-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WA2oF1i9J64We2kS0+KucPDhLPboe+vdNUo3E1ZPrsIIfPZWBxeehkkMUcclMxTl P8ypV/504IxvC/EfJ3CLuA== 0000891554-99-000224.txt : 19990215 0000891554-99-000224.hdr.sgml : 19990215 ACCESSION NUMBER: 0000891554-99-000224 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19990212 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: AUDIO BOOK CLUB INC CENTRAL INDEX KEY: 0001040973 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-CATALOG & MAIL-ORDER HOUSES [5961] IRS NUMBER: 650429858 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: SEC FILE NUMBER: 005-52737 FILM NUMBER: 99535148 BUSINESS ADDRESS: STREET 1: 2295 CORPORATE BLVD STE 222 CITY: BOCA RATON STATE: FL ZIP: 33431 BUSINESS PHONE: 5612411426 MAIL ADDRESS: STREET 1: 2295 CORPORATE BLVD 222 CITY: BOCA RATON STATE: FL ZIP: 33431 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: HERRICK NORTON CENTRAL INDEX KEY: 0000904829 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 2295 CORPORATE BLVD N W SUITE 222 CITY: BOCA RATON STATE: FL ZIP: 33431 MAIL ADDRESS: STREET 1: AUDIO BOOK CLUB INC STREET 2: 2295 CORPORATE BLVD STE 222 CITY: BOCA RATON STATE: FL ZIP: 33431 SC 13D 1 SCHEDULE 13D SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D (Rule 13d-101) INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO RULE 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO RULE 13d-2(a) (Amendment No. )* Audio Book Club, Inc. (Name of Issuer) Common Stock, no par value (Title of Class of Securities) 05068R 10 8 (CUSIP Number) Brad Shiffman, Esq. Tenzer Greenblatt LLP 405 Lexington Avenue, New York, New York 10174 (212) 885-5442 (Name, Address and Telephone Number of Person Authorized to Receive Notice and Communications) December 31, 1998 (Date of Event Which Requires Filing of This Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box |_|. Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 13d-7(b) for other parties to whom copies are to be sent. * The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). Page 1 of 6 Pages SCHEDULE 13D - --------------------- ----------------- CUSIP NO. 05068R-10-8 Page 2 of 6 Pages - --------------------- ----------------- - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSONS I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY) Norton Herrick - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) |_| (b) |X| - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* PF, OO - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) |_| - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION United States - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER NUMBER OF 2,916,627 (includes options, warrants and a convertible note SHARES to acquire an aggregate of 2,908,427 shares of Common Stock) BENEFICIALLY as of February 12, 1999 OWNED BY ----------------------------------------------------------------- EACH 8 SHARED VOTING POWER REPORTING PERSON 0 WITH ----------------------------------------------------------------- 9 SOLE DISPOSITIVE POWER 3,893,547 (includes options, warrants and a convertible note to acquire an aggregate of 2,908,427 shares of Common Stock) as of February 12, 1999 ----------------------------------------------------------------- 10 SHARED DISPOSITIVE POWER 0 - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 3,893,547 (includes options, warrants and a note to acquire an aggregate of 2,908,427 shares of Common Stock) - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* |X| Does not include 2,714,180 shares held by N. Herrick Irrevocable ABC Trust (the "N. Herrick Trust"), of which Norton Herrick is the sole beneficiary and in which he therefore may be deemed to have an economic interest. Mr. Herrick does not have voting power or dispositive power with respect to the 2,714,180 shares held by the N. Herrick Trust. - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 39.0% - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* IN - -------------------------------------------------------------------------------- *SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEM 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. Page 2 of 6 Pages Item 1. Security and Issuer. This statement relates to the Common Stock, no par value ("Common Stock") issued by Audio Book Club, Inc., a Florida corporation (the "Company"), whose principal executive offices are located at 2295 Corporate Boulevard, Suite 222, Boca Raton, Florida 33431. All share information in this statement gives retroactive effect to a 16,282-for-1 split of the Common Stock effected in October 1997. Item 2. Identity and Background. This statement is filed by Norton Herrick, Co-Chief Executive Officer and a principal shareholder of the Company (the "Reporting Person"). The business address of the Reporting Person is c/o Audio Book Club, Inc., 2295 Corporate