<PAGE>
contained in the PNC Facility and the Bridge Loan, including all of the
required financial covenants of the PNC Facility. In addition, based in part
on the Company's performance in the first quarter of fiscal 1997, the
commitment for the $55 million facility was withdrawn. As discussed below, the
Company has been pursuing other alternatives and is presently in negotiations
with a financial institution to provide a secured financing arrangement for the
Company.
On June 30, 1997, the Company obtained a forbearance agreement from
PNC which provided that PNC would forbear exercising the rights and remedies
available to it under the PNC Facility and Bridge Loan until July 7, 1997.
Although the forbearance agreement has expired, PNC is continuing to cooperate
with the Company during its current discussions with PNC and other prospective
third party lenders to amend and/or replace the PNC Facility and Bridge Loan.
In connection with these discussions, PNC has expressed a willingness
to postpone a debt payment of $10 million to the first quarter of 1998 and the
balance of the principal indebtedness to the second quarter of 1998, under terms
and conditions which are currently being negotiated. The Company is exploring
alternative sources of financing and is currently in discussions with another
financial institution to provide a secured financing package. The Company
must obtain additional sources of financing in order to meet its anticipated
near term commitments, including, to the extent the postponement is agreed to
by PNC, the payment of the $10 million of debt being postponed until the first
quarter of 1998. There can be no assurance that PNC will continue to cooperate
with the
23
<PAGE>
Company and postpone the payment of amounts due PNC under the PNC Facility and
Bridge Loan, or that the Company will be successful in obtaining alternative
sources of financing.
The Company also has a loan facility of $2.75 million from the New
Jersey Economic Development Authority (the "EDA Loan"). As of June 30, 1997,
the Company had used approximately $2.5 million of the EDA Loan for purchases
of machinery and equipment and improvements to the Company's North Brunswick
manufacturing facility. The remaining funds are restricted for the duration of
the EDA Loan. The EDA Loan is payable in monthly installments of approximately
$26,000 through November 1, 2002. Interest on the EDA Loan is payable at a
variable rate (4.15% at June 30, 1997). As a result of several factors,
including those relating to the Company's historical financial statements,
amounts owed under the EDA Loan, at the option of the issuing lender
thereunder, may be declared immediately due and payable. There can be no
assurance that all such amounts in the future will not be declared immediately
due and payable.
In as much as the Company is not in compliance with the terms of the
PNC Facility, the Bridge Loan and the EDA Loan, approximately $30.2 million of
debt as of June 30, 1996 has been reclassified to current liabilities.
On May 5, 1997, a securities class action lawsuit entitled Feldbaum
v. USA Detergents, Inc. et al., No. 97-CV-3227, was filed in the U.S. District
Court for the Eastern District of Pennsylvania against the Company and certain
of its current and
24
<PAGE>
former officers and directors; the Feldbaum case subsequently was transferred
to the U.S. District Court for the District of New Jersey. On May 15, 1997, a
second securities class action lawsuit entitled Einhorn v. USA Detergents,
Inc. et al., No. 97-2459, was filed against the Company and certain of its
current and former officers and directors in the U.S. District Court for the
District of New Jersey. Since the Einhorn lawsuit was filed, twelve additional
securities class action lawsuits have been filed in the U.S. District Court
for the District of New Jersey against the Company and certain of its current
and former officers and directors. The class actions purport to be brought on
behalf of all persons who purchased the Company's common stock between June 5,
1996, at the earliest, and May 8, 1997, at the latest (the "putative class
period"). The class actions generally allege that, during the putative class
period, the defendants made false or misleading public statements and engaged
in improper accounting practices, which caused the price of the Company's
common stock to be artificially inflated. The class actions assert that the
defendants' conduct violated Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934, and SEC Rule 10b-5 promulgated thereunder, as well as
state common law. The class actions do not specify an amount of damages. In
June and July 1997, the U.S. District Court for the District of New Jersey
entered orders consolidating all of the pending class actions with the Einhorn
case. In August 1997, the court entered an order establishing a master docket
for the consolidated class actions, In re USA Detergents, Inc. Securities
Litigation, Master File No. 97-CV-2459 (MTB), and appointed lead plaintiffs
and lead plaintiffs' co-lead counsel. Lead plaintiffs will file a consolidated
amended class action complaint within thirty days after the Company issues its
restated financial statements. The Company intends to defend this action
vigorously. An unfavorable
25
<PAGE>
outcome in the litigation could have a material adverse effect on the
Company's financial condition and results of operations.
During the three months ended June 30, 1997, the Company exercised
its purchase option, by the cancellation of a $2,250,000 promissory note, to
acquire a powder plant facility located in Chicago. Pursuant to the terms of a
supply contract, this plant previously provided the Company with the
facility's entire powder production output on an exclusive basis.
On September 12, 1997, the Company became aware of a claim by the
North Brunswick Water Company ("NBWC") covering, among other things, unpaid
water and sewer charges aggregating approximately $5,000,000. On October 20,
1997, the Company commenced an action in the Superior Court of New Jersey,
Chancery Division, Middlesex County, challenging NBWC's claim and requesting
injunctive relief to prevent NBWC from taking any steps to discontinue service
pending the resolution of the claim. Pursuant to a Consent Order dated
October 21, 1997, the Company agreed to pay $535,000 to NBWC, subject to
refund, pending the resolution of the matter. Through October 21, 1997,
$279,627 of this amount has been paid. Based on a preliminary assessment,
made by independent counsel for the Company, of the underlying basis for
NBWC's claim, management believes that the Company's obligation, if any, to
NBWC will not have a significant impact on the Company's results of operations
or financial position beyond amounts already provided.
26
<PAGE>
On October 16, 1997, the Company signed a letter of intent setting
forth the terms of a proposed sale and leaseback by the Company of its
Harrisonville, Missouri plant and North Brunswick distribution facility. The
aggregate purchase price for the facilities is specified to be $23,200,000 and
the initial lease term is expected to be 20 years followed by two five year
renewal options. The initial annual aggregate fixed rentals will approximate
$2,600,000 and will be subject to escalation in the fifth year and every
fourth year thereafter based on increases in the Consumer Price Index capped
at 2.25% per year for the first eight years and 3% per year thereafter. The
completion of this transaction is subject to, among other things, the
finalization of a definitive binding agreement between the Company and the
purchaser. There can be no assurance that this transaction will ultimately be
completed. Should the transaction be completed, the lease will be accounted
for as a financing lease.
During the six months ended June 30, 1997, the Company obtained
proceeds approximating $258,000 from the exercise of 42,459 stock options.
At June 30, 1997, the Company's working capital deficiency was $26.4
million compared to restated working capital of $6.4 million at December 31,
1996. The decrease in working capital was primarily attributable to operating
losses adjusted for, among other things, an increase in accounts payable and
accrued expenses of $19.2 million, a decrease in inventory of $8.3 million,
an increase in bank debt of $5.6 million, a decrease in cash of $2.1 million
and an increase in net accounts receivable of $1.6 million and an increase in
refundable income taxes of $3.7 million.
27
<PAGE>
Net cash provided by/ (used in) operating activities for the first
six months of 1997 was $6.7 million compared to ($6.2) million for the
comparable period of 1996. The increase in cash provided by operating
activities resulted primarily from operating losses of $20.2 million offset
by a decrease in inventory of $8.3 million, an increase in accounts payable
and accrued expenses of $19.2 million, an increase in accounts receivable
of $1.5 million, an increase in refundable income taxes of $3.7 million and
depreciation of $2.3 million and an increase in provisions for customer
allowances and doubtful accounts of $2.5 million.
Net cash used in investing activities for the six months ended June
30, 1997 was $17.4 million relating primarily to the acquisition of a
distribution center, the acquisition of a powder production facility and
production equipment. The Company anticipates that capital expenditures for
the balance of 1997 will be between $6 million and $8 million, which includes
expenditures to upgrade the Company's North Brunswick, New Jersey
distribution facility, enhance the Company's information systems and limited
expenditures associated with the Company's other manufacturing and
distribution capabilities.
Net cash provided by financing activities for the first six months
of 1997 was $8.6 million compared to $10 million for the comparable period
of 1996. the increase in each provided by financing activities resulted
primarily from a net increase in bank debt of $5.6 million, cancellation
of notes receivable of $2.3 million, related to the acquisition of a powder
plant facility located in Chicago and an increase of $.6 million in
non-current liabilities related to the acquisition of management information
systems.
For the six months ended June 30, 1997, the Company has
experienced significant operating losses relating to, among other things, its
geographic expansion of its manufacturing and distribution facilities. In
addition, the Company has also experienced difficulty in meeting its liquidity
needs. The Company requires the availability of sufficient cash flow and
borrowing capacity to finance its operations, meet its debt service
obligations and fund future capital expenditure requirements. The Company's
operating plan for the remaining six months of 1997 includes continuing its
cost reduction programs. Such programs include the shut-down of the Company's
Edison candle facility,
28
<PAGE>
consolidation of candle manufacturing operations in North Brunswick, reduction
in temporary labor, automation of manufacturing facilities related to spray
products, production rationalization, increased use of high speed fillers and
cartoners and improved production planning and control. Management believes
that the corrective actions taken through June 30, 1997 and the ongoing cost
reduction programs currently in place, will have a positive impact on
operating results for the balance of 1997 and enable the Company to return
to profitability in the fourth quarter of 1997 or the first quarter of 1998.
Additionally, management is optimistic about its ability to reach a
satisfactory interim understanding with PNC and to ultimately replace the
PNC Facility and Bridge Loan with a permanent financing facility which will
more adequately support ongoing operations, debt service and capital
expenditure requirements. There can be no assurance that the Company will
be successful in these efforts.
INFLATION
The Company does not believe that the relatively moderate rates of
inflation which recently have been experienced in the United States have had a
significant effect on net sales or profitability.
NEW ACCOUNTING PRINCIPLE
The Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 128, "Earnings Per Share." This
pronouncement must be implemented for annual and interim periods ending after
December 15, 1997. SFAS No. 128 does not permit early application. When
implemented, SFAS No. 128 requires
29
<PAGE>
restatement of all prior period earnings per share data. SFAS No. 128 calls
for the calculation of basic earnings per share, which is calculated using
only weighted average shares outstanding during the period and does not
consider the assumed exercise of shares utilizing the treasury stock method.
In addition, SFAS No. 128 requires the disclosure of diluted earnings per
share. The historical effect of stock options has not been included in the
computation of earnings/(loss) per share as the impact was not material or
antidilutive. The Company believes that the adoption of SFAS No. 128 will not
have an impact on basic earnings per share as compared with previously
reported restated earnings per share amounts or have a material effect on
previously reported restated primary earnings per share as compared with
diluted earnings per share.
