<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S)240.14a-12
THE LAMAUR CORPORATION
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[ ] No Fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
N/A
------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
N/A
------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
N/A
------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
$15,495,000
------------------------------------------------------------
5) Total fee paid:
$3,099
------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
____________________________________________________________
2) Form, Schedule or Registration Statement No.:
____________________________________________________________
3) Filing Party:
____________________________________________________________
4) Date Filed:
____________________________________________________________
<PAGE>
THE LAMAUR CORPORATION
October 27, 1999
Dear Stockholder:
This year's annual meeting of stockholders will be held on November 22,
1999 at 10:00 a.m. local time, at Lamaur's offices at 5601 East River Road,
Fridley, Minnesota 55432. You are cordially invited to attend.
The Notice of Annual Meeting of Stockholders and a Proxy Statement, which
describe the formal business to be conducted at the meeting, follow this letter.
As a result of Lamaur's economic difficulty, we have been actively pursuing
strategic transactions in order to satisfy our creditors and to rationalize our
business going forward. On September 28, 1999, we signed an agreement to sell
our manufacturing facility to Tiro Industries, Inc. for $13.25 million in cash,
$745,000 in assumption of capital leases and $1.5 million in other
consideration. The enclosed Proxy Statement provides a summary of this
transaction. We are seeking your approval of the sale of our manufacturing
facility. Your vote on this and the other matters before the meeting is
critical, and we ask you to return your proxy promptly.
After reading the Proxy Statement and accompanying materials, please mark,
sign and promptly return the enclosed proxy card in the prepaid envelope to
assure that your shares will be represented. Your shares cannot be voted unless
you date, sign, and return the enclosed proxy card or attend the annual meeting
in person. Regardless of the number of shares you own, your careful
consideration of, and vote on, the matters before our stockholders is important.
A copy of Lamaur's Annual Report is also enclosed for your information. At
the annual meeting we will review Lamaur's activities over the past year and its
plans for the future. The board of directors and management look forward to
seeing you at the annual meeting.
Very truly yours,
/s/ Joseph F. Stiley III
Joseph F. Stiley, III
Acting Chief Executive Officer
<PAGE>
THE LAMAUR CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held November 22, 1999
TO THE STOCKHOLDERS:
Please take notice that the Annual Meeting of the Stockholders of The
Lamaur Corporation, a Delaware corporation, will be held on November 22, 1999,
at 10:00 a.m., local time, at Lamaur's offices at 5601 East River Road, Fridley,
Minnesota 55432, for the following purposes:
1. To consider and vote upon a proposal to approve a sale of Lamaur's
manufacturing facility to Tiro Industries, Inc. for $13.25 million in cash,
$745,000 in assumption of capital leases and $1.5 million in other consideration
as described under "Proposal 1 - Approval of Sale of Manufacturing Facility" in
the accompanying Proxy Statement;
2. To approve an amendment to Lamaur's 1997 Stock Plan to increase the
number of shares of common stock reserved for issuance thereunder by 1,000,000
shares;
3. To elect three directors to hold office for a one year term and until
their respective successors are elected and qualified;
4. To consider, approve and ratify the appointment of Deloitte & Touche
LLP as Lamaur's independent public auditors for the year ending December 31,
1999; and
5. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Stockholders of record at the close of business on October 7, 1999 are
entitled to notice of, and to vote at, this meeting and any adjournment or
postponement thereof. For ten days prior to the meeting, a complete list of
stockholders entitled to vote at the meeting will be available for examination
by any stockholder, for any purpose relating to the meeting, during ordinary
business hours at Lamaur's offices at 5601 East River Road, Fridley, Minnesota
55432.
By order of the Board of Directors,
/s/ John D. Hellmann
John D. Hellmann
Secretary
Mill Valley, California
October 27, 1999
IMPORTANT: Please fill in, date, sign and promptly mail the enclosed proxy card
in the accompanying postage-paid envelope to assure that your shares will be
represented at the meeting. If you attend the meeting, you may choose to vote
in person even if you have previously sent in your proxy card.
<PAGE>
THE LAMAUR CORPORATION
PROXY STATEMENT FOR 1999 ANNUAL MEETING OF STOCKHOLDERS
The accompanying proxy is solicited by the board of directors of The Lamaur
Corporation, a Delaware corporation, for use at its annual meeting of
stockholders to be held on November 22, 1999, or any adjournment or postponement
thereof at 10:00 a.m., local time, in the conference room at Lamaur's offices at
5601 East River Road, Fridley, Minnesota 55432, for the purposes set forth in
the accompanying Notice of Annual Meeting of Stockholders. The date of this
Proxy Statement is October 27, 1999, the approximate date on which this Proxy
Statement and the accompanying form of proxy were first sent or given to
stockholders.
SOLICITATION AND VOTING OF PROXIES
The cost of soliciting proxies will be borne by Lamaur. In addition to
soliciting stockholders by mail through its employees, Lamaur will request banks
and brokers, and other custodians, nominees and fiduciaries, to solicit their
customers who hold stock of Lamaur registered in the names of such persons and
will reimburse them for their reasonable, out-of-pocket costs. Lamaur may use
the services of its officers, directors and others to solicit proxies,
personally or by telephone, without additional compensation.
On October 7, 1999 -- the "Record Date" -- there were 7,332,571 shares of
Lamaur common stock outstanding, all of which are entitled to vote with respect
to all matters to be acted upon at the annual meeting. Each stockholder of
record as of that date is entitled to one vote for each share of common stock
held. Also, as of the Record Date, Lamaur had outstanding 1,000,000 shares of
Series A Preferred Stock and 763,500 shares of Series B Preferred Stock. This
preferred stock is convertible into an aggregate of 1,163,910 shares of common
stock at a rate of 0.66 shares of common stock per share of preferred stock
held. Each holder of preferred stock is entitled to one vote for each share of
common stock into which the preferred stock is convertible.
Lamaur's bylaws provide that a majority of all of the shares of the stock
entitled to vote, whether present in person or represented by proxy, constitute
a quorum for the transaction of business at the annual meeting. The preferred
stock votes with the common stock on an as-converted basis on all matters,
except as otherwise required by Delaware law or by Lamaur's certificate of
incorporation. Votes for and against, abstentions and "broker non-votes" will
each be counted as present for purposes of determining the presence of a quorum.
All shares represented by a proxy will be voted, and where a stockholder
specifies by means of his or her proxy a choice with respect to any matter to be
acted upon, the shares will be voted in accordance with the specification so
made. If no choice is indicated on the proxy, the shares will be voted in favor
of the proposal. A stockholder giving a proxy has the power to revoke his or
her proxy at any time before the time it is exercised by delivering to the
Secretary of Lamaur a written instrument revoking the proxy or a duly executed
proxy with a later date, or by attending the meeting and voting in person.
1
<PAGE>
INFORMATION ABOUT LAMAUR
This Proxy Statement includes forward-looking statements regarding
expectations as to Lamaur's business prospects, future plans and other
statements which include words such as "believes," "expects," "anticipates" or
words of similar effect. While these statements reflect management's reasonable
judgment, numerous factors may cause actual results to vary materially from
those expressed in such statements, including those factors set forth under the
caption "Certain Factors" below and elsewhere in this Proxy Statement. Actual
results are particularly dependent upon management's ability to (i) close the
sale of the manufacturing facility and (ii) continue to work with creditors
until they are being timely paid.
Recent Events
On September 28, 1999, Lamaur agreed to sell its manufacturing facility at
5601 East River Road, Fridley, Minnesota to Tiro Industries, Inc. for $13.25
million in cash, assumption of capital leases in the amount of approximately
$745,000 and $1.5 million in other consideration. The transaction is
conditional on the approval of Lamaur's stockholders. After the transaction
closes, Lamaur will continue its sales and marketing operations in a portion of
the facility at 5601 East River Road as a tenant of Tiro for a term of two years
pursuant to a lease agreement entered into simultaneously with the sale
transaction. Lamaur will retain ownership of personal property necessary for
sales and marketing operations. Tiro will manufacture products for Lamaur at a
discounted price for three years after the transaction closes pursuant to a
manufacturing agreement entered into simultaneously with the sale transaction.
See "Proposal No. 1 - Approval of Sale of Manufacturing Facility."
2
<PAGE>
Stock Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the beneficial
ownership as of August 31, 1999 of Lamaur's Common Stock by (i) each director,
(ii) each of the executive officers listed in the Summary Compensation Table
below, (iii) all executive officers and directors as a group and (iv) each
person known by the Company to be the beneficial owner of 5% or more of Lamaur's
outstanding Common Stock. The percentage owned is calculated based upon
7,332,571 shares of Common Stock outstanding as of August 31, 1999. Unless
otherwise indicated, each of the stockholders has sole voting and investment
power with respect to the shares beneficially owned, subject to applicable
community property laws.
<TABLE>
<CAPTION>
Amount and
Nature of
Beneficial Percentage
Name of Beneficial Owner Ownership Owned
- ------------------------ ------------------ -----------------
<S> <C> <C>
Don G. Hoff (1) 2,044,725 27.9%
One Lovell Avenue, Mill Valley, CA 94941
Perry D. Hoff (2) 1,846,485 25.2%
East 5058 Grapeview Loop, Allyn WA 98524
Intertec Holdings, L.P. (3) 1,810,425 24.7%
East 5058 Grapeview Loop, Allyn WA 98524
DowBrands Inc. (4) 1,163,910 13.7%
9550 Zionsville Road, Indianapolis, IN 46268
Parsow Partnership, Ltd. (5) 543,200 7.4%
P.O. Box 0449, Elkhorn, NE 68022
Futurtec, L.P. (6) 419,842 5.7%
111 Great Neck Road, Suite 301, Great Neck, NY 11021
Dominic J. LaRosa (7) 356,733 4.9%
Harold M. Copperman 252,795 3.4%
John D. Hellmann 109,450 1.5%
Ronald P. Williams 105,470 1.4%
Joseph F. Stiley, III 89,900 1.2%
Michael G. Piff 76,077 1.0%
Michele L. Redmon 5,007 *
All executive officers and directors of the Company as a group (8)
(8 persons) 2,665,202 36.3%
</TABLE>
_____________________
* Represents less than one percent (1%)
(1) Mr. Hoff passed away on July 18, 1999. [All shares listed are held by his
estate pending settlement thereof.] Includes 1,810,425 shares held by
Intertec Holdings, L.P. See footnote 3. Mr. Hoff was the father of Perry
D. Hoff.
(2) Includes 36,060 shares held directly by Mr. Perry Hoff. Includes 1,810,425
shares held by Intertec Holdings, L.P. See footnote 3. Mr. Perry Hoff is
the son of the late Don G. Hoff. See footnote 1.
(3) 1,810,425 shares are by Intertec Holdings, L.P., an investment partnership
whose general partner is Intertec Holdings, Inc., a corporation of which
the late Don G. Hoff was a director, Perry D. Hoff is president and a
3
<PAGE>
director and other members of the Hoffs' immediate family are the remaining
officers and directors and whose sole limited partner is Intertec Ltd., a
limited partnership in which the estate of Don G. Hoff, together with his
widow, hold a 25% limited partner interest, Perry D. Hoff holds a 25%
limited partner interest and members of the Hoffs' immediate family own the
remainder of limited partnership interest, and whose general partner is a
corporation of which the late Don G. Hoff was a director, Perry D. Hoff is
an officer and a director and other members of the Hoffs' immediate family
are the remaining officers and directors.
(4) Consists of 1,163,910 shares that may be acquired upon the conversion of
Series A and Series B Convertible Preferred Stock. DowBrands Inc. owns
100% of the outstanding Series A and Series B Preferred Stock.
(5) Includes 130,000 shares held by Elkhorn Partners Limited Partnership, an
affiliate of Parsow Partnership, Ltd., as to which Parsow Partnership, Ltd.
disclaims beneficial ownership.
(6) Futurtec Capital Corp., the general partner of Futurtec, L.P., exercises
sole voting and investment power over the shares held by Futurtec, L.P.
Ido Klear is the sole stockholder of Futurtec Capital Corp.
(7) Includes 20,000 shares held by members of Mr. LaRosa's immediate family, as
to which Mr. LaRosa disclaims beneficial ownership.
(8) Does not include shares owned directly by the late Don Hoff.
4
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
Directors
Set forth below for all directors are the names, ages and positions with
Lamaur. The term of office of each person elected as a director will continue
until the next annual meeting of stockholders or until a successor has been
elected and qualified or until resignation or removal.
Name of Director Age Position(s)
- --------------- --- -----------
Joseph F. Stiley, III/2,5/ 60 Chairman of the Board and Acting
Chief Executive Officer
Harold M. Copperman/1,4,6/ 65 Director
Perry D. Hoff/3/ 40 Director
_______________
1 Chairman of the Audit Committee.
2 Member of the Audit Committee.
3 Chairman of the Nominating Committee.
4 Member of the Nominating Committee.
5 Chairman of the Compensation Committee.
6 Member of the Compensation Committee.
Joseph F. Stiley, III has been the Acting Chief Executive Officer of Lamaur
since August 1999 and a Director since March 1994. From 1993 to 1994, Mr.
Stiley was Vice President of Lamaur, responsible for research and development.
From December 1987 to 1993, Mr. Stiley was a consultant to high technology
companies, including Intertec Ltd. Mr. Stiley has consulted to the governments
of Canada and France, European and domestic corporations, and has participated
in the development of international standards for communications.
Harold M. Copperman has been a Director of Lamaur since September 1995.
Mr. Copperman is Vice Chairman of Impulse Telecommunications Corporation
("ITC"), a position he has held since 1990. ITC provides strategic management
and engineering consulting resources to enterprises and investors. Mr.
Copperman has held chief executive officer and other senior management, business
development and marketing positions with large multi-national organizations and
entrepreneurial start-up ventures.
Perry D. Hoff has been a Director of Lamaur since April 1993. He has been
the President and a Director of Intertec Holdings, Inc., since 1990, and a
Director and Vice President of Operations of Innovative Capital Management,
Inc., a private investment company affiliated with Intertec Holdings, L.P., a
major stockholder of Lamaur, since 1980. Perry D. Hoff is the son of the late
Don G. Hoff.
Meetings of the Board of Directors. The board of directors held a total of
sixteen meetings during the year ended December 31, 1998. The audit committee
held one meeting and the compensation committee held three meetings during the
year ended December 31, 1998. Each director attended at least 75% of board and,
where applicable, committee meetings held in 1998.