Boulevard, Suite 222, Boca Raton, Florida 33431. The Reporting Person is a United States citizen. Mr. Herrick has not, during the last five years (i) been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors), or (ii) been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violations with respect to such laws. Item 3. Source and Amount of Funds or other Consideration. In connection with the formation of the Company, between August 1993 and January 1994 the Reporting Person, and two of his sons, Howard Herrick ("H. Herrick") and Michael Herrick ("M. Herrick") purchased from the Company, for total consideration of $200, an aggregate of 3,256,400 shares of Common Stock of which 2,301,200 shares were purchased by the Reporting Person and 477,600 shares were purchased by each of H. Herrick and M. Herrick. Subsequent to this date, but and prior to the Company's October 1997 initial public offering (the "IPO"), the Reporting Person effected certain transfers of his shares of Common Stock and established the N. Herrick Irrevocable ABC Trust, of which the Reporting Person is sole beneficiary and H. Herrick is the sole trustee (the "N. Herrick Trust"). The Trust Agreement for the N. Herrick Trust provides H. Herrick with sole voting and dispositive power with respect to the shares of Common Stock held by the N. Herrick Trust. In addition, M. Herrick established the M.E. Herrick Irrevocable Trust (the "M.E. Herrick Trust"), of which M. Herrick is the sole beneficiary and H. Herrick is the sole trustee. H. Herrick has irrevocably granted to N. Herrick sole dispositive power with respect to shares of Common Stock held by H. Herrick on his own behalf and on behalf of the M.E. Herrick Trust. Immediately prior to the IPO, the N. Herrick Trust converted $5,975,200 of indebtedness owed to it by the Company into 597,520 shares of Common Stock. As of the date of the IPO, as a result of transfers of Common Stock by the Reporting Person to the N. Herrick Trust and other share transfers and the October 1997 share issuance to the N. Herrick Trust noted above, the Reporting Person owned of record no shares of Common Stock, the N. Herrick Trust owned of record 2,714,180 shares, H. Herrick owned of record 488,460 shares, and the M.E. Herrick Trust owned of record 488,460 shares. Between March 31, 1998 and April 3, 1998 the Reporting Person purchased on the open market a total of 8,200 shares of Page 3 of 6 Pages Common Stock at prices ranging from $4.25-$4.375 per share. On June 16, 1998 the Company issued to the Reporting Person pursuant to the Company's 1997 Stock Option Plan (the "Plan"), five-year options to purchase 250,000 shares of Common Stock at $3.50 per share. On September 10, 1998, the Company granted to the Reporting Person five-year Plan Options to purchase 750,000 shares of Common Stock at $7.25 per share. On December 31, 1998, the Company issued to the Reporting Person five-year warrants (the "Warrants") to purchase 500,000 shares of Common Stock at $12.00 per share and a convertible note (the "Note") which was initially convertible into 1,348,315 shares of Common Stock and is currently convertible into 1,258,427 shares of Common Stock at any time until the earlier of the repayment of the Note or December 31, 2004. The Warrants and Note were issued to the Reporting Person in consideration of his loan to the Company in the initial amount of $15,000,000 (reduced to $14,000,000 in January 1999) (the "Loan") the proceeds of which was used by the Company to fund a portion of the purchase price of the audio book club division of The Columbia House Company which was acquired by the Company in December 31, 1998. The number of shares issuable upon exercise of the foregoing options and the Warrants and upon conversion of the note are subject to certain anti-dilution and other adjustments. None of such options or Warrants has been exercised and the Note has not been converted. In addition, Evan Herrick, a son of the Reporting Person, has granted to the Reporting Person voting and dispositive power with respect to 150,000 shares of Common Stock issuable upon exercise of five-year options granted to Evan Herrick in November 1998. Item 4. Purpose of Transaction. The purpose of the acquisition of the shares of Common Stock by the Reporting Person as acquired prior to the IPO was for control and for investment purposes. The 8,200 shares acquired in the open market by the Reporting Person were acquired for investment purposes. The Reporting Persons may make additional purchases of Common Stock from time to time and may dispose of any or all of the shares of Common Stock held by him at any time. The Reporting Person has no plans or proposals which relate to, or could result in any of the matters referred to in Paragraphs (b) through (j) of Item 4 of Schedule 13D although in his capacity as a director and executive officer of the