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54
UNITED STATES
Securities and Exchange Commission
Washington, DC 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended April 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 0-3255
JAYARK CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-1863419
(State or jurisdiction of incorporation or organization)(IRS Employer ID No.)
PO Box 741528, Houston, Texas 77274
(Address of principal executive office) (Zip Code)
Telephone number, including area code: (713) 783-9184
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
par value $.30 per share
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES [ ] NO [X ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (section 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
[ ]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant is $1,427,151 as of June 30, 1997.
The number of shares outstanding of Registrant's Common Stock is 9,221,197
as of June 30, 1997.
PART I
Item 1. Business
General
Jayark Corporation ("Jayark" or "the Company") conducts its operations
through AVES Audiovisual Systems, Inc. ("AVES"), a wholly owned subsidiary.
AVES distributes for resale, as well as rents, a broad range of audiovisual,
video and communications equipment and supplies. Its customer base includes
schools, industry and hotels. The warehousing, sales and administrative
operations of AVES are located in Houston, Texas.
The Company was originally incorporated in New York in 1958. In 1991, the
Company changed its state of incorporation to Delaware.
Recent Events
Discontinued Operations
As a result of continued losses due to a soft retail market, low margins,
competitive pressures, and price reductions, the Company had been looking
for methods to sell or otherwise dispose of the operations of Rosalco Inc.,
("Rosalco") a wholly owned subsidiary of Jayark . Rosalco had been in the
business of the distribution of more than 300 different products, including
occasional furniture, brass beds, custom jewelry cases and accessories, most
of which are imported from outside the continental United States. Rosalco
also developed special designs for several customers. Rosalco was
headquartered in Jeffersonville, Indiana. All efforts to sell Rosalco were
unsuccessful, and it was officially closed on October 22, 1997. The assets
of Rosalco were secured as part of its borrowing agreement. Shortly after
the closing, a receiver was assigned to liquidate the secured assets of
Rosalco to satisfy the loan principal. The financial statements have been
restated to reflect Rosalco's operations for all periods as discontinued
operations. In fiscal 1997, Jayark incurred a $5,963,000 loss on
Discontinued Operations, which includes $3,462,000 loss from operations for
the year ended April 30, 1997, the establishment of accruals in the amount
of $300,000 for expenses and guarantees related to the closing, the write
off of an intercompany receivable and other assets of $476,000, and the
write off of the remaining net assets of Rosalco of $1,725,000.
Abandonment of Investment
In June 1995, a wholly-owned subsidiary of the Company, LCL International
Traders, Inc. ("LCL"), acquired certain of the assets and assumed certain of
the liabilities of a group of companies engaged in the importation and
distribution of seasonal and promotional merchandise.
During the fiscal year ended April 30, 1996, the Company experienced
significant problems with the acquisition, including, among other things,
rapid and significant deterioration of the acquired operations, as well as
increasing difficulty in financing the operations associated with the
acquired assets. As the fiscal year progressed the Company found the
continued operation of LCL to be untenable.
Finally, in the third quarter of the fiscal year ended April 30, 1996, the
Company abandoned its investment in, and wrote off its advances to, LCL. As
a result, the Company incurred a pre-tax charge of approximately $4,700,000
in the fiscal year ended April 30, 1996, which has been charged as a loss on
investment. LCL subsequently filed under Chapter 11 of the Bankruptcy Code.
On August 1, 1996, after winding down its operations and liquidating its
assets, the Chapter 11 proceeding was dismissed on the ground that all of
the Debtor's assets have been liquidated.
During August 1995, the Company, LCL and Rosalco, entered into a
Reimbursement Agreement with:
i) Ben Arnold Company, a corporation beneficially owned by several members
of the Burton I. Koffman and Richard E. Koffman families (including David L.
Koffman, who is the president and a director of the Company, and Joseph B.
Koffman, a nominee for director) and Karen Cohen, the wife of Arthur C.
Cohen, a director of theCompany, who disclaims any beneficial interest in
Ben Arnold Company, ii) Ruthanne Koffman (the mother of David L. Koffman and
the wife of Burton I. Koffman), iii)Whitehorn Associates, a New York
Corporation, and iv) Joel Margolin (the Vice President of LCL) pursuant to
which each of Rosalco, Ben Arnold Company, Ruthanne Koffman, Whitehorn
Associates, and Joel Margolin agreed to provide to the CIT Group/Commercial
Services, Inc. ("CIT"), the primary lender to LCL, irrevocable standby
letters of credit and cash in the aggregate amount of $1,700,000 to serve as
additional collateral against which CIT would lend additional working
capital to LCL pursuant to CIT's lending arrangements with LCL. Each of
Rosalco and Joel Margolin provided $500,000 in cash and letters of credit,
each of Ruthanne Koffman and the Ben Arnold Company provided $250,000 in
irrevocable standby letters of credit, and Whitehorn Associates provided a
$200,000 irrevocable standby letter of credit.
In consideration for providing the additional collateral, the parties were
to receive a total of 282,400 shares of Common Stock of the Company in
proportion to the amount of additional collateral initially provided by
them, as follows: Joel Margolin was issued 117,600 shares; each of Ruthanne
Koffman and the Ben Arnold Company were issued 58,800 shares; and Whitehorn
Associates was issued 47,200 shares. All the above shares were issued in
fiscal 1997.
The arrangement with CIT for the additional financing secured by the
additional collateral expired on February 28, 1996. In connection with the
terms of the agreement, subsequent to that date, to the extent that CIT
applied additional collateral to LCL's obligations to CIT, LCL would
reimburse the parties for the collateral so applied by CIT, such
reimbursement to be made in the ordinary course of business. Alternatively,
the parties could at any time after February 28, 1996 receive shares of the
Company's Common Stock as reimbursement for the collateral applied by CIT to
LCL's obligations by CIT. Each party would receive that number of shares
that had a value equal to the amount of such party's collateral that was
applied by CIT; for purposes of the agreement, the Company's Common Stock
were deemed to have a value of $1.25 per share.
In July 1996, CIT notified the parties that CIT was applying the additional
collateral to LCL's obligations. As a result of the application of the
collateral by CIT in October 1996, the parties received the following shares
of the Company's Common Stock: Joel Margolin was issued 400,000 shares; each
of Ruthanne Koffman and the Ben Arnold Company were issued 200,000 shares;
and Whitehorn Associates was issued 160,000 shares.
Description of AVES' Business
Products
AVES distributes and rents a broad range of audio video and communications
equipment and supplies. Among the items distributed are movie, filmstrip
and slide projectors; projection screens and lamps; video cameras and
systems; laser videodisk, video projection, TV monitors and receivers; video
systems; public address systems, microphones and headsets; tape recorders,
record players, cassette recorders, and related accessories and supplies.
Some of the items sold (such as blank audio cassettes, headsets and cassette
recorders, duplicating equipment and supplies, laminating film and equipment
for document protection) are either assembled by AVES itself or purchased
from private label and other sole source suppliers and distributed under the
"AVES" and "LAMCO" names. AVES also distributes the products of brand name
manufacturers such as RCAT, GET, Mitsubishi, Elmo, Panasonic, Ikegami,
Videotek, Hitachi, Pioneer, Dynatech, Leitch, Tektronix, Avid, Quasar, Telex
Corporation, Kodak, Dukane, Sharp, Sony, 3M Brand, Luxor and miscellaneous
other brand names. Brand name and "house" brand products account for
approximately 97% and 3% of AVES sales, respectively. The Company also
offers repair services, audio visual consulting & design, engineering,
installation and servicing of audiovisual systems to businesses, hospitals
and hotels.
Raw Materials
The sources and availability of raw materials are not significant for an
understanding of AVES' business since competitive products are obtainable
from alternative suppliers. AVES carries an inventory of merchandise for
resale and for rental operations that is adequate to meet the rapid delivery
requirements (frequently same day shipments) of its distribution business.
Patents
There are no patents, trademarks, licenses, franchises or concessions that
are material to AVES business.
Sales
AVES currently distributes and rents its products in the United States,
primarily by means of catalogs, telephone orders and a field sales force.
Sales of AVES are not seasonal, except that sales to schools typically are
higher from April through July than at other times during the year.
Customers
Approximately 70% of the AVES revenues in fiscal 1997 were from sales to
schools and other educational institutions. The remaining 30% came from the
rental of AVES systems primarily to hotels (approximately 3%), and sales to
business and industry (approximately 27%). In fiscal 1996, 70.2% of AVES
revenues were from sales to schools and other educational institutions. The
remaining 29.8% came from the rental of AVES systems primarily to hotels
(approximately 3.8%), and sales to business and industry (approximately
26%). In fiscal 1995, 69.5% of AVES revenues were from sales to schools and
other educational institutions. The remaining 30.5% came from the rental of
AVES systems primarily to hotels (approximately 6.3%), and sales to business
and industry (approximately 24.2%).
Backlog
The amount of unfilled sales orders of AVES at April 30, 1997, was $758,320
as compared to $443,000 at April 30, 1996. The amount of unfilled sales
orders is not a material measure of AVES' operations.
Competition
The Company believes that AVES is one of the most diversified national audio
visual purveyors in the United States, given the different types of services
and products offered by the subsidiary. AVES' principal means of
competition are its aggressive pricing, technical expertise, quick delivery
and the broad range of product lines available through its distribution
channels.
Employees
At April 30, 1997, AVES had 24 employees.
Item 2. Properties
The Company's Corporate office is located in Houston, Texas in a modern, two
story, stone and glass building which includes adjoining parking for up to
50 cars. The Corporate office and the business of AVES are conducted from
approximately 13,000 square feet; 5,500 of which are used for office, sales
and demonstration purposes and 7,500 for warehouse purposes. The current
lease term expires on April 30, 2001. The current rental is $5,200 per
month.
Item 3. Legal Proceedings
The Company is subject to certain pending legal proceedings, most of which
are ordinary and routine litigation incidentals to its business. None of
such legal proceedings, in the opinion of the Company, is
material to its business or financial condition.
Item 4. Submission Of Matters To A Vote Of Security Holders
No matters were submitted to a vote of the Company's stockholders, through
the solicitation of proxies or otherwise, during the fourth quarter of the
Company's fiscal year ended April 30, 1997.
PART II
Item 5. Market For Registrant's Common Stock And Related Stockholder Matters
The Company's common stock traded on The NASDAQ Small Cap Market under the
symbol JAYA. Subsequent to year end, the Company was delisted and is now
traded over the counter.
The following table sets forth the quarterly high and low trade prices of
the Company's common stock for the periods indicated, in each fiscal year as
reported by NASDAQ. As of April 30, 1997, there were approximately 853
stockholders of record of common stock.
The Company has not paid any dividends on its common stock during the last
five years and does not plan to do so in the foreseeable future.
1997 Common Stock Trade Price 1996 Common Stock Trade Price
----------------------------- -----------------------------
High Low High Low
---- --- ---- ---
First Quarter .56 .19 2.56 .81
Second Quarter .41 .13 1.06 1.00
Third Quarter .50 .19 .91 .56
Fourth Quarter .50 .25 .69 .44
Item 6. Selected Financial Data
Year Ended April 30, 1997 1996 1995 1994 1993
----------- ---------- ---------- --------- ---------
Results of Operations:
Net Revenues $12,638,072 11,856,148 11,631,370 9,594,000 8,739,000
Earniings(Losses)from
Cont Operations ($96,372) (116,390) 180,814 62,000 1,179,000
Earnings(Losses)from
Disc Operations ($5,962,839)(7,068,857) 592,479 990,000 (2,948,000)
Net Earnings(Losses) ($6,059,211)(7,185,247) 773,293 1,052,00 (1,769,000)
Primary Earnings
(loss)per Share from
Continuing Operations ($.01) (.01) .03 .01 .18
Primary Earnings
(loss) Per Share from
Discontinued Operations ($.68) (.90) .09 .15 (.44)
Avg Shares Outstanding 8,802,528 7,833,990 6,867,083 6,682,344 6,704,848
At April 30,
Balance Sheet Information:
Total Assets $2,754,072 8,327,357 18,084,616 10,419,000 9,426,000
Long Term Obligations $1,407,207 1,913,967 1,542,628 1,812,000 2,117,000
Working Capital
(Deficit) ($7,003) (233,256) 2,066,560 1,331,000 1,916,000
Stockholders' Equity
(Deficit) ($3,001,558) 2,585,541 8,614,426 11,543,000 11,236,000
Item 7. Management's Discussion and Analysis Of Financial Condition And
Results Of Operations
General Comments
For the fiscal year ended April 30, 1997, the Company recognized a
consolidated net loss after tax of $6,059,000. AVES recognized net income
of $551,000 as a result of its operations. AVES incurred a slight increase
in Cost of Revenues and experienced a decrease in SG&A spending for fiscal
1997. Jayark Corporate recognized a net loss of $6,610,000. Losses from
Corporate operations were $647,000. Losses associated with the Discontinued
operations of Rosalco were $5,963,000 including the writeoff of the Deferred
Tax asset recorded in prior years of $350,000.
Comparison of Fiscal Year Ended April 30, 1997 With Fiscal Year Ended April
30, 1996
Revenues
Consolidated Revenues of $12,638,000 increased $782,000 or 6.6% from fiscal
1996. The increase is the result of a $1,105,000 increase in direct sales
and a slight increase in rental sales from 1996. However, these increases
were offset primarily by decreases in contract sales ($323,000). The
increased sales are primarily a result of the increased emphasis on direct
sales rather than contract sales.
Cost of Revenues
Consolidated Cost of Revenues of $10,592,000 increased $822,000 or 8.4% from
the prior fiscal year. The increase reflects the higher costs associated
with direct sales rather than those incurred on contract sales. Total gross
margin decreased an aggregate of 1.9% from the prior fiscal year due to
decreases in margin related to the transition to direct sales, which have a
lower margin with higher volume.
Selling, General and Administrative Expense
Consolidated Selling, General and Administrative Expenses of $2,000,000
decreased $110,000 or 5.2% as compared to the prior reporting year. AVES
decreased depreciation expense by $38,000 due to the disposal of assets at
the end of fiscal 1996. The Corporate office decreased insurance expenses
$50,000 due to savings on premiums and $22,000 in payroll expense.
Interest Expense
Consolidated Interest Expense of $222,000 increased $61,000 or 37.9%. The
increase was due to increased borrowing levels during fiscal 1997.
Other Income
The Company incurred consolidated Other Income of $79,000 as a result of
gains on the disposal of fixed assets and other miscellaneous income.
Pre tax loss from Continuing Operations
Consolidated Pre tax Loss from Continuing Operations is $96,000 as compared
to a prior year's net loss of $116,000. This is primarily a result of lower
spending associated with Selling, General, and Administrative expenses and
other miscellaneous income.
Net Loss on Discontinued Operations
Consolidated Net Loss from Discontinued Operations is $5,963,000, which
represented losses from the discontinued Rosalco operation of $3,462,000,
the establishment of accruals in the amount of $300,000 for expenses and
guarantees related to the closing, the write off of an intercompany
receivable and other assets of $476,000, and the write off of the remaining
net assets of Rosalco of $1,725,000.
Comparison Of Fiscal Year Ended April 30, 1996 With Fiscal Year Ended April
30, 1995
Revenues
Consolidated Revenues of $11,856,000 increased $225,000 or 1.9% from fiscal
1995. AVES increased its revenues by continued emphasis on increasing
direct sales as opposed to rental revenues, thus resulting in increased unit
sales at a lower gross profit margin as compared to rental gross profit.
Cost of Revenues
Consolidated Cost of Revenues of $9,770,000 increased $260,000 or 2.7% from
the prior fiscal year. The increase in AVES' cost of revenues reflects the
increase in sales revenue.
Selling, General and Administrative Expense
Consolidated Selling, General and Administrative Expenses of $2,109,000
decreased $36,000 or 1.7% as compared to the prior reporting year primarily
due to a decrease in payroll and related benefit costs incurred by AVES.
Interest Expense
Consolidated Interest Expense increased $161,000 primarily due to the
increase in the amount of short term borrowings, resulting from increased
inventory levels due to the decrease in sales, and increased cost of
borrowings.
Loss On Abandonment of Investment
The Company incurred a consolidated Loss on Investment of $4,363,000. The
loss was incurred as a result of Corporate abandoning its investment and
writing off its advances in certain assets and a business acquired in June,
1995. This expense was mainly comprised of writing off investment costs and
wind down costs such as payroll expenses and other accruals which were
necessary for proper liquidation.