The audit committee, established in April 1993, consisted of Messrs. Eppner
(Chairman), Dean and Copperman until the resignation of Messrs. Eppner and Dean
on July 27, 1998. On August 11, 1998, the board elected to change the
composition of the audit committee. Currently, Messrs. Copperman (Chairman) and
Stiley serve on the audit committee. The functions of the audit committee are
to recommend annually to the board of directors the appointment of Lamaur's
independent public accountants, review the scope of their annual audit and other
services the accountants are asked to perform, review their report on Lamaur's
financial statements following the audit, review Lamaur's accounting and
financial policies and review management's procedures and policies with respect
to Lamaur's internal accounting controls.
5
<PAGE>
The compensation committee, also established in April 1993, currently
consists of Messrs. Stiley (Chairman) and Copperman. Mr. Dean was also a member
until his resignation. The functions of the compensation committee are to
review and approve salaries, benefits and bonuses for all executive officers,
and to review and recommend to the board matters relating to employee
compensation and employee benefit plans. The compensation committee also
administers Lamaur's stock option plans.
The nominating committee, established in February 1997, currently consists
of Messrs. Perry Hoff (Chairman) and Copperman. Mr. Dean was also a member
until his resignation. The purpose of the nominating committee is to develop
criteria for nominating new members of the board and to identify potential
candidates for such nomination. The nominating committee will consider
stockholder recommendations for new directors with the potential nominee's
consent. However, the final determination of whether a candidate will be
nominated to become a member of the board is reserved for the nominating
committee. Any suggestions may be submitted in writing, attention "Nominating
Committee of the Board of Directors," at Lamaur's headquarters.
Certain Relationships and Related Transactions
Cancellation of Options and Stock Grants. In January 1999, Lamaur issued
----------------------------------------
1,369,800 shares of its common stock to certain employees and directors. The
stock grants were made in conjunction with the cancellation of outstanding
options held by employees and directors. These shares have vesting schedules
ranging from two years to two and one-half years. Lamaur recorded compensation
expense of approximately $168,000 in connection with these stock grants. Lamaur
has the right under certain conditions to repurchase unvested shares at the
market price at the date of grant. 1,129,800 of the shares were issued pursuant
to Lamaur's 1997 stock plan. Management and the board of directors believed it
was essential to offer such package in order to retain employees and preserve
the value of the enterprise while Lamaur evaluated and pursued alternatives.
License Agreement. In May 1993, Lamaur acquired from Intertec Ltd., a
-----------------
Delaware limited partnership, for a 30-year period, the exclusive worldwide
rights to use all technology owned by Intertec Ltd. relating to cosmetic hair
care applications. The 30-year exclusive license agreement gives Lamaur the
right to develop, manufacture and sell products for cosmetic hair care
applications based on the technology. Intertec Ltd., which is entirely owned by
the estate of Mr. Don Hoff and members of his immediate family, is the sole
limited partner in Intertec Holdings, L.P., Lamaur's principal shareholder. The
license is non-assignable, but Lamaur may sublicense the rights granted to it
provided the sublicense includes certain protective provisions. Lamaur issued,
as consideration for the grant of the license, a promissory note in the
principal amount of $1.0 million, and agreed to pay a royalty as described
below. A note for the license fee was payable in four equal installments of
$250,000. The first installment was made in May 1997. The balance of the note
plus accrued interest of $126,645 was paid in March 1998. Lamaur has also
agreed to pay certain legal expenses incurred by Intertec Ltd. in connection
with preparing and prosecuting a patent application covering the technology.
Lamaur paid $777 of this expense in 1998.
Lamaur will pay a royalty to Intertec Ltd. equal to 1% of Lamaur's proceeds
from any direct sales made by Lamaur of products, instruments or components
using or derived from the technology, plus 1% of the "revenue base" of Lamaur's
sub-licensees. The "revenue base" is the proceeds received by the sub-licensees
for their sales of products using the technology. This royalty declines in
steps as the revenue base increases, ultimately declining to 0.4% when
cumulative sales from all products using the technology reach $10.0 billion.
Lamaur has no sub-licenses as of the date of this Proxy Statement, and Lamaur
may not enter into any sub-license on favorable terms. Upon expiration in 2012
of the patent held by Intertec Ltd., Lamaur will be unable to deny competitors
access to the underlying technology.
The terms of the license were not established by arm's length negotiations
or independent appraisal.
Common Stock Purchase Agreement. In March 1996, Lamaur and Intertec
-------------------------------
Holdings, L.P. entered into a stock purchase agreement pursuant to which
Intertec Holdings, L.P. agreed to purchase from Lamaur, shares of common stock
at $8.00 per share. Intertec Holdings, L.P. was required to purchase an
aggregate of 146,107 shares. Intertec Holdings, L.P. was obligated, subject to
there being no event of default under Lamaur's loan agreements and certain other
customary conditions, to purchase and pay for the shares in four equal
installments commencing
6
<PAGE>
on May 29, 1997. The deferred purchase price under the stock purchase agreement
accrued interest from and after the closing of Lamaur's initial public offering
on May 22, 1996 at 5.5% per annum, payable with each installment.
On May 29, 1997, Intertec Holdings, L.P. was issued 36,526 shares of
Lamaur's common stock in the first installment. On May 29, 1997, Lamaur made
the first scheduled payment to Intertec Holdings, L.P. on the Note.
Intertec Holdings, L.P. had the option to accelerate one or more purchases
under the stock purchase agreement on 30 days prior notice to Lamaur. Lamaur
had the option, at any time or from time to time, to terminate Intertec
Holdings, L.P.'s purchase rights with respect to one or more of the
installments, on 10 days prior notice to Intertec Holdings, L.P. On February
16, 1998, Intertec Holdings, L.P. elected to accelerate all purchases under the
stock purchase agreement, and on March 18, 1998 Intertec Holdings L.P. was
issued 109,581 shares of Lamaur's common stock and the balance of the Intertec
Note was cancelled.
Facilities and Equipment. Pursuant to a lease dated October 1, 1996,
------------------------
Lamaur subleased office space (6,008 square feet) in Mill Valley, CA, together
with most of the furniture and office equipment at that location, from Intertec,
a division of Innovative Capital Management Inc. ("Intertec"), an affiliate of
Messrs. Don Hoff and Perry Hoff, directors of Lamaur. The original term of the
sublease was 36 months, expiring in September 1999. The office space was leased
for monthly rental of $9,012 and the furniture and office equipment were leased
for monthly rental of $1,774. Under the terms of the sublease, Lamaur is
responsible for property taxes, insurance and maintenance.
On December 4, 1997, Lamaur notified Intertec that it would like to
terminate the sublease with respect to 1,784 square feet of the space, and as of
March 31, 1998 the sublease was amended to terminate the sublease of that space
and to provide that Lamaur shall have no further obligations to Intertec with
respect to the terminated space. Intertec agreed to relieve Lamaur of this
obligation without any consideration to Intertec. The new monthly rent was
$6,336. Furthermore, on June 1, 1998, the sublease was terminated and Lamaur
leased the office space on a month-to-month basis for a monthly rental of
$3,600. In February 1998, payment of the rent applicable to the furniture and
equipment was deferred until 1999.
Total payments to Intertec in 1998 were $64,032, comprised of $57,708 in
building rent, $1,774 in equipment rent, and $4,550 in taxes. Based upon
research conducted by Lamaur, the Intertec lease payments are 25% to 50% below
market rates. Intertec uses a small office and has provided and received office
services from time to time.
Travel Agent Services. Lamaur used as a travel agent Diana Weeck, who is
---------------------
the sister of the late Mr. Don Hoff. In addition to standard commissions,
Lamaur paid fees to Mrs. Weeck of $4,885 during 1998. Management believes the
fees charged by Mrs. Weeck are consistent with the charges normally charged in
the industry, and that her services resulted in significant cost savings to
Lamaur. Lamaur no longer uses the services of Mrs. Weeck.
Manufacturing Agreement with DowBrands. In connection with the acquisition
--------------------------------------
by Lamaur of the Personal Care Division of DowBrands in November 1995, Lamaur
and DowBrands entered into a two-year agreement (with two additional one-year
extensions at DowBrands' election) pursuant to which Lamaur continued to serve
as DowBrands sole supplier of certain household cleaning products, subject to
Lamaur maintaining competitive pricing and delivery schedules. Pursuant to the
agreement, DowBrands agreed to accept $3.0 million of credits to be applied
towards purchases of finished products in eight equal quarterly installments of
$375,000 commencing February 1996. On November 15, 1997, the manufacturing
agreement expired without extension by Dow. There were no sales to DowBrands
during 1998.
LaRosa Severance. The employment of Dominic LaRosa, Lamaur's former
----------------
President and CEO -- Lamaur Division, terminated on April 15, 1999. Mr. LaRosa
has asserted a claim for severance payments pursuant to the severance agreement
described under the caption "Compensation of Directors and Executive Officers -
Employment Contracts and Termination of Employment and Change of Control
Arrangements - Employee Severance Arrangements." Lamaur believes that it is not
required to pay Mr. LaRosa any additional amounts.
7
<PAGE>
Redmon Severance. The employment of Michele Redmon, Lamaur's former Vice
----------------
President, Marketing, Retail Group of Lamaur Division, terminated on October 2,
1998. Lamaur paid an aggregate of $64,600 to Ms. Redmon between October 2, 1998
and March 31, 1999 for consulting services. Lamaur also made standard payments
for Ms. Redmon's medical, dental and life insurance premiums through March 31,
1999.
Litigation
On November 2, 1998, a class action and derivative lawsuit was filed by
Parsow Partnership Ltd. and Elkhorn Partners, on behalf of themselves, Lamaur,
and a putative class of Lamaur stockholders, in the Delaware Court of Chancery
in and for New Castle County alleging that Lamaur's board of directors breached
their fiduciary duties to Lamaur and failed to disclose certain information in
Lamaur's Proxy Statement for its stockholder meeting held in November 1998.
Plaintiffs seek injunctive relief, damages, a recission of all actions approved
at the November 2, 1998 Annual Meeting and a revised Proxy Statement. Lamaur
believes the lawsuit is without merit and is defending the action in the best
interest of the stockholders. Minimal discovery has been conducted by the
plaintiffs, including initial document demands to Lamaur and to the other
defendants. No significant dates have been set in the litigation. Lamaur
recently engaged in preliminary settlement discussions with the plaintiffs.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires Lamaur's
executive officers and directors and persons who own more than ten percent of a
registered class of Lamaur's equity securities to file reports of ownership on
Form 3 and changes in ownership on Form 4 or Form 5 with the Securities and
Exchange Commission. Such officers, directors and ten percent stockholders are
also required by SEC rules to furnish Lamaur with copies of all Section 16(a)
reports they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that Forms 5 have been
filed for such persons as required, Lamaur believes that, during the year ended
December 31, 1998, all reporting persons complied with Section 16(a) filing
requirements applicable to them, except as follows: One transaction was
reported late for each of Messrs. Copperman, Stiley and Don G. Hoff, and two
transactions were reported late for Mr. Perry Hoff.
8
<PAGE>
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Executive Compensation
The following table sets forth, for the three years ended December 31,
1998, certain compensation information with respect to Lamaur's Chief Executive
Officer and each of the four most highly compensated executive officers other
than the Chief Executive Officer who were serving as executive officers as of
December 31, 1998 (collectively, the "Named Executive Officers"), based upon
salary and bonus earned by such executive officers and individuals in 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
--------------------------------------------------------- --------------------
Other Annual Securities All Other
Compensation Underlying Compensation
Name and Principal Position Year Salary Bonus (2) (3)(4)(5) Options (6) (7)
- --------------------------- ------ ------------ -------------- ------------------ -------------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Don G. Hoff 1998 $ 290,790 - $ 3,229 - -
Chairman and Chief 1997 278,253 - 3,229 - -
Executive Officer 1996 250,000 $ 195,000 2,808 - -
Dominic J. LaRosa 1998 259,616 30,000 6,046 - -
President and CEO 1997 246,086 - 37,765 232,000 -
Lamaur Division 1996 200,000 145,000 33,191 100,000 50,000
Ronald P. Williams 1998 160,966 20,000 945 - -
Executive Vice President 1997 151,005 - 2,105 69,800 -
Lamaur Division 1996 102,540 36,000 55,935 69,800 15,000
Michele L. Redmon (1) 1998 145,377 - 625 - -
Vice President, Marketing, 1997 138,111 - 153 39,800 -
Retail Group of Lamaur 1996 119,165 50,000 4,304 39,800 15,000
Division
John D. Hellmann 1998 129,808 20,000 261 - -
Vice President, Chief 1997 124,039 - 261 36,500 -
Financial Officer 1996 100,000 22,500 174 20,000 15,000
Michael G. Piff 1998 125,848 10,000 278 - -
Vice President - Retail Sales 1997 105,585 - 114 14,400 -
Retail Group of Lamaur 1996 95,627 20,000 87 14,400 -
Division
</TABLE>
_________________________
(1) Ms. Redmon's employment with Lamaur terminated effective October 2, 1998.
See "Directors and Executive Officers - Certain Relationships and Related
Transactions - Redmon Severance."
(2) In 1998, represents bonuses earned but not paid.
(3) For 1998, includes (i) $2,958 for Mr. LaRosa for relocation expenses
including $1,078 cash to assist in the payment of taxes and; (ii) $441 for
Ms. Redmon for relocation expenses. Also includes imputed income in 1998
resulting from life insurance premiums in the amount of $3,229 for Mr.
Hoff, $1,800 for Mr. LaRosa, $945 for Mr. Williams, $184 for Ms. Redmon,
$261 for Mr. Hellmann and $278 for Mr. Piff and (iii) vehicle allowance of
$1,288 paid to Mr. LaRosa.
(4) For 1997, includes (i) $36,415 of reimbursed expenses for Mr. LaRosa
including $15,140 for rental of an apartment, and $12,806 cash to assist in
the payment of taxes due on the amount of such reimbursed
9
<PAGE>
expenses (ii) $1,500 for Mr. Williams for relocation expenses. Also
includes imputed income in 1997 resulting from life insurance premiums in
the amount of $3,229 for Mr. Hoff, $1,350 for Mr. LaRosa, $605 for Mr.
Williams, $153 for Ms. Redmon, $261 for Mr. Hellmann and $114 for Mr. Piff.
(5) For 1996, includes (i) $31,700 for Mr. LaRosa for relocation expenses which
includes $11,555 cash to assist in the payment of taxes, $55,589 for Mr.
Williams which includes $17,543 cash to assist in the payment of taxes, and
$4,161 for Ms. Redmon which includes $1,213 cash to assist in the payment
of taxes; (ii) imputed income in 1996 resulting from life insurance
premiums in the amount of $2,808 for Mr. Hoff, $864 for Mr. LaRosa, $346
for Mr. Williams, $143 for Ms. Redmon, $174 for Mr. Hellmann and $87 for
Mr. Piff and (iii) vehicle allowance of $627 paid to Mr. LaRosa in 1996.