The Company's quarterly and annual operating results are affected by
a wide variety of factors that could materially and adversely affect revenues
and profitability, including competition from other suppliers of laundry and
household cleaning products; changes in consumer preferences and spending
habits; the inability to successfully manage growth; seasonality; the ability
to introduce and the timing of the introduction of new products; the inability
to obtain adequate supplies or materials at acceptable prices; and changes in
economic conditions. As a result of these and other factors, the Company may
experience material fluctuations in future operating results on a quarterly or
annual basis, which could materially and adversely affect its business,
financial condition, operating results, and stock price. Furthermore, this
document and other documents filed by the Company with the Securities and
Exchange Commission (the "SEC") contain certain forward looking statements
with respect to the business of the Company and the
30
<PAGE>
industry in which it operates. These forward-looking statements are subject to
certain risks and uncertainties, including those mentioned above, which may
cause actual results to differ significantly from these forward-looking
statements. An investment in the Company involves various risks, including
those mentioned above and those which are detailed from time to time in the
Company's SEC filings.
31
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings:
On May 5, 1997, a securities class action lawsuit entitled
Feldbaum v. USA Detergents, Inc. et al., No. 97-CV-3227, was
filed in the U.S. District Court for the Eastern District of
Pennsylvania against the Company and certain of its current
and former officers and directors; the Feldbaum case
subsequently was transferred to the U.S. District Court for
the District of New Jersey. On May 15, 1997, a second securities
class action lawsuit entitled Einhorn v. USA Detergents, Inc.
et al., No. 97-2459, was filed against the Company and certain
of its current and former officers and directors in the
U.S. District Court for the District of New Jersey. Since the
Einhorn lawsuit was filed, twelve additional securities class
action lawsuits have been filed in the U.S. District Court for
the District of New Jersey against the Company and certain of
its current and former officers and directors. The class actions
purport to be brought on behalf of all persons who purchased the
Company's common stock between June 5, 1996, at the earliest,
and May 8, 1997, at the latest (the "putative class period"). The
class actions generally allege that, during the putative class
period, the defendants made false or misleading public statements
and engaged in improper accounting practices, which caused the
price of the Company's common stock to be artificially inflated.
The class actions assert that the defendants' conduct violated
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934,
and SEC Rule 10b-5 promulgated thereunder, as well as state
common law. The class actions do not specify an amount of
damages. In June and July 1997, the U.S. District Court for
the District of New Jersey entered orders consolidating all of
the pending class actions with the Einhorn case. In August 1997,
the court entered an order establishing a master docket for the
consolidated class actions, In re USA Detergents, Inc. Securities
Litigation, Master File No. 97-CV-2459 (MTB), and appointed lead
plaintiffs and lead plaintiffs' co-lead counsel. Lead plaintiffs
will file a consolidated amended class action complaint within
thirty days after the Company issues its restated financial
statements. The Company intends to defend this action vigorously.
An unfavorable outcome in the litigation could have a material
adverse effect on the Company's financial condition and results
of operations.
Item 2. Changes in Securities:
None
Item 3. Defaults Upon Senior Securities:
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.15 Letter Agreement, dated May 5, 1997, between the Company and
Harold J. Macsata
10.16 Letter Agreement, dated April 14, 1997, between the Company
and Mark Antebi.
10.17 Letter Agreement, dated April 14, 1997, between the Company
and Joseph Cohen.
10.18 Employment Agreement, dated March 26, 1997, between the
Company and Richard D. Coslow
10.19 Employment Agreement, dated July 31, 1997, between the
Company and Giullo Perillo.
10.20 Stock Purchase Agreement, dated June 30, 1997, between the
Company, Big Cloud Powder Corporation and Chicago Contract Powder
Corporation.
27 Financial Data Schedule.
(b) The Company did not file any reports on Form 8-K during the
period covered by this Form 10-Q.
<PAGE>
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.
USA DETERGENTS, INC.
(Registrant)
October 31, 1997 /s/ Uri Evan
-----------------------
Uri Evan
Chairman and CEO
October 31, 1997 /s/ Giulio Perillo
-----------------------
Giulio Perillo
President
October 31, 1997 /s/ Richard D. Coslow
-------------------------
Richard D. Coslow
Chief Financial Officer
<PAGE>
USA Detergents, Inc.
1735 Jersey Avenue
North Brunswick, New Jersey 08902
May 5, 1997
Mr. Harold J. Macsata
2820 West Fox Chase Circle
Doylestown, PA
Re: Letter Agreement
Dear Hal:
This will constitute the agreement between you and USA Detergents,
Inc. (the "Company") regarding your resignation from employment from the
Company and retention as a consultant to the Company, both effective May 5,
1997.
1. You will be paid your salary, less lawful deductions, and accrued
vacation pay through the effective date of your resignation from employment.
2. In return for your general release and the other covenants and
agreements set forth below, the Company will voluntarily provide the following
aggregate consideration, which you acknowledge that, on the whole, you are not
otherwise entitled to receive under applicable law, Company policy, or pursuant
to any contractual agreement you may have with the Company:
(a) You will be a consultant to the Company for the period
beginning on the effective date of your resignation from employment and
ending on a date 180 days thereafter, or such earlier date as the Company
may determine at any time during such 180 day period (such 180 day or
shorter period is referred to in this letter agreement as the "Consulting
Term"), at an annualized rate equal to $125,000 per annum, payable in
bi-monthly installments, or, at the Company's election, in accordance with
the Company's normal salary payment policies for its employees generally.
You acknowledge that the Company will not withhold taxes on any amounts
paid to you as a consultant, except to the extent required by law, and that
you are responsible for any tax withholding, social security, unemployment
insurance and other similar payments not made by the Company on any such
amounts paid to you.
(b) You will, during the Consulting Period, be available as a
consultant to the Company for an average of thirty-seven and one-half
(37.5)
<PAGE>
hours per week at the Company's offices. It is understood that if
Consultant meets the average hours requirement contained in the preceding
sentence for the bi-weekly pay period referred to in paragraph (a) of this
Section 2, he will be paid his specified salary for such bi-monthly period
despite the occurrence of any holiday on which the Company's offices are
closed for business during such period. It is anticipated that you will be
working directly with, and providing consulting services and assistance to,
Richard Coslow, the present chief financial officer of the Company. You
will receive directions as to the scope of your assignment and tasks to be
performed from Mr. Coslow and, to the extent he or they so desire, from the
Company's Chairman and/or Board of Directors.
As a consultant, you acknowledge and agree that you are an independent
contractor and do not and will not have the power or authority to sign
contracts for or otherwise bind the Company without express written
authorization from an executive officer of the Company; nor will you hold
yourself out as an officer or employee of the Company.
(c) Except as otherwise provided herein, you will continue to be
covered by the Company's group health insurance through the Severance
Period (as defined herein) at the Company's expense. After the Severance
Period has ended, you may elect to continue your health insurance coverage
at your own expense for the period allowed under applicable law, and will
be provided information regarding your option to do so by separate letter.
(d) You shall no longer be entitled to participate in the
Company's profit sharing plan (i.e., the "OGM Plan"), and you acknowledge
that no sum is owed or may hereafter be owed to you under the OGM Plan in
connection with your employment by the Company up to the date hereof.
(e) If, and only to the extent, that you have satisfactorily
provided, in the sole reasonable discretion of the Company, the consulting
services required pursuant to the terms hereof during the Consulting
Period, you will be entitled to continued vesting of all options granted to
you under the Company's 1995 Stock Option Plan (the "Plan") through March 1
1999, in accordance with the option vesting schedule set forth in your
option agreements with the Company (the "Option Agreements").
Notwithstanding any provision to the contrary contained in the Plan, the
Option Agreements or any agreement made under the Plan or the Option
Agreements, all options granted to you must be exercised within six months
from the date such options vest (including any automatic vesting in
accordance with Section 8 of the Option Agreements) or, as to options which
have vested prior to May 5, 1997, on or before November 5, 1997, in all
instances unless otherwise agreed to in writing by the Company. You
understand that an exercise of any stock option subsequent to three months
after the effective date of your resignation from employment with the
Company will not be treated as an exercise of an incentive stock option,
notwithstanding your status as a consultant to the Company.
<PAGE>
(f) If, and only to the extent, that you have satisfactorily
provided, in the sole reasonable discretion of the Company, the consulting
services required pursuant to the terms hereof during the Consulting
Period, the Company shall pay to you a severance payment in the amount of
$62,500, less all lawful deductions, payable in equal bi-monthly
installments (or, at the Company's election, in accordance with the
Company's normal salary payment policies for its employees generally) over
a period of six months commencing on the date immediately succeeding the
last day of the Consulting Term (the "Severance Period").
(g) It is understood and agreed that you will be unable to
perform consulting services hereunder during the period from August 8 to
August 24 and that you will not receive any compensation pursuant to
paragraph (a) of this Section 2 during such period.
By entering into this letter agreement, you waive any claim to
reinstatement and/or future employment with the Company or any present or
future entity affiliated with the Company.
3. In consideration of the voluntary payment and aggregate
consideration offered above, you hereby agree to release and discharge each of
the Company, its affiliated entities and its or their respective officers,
directors employees, representatives, and agents, from any and all claims,
causes of action and demands of any kind, arising at law or in equity, whether
known or unknown, which you have, ever have had, and ever in the future may
have, against any of them, relating to or arising out of your employment
relationship with the Company (including out of your employment agreement with
the Company dated as of July 31, 1995 (the "Employment Agreement")) under any
contract, tort, federal, state or local fair employment practices or civil
rights law including, but not limited to, Title VII of the Civil Rights Act of
1964, as amended, the Americans with Disabilities Act, the Age Discrimination
in Employment Act, the Older Worker Benefits Protection Act, the Employee
Retirement Income Security Act of 1974, the New Jersey Law Against
Discrimination or any claim for physical or emotional distress or injuries, or
any other duty or obligation of any kind or description. This release shall
apply to all known, unknown, unsuspected and unanticipated claims, liens,
injuries and damages relating to or arising out of your employment relationship
with the Company including, but not limited to, claims of employment
discrimination, indemnity for discharge, or claims sounding in tort or in
contract, express or implied, as of the date of the execution of this
Agreement. You also agree not to initiate any legal action, charge or complaint
against the Company in any forum whatsoever to the extent that such legal
action, charge or complaint is based on events which took place prior to the
date of execution hereof or claims existing as of the date of execution hereof.
In the event any such actions, charges or complaints are asserted in the future
by or on behalf of you, a breach of this letter agreement shall be deemed to
have occurred, and the Company shall be entitled to the return of the
consideration set forth in this letter agreement, as well as the payment of all
attorneys'
<PAGE>
fees incurred by the Company in defending such action, charge or complaint,
together with any other remedies available to the Company at law or in equity.
4. You hereby reconfirm the obligations undertaken by you under
Sections 7 (confidential information) and 8 (two year covenant not to compete)
of your Employment Agreement. You further agree that neither you nor your
representatives will publicly or privately disparage or criticize the Company
or any of the Company's products, services, divisions, affiliates, related
companies or current or former officers, directors, trustees, employees,
agents, administrators, representatives or fiduciaries.