Loss on Discontinuing Operations
Loss on Discontinued Operations reflects the losses incurred by the
discontinued Rosalco operation. The increase in losses of Rosalco in 1996
indicates the effect of a soft retail market, change in product mix, slower
deliveries from overseas suppliers and credit restraints from suppliers.
Net Income
Consolidated Net Loss of $7,185,000 as compared to income of $773,000
decreased $7,958,000 as a result of reduced revenues, writeoffs of
investment, discontinued operations, and increased operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
At April 30, 1997, consolidated open lines of credit available to the
Company for borrowing, were $750,000 as compared to $1,336,025 at April 30,
1996. It is the opinion of the Company's management that operating
expenses, as well as obligations coming due during the next fiscal year,
will be met primarily by cash flow generated from operations and from
available borrowing levels.
Working Capital
Working capital was a deficit of $7,003 at April 30, 1997, compared to
working capital deficit of $233,256 at April 30, 1996. The decrease in
working capital is largely due to the operating loss incurred in the current
year and the provision for future expenses incurred in connection with the
discontinuation of Rosalco.
Net cash used by operating activities was $1,071,762 in 1997 resulting
primarily from the losses from both continuing and discontinued operations.
Cash flows used during the year ended April 30, 1997 for investing
activities was $83,556 as a result of capital expenditures by the continuing
AVES division.
Cash provided by financing activities of $871,531 arose from the proceeds of
additional financing of $2,001,083 offset by repayments of $1,129,552.
The financing arrangement in effect at April 30, 1996 was revised April 1997
to reflect the renewal and extension of the maturity dates of lines of
credit to April 1997, to approve the repayment schedule of the Company's
subordinated convertible debentures, to reflect the payoff of the term
loans, and to make available a total of $10,000,000 maximum in revolving
lines of credit for Rosalco, with interest charged at prime plus 1.75%. In
June 1997, the Company entered into an agreement with State Street Bank
extending the maturity date of the line of credit for Rosalco to August 31,
1997. As collateral, Rosalco deposited $100,000 into a cash collateral
account held at State Street Bank. As of August 31, 1997, State Street Bank
did not renew the loan agreement with Rosalco, thereby forcing the company
to close its operations in Jeffersonville. The assets of Rosalco were
secured as part of the loan agreement, and a receiver has since been
appointed to liquidate the assets of Rosalco. As part of the loan
agreement, Jayark guaranteed $200,000 to State Street Bank.
In March 1997, AVES established a line of credit with BSB Bank & Trust,
Binghamton, New York, in the amount of $1,250,000. The interest rate is
9.75% annually. There are no financial covenants associated with the line
of credit. As of April 30, 1997, AVES has $500,000 outstanding.
On March 12, 1997, in connection with the State Street Bank financing
described above and the establishing of the BSB Bank & Trust line of credit
described above, the Company issued stock warrants totaling 4,166,667 to A-V
Texas Holding, LLC, an affiliate of the Company. The warrants allows the
holder to purchase 4,166,667 shares of the Companies common stock at a par
value of $.30. The effectiveness of the warrants is subject to an increase
in the available authorized shares of the Company. The warrants expire
February 1, 2007.
The Company had no material commitments for capital expenditures as of April
30, 1997.
Impact of Inflation
Management of the Company believes that inflation has not significantly
impacted either net sales or net earnings during the year ended April 30,
1997. The Company has generally been able to pass along price increases
from its manufacturers.
Effect of new accounting pronouncements
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share", which is effective for both interim and annual periods ending after
December 15, 1997. Earlier application is not permitted. The Company
accordingly plans to adopt SFAS No. 128 in its April 30, 1998 annual
financial statements. The Company does not anticipate that SFAS No. 128
will have a material effect on the earnings per share as presented.
In June 1997, the FASB issued two new disclosure standards. Results of
operations and financial position will be unaffected by implementation of
these new standards.
SFAS No. 130, "Reporting Comprehensive Income," establishes standards for
reporting and display of comprehensive income, its components and
accumulated balances. Comprehensive income is defined to include all
changes in equity except those resulting from investments by owners and
distributions to owners.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which supersedes SFAS No. 14, "Financial Reporting for
Segments of a Business Enterprise," establishes standards for the way that
public enterprises report information about operating segments in financial
statements. It also establishes standards for disclosures regarding
products and services, geographic areas and major customers.
Both of these new standards are effective for financial statements for
periods beginning after December 15, 1997, and require comparative
information for earlier years to be restated. Management does not expect
these two standards to have a significant impact on future financial
statement disclosures.
Item 8. Financial Statements And Supplementary Data
The Reports of Independent Certified Public Accountants, Financial
Statements and Notes to Consolidated Financial Statements filed as a part of
this report are listed in the accompanying Index to Financial Statements and
Schedules.
Item 9. Change In And Disagreement With Accountants On Accounting And
Financial Disclosure
The Company released KPMG Peat Marwick, LLP as the principal accounting firm
as of October 23, 1995, which was approved by the Company's Board of
Directors. The Company had no disagreement with KPMG Peat Marwick, LLP on
any issues. The Company appointed BDO Seidman, LLP as the principal
accounting firm to perform all audit functions effective with the fiscal
year ended April 30, 1996.
PART III
Item 10. Directors And Executive Officers Of The Registrant
Set forth below is a list of the directors, executive officers and key
employees of the Company and their respective ages as of June 30, 1997, and,
as to directors, the expiration date of their current term of office:
CURRENT DIRECTORS
- -----------------------------------------------------------------------------
Name Age Term Exp. Position Presently Held Director Since
- ------------------- --- --------- ---------------------------- --------------
David Koffman 38 2000 Chairman, President,Chief 1983
Executive Officer and
Director
Frank Rabinovitz 55 2000 Executive Vice President 1989
Chief Operating Officer,
Director and President
of AVES
Lawrence J. Schorr 43 1999 Vice Chairman and Director 1996
Robert C. Nolt 49 N/A Chief Financial Officer N/A
*Michael J.Sherman 50 1997 Director 1989
Arthur G. Cohen 68 1999 Director 1990
*John H.M. Griffiths 44 1998 Director 1993
Michael Silverman 53 1999 Director 1993
* Resigned from the Board of Directors During Fiscal 1997
David L. Koffman was elected President and Chief Executive Officer of the
Company in December 1988. Prior to that time, he served as Director and
Vice President of the Company for over seven years.
Frank Rabinovitz was elected Executive Vice President, Chief Operating
Officer and Director of the Company in 1989. In addition, he is the
President of the Company's audiovisual subsidiary and has served in this
capacity for more than seven years, as well as in various other executive
and management capacities since 1980.
Lawrence J. Schorr is Vice Chairman and Director of the Company. In
addition, Mr. Schorr is Chairman and Chief Executive Officer of Binghamton
Industries, Inc., a company controlled by the principal shareholders of the
Company. Prior to joining the Company, Mr. Schorr was President and Chief
Executive Officer of RRT-Recycle America, Inc. for over seven years.
Previously, Mr. Schorr was an attorney and partner in the law firm of
Levene, Gouldin & Thompson in Binghamton, NY.
Robert C. Nolt is Chief Financial Officer of the Company. In addition, Mr.
Nolt is Chief Financial Officer of Binghamton Industries, Inc., a company
controlled by the principal shareholders of the Company. Prior to joining
the Company, Mr. Nolt was Vice President of Finance of RRT-Recycle America,
Inc. Mr. Nolt is a Certified Public Accountant with over 25 years of
experience in the Accounting field and has served in a number of executive
positions. Before joining RRT in 1993, Mr. Nolt was Chief Financial Officer
for the Vestal, NY based Ozalid Corporation.
Michael J. Sherman, CPA, is President and Chief Executive Officer of M.J.
Sherman and Associates, a financial consulting firm. Mr. Sherman has served
in such capacities for more than seven years.
Arthur G. Cohen has been a real estate developer and investor for more than
six years. Mr. Cohen is a Director of Apparel America, Inc., Baldwin, and
Arlen, Inc. Burton I. Koffman and Richard E. Koffman are parties to an
agreement with Arthur G. Cohen pursuant to which they have agreed to vote
their shares in favor of the election of Mr. Cohen to the Board of Directors
of the Company.
John H. M. Griffiths is Managing director and majority shareholder of any
international venture capital and financing company based in the United
Kingdom; a board member and shareholder of Lynton Delancy & Partners
Limited, CL BES Limited, CL BES 2 Limited Lastbrave Livited and Capel Lynton
Limited; a director of Bardwell Western states, and CL BES IV Limited.
Previously, Mr. Griffiths was associated with Samuel Montagu & Co. Limited
as a main board member, Nomura Bank International PLC, Lloyds Bank
International and Bank of London & South America. Mr. Griffiths received
his BA and MA from Cambridge University.
Michael Silverman is a venture capitalist and is currently chairman and
Chief Executive Officer of Boatracs, Inc. and Unique Events Products, Inc.,
and a board member of International Savings Bank and International Bedding
Corp. Previously, Mr. Silverman was chairman and Chief Executive Officer of
Textile Industries, USA, Sheridan Distributors, Inc., Sussex Group, Ltd. and
Huffman Koos. Mr. Silverman is a Chartered Accountant (S.A.) and received
his MBA from Stanford.
Information Concerning Operations of the Board of Directors
The Executive Committee of the Board of Directors consists of Mr. David L.
Koffman (Chair) and Mr. Frank Rabinovitz. The function of the Executive
Committee is to exercise the powers of the Board of Directors to the extent
permitted by Delaware law. As a rule, the Executive Committee meets to take
action with respect to matters requiring Board of Directors approval and
which cannot await a regular meeting of the Board or the calling of a
special meeting. Under Delaware law and the Company's By-laws, both the
Board and Executive Committee can act by unanimous written consent to all
members.
The Stock Option Committee of the Board of Directors was created to
administer the Company's 1981 Incentive Stock Option Plan, as amended,
pursuant to resolution adopted November 24, 1981, giving it authority to
exercise powers of the Board with respect to the Plan. The Stock Option
Committee consists of Mr. Frank Rabinovitz and Mr. Michael Silverman.
The Audit Committee of the Board of Directors was created in 1991 to
administer and coordinate the activities and results of the annual audit of
the Company by independent accountants and to comply with NASDAQ listing
requirements. The Audit Committee is comprised of Mr. Lawrence Schorr
(Chair) and Mr. Michael Silverman.
The Compensation Committee of the Board of Directors was created in 1993 to
administer and review compensation structure, policy and levels of the
Company. The Compensation Committee is composed of Mr. Michael Silverman
(Chair) and Mr. David Koffman.
Item 11. Executive Compensation
Set forth in the following table is certain information relating to the
approximate remuneration paid by the Company during the last three fiscal
years to each of the most highly compensated executive officers whose total
compensation exceeded $100,000.
SUMMARY COMPENSATION TABLE (1,2)
Annual Compensation
----------------------
Year Salary Bonus
---- -------- -------
David L. Koffman 1997 $162,000 $0
Chairman, President and Chief 1996 162,000 0
Executive Officer 1995 162,000 45,500
Frank Rabinovitz 1997 $162,000 $50,000
Director, Executive Vice 1996 162,000 50,000
Chief Operating Officer, 1995 162,000 50,000
President Of AVES
(1) Does not include the value of non-cash compensation to the named
individuals, which did not exceed the lesser of $50,000 or, 10% of such
individuals' total annual salary and bonus. The Company provides a vehicle
to each of the named executives for use in connection with Company business
but does not believe the value of said vehicles and other non-cash
compensation, if any, exceeds the lesser of $50,000 or 10% of the
individual's total annual salary and bonus.
(2) The Company has entered into Split Dollar Insurance Agreements with
Messrs. David L. Koffman and Frank Rabinovitz, pursuant to which the Company
has obtained insurance policies on their lives in the approximate amount of
$1,054,000 and $497,700, respectively. The premium is paid by the Company.
Upon the death of the individual, the beneficiary named by the individual is
entitled to receive the benefits under the policy. The approximate amounts
paid by the Company during the fiscal year ended April 30, 1997 for this
insurance coverage were $36,507, $25,406, respectively. Such amounts are
not included in the above table.
The following table sets forth-certain information relating to the value of
stock options at April 30, 1997:
Number of Unexercised Value of Unexercised In-The-Money
Options at Fiscal Year End Options ar Fiscal Year End*
--------------------------- ---------------------------------
Name Exercisable Unexcercisable Excercisable Unexcercisable
- ---------------- ----------- -------------- ------------ --------------
Frank Rabinovitz 100,000 0 $28,125 0
* Based on the $0.2813 per share closing bid price of the common stock on
the NASDAQ Stock Exchange on April 30, 1997
Effective November 24, 1981 and approved at the annual stockholders meeting
in 1982, the 1981 Incentive Stock Option Plan (ISOP) was adopted. An
amendment to the ISOP was adopted on December 11, 1989. This amendment
increased the number of incentive stock options that can be granted from
150,000 shares to 600,000 shares. The ISOP provides for the granting to key
employees and officers of incentive stock options, as defined under current
tax laws. The stock options are exercisable at a price equal to or greater
than the market value on the date of the grant.No stock options were granted
during the fiscal year ended April 30, 1997.
Effective September 15, 1994 and approved at the annual stockholders meeting
in 1994, the 1994 NonEmployee Director Stock Option Plan (the "Director
Plan" was adopted and 200,000 shares of the Company's common stock reserved
for issuance under the Director Plan. The Director Plan provides for the
automatic grant of nontransferable options to purchase common stock to
nonemployee directors of the Company; on the date immediately preceding the
date of each annual meeting of stockholders in which an election of
directors is concluded, each nonemployee then in office will receive options
exercisable for 5,000 shares (or a pro rata share of the total number of
shares still available under the Director Plan). No option may be granted
under the Director Plan after the date of the 1998 Annual Meeting of
Stockholders.
Options issued pursuant to the Director Plan are exercisable at an exercise
price equal to not less than 100% of the fair market value (as defined in
the Director Plan) of shares of common stock on the day immediately
preceding the date of the grant. Options are vested and fully exercisable
as of the date of the grant. Unexercised options expire on the earlier of
(i) the date that is ten years from the date on which they were granted,
(ii) the date which is three calendar months from the date of the
termination of the optionee's directorship for any reason other than death
or disability (as defined in the Director Plan), or (iii) one year from the
date of the optionee's disability or death while serving as a director.
The Director Plan became effective immediately following the 1994 Annual
Meeting of Shareholders. Each nonemployee director in office on the date
immediately preceding the date of each year's annual meeting will receive
options exercisable for 5,000 shares of common stock.
During fiscal year ended April 30, 1997, no director options were granted to
nonemployee directors.
Report of the Compensation Committee of the Board of Directors on Executive
Compensation
Except pursuant to its ISOP and the Director Plan and except for key
employees in its discontinued Rosalco subsidiary, the Company does not have
any formal annual incentive program, cash or otherwise, nor does it make
annual grants of stock options. Cash bonuses and stock options, including
bonuses and options paid to executive officers, have generally been awarded
based upon individual performance, business unit performance and corporate
performance, in terms of cash flow, growth and net income as well as meeting
budgetary, strategic and business plan goals.
The Company is committed to providing a compensation program that helps
attract and retain the best people for the business. The Company endeavors
to achieve symmetry of compensation paid to a particular employee or
executive and the compensation paid to other employees or executives both
inside the Company and at comparable companies.
The remuneration package of the Chief Executive Officer includes a
percentage bonus based on the Company's profitable performance.
Compensation Committee
Michael Silverman
David L.Koffman
Item 12. Security Ownership Of Certain Beneficial Owners And Management
The following table sets forth as of April 30, 1997, the holdings of the
Company's Common Stock by those persons owning of record, or known by the
Company to own beneficially, more than 5% of the Common Stock, the holdings
by each director or nominee, the holdings by certain executive officers and
by all of the executive officers and directors of the Company as a group.