Company he will be involved in any decisions of the Company to issue additional securities and to continue the Company's strategy which includes pursuing acquisitions of complementary businesses. The Reporting Person may review or reconsider his position with respect to the Company or to formulate plans or proposals with respect to any such matter, but, except as noted above, has no present intention of doing so. Item 5. Interest in Securities of the Issuer. As of February 12, 1999, the Reporting Person beneficially owns an aggregate of 3,893,547 shares of Common Stock constituting approximately 39.0% of the outstanding Common Stock. The amount includes: (i) 8,200 shares owned of record by the Reporting Person, (ii) 1,000,000 shares issuable upon Plan options granted to the Reporting Person, (iii) 500,000 shares issuable upon exercise of the Warrants, (iv) 1,258,427 shares issuable upon conversion of the Note, (v) 488,460 shares owned of record by H. Herrick, of which the Reporting Person has sole dispositive but no voting power, (vi) 488,460 shares owned of record by the M. E. Herrick Trust, of which the Reporting Person has sole dispositive but no voting power, and (v) 150,000 shares issuable upon exercise of Plan options granted to Evan Herrick, of which the Reporting Person has sole voting and dispositive power. The foregoing calculation does not include the 2,714,180 shares owned of record by the N. Herrick Trust, of which the Page 4 of 6 Pages Reporting Person is the sole beneficiary but has no voting or dispositive power. The percentage used herein is calculated based upon the 7,078,920 shares of Common Stock issued and outstanding at December 31, 1998, as provided by the Company. Except for the shares owned of record by H. Herrick and the M.E. Herrick Trust as to which the Reporting Person has sole dispositive power, but no voting power, the Reporting Person has sole voting and dispositive power with respect to all the shares of Common Stock to which this statement relates. The Reporting Person has not effected any transactions in shares of the Common Stock in the past 60 days other than as indicated above. Except as noted below, no person other than the Reporting Person has the right to receive or the power to direct receipt of dividends from, or the proceeds of, the sale of the shares of Common Stock. H. Herrick has the right to receive dividends and proceeds from any disposition of shares of Common Stock owned of record by him. The M.E. Herrick Trust, whose sole beneficiary is M. Herrick, has the right to receive any dividends on any shares owned of record by the M.E. Herrick Trust and the proceeds from any sale of Common Stock by the M.E. Herrick Trust. Item 6. Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the Issuer. Other than as set forth above, there are no contracts, arrangements, understandings or relationships with the Reporting Persons or any other person with respect to the securities of the Issuer, including but not limited to transfer or voting of any other securities, finders' fees, joint ventures, loan or option arrangements, puts or calls, guaranties of profits, divisions of profits or loss or the giving or withholding of proxies except that pursuant to a December 31, 1998 letter agreement between the Reporting Person and the Company, the Company may be obligated to issue to the Reporting Person warrants to purchase 350,000 shares of Common Stock at $12.00 per share in certain circumstances involving the re-financing of the Note. The Reporting Person has received certain registration rights with respect to the shares of Common Stock beneficially owned by him. Item 7. Materials to be filed as Exhibits. Exhibit 1 December 31, 1998 financing letter agreement between the Company and the Reporting Person. Exhibit 2 Proxy of Howard Herrick to the Reporting Person. Exhibit 3 Proxy of Evan Herrick to the Reporting Person. Page 5 of 6 Pages SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. DATE: February 12, 1999 /s/ Norton Herrick ---------------------------- Norton Herrick Page 6 of 6 Pages EX-1 2 FINANCING LETTER AGREEMENT Exhibit 1 AUDIO BOOK CLUB, INC. 20 COMMUNITY PLACE P.O. BOX 2346 MORRISTOWN, NJ 07962-2346 December 31, 1998 Mr. Norton Herrick 2295 Corporate Blvd., N.W. Suite 222 P.O. Box 5010 Boca Raton, FL 33431 Dear Mr. Herrick: As an inducement to, and in consideration of, your purchase from Audio Book Club, Inc. (the "Company"), of the Company's 9% Convertible Senior Subordinated Promissory Note Due December 31, 2004 (the "Note") in the principal amount of $15,000,000, the Company hereby agrees as follows (capitalized terms used and not otherwise defined herein having the meanings ascribed to them in the Note): 1. The officers of the Company (other than Norton, Michael or Howard Herrick) shall use their best efforts to seek to refinance or replace the Note with