(6) Represents stock options granted in the years shown with exercise prices
equal to or not less than fair market value on the date of grant. No SARs
were granted in such years. For 1997, includes options granted with the
cancellation of a similar number of options in connection with the
Company's repricing program. Options repriced for Messrs. Hoff, LaRosa,
Williams, Ms. Redmon and Messrs. Hellmann and Piff were 0, 232,000, 69,800,
39,800, 36,500 and 14,400, respectively.
(7) Represents non-cash credits that can be used to exercise options.
OPTION GRANTS IN LAST FISCAL YEAR
No stock options were granted to any of the Named Executive Officers during
1998.
In January 1999, Lamaur issued 1,369,800 shares of its common stock to
certain employees and directors. The stock grants were made in conjunction with
the cancellation of outstanding options held by employees and directors. These
shares have vesting schedules ranging from two years to two and one-half years.
Lamaur recorded compensation expense of approximately $168,000 in connection
with these stock grants. Lamaur has the right under certain conditions to
repurchase unvested shares at the market price at the date of grant. 1,129,800
of the shares were issued pursuant to Lamaur's 1997 stock plan. Management and
the board of directors believed it was essential to offer such package in order
to retain employees and preserve the value of the enterprise while Lamaur
evaluated and pursued alternatives.
10
<PAGE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information regarding options to
purchase shares of Lamaur common stock that were held by the Named Executive
Officers during 1998. No such options were exercised during 1998.
<TABLE>
<CAPTION>
Value of Unexercised
Shares Underlying Unexercised In-the-Money Options at
Options at December 31, 1998 December 31, 1998
------------------------------- ----------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- -------------------------------- ------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
Don G. Hoff/(1)/ 234,300 -- $0 $0
Dominic J. LaRosa/(1)/ 199,000 33,000 0 0
John D. Hellmann/(1)/ 62,900 6,600 0 0
Ronald P. Williams/(1)/ 48,350 21,450 0 0
Michele L. Redmon 28,250 11,550 0 0
Michael G. Piff/(1)/ 9,648 4,752 0 0
</TABLE>
___________________________
/(1)/ In January 1999, options were canceled in conjunction with the grant of
759,300 shares of common stock at the then fair market value. See
"Certain Transactions."
Compensation of Directors
During 1998, Lamaur's non-employee directors were paid $1,000 per quarter
(plus reasonable out-of-pocket expenses), plus $500 per day for each meeting
beyond the four regularly scheduled meetings. The directors held seven
telephonic board meetings during 1998 in addition to nine in-person meetings.
The directors received no additional compensation for attendance at these
meetings. In addition, non-employee directors are entitled to receive options
to purchase shares of common stock under Lamaur's Stock Option Plan for Non-
Employee Directors and Advisory Board Members.
In April 1998, Mr. Copperman and Mr. Dean each received an option to
purchase 20,000 shares of Lamaur common stock, and Mr. Stiley and Mr. Eppner
each received an option to purchase 5,000 shares of Lamaur common stock. All of
these options had an exercise price of $2.56.
Non-Cash Credits
Prior to 1998 Lamaur granted non-cash credits to its executive officers
and other employees and consultants which can be used by the recipient to
exercise stock options. As of December 31, 1998 non-cash credits held by Messrs.
Hoff, LaRosa, Williams, Ms. Redmon and Messrs. Hellmann and Piff were as
follows: $355,000, $102,750, $31,275, $28,875, $21,563 and $0, respectively. As
of December 31, 1998 total non-cash credits outstanding were $692,213.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the board currently consists of Joseph F.
Stiley, III (Chairman) and Harold M. Copperman. None of these individuals were
at any time during 1998, or at any other time, an officer or employee of Lamaur,
except that Mr. Stiley assumed the role of Acting Chief Executive Officer upon
the death of Mr. Don Hoff in July 1999. No executive officer of Lamaur serves
as a member of the board of directors or
11
<PAGE>
compensation committee of any entity that has one or more executive officers
serving as a member of the board or the compensation committee of Lamaur.
Compensation Committee Report
The following is the report of the compensation committee of the Board
describing compensation policies and rationales applicable to Lamaur's executive
officers with respect to the compensation paid to such executive officers for
the year ended December 31, 1998. The information contained in the performance
graphs shall not be deemed to be "soliciting material" or to be "filed" with the
Securities and Exchange Commission, nor shall such information be incorporated
by reference into any future filing under the Securities Act of 1933 or the
Exchange Act of 1934, except to the extent that Lamaur specifically incorporates
it by reference into such filing.
Compensation Philosophy. The philosophy of Lamaur's compensation committee
-----------------------
regarding executive compensation is to attract and retain highly talented
executives and to motivate them to high levels of performance, recognizing the
different impact that various executives have on the achievement of corporate
goals. To achieve these objectives Lamaur pays executives on a total
compensation approach that includes varying combinations of base salary, annual
bonus (dependent on corporate and individual performance), and stock options.
After evaluating management's performance, the compensation committee approves
compensation and pay levels. Stock option grants to executive officers are
approved by the compensation committee.
Base Salary. Salaries for executive officers are reviewed annually,
and are adjusted based upon performance contribution, management recommendation
and market conditions.
Bonus. The compensation committee determines the level of bonus
compensation for the entire corporate bonus program based upon corporate and
senior management performance, which are judged based on corporate earnings.
Bonuses within that pool are then allocated.
Stock. Lamaur believes that stock options granted to key employees,
including executive officers, provide such persons with compensation based on
Lamaur's overall performance as reflected by the stock price, create a valuable
retention device through three-year vesting schedules and help align employees'
and stockholders' interests. Stock options are typically granted at the time of
hire, at the time of promotion or at the time of achievement of a significant
corporate objective. Individual stock option award levels are determined
primarily by a matrix that allocates the available shares based on position
within Lamaur, with discretionary adjustments based on subjective performance
factors.
Compensation of Chief Executive Officer. The compensation of Don G. Hoff
---------------------------------------
in 1998 was approved by the compensation committee. The compensation committee
determined the Chief Executive Officer's compensation after considering the same
factors used to determine the compensation of other executive officers.
Cancellation of Options and Stock Grants. In January 1999, Lamaur issued
----------------------------------------
1,369,800 shares of its common stock to certain employees and directors. The
stock grants were made in conjunction with the cancellation of outstanding
options held by employees and directors. These shares have vesting schedules
ranging from two years to two and one-half years. Lamaur recorded compensation
expense of approximately $168,000 in connection with these stock grants. Lamaur
has the right under certain conditions to repurchase unvested shares at the
market price at the date of grant. 1,129,800 of the shares were issued pursuant
to Lamaur's 1997 Stock Plan. Management and the board of directors believed it
was essential to offer such package in order to retain employees and preserve
the value of the enterprise while Lamaur evaluated and pursued alternatives.
Summary. It is the opinion of the compensation committee that the
-------
executive compensation policies and programs in effect for Lamaur's executive
officers provide an appropriate level of total remuneration that properly aligns
Lamaur's performance and interests of Lamaur's stockholders with competitive and
equitable executive compensation in a balanced and reasonable manner.
The following table sets forth information with respect to the repricing of
those options held by executive officers of Lamaur at the time of the repricing:
12
<PAGE>
TEN-YEAR OPTION REPRICING
<TABLE>
<CAPTION>
Length of
Original Option
Number of Market Term in Years
Securities price of Exercise Remaining at
Underlying Stock at Price at New Date of
Date of Options Time of Time of Exercise Repricing or
Name and Principal Position Repricing Repriced Repricing Repricing Price Amendment
- --------------------------- ---------- ----------- ----------- ----------- ---------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Dominic J. LaRosa 11/5/97 132,000 $2.25 $3.03 $2.25 5.2
President and CEO 11/5/97 100,000 $2.25 $4.25 $2.25 8.8
of Lamaur Division
William M. Boswell (1) 11/5/97 39,600 $2.25 $4.25 $2.25 8.8
Vice President, Sales- 11/5/97 20,000 $2.25 $4.25 $2.25 8.8
Retail Group of Lamaur 8/28/96 39,600 $4.25 $6.06 $4.25 9.13
Division
Richard T. Loda (2) 8/28/96 25,000 $4.25 $6.06 $4.25 9.54
Vice President, Science
and Technology
Michele L. Redmon (1) 11/5/97 19,800 $2.25 $4.25 $2.25 8.8
Vice President, 11/5/97 20,000 $2.25 $4.25 $2.25 8.8
Marketing - Retail 8/28/96 19,800 $4.25 $6.06 $4.25 9.13
Group of Lamaur
Division
Ronald P. Williams 11/5/97 19,800 $2.25 $4.25 $2.25 8.8
Executive Vice 11/5/97 20,000 $2.25 $4.25 $2.25 8.8
President - Lamaur 11/5/97 30,000 $2.25 $4.00 $2.25 9.1
Division 8/28/96 19,800 $4.26 $6.06 $4.25 9.13
John D. Hellmann 11/5/97 16,500 $2.25 $3.03 $2.25 5.2
Vice President, Chief 11/5/97 20,000 $2.25 $4.25 $2.25 8.8
Financial Officer
Donald E. Porter 11/5/97 20,000 $2.25 $4.25 $2.25 8.8
Vice President,
Corporate Development
Michael G. Piff 11/5/97 8,000 $2.25 $4.00 $2.25 9.1
Vice President, Sales - 11/5/97 1,400 $2.25 $4.25 $2.25 5.25
Retail Group, Lamaur 11/5/97 5,000 $2.25 $4.25 $2.25 5.25
Division
Jay T. Olson 11/5/97 9,900 $2.25 $4.25 $2.25 8.8
Vice President, Finance 11/5/97 15,000 $2.25 $4.25 $2.25 8.8
Lamaur Division 11/5/97 10,000 $2.25 $4.25 $2.25 9.1
John A. Anzur (2) 11/5/97 50,000 $2.25 $4.25 $2.25 8.8
Vice President, 11/5/97 20,000 $2.25 $4.25 $2.25 8.8
General Counsel
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Length of
Original Option
Number of Market Term in Years
Securities price of Exercise Remaining at
Underlying Stock at Price at New Date of
Date of Options Time of Time of Exercise Repricing or
Name and Principal Position Repricing Repriced Repricing Repricing Price Amendment
- --------------------------- ---------- ----------- ----------- ----------- ---------- -----------------
<S> <C> <C> <C> <C> <C> <C>
John G. Hewson (1)
Vice President, Business 8/28/96 13,200 $4.25 $6.06 $4.25 9.17
Development Planning
and Administration -
Lamaur Division
Patrick T. Parenty(1) 8/28/96 13,200 $4.25 $6.06 $4.25 9.17
Vice President, Sales -
Lamaur Salon Division
</TABLE>
______________
(1) Such executive officer is no longer employed at Lamaur.
(2) Such executive officers are no longer employed at Lamaur and these options
expired without being exercised.
COMPENSATION COMMITTEE
Harold M. Copperman
Joseph F. Stiley, III
14
<PAGE>
STOCK PERFORMANCE GRAPH
In accordance with Exchange Act regulations, the following performance
graph compares the cumulative total stockholder return on Lamaur's common stock
to the cumulative total return on the Nasdaq Stock Market and a selected group
of peer issuers over the same period. The peer issuers consist of DEP
Corporation, BeautiControl Cosmetics, Inc., DEL Laboratories, Inc., and The
Stephan Co. DEP Corporation was acquired in 1998 and is not included in the data
for the year ended December 31, 1998. The graph assumes that the value of the
investment in Lamaur's common stock and each index was $100 on May 23, 1996 (the
date of Lamaur's initial public offering) and that all dividends were
reinvested. The information contained in the performance graphs shall not be
deemed to be "soliciting material" or to be "filed" with the Securities and
Exchange Commission, nor shall such information be incorporated by reference
into any future filing under the Securities Act or the Exchange Act, except to
the extent that Lamaur specifically incorporates it by reference into such
filing.
[GRAPH]
<TABLE>
<CAPTION>
THE LAMAUR CORPORATION NASDAQ PEER GROUP
-------------------------------- --------------- -------------------
<S> <C> <C> <C>
05/1996 $100.00 $100.00 $100.00
12/1996 $ 51.56 $103.75 $125.77
12/1997 $ 18.75 $127.34 $154.41
12/1998 $ 0.78 $179.01 $126.20
</TABLE>
Consulting Fees to Joseph F. Stiley, III and Harold M. Copperman
During 1998, Messrs. Copperman and Stiley performed consulting services for
Lamaur and were paid $25,101 and $9,867, respectively. These fees were in
addition to the fees paid to these individuals as directors.
Employment Contracts and Termination of Employment and Change of Control
Arrangements
Hoff Employment Agreement
In November 1995 the board of directors approved an employment agreement
with Don G. Hoff, Lamaur's former Chairman and Chief Executive Officer,
originally entered into as of June 1, 1994, and modified as of November 6, 1995,
and which took effect immediately following the closing of Lamaur's acquisition
of the Personal Care Division of DowBrands on November 16, 1995. The agreement
expired on December 31, 1998.
See "Directors and Executive Officers - Certain Relationships and Related
Transactions - Redmon Severance" for a description of severance payments made to
Michele Redmon.
Employee Severance Agreements
On May 6, 1997, the board of directors and the compensation committee
approved employee severance agreements with ten officers of Lamaur.
The severance agreements are intended to provide certain key employees with
certain protection from events that could occur in connection with certain
changes of control of Lamaur. In the event of an Involuntary Termination (as
defined in the severance agreements) of the employee within 24 months of such
Change of Control (as defined in the severance agreements), then as of the date
of such Involuntary Termination:
(i) Lamaur shall pay in cash on the date of the Involuntary Termination
one and one-half times the employee's most recent annual full-time base
compensation in effect prior to the Change of Control;
15
<PAGE>
(ii) Lamaur shall provide medical, dental and basic life insurance no
less favorable than such insurance that was in effect for the employee and his
or her dependents during his or her most recent full time period of employment
prior to the Change of Control for a period equal to the shorter of 18 months
from the end of the month in which the Involuntary Termination occurs or the
date the employee becomes covered under another insurance plan as a result of
obtaining new employment;
(iii) Lamaur shall pay in cash to the employee an amount equal to 25% of
the employee's most recent annual full-time base compensation in effect prior to
such Change of Control provided that such employee's principal place of
residence at any time within 24 months from the Involuntary Termination changes
from the employee's principal place of residence immediately prior to the
Involuntary Termination and provided further that the payment under this
paragraph of the Agreement shall be reduced by the amount of any moving expenses
paid by a new employer of employee;
(iv) at the option of the employee within six months from the Involuntary
Termination, the Employee may borrow from Lamaur the principal sum equal to one
and one-half times the employee's most recent annual full-time base compensation
in effect immediately prior to such Change of Control at the lowest rate of
interest permitted by the Internal Revenue Service to avoid the imputation of
income.