PRINCIPAL STOCKHOLERS Amount and Nature of
Name and Address of Beneficial Owner Beneficial Ownership Note (1) % of Class
- ------------------------------------ -------------------- -------- ----------
David L. Koffman
300 Plaza Drive,Vestal, NY 13850 1,446,727 2 15.7%
Burton I. Koffman
300 Plaza Drive, Vestal, NY 13850 703,500 3,4,5 7.6%
Richard E. Koffman
300 Plaza Drive, Vestal, NY 13850 278,500 4,6 3.0%
Milton Koffman
300 Plaza Drive, Vestal, NY 13850 159,500 1.8%
Jeffrey Koffman
300 Plaza Drive, Vestal, NY 13850 296,333 3.2%
Elizabeth Koffman
300 Plaza Drive, Vestal, NY 13850 33,334 0.4%
Joel Margolin
6116 Skyline Drive, Houston, TX 77057 517,600 5.6%
Ben Arnold Company
700 Gervais Street, Columbia, SC 29201 795,189 8.6%
Commerzbank AG
31 Charter Road, Hong Kong 1,000,000 10.8%
Michael Silverman
6440 Lusk Blvd., San Diego, CA 92121 17,000 .2%
Frank Rabinovitz
6116 Skyline Drive, Houston, TX 77057 146,000 7 1.6%
All Directors & Executive
Officers as a Group 1,609,727 2,3,4,5,6,7 17.46%
1. All shares are owned directly by the individual named, except as set
forth herein. Includes actual shares beneficially owned and Employee
and Director Stock Options exercisable within 60 days. Burton I. Koffman is
the Nephew of Milton Koffman. Burton I. Koffman and Richard E. Koffman are
brothers. David L. Koffman is the son of Burton I. Koffman. Elizabeth is
the daughter of Burton I. Koffman.
2. Excludes $720,587.79 principal amount of the Company's 12% Convertible
Subordinated Debentures, due December 1999, which are convertible into
480,392 shares of Common Stock at a price of $1.50 per share. Excludes
4,166,667 shares of Common Stock subject to a warrant further described
under Item 13, Certain Relationships and Certain Transactions. David
Koffman may be said to have a beneficial interest in these warrants.
3. Excludes 37,000 shares owned by a charitable foundation of which Burton
I. Koffman is President and Trustee.
4. Includes 537,000 shares owned as tenants in common by brothers Richard
E. Koffman and Burton I. Koffman.
5. Excludes 665,962 shares owned by the spouse of Burton I. Koffman.
6. Excludes 180,000 shares owned by the spouse of Richard E. Koffman.
7. Excludes $49,096.99 principal amount of the Company's 12% Convertible
Subordinated Debentures, due December 1999, which are convertible into
32,731 shares of Common Stock at a price of $1.50 per share.
Item 13. Certain Relationships And Related Transactions
During August 1995, the Company, and Rosalco, Inc, entered into a
Reimbursement Agreement with:
i) Ben Arnold Company, a corporation beneficially owned by several members
of the Burton I. Koffman and Richard E. Koffman families (including David L.
Koffman, who is the president and a director of the Company, and Joseph B.
Koffman, a nominee for director) and Karen Cohen, the wife of Arthur C.
Cohen, a director of theCompany, who disclaims any beneficial interest in
Ben Arnold Company, ii) Ruthanne Koffman (the mother of David L. Koffman and
the wife of Burton I. Koffman), iii)Whitehorn Associates, a New York
Corporation, and iv) Joel Margolin (the Vice President of LCL) pursuant to
which each of Rosalco, Ben Arnold Company, Ruthanne Koffman, Whitehorn
Associates, and Joel Margolin agreed to provide to the CIT Group/Commercial
Services, Inc. ("CIT"), the primary lender to LCL, irrevocable standby
letters of credit and cash in the aggregate amount of $1,700,000 to serve as
additional collateral against which CIT would lend additional working
capital to LCL pursuant to CIT's lending arrangements with LCL. Each of
Rosalco and Joel Margolin provided $500,000 in cash and letters of credit,
each of Ruthanne Koffman and the Ben Arnold Company provided $250,000 in
irrevocable standby letters of credit, and Whitehorn Associates provided a
$200,000 irrevocable standby letter of credit.
In consideration for providing the additional collateral, the parties were
to receive a total of 282,400 shares of Common Stock of the Company in
proportion to the amount of additional collateral initially provided by
them, as follows: Joel Margolin was issued 117,600 shares; each of Ruthanne
Koffman and the Ben Arnold Company were issued 58,800 shares; and Whitehorn
Associates was issued 47,200 shares. All the above shares were issued in
fiscal 1997.
On March 12, 1997, in connection with the State Street Bank financing and
the establishing of the BSB Bank & Trust line of credit described under the
working capital section above, the Company issued stock warrants totaling
4,166,667 to A-V Texas Holding, LLC, an affiliate of the Company of which
David Koffman is a principal shareholder. The warrants allows the holder to
purchase 4,166,667 shares of the Companies common stock at a par value of
$.30. The effectiveness of the warrants is subject to an increase in the
available authorized shares of the Company. The warrants expire on February
1, 2007.
The arrangement with CIT for the additional financing secured by the
additional collateral expired on February 28, 1996. In terms of the
agreement, subsequent to that date, to the extent that CIT applied
additional collateral to LCL's obligations to CIT, LCL would reimburse the
parties for the collateral so applied by CIT, such reimbursement to be made
in the ordinary course of business. Alternatively, the parties could at any
time after February 28, 1996 receive shares of the Company's Common Stock as
reimbursement for the collateral applied by CIT to LCL's obligations to CIT.
Each party would receive that number of shares that had a value equal to the
amount of such party's collateral that was applied by CIT; for purposes of
the agreement, the Company's Common Stock were deemed to have a value of
$1.25 per share.
In July 1996, CIT notified the parties that CIT was applying the additional
collateral to LCL's obligations. As a result of the application of the
collateral by CIT in October 1996, the parties received the following shares
of the Company's Common Stock: Joel Margolin was issued 400,000 shares; each
of Ruthanne Koffman and the Ben Arnold Company were issued 200,000 shares;
and Whitehorn Associates was issued 160,000 shares.
In September 1996, certain related parties advanced an additional $500,000
to the Company , which was applied to Rosalco's outstanding line of credit.
The related party advances now totaling $1,000,000 are payable on demand and
interest is paid monthly at prime plus 2.5%.
PART IV
Item 14. Exhibits, Financial Statement Schedules And Reports On Form 8-K
(a) Documents filed as part of this report:
1.And 2. Financial Statements.
The Reports of Independent Certified Public Accountants, Financial
Statements and Notes to Consolidated Financial Statements which
are filed as a part of this report are listed in the Index to Financial
Statements.
Note-no financial statement schedules were required to be filed.
3.Exhibits, which are filed as part of this report, are listed
in the accompanying Exhibit Index.
(b) Reports on Form 8-K.
1.Other Events
Subordated Promissory Note Dated March 12, 1997 between Rosalco, Inc
and
Jayark.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
JAYARK CORPORATION
By:
/S/ DAVID L. KOFFMAN Chairman of the Board and Director
DAVID L. KOFFMAN
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
/S/ DAVID L. KOFFMAN Chairman of the Board, President, December 31, 1997
DAVID L. KOFFMAN Chief Executive Officer and Director
/S/ FRANK RABINOVITZ Executive Vice President, Chief December 31, 1997
FRANK RABINOVITZ Operating Officer and Director
LAWRENCE J. SCHORR Director
MICHAEL SILVERMAN Director
/S/ ARTHUR G. COHEN Director December 31, 1997
ARTHUR G. COHEN
JAYARK CORPORATION AND SUBSIDIARIES
Index Page
_______________________________________________________________________________
Consolidated Financial Statements:
Report of Independent Certified Public Accountants 21
Report of Independent Certified Public Accountants 22
Balance Sheets - April 30, 1997 and 1996 23
Statements of Operations - For the years ended April 30, 1997, 1996 and 1995 24
Statements of Stkhldr Eq - For the years ended April 30, 1997, 1996 and 1995 25
Statements of Cash flows - For the years ended April 30, 1997, 1996 and 1995 26
Notes to Consolidated Financial Statements 27-38
Exhibits 39-42
Financial Data Schedule
Report of Independent Certified Public Accountants
To the Shareholders and Directors
Jayark Corporation
We have audited the accompanying consolidated balance sheets of Jayark
Corporation and Subsidiaries as of April 30, 1997 and 1996 and the related
consolidated statements of operations, changes in stockholders' equity, and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Jayark
Corporation and Subsidiaries as of April 30, 1997 and 1996, and the results
of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
We also audited the adjustments relating to the discontinued operations
described in Note 16 that were applied to restate the April 30, 1995
financial statements. In our opinion, such adjustments are appropriate and
have been properly applied.
BDO Seidman, LLP
New York, New York
July 15, 1997, except for Note 16 for which the date is November 14, 1997
Independent Auditors' Report
The Board of Directors
Jayark Corporation
We have audited the consolidated financial statements of Jayark Corporation
and subsidiaries as listed in the accompanying index. These consolidated
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Jayark
Corporation and subsidiaries as of April 30, 1995 and 1994, and the results
of their operations and their cash flows for each of the years in the three-
year period ended April 30, 1995, in conformity with generally accepted
accounting principles.
As discussed in Notes 1and 7 to the consolidated financial statements, the
Company changed its method of accounting for income taxes in 1994 to adopt
the provisions of the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes".
KPMG Peat Marwick, LLP
Houston, Texas
August 9, 1995
Jayark Corporation And Subsidiaries
Consolidated Balanc Sheets
April 30, 1997 and 1996
Assets 1997 1996
- ------ ---------- ----------
Current Assets
Cash and Cash Equivalents $67,140 $350,926
Accounts Receivable-Trade, Less Allowance 1,838,585 1,686,759
For Doubtful Accounts of $42,000 in 1997
and $59,000 in 1996
Other Accounts Receivable 2,277 53,167
Federal and State Income Taxes Refundable 695,501
Inventories 412,846 504,555
Deferred Federal Income Taxes 295,798
Other Current Assets 20,572 7,887
---------- ----------
Total Current Assets 2,341,420 3,594,59
Non Current Assets
Property & Equipment, Less Accumulated 122,550 100,602
Depreciation and Amortization
Excess of Cost Over Net Assets of Business 290,102 311,462
Acquired, Less Accumulated Amortization of
$442,335 in 1997 and $420,975 in 1996
Net Assets of Discontinued Operations of Rosalco - 4,268,849
Deferred Federal Income Taxes 51,851
---------- ----------
Total Non-Current Assets 412,652 4,732,764
---------- ----------
Total Assets $2,754,072 $8,327,357
=========== ===========
Liabilities
- -----------
Current Liabilities
Notes Payable & Line of Credit $500,000 $1,600,915
Current Maturities of Long Term Debt 7,394 28,189
Accounts Payable 905,407 585,058
Accrued Salaries and Deferred Compensation 106,531 183,905
Accrual Related to Loss on Disc. Operation-Rosalco 305,000 -
Accrual Related to LCL Investment 164,579 982,624
Other Current Liabilities 359,512 447,158
---------- ----------
Total Current Liabilities 2,348,423 3,827,849
Non Current Liabilities
Long Term Debt, Excluding Current Maturities 7,207 13,967
Notes Payable to Related Parties 2,000,000 -
Subordinated Debentures 1,400,000 1,400,000
Other Long Term Liabilities, Related to LCL Inv. - 500,000
---------- ----------
Total Non-Current Liabilities 3,407,207 1,913,967
---------- ----------
Total Liabilities 5,755,630 5,741,816
Commitments
Stockholders' Equity (Deficit)
- ------------------------------
Common Stock of $.30 Par Value. Authorized 2,766,359 2,393,639
10,000,000 Shares; Issued 9,221,197 Shares
in 1997 and 7,978,799 Shares in 1996
Additional Paid-In Capital 8,066,122 7,966,730
Deficit (13,834,039) (7,774,828)
---------- ----------
Total Stockholders' Equity (3,001,558) 2,585,541
---------- ----------
Total Liabilities & Stkhldrs' Equity (Deficit) $2,754,072 $8,327,357
=========== ===========
See accompanying notes to consolidated financial statements
Jayark Corporation And Subsidiaries
Consolidated Statement of Operations
For The Years Ended April 30, 1997, and 1996
Continuing Operations: 1997 1996 1995
------------ ------------ ------------
Net Revenues $12,638,072 $11,856,148 $11,631,370
Cost & Expenses
Cost of Revenues 10,591,857 9,769,969 9,510,291
Selling, General and Administrative 1,999,570 2,109,182 2,145,535
Interest 221,566 160,687 - -
Other Income (78,549) (5,300) (302,630)
----------- ---------- ----------
Total Costs & Expenses 12,734,444 12,034,538 11,353,196
Pre Tax Earnings (losses) from
Continuing Operations (96,372) (178,390) 278,174
Provision for Inc. Tax. (Benefit from) - (62,000) 97,360
----------- ----------- ----------
Income (loss) from Cont. Operations (96,372) (116,390) 180,814
Income (loss) on Abandonment of
Investment, net of tax benefit of
benefit of $365,173 in 1996 - (4,363,263) -
Income (loss) from Disc. Operations,
net of Taxes of $350,000, ($156,503),
$368,778 respectively (3,462,109) (2,705,594) 592,479
Loss on disposition of subsidiary (2,500,730) - -
----------- ----------- ----------
Net Income (loss) ($6,059,211) ($7,185,247) $773,293
============ ============ ==========
Primary Earn (Loss) per Common Share
Continuing Operations ($0.01) ($0.01) $0.03
Discontinued Operations ($0.68) ($0.90) $0.09
----------- ----------- ----------
Net Income (loss) ($0.69) ($0.91) $0.12
=========== ============ ==========
Fully Diluted Earn (Loss) per
Common Share:
Continuing Operations $0.02
Discontinued Operations $0.07
----------
Net Income (loss) $0.10
==========
Weighted Average Common Shares:
Primary 8,802,528 7,833,990 6,867,083
=========== ============ ==========
Fully Diluted 7,965,438
==========
See accompanying notes to consolidated financial statements
Jayark Corporation And Subsidiaries
Consolidated Statements of Stockholders' Equity
For The Years Ended April 30, 1997, 1996, and 1995
Common Stk Pd-In Cap Deficit Treas Stk Tot Equity
---------- ---------- ------------ ---------- -----------
Bal at April 30, 1994 $2,049,973 $6,691,207 ($1,362,874) ($160,154) $7,218,152
Acq. of 319,200
shares of treasury
stock - - - (222,688) (222,688)
Issuance of 145,551
shares of stock 43,666 419,273 - - 462,939
Retirement of treasury
stock - - - 382,842 382,842
Net income - - 773,293 - 773,293
---------- ---------- ------------ ---------- -----------
Bal at April 30, 1995 2,093,639 7,110,480 (589,581) - 8,614,538
Issue of 1,000,000
shares of stock 300,000 856,250 - - 1,156,250
Net loss - - (7,185,247) - (7,185,247)
---------- ---------- ------------ ---------- -----------
Bal at April 30, 1996 2,393,639 7,966,730 (7,774,828) - 2,585,541
Issue of 1,242,400
shares of stock 372,720 99,392 - - 472,112
Net loss - - (6,059,211) - (6,059,211)
---------- ----------- ----------- ---------- -----------
Bal at April 30, 1997 $2,766,359 $8,066,12 ($13,834,039) $- ($3,001,558)
========== =========== ============ ========= ============
See accompanying notes to consolidated financial statements
Jayark Corporation And Subsidiaries
Consolidated Statements of Cash Flows
For The Years Ended April 30, 1997, 1996, and 1995
1997 1996 1995
Cash Flows From Operating Activities: ------------ ------------ ------------
Net Income (loss) ($6,059,211) ($7,185,247) $773,293
Adjustments to Reconcile Earnings (Loss)
to Cash from Operating Activities:
Stock Issued in Connection with
Abandoned - Investment - 1,156,250 -
Depreciation and Amortization of
Property and Equipment 40,089 273,378 254,894
Amortization of Excess of Cost Over
Net Assets of Businesses Acquired 21,360 21,360 21,361
Discontinued Division - PP&E 672,870
Net Assets of Discontinued Operations
written off 4,268,849 - 48,522
(Gain) Loss on Disposition of Assets 21,516 - 56,956
Change in Assets and Liabilities Net of
Effects From Acquisition of Subs:
(Increase)Decrease in Deferred Federal
Income Tax Expense (Benefit) 350,000 - 277,284
(Increase)Decrease in Accounts Rec Net (105,667) (787,431) (790,865)
(Increase) Decrease in Federal & State
Income Taxes Refundable 695,501 (645,951) (49,550)
(Increase) Decrease in Inventories 91,709 (121,087) (1,914,513)
(Increase) Decrease in Other Current Assets (12,685) 74,440 (200,293)
Increase (Decrease) in Accounts Payable 320,349 831,184 (422,263)
Increase (Decrease) in Federal & State
Income Taxes Payable - - (166,128)
Increase (Decrease) in Accrued Salaries
and Deferred Compensation (77,374) (15,142) (305,059)
Increase (Decrease) in Commissions Payable - 85,572 63,607
Increase (Decrease) in Accrual for
Discontinued Operations - Rosalco 305,000 - -
Increase (Decrease) in Other Liabilities (931,198) 1,784,881 (291,836)
------------ ------------ ------------
Net Cash Provided By (Used In)
Operating Activities (1,071,762) (4,527,793) (1,971,720)
Cash Flows from Investing Activities:
Capital Expenditures for Property and
Equipment (83,556) (66,042) (249,225)
Proceeds from Sale of Property and Equipment - - 162,334
------------ ------------ ------------
Net Cash Provided By (Used In)
Investing Activities (83,556) (66,042) (86,891)
Cash Flows From Financing Activities:
Payments of Long Term Debt (27,555) (33,188) (127,678)
Proceeds From Issuance of Notes Payable 2,001,084 4,084,000 3,108,582
Principal Payments on Notes Payable (1,101,997) - -
Purchase (Repayment) of Subordinated
Debentures - (100,000) (300,000)
Purchase of Treasury Stock - - (222,668)
------------ ------------ ------------
Net Cash Provided By (Used In)
Financing Activities 871,532 3,950,812 2,458,236
Net Increase (Decrease) in Cash
and Cash Equivalents (283,786) (643,023) 399,625
Cash & Cash Equivalents at Beginning of Year 350,926 1,176,700 777,075
Cash & Cash Equivalents relative to
Discontinued Operations - (182,751) -
------------ ------------ ------------
Cash & Cash Equivalents at End of Year $67,140 $350,926 $1,176,700
============ ============ ============
Supplemental Disclosure for Cash Flow
Information:
Cash Paid For:
Interest $171,862 $965,197 $893,124
============ ============ ============
Income Taxes - 167,000 389,094
============ ============ ============
Non-Cash Transactions:
Common Stock Issued in Connection
With LCL Investment 472,112 1,156,25 -
============ ============ ============
See accompanying notes to consolidated financial statements
Notes to Consolidated Financial Statements
April 30, 1997, 1996 and 1995
(1) Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Jayark
Corporation and its wholly-owned subsidiaries (the "Company"). All material
intercompany profits, transactions and balances have been eliminated.