5. Except as set forth in this letter agreement, you acknowledge that
upon signing this letter agreement: (a) your Employment Agreement is hereby
terminated and of no further force and effect, and (b) all past, present or
future obligations of the Company, with respect to your salary, bonuses,
vacation, leave and other benefits have been satisfied and fulfilled, and that
the Company has no further obligations with respect thereto.
6. You agree to cooperate with the Company in connection with any
threatened, actual or future litigation, administrative hearings or similar
matter involving the Company, whether administrative, civil or criminal in
nature, in which and to the extent your cooperation is deemed necessary by the
Company in its discretion. The Company agrees to reimburse you for all
out-of-pocket disbursements incurred by you in connection with your travel
needed for such cooperation.
7. You hereby agree to indemnify and hold harmless the Company, its
affiliated entities and its or their respective officers, directors, employees,
representatives and agents, against and in respect of any and all damages,
losses, liabilities, obligations, costs and expenses (including reasonable
attorneys' fees) that the Company or any such other person may suffer or incur
as a result of a breach of any of your obligations set forth herein. You hereby
acknowledge that in the event of a breach or threatened breach by you of the
provisions of this letter agreement, the Company would suffer irreparable harm
for which there would be no adequate remedy at law. Accordingly, you agree that
in such event, in addition to any other remedies which the Company may have in
law or in equity for money damages or other relief, the Company shall be
entitled to temporary and/or injunctive relief, without the necessity of
proving damages, to enforce the provisions hereof.
8. You hereby acknowledge that you have been provided an opportunity
to consult with an attorney or other advisor of your choice regarding the terms
of this letter agreement, that you have been given twenty-one (21) days in
which to consider whether you wish to enter into this letter agreement, and
that you have elected to enter into this letter agreement knowingly and
voluntarily. You further acknowledge that you may revoke your assent to this
letter agreement within seven (7) days of its execution by you. If you wish to
revoke your agreement, your written notice of revocation must be received
within the seven (7) day revocation period by the Company (attention: Frederick
J. Horowitz) at its address. The voluntary payments
<PAGE>
and consideration to be provided by the Company pursuant to paragraph 2 hereof
will be made and/or given if you do not revoke this letter agreement prior to
the expiration of the revocation period.
9. Notwithstanding any other provision contained herein, the
obligations assumed by the Company under this letter agreement shall be
conditioned upon its receipt of an executed duplicate original of this letter
agreement and complete adherence to its terms by you.
10. This letter agreement shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to its
conflicts of laws provisions.
11. If any of the provisions, terms, clauses, or waivers or releases
of claims or rights contained in this letter agreement is declared illegal,
unenforceable, or ineffective in a legal forum, such provisions, terms,
clauses, waivers, releases or claims or rights shall be deemed severable, such
that all other provisions, terms, clauses, waivers, releases of claims and
rights contained in this letter agreement shall remain valid and binding upon
both parties.
12. The failure of the Company to insist upon strict adherence to any
term of this letter agreement on any occasion shall not be considered a waiver
thereof or deprive it of the right thereafter to insist upon strict adherence
to that term or any other term of this letter agreement.
13. This letter agreement may not be changed except by a writing
signed by you and an authorized management representative of the Company.
If you agree to the foregoing terms, please sign and return to us the
enclosed copy of this letter, which will then be a binding agreement between
us.
Very truly yours,
USA DETERGENTS, INC.
By: /s/ Uri Evan
--------------------------
Uri Evan
Chairman of the Board
Agreed to as of May 5, 1997
/s/ Harold J. Macsata
- ----------------------------------
Harold J. Macsata
<PAGE>
April 14, 1997
Mr. Mark Antebi
1435 East 9th Street
Brooklyn, New York 11230
Dear Mark:
This will constitute the agreement between you and USA Detergents,
Inc. (the "Company") regarding your resignation as a Director and officer of
the Company and of your employment with the Company, and your retention as a
consultant to the Company, all effective as of April 14, 1997.
1. You will be paid your salary, less lawful deductions, and accrued
vacation pay through the effective date of your resignation from employment.
2. In return for your general release and the other covenants set
forth below, the Company will voluntarily provide the following consideration,
which you acknowledge that you are not otherwise entitled to receive under
either applicable law, Company policy, or pursuant to any contractual agreement
you may have with the Company:
a. You will be a consultant to the Company for the period
beginning on the effective date of your resignation from employment
and ending on June 13, 1998 at an annualized rate equal to $125,000
per annum, payable in bi-monthly installments or, at the Company's
option, in accordance with the Company's normal salary payment
policies for its employees generally. You acknowledge that the Company
will not withhold taxes on any amounts paid to you as a consultant,
except to the extent required by law, and that you are responsible for
any tax withholding, social security, unemployment insurance and other
similar payments not made by the Company on any such amounts paid to
you. You shall not be entitled to any other compensation, including
the payment of any bonuses or participation in any bonus plan of the
Company, for providing the consulting services required under the
terms of this letter agreement.
<PAGE>
b. You will be available during normal business hours to provide
such consultation services and at such times as may be requested by
the Board of Directors and/or the Chairman of the Board of Directors
of the Company from time to time during such consulting period. As a
consultant, you acknowledge and agree that you are an independent
contractor and do not and will not have the power or authority to sign
contracts for or otherwise bind the Company without express written
authorization from an executive officer of the Company; nor will you
hold yourself out as an officer or employee of the Company.
c. Except as otherwise provided herein, you will continue to be
covered by the Company's group health insurance through June 13, 1998,
at the Company's expense. After June 13, 1998, you may elect to
continue your health insurance coverage at your own expense for the
period allowed under applicable law, and will be provided information
regarding your option to do so by separate letter. If you become
eligible for group health coverage with another employer before June
13, 1998, you will promptly notify the Company to enable it to cease
coverage for you under the Company's plan.
3. By entering into this letter agreement, you waive any claim to
reinstatement and/or future employment with the Company or any present or
future entity affiliated with the Company.
4. In consideration of the voluntary payment offered above, you hereby
agree to release and discharge each of the Company, its affiliated entities and
its or their respective officers, directors employees, representatives, and
agents, from any and all claims, causes of action and demands of any kind,
arising at law or in equity, whether known or unknown, which you have, ever
have had, and ever in the future may have, against any of them, relating to or
arising out of the termination of your employment relationship with the Company
(including out of the termination of your employment agreement with the Company
dated as of June 13, 1995 (the "Employment Agreement")) under any contract,
tort, federal, state or local fair employment practices or civil rights law
including, but not limited to, Title VII of the Civil Rights Act of 1964, as
amended, the Americans with Disabilities Act, the Age Discrimination in
Employment Act, the Older Worker Benefits Protection Act, the Employee
Retirement Income Security Act of 1974, the New Jersey Law Against
Discrimination or any claim for physical or emotional distress or injuries, or
any other duty or obligation of any kind or description. This release shall
apply to all known, unknown, unsuspected and unanticipated claims, liens,
injuries and damages relating to or arising out of the termination of your
employment relationship with the Company, including, but not limited to, claims
of employment discrimination, indemnity for discharge, or claims sounding in
tort or in contract, express or implied, as of the date of the execution of
this letter agreement. You also agree not to initiate any legal action, charge
or complaint against the Company in any forum whatsoever to the extent that
such legal action, charge or complaint is based on events which took place
prior to the date of execution hereof or claims existing as of the date of
execution hereof. In the event any such actions, charges or complaints are
asserted in the future by or on behalf of you, a breach of this letter
agreement shall be deemed to have
-2-
<PAGE>
occurred, entitling the Company to the return of the consideration set forth in
this letter agreement, as well as the attorneys' fees incurred by the Company
in defending such action, charge or complaint.
5. You hereby reconfirm the obligations undertaken by you under
Sections 7 (confidential information) and 8 (two year covenant not to compete)
of your Employment Agreement. You further agree that neither you nor your
representatives will publicly or privately disparage or criticize the Company
or any of the Company's products, services, divisions, affiliates, related
companies or current or former officers, directors, trustees, employees,
agents, administrators, representatives or fiduciaries.
6. Except as set forth in this letter agreement, you acknowledge that
upon signing this letter agreement, (a) your Employment Agreement is hereby
terminated and of no further force and effect as of the date set forth herein
and (b) all past, present or future obligations of the Company, with respect to
your salary, bonuses, vacation, leave and other benefits have been totally
satisfied and fulfilled, and that the Company has no further obligations with
respect thereto.
7. You agree to cooperate with the Company in connection with any
threatened, actual or future litigation, administrative hearings or similar
matter involving the Company, whether administrative, civil or criminal in
nature, in which and to the extent your cooperation is deemed necessary by the
Company in its discretion. The Company agrees it will reimburse you for all
out-of-pocket disbursements incurred by you in connection with your travel
needed for such cooperation.
8. You hereby agree to indemnify and hold harmless the Company, its
affiliated entities and its or their respective officers, directors, employees,
representatives and agents, and the Company hereby agrees to indemnify you, in
both such instances, against and in respect of any and all damages, losses,
liabilities, obligations, costs and expenses (including reasonable attorneys'
fees) that any such parties may suffer or incur as a result of a breach of any
of the obligations set forth herein on the part of the other party. You and the
Company each hereby acknowledge that in the event of a breach or threatened
breach by the other party (in such capacity, the "breaching party") of the
provisions of this letter agreement, the non-breaching party would suffer
irreparable harm for which there would be no adequate remedy at law.
Accordingly, you agree that in such event, in addition to any other remedies
which the non-breaching party may have in law or in equity for money damages
or other relief, the non-breaching party shall be entitled to temporary and/or
injunctive relief, without the necessity of proving damages, to enforce the
provisions hereof.
9. You hereby acknowledge that you have been provided an opportunity
to consult with an attorney or other advisor of your choice regarding the terms
of this letter agreement, that you have been given twenty-one (21) days in
which to consider whether you wish to enter into this letter agreement, and
that you have elected to enter into this letter agreement knowingly
-3-
<PAGE>
and voluntarily. You further acknowledge that you may revoke your assent to
this letter agreement within seven (7) days of its execution by you. If you
wish to revoke your agreement, your written notice of revocation must be
received within the seven (7) day revocation period by the Company (attention:
Frederick J. Horowitz) at its address. The voluntary payments and consideration
to be provided by the Company pursuant to paragraph 2 hereof will be made
and/or given if you do not revoke this letter agreement prior to the expiration
of the revocation period.
10. You hereby acknowledge that you are not resigning your position as
a Director or officer of the Company (i) due to any disagreement with the
Company on any matter relating to the Company's operations, policies or
practices or (ii) due to any fact or circumstance, not generally known to the
public, that might have a material adverse effect on the condition (financial
or otherwise), earnings, operations, business or business prospects of the
Company or which, in your opinion, would materially adversely affect the price
of the Company's common stock.