debt or equity financing and will consider all proposals and accept a proposal (which is permitted under the Senior Credit Facilities or consented to by the lenders thereunder) whether or not (i) as favorable as the terms of the Note, including, without limitation, those providing for a principal amount of up to $18.5 million, a higher interest rate, the issuance of additional warrants, a lower exercise price for the warrants and/or a lower conversion price (or a variable conversion price based on the future market price of the Company's Common Stock) for the Note; (ii) involving the issuance of equity securities, including shares of preferred stock with a variable conversion rate and mandatory redemption features; and/or (iii) requiring the payment of financing, placement or other fees. 2. In the event refinancing is obtained from anyone other than the Herricks or an Affiliate of any of the Herricks, you will not be required to return to the Company the warrants ("Warrants") issued to you pursuant to the Warrant Agreement dated December 31, 1998 by and between you and the Company and you shall be issued additional warrants (identical to Warrants) to purchase 350,000 shares of Common Stock; and 3. In the event that (i) an offer is presented to the Company's Board of Directors to provide debt or equity refinancing of the Note (which is permitted under the Senior Credit Facilities or consented to by the lenders thereunder) and such refinancing is not accepted by the Company's board of directors or (ii) debt or equity refinancing is not obtained by the Company on or prior to September 30, 1999, in either case, at your option, after September 30, 1999, and upon receipt of approval of the Company's shareholders (which the Company's Board of Directors has agreed to recommend to the Company's shareholders), (a) the interest rate of the Note will increase to 11%, except that no increase in the interest rate on the Note shall be permitted or may be effected prior to January 1, 2000 other than non-current pay interest which accrues and is not payable in cash until final maturity of the Note, (b) the conversion price of the Note will be decreased to the lesser of the conversion price then in effect or the average of the closing bid price of the Common Stock for the five trading days prior to conversion, (c) the exercise price of the Warrants will, be reduced (but not increased) to the average of the 10 lowest closing bid prices of the Common Stock for the 30 trading days prior to the date that shareholder approval has been obtained, but not below $8.00 per share, and (d) you shall have all other rights and remedies available to you. The Company acknowledges that your holding of the Note (notwithstanding the terms thereof) from the Company was intended to be short-term financing and serve as a bridge to replacement financing. However, Fleet National Bank requires the Note to mature following the expiration of the senior credit facilities and therefore, you agreed to the terms of the Note as an accommodation to the Company. AUDIO BOOK CLUB, INC. By: ---------------------------------- Name: John Levy TITLE: Executive Vice President Chief Financial Officer Accepted and Agreed: - ---------------------------------- Norton Herrick EX-2 3 IRREVOCABLE GRANT OF POWER (HOWARD EVAN HERRICK) Exhibit 2 IRREVOCABLE GRANT OF POWER I, HOWARD EVAN HERRICK ("Grantor"), residing at 26 Alder Lane, Basking Ridge, New Jersey 07920, hereby irrevocably grant and convey to Norton Herrick ("Grantee"), with an office at c/o The Herrick Company, 2295 Corporate Boulevard, N.W., Boca Raton, Florida 33431, power of general disposition over any or all shares of the capital stock of Audio Book Club, Inc., a Florida corporation, including, any other securities of such corporation or any other entity issued at any time upon any conversion or exchange of any such shares of the capital stock of Audio Book Club, Inc. ("Property"), in the same manner and to the same extent as the Grantor could do if the Grantor were personally acting with respect to any dispositive transaction. The grant of power made hereunder shall survive the Grantor's death and disability and shall bind his heirs, executors, legal representatives and assigns. The general power of disposition granted herein shall, include, but not be limited, to: (a) the power to sell any or all of the Property at any time and to any person as Grantee deems appropriate, including, but not limited to, the power to make loans to Grantee or, upon his death, to his spouse, Elayne Herrick ("Elayne"), provided that such loans bear interest at the minimum rate as specified by the Internal Revenue Service for loans of similar tenor and are not greater than twenty (20) years in duration; and/or (b) the power to create a security interest in, and pledge, any or all of the Property as security for the repayment