Prior to April 30, 1997, a decision was made to discontinue the operations
of Rosalco, Inc. ("Rosalco"), a wholly owned subsidiary of the Company.
Rosalco was officially closed on October 22, 1997 and shortly thereafter a
receiver was assigned to liquidate its secured assets. The accompanying
financial statements have been adjusted retroactively to segregate and
report separately the net assets and results of operations of Rosalco as a
discontinued operation.
Inventories
Inventories comprise finished goods and are stated at the lower of cost
(first in, first out method) or market.
Property and Equipment, Depreciation and Amortization
Property and equipment are recorded at cost. Depreciation and amortization
are computed using the straight-line method over the estimated useful lives
of the assets, ranging from approximately 3 to 20 years. On sale or
retirement, the cost of assets sold or retired and related accumulated
depreciation or amortization is eliminated from the accounts and any
resulting gain or loss is included in operations. Maintenance and repairs
are expensed as incurred; expenditures for major renewals and betterments
are capitalized and amortized by charges to operations.
Intangibles
The accounts of purchased companies are included in the consolidated
financial statements from the dates of acquisition. The excess of cost over
the fair value of net assets of businesses acquired is being amortized using
the straight-line method over a 40-year period commencing with the dates of
acquisition.
Revenue Recognition
Revenues are recorded when products are shipped. Allowances are recorded
for estimated returns and losses.
Income Taxes
The Company follows the assset and liability method required by Financial
Accounting Standards Board Statement of Financial Accounting Standards No
109 in accounting for income taxes. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect of deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
Earnings per Share
Earnings per common share for the year ended April 30, 1995 were computed by
dividing net earnings by the weighted average number of common and common
equivalent shares outstanding during the respective periods. Common
equivalent shares include shares that would be issuable upon the exercise of
outstanding stock options reduced by the number of shares that are assumed
to be repurchased by the Company with the proceeds from the exercise of the
stock options. The shares purchased by the Company are assumed to be
purchased at the average market price during the respective period for
primary earnings and at the higher of the average market price or period-end
price for fully diluted earnings per share. Fully diluted earnings per
share assumes the conversion of the 12% convertible subordinated debentures
issued in December 1989 (see Note 7).
For the years ended April 30, 1997 and 1996, net loss per share is
calculated using the weighted average number of common shares outstanding
during the period. For purposes of the calculation, the shares to be issued
in connection with the LCL investment (see Note 13) were considered as
issued on April 30, 1996. The conversion of the subordinated debentures and
assumed exercise of options have not been considered in the computation,
since the effects were determined to be anti-dilutive.
Changes in Financial Presentation
Certain reclassifications have been made in the 1995 and 1996 financial
statements to conform to the presentation used in 1997.
Statements of Cash Flows
For purposes of the statements of cash flows, the Company considers all
highly liquid investments with original maturities of three months or less
to be cash equivalents.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Long-Lived Assets
Long-lived assets, such as property, equipment, and goodwill are evaluated
for impairment when events or changes in circumstances indicate
that the carrying amount of the assets may not be recoverable through the
estimated undiscounted future cash flows from the use of these assets. When
any such impairment exists, the related assets will be written down to their
fair value. This policy is in accordance with Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets to be Disposed Of", which was adopted on May 1, 1996. No write-downs
have been necessary through April 30, 1997, except for assets of the
discontinued operation (Note 16).
Stock-Based Compensation
The Company uses the intrinsic value method for accounting for stock
compensation plans, as permitted by Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation", which was
adopted on May 1, 1996. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the Company's
stock at the date of the grant over the amount the employee must pay to
acquire the stock.
Effect of new accounting pronouncements
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share", which is effective for both interim and annual periods ending after
December 15, 1997. Earlier application is not permitted. The Company
accordingly will adopt SFAS No. 128 in its April 30, 1998 annual financial
statements. The Company does not anticipate that SFAS No. 128 will have a
material effect on the earnings per share as presented.
In June 1997, the FASB issued two new disclosure standards. Results of
operations and financial position will be unaffected by implementation of
these new standards.
SFAS No. 130, "Reporting Comprehensive Income," establishes standards for
reporting and display of comprehensive income, its components and
accumulated balances. Comprehensive income is defined to include all
changes in equity except those resulting from investments by owners and
distributions to owners.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which supersedes SFAS No. 14, "Financial Reporting for
Segments of a Business Enterprise," establishes standards for the way that
public enterprises report information about operating segments in financial
statements. It also establishes standards for disclosures regarding
products and services, geographic areas and major customers.
Both of these new standards are effective for financial statements for
periods beginning after December 15, 1997, and require comparative
information for earlier years to be restated. Management does not expect
these two standards to have a significant impact on future financial
statement disclosures.
(3) Business
The Company's continuing operation, AVES Audio Visual Systems, Inc. ("AVES")
is in the business of resale and renting of a broad range of audio visual,
video and communication equipment and supplies to schools, industry, and
hotels.
(3) Related Party Transactions
The Company has subordinated notes (Note 7) with related parties amounting
to $795,712, with an annual interest rate of 12%. Interest expense relating
to notes payable to certain related parties was $167,258, $150,868, and
$60,736 in 1997, 1996 and 1995, respectively.
The Company had long term notes payable to related parties amounting to
$2,000,000 at April 30, 1997. The interest rate is Libor plus .95% on
$1,000,000 and prime plus 2.5% on the remaining $1,000,000. The maturity
date of the notes have been extended to December 31, 1999. Interest expense
relating to these notes for the year ended April 30, 1997 is $154,650.
For the year ended April 30, 1996, the Company had $500,000 of short term
notes payable to these related parties.
(4) Property and Equipment
Property and equipment are summarized as follows:
April 30, 1997 April 30, 1996
-------------- --------------
Machinery and equipment $59,144 $59,268
Furniture and fixtures 80,329 73,689
Leasehold improvements 37,290 27,800
Automobiles and trucks 200,580 218,423
Rental and demonstration
equipment 22,437 87,400
-------------- --------------
Total property and equipment 399,780 466,581
Less accumulated depreciation
and amortization 277,230 365,979
-------------- --------------
Net property and equipment $122,550 $100,602
============== ==============
(5) Lines of Credit
On April 30, 1996, the Company had $1,100,915 outstanding on its Line of
Credit with State Street Bank. The Company renegotiated the terms of the
agreement. The new agreement provides for monthly interest at prime rate
plus 1% to 1_%. Subsequently, the line was paid off with proceeds from a
$1,000,000 note to related parties and the remaining amount paid. In March
1997, AVES replaced the Line of Credit at State Street Bank with a line of
credit with BSB Bank & Trust, Binghamton, New York. The Line of Credit
permits AVES to borrow up to an aggregate amount of $1,250,000. The
interest rate is 9.75% annually. The Line of Credit is secured by the AVES'
accounts receivable and inventories. There are no financial covenants
associated with the line of credit. At April 30, 1997, $500,000 was
outstanding on this Line of Credit.
In connection with the guarantee for the new line of credit at AVES
described above and the interim financing of the Rosalco discontinued
operations by State Street Bank, the Company issued stock warrants totaling
4,166,667 to A-V Texas Holding, LLC, an affiliate of the Company. The
warrants allows the holder to purchase 4,166,667 shares of the Company's
common stock at a par value of $.30. The effectiveness of the warrants is
subject to an increase in the available authorized shares of the Company.
The warrants were deemed to have a minimal fair value and no amount was
recorded for them. The warrants expire on February 1, 2007.
At April 30, 1997 and 1996, the Company had letters of credit outstanding
amounting to $250,000 and $0 respectively.
(6) Long Term Debt
Long term debt is summarized as follows:
Description April 30, 1997 April 30, 1996
- -------------------------------------------------- -------------- --------------
Notes payable to a bank with interest rates
ranging from 7.25% to 9%, maturity dates ranging
from December 1995 to January 1999,
collateralized by vehicles. $14,601 $42,156
------------- --------------
Total long term debt 14,601 42,156
Less: Current maturities of long term debt 7,394 28,189
------------- --------------
Long term debt, excluding current maturities $7,207 $13,967
============= ==============
Aggregate yearly maturities of long term debt for the years after April 30,
1997 are as follows:
1998 $7,394
1999 7,207
-------
Total $14,601
=======
(7) Subordinated Debentures
On December 19, 1989, the Company issued $2,000,000 of 12% convertible
subordinated debentures to affiliates of the Company due December 1995. The
maturity date on these debentures has been extended until December 1999.
Interest on the outstanding balance is paid semiannually on April 30 and
October 31. The debentures may be converted into shares of the Company's
stock at a price of $1.50 per share at any time prior to maturity. Prior to
April 30, 1996, the Company had retired $600,000 of debentures. At April 30,
1997, no additional debt was retired. At April 30, 1997, 933,333 shares of
the Company's common stock are reserved for this conversion. The debentures
will automatically convert into shares of the Company's stock at the
conversion price in effect at such time in the event that the average
closing sale price of the Company stock for any period of thirty consecutive
trading days was equal to or exceeded $2.25 per share.
(8) Income Taxes
Income tax expense (benefit) relating to Federal taxes consists of:
Year ended April 30, Current Deferred Total
- -------------------- ---------- -------- ----------
1997 $0 $350,000 $350,000
1996 ($583,676) $0 ($583,676)
1995 $188,856 $277,283 $466,139
The tax benefit recorded in 1996 represents the taxes refundable due to the
carryback of that year's loss.
At April 30, 1997, the Company had, for federal tax reporting purposes, net
operating loss carryforwards of approximately $10,000,000, expiring in years
through 2012.
The actual tax expense (benefit) differs from the "expected" tax expense
(computed by applying the U.S. Corporate rate of 34%) in each of the 3 years
ended April 30, 1997 primarily as a result of increased valuation allowances
against potential deferred tax assets.
Deferred tax assets were $4,300,000 and $2,200,000 as of April 30, 1997 and
1996 respectively, arising primarily as a result of net operating losses.
Valuation allowances of $4,300,000 and $1,850,000 as of April 30, 1997 and
1996, respectively offset the deferred tax assets, resulting in net deferred
tax assets of $0 and $350,000 as of April 30, 1997 and 1996 respectively.
(9) Leases
The Company has several operating leases that expire at various dates
ranging through November 2000. Future minimum lease payments related to
operating leases are detailed as follows:
Year ending April 30, Operating leases
--------------------- ----------------
1998 $97,015
1999 86,856
2000 86,856
2001 86,856
Thereafter 0
-------
Total minimum lease payments $357,583
========
Total rental expense for operating leases was approximately $96,671,
$95,959, and $95,959 for the years ended April 30, 1997, 1996, and 1995
respectively.
(10) Stock Options
At April 30, 1997, the Company had two stock options plans which are
described below. The Company applies APB Opinion 25 - "Accounting for Stock
Issued to Employees", and related Interpretations in accounting for the
plans. In terms of APB Opinion 25, when the exercise price of the Company's
employee stock options equals the market price of the underlying stock on
the date of the grant, no compensation cost is recognized.
The Company's Incentive Stock Option Plan ("ISOP"), as amended, allows for
the granting of 600,000 shares of the Company's common stock. The ISOP
provides for the granting to key employees and officers of incentive stock
options, as defined, under current tax laws. The stock options are
exercisable at a price equal to or greater than the market value on the date
of the grant.
Option activity under the ISOP is as follows:
Stock Option - ISOP
------------------------------------------------------------------------
Options Exercise Price Weighted
Range Average
------------------------------------------------------------------------
Outstanding April 30, 1994 467,500 $.44-$1.05 $0.47
Granted -
Excercised -
Terminated/Expired (75,000) $0.44 $0.44
-----------------------------------------------
Outstanding April 30, 1995 392,500 $.44-$1.05 $0.48
Granted -
Excercised -
Terminated/Expired (150,000) $.44
-----------------------------------------------
Outstanding April 30, 1996 242,500 $.44-$1.05 $.50
Granted -
Excercised -
Terminated/Expired -
-----------------------------------------------
Outstanding April 30, 1997 242,500 $.44-$1.05 $.50
Exercise Weighted
Exercisable at Year End: Options Price Range Average
- -------------------------------------------------------------------------------
April 30, 1995 392,500 $.44-$1.05 $0.48
April 30, 1996 242,500 $.44-$1.05 $0.50
April 30, 1997 242,500 $.44-$1.05 $0.50
- -------------------------------------------------------------------------------
Available for Future grants:
April 30, 1995 207,500
April 30, 1996 357,500
April 30, 1997 357,500
- -------------------------------------------------------------------------------
The following summarizes information regarding stock
options outstanding at April 30, 1997.
Range of Exercise
prices: $0.44 $1.05
Outstanding Options:
Number outstanding at April 30, 1997 217,500 25,000
Weighted average remaining Contractual life (YR.) 1.6 1.6
Weighted average exercise price $0.44 $1.05
Effective September 17, 1994 and approved at the annual stockholders'
meeting in 1994, the 1994 Non-Employee Director Stock Option Plan (the
"Director's Plan") was adopted and 200,000 shares of the Company's Common
Stock reserved for issuance under the Director's Plan. The Director's Plan
provides for the automatic grant of nontransferable options to purchase
common stock to nonemployee directors of the Company, on the date
immediately preceding the date of each annual meeting of stockholders in
which an election of directors is concluded. Each nonemployee director then
in office will receive options exercisable for 5,000 shares (or a pro rata
share of the total number of shares still available under the Director's
Plan). No option may be granted under the Director's Plan after the date of
the 1998 annual meeting of stockholders.
Options issued pursuant to the Director's Plan are exercisable at an
exercise price equal to not less than 100% of the fair market value (as
defined in the Director's Plan) of shares of Common Stock on the day
immediately preceding the date of the grant. Options are vested and fully
exercisable as of the date of the grant. Unexercised options expire on the
earlier of (i) the date that is ten years from the date on which they were
granted, (ii) the date which is three calendar months from the date of the
termination of the optionee's directorship for any reason other than death
or disability (as defined in the Director's Plan), or (iii) one year from
the date of the optionee's disability or death while serving as a director.
Option activity under the Plan is as follows:
Stock Option - ISOP
Exercise Weighted Options
Options Price Range Average Exercisable
- -------------------------------------------------------------------------------
Outstanding April 30, 1994 35,000 $0.49 $0.49 35,000
Granted -
Terminated/Expired -
Outstanding April 30, 1995 35,000 $0.49 $0.49 35,000 -
Granted -
Terminated/Expired (10,000)
Outstanding April 30, 1996 25,000 $0.49 $0.49 25,000
Granted -
Terminated/Expired -
Outstanding April 30, 1997 25,000 $0.49 $0.49 25,000
- -------------------------------------------------------------------------------
Statement of Financial Accounting Standards No. 123 ("SFAS 123"),
"Accounting for Stock - Based Compensation", requires the Company to provide
pro forma disclosure of net income (loss) and earnings (loss) per as if the
optional fair value method had been applied to determine compensation costs
for the Company's Stock option plans. Since no options were granted in the
years ended April 30, 1997 and 1996, no pro forma disclosures are required.