11. Notwithstanding any other provision contained herein, the
obligations assumed by the Company under this letter agreement shall be
conditioned upon its receipt of an executed duplicate original of this letter
agreement and complete adherence to its terms by you.
12. This letter agreement shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to its
conflicts of laws provisions.
13. If any of the provisions, terms, clauses, or waivers or releases
of claims or rights contained in this letter agreement is declared illegal,
unenforceable, or ineffective in a legal forum, such provisions, terms,
clauses, waivers, releases or claims or rights shall be deemed severable, such
that all other provisions, terms, clauses, waivers, releases of claims and
rights contained in this letter agreement shall remain valid and binding upon
both parties.
14. The failure of the Company to insist upon strict adherence to any
term of this letter agreement on any occasion shall not be considered a waiver
thereof or deprive it of the right thereafter to insist upon strict adherence
to that term or any other term of this letter agreement.
15. This letter agreement may not be changed except by a writing
signed by you and an authorized management representative of the Company.
-4-
<PAGE>
If you agree to the foregoing terms, please sign and return to us the
enclosed copy of this letter, which will then be a binding agreement between
us.
Very truly yours,
USA DETERGENTS, INC.
By: /s/ Uri Evan
---------------------------
Uri Evan
Chairman of the Board and
Chief Executive Officer
Agreed to as of April 14, 1997
/s/ Mark Antebi
- ------------------------------------
MARK ANTEBI
-5-
<PAGE>
April 14, 1997
Mr. Joseph S. Cohen
1585 East 10th Street
Brooklyn, New York 11230
Dear Joey:
This will constitute the agreement between you and USA Detergents,
Inc. (the "Company") regarding your resignation as a Director and officer of
the Company and of your employment with the Company, and your retention as a
consultant to the Company, all effective as of April 14, 1997.
1. You will be paid your salary, less lawful deductions, and accrued
vacation pay through the effective date of your resignation from employment.
2. In return for your general release and the other covenants set
forth below, the Company will voluntarily provide the following consideration,
which you acknowledge that you are not otherwise entitled to receive under
either applicable law, Company policy, or pursuant to any contractual agreement
you may have with the Company:
a. You will be a consultant to the Company for the period
beginning on the effective date of your resignation from employment
and ending on June 13, 1998 at an annualized rate equal to $125,000
per annum, payable in bi-monthly installments or, at the Company's
option, in accordance with the Company's normal salary payment
policies for its employees generally. You acknowledge that the Company
will not withhold taxes on any amounts paid to you as a consultant,
except to the extent required by law, and that you are responsible for
any tax withholding, social security, unemployment insurance and other
similar payments not made by the Company on any such amounts paid to
you. You shall not be entitled to any other compensation, including
the payment of any
<PAGE>
bonuses or participation in any bonus plan of the Company, for
providing the consulting services required under the terms of this
letter agreement.
b. You will be available during normal business hours to provide
such consultation services and at such times as may be requested by
the Board of Directors and/or the Chairman of the Board of Directors
of the Company from time to time during such consulting period. As a
consultant, you acknowledge and agree that you are an independent
contractor and do not and will not have the power or authority to sign
contracts for or otherwise bind the Company without express written
authorization from an executive officer of the Company; nor will you
hold yourself out as an officer or employee of the Company.
c. Except as otherwise provided herein, you will continue to be
covered by the Company's group health insurance through June 13, 1998,
at the Company's expense. After June 13, 1998, you may elect to
continue your health insurance coverage at your own expense for the
period allowed under applicable law, and will be provided information
regarding your option to do so by separate letter. If you become
eligible for group health coverage with another employer before June
13, 1998, you will promptly notify the Company to enable it to cease
coverage for you under the Company's plan.
3. By entering into this letter agreement, you waive any claim to
reinstatement and/or future employment with the Company or any present or
future entity affiliated with the Company.
4. In consideration of the voluntary payment offered above, you hereby
agree to release and discharge each of the Company, its affiliated entities and
its or their respective officers, directors employees, representatives, and
agents, from any and all claims, causes of action and demands of any kind,
arising at law or in equity, whether known or unknown, which you have, ever
have had, and ever in the future may have, against any of them, relating to or
arising out of the termination of your employment relationship with the Company
(including out of the termination of your employment agreement with the Company
dated as of June 13, 1995 (the "Employment Agreement")) under any contract,
tort, federal, state or local fair employment practices or civil rights law
including, but not limited to, Title VII of the Civil Rights Act of 1964, as
amended, the Americans with Disabilities Act, the Age Discrimination in
Employment Act, the Older Worker Benefits Protection Act, the Employee
Retirement Income Security Act of 1974, the New Jersey Law Against
Discrimination or any claim for physical or emotional distress or injuries, or
any other duty or obligation of any kind or description. This release shall
apply to all known, unknown, unsuspected and unanticipated claims, liens,
injuries and damages relating to or arising out of the termination of your
employment relationship with the Company, including, but not limited to, claims
of employment discrimination, indemnity for discharge, or claims sounding in
tort or in contract, express or implied, as of the date of the execution of
this letter agreement. You also agree not to initiate any legal action, charge
or complaint against the Company in any forum whatsoever to the extent that
such legal action, charge or complaint is based on events which took place
prior to the date of execution hereof or claims existing as of
-2-
<PAGE>
the date of execution hereof. In the event any such actions, charges or
complaints are asserted in the future by or on behalf of you, a breach of this
letter agreement shall be deemed to have occurred, entitling the Company to the
return of the consideration set forth in this letter agreement, as well as the
attorneys' fees incurred by the Company in defending such action, charge or
complaint.
5. You hereby reconfirm the obligations undertaken by you under
Sections 7 (confidential information) and 8 (two year covenant not to compete)
of your Employment Agreement. You further agree that neither you nor your
representatives will publicly or privately disparage or criticize the Company
or any of the Company's products, services, divisions, affiliates, related
companies or current or former officers, directors, trustees, employees,
agents, administrators, representatives or fiduciaries.
6. Except as set forth in this letter agreement, you acknowledge that
upon signing this letter agreement, (a) your Employment Agreement is hereby
terminated and of no further force and effect as of the date set forth herein
and (b) all past, present or future obligations of the Company, with respect to
your salary, bonuses, vacation, leave and other benefits have been totally
satisfied and fulfilled, and that the Company has no further obligations with
respect thereto.
7. You agree to cooperate with the Company in connection with any
threatened, actual or future litigation, administrative hearings or similar
matter involving the Company, whether administrative, civil or criminal in
nature, in which and to the extent your cooperation is deemed necessary by the
Company in its discretion. The Company agrees it will reimburse you for all
out-of-pocket disbursements incurred by you in connection with your travel
needed for such cooperation.
8. You hereby agree to indemnify and hold harmless the Company, its
affiliated entities and its or their respective officers, directors, employees,
representatives and agents, and the Company hereby agrees to indemnify you, in
both such instances, against and in respect of any and all damages, losses,
liabilities, obligations, costs and expenses (including reasonable attorneys'
fees) that any such parties may suffer or incur as a result of a breach of any
of the obligations set forth herein on the part of the other party. You and the
Company each hereby acknowledge that in the event of a breach or threatened
breach by the other party (in such capacity, the "breaching party") of the
provisions of this letter agreement, the non-breaching party would suffer
irreparable harm for which there would be no adequate remedy at law.
Accordingly, you agree that in such event, in addition to any other remedies
which the non-breaching party may have in law or in equity for money damages
or other relief, the non-breaching party shall be entitled to temporary and/or
injunctive relief, without the necessity of proving damages, to enforce the
provisions hereof.
9. You hereby acknowledge that you have been provided an opportunity
to consult with an attorney or other advisor of your choice regarding the terms
of this letter agreement, that you have been given twenty-one (21) days in
which to consider whether you wish to enter
-3-
<PAGE>
into this letter agreement, and that you have elected to enter into this letter
agreement knowingly and voluntarily. You further acknowledge that you may
revoke your assent to this letter agreement within seven (7) days of its
execution by you. If you wish to revoke your agreement, your written notice of
revocation must be received within the seven (7) day revocation period by the
Company (attention: Frederick J. Horowitz) at its address. The voluntary
payments and consideration to be provided by the Company pursuant to paragraph
2 hereof will be made and/or given if you do not revoke this letter agreement
prior to the expiration of the revocation period.
10. You hereby acknowledge that you are not resigning your position as
a Director or officer of the Company (i) due to any disagreement with the
Company on any matter relating to the Company's operations, policies or
practices or (ii) due to any fact or circumstance, not generally known to the
public, that might have a material adverse effect on the condition (financial
or otherwise), earnings, operations, business or business prospects of the
Company or which, in your opinion, would materially adversely affect the price
of the Company's common stock.
11. Notwithstanding any other provision contained herein, the
obligations assumed by the Company under this letter agreement shall be
conditioned upon its receipt of an executed duplicate original of this letter
agreement and complete adherence to its terms by you.
12. This letter agreement shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to its
conflicts of laws provisions.
13. If any of the provisions, terms, clauses, or waivers or releases
of claims or rights contained in this letter agreement is declared illegal,
unenforceable, or ineffective in a legal forum, such provisions, terms,
clauses, waivers, releases or claims or rights shall be deemed severable, such
that all other provisions, terms, clauses, waivers, releases of claims and
rights contained in this letter agreement shall remain valid and binding upon
both parties.
14. The failure of the Company to insist upon strict adherence to any
term of this letter agreement on any occasion shall not be considered a waiver
thereof or deprive it of the right thereafter to insist upon strict adherence
to that term or any other term of this letter agreement.
15. This letter agreement may not be changed except by a writing
signed by you and an authorized management representative of the Company.
-4-
<PAGE>
If you agree to the foregoing terms, please sign and return to us the
enclosed copy of this letter, which will then be a binding agreement between
us.
Very truly yours,
USA DETERGENTS, INC.
By: /s/ Uri Evan
---------------------------
Uri Evan
Chairman of the Board and
Chief Executive Officer
Agreed to as of April 14, 1997
/s/ Joseph S. Cohen
- ----------------------------------
JOSEPH S. COHEN
-5-
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT made as of March 26, 1997, between USA Detergents, Inc., a
Delaware corporation with its principal office at 1735 Jersey Avenue, North
Brunswick, New Jersey 08902 (the "Company"), and Richard D. Coslow (the
"Executive"), residing at 16 Cavan Lane, Hazlet, New Jersey 07730.
WHEREAS, the parties desire to enter into this Agreement in order to
assure the Company of the services of the Executive and to set forth the duties
and compensation of the Executive, all upon the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises, representations and covenants contained herein, the parties hereto
agree as follows:
1. Duties. The Company shall employ the Executive, and the Executive
shall serve, as Senior Vice President and Chief Financial Officer of the
Company during the Employment Term (as hereinafter defined). During the
Employment Term, Executive shall perform such duties and functions as the
Company's Board of Directors, Chief Executive Officer or President shall from
time to time determine and Executive shall comply in the performance of his
duties with the policies, and be subject to the direction, of the Board of
Directors, the Chief Executive Officer and the President of the Company.