16
<PAGE>
PROPOSAL NO. 1
APPROVAL OF SALE OF MANUFACTURING FACILITY
Description of Transaction
- --------------------------
Lamaur entered into a Purchase and Sale Agreement and Asset Purchase
Agreement (together, the "Sale Agreements") with Tiro Industries, Inc. on
September 28, 1999, subject to stockholder approval. On the effective date of
the sale of assets (the "Closing Date") Lamaur will sell and Tiro will acquire
Lamaur's manufacturing facility at 5601 East River Road, Fridley, Minnesota,
including real and personal property, for $13,250,000 in cash. After the
Closing Date, Lamaur will continue its sales and marketing operations in a
portion of the facility at 5601 East River Road as a tenant of Tiro for a term
of two years pursuant to a lease agreement entered into simultaneously with the
Sale Agreements. Lamaur will retain ownership of personal property necessary
for sales and marketing operations. Tiro will manufacture products for Lamaur
at a discounted price for three years after the Closing Date pursuant to a
Manufacturing Agreement entered into simultaneously with the Sale Agreements.
Sale Agreements
Assets and Consideration. Under the Purchase and Sale Agreement Lamaur
will sell approximately 27 acres of land in Fridley, Minnesota, and the
approximately 475,000 square foot office, manufacturing and warehouse building
on that land for $8,450,000. Under the Asset Purchase Agreement Lamaur will
sell its fixtures, furniture and equipment associated with aerosol research and
development, package engineering, and manufacturing; capital leases; and a
royalty free license to use and develop Lamaur's contract manufacturing formulas
and aerosol technology all for $4,800,000 in cash plus the assumption of
approximately $745,000 in debt related to the capital leases. Under the Asset
Purchase Agreement, Tiro will pay Lamaur a limited monthly license fee of $7,000
for twenty-four months for a royalty-free license to use Lamaur's contract
manufacturing formulas and aerosol technology. This license shall become
perpetual and irrevocable upon the final license payment.
Excluded Assets. The Sale Agreements specifically exclude personal
property which Lamaur will retain for its continuing sales and marketing
operations, including computer equipment; office furniture, equipment and
artwork; display materials; molds, tools and dies; and raw material, work in
process, and finished goods inventories. Lamaur will also retain ownership of
its books, intangible property and accounts receivable.
Closing Date and Contingencies. The Closing Date is to be five days after
the "Approval Date," which the Purchase and Sale Agreement defines as the later
of the dates on which the following three conditions are satisfied:
. Tiro must approve environmental assessments of the real property or a
plan to remediate any unacceptable environmental conditions disclosed
by the environmental assessments;
. the stockholders of Lamaur must approve the sale of assets; and
. Tiro must obtain all governmental permits and approvals required to
operate the manufacturing facility.
If these conditions are not satisfied on or before November 30, 1999, Tiro may
terminate the Sale Agreements, provided the date for satisfaction of the
conditions will be extended to February 21, 2000, if Tiro requires additional
time to obtain the governmental permits and approvals. The Closing Date is to
be the same for both Sale Agreements and the closing under each Sale Agreement
is contingent upon closing under the other.
Environmental Contingency. The Purchase and Sale Agreement provides Tiro
the right to perform Phase I and Phase II Environmental Assessments of the real
property. If the Environmental Assessments do not disclose any contamination on
the property, the parties will proceed to close the sale pursuant to the Sale
Agreements. If the Environmental Assessments disclose contamination on the real
property in excess of Minnesota Pollution Control Agency ("MPCA") standards,
Lamaur will enroll the property in the MPCA Voluntary Investigation and Cleanup
17
<PAGE>
program and undertake remediation of the property to the extent required to
obtain assurances from the MPCA that Tiro will not become liable for any such
contamination, subject to the following conditions:
. If the remediation cannot be completed before the Closing Date, Lamaur
will provide for completion of the remediation by depositing 110% of
the estimated cost of remediation in an escrow account on the Closing
Date.
. If 110% of the estimated cost of remediation exceeds $1,000,000,
Lamaur will have the option to (a) terminate the Sale Agreements, in
which case Lamaur will return the $250,000 earnest money Tiro has paid
to date and neither party will have any further obligation to the
other, or (b) deposit 110% of the estimated cost of remediation and
proceed with the closing.
If Lamaur is required to undertake remediation of environmental conditions,
Lamaur is also required to enforce its indemnity from DowBrands under the
November 15, 1995 Asset Purchase Agreement between DowBrands and Electronic Hair
Styling, Inc., Lamaur's predecessor in interest, pursuant to which Lamaur
acquired the real property. In that agreement, DowBrands agreed to indemnify
Lamaur against any liability arising from environmental conditions existing as
of the date Lamaur acquired the real property from DowBrands as follows:
. If the liability arises from a misrepresentation by DowBrands of
environmental conditions, DowBrands will indemnify Lamaur against
liability in excess of $150,000.
. If the liability arises from the environmental condition of the
property but DowBrands did not misrepresent the environmental
condition of the property, DowBrands will indemnify Lamaur against
liability in excess of $1,000,000.
Employees. The Sale Agreements assign responsibility for compliance with
the Workers Adjustment and Retraining Notification Act ("WARN Act"), which
requires 60 days notice of a plant closing or mass layoff. Lamaur provided its
employees with the WARN Act notice on September 30, 1999. On that same date,
Tiro extended offers of employment to the Lamaur employees it wants to hire and
Lamaur made offers of continued employment to those employees Lamaur wants to
retain. If the Closing Date occurs before the 60 day notice period expires,
Lamaur will retain all current employees, provided Tiro will assume
responsibility for payment of wages and benefits for all employees except those
Lamaur will retain after the 60 day notice period expires.
No Solicitation. Under the Sale Agreements Lamaur agreed that it will not,
nor will it authorize or permit any of its officers, directors, employees or
investment bankers, attorneys or other agents, or any of its subsidiaries to
directly or indirectly, initiate or encourage any inquiries or the making of any
proposals that constitute or could be expected to result in a proposal to
acquire any of the assets that are the subject of the Sale Agreements or 20% or
more of the outstanding capital stock of Lamaur, other than in a transaction in
which the proposed acquiror intends to honor and perform the Sale Agreements.
The board of directors of Lamaur may, however, take and disclose to its
stockholders a position with respect to any unsolicited acquisition proposal if,
in the judgment of the board of directors after receiving advice from outside
counsel experienced in such matters, taking or disclosing such position is
required by applicable law. If the board of directors receives an unsolicited
offer that is superior to the terms of the Sale Agreements, the board of
directors may recommend acceptance of that superior offer, in which event Tiro
and Lamaur will each have the right to terminate the Sale Agreements. Upon any
such termination Lamaur will be required to pay Tiro $500,000 as Tiro's sole
remedy upon termination.
Limitation of Liability. If Tiro defaults in its obligation to purchase
under the Sale Agreements, Lamaur's sole remedy will be to retain $250,000 in
earnest money paid by Tiro on or before execution of the Sale Agreements and
receive an additional payment of $200,000 from Tiro.
Manufacturing Agreement
Lamaur and Tiro have entered into a Manufacturing Agreement in connection
with the Sale Agreements under which Tiro will be the exclusive manufacturer of
aerosol and non-aerosol hair-care and skin-care products for
18
<PAGE>
Lamaur for a period of three years. During this period, Tiro will provide
manufacturing services at a discounted rate, which discounts will total up to
$500,000 per year for each of the three years. During the three-year term of the
Manufacturing Agreement, Tiro will also produce any new product developed by
Lamaur or by Lamaur and Tiro together, at fair-market prices.
Lease Agreement
Lamaur will retain possession of a portion of the building at 5601 East
River Road, Fridley, Minnesota, pursuant to a Lease Agreement that will commence
on the Closing Date. The term of the lease is two years, during which time
Lamaur will pay rent in the annual gross amount of $81,480, payable in equal
monthly installments of $6,790. During the two-year lease term, Tiro will be
responsible for maintenance and repair of the premises occupied by Lamaur except
to the extent Lamaur damages the premises. Under the Lease Agreement, Lamaur
agrees to indemnify Tiro against any liability attributable to the use of the
premises by Lamaur. Lamaur is required to and will maintain property insurance
and liability insurance to protect Lamaur's interest in the property and cover
Lamaur's indemnification obligations.
Requirements Regarding Approval By Stockholders
- -----------------------------------------------
Lamaur believes that the sale of its manufacturing facility potentially may
be a sale of "substantially all assets" under Section 271 of the Delaware
Corporation Law. Such transactions require the approval of a majority of
Lamaur's stockholders and, under Lamaur's certificate of incorporation, approval
of a majority of the preferred stock. However, under Delaware law, whether the
sale constitutes a sale of substantially all assets depends upon certain facts
and circumstances. Generally, a sale of substantially all assets does not occur
unless (i) the value of the assets sold, or the contribution of such assets to
profits and revenues is greater than 50% of the value of all assets, profits or
revenues of a corporation, or (ii) the sale would change the nature of a
corporation's business in a fundamental manner. The determination of whether a
sale of substantially all assets has occurred is dependent upon the facts and
circumstances at the time of the sale. Currently, Lamaur believes that the
manufacturing facility does not constitute more than 50% of its assets or
contribute more than 50% of profits or revenues. Further, Lamaur believes that
its primary business is developing, marketing and selling consumer products, and
that the sale will not alter this business. It has become common amongst the
entities with whom Lamaur competes to subcontract the manufacturing of products
as a means of lowering costs and/or capital requirements. For the foregoing
reasons, the sale of the manufacturing facility may not constitute a sale of
substantially all assets. However, for avoidance of doubt and in order to
expedite the sale, the board of directors believes that it is in the interest of
Lamaur's constituencies to obtain stockholder approval. If for any reason
stockholder approval is not obtained, the board of directors will reconsider
this matter and may proceed with the sale if it obtains an opinion from legal
counsel that, based upon the facts and circumstances at the time, such sale does
not constitute a sale of substantially all assets. The board of directors
intends to maintain flexibility to conclude the sale if possible, as it believes
it is vital to the interests of Lamaur, its creditors and stockholders.
The holders of Lamaur's preferred stock have the right under Lamaur's
certificate of incorporation to elect to treat any sale of substantially all
assets as a liquidation. Assuming that the sale of the manufacturing facility
is a sale of substantially all assets, Lamaur will seek the commitment of the
preferred stockholders not to exercise this right. Further, it is unclear what
the exercise of this right would mean in the context of the sale, as it is
essential that Lamaur use the proceeds to pay creditors and finance operations,
and no money is likely to be available for distribution to the preferred
stockholders. Nevertheless, Lamaur is seeking a waiver from the preferred
stockholders to clarify this matter.
Background of the Transaction
- -----------------------------
During 1997, Lamaur began to experience financial difficulty including
declining sales and a substantial loss for the full year. In 1998, Lamaur
reported an operating loss of $3.3 million for the year. To generate cash to
pay creditors and to fund working capital, in July 1998 Lamaur sold certain
assets to Zotos International, Inc. for net proceeds of $10.0 million. In May
1999, Lamaur negotiated a $20 million asset-based lending arrangement with
Congress Financial Corporation. Approximately $13.8 million of the proceeds
from the Congress loans were used to pay off the outstanding loans with the
Company's former lender, Norwest Business Credit. Lamaur has
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continued to experience declining sales and for the six months ended June 30,
1999, net sales were $29.8 million, and Lamaur reported a net loss of $2.2
million.
As of August 31, 1999, Lamaur had $742,000 in cash and a total of
approximately $1.3 million available under its credit facility with Congress.
In addition Lamaur had accounts receivable of approximately$7.9 million. At
that date, Lamaur had borrowings from Congress of approximately $13.0 million
and owed trade and other creditors a total of approximately $12.5 million.
Revenues for July and August 1999 were approximately $6.5 million.
Lamaur must generate cash to pay trade creditors. Further, to sustain
operations and potentially return to profitability, Lamaur must reorganize its
operations to reduce expenses. By selling the manufacturing facility, Lamaur
will be able to transfer all its manufacturing employees and related expenses to
the acquiror, while still having access to production through a contract with
the acquiror.
Lamaur has been seeking a purchaser for its manufacturing facility for over
a year. Following lengthy discussions, on April 30, 1999 Lamaur entered into a
letter agreement with Tiro summarizing the terms of a possible sale of the
manufacturing facility and agreeing not to enter into discussions to sell the
facility to others for a specified period. From April to September 1999 Tiro
conducted due diligence and negotiations of various issues contained in the
letter agreement. In August 1999 Tiro's counsel prepared and delivered draft
agreements and the parties continued negotiations. On September 28, 1999 the
parties concluded negotiations and executed the definitive agreements.
Lamaur's board of directors and legal advisors negotiated a termination
right in the event that a "Superior Offer" is received by Lamaur. The board of
directors believes this will provide other potential acquirors the opportunity
to make alternative offers. However, the board believes that such offers are
highly unlikely and that the sale of the manufacturing facility to Tiro is in
the best interests of Lamaur's creditors and stockholders.
While the board of directors believes that the sale of the manufacturing
facility to Tiro is in the best interest of Lamaur's creditors and stockholders,
Lamaur's may not be able to continue operations following the transaction.
Lamaur will also need to stabilize and improve sales and satisfy its other
creditors.
Reasons for the Transaction
- ---------------------------
Without the sale of the manufacturing facility, Lamaur will not be able to
generate enough cash to continue existing operations, assuming Lamaur proceeds
with its plan for the operation of the retail brands. The board believes that
the sale will be in the best interest of creditors and stockholders as it will
provide a means to satisfy creditor obligations and an opportunity to finance
ongoing operations assuming Lamaur is able to generate sufficient capital to
pursue such operations.
Lamaur needs to remain in compliance with the covenants in its agreement
with Congress, its principal lender and if it does not remain in compliance, all
of Lamaur's obligations to Congress could be declared immediately due and
payable. Further, it is possible that one or more of Lamaur's creditors whose
accounts are beyond the 60 day terms negotiated between Lamaur and such
creditors, could seek to force Lamaur into bankruptcy. Without the sale of the
manufacturing facility, Lamaur would have little or no ability to work with
Congress and its other creditors. Further, the sale of the manufacturing
facility and the continuing of retail operations will position Lamaur to be able
to obtain the highest value for its inventory and accounts receivable. Finally,
the board has considered the possibility of operating the manufacturing facility
as a contract manufacturer but does not believe, at present, that Lamaur is in a
position to successfully undertake such operations. For all of the above
reasons, the board recommends approval of the sale of the manufacturing
facility.