(11) Major Customers
At April 30, 1997 and 1996, no customer's sales were greater than 10% of the
Company's total sales. In 1994, sales to one customer represented 12% of
total sales.
(12) Treasury Stock
Subsequent to the Company's announcement of its stock repurchase plan during
the third quarter of fiscal 1994, the Company purchased 319,200 and 127,430
shares of the Company's common stock during the years ended April 30, 1995
and 1994, respectively.
During fiscal 1995, 720,581 shares of the Company's common stock, which was
comprised of 575,030 treasury shares and 145,551 of newly issued shares were
distributed as part of the consideration given in acquiring a certain sales
commission agreement between the Company, the Company's discontinued
Sportswear subsidiary and Stage II Apparel Corp., a New York corporation.
The stock issued was then distributed by the Sportswear subsidiary to
certain related parties and affiliates in partial settlement of certain
promissory notes existing between the Sportswear subsidiary and the related
parties and affiliates.
(13) Loss on Abandonment of Investment
On June 27, 1995, LCL International Traders, Inc. ("LCL"), a wholly-owned
subsidiary of Jayark, completed the acquisition of substantially all the
assets and business of a group of affiliated companies engaged in the import
and distribution of seasonal and promotional merchandise (the
"Acquisition"). The sellers, located in Hong Kong and Central Islip, New
York, operated under the trade names "Liberty Bell Christmas", "Ivy Mar",
"Creative Home Products" and "Award Manufacturing". LCL acquired these
trade names as part of the transaction.
The purchase price for the Acquisition comprised the following: issue of
1,000,000 common shares of Jayark to the sellers, cash paid by LCL of
$3,000,000, a note payable by LCL to the sellers for $3,000,000 and the
assumption of certain liabilities of the sellers. The Company advanced
$1,000,000 to LCL in connection with the cash portion of the purchase price.
LCL obtained a credit facility for the balance of the cash portion of the
purchase price.
During August 1995, Jayark, LCL and Rosalco entered into a Reimbursement
Agreement with certain related third parties to provide to The CIT
Group/Commercial Services, Inc. ("CIT"), the primary lender to LCL,
irrevocable standby letters of credit and cash in the aggregate amount of
$1,700,000 to serve as additional collateral against which CIT would lend
additional working capital to LCL pursuant to CIT's lending arrangements
with LCL.
In consideration for providing the additional collateral, the guarantors
were to receive shares of common stock of the Company in proportion to the
amount of additional collateral initially provided by them. Excluding the
shares attributable to Rosalco, the Company was obligated to issue a total
of 282,400 shares of its common stock to the guarantors.
The arrangement with CIT for the additional financing secured by the
additional collateral expired on February 28, 1996. The arrangement
indicated that on that date, in the event that CIT had applied any of the
additional collateral to LCL's obligations to CIT, LCL would reimburse the
parties for the collateral so applied by CIT. Alternatively, the parties
could at any time after February 28, 1996 receive shares of the Company's
common stock as reimbursement for the collateral applied by CIT to LCL's
obligations to CIT. Each party would receive that number of shares that had
a value equal to the amount of such party's collateral that is applied by
CIT. Excluding the shares attributable to Rosalco, the Company is obligated
to issue a total of 960,000 shares of its common stock to the guarantors.
In July 1996, CIT notified the parties that CIT was applying the additional
collateral to LCL's obligations. As a result of the application of the
collateral by CIT, the parties received the following shares of the
Company's Common Stock: Joel Margolin received 400,000 shares; each of
Ruthanne Koffman and the Ben Arnold Company received 200,000 shares; and
Whitehorn Associates received 160,000 shares.
In fiscal 1997, the Compnay issued 1,242,400 shares of its common stock in
connection with the above transactions, which were valued at $472,112.
During fiscal 1996, the Company abandoned the investment in LCL, which in
turn filed for bankruptcy protection under Chapter 11 of the Bankruptcy
Code. Due to the nature of the investment and the short period of operation
of LCL, the operations of LCL were not consolidated with the Company's
operations. The Company provided for all realized and expected losses on
the abandonment, summarized as follows:
Description Amount
---------------------------------------------------- ----------
Value of shares issued $1,156,250
Cash paid 1,000,000
Provision for issuance of shares to guarantors 500,000
(using the most recent quoted stock price)
Rosalco obligation under the reimbursement agreement 500,000
Anticipated costs of abandonment 1,572,186
----------
Total loss on abandonment $4,728,436
==========
(14) Financial Instruments
The carrying amounts of financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable and notes payable
approximated fair value as of April 30, 1997 due to the short maturity of
these items. The fair value of the convertible debentures is not reasonably
determinable.
(15) Fourth Quarter Adjustments
During the fourth quarter of fiscal 1996, the Company made the following
significant adjustments to reported earnings:
Increase in accounts receivable reserves $550,000
Increase in inventory reserves 1,195,534
During the fourth quarter of fiscal 1997, the Company recorded the effects
of the discontinuance of Rosalco. See note 16.
(16) Discontinued Operations
As a result of continued losses due to a soft retail market, low margins,
competitive pressures, and price reductions, the Company had been looking to
sell or otherwise dispose of the operations of Rosalco. Rosalco had been in
the business of the distribution of more than 300 different products,
including occasional furniture, brass beds, custom jewelry cases and
accessories, most of which are imported from outside the continental United
States. Rosalco also developed special designs for several customers.
Rosalco was headquartered in Jeffersonville, Indiana. All efforts to sell
Rosalco were unsuccessful, and the company was officially closed on
Wednesday, October 22, 1997. The assets of the company were secured as part
of the borrowing agreement. Shortly after the closing, a receiver was
assigned to liquidate the secured assets of the company to satisfy the loan
principal. As a result, Jayark incurred a $5,963,000 loss on Discontinued
operations, which includes $3,462,000 loss from operations for the year
ended April 30, 1997, the establishment of accruals in the amount of
$300,000 for expenses and guarantees related to the closing, the write off
of an intercompany receivable and other assets of $476,000, and the
remaining net asset of Rosalco of $1,725,000.
The Rosalco business has been presented as a discontinued operation, and the
consolidated balance sheets and statements of operations have been restated
to conform with this presentations. Financial results of the Rosalco
operation are as follows:
Operating Data: Years Ended April 30,
1997 1996 1995
- -----------------------------------------------------------------
Net Revenues $37,505,589 $32,149,279 $36,761,578
Costs and Expenses 40,617,698 35,011,376 35,800,321
Income befor Tax (3,112,109) (2,862,097) 961,257
Provision for (Benefit From)
Income Tax 350,000 (156,503) 368,778
Tax
Net Income (Loss) ($3,462,109) ($2,705,594) $592,479
- -----------------------------------------------------------------
Balance Sheet Data April 30,
1997 1996
Assets
Current Assets
Cash $107,540 $182,750
Accounts Receivable 3,859,808 4,343,130
Other Receivable 294,713 425,277
Inventory 4,703,319 8,149,822
Deferred Tax - -
Other Current 272,702 295,549
--------- ---------
Total Current Assets 9,238,082 13,396,528
Non-Current Assets
PP&E, Net of
Accumulated Depreciation 541,248 680,665
Intercompany (414,435) -
--------- ---------
Total Non-Current Assets 126,813 680,665
--------- ---------
Total Assets 9,364,895 14,077,193
========= ==========
Liabilities
Notes Payable & L.O.C. 5,685,407 8,018,009
Current Portion of
Long Term Debt - -
Accounts Payable 1,576,777 1,245,156
Accrued Liabilities 117,040 278,596
Taxes Payable - 9,712
Other Current 260,291 256,871
--------- ---------
Total Current Liabilities 7,639,515 9,808,344
Net Assets $1,725,380* $4,268,849
* Note - these net assets were written off at April 30, 1997
Exhibit Index
3(1) Certificate of Incorporation of the Company. Incorporated herein by
reference to the Company's Proxy Statement for its 1991 Annual Meeting
of Shareholders, Exhibit B thereto.
3(2) Bylaws of the Company. Incorporated herein by reference to the
Company's Proxy Statement for its 1991 Annual Meeting of Shareholders,
Exhibit C thereto.
4(1) Specimen Certificate of Common Stock, par value $0.30 per share,
incorporated herein by reference from Registration Statement on Form
S-1, File Number 2-18743, Exhibit 4 thereto.
4(2) 12% Convertible Subordinated Debenture due 1994, incorporated herein by
reference to the Report on Form 8-K filed January 4, 1990, Exhibit 28(a)
thereto.
4(3) Registration rights agreement dated as of December 20, 1989, by and
between the Company and Rosalco, Inc., incorporated herein by reference
to the Report on Form 8-K filed January 4, 1990, Exhibit 28(c) thereto.
10(1)* 1981 Incentive Stock Option Plan, as amended as of December 15, 1989,
incorporated herein by reference to the Annual Report on Form 10-K for
the year ended April 30, 1990, Exhibit 10(1) thereto.
10(2) Notes and Loan and Security Agreements (Inventory & Accounts Receivable)
each dated as of January 20, 1992, between Jayark Corporation, AVES
Audio Visual Systems, Inc., Rosalco, Inc., Rosalco Woodworking, Inc.,
Diamond Press Company, and State street Bank & Trust Company of Boston,
Massachusetts, incorporated herein by reference from the Annual Report
on Form 10-K for the year ended April 30, 1992, Exhibit 10(3) thereto.
10(3) Letter Agreement dated December 6, 1989, among Arthur Cohen, Burton I.
Koffman, and Richard E. Koffman. Incorporated herein by reference to
the Annual Report on Form 10-K for the year ended April 30, 1990,
Exhibit 10(3) thereto.
10(4) Indemnity escrow Agreement dated as of December 20, 1989, by and between
the Company, Rosalco, Inc. and certain individuals named therein,
incorporated herein by reference to the Report on Form 8-K filed January
4, 1990, Exhibit 28(c) thereto.
10(5) Factoring Agreements dated as of February 7, 1992, by and between the
Company, Pilgrim Too Sportswear, Inc., J.F.D. Distributors, Inc., and
others named therein, and Barclays Commercial Corporation, incorporated
herein by reference to the Annual Report on Form 10-K for the year
ending April 30, 1992, Exhibit 10(10) thereto.
10(6) Diamond Press Asset Sale and Purchase Agreement dated as of November 23,
1992 by and between the Company and Harstan, Inc., incorporated herein
by reference to the Company's Form 8-K, as amended, as of November 23,
1992, Exhibit 2 thereto.
10(7) Asset Sale and Lease Termination Agreement, by and between Pilgrim Too
Manufacturing Company, Inc., New Images, Inc., Victor Freitag, Jr. and
wife Gilbert R. Freitag, and Robert E. Skirboll and wife Robin T.
Skirboll, dated as of April 2, 1993; Asset Purchase Agreement by and
between the Company, Pilgrim Too Sportswear, Inc., Pilgrim Too
Manufacturing Company, Inc., Stage II Apparel Corp., Shambuil Ltd., and
Pilgrim II Apparel Corp., dated as of April 2, 1993; both incorporated
herein by reference to the Company's Form 8-K as of April 2, 1993,
Exhibits thereto.
10(8) Amendment to certain Notes and Loan and Security Agreements each dated
as of January 20, 1992, incorporated herein by reference from the Annual
Report on Form 10-K for the year ended April 30, 1993, Exhibit 10(8)
thereto.
10(9) Amendment to certain Notes and Loan and Security Agreements each dated
as of December 31, 1993, incorporated herein by reference from the
Annual Report on Form 10-K for the year ended April 30, 1994, Exhibit
10(9) thereto.
10(10) Asset Purchase Agreement, dated June 5, 1995, among LIB-Com Ltd.,
Liberty Bell Christmas, Inc., Ivy Mar Co., Inc., Creative Home Products,
Inc., and Liberty Bell Christmas Realty, Inc. as the sellers and LCL
International Traders, Inc. as the buyer, incorporated herein by
reference from the Company's report on Form 8-K dated June 27, 1995,
Exhibit 2(a) thereto.
10(11) Asset Purchase Agreement, dated June 5, 1995, between Award
Manufacturing Corporation as the seller, and LCL International Traders,
Inc., as the buyer, incorporated herein by reference from the Company's
report on Form 8-K dated June 27, 1995, Exhibit 2(b) thereto.
10(12) Guarantee Agreement, dated June 5, 1995, by Award Manufacturing
Corporation in favor of LCL International Traders, Inc., incorporated
herein by reference from the Company's report on Form 8-K dated June 27,
1995, Exhibit 2(c) thereto.
10(13) Guarantee Agreement, dated June 5, 1995, by LIB-Com Ltd., Liberty Bell
Christmas, Inc., Ivy Mar Co., Inc., Creative Home Products, Inc., and
Liberty Bell Christmas Realty, Inc. in favor of LCL International
Traders, Inc., incorporated herein by reference from the Company's
report on Form 8-K dated June 27, 1995, Exhibit 2(d) thereto.
10(14) Promissory Note of LCL International Traders, Inc., due July 29, 1998,
payable to the order of Commerzbank AG, Hong Kong Branch, incorporated
herein by reference from the Company's report on Form 8-K dated June 27,
1995, Exhibit 2(e) thereto.
10(15) Confirmation Letter Agreement dated June 22, 1995, among Citibank, N.A.,
Commerzbank AG, Bayerische Vereinsbank AG, LCL International Traders,
Inc., and Jayark Corporation, incorporated herein by reference from the
Company's report on Form 8-K dated June 27, 1995, Exhibit 2(f) thereto.
10(16) Factoring Agreement dated June 23, 1995, between LCL International
Traders, Inc. and the CIT Group/Commercial Services, Inc., incorporated
herein by reference from the Company's report on Form 8-K dated June 27,
1995, Exhibit 99(a) thereto.
10(17) Inventory Security Agreement dated June 23, 1995, between LCL
International Traders, Inc. and the CIT Group/Commercial Services, Inc.,
incorporated herein by reference from the Company's report on Form 8-K
dated June 27, 1995, Exhibit 99(b) thereto.
10(18) Letter Agreement dated June 23, 1995, between LCL International Traders,
Inc. and the CIT Group/Commercial Services, Inc., incorporated herein by
reference from the Company's report on Form 8-K dated June 27, 1995,
Exhibit 99(c) thereto.
10(19) Letter Agreement dated June 23, 1995, between LCL International Traders,
Inc. and the CIT Group/Commercial Services, Inc., Liberty Bell
Christmas, Inc., Ivy Mar Co., Inc., and Creative Home Products, Inc.,
incorporated herein by reference from the Company's report on Form 8-K
dated June 27, 1995, Exhibit 99(d) thereto.
10(20) Amendment to certain Notes and Loan and Security Agreements each dated
as of December 31, 1994, incorporated herein by reference from the
Annual Report on Form 10-K for the year ended April 30, 1995 Exhibit
10(20) thereto.
10(21) Loan and Security Agreements dated April 29, 1996 Rosalco, Inc., and
State Street Bank & Trust Company of Boston, Massachusetts.
10(22) Loan and Security Agreements dated April 29, 1996 AVES Audio Visual
Systems, Inc., and State Street Bank & Trust Company of Boston,
Massachusetts.
10(23) First amendment to Loan and Security Agreements dated as of September
20, 1996 between Rosalco, Inc. and State Street Bank & Trust Company of
Boston, Massachusetts.
10(24) Agreement of Extension of Maturity of 12% Convertible Subordinated
Debentures dated April 30, 1990.
10(25) Forbearance and Modification Agreement dated March 12, 1997, between
Jayark Corporation, Rosalco, Inc., AVES Audio Visual Systems, Inc.,
David L. Koffman, and State Street Bank and Trust Company of Boston,
Massachusetts.
10(26) Stock Pledge Agreement dated March 12, 1997, between Jayark
Corporation and State Street Bank and Trust Company of Boston,
Massachusetts.
10(27) Subordination Agreement dated March 12, 1997, between Jayark
Corporation, Rosalco, Inc., AVES Audio Visual Systems, Inc.,
David L. Koffman, and State Street Bank and Trust Company of Boston,
Massachusetts.
10(28) Revolving Note dated March 12, 1997 between Jayark Corporation and
A-V Texas Holding, LLC.
10(29) Stock Pledge Agreement dated March 12, 1997 between Jayark
Corporation and A-V Texas Holding, LLC.