Except as may be expressly otherwise consented to in writing by the
Board of Directors or the Chief Executive Officer of the Company, Executive
covenants and
<PAGE>
agrees to and shall devote his full working time, attention and efforts toward
the performance of his duties and responsibilities hereunder. Executive shall
not, directly or indirectly, without the prior consent of the Company's Board
of Directors, as owner, partner, joint venturer, stockholder, employee,
corporate officer or director, engage or become financially interested in, or
be concerned with any other duties or pursuits which interfere with the
performance of his duties hereunder, or which even if non-interfering, may be
inimical or contrary to the best interests of the Company.
2. Term. The term of this Agreement and the term of employment (the
"Employment Term") of the Executive shall commence on April 14, 1997 and
continue for three years therefrom (the "Termination Date") unless sooner
terminated in accordance with the terms hereof; provided, however, that the
Termination Date shall be extended automatically for successive one year
periods unless either party hereto gives the other such party written notice of
its or his intention to terminate this Agreement thirty (30) days prior to the
Termination Date (or, if applicable, any extension of the Termination Date).
In the event the Company terminates this Agreement for any reason
other than cause (as defined in Section 5 hereof), or the permanent disability
(as defined in Section 6 hereof) or death of the Executive, the parties hereto
agree that damages to the Executive shall be difficult to ascertain in any such
event, but in order to limit the liability of the Company in any such event,
the Executive shall be entitled to receive as liquidated damages and not as a
penalty, and the Company shall pay to the Executive, the lesser of (i) the base
salary of the Executive for a period of six months from any such date of
termination or (ii) the entire amount of the base salary remaining due and
-2-
<PAGE>
payable from any such date of termination to the expiration of this Agreement,
in either such instance to be paid ratably over the remaining term of the
Agreement, provided, however, that if the Company terminates this Agreement for
any reason other than cause (as defined in Section 5 hereof), or the permanent
disability (as defined in Section 6 hereof) or death of the Executive, in any
such instance during the first year of the Employment Term, the parties hereto
agree the Executive shall be entitled to receive as liquidated damages and not
as a penalty, the base salary of the Executive for a period of twelve months
from any such date of termination, to be paid ratably over such twelve-month
period. Any amounts so paid to the Executive pursuant to the provisions of this
Section 2 shall be in lieu of any and all other payments due and owing to the
Executive under the terms of this Agreement or otherwise. In the event the
Company terminates this Agreement for cause (as defined in Section 5 hereof),
the Executive shall not be entitled to receive any further payment hereunder
other than for accrued but unpaid compensation.
3. Base Compensation.
a. Salary. In each of the three years of the Employment Term, the
Executive shall receive a base salary at the rate of $156,000 per annum as well
as such bonuses as may be authorized from time to time by the Board of
Directors. The Executive's compensation shall be payable in installments in
accordance with the Company's normal salary payment policies, and shall be
subject to such payroll deductions as are required by law or applicable
employee benefit programs.
b. Bonus. It is understood and agreed that the Company presently
has and expects, during the Term of this Agreement, to maintain a bonus
-3-
<PAGE>
program, pursuant to which certain employees of the Company receive a
percentage of the operating gross margin (the "OGM Plan") of the Company, to
the extent such operating gross margin exceeds ten percent. During the
Employment Term, the Executive shall be entitled to receive, on a per annum
basis, eight percent (8%) of the allocated OGM Plan amount.
c. Expenses. In addition to the base salary provided for in
Section 3(a) hereof, the Company shall reimburse the Executive, upon
presentation by the Executive of suitable documented expense accounts, for any
reasonable travel or other out-of-pocket business expenses incurred by the
Executive in rendering the services hereunder on behalf of the Company and
which are incurred pursuant to the Company's expense reimbursement policies.
The Executive shall comply with restrictions and shall keep records in
compliance with the Company's policy and procedures related to travel and
entertainment expenses.
d. Stock Option Plan. The Executive shall be entitled to
participate in the Company's 1995 Stock Option Plan (the "Plan"). Under the
Plan, the Executive shall receive an option (the "Option") to purchase 15,000
shares of the Company's common stock, $.01 par value per share (the "Common
Stock"), available for issuance under the Plan at an exercise price (the
"Exercise Price") equal to the per share price of the Common Stock on the
Nasdaq National Market on the date of the grant (or, if later, the first date
that the Executive is employed by the Company). Except as specifically provided
otherwise herein, the Option will become exercisable in accordance with the
following schedule based upon the period of the Executive's continuous
employment with the Company following the date hereof:
-4-
<PAGE>
Period Incremental Cumulative
of Continuous Percentage of Percentage of
Employment/ Option Option
Service Exercisable Exercisable
- ------- ----------- -----------
Less than 1 year 0% 0%
1 year 25% 25%
2 years 25% 50%
3 or more years 50% 100%
e. Vacations. The Executive shall be entitled to three weeks of
paid vacation in each calendar year, which vacation time shall vest on a
pro-rata basis during the calendar year. The Executive shall also be entitled
to the same standard paid holidays given by the Company to senior executives
generally, all as determined from time to time by the Board of Directors of the
Company or appropriate committee thereof. Vacation time shall not cumulate from
year to year.
f. Health and Disability Insurance. The Executive shall be
entitled to the same health and disability insurance given by the Company to
senior executives generally, all as determined from time to time by the Board
of Directors of the Company or appropriate committee thereof.
g. Parking Space. The Executive shall be entitled to a reserved
parking space in the parking lot customarily used by the Company's senior
executives generally.
4. Place of Performance. In connection with his employment by the
Company, the Executive shall be based at the principal executive offices of the
Company, presently located in the North Brunswick, New Jersey area, except for
travel required for Company business.
-5-
<PAGE>
5. Termination by the Company. The Company may terminate this
Agreement at any time, upon notice by the Company to the Executive, for cause
or for any other reason which would not constitute cause. Termination by the
Company for "cause" shall mean termination because of: (a) Executive's refusal
to perform, or continual neglect of, his duties or obligations hereunder (other
than breaches of the covenants set forth in Sections 1, 7 and 8 hereof which
events are governed by clause (f) below); (b) Executive's conviction (which,
through lapse of time or otherwise, is not subject to appeal) of any crime or
offense involving money or other property of the Company or any of its
subsidiaries or which constitutes a felony in the jurisdiction involved, (c)
Executive's performance of any act or his failure to act, for which if
Executive were prosecuted and convicted, a crime or offense involving money or
property of the Company or any of its subsidiaries, or which would constitute a
felony in the jurisdiction involved, would have occurred, (d) any attempt by
Executive to improperly secure any personal profit in connection with the
business of the Company or any of its subsidiaries, (e) chronic alcoholism or
drug addiction or (f) any breach by Executive of any of the terms of Section 1,
7 or 8 of this Agreement.
6. Death; Disability. If the Executive shall die or become
"permanently disabled" during the term of this Agreement, this Agreement and
all benefits hereunder shall terminate, except that such termination shall not
affect any vested rights which the Executive may have at the time of his death
pursuant to any insurance or other death benefit plans or arrangements of the
Company, which rights shall continue to be governed by the provisions of such
plans and agreements. For the purposes of this Agreement, the Executive shall
be deemed to be "permanently disabled"
-6-
<PAGE>
if, during the term hereof, because of ill health, physical or mental
disability, or for other causes beyond the Executive's control, the Executive
shall have been unable or unwilling, or shall have failed to perform his duties
hereunder for ninety (90) consecutive days or for a total period of one hundred
twenty (120) days in any twelve month period during the term of this Agreement,
whether consecutive or not. Notwithstanding anything to the contrary contained
herein, during any period that the Executive fails to perform his duties
hereunder as a result of his disability (but prior to the termination of this
Agreement as a result of such disability), (i) the Executive shall continue to
receive his full salary at the rate then in effect and all benefits provided
herein, provided that payments made to the Executive pursuant to this Section 6
shall be reduced by the sum of the amounts, if any, payable to the Executive at
or prior to the time of any such payment under any disability benefit plan or
program of, or provided by, the Company and (ii) the Company shall have the
right to hire any other individual or individuals to perform such duties and
functions as the Company shall desire, including those duties heretofore
performed by the Executive.
7. Protection of Confidential Information.
a. The Executive acknowledges that his employment by the Company
will, throughout the term of this Agreement, bring him in contact with many
confidential affairs of the Company not readily available to the public, and
plans for future developments. In recognition of the foregoing, the Executive
covenants and agrees that he will not, directly or indirectly, use or
intentionally disclose or permit to be known to anyone outside of the Company
any material confidential matters of the Company which are not otherwise in the
public domain, either during or for a period
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<PAGE>
of twelve months after the termination of his employment with the Company,
except with the Company's prior written consent or as required by court order,
law or subpoena, or other legal compulsion to disclose.
b. All information and documents relating to the Company shall be
the exclusive property of the Company and the Executive shall use commercially
reasonable best efforts to prevent any publication or disclosure thereof. Upon
termination of the Executive's employment with the Company, all documents,
records, reports, writings and other similar documents containing confidential
information, including copies thereof, then in the Executive's possession or
control shall be returned and left with the Company.
c. The Executive will execute the form of "USA Detergents, Inc.
Non-Disclosure and Non-Solicitation Agreement" in the form of Exhibit A hereto,
all the terms and provisions of which are incorporated herein as if fully set
forth herein.
8. Covenant Not To Compete.
a. The Executive agrees that during his employment by the Company
(which shall be deemed to include the period during which the Executive is
receiving any severance payments, as set forth in Section 2 hereof) and for the
twenty-four months immediately following the Employment Term (including any
extensions thereof, as provided herein), the Executive shall not either
directly or indirectly, whether by establishing a new business or by joining an
existing one, and whether as a principal, employee, stockholder, officer,
director, broker, agent, consultant, corporate officer, licensor or in any
other capacity, compete with the Company or become associated with a business
enterprise which competes with any business operation of
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<PAGE>
the Company, or any business operation of the Company planned prior to the
Executive's termination of employment, in the geographical areas in which the
Company is then doing or proposes to do business during such twenty-four month
period; provided, however, that if the Company terminates this Agreement
without cause (as defined in Section 5 hereof), Executive shall not be subject
to the provisions of this Section 8.
b. The Executive and the Company intend that this covenant not to
compete shall be construed as a series of separate covenants, one for each
county and each product line. If, in any judicial proceeding, a court shall
refuse to enforce any one or more of the separate covenants deemed included in
subsection (a) of this Section 8, then such unenforceable covenant shall be
deemed severed from this Agreement for the purposes of such judicial proceeding
to the extent necessary to permit the remaining separate covenants to be
enforced.
c. The Executive acknowledges that the Company conducts business
on a world-wide basis, that its sales and marketing prospects are for continued
expansion into world markets and that, therefore, the territorial and time
limitations set forth in this Section 8 are reasonable and properly required
for the adequate protection of the business of the Company and its
subsidiaries. In the event any such territorial or time limitation is deemed to
be unreasonable by a court of competent jurisdiction, the Executive agrees to
the reduction of the territorial or time limitation to the area or period which
such court deems reasonable.
d. The existence of any claim or cause of action by the Executive
against the Company shall not constitute a defense to the enforcement by the
Company
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<PAGE>
of the foregoing restrictive covenants, but such claim or cause of action shall
be litigated separately.