Federal Income Tax Consequences
- -------------------------------
The following discussion is a description of certain material U.S. federal
income tax consequences of the sale of the manufacturing facility. This
discussion does not address all federal tax consequences that may result from
the sale, but is a general and abbreviated summary, based on interpretations of
existing sources of law. In addition, this discussion does not address any
state, local, or foreign tax consequences, or any federal tax
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consequences other than those relating to the income tax. No assurances can be
given that future legislation, regulations, administrative pronouncements or
court decisions will not significantly change the law and materially affect the
conclusions expressed herein. Lamaur has not obtained an opinion of tax counsel
regarding the tax consequences of the sale. Lamaur is not requesting a ruling
from the Internal Revenue Service regarding the tax consequences of the sale,
and there is no assurance that the IRS will not adopt positions contrary to the
consequences discussed below.
The sale of the manufacturing facility should be treated for U.S. federal
income tax purposes as a taxable sale by Lamaur to Tiro in exchange for the
actual purchase price, including the sum of cash, any property received, and the
value of any liabilities assumed by the purchaser. As a result, Lamaur would
recognize gain (or loss) on the assets sold measured by the difference between
Lamaur's tax basis in each asset and the portion of the sale proceeds allocable
to that asset. In general, the sale proceeds should be allocable among the
assets in proportion to the fair market value of the assets.
Lamaur may utilize capital losses only to the extent of capital gains. To
the extent that the assets constitute capital assets, Lamaur would generally
recognize capital gain (or loss) on the sale, subject to the depreciation
recapture rules of Section 1245 of the Internal Revenue Code of 1986, as amended
(the "Code"). Under Section 1245 of the Code, a portion of the gain from the
sale of certain capital assets (generally gain attributable to the sale of
depreciable tangible personal property) may be treated as ordinary income. To
the extent that the assets are subject to Section 1231 of the Code (generally
depreciable property, other than inventory, held for more than one year and used
in Lamaur's business) other than capital assets, special rules may apply. If
Lamaur's Section 1231 gains for the taxable year exceed Lamaur's Section 1231
losses for the year, such gain and losses are treated as long-term capital gains
and long-term capital losses (subject to depreciation recapture and a special
rule that treats Lamaur's net Section 1231 gain for the year as ordinary income
to the extent of Lamaur's unrecaptured net Section 1231 losses for the five
preceding taxable years). If Lamaur's Section 1231 gains do not exceed its
Section 1231 losses for the year, such gains and losses are treated as ordinary
income and losses. Lamaur would recognize ordinary income (or loss), subject to
the provisions of Section 1231 of the Code. Section 1231 of the Code, in
certain circumstances and subject to a number of restrictions, treats as capital
gain certain gain that otherwise would be taxed as ordinary income. Lamaur may
offset gain recognized on the sale of the assets by other losses, including net
operating loss carryforwards that Lamaur currently has available. Lamaur
anticipates that it currently has sufficient net operating loss carryforwards to
offset any gains, capital or ordinary, that it would realize on the sale of the
Assets.
Because the sale does not involve an exchange of, or change in the terms
of, the outstanding shares of Lamaur's common stock, and because the sale will
not result in a liquidation of Lamaur, the sale should have no federal income
consequences for Lamaur's stockholders. However, stockholders having specific
questions regarding the tax consequences impact of the sale should consult their
own tax advisors.
Accounting Treatment
- --------------------
The sale will be accounted for as a sale transaction and Lamaur will
recognize as income or loss the difference between the book value of the assets
sold and the purchase price.
Risk Factors
In considering the proposal to approve the sale of the manufacturing
facility, stockholders should consider the following, in addition to the other
information in this Proxy Statement:
The proceeds from the sale of the manufacturing facility may be
insufficient to meet Lamaur's financial needs. We believe the reduction of
expenses from transferring manufacturing to a third party and the generation of
cash from the sale of the manufacturing facility present an opportunity for us
to bring liabilities in line with ongoing operations. However, we may not be
able to sustain operations following the sale. In particular, we must remain in
compliance with the covenants in our credit facility with Congress, or Congress
may demand all of the cash proceeds from the sale. We believe that we will be
able to remain in compliance or negotiate waivers if we are not in compliance,
but if we are not able to do so, it would be impossible to continue operations.
Even if we remain in
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compliance with our credit facility, our ability to continue operations will
depend on the results of future operations, particularly the next two quarters,
the status of Lamaur's compliance with covenants in any future credit facility,
and the liabilities of Lamaur at the time of the sale. Even if the sale is
completed Lamaur may be forced into bankruptcy proceedings. However, management
believes that the sale will permit Lamaur to continue its operations.
The sale will not produce proceeds sufficient to allow a distribution to
stockholders. Proceeds from the sale will be used exclusively to pay
obligations to Congress and to other creditors and for working capital. The
proceeds from the sale may not be sufficient to permit Lamaur to manage or
satisfy its existing obligations. Lamaur may not be able to either operate the
remaining assets or dispose of them in a manner which will lead to a
distribution to the common stockholders or to improved financial performance.
The sale may not enable Lamaur to continue operations. The sale may
generate some cash to facilitate Lamaur's ability to finalize and carry out a
reorganization around its retail brands. However, Lamaur may not determine to
proceed with such a plan, may not have sufficient working capital to proceed
with such a plan, or if implemented, that such a plan will be successful or
result in profitable operations. The success of such a plan will be dependent,
among other things, on the continued market acceptance of Lamaur's retail
products, reduced operational expenses, sustained or increased sales and the
availability of advertising and marketing resources.
The sale may be a triggering event for severance payments. As disclosed
under the caption "Compensation of Directors and Executive Officers Employment
Contracts and Termination of Employment and Change of Control Arrangements
Employee Severance Arrangements," certain employees and officers of Lamaur are
entitled to severance benefits under severance agreements if they are terminated
within 24 months of specified "change of control" events. Such events include
stockholder approval of a sale of substantially all assets. Lamaur has not
determined whether the sale of the manufacturing facility will trigger a change
of control or whether any of the persons with such severance agreements will be
terminated. Further, Lamaur believes that such severance agreements were not
intended to cover transactions such as the sale and intends to preserve its
rights to review and dispute the applicability of such provisions of the
severance agreements to the sale, if appropriate. However, if such provisions
of the severance agreements were applicable and assuming all of such persons
were subsequently terminated, the aggregate payment for severance is estimated
at approximately $1.3 million. Additional benefits are also payable.
Terminated employees, if any, who are parties to the severance agreements may
assert claims for such amounts or Lamaur may determine that it is obligated to
pay such amounts.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
APPROVAL OF THE SALE OF THE MANUFACTURING FACILITY.
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PROPOSAL NO. 2
AMENDMENT TO 1997 STOCK PLAN
At the Annual Meeting, the stockholders are being asked to approve an
amendment to Lamaur's 1997 Stock Plan to increase the number of shares of common
stock reserved for issuance thereunder by 1,000,000 shares.
Management believes that the availability of additional options to purchase
common stock is necessary to enable Lamaur to continue to provide its employees
with equity ownership as an incentive to contribute to Lamaur's success. The
proposed increase in the share reserve under the Stock Plan is necessitated by
Lamaur's anticipated future growth and need to provide additional long-term
performance incentives to current employees.
As of August 31, 1999, 43,228 shares remained available for future option
grants under the Stock Plan, a number that the board of directors has determined
to be insufficient to meet Lamaur's anticipated needs. In order to provide an
adequate reserve of shares to permit Lamaur to continue to provide long-term
equity incentives both in the near-term and on an ongoing basis, the board of
directors has amended the Stock Plan, subject to stockholder approval, to
increase the number of shares authorized for issuance under the Stock Plan by
1,000,000 shares.
The board of directors believes that Lamaur's stock option program is an
important factor in attracting and retaining the high caliber employees and
consultants essential to the success of Lamaur and in aligning their long-term
interests with those of the stockholders. Because competition for highly
qualified individuals in Lamaur's industry is intense, management believes that
to successfully attract the best candidates, Lamaur must offer a competitive
stock option program as an essential component of its compensation packages. The
board of directors further believes that stock options serve an important role
in motivating their holders to contribute to Lamaur's continued growth and
profitability. The proposed amendment is intended to ensure that the Stock Plan
will continue to have available a reasonable number of shares to meet these
needs for the remainder of its term.
Summary of the 1997 Stock Plan
General. The purpose of the Stock Plan is to attract and retain the best
available personnel for positions of responsibility with Lamaur, to provide
additional incentive to the employees, directors and consultants of Lamaur and
to promote the success of Lamaur's business. Options granted under the Stock
Plan may be either "incentive stock options," as defined in Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or nonstatutory stock
options. In addition, shares of Lamaur's common stock may be granted under the
Stock Plan.
Administration. The Stock Plan may generally be administered by the board
of directors or a committee appointed by the board of directors (the
"Administrator"). Subject to the other provisions of the Stock Plan, the board
of directors has the authority to (i) interpret the Stock Plan and apply its
provisions; (ii) prescribe, amend or rescind rules and regulations relating to
the Stock Plan; (iii) select the persons to whom options are to be granted; (iv)
determine the number of shares to be made subject to each option; (v) reduce the
exercise price of any option to the then current fair market value; (vi)
prescribe the terms and conditions of each option (including the exercise price,
whether an option will be classified as an incentive stock option or a
nonstatutory stock option and the provisions of the stock option agreement to be
entered into between Lamaur and the grantee); (vii) amend any outstanding option
subject to applicable legal and Stock Plan restrictions; (viii) authorize any
person to execute, on behalf of Lamaur, any instrument required to effect the
grant of an option; (ix) allow optionees to satisfy their tax withholding
obligation with shares from the option exercise; and (x) take any other actions
deemed necessary or advisable for the administration of the Stock Plan. All
decisions, interpretations and other actions of the Administrator shall be final
and binding on all holders of options and on all persons deriving their rights
therefrom.
Eligibility; Limitations. Nonstatutory stock options and shares of
Lamaur's common stock may be granted under the Stock Plan to employees,
consultants and directors of Lamaur and any parent or subsidiary of Lamaur.
Incentive stock options may be granted only to employees. Any optionee who owns
more than 10% of the combined voting power of all classes of outstanding stock
of Lamaur is not eligible for the grant of an incentive stock option unless the
exercise price of the option is at least 110% of the fair market value of the
common stock on the date of grant and the term of the option is no longer than
five years.
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Section 162(m) of the Code places limits on the deductibility for federal
income tax purposes of compensation paid to certain executive officers of
Lamaur. In order to preserve Lamaur's ability to deduct the compensation income
associated with options granted to such persons, the Stock Plan provides that no
employee may be granted, in any fiscal year of Lamaur, options to purchase more
than 500,000 shares of common stock. Notwithstanding this limit, however, in
connection with an employee's initial employment, he or she may be granted
options to purchase up to an additional 500,000 shares of common stock.
Terms and Conditions of Options. Each option granted under the Stock Plan
is evidenced by a written stock option agreement between Lamaur and the
optionee, and is subject to the following additional terms and conditions:
(a) Exercise Price. The Administrator determines the exercise price of
options at the time the options are granted. The exercise price of an incentive
stock option may not be less than 100% of the fair market value of the Common
Stock on the date such option is granted; provided, however, the exercise price
of an incentive stock option granted to a 10% stockholder may not be less than
110% of the fair market value of the common stock on the date such option is
granted. The fair market value of the common stock is generally determined with
reference to the last reported trade price for the common stock on the day the
option is granted. The exercise price of a nonstatutory stock option may be
determined by the Administrator; provided, however, the exercise price of a
nonstatutory stock option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code may not be less
than 100% of the fair market value of the common stock on the date of grant.
(b) Exercise of Option. The Administrator determines when options become
exercisable, and may in its discretion, accelerate the vesting of any
outstanding option.
(c) Form of Consideration. The means of payment for shares issued upon
exercise of an option is specified in each option agreement. The Stock Plan
permits payment to be made by cash, check, promissory note, other shares of
common stock of Lamaur (with some restrictions), cashless exercise, a reduction
in the amount of any Company liability to the optionee, any other form of
consideration permitted by applicable law, or any combination thereof.
(d) Term of Option. The term of an incentive stock option may be no more
than ten years from the date of grant; provided that in the case of an incentive
stock option granted to a 10% stockholder, the term of the option may be no more
than five years from the date of grant. No option may be exercised after the
expiration of its term.
(e) Termination of Employment. If an optionee's employment, consulting or
director relationship terminates for any reason (other than death or
disability), then all options held by the optionee under the Stock Plan expire
on the earlier of (i) the date set forth in his or her notice of grant which
generally will be three months from termination of the relationship or (ii) the
expiration date of such option which generally will be ten years from the date
of grant. To the extent the option is exercisable at the time of such
termination, the optionee may exercise all or part of his or her option at any
time before termination.
(f) Permanent Disability; Death. If an optionee's employment, consulting
or director relationship terminates as a result of permanent and total
disability (as defined in the Code) or death, then all options held by such
optionee under the Stock Plan will expire on the earlier of (i) twelve months
from the date of termination of the optionee's employment or (ii) the expiration
date of the option. The optionee or, if applicable, the executor or other legal
representative of the optionee's estate may exercise all or part of the
optionee's option at any time before such expiration to the extent that such
option was exercisable at the time of termination of employment.
(g) Nontransferability of Options. Options granted under the Stock Plan
generally are not transferable other than by will or the laws of descent and
distribution, and may be exercised during the optionee's lifetime only by the
optionee. However, the Administrator may, in its discretion, provide for the
transfer of options to any member of the optionee's immediate family or to
certain trusts and partnerships. Following such transfer, any such options will
continue to be subject to the same terms and conditions as were applicable
immediately prior to the transfer.
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(h) Value Limitation. If the aggregate fair market value of all shares of
common stock subject to an optionee's incentive stock option which are
exercisable for the first time during any calendar year exceeds $100,000, the
excess options will be treated as nonstatutory stock options.
(i) Other Provisions. The stock option agreement may contain other terms,
provisions and conditions not inconsistent with the Stock Plan as may be
determined by the Administrator.
Other common stock Programs. The Administrator may adopt one or more
incentive compensation arrangements for employees, consultants and directors.
Such arrangements will allow employees, consultants and directors to acquire
shares of common stock, whether by purchase, outright grant or otherwise. Any
such arrangements will be subject to the general provisions of the Stock Plan.
Adjustments Upon Changes in Capitalization. In the event that the stock of
Lamaur changes by reason of any stock split, reverse stock split, stock
dividend, combination, reclassification or other similar change in the capital
structure of Lamaur effected without the receipt of consideration, appropriate
adjustments will be made in the number and class of shares of stock subject to
the Stock Plan, the number and class of shares of stock subject to any option
outstanding under the Stock Plan, and the exercise price of any such outstanding
option.