10(30) Stock Warrant to purchase 3,666,667 shares of common stock dated
March 12, 1997 between Jayark Corporation and A-V Texas Holding, LLC.
10(31) Commercial Security Agreement dated February 18, 1997, between AVES
Audio Visual Systems, Inc. and BSB Bank and Trust Company.
10(32) Promissory Note dated February 18,1997, between AVES Audio Visual
Systems, Inc. and BSB Bank and Trust Company.
10(33) Commercial Guaranty dated February 18, 1997, between AVES Audio
Visual Systems, Inc., David L. Koffman and BSB Bank and Trust Company.
10(34) Subordinated Promissory Note date March 12, 1997 between Rosalco,
Inc. and Jayark Corporation.
10(35) Second Forbearance and Modification Agreement dated June 1, 1997,
between State Street Bank and Trust Company of Boston, Massachusetts,
Rosalco, Inc., and Jayark Coporation.
10(36) Stock Warrant to purchase 500,000 shares of common stock dated March
12, 1997 between Jayark Corporation and A-V Texas Holding, LLC.
[ARTICLE] 5
[LEGEND]
[RESTATED]
[CIK] 0000053260
[NAME]
1000.0
[CURRENCY] USD
[FISCAL-YEAR-END] 04/30/97
[PERIOD-START] 05/01/96
[PERIOD-END] 04/30/97
[PERIOD-TYPE] 12-mos
[EXCHANGE-RATE]
[CASH] 67
[SECURITIES] 0
[RECEIVABLES] 1,841
[ALLOWANCES] 0
[INVENTORY] 412
[CURRENT-ASSETS] 2,341
[PP&E] 1,132
[DEPRECIATION] 719
[TOTAL-ASSETS] 2,754
[CURRENT-LIABILITIES] 2,348
[BONDS] 0
[COMMON] 2,766
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[OTHER-SE] 5,768
[TOTAL-LIABILITY-AND-EQUITY] 2,754
[SALES] 12,638
[TOTAL-REVENUES] 12,638
[CGS] 10,592
[TOTAL-COSTS] 10,592
[OTHER-EXPENSES] 1,921
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 222
[INCOME-PRETAX] (96)
[INCOME-TAX] 0
[INCOME-CONTINUING] (96)
[DISCONTINUED] (5,963)
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (6,059)
[EPS-PRIMARY] -0.69
[EPS-DILUTED] .00
EXHIBIT 10(35)
SECOND FORBEARANCE AND MODIFICATION AGREEMENT
This SECOND FORBEARANCE AND MODIFICATION AGREEMENT (this "Agreement")
is made as of this 1st day of June, 1997, among State Street Bank and Trust
Company (the "Bank"), Rosalco, Inc. (the "Borrower") and Jayark Corporation
("Jayark").
WHEREAS, the Bank has made extensions of credit to the Borrower
pursuant to (i) a certain Loan and Security Agreement (All Assets), dated as
of April 29, 1996, between the Borrower and the Bank (the "Loan Agreement"),
and (ii) a Forbearance and Modification Agreement, dated March 12, 1997,
among the Borrower, Jayark, AVES Audio Visual Systems, Inc., David L.
Koffman and the Bank (the "Initial Forbearance Agreement");
WHEREAS, the Obligations of the Borrower to the Bank (as defined in the
Loan Agreement) are evidenced by, among other things, a $10,000,000 Note-
Grid-Fluctuating Interest, dated as of April 29, 1996, made by the Borrower
in favor of the Bank (the "Note");
WHEREAS, all obligations of the Borrower to the Bank, including,
without limitation, the Obligations, are guaranteed by Jayark pursuant to a
certain Multi-Entity Guaranty (Unlimited), dated as of April 26, 1996, made
by, among other parties, Jayark and the Borrower in favor of the Bank (the
"Multi-Entity Guaranty"), which Multi-Entity Guaranty was amended by the
Initial Forbearance Agreement;
WHEREAS, certain defaults and events of default, more particularly
described on Schedule A attached hereto (the "Specified Defaults"), have
occurred and are continuing;
WHEREAS, notwithstanding the foregoing, the Borrower and Jayark have
requested that the Bank further forbear from demanding payment in full of
the Obligations;
WHEREAS, in response to such request, the Bank has agreed to further
refrain from exercising its rights and remedies under the Initial
Forbearance Agreement, Loan Agreement, the Note, the Multi-Entity Guaranty,
all security agreements securing the Obligations (as defined in the Loan
Agreement), a certain Pledge Agreement, dated March 12, 1997, between Jayark
and the Bank (the "Stock Pledge"), a certain Subordination Agreement, dated
March 12, 1997, between Jayark, the Bank and others (the "Subordination
Agreement'), and all other agreements and documents relating to the
Obligations (collectively, the "Loan Documents") until the Forbearance
Termination Date (as hereinafter defined), upon the following terms and
conditions.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby
agree as follows:
Section 1. Ratification of Existing Agreements.
(a) All of the Obligations as evidenced by or otherwise arising under
the Loan Documents, except as otherwise expressly modified in this Agreement
upon the terms set forth herein, are, by each party's execution of this
Agreement, ratified and confirmed in all respects. The Borrower confirms
that the Bank has a first priority perfected security interest in all of the
collateral described in the Loan Documents, which collateral secures all of
the Obligations. Jayark hereby specifically acknowledges and consents to
this Agreement and ratifies and confirms in all respects its obligations
under the Multi-Entity Guaranty (as amended by the Original Forbearance
Agreement), the Stock Pledge Agreement and the Subordination Agreement. In
addition, by the execution of this Agreement, the Borrower and Jayark
represent and warrant that no counterclaim, right of set-off or defense of
any kind exists or is outstanding with respect to any of such Obligations.
Section 2. Amount of Obligations. As of the date hereof, the
Borrower and Jayark acknowledge and agree that the outstanding principal
amount of the Obligations under the Loan Documents is equal to
$5,592,389.20, the accrued but unpaid interest, which continues to accrue,
totals $40,504.18, the undrawn amount of all letters of credit issued by the
Bank pursuant to the Loan Documents is $250,000.00, and all fees, costs and
expenses (including legal fees) total $43,250.00.
Section 3. Existing Defaults. The Borrower and Jayark agree and
acknowledge that (i) the Obligations and the Loan Documents are currently in
default as a result of the Specified Defaults, and (ii) the Bank is entitled
to exercise all of its rights and remedies thereunder and under applicable
law.
Section 4. Forbearance. Subject to the terms and conditions set
forth herein, and in consideration of the representations, warranties and
agreements made by the Borrower and Jayark herein, the Bank agrees to
further forbear from exercising its rights and remedies under the Loan
Documents until that certain date (the "Forbearance Termination Date") which
is the earliest to occur of:
(a) Subject to a one business day cure period after notice from
the Bank, the failure of the Borrower or Jayark to comply with any terms
applicable to such party set forth in this Agreement;
(b) The failure of any representation or warranty made by the
Borrower or Jayark herein to have been true and complete as of the date
made.
(c) The occurrence of any material adverse change in the
financial condition of the Borrower after the date of this Agreement, as
determined by the Bank in its reasonable discretion;
(d) The commencement by the Borrower, Jayark or any affiliate
thereof of any litigation against the Bank or any affiliate of the Bank in
connection with or related to this Agreement or any of the Loan Documents;
(e) After any applicable notice and cure period, (i) the
occurrence after the date of this Agreement of any Event of Default under
the Loan Documents (as amended hereby), including, without limitation, any
of the Specified Defaults, or (ii) the continuance after the date of this
Agreement of any Event of Default under the Loan Documents (as amended
hereby), including, without limitation, any of the
Specified Defaults, which first occurred prior to the date of this
Agreement;
(f) The termination of the employment of the Recovery Group as
financial advisor to the Borrower (unless a replacement reasonably
satisfactory to the Bank has been immediately retained by the Borrower);
(g) August 31, 1997.
On and after the Forbearance Termination Date, (i) the Bank shall not
be required to make any further advances to the Borrower under the Loan
Documents, (ii) all of the Obligations shall become immediately due and
payable in full, without any further notice to the Borrower or Jayark, (iii)
the Bank shall be free in its sole and absolute discretion to proceed to
enforce any or all of its rights under or in respect of this Agreement, the
Loan Documents and applicable law in order to collect and realize upon the
Obligations, and (iv) interest shall accrue on the Obligations until paid in
full, without further notice to the Borrower or Jayark, at the default rate
of interest provided in the Loan Documents. Nothing contained herein shall
constitute a waiver or release of any of the Specified Defaults.
Section 5. Conditions Precedent. The forbearance obligations of
the Bank shall be subject to the prior satisfaction, on or before the date
hereof, of the following conditions precedent:
(a) The Borrower shall have paid all of the fees and expenses of
counsel for the Bank, and all of the fees and expenses of its own counsel.
(b) The Borrower shall have delivered financial projections for
the 120-day period following the date of this Agreement, including balance
sheet, profit and loss statement and statement of cash flows (each of which
shall be presented on a week-by-week basis), in form and substance
satisfactory to the Bank.
Section 6. Covenants. Without any prejudice or impairment
whatsoever to any other rights and remedies of the Bank contained in the
Loan Agreement, the Note or in any of the other Loan Documents, the Borrower
covenants and agrees with the Bank as follows:
(a) The Borrower will deliver to the Bank an inventory assessment
plan, developed with assistance by and in conjunction with its financial
advisor, on or before June 30, 1997 or such other date as may be mutually
agreeable to the Borrower and the Bank.
(b) The Borrower shall continue to employ at least one day per
week the Recovery Group as financial advisor, or a replacement financial
advisor reasonably acceptable to the Bank, whose responsibilities shall
include periodically assessing the business operations and assets of the
Borrower and assisting the Borrower in its efforts to enhance revenue and
cash flow throughout the term of this Agreement. The financial advisor
shall also be responsible for assisting the Borrower in developing and
implementing a plan to provide for the payment in full of all Obligations no
later than August 31, 1997. Such plan shall be delivered to the Bank no
later than July 15, 1997. After the occurrence of the Forbearance
Termination Date, the Bank shall have the right, at its sole discretion, but
at the sole cost of the Borrower, to require the Borrower to employ, at any
frequency reasonably determined by the Bank, the Recovery Group as financial
advisor, or a replacement financial advisor reasonably acceptable to the
Bank, whose responsibilities shall include, but not be limited to,
continually assessing the business operations, business prospects and assets
of the Borrower and assisting the Borrower in its efforts to enhance revenue
and cash flow.
(c) The Borrower shall at all times be in compliance with all of
the terms, covenants and provisions contained in this Agreement and the Loan
Documents as they may be amended hereby, and all of the representations and
warranties contained in this Agreement shall be correct and complete as of
the date made.
(d) The Borrower and Jayark shall at any time or from time to
time execute and deliver such further instruments, and take such further
action as the Bank may reasonably request, in each case to further affect
the purposes of this Agreement or any of the Loan Documents, including,
without limitation, the execution and delivery of additional subordination
agreements with respect to any indebtedness incurred by the Borrower to any
of its affiliates (as defined in the Loan Agreement), in form and substance
satisfactory to the Bank.
(e) On a weekly basis, the Borrower shall deliver a report to the
Bank with respect to any inventory of the Borrower which is in transit to or
from a warehouse maintained by the Borrower, including, without limitation,
any inventory purchased by the Borrower which is being transported by ocean
going vessel to a port in the United States, setting forth the following:
(i) a description and the amount of such inventory, (ii) the name of the
shipper, (iii) the carrier which is transporting such inventory, and (iv)
the shipping charges owed to such carrier for such shipment and the total
amount unpaid to such carrier for all shipments to date. To the extent that
such inventory is represented by a bill of lading, the Borrower shall
immediately deliver such bill of lading to the Bank on demand.
(f) The Borrower shall deliver the following financial
information to the Bank, in form and substance satisfactory to the Bank: (i)
on a daily basis, a listing of the Borrower's sales for the previous day,
(ii) on a weekly basis, a cash flow report, showing the cash flow for the
Borrower for the period from the date of this Agreement through the date of
such cash flow report, with comparisons to the amounts budgeted for such
period, a listing of the inventory of the Borrower, and a completed
Borrowing Base Certificate in the form of Exhibit A attached to the Loan
Agreement, (iii) on a monthly basis, within twenty (20) days of the end of
each calendar month, an aging of the accounts receivable of the Borrower, an
aging of the accounts payable of the Borrower, and a listing of the
inventory of the Borrower, (iv) on a monthly basis, within thirty (30) days
of the end of each calendar month, a consolidating balance sheet, profit and
loss statement and statement of cash flows of the Borrower, together with a
Certificate of No Defaults, signed by the President or the Chief Financial
Officer of the Borrower in the form of Exhibit A attached hereto, and (v)
any other financial information requested by the Bank from time to time.
During normal business hours, the Borrower shall permit the Bank or its
designated agents to inspect the books and records of the Borrower and to
make copes therefrom, all at the cost and expense of the Borrower.
(g) The Borrower shall not request, and the Bank shall not be
required to issue, letters of credit to be issued by the Bank which have
expiration dates later than August 31, 1997.
(h) The Borrower shall, on demand, pay all of the fees and
expenses of counsel for the Bank.
(i) If, at any time and for any reason, the aggregate amount of
the outstanding loans made to the Borrower pursuant to the Loan Documents
exceeds the lesser of the Credit Limit or the Borrowing Base (as defined in
the Loan Agreement as amended hereby), then the Borrower shall, within one
business day after demand by the Bank, pay to the Bank, in cash, the amount
of such loans in excess of the Credit Limit.
Section 7. Application of Cash Collateral. Pursuant to the terms
of the Initial Forbearance Agreement, the Borrower deposited $100,000 into a
cash collateral account maintained at the Bank, which cash collateral
secures all of the obligations of the Borrower under the Initial Forbearance
Agreement and the Loan Documents. The Borrower and the Bank hereby agree
that the Bank shall immediately apply such cash collateral to reduce the
Obligations, and that, as a result of such reduction, the Borrowing Base and
the Credit Limit (as such terms are defined in the Loan Agreement) shall be
permanently reduced by the amount of $100,000. Such reduction shall be
reflected in an amendment to the Loan Agreement as provided in Section 8
below.
Section 8. Amendment and Modifications to Loan Agreement. The Loan
Agreement is hereby amended and modified in the following respects:
(a) Sections 5(a)(1), 5(a)(2), 5(a)(3), 5(a)(4) and 5(a)(5) of
the Loan Agreement are hereby amended in their entirety, and a new Section
5(a)(6) is hereby inserted as follows:
(1) ninety percent (90%) of the unpaid face amount of all
Qualified Accounts (as defined below); which are rated one or two
by Dunn and Bradstreet; PLUS
(2) eighty percent (80%) of the unpaid face amount of all
Accounts which are not rated one or two by Dunn and Bradstreet;
PLUS
(3) ninety percent (90%) of the unpaid face amount
of all Accounts which have not yet been earned by
performance but which are supported by letters of
credit; PLUS
``(4) the lesser of (i) $1,750,000; or
(ii) forty-five (45%) of all Eligible Inventory (as
defined below) consisting of finished goods located in
warehouses, in transit or which have been ordered
pursuant to a purchase order backed by a letter of
credit issued by the Bank, but which have not yet been
negotiated (exclusive of Inventory in Transit covered by
subsection (3) above); MINUS
(5) one hundred percent (100%) of the aggregate amount then
undrawn on all outstanding letters of credit and Banker's
Acceptances issued by the Bank for the account of the Borrower,
which shall in no event exceed $750,000; MINUS
(6) $100,000;
(d) Section 5(b) of the Loan Agreement is hereby amended in its
entirety to read as follows:
(b) The term "Credit Limit" as used herein shall
mean an amount equal to (i) during the period prior to
and including June 30, 1997, $5,900,000, (ii) during the
period from July 1, 1997 through and including July 31,
1997, $5,150,000, and (iii) after July 31, 1997,
$4,400,000.
(e) Section 12(h) of the Loan Agreement is hereby amended by
deleting the phrase "forty-five (45) days" and inserting, in its place, the
phrase "thirty (30) days".