9. Successors; Binding Agreement. This Agreement and all rights of the
Executive hereunder shall inure to the benefit of, and shall be enforceable by,
the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amount would still be payable to him hereunder if he had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the Executive's devisee,
legatee or other designee or, if there be no such designee, to the Executive's
estate.
10. Notice. For the purposes of this Agreement, notices, demands and
all other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered against receipt therefor
or three days after being mailed by United States certified mail, return
receipt requested, postage prepaid, addressed as follows:
If to the Executive: Richard D. Coslow
16 Cavan Lane
Hazlet, New Jersey 07730
If to the Company: 1735 Jersey Avenue
North Brunswick, New Jersey 08902
Attention: Frederick J. Horowitz
With a copy to: Sheldon G. Nussbaum, Esq.
Fulbright & Jaworski L.L.P.
666 Fifth Avenue
New York, New York 10103
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<PAGE>
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notice of change of address shall
be effective only upon receipt.
11. Miscellaneous. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and such officers of the Company as may
be specifically designated by its Board of Directors. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
12. Validity. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
13. Entire Agreement. This Agreement sets forth the entire agreement
and understanding of the parties hereto in respect of the subject matter
contained herein, and supersedes all prior agreements, promises, covenants,
arrangements, communications, representations or warranties, whether oral or
written, by any officer, employee or representative of any party hereto or any
predecessor of any party hereto.
14. Non-Assignability. This Agreement is entered into in consideration
of the personal qualities of the Executive and may not be, nor may any right or
interest hereunder be, assigned by him without the prior written consent of
Company. It is expressly understood and agreed that this Agreement, and the
rights accruing and
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<PAGE>
obligations owed to the Company hereunder, and the obligations to be performed
by the Company hereunder, may be assigned by the Company to any of its
successors or assigns.
15. Equitable Relief. The Executive recognizes that the services to be
rendered by him hereunder are of a special, unique, extraordinary and
intellectual character involving skill of the highest order and giving them
peculiar value, the loss of which cannot be adequately compensated for in
damages. In the event of a breach of this Agreement by the Executive, the
Company shall be entitled to injunctive relief or any other legal or equitable
remedies. The remedies provided in this Agreement shall be deemed cumulative
and the exercise of one shall not preclude the exercise of any other remedy at
law or in equity for the same event or any other event.
16. Choice of Law. This Agreement is to be governed by and interpreted
under the laws of the State of Delaware without regard to its conflict of laws
principles.
17. Representations And Agreements of the Executive. (a) The Executive
represents and warrants that he is free to enter into this Agreement and to
perform the duties required hereunder, and that there are no employment
contracts or understandings, restrictive covenants or other restrictions,
whether written or oral, preventing the performance of his duties hereunder.
(b) The Executive agrees to submit to a medical examination and to
cooperate and supply such other information and documents as may be required by
any insurance company in connection with the Executives' inclusion in any
insurance or fringe benefit plan or program as the Company shall determine from
time to time to
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<PAGE>
obtain, or in connection with, in the Company's sole discretion, the Company's
obtaining life insurance for its benefit on the life of the Executive.
18. Survival. The termination of the Executive's employment hereunder
shall not affect the enforceability of Sections 2, 6, 7, 8, 15, 16 and 17
hereof.
19. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
20. HEADINGS. The Section headings appearing in this Agreement are for
the purposes of easy reference and shall not be considered a part of this
Agreement or in any way modify, demand or affect its provisions.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first-above written.
USA DETERGENTS, INC.
By: /s/ Uri Evan
---------------------------
EXECUTIVE
/s/ Richard D. Coslow
------------------------------
Richard D. Coslow
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EMPLOYMENT AGREEMENT
--------------------
AGREEMENT made this 31st day of July 1997, between USA Detergents,
Inc., a Delaware corporation with its principal office at 1735 Jersey Avenue,
North Brunswick, New Jersey 08902 (the "Company"), and Giulio Perillo (the
"Executive"), residing at 2085 Grantham Road, Berwyn, Pennsylvania 19312.
WHEREAS, the parties desire to enter into this Agreement in order to
assure the Company of the services of the Executive and to set forth the duties
and compensation of the Executive, all upon the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises, representations and covenants contained herein, the parties hereto
agree as follows:
1. Duties. The Company shall employ the Executive, and the Executive
shall serve, as President and Chief Operating Officer of the Company during the
Employment Term (as hereinafter defined). During the Employment Term, the
Executive shall perform such duties and functions as the Company's Board of
Directors or Chief Executive Officer shall from time to time determine and the
Executive shall comply in the performance of his duties with the policies, and
be subject to the direction, of the Board of Directors and the Chief Executive
Officer of the Company.
Except as may be expressly otherwise consented to in writing by the
Board of Directors or the Chief Executive Officer of the Company, the Executive
covenants and agrees to and shall devote his full working time, attention and
efforts toward the
<PAGE>
performance of his duties and responsibilities hereunder. The Executive shall
not, directly or indirectly, without the prior consent of the Company's Board
of Directors, as owner, partner, joint venturer, stockholder, employee,
consultant, corporate officer or director, engage or become financially
interested in, or be concerned with any other duties or pursuits which
interfere with the performance of his duties hereunder, or which even if
non-interfering, may be inimical or contrary to the best interests of the
Company.
2. Term.
a. The term of this Agreement and the term of employment (the
"Employment Term") of the Executive shall commence on August 4, 1997 and
continue for three years therefrom (the "Termination Date") unless sooner
terminated in accordance with the terms hereof; provided, however, that the
Termination Date (and, consequently, the Employment Term) shall be extended
automatically for successive one year periods unless either party hereto gives
the other such party written notice of its or his intention to terminate this
Agreement thirty (30) days prior to the Termination Date (or, if applicable,
any extension of the Termination Date).
b. In the event the Company terminates this Agreement for any
reason other than cause (as defined in Section 5 hereof), the permanent
disability (as defined in Section 6 hereof) of the Executive, or the death of
the Executive, the parties hereto agree that damages to the Executive shall be
difficult to ascertain in any such event, but in order to limit the liability
of the Company in any such event, the Executive shall be entitled to receive as
liquidated damages and not as a penalty, and the Company shall pay to the
Executive, the lesser of (i) the then effective base salary of the
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Executive, for a period of one year from any such date of termination or (ii)
the entire amount of the base salary remaining due and payable from any such
date of termination to the expiration of this Agreement, in either such
instance to be paid ratably over the remaining term of the Agreement; provided,
however, that (x) if such termination occurs during the 18 months following a
Change in Control of the Company (as defined in subparagraph (d) of this
Section 2), or (y) the Executive terminates this Agreement within 12 months of
the Change in Control of the Company as a result of a material change in the
Executive's position with the Company or a significant modification to the
Executive's working conditions or terms of employment with the Company, the
Executive shall be paid, in lieu of the amount referred to in the first part of
this first sentence of Section 2(b), an amount equal to the sum of (A) the then
effective annual base salary of the Executive PLUS (B) an amount equal to the
bonus, if any, paid by the Company to the Executive pursuant to Section 3
hereof for the Employment Term year immediately preceding the Employment Term
year in which such termination occurs. Any amounts so paid to the Executive
pursuant to the provisions of this Section 2(b) and, if applicable, Sections
2(c) and 3(d) hereof, shall be in lieu of any and all other payments due and
owing to the Executive under the terms of this Agreement or otherwise. In the
event that the Company terminates this Agreement for cause (as defined in
Section 5 hereof), the permanent disability of the Executive ( as defined in
Section 6 hereof) or the death of the Executive, or the Executive terminates
this Agreement for any reason other than for the reason (and during the time
period) set forth in the last proviso of the immediately preceding sentence,
the Executive shall not be entitled to receive any further payment hereunder
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<PAGE>
other than (i) for accrued but unpaid compensation and (ii), in the case of the
Executive's death, pursuant to the term life insurance policy expected to be
maintained by the Company in accordance with Section 3(h) hereof.
c. In addition to any compensation to which the Executive may be
entitled under subparagraph (b) of this Section 2 or under Section 3 hereof,
upon the consummation of a transaction or transactions constituting a Change in
Control of the Company in which the consideration paid to all stockholders of
the Company equals or exceeds $10 per share of the Company's common stock, $.01
par value per share (the "Common Stock"), the Executive shall be entitled to
receive an amount (hereinafter referred to as the "Change in Control Amount")
equal to the applicable dollar amount set forth in the following table:
Consideration Change in
Paid Per Share Control Amount
-------------- --------------
less than $10 0
$10 or more, but less than $12.50 $125,000
$12.50 or more, but less than $15 $250,000
$15 or more, but less than $17.50 $325,000
$17.50 or more, but less than $20 $500,000
$20 or more, but less than $22.50 $625,000
$22.50 or more, but less than $25 $700,000
$25 or more $1,000,000
For all purposes of this Section 2(c), the consideration per share of Common
Stock to be paid to the stockholders of the Company shall be appropriately
adjusted for any stock splits, stock dividends or similar recapitalization
events with respect to the Common Stock.
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<PAGE>
The "Change in Control Amount" shall be comprised of, (i) the amount
paid to the Executive pursuant to the provisions of Section 2(b) hereof, if
applicable, PLUS (ii) at the Company's sole discretion, either (a) the "dollar
value equivalent" of any Option Shares (as defined in Section 3(d) hereof)
which are then exercisable (including any Option Shares as to which the Company
accelerated the vesting schedule so that on or before the Change in Control of
the Company such Option Shares are exercisable) or (b) a cash payment, or (c)
any combination of either thereof. For purposes of computing the "Change in
Control Amount" received by the Executive, the "dollar value equivalent" of any
Option Shares shall be equal to the difference between (x) the consideration
per share paid to the Company's stockholders in connection with the Change in
Control of the Company and (y) the Exercise Price (as defined in Section 3(d)
below) of such Option Shares which are then exercisable (including any Option
Shares as to which the Company accelerated the vesting schedule so that on or
before the Change in Control of the Company such Option Shares are
exercisable).