of any loan made by any person (a "Lender") to Grantee (or, upon his death, to Elayne) and/or to any entity in which Grantee (or, upon his death, Elayne) holds or may hereafter hold an equity interest as a shareholder, member or partner; and/or (c) the power to create a security interest in, and pledge, any or all of the Property to secure the obligations of Grantee to any Lender under Grantee's (or, upon his death, Elayne's) guarantee of a loan made by a Lender to any entity of which Grantee (or, upon his death, Elayne) holds or may hereafter hold an equity interest as shareholder, member or partner. Notwithstanding any contrary provision herein upon the death or adjudication of incompetence of Grantee, the general power of disposition granted hereby shall vest in Elayne and upon the death and/or adjudication of incompetence of both Grantee and Elayne, the general power of disposition granted herein shall terminate and revert to the Grantor. It is intended that Grantee (and, upon his death, Elayne) shall be fully vested with general power of disposition over the Property, while Grantor shall retain all other incidents of ownership of the Property, including, but not limited to, the right to receive and retain any proceeds from the disposition of the Property, other than the proceeds of any loan to Grantee (and, upon his death, Elayne) and/or any entity in which Grantee (or, upon his death, Elayne) may have an equity interest, which is directly or indirectly secured by any of the Property. -2- Following the execution of this instrument, Grantor shall not take any action to sell, transfer or pledge or otherwise dispose of the Property or any interest therein, and shall not participate in any such transaction except at the direction of Grantee (or, upon his death, Elayne). In furtherance of the power of disposition granted to Grantee (and, upon his death, Elayne) hereunder, Grantor is concurrently delivering to Grantee certificates representing the shares of the capital stock of Audio Book Club, Inc. which are the current subject of this power, together with stock powers duly executed in blank by Grantor. This instrument is executed by Grantor in consideration for Grantee's undertaking to offer Grantor the opportunity from time to time to invest in various business ventures, including Audio Book Club, Inc. To induce any third party to rely on this instrument, Grantor hereby declares that any third party receiving a duly executed copy or facsimile of this instrument may conclusively rely on this instrument without any further inquiry, and that any attempted rescission, revocation or termination of this instrument by Grantor at any time shall be ineffective, and null and void. Grantor, for himself and his heirs, executors, legal representatives and assigns, hereby agrees to indemnify and hold harmless any such third party from and against any and all claims that may arise against such third party by reason of such third party having relied on the provisions of this instrument. -3- This instrument shall be governed by and construed in accordance with the laws of the State of New Jersey (without giving effect to the choice of law rules thereof), especially the common law of such state relating to powers of appointment and other powers over property, other than powers of attorney. IN WITNESS WHEREOF, I have hereunto signed my name on June _________, 1997. ---------------------------- HOWARD EVAN HERRICK CONFIRMED AND APPROVED: - ------------------------- NORTON HERRICK - ------------------------- ELAYNE HERRICK -4- STATE OF NEW JERSEY ) : ss.: COUNTY OF MORRIS ) On the ____ day of June, 1997, before me personally came HOWARD EVAN HERRICK, to me known and known to me to be the individual described in and who executed the foregoing instrument and acknowledged to me that he executed the same. ---------------------------- Notary Publi -5- EX-3 4 IRREVOCABLE GRANT OF POWER (EVAN HERRICK) Exhibit 3 IRREVOCABLE GRANT OF POWER I, EVAN HERRICK ("Grantor"), residing at ______________________________ ________________________________, hereby irrevocably grant and convey to Norton Herrick ("Grantee"), with an office at c/o The Herrick Company, 2295 Corporate Boulevard, N.W., Boca Raton, Florida 33431, power to vote and power of general disposition over (i) the option ("Option") granted to Grantor pursuant to the NonQualified Stock Option Agreement dated as of November 5, 1998 between Grantor and Audio Book Club, Inc., a Florida corporation, and (ii) the shares of the capital stock of Audio Book Club, Inc. issuable upon exercise of the Option including, any other securities of such corporation or any other entity issued at any time upon any conversion or exchange of any such shares of the capital stock of Audio Book Club, Inc. (collectively, "Property"), in the same manner and to the same extent as the Grantor could do if