(f) Section 14(g) of the Loan Agreement is hereby amended in its
entirety to read as follows:
(g) (Liens) create, permit to be created or suffer to
exist any lien, encumbrance, charge, security interest or
any other type of preferential arrangement, or grant a
negative pledge to any party other than the Bank
(collectively, "Lien") upon any of the Collateral or any
other property of Borrower, now owned or hereafter
acquired, except: (i) landlords', carriers',
warehousemen's, mechanics' and other similar Liens arising
by operation of law in the ordinary course of Borrower's
business; which secure indebtedness not yet due and
payable, (ii) arising out of pledges or deposits under
worker's compensation, unemployment insurance, old age
pension, social security, retirement benefits or other
similar legislation; (iii) purchase money Liens arising in
the ordinary course of business (so long as the
indebtedness secured thereby does not exceed the lesser of
the cost or fair market value of the property subject
thereto, and such Lien extends to no other property); (iv)
those Liens and encumbrances set forth on Schedule "B"
annexed hereto; and (v) in favor of Bank;
(g) Section 14(l) of the Loan Agreement is hereby amended in its
entirety to read as follows:
(l) (Transactions with Affiliates) enter into any
lease or other transaction with any shareholder, officer,
subsidiary, parent, any subsidiary of any parent, any
affiliate or any affiliate of any parent, on terms any less
favorable than those which might be obtained from persons
who (or entities which) are not such a shareholder,
officer, subsidiary, parent or affiliate; provided,
however, Borrower shall not make any payments to its parent
corporation in any one month in excess of $20,000 in
consideration for services to be provided to the Borrower
by Jayark Corporation, which payments shall be subject to
that certain Subordination Agreement, dated as of even date
herewith;
Section 9. Accumulated Operating Cash Flow. The Borrower
shall have attained a minimum of the following Accumulated Operating
Cash Flow as of each of the following dates:
Minimum Accumulated
Attainment Date Operating Cash Flow
June 30, 1997 $ 900,000
July 31, 1997 $ 1,900,000
Accumulated Operating Cash Flow shall be calculated on a consistent basis in
accordance with the calculations contained in Exhibit B attached hereto.
Section 10. Release. The Borrower and Jayark on their own behalf
and on behalf of their prospective shareholders, directors, employees and
agents and their successors and assigns, hereby waive, release and discharge
the Bank and all directors, officers, employees, attorneys and agents of the
Bank, from any and all claims, demands, actions or causes of action arising
out of or in any way relating to the Loan Documents and any documents,
agreements, dealings or other matters connected with the Loan Documents,
including, without limitation, all known and unknown matters, claims,
transactions or things occurring prior to the date of this Agreement
relating to the Loan Documents.
Section 11. Representations and Warranties.
(a) All of the representations and warranties made by the
Borrower in the Loan Agreement are true and correct as of the date hereof as
if made on and as of the date hereof, except to the extent that any of such
representations and warranties relate by their terms to a prior date or
except as otherwise disclosed in writing to the Bank on or before such date;
and the Borrower has no actual knowledge that any other representations and
warranties made by the Borrower in the Loan Documents are not true and
correct on and as of the date hereof.
(b) Neither the execution and delivery of this Agreement, nor the
consummation of the transactions herein contemplated, nor the compliance
with the provisions hereof will violate any provisions of the Articles of
Organization or Bylaws of the Borrower or Jayark, or any law, statute or
regulation, or any order or decree of any court or governmental
instrumentality, or will conflict with, or result in a breach of, or
constitute a default under, any indenture, mortgage, deed of trust,
agreement or other instrument to which the Borrower or Jayark is a party or
by which any of them or any of their property may be bound, or, except as
contemplated under this Agreement, result in the creation or imposition of
any mortgage, pledge, security interest, encumbrance, lien, charge,
attachment, judgment, levy, or other condition having the practical effect
of any of the foregoing upon any property of the Borrower or Jayark.
(c) The Borrower and Jayark have the corporate power and authority to
execute, deliver and carry out the terms and provisions of this Agreement and
the other documents executed in connection herewith or contemplated hereby
(collectively, the "Forbearance Documents"), and the Borrower and Jayark
have taken or caused to be taken all necessary corporate action to authorize
the execution, delivery and performance of this Agreement and the
Forbearance Documents. This Agreement and each of the Loan Documents
constitute the legal, valid and binding obligations of the Borrower and
Jayark and are enforceable in accordance with their respective terms.
(d) To the best knowledge of the Borrower, there are no material Events of
Default under the Loan Documents existing as of the date hereof other than
the Events of Default listed as items 1-13 on Schedule A attached hereto
Section 12. Forbearance Fee. Commencing on the date hereof, and
until the Obligations are paid in full, the Borrower shall pay to the Bank a
fee equal to $25,000 per month (the "Forbearance Fee"), payable in advance
on the first day of each month beginning with the month of June, 1997 (which
initial Forbearance Fee shall be due and payable on the date hereof),
provided, that $15,000 of each required payment of the Forbearance Fee shall
be deferred and paid on the Forbearance Termination Date, provided further,
that if the Borrower repays the Obligations in full prior to the Forbearance
Termination Date, the deferred portion of the Forbearance Fee will be
waived.
Section 13. Consent to Appointment of Receiver. In addition to all
of the other rights and remedies available to the Bank under this Agreement
and the Loan Documents, on or after the Forbearance Termination Date, each
of the Borrower and Jayark expressly consents to the appointment of a
receiver as requested by the Bank in its sole discretion for its properties
and business in any state or federal court proceeding or administrative
proceeding. The Borrower will take no action to contest, object to or
otherwise interfere with the request for or appointment of a receiver and
the Borrower shall cooperate fully in making all of its books and records
available to a receiver and in giving such receiver dominion and control
over all properties, business records and business of the Borrower. If the
Bank requests the appointment of a receiver, the Borrower will promptly
execute all documents required by the Bank to evidence the Borrower's
consent to such appointment. The Bank shall provide the Borrower with seven
(7) business days prior written notice of any request by the Bank for the
appointment of a receiver. The Bank's right to require a receiver for
Borrower's properties and business shall be in addition to, and not in lieu
or limitation of, the Bank's other rights and remedies under the Loan
Documents, this Agreement or otherwise and may be executed by the Bank prior
to, concurrently with, or successive to any other rights and remedies
available.
Section 14. No Waiver. Except as otherwise expressly provided for
in this Agreement, nothing in this Agreement shall extend to or affect in
any way any of the obligations of the Borrower or Jayark or any of the
Bank's rights and remedies arising under the Loan Documents. The acceptance
by the Bank of any partial payment of any amount due shall not constitute a
waiver of the rights of the Bank to collect the remaining portion thereof.
Section 15. Expenses. The Borrower agrees to pay to the Bank on the
date hereof and upon demand from time to time hereafter (a) an amount equal
to any and all reasonable out-of-pocket costs or expenses (including
reasonable legal fees and disbursements) incurred or sustained by the Bank
in connection with the administration of credit extended by the Bank to the
Borrower or the preservation of or enforcement of its rights under the Loan
Documents or in respect of any of the Borrower's other obligations to the
Bank. The Borrower hereby authorizes and directs the Bank, upon five (5)
day's notice from the Bank, to charge the Borrower's deposit accounts at the
Bank for all such costs and expenses.
Section 16. Notices. All notices, demands or other communications
required or permitted hereunder shall be in writing and shall be telecopied
(followed by overnight mail), personally delivered or sent by registered or
certified mail, postage-prepaid, return receipt requested, or by receipted
overnight delivery service to the addressee, at its address set forth below:
If to the Borrower: With a copy to:
Rosalco, Inc. Robert Nolt
257 America Place 300 Plaza Drive
Jeffersonville, IN 47130 Vestal, NY 13850
Fax: (812) 284-6658 Fax: (607) 797-7103
If to Jayark: With a copy to:
c/o David L. Koffman Robert Nolt
300 Plaza Drive 300 Plaza Drive
Vestal, NY 13850 Vestal, NY 13850
Fax: (607) 797-7103 Fax: (607) 797-7103
If to the Bank: With a Copy to;
State Street Bank and Trust Mintz, Levin, Cohn, Ferris,
Company Glovsky and Popeo, P.C.
225 Franklin Street One Financial Center
Boston, MA 02110 Boston, MA 02111
Attention: John D. Gaziano, Jr., V.P. Attention: Paul J. Ricotta
James M. Benninger, V.P. Fax: (617) 542-2241
Fax: (617) 664-4176
or at such other address as shall be designated by any of the foregoing
parties in a written notice to the other parties complying as to delivery
with the terms of this Section. All such communications shall be deemed
received (i) in the case of hand delivery, on the day of delivery, (ii) in
the case of overnight mail or overnight courier service, on the next
business day after such communication is mailed, postage prepaid, or placed
in the hands of such courier service for delivery, (iii) in the case of
telecopy, on the day the sender receives electronic confirmation that a
facsimile has been successfully transmitted to the recipient thereof, and
(iv) in the case of registered or certified mail, on the fifth business day
after such communication is mailed, postage prepaid, with the United States
Postal Service.
Section 17. Miscellaneous.
(a) This Agreement shall be binding and shall be deemed effective
only when executed by all of the parties hereto.
(b) This Agreement shall bind and inure to the benefit of the
respective successors and assigns of each of the parties hereto; provided,
however, neither the Borrower nor Jayark may assign this Agreement or any
rights or obligations hereunder, and any prohibited assignment shall be
absolutely void. Without notice to or consent of the Borrower or Jayark,
the Bank may assign this Agreement and its rights and duties hereunder. The
parties hereto do not intend that any of the benefits of this Agreement
shall inure to any third party, and no third party shall be a third party
beneficiary hereof.
(c) Headings and section numbering contained in this Agreement
have been set forth herein for convenience only.
(d) Each provision of this Agreement shall be severable from
every other provision of this
Agreement for the purposes of determining the legal enforceability of such
provision, and the unenforceability of any provision of this Agreement shall
not invalidate the enforceability of any other provision of this Agreement.
(e) This Agreement and the Initial Forbearance Agreement
constitute the entire agreement among the parties hereto with respect to the
Bank's forbearance of its rights and remedies under the Loan Documents.
(f) This Agreement cannot be changed or terminated orally, but
only by a writing signed by all of the parties hereto.
(g) This Agreement supersedes all prior agreements,
understandings and negotiations relating to the Bank's forbearance as
provided herein, all of which are merged into this Agreement; provided
however, this Agreement shall not supersede or merge into the Initial
Forbearance Agreement, and the terms of this Agreement shall be in addition
to, not in substitution for, the terms of the Initial Forbearance Agreement.
(h) This Agreement may be executed in any number of counterparts
each of which, when executed and delivered, shall be deemed to be an
original and all of which, when taken together, shall constitute but one and
the same Agreement.
Section 18. Continuing Effect. Except as specifically modified
hereby, the Loan Documents shall remain in full force and effect, and the
Borrower and Jayark acknowledge and agree to comply with all of the
provisions of the Loan Documents, as modified hereby.
Section 19. No Future Commitments. The Borrower and Jayark
acknowledge that while the Bank may agree to review a plan or plans for
restructuring of the existing obligations, the Bank has not agreed or
committed to enter into such restructuring. Nothing contained in this
Agreement shall be deemed to constitute the Bank's agreement that the Bank
will agree to any restructuring. The Borrower and Jayark acknowledge and
agree that they are not relying upon any expectation that the Bank will
agree to any restructuring in the future. The Borrower and Jayark further
acknowledge and agree that, absent a written modification of the terms of
this Agreement in accordance with the provisions hereof, the Obligations
shall become due and payable in full in cash on the Forbearance Termination
Date.
Section 20. WAIVER OF JURY TRIAL. THE BORROWER HEREBY WAIVES ITS
RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY
DISPUTE IN CONNECTION WITH THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY OF THE
BORROWER'S OBLIGATIONS HEREUNDER OR THEREUNDER OR THE PERFORMANCE OF SUCH
OBLIGATIONS.
Section 21. Governing Law. This Agreement shall be governed and
construed in accordance with the laws of The Commonwealth of Massachusetts.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed by its duly authorized officer as of the day
and year first above written.
WITNESS: ROSALCO, INC.
/s/ Robert C. Nolt By: /s/ David L. Koffman
Name: Robert C. Nolt Name: David L. Koffman
Its: Chairman
WITNESS: STATE STREET BANK AND TRUST
COMPANY
_______________________________ By: /s/ John D. Gaziano
Name: Name: John D. Gaziano
Its: Vice President
WITNESS: JAYARK CORPORATION
/s/ Robert C. Nolt By: /s/ David L. Koffman
Name: Robert C. Nolt Name: David L. Koffman
Its: President
SCHEDULE A
SPECIFIED DEFAULTS
1. Section 14(b) of the Loan and Security Agreement (All Assets)
(the "Loan Agreement") with respect to the Debt to Capital
Base;
2. Section 14(c) of the Loan Agreement with respect to the
Current Ratio;
3. Section 14(d) of the Loan Agreement with respect to Minimum
Net Earnings; and
4. Section 14(i) of the Loan Agreement with respect to loans
made by the Borrower.
5. Section 14(j) of the Loan Agreement with respect to the
guaranty of indebtedness.
6. Section 14(l) of the Loan Agreement with respect to leases
with shareholders or affiliates of the Borrower.
7. Section 15(c) of the Loan Agreement with respect to
violations of the Loan Documents
8. Section 15(f) of the Loan Agreement with respect to liens of
creditors.
9. Section 15(l) of the Loan Agreement with respect to material
adverse changes in the financial condition of the Borrower.
10. Section 15(o) of the Loan Agreement with respect to changes
in the identify of the management of the Borrower.
11. Section 15(u) of the Loan Agreement with respect to the
occurrence of an event of default by a guarantor
12. Section 15(x) of the Loan Agreement with respect to the
occurrence of an event of default under the Loan and Security
Agreement (All Assets) between AVES and the Bank on account
of the occurrence of an event of default under the Loan
Documents.
13. Section 5(a) of the Loan Agreement with respect to the
aggregate principal amount of the loan.
The Borrower has informed the Bank that the Borrower may be in default
of other covenants and obligations under the Loan Documents. The Bank
acknowledges that these additional defaults, although not enumerated, shall
constitute Specified Defaults.
EXHIBIT A
FORM OF CERTIFICATE OF NO DEFAULTS
I do hereby certify to State Street Bank and Trust Company (the "Bank")
that I have reviewed the Second Forbearance and Modification Agreement,
dated as of June 1, 1997, among the Bank, Rosalco, Inc. and Jayark
Corporation (the "Second Forbearance Agreement") and the Loan Documents (as
defined therein); I further certify that I have caused the investigations
necessary to make this certification; I further certify that to the best of
my knowledge, except as already disclosed to the bank, no default under the
Second Forbearance Agreement or Event of Default (as defined in the Loan
Documents) exists as of the date hereof [or describing such default or Event
of Default if one exists].
Dated: This 27 day of June, 1997
/s/ David L. Koffman
Name
Chairman
Title
|TRADOCS: 1003952.10 (l$nk10!.doc)
EXHIBIT B
Rosalco Inc.
6/6/97
June July August
Net Sales 2,500,000 1,300,000 1,500,000
Cash Receipts 2,500,000 2,200,000 2,600,000
Operating Disbursements
Payroll/Payroll Taxes 188,600 128,166 109,165
A/P 440,000 300,000 280,955
Factory Payments 900,000 660,000 1,386,221
--------- --------- ---------
Total Oper.Exp. 1,340,000 960,000 1,667,176
OCF 1,160,000 1,240,000 932,824
Accum. 1,160,000 2,400,000 3,332,824
Interest 40,112 29,571 23,447
Proceeds
--------- --------- ---------
NCF 1,119,888 1,210,429 909,377
Accum. 1.119,888 2,330,317 3,239,694
OCF-cumm. Covenant
Collateral
A/R 4,009,677 2,856,273 1,951,269
Cust L/C 200,000 200,000 200,000
Inventory L/C 725,000 725,000 725,000
Inventory 3,118,422 2,945,480 3,174,357
--------- --------- ---------
Total 8,053,099 6,726,753 6,050,626
Rates
A/R (blended) 87.0% 87.0% 87.0%
Cust. L/C 90.0% 90.0% 90.0%
Inventory L/C 45.0% 45.0% 45.0%
Inventory 45.0% 45.0% 45.0%
Availability
A/R 1/2 3,488,419 2,484,958 1,697,604
Cust L/C 180,000 180,000 180,000
Inv. L/C 326,250 326,250 326,250
Inventory 1,403,290 1,325,466 1,428,461
--------- --------- ---------
Total 5,397,959 4,316,674 3,632,315
Borrowings
Line 4,696,069 3,461,931 2,745,045
L/Cs 725,000 725,000 725,000
--------- --------- ---------
Total 5,421,069 4,186,931 3,470,045
Excess Available (23,110) 129,743 162,270
EXHIBIT 10(36)
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD
OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THE SECURITIES UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS OR THE AVAILABILITY OF AN EXEMPTION FROM
REGISTRATION UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES
LAWS.