For purposes of this Section 2(c), the term "consideration" means the
aggregate amount of cash and the value of securities or assets received by the
Company or its securityholders in the transaction or transactions constituting
a Change in Control of the Company. For purposes of computing the value of the
consideration, the value of securities and other property shall be determined
as follows:
(i) the value of securities (whether debt or equity) that
are traded on a national securities exchange shall be the last closing
price prior to the closing date of the Change in Control of the
Company;
(ii) the value of securities that the principal market for
which is over-the-counter (whether debt or equity) shall be the
arithmetic mean between the last bid and asked prices prior to the
closing date of the Change in Control of the Company;
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<PAGE>
(iii) the value of other securities, property and services
shall be the fair market value as of the closing date of the Change in
Control of the Company as determined by the Board of Directors of the
Company.
If any part of the consideration payable in the Change in Control of the
Company consists of contingent payments to be calculated by reference to
uncertain future occurrences, such as future financial or business performance,
then any amounts to be paid to the Executive relating to such contingent
payments shall be payable only upon receipt by the Company or its
securityholders of such contingent payments.
d. A "Change in Control of the Company" shall be deemed to occur
if (i) there shall be consummated (x) any consolidation or merger of the
Company in which the Company is not the continuing or surviving corporation or
pursuant to which shares of the Company's Common Stock, would be converted into
cash, securities or other property, other than a merger of the Company in which
the holders of the Common Stock immediately prior to the merger have the same
proportionate ownership of common stock of the surviving corporation
immediately after the merger, or (y) any sale, lease, exchange or other
transfer (in one transaction or a series of related transactions) of all, or
substantially all, of the assets of the Company, or (ii) the stockholders of
the Company shall approve any plan or proposal for liquidation or dissolution
of the Company, or (iii) any person (as such term is used in Section 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) who, at the time of the execution of this Agreement, does not own 5% or
more of the Company's outstanding Common Stock, shall become the beneficial
owner (within the meaning of Rule 13d-3 under the Exchange Act) of 40% or more
of the outstanding Common Stock other than pursuant to a plan or arrangement
entered into by such
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person and the Company, or (iv) during any period of two consecutive years
commencing on the date hereof, individuals who at the beginning of such period
constitute the entire Board of Directors shall cease for any reason to
constitute a majority thereof unless the election, or the nomination for
election by the Company's stockholders, of each new director was approved by a
vote of at least two-thirds of the directors then still in office who were
directors at the beginning of the period.
3. Base Compensation.
a. Salary. In each of the three years of the Employment Term, the
Executive shall receive a base salary at the rate of $190,0000 per annum as
well as such bonuses as may be authorized from time to time by the Board of
Directors. The Executive's salary shall be payable in installments in
accordance with the Company's normal salary payment policies, and shall be
subject to such payroll deductions as are required by law or applicable
employee benefit programs.
b. Bonus. The Company presently has a bonus program, pursuant to
which certain employees of the Company receive a percentage of the operating
gross margin (the "OGM Plan") of the Company, to the extent such operating
gross margin exceeds ten percent. It is understood and agreed that the Company,
in its sole discretion, may amend or terminate the OGM Plan or replace the OGM
Plan with an alternative bonus or other incentive program, and that the only
bonuses to which the Executive shall be entitled are those bonuses which may be
authorized by the Board of Directors under subparagraph (a) of this Section 3.
c. Expenses. In addition to the base salary provided for in
Section 3(a) hereof, the Company shall reimburse the Executive, upon
presentation by the
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Executive of suitable documented expense accounts, for any reasonable travel or
other out-of-pocket business expenses incurred by the Executive in rendering
the services hereunder on behalf of the Company and which are incurred pursuant
to the Company's expense reimbursement policies; provided, however, it is
understood and agreed that, in part as a result of the Executive's being
provided with an automobile allowance hereunder (Section 3(f)), the Executive
shall not be entitled to any reimbursement for his commuting expenses or other
related automotive expenses (e.g., gasoline, tolls, repairs, insurance,
depreciating value, etc.). The Executive shall comply with restrictions and
shall keep records in compliance with the Company's policy and procedures
related to travel and entertainment expenses, and as may be otherwise required
for tax or accounting purposes.
d. Stock Option Plan. The Executive shall be entitled to
participate in the Company's 1995 Stock Option Plan (the "Plan"). Under the
Plan, the Executive shall receive an option (the "Option") to purchase 90,000
shares of Common Stock (the "Option Shares"), available for issuance under the
Plan at an exercise price (the "Exercise Price") equal to the per share price
of the Common Stock on the Nasdaq National Market on the date of the grant (or,
if later, the first date that the Executive is employed by the Company). Except
as specifically provided otherwise herein, the Option will become exercisable
in accordance with the following schedule based upon the period of the
Executive's continuous employment with the Company following the date hereof:
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<PAGE>
Incremental Fraction Cumulative Fraction
Period of Continuous of Option of Option
Employment/Service Exercisable Exercisable
------------------ ----------- -----------
Less than 1 year 0 0
1 year 1/3 1/3
2 years 1/3 2/3
3 or more years 1/3 100%
; provided, however, that upon a Change in Control of the Company prior to the
first anniversary of the date hereof, the initial one-third (1/3) of the Option
(i.e., 30,000 shares) shall immediately vest and be exercisable in accordance
with the terms of the option agreement to be entered into between the Company
and the Executive, regardless of the Executive's continued employment with the
Company subsequent to such Change in Control of the Company.
e. Vacations. The Executive shall be entitled to up to four weeks
of paid vacation in each calendar year, which vacation time shall vest on a
pro-rata basis during the calendar year. The Executive shall also be entitled
to the same standard paid holidays given by the Company to senior executives
generally, all as determined from time to time by the Board of Directors of the
Company or an appropriate committee thereof. Vacation time shall not cumulate
from year to year.
f. Automobile. During the Employment Term, the Executive shall be
entitled to an automobile allowance of an aggregate of up to $10,000 per twelve
month period, to be paid on a monthly basis.
g. Health and Disability Insurance. The Executive shall be
entitled to the same health and disability insurance given by the Company to
senior executives
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<PAGE>
generally, all as determined from time to time by the Board of Directors of the
Company or an appropriate committee thereof.
h. Term Life Insurance. To the extent you are in good health and
can be insured in the normal course, the Company shall purchase and maintain a
term life insurance policy on the life of the Executive, in the amount of
$200,000, naming the individuals designated by the Executive as the
beneficiaries thereof.
4. Place of Performance. In connection with his employment by the
Company, and except for travel required for Company business, the Executive
shall be based at the principal executive offices of the Company, presently
located in the North Brunswick, New Jersey area or, from time to time, at the
discretion of the Company, at other locations utilized by the Company which are
located within 50 miles of the Company's present executive offices.
5. Termination by the Company. The Company may terminate this
Agreement at any time, upon notice by the Company to the Executive, for cause
or for any other reason which would not constitute cause. Termination by the
Company for "cause" shall mean termination because of: (a) Executive's refusal
to perform, or continual neglect of, his duties or obligations hereunder (other
than breaches of the covenants set forth in Sections 1, 7 and 8 hereof which
events are governed by clause (f) below); (b) Executive's conviction (which,
through lapse of time or otherwise, is not subject to appeal) of any crime or
offense involving money or other property of the Company or any of its
subsidiaries or which constitutes a felony in the jurisdiction involved, (c)
Executive's performance of any act or his failure to act, for which if
Executive were prosecuted and convicted, would constitute a crime or offense
involving
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<PAGE>
money or property of the Company or any of its subsidiaries, or which would
constitute a felony in the jurisdiction involved, (d) any attempt by Executive
to improperly secure any personal profit in connection with the business of the
Company or any of its subsidiaries, (e) chronic alcoholism or drug addiction or
(f) any breach by Executive of any of the terms of Section 1, 7 or 8 of this
Agreement.
6. Death; Disability. If the Executive shall die or become
"permanently disabled" during the term of this Agreement, this Agreement and
all benefits hereunder shall terminate, except that such termination shall not
affect any vested rights which the Executive may have at the time of his death
pursuant to any insurance or other death benefit plans or arrangements of the
Company, which rights shall continue to be governed by the provisions of such
plans and agreements. For the purposes of this Agreement, the Executive shall
be deemed to be "permanently disabled" if, during the term hereof, because of
ill health, physical or mental disability, or for other causes beyond the
Executive's control, the Executive shall have been unable or unwilling, or
shall have failed to perform his duties hereunder for ninety (90) consecutive
days or for a total period of one hundred twenty (120) days in any twelve month
period during the term of this Agreement, whether consecutive or not.
Notwithstanding anything to the contrary contained herein, during any period
that the Executive fails to perform his duties hereunder as a result of his
disability (but prior to the termination of this Agreement as a result of such
disability), (i) the Executive shall continue to receive his full salary at the
rate then in effect and all benefits provided herein, provided that payments
made to the Executive pursuant to this Section 6 shall be reduced by the sum of
the amounts, if any, payable to the Executive at or prior to the time of any
such
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<PAGE>
payment under any disability benefit plan or program of, or provided by, the
Company and (ii) the Company shall have the right to hire any other individual
or individuals to perform such duties and functions as the Company shall
desire, including those duties heretofore performed by the Executive.
7. Protection of Confidential Information.
a. The Executive acknowledges that his employment by the Company
will, throughout the term of this Agreement, bring him in contact with many
confidential affairs of the Company not readily available to the public, and
plans for future developments. In recognition of the foregoing, the Executive
covenants and agrees that he will not, directly or indirectly, use or
intentionally disclose or permit to be known to anyone outside of the Company
any confidential matters of the Company, except with the Company's prior
written consent or as required by court order, law or subpoena, or other legal
compulsion to disclose.
b. All information and documents relating to the Company shall be
the exclusive property of the Company and the Executive shall use commercially
reasonable best efforts to prevent any publication or disclosure thereof. Upon
termination of the Executive's employment with the Company, all documents,
records, reports, writings and other similar documents containing confidential
information, including copies thereof, then in the Executive's possession or
control shall be returned and left with the Company.
c. The Executive will execute the form of "USA Detergents, Inc.
Non-Disclosure and Non-Solicitation Agreement" in the form of Exhibit A hereto,
all the terms and provisions of which are incorporated herein as if fully set
forth herein.
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8. Covenant Not To Compete.
a. The Executive agrees that during his employment by the Company
(which shall be deemed to include the period during which the Executive is
receiving any severance payments, as set forth in Section 2 hereof) and for the
twenty-four months immediately following the Employment Term (including any
extensions thereof, as provided herein), the Executive shall not either
directly or indirectly, whether by establishing a new business or by joining an
existing one, and whether as a principal, employee, stockholder, officer,
director, broker, agent, consultant, corporate officer, licensor or in any
other capacity, compete with the Company or become associated with a business
enterprise which competes with any business operation of the Company, or any
business operation of the Company planned prior to the Executive's termination
of employment, in the geographical areas in which the Company is then doing or
proposes to do business during such twenty-four month period; provided,
however, that if the Company terminates this Agreement without cause (as
defined in Section 5 hereof), Executive shall not be subject to the provisions
of this Section 8.
b. The Executive and the Company intend that this covenant not to
compete shall be construed as a series of separate covenants, one for each
county and each product line. If, in any judicial proceeding, a court shall
refuse to enforce any one or more of the separate covenants deemed included in
subsection (a) of this Section 8, then such unenforceable covenant shall be
deemed severed from this Agreement for the purposes of such judicial proceeding
to the extent necessary to permit the remaining separate covenants to be
enforced.