In the event of a liquidation or dissolution, any unexercised options will
terminate. The Administrator may, in its discretion, provide that each optionee
will have the right to exercise all of the optionee's options, including those
not otherwise exercisable, until the date ten (10) days prior to the
consummation of the liquidation or dissolution.
In connection with any change of control of Lamaur, the optionee will have
the right to exercise the option as to all the optioned stock, including shares
not otherwise exercisable. In such event, the Administrator will notify the
optionee that the option is fully exercisable within fifteen days of the change
of control. For purposes of the Stock Plan, a change of control of Lamaur means
the occurrence of any of the following events: (i) any person is or becomes the
owner directly or indirectly of securities representing 25% or more of the total
voting power (other than a person who owns 25% of such total voting power as of
February 25, 1997 or other than any person who acquires 25% or more of such
total voting power with the approval of the board of directors), or (ii) a
change in the composition of the board of directors as a result of which fewer
than a majority of the directors are incumbent directors.
In connection with any merger, or acquisition of assets involving Lamaur,
each outstanding option shall be assumed or an equivalent option substituted by
the successor corporation. If the successor corporation refuses to assume the
options or to substitute substantially equivalent options, the optionee shall
have the right to exercise the option as to all the optioned stock, including
shares not otherwise vested or exercisable. In such event, the Administrator
shall notify the optionee that the option is fully vested and exercisable for
fifteen days from the date of such notice and that the option terminates upon
expiration of such period.
Amendment and Termination of the Stock Plan. The board of directors may
amend, alter, suspend or terminate the Stock Plan, or any part thereof, at any
time and for any reason. However, Lamaur will obtain stockholder approval for
any amendment to the Stock Plan to the extent necessary to comply with Section
162(m) and Section 422 of the Code, or any similar rule or statute. No such
action by the board of directors or stockholders may alter or impair any option
previously granted under the Stock Plan without the written consent of the
optionee. Unless terminated earlier, the Stock Plan will terminate ten years
from the date of its approval by the board of directors.
Federal Income Tax Consequences
Incentive Stock Options. An optionee who is granted an incentive stock
option does not recognize taxable income at the time the option is granted or
upon its exercise, although the exercise may subject the optionee to the
alternative minimum tax. Upon a disposition of the shares more than two years
after grant of the option and one year after exercise of the option, any gain or
loss is treated as long-term capital gain or loss. If these holding periods are
not satisfied, the optionee recognizes ordinary income at the time of
disposition equal to the difference between
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the exercise price and the lower of (i) the fair market value of the shares at
the date of the option exercise or (ii) the sale price of the shares. Any gain
or loss recognized on such a premature disposition of the shares in excess of
the amount treated as ordinary income is treated as long-term or short-term
capital gain or loss, depending on the holding period. A different rule for
measuring ordinary income upon such a premature disposition may apply if the
optionee is also an officer, director, or 10% stockholder of Lamaur. Lamaur is
entitled to a deduction in the same amount as the ordinary income recognized by
the optionee.
Nonstatutory Stock Options. An optionee does not recognize any taxable
income at the time he or she is granted a nonstatutory stock option. Upon
exercise, the optionee recognizes taxable income generally measured by the
excess of the then fair market value of the shares over the exercise price. Any
taxable income recognized in connection with an option exercise by an employee
of Lamaur is subject to tax withholding by Lamaur. Lamaur is entitled to a
deduction in the same amount as the ordinary income recognized by the optionee.
Upon a disposition of such shares by the optionee, any difference between the
sale price and the optionee's exercise price, to the extent not recognized as
taxable income as provided above, is treated as long-term or short-term capital
gain or loss, depending on the holding period.
The foregoing is only a summary of the effect of federal income taxation
upon optionees and Lamaur with respect to the grant and exercise of options
under the Stock Plan. It does not purport to be complete, and does not discuss
the tax consequences of the employee's or consultant's death or the provisions
of the income tax laws of any municipality, state or foreign country in which
the employee or consultant may reside.
Option Granted to Certain Persons
In April 1998, Mr. Copperman and Mr. Dean each received an option to
purchase 20,000 shares of Lamaur common stock, and Mr. Stiley and Mr. Eppner
each received an option to purchase 5,000 shares of Lamaur common stock. All of
these options had an exercise price of $2.56.
Vote Required
The affirmative vote of a majority of the votes cast affirmatively or
negatively at the annual meeting of stockholders at which a quorum representing
a majority of all outstanding shares of common stock of Lamaur is present and
voting, either in person or by proxy, is required for approval of this proposal.
Votes for and against, abstentions and broker non-votes will each be counted as
present for purposes of determining the presence of a quorum. Neither
abstentions nor broker non-votes will have any effect on the outcome of the
proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR"
THE APPROVAL OF THE AMENDMENT TO THE 1997 STOCK PLAN
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PROPOSAL NO. 3
ELECTION OF DIRECTORS
Nominees
Unless otherwise instructed, the proxy holders will vote the proxies
received by them for Lamaur's nominees named below. In the event that any
nominee of Lamaur is unable or declines to serve as a director at the time of
the Annual Meeting of the Stockholders, the proxies will be voted for any
nominee who shall be designated by the present board of directors to fill the
vacancy. It is not expected that any nominee will be unable or will decline to
serve as a director. In the event that additional persons are nominated for
election as directors, the proxy holders intend to vote all proxies received by
them in such a manner as will assure the election of as many of the nominees
listed below as possible, and in such event the specific nominees to be voted
for will be determined by the proxy holders. The term of office of each person
elected as a director will continue until the next Annual Meeting of the
Stockholders or until a successor has been elected and qualified or until
resignation or removal.
The nominees are set forth below:
Name Age Position(s) Director Since
Harold M. Copperman 65 Director 1995
Perry D. Hoff 40 Director 1993
Joseph F. Stiley, III 60 Director 1994
Please see "Directors and Executive Officers Directors" above for
information concerning the nominees. If elected, the nominees will serve as
directors until the next Annual Meeting of Stockholders and until their
successors are elected and qualified. If any of the nominees declines to serve
or becomes unavailable for any reason, or if a vacancy occurs before the
election (although Lamaur knows of no reason to anticipate that this will
occur), the proxies may be voted for such substitute nominees as Lamaur may
designate.
If a quorum is present and voting, the nominees receiving the highest
number of votes will be elected as directors. Abstentions and broker non-votes
have no effect on the vote.
The three directors nominated for election voted in favor of the proposal
to nominate such directors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE "FOR" THE NOMINEES NAMED ABOVE.
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PROPOSAL NO. 4
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC AUDITORS
The Board has nominated Deloitte & Touche LLP as independent public
auditors to audit the consolidated financial statements of Lamaur for the year
ending December 31, 1999. Deloitte & Touche LLP has acted in such capacity
since its appointment in 1995. A representative of Deloitte & Touche LLP is
expected to be present at the annual meeting, with the opportunity to make a
statement if the representative desires to do so, and is expected to be
available to respond to appropriate questions.
Vote Required
The affirmative vote of a majority of the votes cast affirmatively or
negatively at the annual meeting of stockholders at which a quorum representing
a majority of all outstanding shares of common stock of Lamaur is present and
voting, either in person or by proxy, is required for approval of this proposal.
Votes for and against, abstentions and broker non-votes will each be counted as
present for purposes of determining the presence of a quorum. Neither
abstentions nor broker non-votes will have any effect on the outcome of the
proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPOINTMENT OF
DELOITTE & TOUCHE LLP AS THE COMPANY'S INDEPENDENT PUBLIC AUDITORS FOR THE
FISCAL YEAR ENDING DECEMBER 31, 1999.
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<PAGE>
INTERIM FINANCIAL INFORMATION; UNAUDITED PRO FORMA FINANCIAL INFORMATION
Appendix 1 to this Proxy Statement which is a part of this Proxy Statement
----------
contains Lamaur's Financial Statements and Management's Discussion and Analysis
for the period ended June 30, 1999. Appendix 2 to this Proxy Statement which is
----------
a part of this Proxy Statement contains an unaudited pro forma balance sheet and
certain unaudited pro forma statements of operations.
ANNUAL REPORT TO STOCKHOLDERS AND INCORPORATION BY REFERENCE
Accompanying this Proxy Statement is a copy of Lamaur's Annual Report on
Form 10-K for the year ended December 31, 1998 (the "Form 10-K"). The following
information contained in the Annual Report is incorporated by reference into
this Proxy Statement: (i) the section captioned "Business," (ii) the section
captioned "Properties," (iii) the section captioned "Legal Proceedings," (iv)
the section captioned "Selected Financial Data," (v) the section captioned
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," (vi) the section captioned "Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure," and (vii) the section
captioned "Financial Statements and Supplementary Data." No other information
contained in the Annual Report is or is deemed incorporated by reference in this
Proxy Statement. Any statement contained in the Annual Report shall be deemed
to be modified or superseded to the extent that it is modified or superseded by
information contained in this Proxy Statement.
STOCKHOLDER PROPOSALS TO BE PRESENTED
AT NEXT ANNUAL MEETING
Pursuant to new amendments to Rule 14a-4(c) of the Securities Exchange Act
of 1934, as amended, Lamaur's proxy for its Annual Meeting of Stockholders in
the year 2000 may confer discretionary authority to vote on any proposal
submitted by a stockholder if written notice of such proposal was not received
at Lamaur's executive office on or before July 15, 2000.
TRANSACTION OF OTHER BUSINESS
At the date of this Proxy Statement, the Board knows of no other business
that will be conducted at the 1999 Annual Meeting of Stockholders of The Lamaur
Corporation other than as described in this Proxy Statement. If any other
matter or matters are properly brought before the meeting, or any adjournment or
postponement of the meeting, it is the intention of the persons named in the
accompanying form of proxy to vote the proxy on such matters in accordance with
their best judgment.
By Order of the Board of Directors
/s/ John D. Hellmann
---------------------------
John D. Hellmann
Secretary
October 27, 1999
29
<PAGE>
Appendix 1
----------
<TABLE>
<CAPTION>
Page
<S> <C>
Part I - Financial Information
Item 1. Condensed Financial Statements (Unaudited)
Balance Sheets as of June 30, 1999 and December 31, 1998 2
Statements of Operations for the Three and Six Months Ended
June 30, 1999 and 1998 3
Statements of Cash Flows for the Six Months Ended
June 30, 1999 and 1998 4
Notes to Condensed Financial Statements for the Three
and Six Months Ended June 30, 1999 and 1998 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations for the Three and
Six Months Ended June 30, 1999 and 1998 8
</TABLE>
1
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. CONDENSED FINANCIAL STATEMENTS
THE LAMAUR CORPORATION
CONDENSED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------------- -----------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 691 $ 568
Accounts receivable, net 10,503 10,244
Inventories 8,004 7,969
Prepaid expenses and other current assets 442 511
----------------- -----------------
Total current assets 19,640 19,292
Property, Plant and Equipment, Net 16,582 17,392
Other Assets 372 28
----------------- -----------------
Total Assets $ 36,594 $ 36,712
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 9,154 $ 10,056
Accrued expenses 1,973 2,623
Accrued salaries, wages and employee-related expenses 1,405 1,147
Current portion of long-term debt 1,507 3,350
----------------- -----------------
Total current liabilities 14,039 17,176
Long-Term Debt 13,488 8,290
Stockholders' Equity
Preferred stock, $.01 par value, 4,000,000 shares authorized:
Series A Preferred stock, $.01 par value, 1,000,000 shares issued
and outstanding at June 30, 1999 and December 31, 1998.
($10.0 million liquidation preference) 8,500 8,500
Series B Preferred stock, $.01 par value, 763,500 shares issued
and outstanding at June 30, 1999 and December 31, 1998.
($5.0 million liquidation preference) 5,000 5,000
Common stock, $.01 par value, 12,000,000 shares authorized,
7,332,571 and 5,939,761 shares issued and outstanding at
June 30, 1999 and December 31, 1998, respectively. 73 59
Additional paid-in-capital 20,313 20,356
Stock subscriptions receivable (50) (50)
Accumulated deficit (24,769) (22,619)
----------------- -----------------
Total Stockholders' Equity 9,067 11,246
----------------- -----------------
Total Liabilities and Stockholders' Equity $ 36,594 $ 36,712
================= =================
</TABLE>
See notes to financial statements.
2
<PAGE>
THE LAMAUR CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- -----------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales $ 16,751 $ 19,645 $ 29,798 $ 42,477
Cost of Goods Sold 12,176 11,426 20,950 24,467
-------- -------- -------- --------
Gross Margin 4,575 8,219 8,848 18,010
Selling, General and Administrative Expenses 5,127 9,330 10,406 17,745
-------- -------- -------- --------
Operating (Loss) Income (552) (1,111) (1,558) 265
Interest Expense (389) (590) (710) (1,403)
Other Income (Expense) 71 (9) 118 44
-------- -------- -------- --------
Net Loss (870) (1,710) (2,150) (1,094)
Dividends on Series B Preferred Stock (100) (100) (200) (200)
-------- -------- -------- --------
Net Loss Available to Common Shareholders $ (970) $ (1,810) $ (2,350) $ (1,294)
======== ======== ======== ========
Basic Loss per Common Share $ (0.13) $ (0.31) $ (0.34) $ (0.22)
======== ======== ======== ========
Weighted Average Common Shares Outstanding - Basic 7,311 5,863 7,000 5,814
======== ======== ======== ========
Diluted Loss per Common Share $ (0.13) $ (0.31) $ (0.34) $ (0.22)
======== ======== ======== ========
Weighted Average Common Shares Outstanding - Diluted 7,311 5,863 7,000 5,814
======== ======== ======== ========
</TABLE>
See notes to financial statements.
3
<PAGE>
THE LAMAUR CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------------
1999 1998
---------- ----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss $ (2,150) $ (1,094)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
(Gain) loss on disposal of assets (45) 3
Non-cash compensation expense 168 -
Depreciation and amortization 1,037 1,014
Effect of changes in:
Receivables (259) 3,824
Inventories (35) 2,151
Prepaid expenses and other assets 69 52
Payables (1,102) (1,916)
Accrued expenses (185) (1,930)
---------- ----------
Net cash (used in) provided by operating activities (2,502) 2,104
Cash Flows From Investing Activities:
Additions to property, plant and equipment (195) (344)
Proceeds from sale of assets 48 -
---------- ----------
Net cash used in investing activities (147) (344)
Cash Flows From Financing Activities:
Borrowings (repayments) under revolving credit agreement, net 3,174 (7,255)
Repayments of long-term debt (260) (763)
Payment of loan fees (145) -
Proceeds from sales of common stock, net 3 25
---------- ----------
Net cash provided by (used in) financing activities 2,772 (7,993)
---------- ----------
Net Increase (Decrease) in Cash and Cash Equivalents 123 (6,233)
Cash and Cash Equivalents at Beginning of Period 568 6,465
---------- ----------
Cash and Cash Equivalents at End of Period $ 691 $ 232
========== ==========
</TABLE>
See notes to financial statements.