STOCK WARRANT
To Purchase 500,000 Shares of Common Stock of
Jayark Corporation, a Delaware Corporation
(the "Company")
Subject to Adjustment as Set Forth
in Section 5 and Particularly Section 5(g)
DATE OF INITIAL ISSUANCE: March 12, 1997
THIS CERTIFIES THAT, for value received, A-V Texas Holding, LLC
or registered assigns (hereinafter called the "Holder") is entitled to
purchase from the Company during the Term of this Warrant at the times
provided for herein, the number of shares of Common Stock, par value $.30
per share, of the Company (the "Common Stock") as specified herein, at
the Warrant Price (as hereinafter defined), payable in the manner
specified herein. The conversion of this Warrant shall be subject to the
provisions, limitations and restrictions herein contained.
SECTION 1. Definitions.
Common Stock - shall mean and include the Company's authorized
Common Stock, as constituted on the date the Certificate of Incorporation is
amended as provided in the definition of "Term of this Warrant" below,
and shall also include any capital stock of any class of the Company
hereafter authorized which has the right to participate in the distribution
of earnings and assets of the
Company without limit to amount or percentage.
Securities Act - the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.
Term of this Warrant - shall mean the period beginning on the date
the Company amends its Certificate of Incorporation to provide for no
less than 20,000,000 authorized shares of Common Stock (at any par value)
and ending on February 1, 2007.
Warrant Price - is defined in Section 2.1 hereof.
Warrant Rights - the rights of the Holder to purchase shares of
Common Stock upon conversion of this Warrant, which rights shall not relate
to shares of Common Stock already purchased pursuant to this Warrant.
Warrant Shares - shares of Common Stock purchased or
purchasable by the Holder of this Warrant upon the conversion
hereof.
SECTION 2. Conversion of Warrant.
2.1. Right to Exercise Warrant. At any time and from time
to time during the term of this Warrant, the Holder hereof shall
have the right to convert this Warrant, in whole or part(s) to
purchase up to the number of shares of Common Stock set forth on
the cover page hereof, subject to adjustment as provided in
Section 5.
The Warrant Price shall be $.30 per share subject to
adjustment as provided in Section 5 and shall be paid in cash.
2.2. Procedure for Cashless Conversion of Warrant. The
registered holder hereof shall convert this Warrant by the
surrender of this Warrant and the Notice of Conversion form
attached hereto duly executed at the office of the Company at 300
Plaza Drive, Vestal, New York 13850 (or such other office or
agency of the Company as it may designate by notice in writing to
the registered holder hereof at the address of such holder
appearing on the books of the Company), into shares of Warrant
Shares as provided in this Section 2.
Upon conversion of this Warrant in accordance with this
Section 2, the registered holder hereof shall be entitled to
receive a certificate for the number of shares of Warrant Shares
determined in accordance with the foregoing.
2.3. Transfer and Restriction Legend. This Warrant is
freely transferable by the Holder, except as transferability may
be limited by federal and state securities laws. Each
certificate for Warrant Shares shall bear the following legend
(and any additional legend required by (i) any applicable state
securities laws and (ii) any securities exchange upon which such
Warrant Shares may, at the time of such exercise, be listed) on
the face thereof unless at the time of exercise such Warrant
Shares shall be registered under the Securities Act:
"THESE SECURITIES HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY STATE SECURITIES LAWS.
THEY MAY NOT BE SOLD OR OFFERED FOR SALE IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THE SECURITIES UNDER SAID ACT
AND ANY APPLICABLE STATE SECURITIES LAWS OR
THE AVAILABILITY OF AN EXEMPTION FROM
REGISTRATION UNDER SAID ACT AND ANY
APPLICABLE STATE SECURITIES LAWS."
Any certificate issued at any time in exchange or substitution
for any certificate bearing such legend (except a new certificate
issued upon completion of a public distribution under a
registration statement of the securities represented thereby)
shall also bear such legend unless, in the opinion of counsel for
the holder thereof (which counsel shall be reasonably
satisfactory to counsel for the Company) the securities
represented thereby are not, at such time, required by law to
bear such legend.
SECTION 3. Covenants as to Common Stock. The Company
covenants and agrees that all shares of Common Stock that may be
issued upon the exercise of the rights represented by this
Warrant will, upon issuance and receipt by the Company of the
Warrant Price, be validly issued, fully paid and nonassessable,
and free from all taxes, liens and charges with respect to the
issue thereof. The Company further covenants and agrees that it
will pay when due and payable any and all federal and state taxes
which may be payable in respect of the issue of this Warrant, or
any Common Stock or certificates therefor issuable upon the
exercise of this Warrant. The Company further covenants and
agrees that the Company will at all times have authorized and
reserved, free from preemptive rights, a sufficient number of
shares of Common Stock to provide for the exercise of the rights
represented by this Warrant. The Company further covenants and
agrees that if any shares of capital stock to be reserved for the
purpose of the issuance of shares upon the conversion of this
Warrant require registration with or approval of any governmental
authority under any federal or state law before such shares may
be validly issued or delivered upon conversion, then the Company
will in good faith and as expeditiously as possible endeavor to
secure such registration or approval, as the case may be. If and
so long as the Common Stock issuable upon the conversion of this
Warrant is listed on any national securities exchange, the
Company will, if permitted by the rules of such exchange, list
and keep listed on such exchange, upon official notice of
issuance, all shares of such Common Stock issuable upon
conversion of this Warrant.
SECTION 4. Ownership.
4.1 Register; Transfer or Exchange of Warrants. The
Company shall keep at its office maintained in Vestal, New York a
register in which the Company shall provide for the registration
of Warrants and for the registration of transfer of Warrants.
The Holder of any Warrant may, at its option and either in person
or by duly authorized attorney, surrender the same for
registration of transfer or exchange at such office and, without
expense to such Holder (other than transfer taxes, if any),
receive in exchange therefor a new Warrant or Warrants, dated as
of the date to which transfer is effectuated, for the same
aggregate amount of shares as the Warrant or Warrants so
surrendered for transfer or exchange and each registered in such
name or names as may be designated by such Holder. Every Warrant
so made and delivered in exchange for any Warrant shall in all
other respects be in the same form and have the same terms as the
Warrant so surrendered for transfer or exchange.
4.2. Ownership of This Warrant. The Company may deem and
treat the person in whose name this Warrant is registered as the
holder and owner hereof (notwithstanding any notations of
ownership or writing hereon made by anyone other than the
Company) for all purposes and shall not be affected by any notice
to the contrary until presentation of this Warrant for
registration of transfer as provided in this Section 4.
4.3. Transfer and Replacement. This Warrant and all rights
hereunder are subject to applicable federal and state securities
laws, transferable in whole or in part upon the books of the
Company by the Holder hereof in person or by duly authorized
attorney, and a new Warrant or Warrants, of the same tenor as
this Warrant but registered in the name of the transferee or
transferees shall be made and delivered by the Company upon
surrender of this Warrant duly endorsed. Upon receipt by the
Company of evidence reasonably satisfactory to it of the loss,
theft or destruction, and, in such case, of indemnity or security
reasonably satisfactory to it, and upon surrender of this Warrant
if mutilated, the Company will make and deliver a new Warrant of
like tenor, in lieu of this Warrant; provided that if the Holder
hereof is an instrumentality of a state or local government or an
institutional holder or a nominee for such an instrumentality or
institutional holder, an irrevocable agreement of indemnity by
such Holder shall be sufficient for all purposes of this Section
4, and no evidence of loss or theft or destruction shall be
necessary. This Warrant shall be promptly canceled by the
Company upon the surrender hereof in connection with any transfer
or replacement. Except as otherwise provided above, in the case
of the loss, theft or destruction of a Warrant, the Company shall
pay all expenses, taxes and other charges payable in connection
with any transfer or replacement of this Warrant, other than
stock transfer taxes (if any) payable in connection with a
transfer of this Warrant, which shall be payable by the Holder.
SECTION 5. Adjustment of Warrant Price and Number of Shares
of Common Stock or Warrants.
(a) In case the Company shall (i) pay a dividend or
make a distribution in shares of its capital stock (whether
shares of Common Stock or of capital stock of any other class) or
distribute evidences of indebtedness or assets, (ii) sub-divide
its outstanding shares of Common Stock (iii) combine its
outstanding shares of Common Stock into a smaller number of
shares, or (iv) issue by reclassification of its shares of Common
Stock any shares of capital stock of the Company, the conversion
privilege and Warrant Price in effect immediately prior to such
action shall be adjusted so that the holders of any Warrants
thereafter surrendered for exercise shall be entitled to receive
the number of shares of capital stock of the Company which he or
she would have owned immediately following such action had such
Warrant been exercised immediately prior thereto. An adjustment
made pursuant to this subsection (a) shall become effective
retroactively immediately after the record date in the case of a
dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision,
combination or reclassification. If, as a result of an
adjustment made pursuant to this subsection (a), the holder of
any shares of this Warrant thereafter surrendered for conversion
shall become entitled to receive shares of two or more classes of
capital stock of the Company, the Board of Directors (whose
reasonable determination shall be made in good faith) shall
determine the allocation of the adjusted conversion price between
or among shares of such classes of capital stock.
(b) The Company may elect, upon any adjustment of the
Warrant Price hereunder, to adjust the number of Warrants
outstanding, in lieu of the adjustment in the number of shares of
Common Stock purchasable upon the conversion of each Warrant as
hereinabove provided, so that each Warrant outstanding after such
adjustment shall represent the right to purchase one share of
Common Stock. Each Warrant held of record prior to such
adjustment of the number of Warrants shall become that number of
Warrants (calculated to the nearest tenth) determined by
multiplying the number one by a fraction, the numerator of which
shall be the Warrant Price in effect immediately prior to such
adjustment and the denominator of which shall be the Warrant
Price in effect immediately after such adjustment.
(c) In case of any reclassification, capital
reorganization or other change of outstanding shares of Common
Stock, or in case of any consolidation or merger of the Company
with or into another corporation (other than a consolidation or
merger in which the Company is the continuing corporation and
which does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common
Stock), or in case of any sale or conveyance to another
corporation of the property of the Company as, or substantially
as, an entirety (other than a sale/leaseback, mortgage or other
financing transaction), the Company shall cause effective
provision to be made so that each holder of a Warrant then
outstanding shall have the right thereafter, by converting such
Warrant, to purchase the kind and number of shares of stock or
other securities or property (including cash) receivable upon
such reclassification, capital reorganization or other change,
consolidation, merger, sale or conveyance by a holder of the
number of shares of Common Stock that might have been purchased
upon conversion of such Warrant immediately prior to such
reclassification, capital reorganization or other change,
consolidation, merger, sale or conveyance. Any such provision
shall include provision for adjustments that shall be as nearly
equivalent as may be practicable to the adjustments provided for
in this Section 5. The Company shall not effect any such
consolidation, merger or sale unless prior to or simultaneously
with the consummation thereof the successor (if other than the
Company) resulting from such consolidation or merger of the
corporation purchasing assets or other appropriate corporation or
entity shall assume, by written instrument executed and delivered
to the Company, the obligation to deliver to the holder of each
Warrant such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holders may be
entitled to purchase and the other obligations under this
Warrant. The foregoing provisions shall similarly apply to
successive reclassification, capital reorganizations and other
changes of outstanding shares of Common Stock and to successive
consolidations, mergers, sales or conveyances.
(d) After each adjustment of the Warrant Price
pursuant to this Section 5, the Company will promptly prepare a
certificate signed by the President, and by the Treasurer or an
Assistant Treasurer or the Secretary or any Assistant Secretary,
of the Company setting forth: (i) the Warrant Price as so
adjusted, (ii) the number of shares of Common Stock purchasable
upon conversion of each Warrant after such adjustment, and, if
the Company shall have elected to adjust the number of Warrants,
the number of Warrants to which the registered holder of each
Warrant shall then be entitled.
(e) For purposes of Section 5(a) and 5(b) hereof, the
following shall also be applicable:
(A) The number of shares of Common Stock
outstanding at any given time shall include shares of Common
Stock owned or held by or for the account of the Company and
the sale or issuance of such treasury shares or the
distribution of any such treasury shares shall not be
considered a Change of Shares for purposes of said sections.
(B) No adjustment of the Warrant Price shall be
made unless such adjustment would require a decrease of a
least $.0001 in such price; provided that any adjustments
which by reason of this clause (B) are not required to be
made at the time of and together with the next subsequent
adjustment which, together with any adjustment(s) so carried
forward, shall require an increase or decrease of at least
$.0001 in the Warrant Price then in effect hereunder.
(f) If and whenever the Company shall grant to all
holders of Common Stock, as such, rights or warrants to subscribe
for or to purchase, or any options for the purchase of, Common
Stock or securities convertible into or exchangeable for carrying
a right, warrant or option to purchase Common Stock, the Company
shall concurrently therewith grant to each Registered Holder as
of the record date for such transaction of the Warrants then
outstanding, the rights, warrants or options to which each
Registered Holder would have been entitled if, on the record date
used to determine the stockholders entitled to the rights,
warrants or options being granted by the Company, the Registered
Holder were the holder of record of the number or whole shares of
Common Stock then issuable upon conversion (assuming, for
purposes of this section 5 (f), that exercise of Warrants is
permissible during periods prior to the Warrant Exercise Date) of
his Warrants. Such grant by the Company to the holders of the
Warrants shall be in lieu of any adjustment which otherwise might
be called for pursuant to this Section 5.
g) Anything in this Warrant to the contrary notwithstanding,
the number of shares of Common Stock to which this Warrant shall relate
shall increase .5% for each $1,000 paid by the original Holder of this
Warrant, or any person or entity affiliated with the original Holder of this
Warrant pursuant to any guarantee issued by such Holder, person or entity
guaranteeing obligations of the Company or any of its subsidiaries.
SECTION 6. Notice of Extraordinary Dividends. If the Board of Directors of
the Company shall declare any dividend or other
distribution on its Common Stock except out of earned surplus or
by way of a stock dividend payable in shares of its Common Stock,
the Company shall mail notice thereof to the Holder hereof not
less than fifteen (15) days prior to the record date fixed for
determining shareholders entitled to participate in such dividend
or other distribution, and the Holder hereof shall not
participate in such dividend or other distribution unless this
Warrant may be converted, in whole or in part, pursuant to
Section 2.1 of this Warrant, and is converted prior to such
record date. The provisions of this Section 6 shall not apply to
distributions made in connection with transactions covered by
Section 5.
SECTION 7. Fractional Shares. Fractional shares shall not
be issued upon the conversion of this Warrant but in any case
where the Holder would, except for the provisions of this Section
7, be entitled under the terms hereof to receive a fractional
share upon the conversion of this Warrant, the Company shall,
upon the conversion of this Warrant, pay a sum in cash equal to
the excess of the value of such fractional share (determined in
such reasonable manner as may be prescribed in good faith by the Board of
Directors of the Company.
SECTION 8. Notices. Any notice or other document required or permitted
to be given or delivered to the Holder or the Company shall be
effected on the seventh day following delivery to the United States Post
Office, proper postage prepaid, sent by certified or registered mail return
receipt requested, or on the day delivered by hand and receipted, or on
the second business day after delivery to a recognized overnight courier
service, addressed to the Holder at the address thereof specified in the
records of the Company or to such other address as shall have been
furnished to the Company in writing by the Holder or the
Company at 124 West Main Street, High Bridge, New Jersey 08829 or to such
other address as shall have been furnished in writing to the Holder by the
Company.
SECTION 9. No Rights as Stockholder; Limitation of
Liability. This Warrant shall not entitle the Holder to any of
the rights of a shareholder of the Company. No provision hereof,
in the absence of affirmative action by the Holder to purchase
shares of Common Stock, and no mere enumeration herein of the
rights or privileges of the Holder, shall give rise to any
liability of the Holder for the Warrant Price hereunder or as a
shareholder of the Company, whether such liability is asserted by
the Company or by creditors of the Company.
SECTION 10. Law Governing. This Warrant shall be governed
by, and construed and enforced in accordance with, the laws of
the State of New York.
SECTION 11. Miscellaneous. This Warrant and any provision
hereof may be changed, waived, discharged or terminated only by
an instrument in writing signed by the party (or any predecessor
in interest thereof) against which enforcement of the same is
sought. The headings in this Warrant are for purposes of
reference only and shall not affect the meaning or construction
of any of the provisions hereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to
be signed by its duly authorized officer this 12th day of March
1997.
JAYARK CORPORATION
Name: /s/ David L. Koffman
Title: President