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c. The Executive acknowledges that the Company conducts business
on a world-wide basis, that its sales and marketing prospects are for continued
expansion into world markets and that, therefore, the territorial and time
limitations set forth in this Section 8 are reasonable and properly required
for the adequate protection of the business of the Company and its
subsidiaries. In the event any such territorial or time limitation is deemed to
be unreasonable by a court of competent jurisdiction, the Executive agrees to
the reduction of the territorial or time limitation to the area or period which
such court deems reasonable.
d. The existence of any claim or cause of action by the Executive
against the Company shall not constitute a defense to the enforcement by the
Company of the foregoing restrictive covenants, but such claim or cause of
action shall be litigated separately.
9. Successors; Binding Agreement. This Agreement and all rights of the
Executive hereunder shall inure to the benefit of, and shall be enforceable by,
the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amount would still be payable to him hereunder if he had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the Executive's devisee,
legatee or other designee or, if there be no such designee, to the Executive's
estate.
10. Notice. For the purposes of this Agreement, notices, demands and
all other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered against receipt therefor
or three days
-14-
<PAGE>
after being mailed by United States certified mail, return receipt requested,
postage prepaid, addressed as follows:
If to the Executive: Giulio Perillo
2085 Grantham Road
Berwyn, Pennsylvania 19312
If to the Company: 1735 Jersey Avenue
North Brunswick, New Jersey 08902
Attention: Frederick J. Horowitz
With a copy to: Sheldon G. Nussbaum, Esq.
Fulbright & Jaworski L.L.P.
666 Fifth Avenue
New York, New York 10103
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notice of change of address shall
be effective only upon receipt.
11. Miscellaneous. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and such officers of the Company as may
be specifically designated by its Board of Directors. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
12. Validity. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
-15-
<PAGE>
13. Entire Agreement. This Agreement (together with the exhibit
attached hereto) sets forth the entire agreement and understanding of the
parties hereto in respect of the subject matter contained herein, and
supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto or any predecessor of
any party hereto.
14. Non-Assignability. This Agreement is entered into in consideration
of the personal qualities of the Executive and may not be, nor may any right or
interest hereunder be, assigned by him without the prior written consent of
Company. It is expressly understood and agreed that this Agreement, and the
rights accruing and obligations owed to the Company hereunder, and the
obligations to be performed by the Company hereunder, may be assigned by the
Company to any of its successors or assigns.
15. Equitable Relief. The Executive recognizes that the services to be
rendered by him hereunder are of a special, unique, extraordinary and
intellectual character involving skill of the highest order and giving them
peculiar value, the loss of which cannot be adequately compensated for in
damages. In the event of a breach of this Agreement by the Executive, the
Company shall be entitled to injunctive relief or any other legal or equitable
remedies. The remedies provided in this Agreement shall be deemed cumulative
and the exercise of one shall not preclude the exercise of any other remedy at
law or in equity for the same event or any other event.
16. Choice of Law. This Agreement is to be governed by and interpreted
under the laws of the State of Delaware without regard to its conflict of laws
principles.
-16-
<PAGE>
17. Representations And Agreements of the Executive. (a) The Executive
represents and warrants that he is free to enter into this Agreement and to
perform the duties required hereunder, and that there are no employment
contracts or understandings, restrictive covenants or other restrictions,
whether written or oral, preventing the performance of his duties hereunder.
(b) The Executive agrees to submit to a medical examination and to
cooperate and supply such other information and documents as may be required by
any insurance company in connection with the Executive's inclusion in any
insurance or fringe benefit plan or program as the Company shall determine from
time to time to obtain, or in connection with, in the Company's sole
discretion, the Company's obtaining life insurance for its benefit on the life
of the Executive.
18. Survival. The termination of the Executive's employment hereunder
shall not affect the enforceability of Sections 2, 3, 7, 8, 9, 15, 16 and 17
hereof.
19. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
20. Headings. The Section headings appearing in this Agreement are for
the purposes of easy reference and shall not be considered a part of this
Agreement or in any way modify, demand or affect its provisions.
-17-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first-above written.
USA DETERGENTS, INC.
By: /s/ Uri Evan
---------------------------
EXECUTIVE
/s/ Giulio Perillo
------------------------------
GIULIO PERILLO
-18-
<PAGE>
STOCK PURCHASE AGREEMENT
------------------------
Stock Purchase Agreement, dated as of the 30th day of June, 1997, by
and between Farhart Mohamad Gheith (hereinafter referred to as the "Seller")
and Big Cloud Powder Corporation (hereinafter referred to as the "Purchaser").
WHEREAS, the Purchaser desires to purchase from the Seller, and the
Seller desires to sell to the Purchaser, all of the outstanding capital stock
of Chicago Contract Powder Corporation (the "Company"), an Illinois
corporation;
WHEREAS, the Seller is the registered and beneficial owner of all of
the Company's capital stock which consists of 100 shares of common stock,
without par value, represented by Certificate No. 1 in the amount of one
hundred (100) shares (the "Shares");
WHEREAS, the Seller and the Company have entered into a letter
agreement, dated October 1995, with USA Detergents, Inc. ("USAD"), the parent
company of Purchaser (the "1995 Agreement"), pursuant to which Seller and the
Company promised to perform certain acts for the Purchaser, including
transferring the Shares to USAD or Big Cloud, at USAD's request;
WHEREAS, the Company issued a Non-Interest Bearing Promissory Note,
dated December 28, 1995, in favor of the Purchaser (the "Note"), which
provides, in part, that in the event Big Cloud or USAD exercises its rights
under Section (a)(iii)(1) of the 1995 Agreement, the Note will be deemed to be
paid in full; and
WHEREAS, the Seller pledged the Shares to secure payment of the Note
and performance under the 1995 Agreement pursuant to a Pledge and Assignment
Agreement, dated October 1995, between the Seller and the Purchaser (the
"Pledge Agreement").
NOW, THEREFORE, in consideration of the promises and mutual promises
herein contained, and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto hereby
agree as follows:
Section 1. Purchase and Sale. At the closing to be made hereunder (the
"Closing") and in consideration of the extinguishment of the pledge under the
terms of the Pledge Agreement, and the release from all other obligations,
including those under the 1995 Agreement, the Seller shall sell the Shares to
the Purchaser and, subject to the truth and accuracy of the representations and
the warranties contained in Section 2 hereof, the Purchaser shall purchase from
the Seller the Shares, at an aggregate purchase price of $10.00. The Closing
shall occur immediately upon the execution and delivery of this Purchase
Agreement, or at such later time as shall be agreed upon by Seller and the
Purchaser.
<PAGE>
Section 2. Representations and Warranties.
The Seller and the Company each, jointly and severally, represent as
follows:
2.1 Power and Authority. The Seller owns, and at the Closing will
own, the Shares, free and clear of any and all liens, claims, encumbrances and
security interests other than those created pursuant to the Pledge Agreement
and the 1995 Agreement, and has, and at the Closing will have, good, valid and
marketable title to such Shares, with full power and authority to sell,
transfer and deliver such Shares. Upon payment therefor as provided in this
Agreement, the Purchaser will acquire good, valid and marketable title to the
Shares, free and clear of any and all liens, claims, encumbrances and security
interests.
2.2 Execution. This Agreement has been duly executed by the
Seller and constitutes the legal, valid and binding obligation of the Seller,
enforceable against the Seller in accordance with its terms.
2.3 No Conflict; Consents. Neither the execution of this
Agreement by the Seller nor the consummation of the transaction contemplated
hereby will (a) conflict with, result in a breach or violation of, or
constitute a default under any statute, judgment, order, regulation or decree
or any instrument, contract, organizational document or other agreement to
which the Seller is a party or by which he is bound, or (b) require any Seller
to obtain any authorization, consent, approval or waiver from, or to make any
filing with, any public body or authority or to obtain the approval or consent
of any other person.
2.4 Brokers Fees. The Seller has not retained any broker or
finder in connection with the transactions contemplated by this Agreement, nor
does the Seller have any liability for any commission or compensation in the
nature of an agent's fee to any broker or finder or any other person.
2.5 No Violations or Liabilities. Seller has complied with and is
not in violation of any covenant made pursuant to the Note, the Pledge
Agreement, the 1995 Agreement, or any related document, and, except for the
indebtedness represented by the Note, the Company has no outstanding
indebtedness or liability, contingent or otherwise.
Section 3. Entire Understanding. This Agreement expresses the entire
understanding of the Seller and the Purchaser with respect to the transaction
described and referred to by the provisions of this Agreement and supersedes
all prior and all contemporaneous agreements and undertakings of the Seller and
the Purchaser with respect to the subject matter of this Agreement. Seller will
have no further liability or obligation to Purchaser pursuant to the 1995
Agreement, the Note, the Pledge Agreement or any other agreement, other than
pursuant to the terms of this Agreement.
-2-
<PAGE>
Section 4. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to the conflict of laws principles thereof.
IN WITNESS WHEREOF, the undersigned have executed and delivered this
Agreement as of the date first above written.
/s/ Farhart Mohamad Gheith
- --------------------------------
Farhart Mohamad Gheith
CHICAGO CONTRACT POWDER CORPORATION
By: /s/ President
-----------------------------
Name:
Title:
BIG CLOUD POWDER CORP.
By: /s/ Frederick J. Horowitz
-----------------------------
Name: Frederick J. Horowitz
Title: President
-3-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Form 10-Q for the quarterly period ended June 30, 1997, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 231
<SECURITIES> 0
<RECEIVABLES> 30,247
<ALLOWANCES> 3,838
<INVENTORY> 20,508
<CURRENT-ASSETS> 58,308
<PP&E> 48,532
<DEPRECIATION> 6,613
<TOTAL-ASSETS> 103,108
<CURRENT-LIABILITIES> 85,071
<BONDS> 0
0
0
<COMMON> 138
<OTHER-SE> 16,045
<TOTAL-LIABILITY-AND-EQUITY> 103,108
<SALES> 115,640
<TOTAL-REVENUES> 115,640
<CGS> 96,112
<TOTAL-COSTS> 40,109
<OTHER-EXPENSES> 2,379
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,123
<INCOME-PRETAX> 24,083
<INCOME-TAX> 3,909
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,174
<EPS-PRIMARY> 1.46
<EPS-DILUTED> 0
</TABLE>