4
<PAGE>
THE LAMAUR CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(Unaudited)
- --------------------------------------------------------------------------------
1. ORGANIZATION AND OPERATIONS
The Lamaur Corporation ("the Company") develops, formulates, manufactures,
and markets personal hair care products, consisting of shampoos, conditioners,
hair sprays, and other styling aids, for the consumer market and, until July
1998, the professional hair care market. In addition, the Company develops,
formulates, and manufactures hair care, personal care, and household products
for third parties. In July 1998, the Company sold its professional salon brands
and related inventory to Zotos International, Inc., a subsidiary of Shiseido
Co., Ltd., Tokyo, Japan ("Zotos") for net proceeds of $10.0 million. Proceeds
were used primarily to pay down borrowings under the credit agreement with
Norwest Business Credit and to pay down extended accounts payable.
2. SIGNIFICANT ACCOUNTING POLICIES
The accompanying condensed financial statements are unaudited and include
all adjustments, consisting of only normal recurring accruals, that management
considers necessary to fairly present the results for such periods. These
financial statements should be read in conjunction with the financial statements
and notes contained in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998. Results for interim periods are not necessarily
indicative of results for the full year.
Earnings Per Share - Basic EPS is calculated using income available to
common shareholders divided by the weighted average number of common shares
outstanding during the year. Diluted EPS is similar to basic EPS except that the
weighted average number of common shares outstanding is increased to include the
number of additional common shares that would have been outstanding if the
dilutive potential common shares, such as options, had been issued. The treasury
stock method is used to calculate dilutive shares, which reduces the gross
number of dilutive shares by the number of shares purchasable from the proceeds
of the options assumed to be exercised. In loss years, diluted EPS equals basic
EPS.
Comprehensive Income - Comprehensive income equals net income.
Reclassifications - Certain prior year amounts have been reclassified in
the accompanying financial statements in order to conform with the 1999
presentation.
Inventories are stated at the lower of weighted average cost or market and
include the following:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
--------------- ---------------
(In thousands)
<S> <C> <C>
Finished goods $ 5,354 $ 4,542
Work in process 286 164
Raw materials 2,364 3,263
--------------- ---------------
Total $ 8,004 $ 7,969
=============== ===============
</TABLE>
5
<PAGE>
LAMAUR CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (continued)
(Unaudited)
- --------------------------------------------------------------------------------
3. STOCK OPTION PLANS
In January 1999, the Company issued 1,369,800 shares of its Common Stock to
certain employees and directors. The stock grants were made in conjunction with
the cancellation of outstanding options held by employees and directors. These
shares have vesting schedules ranging from two years to two and one-half years.
The Company recorded compensation expense of approximately $168,000 in
connection with these stock grants. The Company has the right under certain
conditions to repurchase unvested shares at the market price on the date of
grant. 1,129,800 of the shares were issued pursuant to the Company's 1997 Stock
Plan.
6
<PAGE>
LAMAUR CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (continued)
(Unaudited)
- --------------------------------------------------------------------------------
4. DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
The Company's operating segments include the Retail Group, Salon Group, and
the Custom Manufacturing Group. As the Retail and Salon Groups have similar
economic characteristics, they have been aggregated into one reportable segment
called the Retail and Salon Group. The Company evaluates performance based on
contribution before fixed expenses. The accounting policies of the segments are
the same as those of the Company.
The Company does not allocate fixed expenses by segment for internal
reporting or decision making purposes and therefore has not disclosed operating
profit by segment. The majority of the Company's fixed expenses are shared
expenses of both reporting segments and consist principally of administration
and manufacturing overhead. The Company's products are manufactured on common
production lines and therefore the Company does not analyze fixed assets or
capital expenditures by segment.
The Company's reportable segments have separate sales departments, and
although the products are similar, they are sold and marketed differently. The
Retail and Salon Group sells hair care products including shampoos,
conditioners, hair sprays, and other styling aids. These products are
distributed to consumer retail outlets and until July 1998, professional salon
and specialty shops. Products sold by the Retail and Salon Group require
substantial marketing support to maintain their sales. The Custom Manufacturing
Group develops and formulates hair care, personal care, and household products
for third parties. This group is service oriented and no significant marketing
is required to support its sales.
Following is the financial information related to the Company's segments
for the three and six months ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ----------- ------------
(In thousands)
<S> <C> <C> <C> <C>
Net sales
Retail and Salon Group $ 8,291 $ 16,680 $ 16,114 $ 35,985
Custom Manufacturing Group 8,460 2,965 13,684 6,492
------------ ------------ ----------- ------------
Total net sales 16,751 19,645 29,798 42,477
Profit before fixed expenses
Retail and Salon Group 1,433 3,321 3,084 9,514
Custom Manufacturing Group 2,213 862 3,518 1,845
------------ ------------ ----------- ------------
Total profit before fixed expenses 3,646 4,183 6,602 11,359
Fixed expenses 4,198 5,294 8,160 11,094
------------ ------------ ----------- ------------
Operating (loss) income (552) (1,111) (1,558) 265
Interest expense (389) (590) (710) (1,403)
Other income (expense) 71 (9) 118 44
------------ ------------ ----------- ------------
Net loss $ (870) $ (1,710) $ (2,150) $ (1,094)
============ ============ =========== ============
</TABLE>
7
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE SIX MONTHS AND THREE MONTHS ENDED JUNE 30, 1999
COMPARED TO THE SIX MONTHS AND THREE MONTHS ENDED JUNE 30, 1998
Historical Results of Operations
Net sales for the six months ended June 30, 1999 were $29.8 million
compared with $42.5 million for the same period in 1998, a decrease of $12.7
million or 29.9%. Net sales for the three months ended June 30, 1999 were $16.8
million, compared with $19.6 million for the same period in 1998, a decrease of
$2.8 million or 14.3%. The decreases in net sales for the six months and three
months ended June 30, 1999 are due to the decline in sales of the Company's
retail and salon brands. Willow Lake(R), Style(R), Perma Soft(R), Color
Soft(TM), and Style Natural Reflections(TM) (retail brands) and the salon brands
had sales declines of $19.0 million during the six months ended June 30, 1999,
and declines of $8.4 million during the three months ended June 30, 1999 as
compared with the same periods in 1998. Sales of Style(R) and Perma Soft(R) have
continued to decline since management began its turnaround efforts in the first
quarter of 1996. Management believes that sales of these and the Company's other
retail brands are likely to continue to decline. There were no sales of the
professional salon brands for the six months and three months ended June 30,
1999 as a result of the sale of these brands to Zotos on July 31, 1998. The
Company continues to manufacture certain of these professional salon brands for
Zotos which are sold by the Custom Manufacturing Group at a lower markup over
cost.
Partially offsetting the net sales declines incurred by the Company's
retail and salon brands was an increase in net sales for the Custom
Manufacturing Group. Net sales for the Custom Manufacturing Group increased $7.2
million and $5.5 million for the six months and three months ended June 30,
1999, respectively, primarily due to increased production of aerosol products.
Management believes that sales by the Custom Manufacturing Group for the six
months and three months ended June 30, 1999 are not indicative of future sales
in 1999 as the increases in net sales were due mainly to customers building
inventory of their aerosol products in response to new regulations taking effect
on June 1, 1999 in California limiting the amounts of volatile organic compounds
allowed in aerosol products. Aerosol products produced before the June 1, 1999
deadline are permitted to be sold in California despite being produced under the
less restrictive guidelines.
Gross margin as a percentage of net sales was 29.7% for the six months
ended June 30, 1999, as compared with 42.4% for the same period in 1998. Gross
margin as a percentage of net sales was 27.3% for the three months ended June
30, 1999, as compared with 41.8% for the same period in 1998. The decline in the
gross margin as a percentage of net sales for the six months and three months
ended June 30, 1999 is principally due to Custom Manufacturing Group sales,
which are lower-margin sales, representing a greater percentage of net sales in
1999. The Custom Manufacturing Group sales increased percentage is a result of
the sale of the professional salon brands to Zotos, the decrease in the sales of
the Company's retail brands, and the increase in Custom Manufacturing aerosol
sales.
Selling, general and administrative expenses (SG&A) were $10.4 million or
34.9% of net sales for the six months ended June 30, 1999, as compared with
$17.7 million or 41.8% of net sales for the same period in 1998, a decrease of
$7.3 million. SG&A expenses were $5.1 million or 30.6% of net sales for the
three months ended June 30, 1999 as compared with $9.3 million or 47.5% of net
sales for the same period in 1998, a decrease of $4.2 million. The decreases are
principally attributable to reduced marketing expenses of $4.0 million and $2.4
million for the six months and three months ended June 30, 1999, respectively,
and reduced freight and brokerage as a result of the decrease in sales. In
addition, personnel, travel and other expenses declined as a result of the
Company's cost cutting efforts and the sale of the professional salon brands to
Zotos. The Company's strategy in 1999 is to focus its limited resources to
support the Willow Lake(R) brand with advertising and consumer promotion and
also to provide limited promotional support for the other retail brands. There
can be no assurance concerning the future performance of Willow Lake(R) and
other brands or the Company's ability to attain any particular level of sales or
to be profitable in the future with the lower level of marketing support.
8
<PAGE>
Interest expense decreased to $0.7 million for the six months ended June
30, 1999, as compared with $1.4 million in the same period in 1998. Interest
expense decreased to $0.4 million for the three months ended June 30, 1999 as
compared with $0.6 million in the same period in 1998. The decrease in interest
expense is principally attributable to lower borrowings and lower interest rates
under the Company's revolving line of credit and term loans.
As a result of the foregoing factors, the net loss for the six months and
three months ended June 30, 1999 was $2.2 million and $0.9 million,
respectively, compared with $1.1 million and $1.7 million, respectively, for the
same periods in 1998.
Liquidity and Capital Resources
In May 1999, the Company entered into a three-year Loan and Security
Agreement with Congress Financial Corporation ("Congress") for a $20 million
loan facility. This facility consists of a revolving loan of up to $10.3
million and term loans of $3.0 million and $6.7 million each. The $6.7 million
term loan is amortized over five years with monthly principal payments of
$111,667. The revolving loan and the term loans are payable in full in May
2002. The Company incurred a closing fee of $200,000 in conjunction with the
loan agreement, $100,000 of which was paid at the loan closing, and $100,000
which is payable in May 2000. Approximately $13.8 million of the proceeds from
the Congress loans were used to pay off the outstanding revolving line of credit
and term loans with the Company's former lender, Norwest Business Credit
("Norwest").
As of June 30, 1999, the amounts outstanding under the Company's revolving
and two term loan facilities were $4.4 million, $3.0 million, and $6.7 million,
respectively, as compared with $7.4 million under the revolving loan and $3.1
million under the term loan with Norwest as of December 31, 1998. The interest
rates on the loans with Congress are variable and are tied to the prime rate
which at June 30, 1999 was 7.75%. At June 30, 1999, the interest rate on the
revolving loan and the $3.0 million term loan was 8.50% and the interest rate on
the $6.7 million term loan was 8.75%.
The revolving loan and the term loans with Congress are secured by
virtually all of the assets of the Company. Additionally, the loan agreement
restricts the payment of dividends other than on the Company's Series B
Preferred Stock, restricts the Company's ability to incur additional
indebtedness and requires the Company to comply with certain financial loan
covenants. As of June 30, 1999, the Company was in compliance with its financial
loan covenants. No assurance can be given that such compliance will continue.
Total accounts payable exceeding their normal payment terms were
approximately $5.5 million as of June 30, 1999. Because the Company announced
its intent to obtain financing through a new credit facility and/or the sale of
its manufacturing operations and related assets, major trade creditors and other
creditors have extended their "normal" terms to allow the Company additional
time to make payments. The Company is operating its business to preserve
working capital in order to pay the Company's current and extended obligations.
To date the Company has been able to make timely shipments to its customers.
In January 1999, the Company issued 1,369,800 shares of its Common Stock to
certain employees and directors. The stock grants were made in conjunction with
the cancellation of outstanding options held by employees and directors. These
shares have vesting schedules ranging from two years to two and one-half years.
The Company recorded compensation expense of approximately $168,000 in
connection with these stock grants. The Company has the right under certain
conditions to repurchase unvested shares at the market price on the date of
grant. 1,129,800 of the shares were issued pursuant to the Company's 1997 Stock
Plan. Management and the Board of Directors believed it was essential to offer
such a package in order to retain employees and preserve the value of the
enterprise while the Company evaluated and pursued alternatives.
As of June 30, 1999, the Company was $800,000 in arrears on the payment of
dividends on its Series B Preferred Stock. The preferred stock provides for an
annual dividend of $400,000, payable in quarterly installments.
9
<PAGE>
The Company's ability to continue operations is dependent on its ability to
generate sufficient cash flow to meet its obligations as they become due, to
comply with the terms and conditions of the new loan agreement with Congress, to
obtain additional financing or refinancing, to reduce aged payables, to reduce
its cost structure, and attain sales and operating levels to be profitable.
In 1998, the Company implemented its cost reduction program which included
a reduction in its workforce and an overall reduction in operating expenses. The
Company will continue to evaluate sales and operating performance and, if
necessary, initiate further cost reductions.
The Company's strategy in 1999 is to focus its limited resources to support
the Willow Lake(R) brand with advertising and consumer promotion and also to
provide limited promotional support for the other retail brands.
The continuing operation of the Company's business is not likely to lead to
improved financial results in the near term. Therefore, in order to pay
creditors and to provide an opportunity to increase the value of the Company's
stock, the Company must sell additional assets or obtain new business through
alternative channels. Management has been actively pursuing each of these.
While no assurance can be given that it will be successful, management believes
that it has made progress towards these objectives, and is continuing to pursue
all avenues to ensure that it can meet the Company's obligations to creditors.
Year 2000
Many computer systems were not designed to properly handle dates beyond the
year 1999. Additionally, these systems may not properly handle certain dates in
1999. Failure to process dates properly could result in failure or disruption
of the Company's information systems and/or processing equipment. To be Year
2000 compliant, computer systems must correctly process dates before and after
the Year 2000, recognize the Year 2000 as a leap year, accept and display dates
unambiguously and correctly process dates for non-date functions such as
archiving.
Disruptions to the Company's operations may also occur if key suppliers or
customers experience disruptions in their ability to purchase, supply or
transact with the Company due to Year 2000 issues. The Year 2000 readiness of
infrastructure suppliers (utilities, government agencies such as customs, and
shipping organizations) will be critical to the Company's ability to avoid
disruption of its operations.