the Grantor were personally acting with respect to any dispositive transaction. The grant of power made hereunder shall survive the Grantor's death and disability and shall bind his heirs, executors, legal representatives and assigns. The general power of disposition granted herein shall, include, but not be limited, to: (a) the power to exercise the Option in whole or in part, and whether any such exercise shall be made on a "cash" or "cashless" basis; and/or (b) the power to sell any or all of the Property at any time and to any person as Grantee deems appropriate, including, but not limited to, the power to make loans to Grantee or, upon his death, to his spouse, Elayne Herrick ("Elayne"), provided that such loans bear interest at the minimum rate as specified by the Internal Revenue Service for loans of similar tenor and are not greater than twenty (20) years in duration; and/or (c) the power to create a security interest in, and pledge, any or all of the Property as security for the repayment of any loan made by any person (a "Lender") to Grantee (or, upon his death, to Elayne) and/or to any entity in which Grantee (or, upon his death, Elayne) holds or may hereafter hold an equity interest as a shareholder, member or partner; and/or (d) the power to create a security interest in, and pledge, any or all of the Property to secure the obligations of Grantee to any Lender under Grantee's (or, upon his death, Elayne's) guarantee of a loan made by a Lender to any entity of which Grantee (or, upon his death, Elayne) holds or may hereafter hold an equity interest as shareholder, member or partner. Notwithstanding any contrary provision herein upon the death or adjudication of incompetence of Grantee, the general power of disposition granted hereby shall vest in Elayne and upon the death and/or adjudication of incompetence of both Grantee and Elayne, the general power of disposition granted herein shall terminate and revert to the Grantor. -2- It is intended that Grantee (and, upon his death, Elayne) shall be fully vested with general power of disposition over the Property, while Grantor shall retain all other incidents of ownership of the Property, including, but not limited to, the right to receive and retain any proceeds from the disposition of the Property, other than the proceeds of any loan to Grantee (and, upon his death, Elayne) and/or any entity in which Grantee (or, upon his death, Elayne) may have an equity interest, which is directly or indirectly secured by any of the Property. Following the execution of this instrument, Grantor shall not take any action to sell, transfer or pledge or otherwise dispose of the Property or any interest therein, and shall not participate in any such transaction except at the direction of Grantee (or, upon his death, Elayne). In furtherance of the power of disposition granted to Grantee (and, upon his death, Elayne) hereunder, Grantor is concurrently delivering to Grantee a non-qualified stock option agreement representing the Options which are the current subject of this power, together with stock powers duly executed in blank by Grantor. This instrument is executed by Grantor in consideration for Grantee's undertaking to offer Grantor the opportunity from time to time to invest in various business ventures. To induce any third party to rely on this instrument, Grantor hereby declares that any third party receiving a duly executed copy or facsimile of this instrument may conclusively rely on this instrument without any further inquiry, and that any attempted rescission, revocation or termination of this -3- instrument by Grantor at any time shall be ineffective, and null and void. Grantor, for himself and his heirs, executors, legal representatives and assigns, hereby agrees to indemnify and hold harmless any such third party from and against any and all claims that may arise against such third party by reason of such third party having relied on the provisions of this instrument. This instrument shall be governed by and construed in accordance with the laws of the State of New Jersey (without giving effect to the choice of law rules thereof), especially the common law of such state relating to powers of appointment and other powers over property, other than powers of attorney. IN WITNESS WHEREOF, I have hereunto signed my name as of November 5, 1998. ---------------------------- EVAN HERRICK CONFIRMED AND APPROVED: - ------------------------- NORTON HERRICK - ------------------------- ELAYNE HERRICK -4- STATE OF NEW JERSEY ) : ss.: COUNTY OF MORRIS ) On the ____ day of _____________, 1999, before me personally came EVAN HERRICK, to me known and known to me to be the individual described in and who executed the foregoing instrument and acknowledged to me that he executed the same. ---------------------------- Notary Publc -5- -----END PRIVACY-ENHANCED MESSAGE-----