The Company installed an enterprise-wide software solution in December
1996. At that time, some modules of the system were not Year 2000 compliant. A
newer release of the same software is certified to be compliant by the software
vendor. The Company's current activity surrounds upgrading to this newer
release. It is the Company's intent to test the functionality and make the
necessary Company-specific modifications to the software. This process is
currently underway and should be completed during the third quarter of 1999. The
Company's contingency plan would be to use the certified-compliant software
without Company-specific modifications. The computer operating system is
certified to be Year 2000 compliant by the vendor.
The Company is also reviewing its computer-dependent manufacturing
activities to determine the necessary hardware and software changes. For all
non-mainframe applications such as personal computers, production-related
equipment, etc., an inventory has been taken of the hardware and software
involved. The Company has researched the status of these items and determined a
course of action to assure compliance. This process is currently scheduled to be
completed by the end of the third quarter in 1999. The Company's electronic data
interchange system, which receives orders from its customers, has already been
certified to be Year 2000 compliant by the software vendor.
The Company will perform remediation procedures concurrently with its
assessment planning. The Company intends to use internal and external resources
to implement, replace and test software and related assets affected by the Year
2000 issue. The Company currently believes that the remediation costs of the
Year 2000 issue will not be material to the Company's results of operations or
financial position and will be absorbed by the Company through
10
<PAGE>
normal operating budgets. The Company does not expect any incremental costs
associated with its Year 2000 remediation activities to be significant.
Cumulatively through June 30, 1999, the Company has not incurred a material
amount of remediation expenses.
The Company is working with key suppliers and customers to determine
whether the suppliers' operations and the products and services that they
provide are Year 2000 capable or to monitor their progress toward Year 2000
compliance. The Company has sent questionnaires to its suppliers who furnish
product or services to the Company. The Company may choose to identify those
suppliers it deems critical and pursue other methods of assuring readiness. The
Company is also in the process of surveying customers to determine the status of
their Year 2000 efforts.
While the Company currently expects that the Year 2000 issue will not pose
significant operational problems, delays in adequately addressing Year 2000
issues, or a failure to fully identify all Year 2000 dependencies in the
Company's systems and in the systems of its suppliers, customers and financial
institutions could have material adverse consequences, including delays in the
production, delivery or sale of products. In addition, time and cost estimates
are based on currently available information and are management's best
estimates. However, no assurance can be given that these estimates will be
achieved, and actual results may differ materially from those anticipated.
11
<PAGE>
APPENDIX 2
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma balance sheet presents the financial
position of the Company as of June 30, 1999, assuming that the sale of the
manufacturing facility and the application of the net proceeds therefrom
occurred as of January 1, 1999. The unaudited pro forma statements of operations
for the six months ended June 30, 1998 and for the year ended December 31, 1998
have been prepared assuming that (i) the sale of the manufacturing facility and
the application of the net proceeds therefrom and (ii) the sale of the salon
division (which occurred July 31, 1998) occurred as of January 1, 1998. The
unaudited pro forma statement of operations for the six months ended June 30,
1999 has been prepared assuming the sale of the manufacturing facility and the
application of the net proceeds therefrom occurred as of January 1, 1999. The
unaudited pro forma balance sheet as of June 30, 1999, and the unaudited pro
forma statements of operations for the six months ended June 30, 1999, June 30,
1998 and for the year ended December 31, 1998 are based on the historical
balance sheet and statements of operations for the Company.
The unaudited pro forma financial information gives effect to certain pro
forma adjustments which are described in the notes to these statements.
The unaudited pro forma financial information is presented for
informational purposes only and is not necessarily indicative of the financial
position or results of operations which would have been achieved had the sale of
the manufacturing facility and the application of the proceeds therefrom been
consummated as of the respective date or periods presented, nor is it
necessarily indicative of the Company's future financial position or results of
operations. The unaudited pro forma financial information should be read in
conjunction with the historical financial statements of the Company, including
the notes thereto.
1
<PAGE>
THE LAMAUR CORPORATION
PRO FORMA CONDENSED BALANCE SHEET
JUNE 30, 1999
(In thousands, except share and per share data)
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 691 $ 5,517 $ 6,208
Accounts receivable, net 10,503 (3,785) 6,718
Inventories 8,004 -- 8,004
Prepaid expenses and other current assets 442 -- 442
-------- -------- --------
Total current assets 19,640 1,732 21,372
-------- -------- --------
Property, Plant and Equipment, Net 16,582 (14,347) 2,235
-------- -------- --------
Other Assets 372 -- 372
-------- -------- --------
Total Assets $ 36,594 $(12,615) $ 23,979
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 9,154 $ -- $ 9,154
Accrued expenses 1,973 (50) 1,923
Accrued salaries, wages and employee-related expenses 1,405 (980) 425
Current portion of long-term debt 1,507 (1,483) 24
-------- -------- --------
Total current liabilities 14,039 (2,513) 11,526
Long-Term Debt 13,488 (9,270) 4,218
-------- -------- --------
Stockholders' Equity
Preferred stock, $.01 par value, 4,000,000 shares authorized:
Series A Preferred stock, $.01 par value, 1,000,000 shares issued
and outstanding at June 30, 1999
($10.0 million liquidation preference) 8,500 -- 8,500
Series B Preferred stock, $.01 par value, 763,500 shares issued
and outstanding at June 30, 1999
($5.0 million liquidation preference) 5,000 -- 5,000
Common stock, $.01 par value, 12,000,000 shares authorized,
7,332,571 shares issued and outstanding at June 30, 1999 73 -- 73
Additional paid-in-capital 20,313 -- 20,313
Stock subscriptions receivable (50) -- (50)
Accumulated deficit (24,769) (832) (25,601)
-------- -------- --------
Total Stockholders' Equity 9,067 (832) 8,235
-------- -------- --------
Total Liabilities and Stockholders' Equity $ 36,594 $(12,615) $ 23,979
======== ======== ========
Book value per share (Note 1) $ (0.81) $ (0.92)
======== ========
</TABLE>
- --------------------
Note 1: Book value per share is calculated by dividing total stockholders'
equity net of the liquidation preference of the Series A and Series B
Preferred Stock by the actual number of common shares outstanding at
June 30, 1999.
2
<PAGE>
THE LAMAUR CORPORATION
PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended Twelve Months Ended
June 30, 1999 June 30, 1998 December 31, 1998
---------------------------------- ---------------------------------- -----------------------------------
Pro Forma Pro Forma Pro Forma
Historical Adjustments Pro Forma Historical Adjustments Pro Forma Historical Adjustments Pro Forma
---------- ----------- --------- ---------- ----------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $ 29,798 $(13,684) $ 16,114 $ 42,477 $(13,631) $ 28,846 $ 74,043 $(25,905) $ 48,138
Cost of Goods Sold 20,950 (12,092) 8,858 24,467 (10,002) 14,465 46,062 (21,649) 24,413
-------- -------- -------- -------- -------- -------- -------- -------- --------
Gross Margin 8,848 (1,592) 7,256 18,010 (3,629) 14,381 27,981 (4,256) 23,725
Selling, General and
Administrative Expenses 10,406 (1,259) 9,147 17,745 (3,510) 14,235 31,243 (5,069) 26,174
-------- -------- -------- -------- -------- -------- -------- -------- --------
Operating (Loss) Income (1,558) (333) (1,891) 265 (119) 146 (3,262) 813 (2,449)
(Loss) Gain on Disposal
of Assets (Notes 1 & 2) -- (764) (764) -- 3,809 3,809 5,436 (1,627) 3,809
Interest Expense (710) 223 (487) (1,403) 338 (1,065) (1,951) 0 (1,951)
Other Income (Expense) 118 42 160 44 42 86 (432) 84 (348)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net (Loss) Income (2,150) (832) (2,982) (1,094) 4,070 2,976 (209) (730) (939)
Dividends on Series B
Preferred Stock (200) -- (200) (200) -- (200) (400) -- (400)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net (Loss) Income
Available to Common
Shareholders $ (2,350) $ (832) $ (3,182) $ (1,294) $ 4,070 $ 2,776 $ (609) $ (730) $ (1,339)
======== ======== ======== ======== ======== ======== ======== ======== ========
Basic (Loss) Income per
Common Share $ (0.34) $ (0.45) $ (0.22) $ 0.48 $ (0.10) $ (0.23)
======== ======== ======== ======== ======== ========
Weighted Average Common
Shares Outstanding -
Basic 7,000 7,000 5,814 5,814 5,854 5,854
======== ======== ======== ======== ======== ========
Diluted (Loss) Income per
Common Share $ (0.34) $ (0.45) $ (0.22) $ 0.43 $ (0.10) $ (0.23)
======== ======== ======== ======== ======== ========
Weighted Average Common
Shares Outstanding -
Diluted 7,000 7,000 5,814 6,978 5,854 5,854
======== ======== ======== ======== ======== ========
</TABLE>
- --------------------
Note 1: For the six months ended June 30, 1999, reflects the pro forma loss on
the sale of the manufacturing facility of $0.8 million.
Note 2: For the six and twelve months ended June 30, 1998 and December 31,
1998, reflects actual gain of $5.4 million on the sale of the salon
division which took place on July 31, 1998, and the pro forma loss on
the sale of the manufacturing facility of $1.6 million.
3
<PAGE>
THE LAMAUR CORPORATION
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
A. Basis of Presentation
The unaudited pro forma balance sheet presents the financial position
of the Company as of June 30, 1999, assuming that the sale of the manufacturing
facility for $13.25 million in cash and the assumption of certain capital lease
obligations by the purchaser, and the application of net proceeds therefrom
occurred as of January 1, 1999. The unaudited pro forma balance sheet has been
prepared assuming (i) the $13.25 million purchase price is paid in cash, and
(ii) that the assets sold include only the plant and equipment at the Fridley
facility, and not inventory, work in process or raw materials. Such pro forma
information is based on the historical balance sheet of the Company. The
unaudited pro forma statements of operations for the six months ended June 30,
1998, and for the year ended December 31, 1998, have been prepared assuming that
the sale of the salon division which occurred on July 31, 1998 and the sale of
the manufacturing facility occurred as of January 1, 1998. The unaudited pro
forma statement of operations for the six months ended June 30, 1999 has been
prepared assuming the sale of the manufacturing facility occurred January 1,
1999. The unaudited pro forma statements of operations are based on the
historical statements of operations of the Company. The Company believes that
the assumptions used in preparing the unaudited pro forma financial data provide
a reasonable basis for presenting all of the significant effects of the sale
transaction and the application of the net proceeds therefrom and that the pro
forma adjustments give effect to those assumptions in the unaudited pro forma
financial information.
In addition, the pro forma statements of operations were prepared
assuming that manufacturing for the Retail Division would be performed by the
buyer of the manufacturing facility based upon the term in the manufacturing
agreement with the purchaser.
B. Pro Forma Adjustments
Pro forma adjustments to the statements of operations are made to
reflect the following:
1. The elimination of the Contract Division and the Salon Division
sales and related cost of sales for the entire period presented;
2. The elimination of direct expense associated with these divisions
including marketing, selling expenses, freight and brokerage;
3. The elimination of allocated manufacturing overhead;
4. The elimination of interest expense as a result of paying off the
Company's term loan from the sale proceeds and the assumption of
capital lease obligations by the purchaser; and
5. The net loss from the sale of the manufacturing facility.
4
<PAGE>
Pro forma adjustments to the balance sheet are made to reflect the
following:
1. Increase in cash representing net proceeds from the sale of the
manufacturing facility;
2. Reduction in accounts receivable related to contract manufacturing
division as a result of the sale of the manufacturing facility;
3. Reduction in fixed assets related to the sale of the manufacturing
facility;
4. Reduction in capital lease obligations which were assumed by the
purchaser and the reduction in the term note which was paid down
from the proceeds from the sale of the manufacturing facility; and
5. Reduction in accrued salaries, wages and employee-related expenses
represents the payment of these obligations to terminated
employees as a result of the sale of the manufacturing facility.
5
<PAGE>
THE LAMAUR CORPORATION
Proxy for the 1998 Annual Meeting of Stockholders
To be held on November 22, 1999
Solicited by the Board of Directors
The undersigned hereby appoints Joseph F. Stiley, III and John D. Hellmann
and each of them, with full power of substitution, to represent the undersigned
and to vote all of the shares of stock in The Lamaur Corporation, a Delaware
corporation, which the undersigned is entitled to vote at the Annual Meeting of
Stockholders of Lamaur to be held at Lamaur's offices at 5601 East River Road,
Fridley, Minnesota 55432 on November 22, 1999, at 10:00 a.m. local time, and at
any adjournment or postponement thereof (1) as hereinafter specified upon the
proposals listed on the reverse side and as more particularly described in the
proxy statement of Lamaur dated October 27, 1999, receipt of which is hereby
acknowledged, and (2) in their discretion upon such other matters as may
properly come before the meeting.
THE SHARES REPRESENTED HEREBY SHALL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS MADE, SUCH SHARES SHALL BE VOTED FOR PROPOSALS 1 THROUGH 4.
-------------
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE
-------------
<PAGE>
Please mark
[X] votes as in
this example
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED
TO SIGN AND PROMPTLY MAIL THIS PROXY IN THE RETURN ENVELOPE SO THAT
YOUR STOCK MAY BE REPRESENTED AT THE MEETING.
A vote FOR the following proposals is recommended by the Board of
Directors:
1. To approve and adopt the sale of certain assets relating to Lamaur's
manufacturing operations on terms described in the Proxy Statement.
[ ] 1 FOR [ ] 2 AGAINST [ ] 3 ABSTAIN
2. To approve an amendment to Lamaur's 1997 Stock Plan to increase the
number of shares of common stock reserved for issuance thereunder by 1,000,000
shares.
[ ] 4 FOR [ ] 5 AGAINST [ ] 6 ABSTAIN
3. To elect the following persons as directors to hold office for a one
year term and until their respective successors are elected and qualified:
Harold M. Copperman
Perry D. Hoff
Joseph F. Stiley, III
[ ] FOR all nominees listed [ ] WITHHOLD AUTHORITY to vote
above for all nominees listed above.
[ ] FOR all nominees except
as noted to the contrary above.
4. To consider, approve and ratify the appointment of Deloitte & Touche LLP
as independent public auditors for Lamaur for the year ending December 31, 1999.
[ ] 7 FOR [ ] 8 AGAINST [ ] 9 ABSTAIN
MARK HERE FOR [ ] MARK HERE [ ]
ADDRESS IF YOU
CHANGE AND PLAN TO
NOTE AT LEFT ATTEND
THE
MEETING
Please sign here. If shares of
stock are held jointly, both or all Signature:______________ Date:_________
of such persons should sign.
Corporate or partnership proxies Signature:______________ Date:_________
should be signed in full corporate
or partnership name by an
authorized person. Persons signing
in a fiduciary capacity should
indicate their full titles in such
capacity.
